UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended June 30, 2023

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

For the transition period from _______ to ______

Commission File Number 001-41322

BLUEROCK HOMES TRUST, INC.

(Exact name of registrant as specified in its charter)


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

1345 Avenue of the Americas, 32nd Floor, New York, NY		10105
(Address of principal executive offices)		(Zip Code)

(212) 843-1601

(Registrant’s telephone number, including area code)

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

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

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

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

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



Large Accelerated Filer	☐	Accelerated Filer	☐	Non-Accelerated Filer	☒
Smaller reporting company	☐	Emerging growth company	☒

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

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

Number of shares outstanding of the registrant’s

classes of common stock, as of August 7, 2023:

Class A Common Stock: 3,868,697 shares

Class C Common Stock: 8,489 shares

Table of Contents

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

BLUEROCK HOMES TRUST, INC.

COMBINED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share amounts)


	(Unaudited)
	June 30,		December 31,
	2023		2022
ASSETS
Net Real Estate Investments
Land	$	69,511	$	69,369
Buildings and improvements		415,781		412,463
Furniture, fixtures and equipment		11,021		8,159
Total Gross Real Estate Investments		496,313		489,991
Accumulated depreciation		(25,789)		(17,865)
Total Net Real Estate Investments		470,524		472,126
Cash and cash equivalents		79,872		78,426
Restricted cash		6,243		4,136
Accounts receivable, prepaids and other assets, net		23,045		17,916
Preferred equity investments in unconsolidated real estate joint ventures, net		86,168		86,289
TOTAL ASSETS	$	665,852	$	658,893

LIABILITIES AND EQUITY
Mortgages payable	$	97,452	$	98,191
Revolving credit facilities		70,000		55,000
Accounts payable		790		1,751
Other accrued liabilities		8,954		9,752
Due to affiliates		2,420		2,211
Total Liabilities		179,616		166,905
Equity
Stockholders’ Equity
Preferred stock, $0.01 par value, 250,000,000 shares authorized; no shares issued and outstanding as of June 30, 2023 and December 31, 2022		—		—
Common stock - Class A, $0.01 par value, 562,500,000 shares authorized; 3,868,697 and 3,835,013 shares issued and outstanding as of June 30, 2023 and December 31, 2022, respectively		39		38
Common stock - Class C, $0.01 par value, 187,500,000 shares authorized; 8,489 shares issued and outstanding as of June 30, 2023 and December 31, 2022		—		—
Additional paid-in-capital		125,666		126,623
Retained earnings		31,450		33,325
Total Stockholders’ Equity		157,155		159,986
Noncontrolling Interests
Operating partnership units		312,358		307,825
Partially owned properties		16,723		24,177
Total Noncontrolling Interests		329,081		332,002
Total Equity		486,236		491,988
TOTAL LIABILITIES AND EQUITY	$	665,852	$	658,893

See Notes to Combined Consolidated Financial Statements

Table of Contents

BLUEROCK HOMES TRUST, INC.

COMBINED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

(In thousands, except share and per share amounts)


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2023 ⁽¹⁾		2022 ⁽¹⁾		2023 ⁽¹⁾		2022 ⁽¹⁾
Revenues
Rental and other property revenues	$	10,270	$	7,676	$	20,408	$	14,528
Interest income from loan investments		—		331		—		1,216
Total revenues		10,270		8,007		20,408		15,744

Expenses
Property operating		4,582		3,774		9,139		6,554
Property management and asset management fees		1,104		850		2,195		1,493
General and administrative		1,795		1,563		3,789		3,189
Management fees to related party		1,960		—		3,882		—
Acquisition and other transaction costs		325		70		1,780		70
Weather-related losses, net		(17)		—		(17)		—
Depreciation and amortization		4,034		4,046		7,992		8,528
Total expenses		13,783		10,303		28,760		19,834
Operating loss		(3,513)		(2,296)		(8,352)		(4,090)

Other income (expense)
Other income		—		99		44		100
Preferred returns on unconsolidated real estate joint ventures		2,894		1,915		5,690		3,188
(Provision for) recovery of credit losses, net		(20)		11		(26)		373
Gain on sale of real estate investments		661		—		661		—
Interest expense, net		(1,201)		(1,902)		(4,474)		(2,960)
Total other income		2,334		123		1,895		701
Net loss		(1,179)		(2,173)		(6,457)		(3,389)
Net loss attributable to noncontrolling interests
Operating partnership units		(653)		(231)		(3,638)		(533)
Partially owned properties		(191)		(1,822)		(944)		(2,579)
Net loss attributable to noncontrolling interests		(844)		(2,053)		(4,582)		(3,112)
Net loss attributable to common stockholders	$	(335)	$	(120)	$	(1,875)	$	(277)

Net loss per common share – Basic ⁽²⁾	$	(0.09)	$	(0.03)	$	(0.49)	$	(0.07)
Net loss per common share – Diluted ⁽²⁾	$	(0.09)	$	(0.03)	$	(0.49)	$	(0.07)

Weighted average basic common shares outstanding ⁽²⁾		3,844,008		3,843,502		3,843,756		3,843,502
Weighted average diluted common shares outstanding ⁽²⁾		3,844,008		3,843,502		3,843,756		3,843,502

⁽¹⁾ The consolidated financial statements for the three and six months ended June 30, 2023 represent the Company’s results of operations as an independent, publicly traded company. The combined consolidated financial statements for the three and six months ended June 30, 2022 present the Company’s results of operations prior to the spin-off transaction on October 6, 2022, which represents a carve-out of operations attributable to the Company related to Bluerock Residential’s single-family residential home business. As a result, results of operations for the three and six months ended June 30, 2023 may not be comparable to the Company’s results of operations for the prior periods presented.

⁽²⁾Basic and diluted net loss per common share for the three and six months ended June 30, 2022 were calculated using the number of common stock shares distributed on October 6, 2022 in connection with the spin-off transaction.

See Notes to Combined Consolidated Financial Statements

Table of Contents

BLUEROCK HOMES TRUST, INC.

FOR THE THREE MONTHS ENDED JUNE 30, 2023

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (Unaudited)

(In thousands, except share and per share amounts)


	Class A			Class C
	Common Stock			Common Stock			Additional
	Number			Number			Paid-in		Retained		Noncontrolling
	of Shares	Par Value		of Shares	Par Value		Capital		Earnings		Interests		Total Equity
Balance, April 1, 2023	3,835,013	$	38	8,489	$	—	$	126,482	$	31,785	$	326,396	$	484,701

Issuance of LTIP Units for equity incentive plan compensation	—		—	—		—		—		—		989		989
Issuance of C-LTIP Units to Manager	—		—	—		—		—		—		1,806		1,806
Issuance of restricted Class A common stock to Manager	31,260		1	—		—		15		—		—		16
Distributions to partially owned properties noncontrolling interests	—		—	—		—		—		—		(97)		(97)
Conversion of Operating Partnership Units to Class A common stock	2,424		—	—		—		100		—		(100)		—
Adjustment for noncontrolling interest ownership in the Operating Partnership	—		—	—		—		(931)		—		931		—
Net loss	—		—	—		—		—		(335)		(844)		(1,179)
Balance, June 30, 2023	3,868,697	$	39	8,489	$	—	$	125,666	$	31,450	$	329,081	$	486,236

See Notes to Combined Consolidated Financial Statements

Table of Contents

BLUEROCK HOMES TRUST, INC.

FOR THE THREE MONTHS ENDED JUNE 30, 2022

COMBINED STATEMENT OF STOCKHOLDERS’ EQUITY (Unaudited)

(In thousands)


	Predecessor
	Bluerock		Retained		Noncontrolling
	Homes Equity		Earnings		Interests		Total Equity
Balance, April 1, 2022	$	147,204	$	34,168	$	370,326	$	551,698

Contributions, net		3,298		—		9,355		12,653
Distributions to partially owned properties noncontrolling interests		—		—		(1,048)		(1,048)
Net loss		—		(120)		(2,053)		(2,173)
Balance, June 30, 2022	$	150,502	$	34,048	$	376,580	$	561,130

See Notes to Combined Consolidated Financial Statements

Table of Contents

BLUEROCK HOMES TRUST, INC.

FOR THE SIX MONTHS ENDED JUNE 30, 2023

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (Unaudited)

(In thousands, except share and per share amounts)


	Class A Common Stock			Class C Common Stock			Additional
	Number			Number			Paid-in		Retained		Noncontrolling
	of Shares	Par Value		of Shares	Par Value		Capital		Earnings		Interests		Total Equity
Balance, January 1, 2023	3,835,013	$	38	8,489	$	—	$	126,623	$	33,325	$	332,002	$	491,988

Issuance of LTIP Units for equity incentive plan compensation	—		—	—		—		—		—		1,268		1,268
Issuance of C-LTIP Units to Manager	—		—	—		—		—		—		4,416		4,416
Issuance of restricted Class A common stock to Manager	31,260		1	—		—		15		—		—		16
Acquisition of noncontrolling interests	—		—	—		—		1,515		—		(6,564)		(5,049)
Distributions to partially owned properties noncontrolling interests	—		—	—		—		—		—		(196)		(196)
Conversion of Operating Partnership Units to Class A common stock	2,424		—	—		—		100		—		(100)		—
Contributions from noncontrolling interests	—		—	—		—		—		—		250		250
Adjustment for noncontrolling interest ownership in the Operating Partnership	—		—	—		—		(2,587)		—		2,587		—
Net loss	—		—	—		—		—		(1,875)		(4,582)		(6,457)
Balance, June 30, 2023	3,868,697	$	39	8,489	$	—	$	125,666	$	31,450	$	329,081	$	486,236

See Notes to Combined Consolidated Financial Statements

Table of Contents

BLUEROCK HOMES TRUST, INC.

FOR THE SIX MONTHS ENDED JUNE 30, 2022

COMBINED STATEMENT OF STOCKHOLDERS’ EQUITY (Unaudited)

(In thousands)


	Predecessor
	Bluerock		Retained		Noncontrolling
	Homes Equity		Earnings		Interests		Total Equity
Balance, January 1, 2022	$	116,510	$	34,325	$	311,136	$	461,971

Contributions, net		33,992		—		69,662		103,654
Distributions to partially owned properties noncontrolling interests		—		—		(1,106)		(1,106)
Net loss		—		(277)		(3,112)		(3,389)
Balance, June 30, 2022	$	150,502	$	34,048	$	376,580	$	561,130

See Notes to Combined Consolidated Financial Statements

Table of Contents

BLUEROCK HOMES TRUST, INC.

COMBINED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(In thousands)


	Six Months Ended
	June 30,
	2023		2022
Cash flows from operating activities
Net loss	$	(6,457)	$	(3,389)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization		9,267		9,467
Amortization of fair value adjustments		(160)		(160)
Preferred returns on unconsolidated real estate joint ventures		(5,690)		(3,188)
Gain on sale of real estate investments		(661)		—
Fair value adjustment of interest rate caps and swaps		638		(167)
Provision for (recovery of) credit losses, net		26		(373)
Distributions of income and preferred returns from preferred equity investments in unconsolidated real estate joint ventures		969		1,231
Share-based compensation attributable to equity incentive plans		1,283		—
Share-based compensation to Manager – C-LTIP Units		4,416		—
Changes in operating assets and liabilities:
Due to affiliates, net		209		517
Accounts receivable, prepaids and other assets		(1,063)		(2,088)
Notes and accrued interest receivable		—		2,847
Accounts payable and other accrued liabilities		(671)		(839)
Net cash provided by operating activities		2,106		3,858

Cash flows from investing activities:
Acquisitions of real estate investments		(4,330)		(107,929)
Capital expenditures		(5,188)		(7,142)
Investment in notes receivable		—		(9,645)
Repayments on notes receivable		—		36,200
Proceeds from sale of real estate investments		2,703		—
Proceeds from redemption of unconsolidated real estate joint ventures		6,794		—
Investment in unconsolidated real estate joint venture interests		(6,700)		(32,553)
Net cash used in investing activities		(6,721)		(121,069)

Cash flows from financing activities:
Distributions to partially owned properties noncontrolling interests		(196)		(1,106)
Contributions from Bluerock Residential		—		33,992
Contributions from noncontrolling interests		250		69,662
Purchase of interests from noncontrolling interests		(5,049)		—
Borrowings on mortgages payable		—		37,341
Repayments on mortgages payable		(745)		(703)
Proceeds from revolving credit facilities		21,000		49,407
Repayments on revolving credit facilities		(6,000)		—
Payments of deferred financing fees		(1,092)		(3,495)
Net cash provided by financing activities		8,168		185,098

Net increase in cash, cash equivalents and restricted cash	$	3,553	$	67,887
Cash, cash equivalents and restricted cash, beginning of year		82,562		136,929
Cash, cash equivalents and restricted cash, end of period	$	86,115	$	204,816

Reconciliation of cash, cash equivalents and restricted cash
Cash and cash equivalents	$	79,872	$	198,807
Restricted cash		6,243		6,009
Total cash, cash equivalents and restricted cash, end of period	$	86,115	$	204,816

Supplemental disclosure of cash flow information
Cash paid for interest (net of interest capitalized)	$	3,315	$	2,059

Supplemental disclosure of non-cash investing and financing activities
Distributions payable – declared and unpaid	$	—	$	2,904
Capital expenditures held in accounts payable and other accrued liabilities	$	498	$	669

See Notes to Combined Consolidated Financial Statements

Table of Contents

BLUEROCK HOMES TRUST, INC.

NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS

Note 1 – Organization and Nature of Business

Bluerock Homes Trust, Inc. (the “Company” or “Bluerock Homes”) was formed in Maryland as a wholly owned subsidiary of Bluerock Residential Growth REIT, Inc (“Bluerock Residential”) on December 16, 2021, and historically operated as part of Bluerock Residential and not as a standalone company. On October 6, 2022, Bluerock Residential completed a spin-off transaction that resulted in its single-family residential real estate business and certain other assets being contributed to Bluerock Homes, and Bluerock Homes becoming an independent, publicly traded company. Financial statements for the period ended and prior to October 6, 2022 have been derived from Bluerock Residential's historical accounting records and are presented on a carve-out basis. All revenues and costs as well as assets and liabilities directly associated with the business activity of the Company are included in the financial statements. The financial statements for the period ended and prior to October 6, 2022 also include general and administrative expenses that have been allocated to the Company from Bluerock Residential based on relative unit count. These allocated expenses are for corporate office expenses and management including, but not limited to, executive oversight, asset management, treasury, finance, human resources, tax, accounting, financial reporting, information technology and investor relations. However, amounts recognized by the Company are not representative of the amounts that would have been reflected in these financial statements had the Company operated independently of Bluerock Residential. Any references to “the Company” for all periods ended October 6, 2022 and prior refer to Bluerock Homes as owned by Bluerock Residential.

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

As of June 30, 2023, the Company held an aggregate of 4,077 residential units held through seventeen real estate investments, consisting of ten consolidated operating investments and seven investments held through preferred equity investments. As of June 30, 2023, the Company’s consolidated operating investments were approximately 94.4% occupied.

The Company intends to elect to be taxed and to operate in a manner that will allow it to qualify as a real estate investment trust (“REIT”) for federal income tax purposes beginning with its taxable year ending December 31, 2022 upon the filing of its U.S. federal income tax return for such taxable year. As a REIT, the Company generally will not be subject to corporate-level income taxes. To qualify and maintain its REIT status, the Company will be required, among other requirements, to distribute annually at least 90% of its “REIT taxable income,” as defined by the Internal Revenue Code of 1986, as amended (the “Code”), to the Company’s stockholders. If the Company fails to qualify and maintain its qualification as a REIT in any taxable year, it would be subject to federal income tax on its taxable income at regular corporate tax rates and it would not be permitted to qualify as a REIT for four years following the year in which its qualification was denied. The Company intends to organize and operate in such a manner that it would qualify and remain qualified as a REIT.

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

Basis of Presentation and Principles of Consolidation

The Company conducts its operations through Bluerock Residential Holdings, L.P., its operating partnership (the “Operating Partnership”), of which it is the sole general partner. The combined consolidated financial statements include the Company’s accounts and those of the Operating Partnership and its subsidiaries. As of June 30, 2023, limited partners other than the Company owned approximately 67.87% of the common units of the Operating Partnership (61.05% is held by holders of limited partnership interest in the Operating Partnership (“OP Units”) and 6.82% is held by holders of the Operating Partnership’s long-term incentive plan units (“LTIP Units”), including 4.54% which are not vested as of June 30, 2023).

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The combined consolidated financial statements include certain prior period reclassifications made by the Company to reflect the Operating Partnership unitholders’ approximately 66% ownership in the Company following the spin-off transaction. Reclassifications to net loss on the combined consolidated statements of operations, along with reclassifications to stockholders’ equity and noncontrolling interest for Operating Partnership unitholders on the combined consolidated balances sheets and statements of stockholders’ equity, were made for the period ending and prior to October 6, 2022.

Real Estate Investments and Preferred Equity Investments

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

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

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

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

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

For investments that do not meet the criteria of a security under ASC 320 Investments – Debt Securities, the Company has concluded that the characteristics and the facts and circumstances indicate that loan accounting treatment is appropriate. The Company recognizes interest income on its notes receivable on the accrual method unless a significant uncertainty of collection exists. If a significant uncertainty exists, interest income is recognized as collected. Costs incurred to originate its notes receivable are deferred and amortized using the effective interest method over the term of the related notes receivable. The Company evaluates the collectability of each loan investment and estimates a provision for credit loss, as applicable. Refer to the CECL section of this Note for further information regarding CECL and the Company’s provision for credit losses. The Company did not have any loan investments at June 30, 2023.

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The Company estimates its provision for credit losses using a collective (pool) approach for investments with similar risk characteristics, such as collateral and duration of investment. In measuring the CECL provision for investments that share similar characteristics, the Company applies a default rate to the investments for the remaining loan or preferred equity investment hold period. As the Company does not have a significant historical population of loss data on its loan and preferred equity investments, the Company’s default rate utilized for CECL is based on an external historical loss rate for commercial real estate loans.

In addition to analyzing investments as a pool, the Company performs an individual investment assessment of expected credit losses. If it is determined that the borrower is experiencing financial difficulty, or a foreclosure is probable, or the Company expects repayment through the sale of the collateral, the Company calculates expected credit losses based on the value of the underlying collateral as of the reporting date. During this review process, if the Company determines that it is probable that it will not be able to collect all amounts due for both principal and interest according to the contractual terms of an investment, that loan or preferred equity investment is not considered fully recoverable and a provision for credit loss is recorded.

In estimating the value of the underlying collateral when determining if a loan or preferred equity investment is fully recoverable, the Company evaluates estimated future cash flows to be generated from the collateral underlying the investment. The inputs and assumptions utilized to estimate the future cash flows of the underlying collateral are based upon the Company’s evaluation of the operating results, economy, market trends, and other factors, including judgments regarding costs to complete any construction activities, lease-up and occupancy rates, rental rates, and capitalization rates utilized to estimate the projected cash flows at the disposition. The Company may also obtain a third-party valuation which may value the collateral through an “as-is” or “stabilized value” methodology. If upon completion of the valuation the fair value of the underlying collateral securing the investment is less than the net carrying value, the Company records a provision for credit loss on that loan or preferred equity investment. As the investment no longer displays the characteristics that are similar to those of the pool of loans or preferred equity investments, the investment is removed from the CECL collective (pool) analysis described above.

Note 3 – Sale of Real Estate Assets

During the second quarter 2023, the Company closed on the following sales: one unit in the Golden Pacific portfolio, six units in the Peak JV 2 portfolio, and two units in the Peak JV 3 portfolio, pursuant to the terms and conditions of multiple separate purchase and sales agreements. The nine units were sold for an aggregate of approximately $2.8 million, subject to certain prorations and adjustments typical in such real estate transactions. After deduction for payments of closing costs and fees of $0.1 million, the sales of the nine units generated net proceeds of approximately $2.7 million and a gain on sales of approximately $0.7 million.

Note 4 - Investments in Real Estate

As of June 30, 2023, the Company held seventeen real estate investments, consisting of ten consolidated operating investments and seven investments held through preferred equity investments. The following tables provide summary information regarding the Company’s consolidated operating investments and preferred equity investments.

Consolidated Operating Investments


		Number of	Average Year	Ownership
Name	Market	Units	Built	Interest
Ballast	AZ / CO / WA	84	1998	95	%
Golden Pacific	IN / KS / MO	170	1977	97	%
ILE	TX / SE US	482	1991	95	%
Indy-Springfield, formerly Peak JV 1	IN / MO	334	1999	100	%
Navigator Villas	Pasco, WA	176	2013	90	%
Peak JV 2	Various / TX	602	1980	80	%
Peak JV 3	Dallas-Fort Worth, TX	187	1961	56	%
Savannah-84, formerly Peak JV 4	Savannah, GA	84	2022	100	%
Wayford at Concord	Concord, NC	150	2019	83	%
Yauger Park Villas	Olympia, WA	80	2010	95	%
Total Units		2,349

Table of Contents

Depreciation expense was $4.0 million and $3.0 million, and $8.0 million and $5.5 million, for the three and six months ended June 30, 2023 and 2022, respectively.

Intangibles related to the Company’s consolidated investments in real estate consist of the value of in-place leases. Amortization expense related to the in-place leases was zero and $1.0 million, and zero and $2.6 million, for the three and six months ended June 30, 2023 and 2022, respectively.

Preferred Equity Investments


		Actual /	Actual /	Actual /
		Planned	Estimated	Estimated
		Number of	Initial	Construction
Lease-up Investment Name	Location / Market	Units	Occupancy	Completion
The Cottages at Warner Robins	Warner Robins, GA	251	1Q 2023	2Q 2023
The Woods at Forest Hill	Forest Hill, TX	76	4Q 2022	3Q 2023
Willow Park	Willow Park, TX	46	2Q 2022	3Q 2023
The Cottages at Myrtle Beach	Myrtle Beach, SC	294	2Q 2023	4Q 2023
The Cottages of Port St. Lucie	Port St. Lucie, FL	286	2Q 2023	1Q 2024
Total Lease-up Units		953

Development Investment Name
Wayford at Innovation Park	Charlotte, NC	210	3Q 2023	3Q 2024
Total Development Units		210

Operating Investment Name		Number of Units
Peak Housing ⁽¹⁾	IN / MO / TX	565
Total Operating Units		565
Total Units		1,728

(1)

Peak Housing is a stabilized operating portfolio and the number of units shown represents those collateralizing the Company’s preferred equity investment in the Peak REIT OP as of June 30, 2023 (refer to Note 7 for further information). Unit counts excludes units presented in the consolidated operating investments table above.

Note 5 – Acquisition of Real Estate and Additional Interests

Acquisition of Additional Savannah-84 units, formerly Peak JV 4

On February 23, 2023, the Company acquired 18 single-family residential units located in Savannah, Georgia that were added to the existing Savannah-84 portfolio. The Company has a 100% interest in the units and the purchase price of approximately $4.2 million was fully funded in cash upon acquisition.

Purchase Price Allocation

The real estate acquisition above has been accounted for as an asset acquisition. The purchase price was allocated to the acquired assets based on their estimated fair values at the date of acquisition.

PART I – FINANCIAL INFORMATION

Item 1.	Financial Statements

	Combined Consolidated Balance Sheets as of June 30, 2023 (Unaudited) and December 31, 2022 (Audited)	3

	Combined Consolidated Statements of Operations (Unaudited) for the Three and Six Months Ended June 30, 2023 and 2022	4

	Combined Consolidated Statements of Stockholders’ Equity (Unaudited) for the Three and Six Months Ended June 30, 2023 and 2022	7

	Combined Consolidated Statements of Cash Flows (Unaudited) for the Six Months Ended June 30, 2023 and 2022	9

	Notes to Combined Consolidated Financial Statements	10

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	27

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	41

Item 4.	Controls and Procedures	41

PART II – OTHER INFORMATION

Item 1.	Legal Proceedings	42

Item 1A.	Risk Factors	42

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	42

Item 3.	Defaults Upon Senior Securities	42

Item 4.	Mine Safety Disclosures	42

Item 5.	Other Information	42

Item 6.	Exhibits	42

SIGNATURES		44