Company Quick10K Filing
Quick10K
Bluerock Residential Growth REIT
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$10.94 23 $251
10-Q 2019-06-30 Quarter: 2019-06-30
10-Q 2019-03-31 Quarter: 2019-03-31
10-K 2018-12-31 Annual: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
10-Q 2015-09-30 Quarter: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-K 2014-12-31 Annual: 2014-12-31
10-Q 2014-09-30 Quarter: 2014-09-30
10-Q 2014-06-30 Quarter: 2014-06-30
10-Q 2014-03-31 Quarter: 2014-03-31
10-K 2013-12-31 Annual: 2013-12-31
8-K 2019-08-06 Earnings, Regulation FD, Exhibits
8-K 2019-07-15 M&A, Exhibits
8-K 2019-06-17 Enter Agreement, Officers, Exhibits
8-K 2019-06-03 Regulation FD, Exhibits
8-K 2019-05-09 Sale of Shares
8-K 2019-05-07 Earnings, Regulation FD, Exhibits
8-K 2019-04-01 Officers, Exhibits
8-K 2019-03-11 Officers
8-K 2019-03-11 Accountant, Exhibits
8-K 2019-02-26 Regulation FD, Exhibits
8-K 2019-02-20 Sale of Shares
8-K 2019-02-14 Earnings, Regulation FD, Exhibits
8-K 2019-01-01 Sale of Shares
8-K 2018-12-21 Other Events, Exhibits
8-K 2018-11-16 Enter Agreement, Shareholder Rights, Amend Bylaw, Exhibits
8-K 2018-11-15 Other Events, Exhibits
8-K 2018-11-09 Sale of Shares
8-K 2018-11-05 Earnings, Regulation FD, Exhibits
8-K 2018-10-10 Other Events
8-K 2018-10-04 Sale of Shares
8-K 2018-09-28 Officers, Shareholder Vote, Exhibits
8-K 2018-08-09 Sale of Shares
8-K 2018-08-07 Earnings, Regulation FD, Exhibits
8-K 2018-07-10 Officers, Regulation FD, Exhibits
8-K 2018-06-04 Regulation FD, Exhibits
8-K 2018-05-21 Regulation FD, Exhibits
8-K 2018-05-11 Amend Bylaw, Exhibits
8-K 2018-05-08 Earnings, Regulation FD, Exhibits
8-K 2018-04-30 Enter Agreement, Off-BS Arrangement, Exhibits
8-K 2018-03-19 Other Events
8-K 2018-03-14 Officers
8-K 2018-02-20 Sale of Shares
8-K 2018-02-14 Earnings, Regulation FD, Exhibits
8-K 2018-02-13 Other Events, Exhibits
8-K 2017-12-29 Enter Agreement, Other Events, Exhibits
FMS Fresenius Medical Care 25,140
LEN Lennar 16,730
HDS HD Supply Holdings 7,500
PNFP Pinnacle Financial Partners 4,440
JHG Janus Henderson Group 4,390
WCC WESCO 2,430
LCNB LCNB 225
ECYT Endocyte 0
AHNR Athena Silver 0
VABK Virginia National Bankshares 0
BRG 2019-06-30
Part I - Financial Information
Item 1. Financial Statements
Note 1 - Organization and Nature of Business
Note 2 - Basis of Presentation and Summary of Significant Accounting Policies
Note 3 - Sale of Real Estate Asset and Held for Sale Properties
Note 4 - Investments in Real Estate
Note 5 - Acquisition of Real Estate
Note 6 - Notes and Interest Receivable Due From Related Parties
Note 7 - Preferred Equity Investments and Investments in Unconsolidated Real Estate Joint Ventures
Note 8 &Mdash; Revolving Credit Facilities
Note 9 - Mortgages Payable
Note 10 - Fair Value of Financial Instruments
Note 11 - Derivative Financial Instruments
Note 12 - Related Party Transactions
Note 13 - Stockholders' Equity and Redeemable Preferred Stock
Note 14 - Commitments and Contingencies
Note 15 - Subsequent Events
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II - Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information
Item 6. Exhibits
EX-10.9 tv526141_ex10-9.htm
EX-14.1 tv526141_ex14-1.htm
EX-31.1 tv526141_ex31-1.htm
EX-31.2 tv526141_ex31-2.htm
EX-32.1 tv526141_ex32-1.htm

Bluerock Residential Growth REIT Earnings 2019-06-30

BRG 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 tv526141_10q.htm FORM 10-Q

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

 

FORM 10-Q

(Mark One)

 

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

 

For the quarterly period ended June 30, 2019

 

OR

 

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

 

For the transition period from _______ to ______

 

Commission File Number 001-36369

 

BLUEROCK RESIDENTIAL GROWTH REIT, INC.

(Exact name of registrant as specified in its charter)

 

Maryland   26-3136483
(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)

 

712 Fifth Avenue, 9th Floor, New York, NY 10019

(Former name, former address and former fiscal year, if changed since last report)

 

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

 

Title of each class Trading Symbol Name of each exchange on which registered
Class A Common Stock, $0.01 par value per share BRG NYSE American
8.250% Series A Cumulative Redeemable Preferred Stock, $0.01 par value per share BRG-PrA NYSE American
7.625% Series C Cumulative Redeemable Preferred Stock, $0.01 par value per share BRG-PrC NYSE American
7.125% Series D Cumulative Preferred Stock, $0.01 par value per share BRG-PrD NYSE American

 

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

 

Title of each class
Series B Redeemable Preferred Stock, $0.01 par value per share
Warrants to Purchase Shares of Class A Common Stock, $0.01 par value per share

 

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 x   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 x     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 x Non-Accelerated Filer ¨
Smaller reporting company x 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 x

 

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

 

Number of shares outstanding of the registrant’s

classes of common stock, as of August 1, 2019:

Class A Common Stock: 22,317,190 shares

Class C Common Stock: 76,603 shares

 

 

 

 

 

 

BLUEROCK RESIDENTIAL GROWTH REIT, INC.

FORM 10-Q

June 30, 2019

 

PART I – FINANCIAL INFORMATION  
     
Item 1. Financial Statements (Unaudited)  
     
  Consolidated Balance Sheets as of June 30, 2019 and December 31, 2018 3
     
  Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2019 and 2018 4
     
  Consolidated Statement of Stockholders’ Equity for the Three and Six Months Ended June 30, 2019 and 2018 5
     
  Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2019 and 2018 9
     
  Notes to Consolidated Financial Statements 10
     
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 33
     
Item 3. Quantitative and Qualitative Disclosures about Market Risk 47
     
Item 4. Controls and Procedures 48
     
PART II – OTHER INFORMATION  
     
Item 1. Legal Proceedings 49
     
Item 1A. Risk Factors 49
     
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 49
     
Item 3. Defaults Upon Senior Securities 49
     
Item 4. Mine Safety Disclosures 49
     
Item 5. Other Information 49
     
Item 6. Exhibits 50
     
SIGNATURES 52

 

  2 

 

  

PART I – FINANCIAL INFORMATION

Item 1.  Financial Statements

BLUEROCK RESIDENTIAL GROWTH REIT, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share amounts)

 

     (Unaudited)
June 30,
2019
   December 31,
2018
 
ASSETS          
Net Real Estate Investments          
Land  $191,192   $200,385 
Buildings and improvements   1,480,761    1,546,244 
Furniture, fixtures and equipment   54,148    55,050 
Construction in progress   155    989 
Total Gross Real Estate Investments   1,726,256    1,802,668 
Accumulated depreciation   (117,115)   (108,911)
Total Net Operating Real Estate Investments   1,609,141    1,693,757 
Operating real estate held for sale, net   172,555     
Total Net Real Estate Investments   1,781,696    1,693,757 
Cash and cash equivalents   28,534    24,775 
Restricted cash   26,615    27,469 
Notes and accrued interest receivable from related parties   175,768    164,084 
Due from affiliates   3,542    2,854 
Accounts receivable, prepaids and other assets   16,582    14,395 
Preferred equity investments and investments in unconsolidated real estate joint ventures   100,704    89,033 
In-place lease intangible assets, net   1,786    1,768 
Non-real estate assets associated with operating real estate held for sale   481     
Total Assets  $2,135,708   $2,018,135 
           
LIABILITIES, REDEEMABLE PREFERRED STOCK AND EQUITY          
Mortgages payable  $1,142,635   $1,206,136 
Mortgages payable associated with operating real estate held for sale   137,394     
Revolving credit facilities   101,300    82,209 
Accounts payable   949    1,486 
Other accrued liabilities   27,446    31,690 
Due to affiliates   773    726 
Distributions payable   12,527    12,073 
Liabilities associated with operating real estate held for sale   3,024     
Total Liabilities   1,426,048    1,334,320 
8.250% Series A Cumulative Redeemable Preferred Stock, liquidation preference $25.00 per share, 10,875,000 shares authorized; 5,721,460 shares issued and outstanding as of June 30, 2019 and December 31, 2018   139,912    139,545 
6.000% Series B Redeemable Preferred Stock, liquidation preference $1,000 per share, 1,225,000 shares authorized; 399,502 and 306,009 shares issued and outstanding as of June 30, 2019 and December 31, 2018, respectively   357,346    272,842 
7.625% Series C Cumulative Redeemable Preferred Stock, liquidation preference $25.00 per share, 4,000,000 shares authorized; 2,323,750 shares issued and outstanding as of June 30, 2019 and December 31, 2018   56,626    56,485 
Equity          
Stockholders’ Equity          
Preferred stock, $0.01 par value, 229,900,000 shares authorized; no shares issued and outstanding        
7.125% Series D Cumulative Preferred Stock, liquidation preference $25.00 per share, 4,000,000 shares authorized; 2,850,602 shares issued and outstanding as of June 30, 2019 and December 31, 2018   68,705    68,705 
Common stock - Class A, $0.01 par value, 747,509,582 shares authorized; 22,294,327 and 23,322,211 shares issued and outstanding as of June 30, 2019 and December 31, 2018, respectively   223    233 
Common stock - Class C, $0.01 par value, 76,603 shares authorized; 76,603 shares issued and outstanding as of June 30, 2019 and December 31, 2018   1    1 
Additional paid-in-capital   295,444    307,938 
Distributions in excess of cumulative earnings   (248,988)   (218,531)
Total Stockholders’ Equity   115,385    158,346 
Noncontrolling Interests          
Operating Partnership units   15,405    27,613 
    Partially owned properties   24,986    28,984 
Total Noncontrolling Interests   40,391    56,597 
Total Equity   155,776    214,943 
TOTAL LIABILITIES, REDEEMABLE PREFERRED STOCK AND EQUITY  $2,135,708   $2,018,135 

 

See Notes to Consolidated Financial Statements

 

  3 

 

  

BLUEROCK RESIDENTIAL GROWTH REIT, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

(In thousands, except share and per share amounts)

  

   Three Months Ended   Six Months Ended 
   June 30,   June 30, 
   2019   2018   2019   2018 
Revenues                
Rental and other property revenues  $46,464   $39,324   $92,153   $75,998 
Interest income from related parties   5,973    5,635    11,749    10,830 
Total revenues   52,437    44,959    103,902    86,828 
Expenses                    
Property operating   18,868    16,874    37,470    32,533 
Property management fees   1,235    1,074    2,451    2,067 
General and administrative   5,046    4,528    10,674    9,197 
Acquisition and pursuit costs   70    28    128    71 
Weather-related losses, net   291        291    168 
Depreciation and amortization   16,226    14,819    33,454    30,460 
Total expenses   41,736    37,323    84,468    74,496 
Operating income   10,701    7,636    19,434    12,332 
Other income (expense)                    
Preferred returns on unconsolidated real estate joint ventures   2,492    2,626    4,781    5,088 
Gain on sale of non-depreciable real estate investments           679     
Loss on extinguishment of debt and debt modification costs       (653)       (653)
Interest expense, net   (15,125)   (13,041)   (31,191)   (23,158)
Total other expense   (12,633)   (11,068)   (25,731)   (18,723)
Net loss   (1,932)   (3,432)   (6,297)   (6,391)
Preferred stock dividends   (11,019)   (8,643)   (21,403)   (16,890)
Preferred stock accretion   (2,316)   (1,400)   (4,203)   (2,510)
Net loss attributable to noncontrolling interests                    
Operating Partnership units   (3,887)   (3,010)   (7,938)   (5,685)
Partially owned properties   (390)   (253)   (882)   (468)
Net loss attributable to noncontrolling interests   (4,277)   (3,263)   (8,820)   (6,153)
Net loss attributable to common stockholders  $(10,990)  $(10,212)  $(23,083)  $(19,638)
                     
Net loss per common share - Basic  $(0.50)  $(0.44)  $(1.03)  $(0.83)
                     
Net loss per common share – Diluted  $(0.50)  $(0.44)  $(1.03)  $(0.83)
                     
Weighted average basic common shares outstanding   22,430,619    23,800,770    22,775,203    23,971,129 
Weighted average diluted common shares outstanding   22,430,619    23,800,770    22,775,203    23,971,129 

  

See Notes to Consolidated Financial Statements

 

  4 

 

 

BLUEROCK RESIDENTIAL GROWTH REIT, INC.

FOR THE THREE MONTHS ENDED JUNE 30, 2019

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (Unaudited)

(In thousands, except share and per share amounts)         

 

   Class A Common Stock   Class C Common Stock  

Series D Preferred Stock

                     
                           Additional       Net (loss) income         
   Number of       Number of       Number of       Paid-   Cumulative   to Common   Noncontrolling     
   Shares   Par Value   Shares   Par Value   Shares   Value   in Capital   Distributions   Stockholders   Interests   Total Equity 
                                             
Balance, April 1, 2019   22,861,084   $228    76,603   $1    2,850,602   $68,705   $300,407   $(203,920)  $(30,443)  $47,992   $182,970 
                                                        
Issuance of Class A common stock, net   681    -    -    -    -    -    8    -    -    -    8 
                                                        
Issuance of Class A common stock due to Series B warrant exercise   3,780    1    -    -    -    -    40    -    -    -    41 
                                                        
Repurchase of Class A common stock   (749,648)   (8)   -    -    -    -    (8,333)   -    -    -    (8,341)
                                                        
Issuance of restricted Class A common stock   90,694    1    -    -    -    -    147    -    -    -    148 
                                                        
Vesting of Long-Term Incentive Plan (“LTIP”) Units for compensation   -    -    -    -    -    -    -    -    -    1,312    1,312 
                                                        
Issuance of LTIP Units for expense reimbursements   -    -    -    -    -    -    -    -    -    407    407 
                                                        
Issuance of Series B warrants   -    -    -    -    -    -    1,030    -    -    -    1,030 
                                                        
Common stock distributions declared   -    -    -    -    -    -    -    (3,635)   -    -    (3,635)
                                                        
Series A Preferred Stock distributions declared   -    -    -    -    -    -    -    (2,950)   -    -    (2,950)
                                                        
Series A Preferred Stock accretion   -    -    -    -    -    -    -    (214)   -    -    (214)
                                                        
Series B Preferred Stock distributions declared   -    -    -    -    -    -    -    (5,693)   -    -    (5,693)
                                                        
Series B Preferred Stock accretion   -    -    -    -    -    -    -    (2,021)   -    -    (2,021)
                                                        
Series C Preferred Stock distributions declared   -    -    -    -    -    -    -    (1,107)   -    -    (1,107)
                                                        
Series C Preferred Stock accretion   -    -    -    -    -    -    -    (81)   -    -    (81)
                                                        
Series D Preferred Stock distributions declared   -    -    -    -    -    -    -    (1,269)   -    -    (1,269)
                                                        
Distributions to Operating Partnership noncontrolling interests   -    -    -    -    -    -    -    -    -    (1,430)   (1,430)
                                                        
Distributions to partially owned noncontrolling interests   -    -    -    -    -    -    -    -    -    (493)   (493)
                                                        
Redemption of Operating Partnership units   -    -    -    -    -    -    (9)   -    -    (5)   (14)
                                                        
Redemption of Series B Preferred Stock and conversion into Class A common stock   87,736    1    -    -    -    -    1,065    -    -    -    1,066 
                                                        
Cash redemption of Series B Preferred Stock   -    -    -    -    -    -    1    -    -    -    1 
                                                        
Series B warrant exercise, net   -    -    -    -    -    -    (26)   -    -    -    (26)
                                                        
Acquisition of noncontrolling interest   -    -    -    -    -    -    (1,021)   -    -    (980)   (2,001)
                                                        
Adjustment for noncontrolling interest ownership in Operating Partnership   -    -    -    -    -    -    2,135    -         (2,135)   - 
                                                        
Net income (loss)   -    -    -    -    -    -    -    -    2,345    (4,277)   (1,932)
                                                        
Balance, June 30, 2019   22,294,327   $223    76,603   $1    2,850,602   $68,705   $295,444   $(220,890)  $(28,098)  $40,391   $155,776 

 

See Notes to Consolidated Financial Statements 

 

  5 

 

 

BLUEROCK RESIDENTIAL GROWTH REIT, INC.

FOR THE THREE MONTHS ENDED JUNE 30, 2018

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (Unaudited)

(In thousands, except share and per share amounts)

 

   Class A Common Stock   Class C Common Stock  

Series D Preferred Stock

                     
                           Additional       Net loss to         
   Number of       Number of       Number of       Paid-   Cumulative   Common   Noncontrolling     
   Shares   Par Value   Shares   Par Value   Shares   Value   in Capital   Distributions   Stockholders   Interests   Total Equity 
                                             
Balance, April 1, 2018   23,733,296   $237    76,603   $1    2,850,602   $68,705   $315,833   $(144,098)  $(29,534)  $64,021   $275,165 
                                                        
Issuance of Class A common stock, net   1,319    -    -    -    -    -    11    -    -    -    11 
                                                        
Repurchase of Class A common stock   (107,040)   (1)   -    -    -    -    (957)   -    -    -    (958)
                                                        
Vesting of LTIP Units for compensation   -    -    -    -    -    -    -    -    -    1,282    1,282 
                                                        
Issuance of LTIP units for expense reimbursements   -    -    -    -    -    -    -    -    -    349    349 
                                                        
Issuance of Series B warrants   -    -    -    -    -    -    528    -    -    -    528 
                                                        
Contributions from noncontrolling interests, net   -    -    -    -    -    -    -    -    -    2,108    2,108 
                                                        
Common stock distributions declared   -    -    -    -    -    -    -    (3,875)   -    -    (3,875)
                                                        
Series A Preferred Stock distributions declared   -    -    -    -    -    -    -    (2,950)   -    -    (2,950)
                                                        
Series A Preferred Stock accretion   -    -    -    -    -    -    -    (198)   -    -    (198)
                                                        
Series B Preferred Stock distributions declared   -    -    -    -    -    -    -    (3,317)   -    -    (3,317)
                                                        
Series B Preferred Stock accretion   -    -    -    -    -    -    -    (1,126)   -    -    (1,126)
                                                        
Series C Preferred Stock distributions declared   -    -    -    -    -    -    -    (1,107)   -    -    (1,107)
                                                        
Series C Preferred Stock accretion   -    -    -    -    -    -    -    (76)   -    -    (76)
                                                        
Series D Preferred Stock distributions declared   -    -    -    -    -    -    -    (1,269)   -    -    (1,269)
                                                        
Distributions to Operating Partnership noncontrolling interests   -    -    -    -    -    -    -    -    -    (1,324)   (1,324)
                                                        
Distributions to partially owned noncontrolling interests   -    -    -    -    -    -    -    -    -    (356)   (356)
                                                        
Redemption of Series B Preferred Stock and conversion into Class A common stock   31,416    1    -    -    -    -    281    -    -    -    282 
                                                        
Cash redemption of Series B Preferred Stock   -    -    -    -    -    -    3    -    -    -    3 
                                                        
Transfer of noncontrolling interest to controlling interest   -    -    -    -    -    -    -    -    -    (1,384)   (1,384)
                                                        
Acquisition of noncontrolling interest   -    -    -    -    -    -    (7,705)   -    -    -    (7,705)
                                                        
Adjustment for noncontrolling interest ownership in Operating Partnership   -    -    -    -    -    -    2,601    -         (2,601)   - 
                                                        
Other   -    -    -    -    -    -    -    3    (4)   -    (1)
                                                        
Net loss   -    -    -    -    -    -    -    -    (169)   (3,263)   (3,432)
                                                        
Balance, June 30, 2018   23,658,991   $237    76,603   $1    2,850,602   $68,705   $310,595   $(158,013)  $(29,707)  $58,832   $250,650 

 

See Notes to Consolidated Financial Statements

 

  6 

 

 

BLUEROCK RESIDENTIAL GROWTH REIT, INC.

FOR THE SIX MONTHS ENDED JUNE 30, 2019

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (Unaudited)

(In thousands, except share and per share amounts)

 

   Class A Common Stock   Class C Common Stock  

Series D Preferred Stock

                     
                           Additional       Net (loss) income         
   Number of       Number of       Number of       Paid-   Cumulative   to Common   Noncontrolling     
   Shares   Par Value   Shares   Par Value   Shares   Value   in Capital   Distributions   Stockholders   Interests   Total Equity 
                                             
Balance, January 1, 2019   23,322,211   $233    76,603   $1    2,850,602   $68,705   $307,938   $(187,910)  $(30,621)  $56,597   $214,943 
                                                        
Issuance of Class A common stock, net   1,445    -    -    -    -    -    15    -    -    -    15 
                                                        
Issuance of Class A common stock due to Series B warrant exercise   3,880    1    -    -    -    -    41    -    -    -    42 
                                                        
Repurchase of Class A common stock   (1,255,445)   (13)   -    -              (13,391)   -    -    -    (13,404)
                                                        
Issuance of restricted Class A common stock   90,694    1    -    -    -    -    147    -    -    -    148 
                                                        
Issuance of LTIP Units for director compensation   -    -    -    -    -    -    -    -    -    247    247 
                                                        
Vesting of LTIP Units for compensation   -    -    -    -    -    -    -    -    -    2,610    2,610 
                                                        
Issuance of LTIP units for expense reimbursements   -    -    -    -    -    -    -    -    -    799    799 
                                                        
Issuance of Series B warrants   -    -    -    -    -    -    1,865    -    -    -    1,865 
                                                        
Common stock distributions declared   -    -    -    -    -    -    -    (7,374)   -    -    (7,374)
                                                        
Series A Preferred Stock distributions declared   -    -    -    -    -    -    -    (5,900)   -    -    (5,900)
                                                        
Series A Preferred Stock accretion   -    -    -    -    -    -    -    (367)   -    -    (367)
                                                        
Series B Preferred Stock distributions declared   -    -    -    -    -    -    -    (10,751)   -    -    (10,751)
                                                        
Series B Preferred Stock accretion   -    -    -    -    -    -    -    (3,695)   -    -    (3,695)
                                                        
Series C Preferred Stock distributions declared   -    -    -    -    -    -    -    (2,214)   -    -    (2,214)
                                                        
Series C Preferred Stock accretion   -    -    -    -    -    -    -    (141)   -    -    (141)
                                                        
Series D Preferred Stock distributions declared   -    -    -    -    -    -    -    (2,538)   -    -    (2,538)
                                                        
Miscellaneous offering costs   -    -    -    -    -    -    (222)   -    -    -    (222)
                                                        
Distributions to Operating Partnership noncontrolling interests   -    -    -    -    -    -    -    -    -    (2,851)   (2,851)
                                                        

 Distributions to partially owned noncontrolling interests

   -    -    -    -    -    -    -    -    -    (726)   (726)
                                                        
Redemption of Operating Partnership Units   -    -    -    -    -    -    (15)   -    -    (10)   (25)
                                                        
Redemption of Series B Preferred Stock and conversion into Class A common stock   131,542    1    -    -    -    -    1,522    -    -    -    1,523 
                                                        

Cash redemption of Series B Preferred Stock

   -    -    -    -    -    -    6    -    -    -    6 
                                                        
Series B warrant exercise, net   -    -    -    -    -    -    (26)   -    -    -    (26)
                                                        
Acquisition of noncontrolling interest   -    -    -    -    -    -    (7,501)   -    -    (2,390)   (9,891)
                                                        
Adjustment for noncontrolling interest ownership in Operating Partnership   -    -    -    -    -    -    5,065    -         (5,065)   - 
                                                        
Net income (loss)   -    -    -    -    -    -    -    -    2,523    (8,820)   (6,297)
                                                        
Balance, June 30, 2019   22,294,327   $223    76,603   $1    2,850,602   $68,705   $295,444   $(220,890)  $(28,098)  $40,391   $155,776 

 

See Notes to Consolidated Financial Statements

 

  7 

 

 

BLUEROCK RESIDENTIAL GROWTH REIT, INC.

FOR THE SIX MONTHS ENDED JUNE 30, 2018

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (Unaudited)

(In thousands, except share and per share amounts)

 

   Class A Common Stock   Class C Common Stock  

Series D Preferred Stock

                     
                           Additional       Net loss to         
   Number of       Number of       Number of       Paid-   Cumulative   Common   Noncontrolling     
   Shares   Par Value   Shares   Par Value   Shares   Value   in Capital   Distributions   Stockholders   Interests   Total Equity 
                                             
Balance, January 1, 2018   24,218,359   $242    76,603   $1    2,850,602   $68,705   $318,170   $(134,817)  $(29,469)  $63,346   $286,178 
                                                        
Issuance of Class A common stock, net   1,984    -    -    -    -    -    17    -    -    -    17 
                                                        
Repurchase of Class A common stock   (637,733)   (6)   -    -         -    (5,156)   -    -    -    (5,162)
                                                        
Issuance of LTIP Units for director compensation   -    -    -    -    -    -    -    -    -    190    190 
                                                        
Vesting of LTIP Units for compensation   -    -    -    -    -    -    -    -    -    2,522    2,522 
                                                        
Issuance of LTIP units   -    -    -    -    -    -    -    -    -    1,342    1,342 
                                                        
Issuance of Series B warrants   -    -    -    -    -    -    756    -    -    -    756 
                                                        
Contributions from noncontrolling interests, net   -    -    -    -    -    -    -    -    -    5,059    5,059 
                                                        
Common stock distributions declared   -    -    -    -    -    -    -    (3,796)   -    -    (3,796)
                                                        
Series A Preferred Stock distributions declared   -    -    -    -    -    -    -    (5,900)   -    -    (5,900)
                                                        
Series A Preferred Stock accretion   -    -    -    -    -    -    -    (336)   -    -    (336)
                                                        
Series B Preferred Stock distributions declared   -    -    -    -    -    -    -    (6,237)   -    -    (6,237)
                                                        
Series B Preferred Stock accretion   -    -    -    -    -    -    -    (2,044)   -    -    (2,044)
                                                        
Series C Preferred Stock distributions declared   -    -    -    -    -    -    -    (2,214)   -    -    (2,214)
                                                        
Series C Preferred Stock accretion   -    -    -    -    -    -    -    (130)   -    -    (130)
                                                        
Series D Preferred Stock distributions declared   -    -    -    -    -    -    -    (2,539)   -    -    (2,539)
                                                        
Distributions to Operating Partnership noncontrolling interests   -    -    -    -    -    -    -    -    -    (1,499)   (1,499)
                                                        
Distributions to partially owned noncontrolling interests   -    -    -    -    -    -    -    -    -    (846)   (846)
                                                        
Redemption of Series B Preferred Stock and conversion into Class A common stock   76,381    1    -    -    -    -    763    -    -    -    764 
                                                        
Cash redemption of Series B Preferred Stock   -    -    -    -    -    -    5    -    -    -    5 
                                                        
Transfer of noncontrolling interest to controlling interest   -    -    -    -    -    -    -    -    -    (1,384)   (1,384)
                                                        
Acquisition of noncontrolling interest   -    -    -    -    -    -    (7,705)   -    -    -    (7,705)
                                                        
Adjustment for noncontrolling interest ownership in Operating Partnership   -    -    -    -    -    -    3,745    -         (3,745)   - 
                                                        
Net loss   -    -    -    -    -    -    -    -    (238)   (6,153)   (6,391)
                                                        
Balance, June 30, 2018   23,658,991   $237    76,603   $1    2,850,602   $68,705   $310,595   $(158,013)  $(29,707)  $58,832   $250,650 

 

See Notes to Consolidated Financial Statements 

 

  8 

 

 

BLUEROCK RESIDENTIAL GROWTH REIT, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(In thousands)

 

   Six Months Ended 
   June 30, 
   2019   2018 
         
Cash flows from operating activities          
Net loss  $(6,297)  $(6,391)
Adjustments to reconcile net loss to net cash provided by operating activities:          
Depreciation and amortization   35,282    32,755 
Amortization of fair value adjustments   (216)   (218)
Preferred returns on unconsolidated real estate joint ventures   (4,781)   (5,088)
Gain on sale of non-depreciable real estate investments   (679)    
Fair value adjustment of interest rate caps   2,365     
Distributions of income and preferred returns from preferred equity investments and unconsolidated real estate joint ventures   4,101    4,558 
Share-based compensation attributable to equity incentive plan   2,857    2,712 
Share-based compensation to employees – Restricted Stock Grants   148     
Share-based compensation to former Manager - LTIP Units       993 
Share-based expense reimbursements to BRE – LTIP Units   799    349 
Changes in operating assets and liabilities:          
Due from affiliates, net   (7)   (1,837)
Accounts receivable, prepaids and other assets   (5,971)   (4,076)
Accounts payable and other accrued liabilities   (548)   4,057 
Net cash provided by operating activities   27,053    27,814 
           
Cash flows from investing activities:          
Acquisitions of real estate investments   (111,562)   (144,580)
Capital expenditures   (11,132)   (9,508)
Investment in notes receivable from related parties   (11,638)   (20,994)
Proceeds from sale of real estate investments   952     
Purchase of interests from noncontrolling interests   (9,891)   (9,089)
Investment in unconsolidated real estate joint venture interests   (11,669)   (5,916)
Net cash used in investing activities   (154,940)   (190,087)
           
Cash flows from financing activities:          
Distributions to common stockholders   (7,570)   (6,218)
Distributions to noncontrolling interests   (3,393)   (2,780)
Distributions to preferred stockholders   (20,937)   (16,630)
Contributions from noncontrolling interests       5,059 
Borrowings on mortgages payable   77,212    207,097 
Repayments on mortgages payable   (3,402)   (68,746)
Proceeds from revolving credit facilities   72,500    135,995 
Repayments on revolving credit facilities   (53,407)   (135,456)
Payments of deferred financing fees   (789)   (4,924)
Miscellaneous offering costs   (222)    
Net proceeds from issuance of Class A common stock   15    17 
Repurchase of Class A common stock   (13,404)   (5,162)
Net proceeds from issuance of 6.0% Series B Redeemable Preferred Stock   82,408    43,912 
Net proceeds from issuance of Warrants associated with the Series B Redeemable Preferred Stock   1,865    756 
Net proceeds from exercise of Warrants associated with the Series B Redeemable Preferred Stock   21     
Payments to redeem 6.0% Series B Redeemable Preferred Stock   (80)   (51)
Payments to redeem Operating Partnership Units   (25)    
Net cash provided by financing activities   130,792    152,869 
           
Net decrease in cash, cash equivalents and restricted cash  $2,905   $(9,404)
Cash, cash equivalents and restricted cash, beginning of year   52,244    64,590 
Cash, cash equivalents and restricted cash, end of period  $55,149   $55,186 
           
Supplemental disclosure of cash flow information          
Cash paid for interest (net of interest capitalized)  $27,423   $20,517 
           
Supplemental disclosure of non-cash investing and financing activities          
Distributions payable – declared and unpaid  $12,527   $11,690 
Capital expenditures held in accounts payable and other accrued liabilities  $(1,207)  $ 

 

See Notes to Consolidated Financial Statements

 

  9 

 

 

BLUEROCK RESIDENTIAL GROWTH REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

Note 1 – Organization and Nature of Business

  

Bluerock Residential Growth REIT, Inc. (the “Company”) was incorporated as a Maryland corporation on July 25, 2008. The Company’s objective is to maximize long-term stockholder value by acquiring and developing well-located institutional-quality apartment properties in knowledge economy growth markets across the United States. The Company seeks to maximize returns through investments where it believes it can drive substantial growth in its core funds from operations and net asset value primarily through its Value-Add and Invest-to-Own investment strategies.

 

As of June 30, 2019, the Company held investments in fifty real estate properties, consisting of thirty-five consolidated operating properties and fifteen properties through preferred equity or mezzanine loan investments. Of the property interests held through preferred equity and mezzanine loan investments, five are under development, five are in lease-up and five properties are stabilized. The fifty properties contain an aggregate of 15,251 units, comprised of 11,820 consolidated operating units and 3,431 units through preferred equity and mezzanine loan investments. As of June 30, 2019, the Company’s consolidated operating properties were approximately 94% occupied.

 

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

 

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

 

Principles of Consolidation and Basis of Presentation

 

The Company operates as an umbrella partnership REIT in which Bluerock Residential Holdings, L.P. (its “Operating Partnership”), or the Operating Partnership’s wholly-owned subsidiaries, owns substantially all the property interests acquired and investments made on the Company’s behalf. As of June 30, 2019, limited partners other than the Company owned approximately 28.23% of the common units of the Operating Partnership (20.48% is held by holders of limited partnership interest in the Operating Partnership (“OP Units”) and 7.75% is held by holders of the Operating Partnership’s long-term incentive plan units (“LTIP Units”), including 4.64% which are not vested at June 30, 2019).

 

Because the Company is the sole general partner of the Operating Partnership and has unilateral control over its management and major operating decisions (even if additional limited partners are admitted to the Operating Partnership), the accounts of the Operating Partnership are consolidated in its consolidated financial statements.

 

The Company also consolidates entities in which it controls more than 50% of the voting equity and in which control does not rest with other investors. Investments in real estate joint ventures in which the Company has the ability to exercise significant influence, but does not have financial or operating control, are accounted for using the equity method of accounting. These entities are reflected on the Company’s consolidated financial statements as “Preferred equity investments and investments in unconsolidated real estate joint ventures.” All significant intercompany accounts and transactions have been eliminated in the consolidated financial statements.  The Company will consider future investments for consolidation in accordance with the provisions required by the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 810: Consolidation.

 

In accordance with adoption of the lease accounting update issued in July 2018, the Company reflects all income earned pursuant to tenant leases in a single line item, “Rental and other property revenues”, in the 2019 consolidated statements of operations. See New Accounting Pronouncements below. To facilitate comparability, the Company has reclassified lease and non-lease income for prior periods to conform to the current period presentation.

 

Summary of Significant Accounting Policies

 

Preferred Equity Investments and Investments in Unconsolidated Real Estate Joint Ventures

 

The Company first analyzes an investment to determine if it is a variable interest entity (“VIE”) in accordance with Topic ASC 810 and, if so, whether the Company is the primary beneficiary requiring consolidation.  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 the entity is (i) a VIE, and (ii) if the Company is the primary beneficiary of the VIE.  If it was determined that an entity in which the Company holds an interest qualified as a VIE and the Company was the primary beneficiary, the entity would be consolidated. 

 

  10 

 

 

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

 

In assessing whether the Company is in control of and requiring consolidation of the limited liability company and partnership venture structures, the Company evaluates the respective rights and privileges afforded each member or partner (collectively referred to as “member”).  The Company’s member would not be deemed to control the entity if any of the other members have 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) has 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.    

  

If it has been determined that the Company does not have control but does have the ability to exercise significant influence over the entity, the Company accounts for these unconsolidated investments under the equity method of accounting. The equity method of accounting requires these investments to be initially recorded at cost and subsequently increased (decreased) for the Company’s share of net income (loss), including eliminations for the Company’s share of intercompany transactions, and increased (decreased) for contributions (distributions). The Company’s proportionate share of the results of operations of these investments is reflected in the Company’s earnings or losses.

 

Fair Value Measurements

 

For financial assets and liabilities recorded at fair value on a recurring or non-recurring basis, fair value is the price the Company would expect to receive to sell an asset, or pay to transfer a liability, in an orderly transaction with a market participant at the measurement date under current market conditions. In the absence of such data, fair value is estimated using internal information consistent with what market participants would use in a hypothetical transaction.

 

In determining fair value, observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company’s market assumptions; preference is given to observable inputs. In accordance with accounting principles generally accepted in the Unites States of America (“GAAP”) and as defined in ASC Topic 820, “Fair Value Measurement”, these two types of inputs create the following fair value hierarchy:

 

·Level 1: Quoted prices for identical instruments in active markets
·Level 2: Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable
·Level 3: Significant inputs to the valuation model are unobservable

 

If the inputs used to measure the fair value fall within different levels of the hierarchy, the fair value is determined based upon the lowest level input that is significant to the fair value measurement. Whenever possible, the Company uses quoted market prices to determine fair value. In the absence of quoted market prices, the Company uses independent sources and data to determine fair value.

 

Financial Instrument Fair Value Disclosures

 

As of June 30, 2019 and December 31, 2018, the carrying values of cash and cash equivalents, accounts receivable, due to and due from affiliates, accounts payable, accrued liabilities, and distributions payable approximate their fair value based on their highly-liquid nature and/or short-term maturities. The carrying values of notes receivable from related parties approximate fair value because stated interest rate terms are consistent with interest rate terms on new deals with similar leverage and risk profiles. The fair values of notes receivable are classified in Level 3 of the fair value hierarchy due to the significant unobservable inputs that are utilized in their respective valuations.

 

Derivative Financial Instruments

 

The estimated fair values of derivative financial instruments are valued using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves and volatility. The fair value of interest rate caps is determined using the market-standard methodology of discounting the future expected cash receipts which would occur if floating interest rates rise above the strike rate of the caps. The floating interest rates used in the calculation of projected receipts on the cap are based on an expectation of future interest rates derived from observable market interest rate curves and volatilities. The inputs used in the valuation of interest rate caps fall within Level 2 of the fair value hierarchy.

 

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Interim Financial Information

 

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

 

The balance sheet at December 31, 2018 has been derived from the audited financial statements at that date but does not include all the information and disclosures required by GAAP for complete financial statements.  It is suggested that these condensed financial statements be read in conjunction with the financial statements and notes thereto included in our audited consolidated financial statements for the year ended December 31, 2018 contained in the Annual Report on Form 10-K as filed with the Securities and Exchange Commission (“SEC”) on February 27, 2019.

 

Use of Estimates

 

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

 

Other than the adoption of new accounting pronouncements as described below, there have been no significant changes to the Company’s accounting policies since it filed its audited consolidated financial statements in its Annual Report on Form 10-K for the year ended December 31, 2018.

 

New Accounting Pronouncements  

 

In June 2016, the FASB issued ASU No. 2016-13 “Measurement of Credit Losses on Financial Instruments” (“ASU 2016-13”). ASU 2016-13 will require more timely recognition of credit losses associated with financial assets. While current GAAP includes multiple credit impairment objectives for instruments, the previous objectives generally delayed recognition of the full amount of credit losses until the loss was probable of occurring. The amendments in ASU 2016-13, whose scope is asset-based and not restricted to financial institutions, eliminate the probable initial recognition threshold in current GAAP and, instead, reflect an entity’s current estimate of all expected credit losses. The amendments in ASU 2016-13 broaden the information that the Company must consider in developing its expected credit loss estimate for assets measured either collectively or individually. The use of forecasted information incorporates more timely information in the estimate of expected credit loss that will be more useful to users of the financial statements. In November 2018, the FASB issued ASU No. 2018-19 “Codification Improvements to Topic 326, Financial Instruments-Credit Losses” (“ASU 2018-19”). ASU 2018-19 clarifies that operating lease receivables are excluded from the scope of ASU 2016-13 and instead, impairment of operating lease receivables is to be accounted for under ASC 842. ASU 2016-13 is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The Company is currently evaluating the guidance and the impact this standard may have on the Company’s consolidated financial statements.

 

In February 2016, the FASB issued ASU No. 2016-02 “Leases (Topic 842)” (“ASU 2016-02”). Under ASU 2016-02, an entity will be required to recognize right-of-use assets and lease liabilities on its balance sheet and disclose key information about leasing arrangements. ASU 2016-02 offers specific accounting guidance for a lessee, a lessor and sale and leaseback transactions. Lessees and lessors are required to disclose qualitative and quantitative information about leasing arrangements to enable a user of the financial statements to assess the amount, timing and uncertainty of cash flows arising from leases. For public companies, ASU 2016-02 is effective for annual reporting periods beginning after December 15, 2018, including interim periods within that reporting period, with early adoption permitted. The Company adopted ASU 2016-02 as of January 1, 2019 and elected the package of practical expedients provided by the standard which includes: (i) an entity need not reassess whether any expired or existing contract is a lease or contains a lease, (ii) an entity need not reassess the lease classification of any expired or existing leases, and (iii) and entity need not reassess initial direct costs for any existing leases. The adoption of ASU 2016-02 did not have a material impact to the Company’s consolidated financial statements. In July 2018, the FASB issued ASU No. 2018-11, “Leases (Topic 842): Targeted Improvements” (“ASU 2018-11”). ASU 2018-11 provides lessors with a practical expedient to not separate lease and non-lease components if both: (i) the timing and pattern of revenue recognition for the non-lease component and the related lease component are the same, and (ii) the combined single lease component would be classified as an operating lease. The Company adopted the practical expedient as of January 1, 2019 to account for lease and non-lease components as a single component in lease contracts where the Company is the lessor.

 

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Lessor Accounting

 

The Company’s current portfolio is focused predominately on apartment properties whereby the Company generates rental revenue by leasing apartments to residents in its communities. As lease revenues for apartments fall under the scope of Topic 842, such lease revenues are classified as operating leases with straight-line recognition over the terms of the relevant lease agreement and inclusion within rental revenue. Resident leases are generally for one-year or month-to-month terms and are renewable by mutual agreement between the Company and the resident. Non-lease components of the Company’s apartment leases are combined with the related lease component and accounted for as a single lease component under Topic 842. The balances of net real estate investments and related depreciation on the Company’s consolidated financial statements relate to assets for which the Company is the lessor.

 

Lessee Accounting

 

The Company determines if an arrangement is a lease at inception. The Company is currently engaged in operating lease agreements that primarily relate to certain equipment leases. The Company determined that the lessee operating lease commitments have no material impact on its consolidated financial statements with the adoption of Topic 842. The Company will continue to assess any modification of existing lease agreements and execution of any new lease agreements for the potential requirement of recording a right-of-use-asset or liability in the future.

 

In August 2018, the FASB issued ASU No. 2018-15 "Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40)" (“ASU 2018-15”). ASU 2018-15 aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). ASU 2018-15 is effective for annual periods (including interim periods within those periods) beginning after December 15, 2019, though early adoption, including adoption in interim periods, is permissible. The Company has elected early adoption and there has been no material impact to the Company’s consolidated financial statements upon its adoption of ASU 2018-15.

 

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Note 3 – Sale of Real Estate Asset and Held for Sale Properties

 

Sale of Wesley Village II

 

On March 1, 2019, the Company closed on the sale of an undeveloped parcel of land known as Wesley Village II located in Charlotte, North Carolina. The parcel was sold for approximately $1.0 million, subject to certain prorations and adjustments typical in such real estate transactions. After deduction for closing costs and fees, the sale of the parcel generated net proceeds of approximately $1.0 million, resulting in a gain on sale of approximately $0.7 million.

 

Held for sale

 

The Company has entered into three separate purchase and sales agreements, and three separate amendments thereto, for the sale of ARIUM Palms, Leigh House, Preston View, Sorrel and Sovereign (the “Topaz Portfolio”) at an amount more than their carrying values and has classified the properties as held for sale as of June 30, 2019. Please refer to Note 15 for further information.

 

Note 4 – Investments in Real Estate

 

As of June 30, 2019, the Company held investments in thirty-five consolidated operating properties and fifteen development properties through preferred equity or mezzanine loan investments. The following tables provide summary information regarding the Company’s consolidated operating properties and preferred equity and mezzanine loan investments, which are either consolidated or accounted for under the equity method of accounting. 

 

Consolidated Operating Properties   

 

Multifamily Community Name  Location 

Number of

Units

   Date Built /
Renovated (1)
   Ownership
Interest
 
ARIUM at Palmer Ranch  Sarasota, FL   320    2016    100.0%
ARIUM Glenridge  Atlanta, GA   480    1990    90.0%
ARIUM Grandewood  Orlando, FL   306    2005    100.0%
ARIUM Gulfshore  Naples, FL   368    2016    100.0%
ARIUM Hunter’s Creek  Orlando, FL   532    1999    100.0%
ARIUM Metrowest  Orlando, FL   510    2001    100.0%
ARIUM Palms  Orlando, FL   252    2008    100.0%
ARIUM Pine Lakes  Port St. Lucie, FL   320    2003    100.0%
ARIUM Westside  Atlanta, GA   336    2008    90.0%
Ashford Belmar  Lakewood, CO   512    1988/1993    85.0%
Ashton Reserve  Charlotte, NC   473    2015    100.0%
Citrus Tower  Orlando, FL   336    2006    96.8%
Element  Las Vegas, NV   200    1995    100.0%
Enders Place at Baldwin Park  Orlando, FL   220    2003    92.0%
James at South First  Austin, TX   250    2016    90.0%
Marquis at Crown Ridge  San Antonio, TX   352    2009    90.0%
Marquis at Stone Oak  San Antonio, TX   335    2007    90.0%
Marquis at The Cascades  Tyler, TX   582    2009    90.0%
Marquis at TPC  San Antonio, TX   139    2008    90.0%
Outlook at Greystone  Birmingham, AL   300    2007    100.0%
Park & Kingston  Charlotte, NC   168    2015    100.0%
Plantation Park  Lake Jackson, TX   238    2016    80.0%
Preston View  Morrisville, NC   382    2000    100.0%
Providence Trail  Mount Juliet, TN   334    2007    100.0%
Roswell City Walk  Roswell, GA   320    2015    98.0%
Sands Parc  Daytona Beach, FL   264    2017    100.0%
Sorrel  Frisco, TX   352    2015    100.0%
Sovereign  Fort Worth, TX   322    2015    100.0%
The Brodie  Austin, TX   324    2001    92.5%
The Links at Plum Creek  Castle Rock, CO   264    2000    88.0%
The Mills  Greenville, SC   304    2013    100.0%
The Preserve at Henderson Beach  Destin, FL   340    2009    100.0%
Veranda at Centerfield  Houston, TX   400    1999    93.0%
Villages of Cypress Creek  Houston, TX   384    2001    80.0%
Wesley Village  Charlotte, NC   301    2010    100.0%
Total      11,820           

 

(1)Represents date of last significant renovation or year built if there were no renovations.

 

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Depreciation expense was $15.8 million and $13.0 million, and $31.6 million and $25.1 million for the three and six months ended June 30, 2019 and 2018, respectively.

 

Intangibles related to the Company’s consolidated investments in real estate consist of the value of in-place leases. In-place leases are amortized over the remaining term of the in-place leases, which is approximately six months. Amortization expense related to the in-place leases was $0.4 million and $1.8 million, and $1.9 million and $5.4 million for the three and six months ended June 30, 2019 and 2018, respectively.

 

Preferred Equity and Mezzanine Loan Investments

Multifamily Community Name  Location 

Actual /

Planned

Number of Units

   Actual /
Estimated
Initial
Occupancy
 

Actual /

Estimated
Construction
Completion

Whetstone Apartments  Durham, NC   204   3Q 2014  3Q 2015
Alexan CityCentre  Houston, TX   340   2Q 2017  4Q 2017
Helios  Atlanta, GA   282   2Q 2017  4Q 2017
Alexan Southside Place  Houston, TX   270   4Q 2017  1Q 2018
Leigh House  Raleigh, NC   245   3Q 2017  3Q 2018
Vickers Historic Roswell  Roswell, GA   79   2Q 2018  3Q 2018
Domain at The One Forty  Garland, TX   299   2Q 2018  4Q 2018
Arlo  Charlotte, NC   286   2Q 2018  1Q 2019
Novel Perimeter  Atlanta, GA   320   3Q 2018  1Q 2019
Cade Boca Raton  Boca Raton, FL   90   4Q 2018  2Q 2019
Flagler Village  Fort Lauderdale, FL   385   2Q 2020  3Q 2020
North Creek Apartments  Leander, TX   259   2Q 2020  4Q 2020
Riverside Apartments  Austin, TX   222   4Q 2020  1Q 2021
Wayforth at Concord  Concord, NC   150   2Q 2020  3Q 2021
The Park at Chapel Hill  Chapel Hill, NC   *   *  *
Total      3,431       

 

* The development is in the planning phase; project specifications are in process.                    

 

Note 5 – Acquisition of Real Estate

 

The following describes the Company’s significant acquisition activity and related new financing during the six months ended June 30, 2019 (dollars in thousands):

 

Property  Location  Date   Interest   Price   Mortgage 
Element  Las Vegas, NV   June 27, 2019    100.0%  $41,750   $29,260 
Providence Trail  Mount Juliet, TN   June 27, 2019    100.0%   68,500    47,950 

 

Purchase Price Allocation

 

The real estate acquisitions above have been accounted for as asset acquisitions. The purchase prices were allocated to the acquired assets based on their estimated fair values at the dates of acquisition.

 

The following table summarizes the assets acquired at the acquisition date for acquisitions made during the six months ended June 30, 2019 (amounts in thousands):

 

   Purchase
Price
Allocation
 
Land  $13,418 
Building   74,898 
Building improvements   2,936 
Land improvements   16,693 
Furniture and fixtures   1,908 
In-place leases   1,709 
Total assets acquired  $111,562 

 

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Acquisition of Additional Interests in Properties

 

In addition to the property acquisitions discussed above, the Company also acquired the noncontrolling partner’s interest in the following properties (dollars in thousands):

 

Property  Date   Amount   Previous Interest   New Interest 
ARIUM Pine Lakes  January 29, 2019   $7,769    85.0%   100.0%
Sorrel  June 25, 2019    738    95.0%   100.0%
Sovereign  June 25, 2019    1,204    95.0%   100.0%

 

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Note 6 – Notes and Interest Receivable due from Related Parties

 

Following is a summary of the notes and accrued interest receivable due from related parties as of June 30, 2019 and December 31, 2018 (amounts in thousands):

 

Property 

June 30,

2019

   December 31,
 2018
 
Arlo  $24,883   $24,893 
Cade Boca Raton   12,894    11,854 
Domain at The One Forty   22,370    20,536 
Flagler Village   75,409    75,436 
Novel Perimeter   20,859    20,867 
The Park at Chapel Hill   8,570     
Vickers Historic Roswell   10,783    10,498 
Total  $175,768   $164,084 

 

Following is a summary of the interest income from related parties for the three and six months ended June 30, 2019 and 2018 (amounts in thousands):

 

  

Three Months Ended

June 30,

  

Six Months Ended

June 30,

 
Property  2019   2018   2019   2018 
Arlo  $919   $919   $1,828   $1,829 
Cade Boca Raton   467    420    904    835 
Domain at The One Forty   805    758    1,557    1,508 
Flagler Village   2,400    2,400    4,773    4,395 
Novel Perimeter   771    771    1,533    1,533 
The Park at Chapel Hill   212        368     
Vickers Historic Roswell   399    367    786    730 
Total  $5,973   $5,635   $11,749   $10,830 

 

The occupancy percentages of the Company’s related party properties at June 30, 2019 and December 31, 2018 are as follows:

 

Property 

June 30,

2019

   December 31,
 2018
 
Arlo   81%   37%
Cade Boca Raton   66%   8%
Domain at The One Forty   68%   34%
Flagler Village   (1)   (1)
Novel Perimeter   52%   22%
The Park at Chapel Hill   (2)    
Vickers Historic Roswell   66%   41%

 

(1)The development has not commenced lease-up.
(2)The development is in the planning phase; project specifications are in process.

                  

Cade Boca Raton Mezzanine Financing

 

On March 11, 2019, the Company, through BRG Boca, LLC, increased its mezzanine loan commitment to BR Boca JV Member, LLC (“BR Boca JV Member”) to $14.0 million, of which $12.7 million has been funded as of June 30, 2019. The increase in the mezzanine loan will provide funding for additional capital calls, including amounts to be contributed on behalf of Bluerock Special Opportunity + Income Fund II, LLC (“Fund II”). In exchange for increasing the mezzanine loan, the Company received an additional 2.5 basis point discount purchase option and has the right to exercise an option to purchase, at the greater of a 30.0 basis point discount to fair market value or 15% internal rate of return for Fund II, up to a 100% common membership interest in BR Boca JV Member. The loan matures on the earliest to occur of: (i) the latest to occur of (a) March 11, 2022 and (b) the applicable maturity date under any extension granted under any construction financing, or (ii) the date of sale or transfer of property, or (iii) such earlier date, by declaration of acceleration or otherwise, on which the final payment of principal becomes due. The loan can be prepaid without penalty.

 

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On June 26, 2019, the Cade Boca Raton property owner, which is owned by an entity in which the Company owns an indirect interest, extended its construction loan made by an unaffiliated party such that the extended maturity date is December 31, 2019, changed from the original maturity date of June 29, 2019. The loan’s two one-year extension options remain, subject to certain conditions including a debt service coverage, stabilized occupancy and payment of an extension fee. As the loan matures at year-end, the Cade Boca Raton property owner is engaged in discussions to refinance or replace the loan.

 

Domain at The One Forty Mezzanine Financing

 

On March 11, 2019, the Company, through BRG Domain Phase 1, LLC, (i) increased its mezzanine loan commitment to BR Member Domain Phase 1, LLC (“BR Domain 1 JV Member”) to $24.5 million, of which $22.1 million has been funded as of June 30, 2019, and (ii) entered into an amended operating agreement for BR Domain 1 JV Member with Fund II, which admits BRG Domain Phase 1 Profit Share, LLC (“BRG Domain 1 PS”), a wholly-owned subsidiary of the Company, as an additional member of BR Domain 1 JV Member. As part of the amended agreement, the Company agreed to (i) terminate its option to purchase up to a 100% common membership interest in BR Domain 1 JV Member, and (ii) reduce the current fixed rate of 15.0% per annum of the mezzanine loan as follows: (a) 5.5% per annum effective January 1, 2020 through the end of the calendar year 2020, (b) 4.0% per annum for the calendar year 2021, and (c) 3.0% per annum for the calendar year 2022 and thereafter. In exchange, Fund II agreed to grant BRG Domain 1 PS a 50% participation in any profits achieved in a sale after repayment of the mezzanine loan and the Company and Fund II each receive full return of their respective capital contributions. The loan matures on the earliest to occur of: (i) the latest to occur of (a) March 11, 2022 and (b) the applicable maturity date under any extension granted under any construction financing, or (ii) the date of sale or transfer of property, or (iii) such earlier date, by declaration of acceleration or otherwise, on which the final payment of principal becomes due. The loan can be prepaid without penalty.

 

The Park at Chapel Hill Financing

 

On January 23, 2019, the Company, through BRG Chapel Hill Lender, LLC (“BRG Chapel Hill Lender”), an indirect subsidiary, provided a $7.8 million senior loan (the “BRG Chapel Hill Loan”) to BR Chapel Hill, LLC (“BR Chapel Hill”). BR Chapel Hill JV, LLC (“BR Chapel Hill JV”) owns a 100.0% interest in BR Chapel Hill and is a joint venture with common interests held by Bluerock Special Opportunity + Income Fund, LLC (“Fund I”), Fund II, and BR Chapel Hill Investment, LLC, all managed by affiliates of the former Manager. The BRG Chapel Hill Loan is secured by BR Chapel Hill’s fee simple interest in the Chapel Hill property. The BRG Chapel Hill Loan matures on January 23, 2021 and bears interest at a fixed rate of 10.0%. Regular monthly payments are interest-only during the initial term. The BRG Chapel Hill Loan can be prepaid without penalty.

 

In conjunction with the BRG Chapel Hill Loan, on January 23, 2019, the Company, through BRG Chapel Hill Lender, provided a $0.8 million mezzanine loan to BR Chapel Hill JV, which is secured by the Chapel Hill property. The loan bears interest at a fixed rate of 10.0% per annum and matures on the earliest to occur of: (i) the latest to occur of (a) January 23, 2021 and (b) the applicable maturity date under any extension granted under any construction financing, or (ii) the date of sale or transfer of property, or (iii) such earlier date, by declaration of acceleration or otherwise, on which the final payment of principal becomes due. The loan can be prepaid without penalty.

 

Vickers Historic Roswell Mezzanine Financing

 

On February 26, 2019, the Company, through BRG Vickers Roswell, LLC, increased its mezzanine loan commitment to BR Vickers Roswell JV Member, LLC (“BR Vickers JV Member”) to $11.8 million, of which $10.7 million has been funded as of June 30, 2019. The increase in the mezzanine loan will provide funding for additional capital calls, including amounts to be contributed on behalf of Bluerock Special Opportunity + Income Fund III, LLC (“Fund III”). In exchange for increasing the mezzanine loan, the Company received an additional 5.0 basis point discount purchase option and has the right to exercise an option to purchase, at the greater of a 17.5 basis point discount to fair market value or 15% internal rate of return for Fund III, up to a 100% common membership interest in BR Vickers JV Member. The loan matures on the earliest to occur of: (i) the latest to occur of (a) February 26, 2022 and (b) the applicable maturity date under any extension granted under any construction financing, or (ii) the date of sale or transfer of property, or (iii) such earlier date, by declaration of acceleration or otherwise, on which the final payment of principal becomes due. The loan can be prepaid without penalty.

 

  18 

 

 

Note 7 – Preferred Equity Investments and Investments in Unconsolidated Real Estate Joint Ventures

 

The carrying amount of the Company’s preferred equity investments and investments in unconsolidated real estate joint ventures as of June 30, 2019 and December 31, 2018 is summarized in the table below (amounts in thousands):

 

Property 

June 30,

2019

   December 31,
 2018
 
         
Alexan CityCentre  $12,788   $11,205 
Alexan Southside Place   24,041    22,801 
Arlo   14    14 
Cade Boca Raton   7    7 
Domain at The One Forty   13    12 
Flagler Village   44    44 
Helios   19,189    19,189 
Leigh House   14,174    13,319 
North Creek Apartments   10,210    5,892 
Novel Perimeter   12    12 
Riverside Apartments   7,274    3,600 
Vickers Historic Roswell   6    6 
Wayforth at Concord        
Whetstone Apartments   12,932    12,932 
Total  $100,704   $89,033 

 

As of June 30, 2019, the Company, through wholly-owned subsidiaries of the Operating Partnership, had outstanding equity investments in fourteen joint ventures, each of which was created to develop a multifamily property.

 

Eight of the fourteen equity investments, Alexan CityCentre, Alexan Southside Place, Helios, Leigh House, North Creek Apartments, Riverside Apartments, Wayforth at Concord and Whetstone Apartments, are preferred equity investments, generate a stated preferred return on outstanding capital contributions, and the Company is not allocated any of the income or loss in the joint ventures. The joint venture is the controlling member in an entity whose purpose is to develop a multifamily property.

 

The preferred returns on the Company’s unconsolidated real estate joint ventures for the three and six months ended June 30, 2019 and 2018 are summarized below (amounts in thousands):

 

  

Three Months Ended

June 30,

  

Six Months Ended

June 30,

 
Property  2019   2018   2019   2018 
Alexan CityCentre  $497   $402   $982   $785 
Alexan Southside Place   390    885    773    1,687 
Helios   335    644    666    1,249 
Leigh House   558    462    1,082    903 
North Creek Apartments   288        510     
Riverside Apartments   191        304     
Wayforth at Concord                
Whetstone Apartments   233    233    464    464 
Preferred returns on unconsolidated joint ventures  $2,492   $2,626   $4,781   $5,088 

  

The occupancy percentages of the Company’s unconsolidated real estate joint ventures at June 30, 2019 and December 31, 2018 are as follows:

 

Property 

June 30,

2019

   December 31,
 2018
 
Alexan CityCentre   93%   93%
Alexan Southside Place   98%   85%
Helios   94%   90%
Leigh House   93%   90%
North Creek Apartments   (1)   (1)
Riverside Apartments   (1)   (1)
Wayforth at Concord   (1)   (1)
Whetstone Apartments   96%   97%

  

(1)The development has not commenced lease-up.

 

  19 

 

 

Summary combined financial information for the Company’s investments in unconsolidated real estate joint ventures as of June 30, 2019 and December 31, 2018 and for the three and six months ended June 30, 2019 and 2018, is as follows (amounts in thousands):

 

  

June 30,

2019

   December 31,
 2018
 
Balance Sheets:          
Real estate, net of depreciation  $620,236   $577,624 
Other assets   52,312    45,324 
Total assets  $672,548   $622,948 
           
Mortgages payable  $523,392   $480,903 
Other liabilities   37,632    21,250 
Total liabilities  $561,024   $502,153 
Members’ equity   111,524    120,795 
Total liabilities and members’ equity  $672,548   $622,948 

 

  

Three Months Ended

June 30,

  

Six Months Ended

June 30,

 
   2019   2018   2019   2018 
Operating Statement:                    
Rental revenues  $8,924   $4,217   $16,724   $7,591 
Operating expenses   (5,494)   (3,461)   (10,628)   (6,247)
Income before debt service and depreciation and amortization   3,430    756    6,096    1,344 
Interest expense, net   (8,243)   (1,808)   (15,476)   (3,359)
Depreciation and amortization   (4,146)   (2,194)   (8,133)   (4,130)
Net loss  $(8,959)  $(3,246)  $(17,513)  $(6,145)

 

Alexan CityCentre Refinance

 

On April 26, 2019, the Alexan CityCentre owner, which is owned by an entity in which the Company owns an indirect interest, (i) entered into a $46.0 million senior mortgage loan, (ii) entered into a $11.5 million mezzanine loan with an unaffiliated party, and (iii) used the proceeds from the senior loan and mezzanine loan to pay off the previous construction loan of $55.1 million. The senior loan and mezzanine loan both provide for earnout advances of $2.0 million and $0.5 million, respectively, for total loan commitments of $48.0 million and $12.0 million, respectively. The earnout advances are subject to a minimum debt yield and certain other conditions. The loans bear interest at a floating basis of the greater of LIBOR plus 1.50% or 3.99% on the senior loan, and the greater of LIBOR plus 6.00% or 8.49% on the mezzanine loan. The senior loan and mezzanine loan both: (i) have regular monthly payments that are interest-only during the initial term, (ii) have initial maturity dates of May 9, 2022, (iii) contain two one-year extension options, and (iv) can be prepaid in whole prior to maturity provided the lender receives a stated spread maintenance premium.

 

Alexan Southside Place Interests / Refinance

 

Alexan Southside Place is developed upon a tract of land ground leased from Prokop Industries BH, L.P., a Texas limited partnership, by BR Bellaire BLVD, LLC (“BR Bellaire BLVD”), as tenant under an 85-year ground lease. BR Bellaire BLVD adopted ASU No. 2016-02 as of January 1, 2019, and as such, has recorded a right-of-use asset and lease liability of $17.1 million as of June 30, 2019.

 

On April 12, 2019, the Alexan Southside Place owner, which is owned by an entity in which the Company owns an indirect interest, (i) entered into a $26.4 million senior mortgage loan, (ii) entered into a $6.6 million mezzanine loan with an unaffiliated party, and (iii) used the proceeds from the senior loan and mezzanine loan to pay off the previous construction loan of $31.8 million. The senior loan and mezzanine loan both provide for earnout advances of $2.4 million and $0.6 million, respectively, for total loan commitments of $28.8 million and $7.2 million, respectively. The earnout advances are subject to a minimum debt yield and certain other conditions. The loans bear interest at a floating basis of the greater of LIBOR plus 1.50% or 3.99% on the senior loan, and the greater of LIBOR plus 6.00% or 8.49% on the mezzanine loan. The senior loan and mezzanine loan both: (i) have regular monthly payments that are interest-only during the initial term, (ii) have initial maturity dates of May 9, 2022, (iii) contain two one-year extension options, and (iv) can be prepaid in whole prior to maturity provided the lender receives a stated spread maintenance premium.

 

  20 

 

 

Leigh House Interests

 

The Company had the right, in its sole discretion, to convert its preferred membership interest into a common membership interest for a period of six months from the date upon which 70% of the units in Leigh House had been leased and occupied. The six-month period during which the Company had the right to convert commenced on August 9, 2018, the date on which Leigh House achieved 70% leased and occupied units. The Company did not elect to convert into a common membership and its option to convert expired on February 9, 2019.

 

Whetstone Interests

 

Effective April 1, 2017, Whetstone Apartments ceased paying its preferred return on a current basis. The preferred return is being accrued, except for a $0.1 million payment received in March 2019. The accrued preferred return of $2.5 million and $2.2 million as of June 30, 2019 and December 31, 2018, respectively, is included in due from affiliates in the consolidated balance sheets. The Company has evaluated the preferred equity investment and accrued preferred return and determined that the investment is fully recoverable.

 

  21 

 

 

Note 8 — Revolving credit facilities

 

The outstanding balances on the revolving credit facilities as of June 30, 2019 and December 31, 2018 are as follows (amounts in thousands):

 

Revolving Credit Facilities 

June 30,

2019

   December 31,
 2018
 
Senior Credit Facility  $68,800   $67,709 
           
Amended Junior Credit Facility          
Revolver loan   21,000    14,500 
Term loan   11,500     
Total Amended Junior Credit Facility   32,500    14,500 
           
Total Credit Facilities  $101,300   $82,209 

 

Senior Credit Facility

 

On October 4, 2017, the Company, through its Operating Partnership, entered into a credit agreement (the “Senior Credit Facility”) with KeyBank National Association (“KeyBank”) and a syndicate of other lenders. The Senior Credit Facility provides for a loan commitment amount of $75 million, which commitment contains an accordion feature to a maximum commitment of up to $175 million.

 

The Senior Credit Facility matures on October 4, 2020 and contains a one-year extension option, subject to certain conditions and the payment of an extension fee. Borrowings under the Senior Credit Facility bear interest, at the Company’s option, at LIBOR plus 1.80% to 2.45%, or the base rate plus 0.80% to 1.45%, depending on the Company’s leverage ratio. The weighted average interest rate was 4.76% at June 30, 2019. The Company pays an unused fee at an annual rate of 0.20% to 0.25% of the unused portion of the Senior Credit Facility, depending on the amount of borrowings outstanding. The Senior Credit Facility contains certain financial and operating covenants, including a maximum leverage ratio, minimum liquidity, minimum debt service coverage ratio, and minimum tangible net worth. At June 30, 2019, the Company was in compliance with all covenants under the Senior Credit Facility. The Company has guaranteed the obligations under the Senior Credit Facility and provided certain properties as collateral.

 

Amended Junior Credit Facility

 

On March 20, 2018, the Company, through a subsidiary of its Operating Partnership, entered into a credit agreement (the “Junior Credit Facility”) with KeyBank and other lenders. The Junior Credit Facility provided for a maximum loan commitment amount of $50 million.

 

The Junior Credit Facility had a maturity date of March 20, 2019. Borrowings under the Junior Credit Facility bore interest, at the Company’s option, at LIBOR plus 4.0%, or the base rate plus 3.0%. The Company paid an unused fee at an annual rate of 0.35% to 0.40% of the unused portion of the Junior Credit Facility, depending on the amount of borrowings outstanding.

 

On December 21, 2018, the Company, through a subsidiary of its Operating Partnership, entered into an amended and restated, in its entirety, Junior Credit Facility (the “Amended Junior Credit Facility”). The Amended Junior Credit Facility provides for a revolving loan facility and a term loan facility with maximum commitment amounts of $50 million and $25 million, respectively. The revolving loan facility matures on December 21, 2019, with borrowings thereunder bearing interest, at the Company’s option, at LIBOR plus 3.5%, or the base rate plus 2.5%. The weighted average interest rate of the revolving loan facility was 5.92% at June 30, 2019. The Company pays an unused fee at an annual rate of 0.35% to 0.40% of the unused portion of the revolving loan facility, depending on the amount of borrowings outstanding. The term loan facility matures on September 30, 2019 or sooner based on certain events, with borrowings thereunder bearing interest, at the Company’s option, at LIBOR plus 3.5%, or the base rate plus 2.5%. The interest rate of the term loan facility was 5.94% at June 30, 2019. The Amended Junior Credit Facility contains certain financial and operating covenants, including a maximum leverage ratio, minimum liquidity, minimum debt service coverage ratio, minimum tangible net worth and minimum equity raise and collateral values. As it matures in 2019, the Company is engaged in discussions to amend and extend the Amended Junior Credit Facility.

 

At June 30, 2019, the Company was in compliance with all covenants under the Amended Junior Credit Facility. The Company has guaranteed the obligations under the Amended Junior Credit Facility and has pledged certain assets as collateral.

 

The availability of borrowings under the revolving credit facilities at June 30, 2019 is based on the collateral and compliance with various ratios related to those assets and was approximately $29.9 million.

 

  22 

 

  

Note 9 – Mortgages Payable

 

The following table summarizes certain information as of June 30, 2019 and December 31, 2018, with respect to the Company’s senior mortgage indebtedness (amounts in thousands):

 

   Outstanding Principal   As of June 30, 2019
Property 

June 30,

2019

   December 31,
2018
   Interest Rate  

Interest-only

through date

  Maturity Date
                   
Fixed Rate:                     
ARIUM at Palmer Ranch  $41,348   $41,348    4.41%  May 2020  May 1, 2025
ARIUM Grandewood (1)   19,713    19,713    4.35%  July 2020  July 1, 2025
ARIUM Hunter’s Creek   72,294    72,294    3.65%  November 2019  November 1, 2024
ARIUM Metrowest   64,559    64,559    4.43%  May 2021  May 1, 2025
ARIUM Pine Lakes   26,950    26,950    3.95%  Interest-only  November 1, 2023
ARIUM Westside   52,150    52,150    3.68%  August 2021  August 1, 2023
Ashford Belmar   100,675    100,675    4.53%  December 2022  December 1, 2025
Ashton Reserve I   30,607    30,878    4.67%  (2)  December 1, 2025
Citrus Tower   41,438    41,438    4.07%  October 2019  October 1, 2024
Element   29,260        3.63%  July 2022  July 1, 2026
Enders Place at Baldwin Park (3)   23,581    23,822    4.30%  (2)  November 1, 2022
James on South First   26,323    26,500    4.35%  (2)  January 1, 2024
Outlook at Greystone   22,105    22,105    4.30%  June 2021  June 1, 2025
Park & Kingston (4)   18,432    18,432    3.41%  Interest-only  April 1, 2020
Plantation Park   26,625    26,625    4.64%  July 2024  July 1, 2028
Providence Trail   47,950        3.54%  July 2021  July 1, 2026
Roswell City Walk   51,000    51,000    3.63%  December 2019  December 1, 2026
Sovereign       28,227            
The Brodie   34,513    34,825    3.71%  (2)  December 1, 2023
The Links at Plum Creek   40,000    40,000    4.31%  April 2020  October 1, 2025
The Mills   26,050    26,298    4.21%  (2)  January 1, 2025
The Preserve at Henderson Beach   35,235    35,602    4.65%  (2)  January 5, 2023
Villages of Cypress Creek   26,200    26,200    3.23%  October 2020  October 1, 2022 (5)
Wesley Village   40,438    40,545    4.25%  (2)  April 1, 2024
Total Fixed Rate   897,446    850,186            
                      
Floating Rate (6):                     
ARIUM Glenridge   49,500    49,500    3.76%  September 2021  September 1, 2025
ARIUM Grandewood (1)   19,672    19,672    3.83%  July 2020  July 1, 2025
ARIUM Palms       30,320            
Ashton Reserve II   15,213    15,213    3.93%  August 2022  August 1, 2025
Marquis at Crown Ridge   28,342    28,634    4.04%  (2)  June 1, 2024 (7)
Marquis at Stone Oak   42,326    42,725    4.04%  (2)  June 1, 2024 (7)
Marquis at The Cascades I   32,592    32,899    4.04%  (2)  June 1, 2024 (7)
Marquis at The Cascades II   22,745    22,960    4.04%  (2)  June 1, 2024 (7)
Marquis at TPC   16,647    16,826    4.04%  (2)  June 1, 2024 (7)
Preston View       41,657            
Sorrel       38,684            
Veranda at Centerfield   26,100    26,100    3.69%  July 2021  July 26, 2023 (5)
Total Floating Rate   253,137    365,190            
Total   1,150,583    1,215,376            
Fair value adjustments   1,987    2,204            
Deferred financing costs, net   (9,935)   (11,444)           
Total continuing operations  $1,142,635   $1,206,136            
                      
Held for Sale:                     
ARIUM Palms (6)   30,320        3.83%  September 2020  September 1, 2025
Preston View (6)   41,657        3.93%  August 2022  August 1, 2025
Sorrel (6)   38,684        4.72%  November 2019  May 1, 2023
Sovereign   27,939        3.46%  (2)  November 10, 2022
Deferred financing costs, net   (1,206)               
Total held for sale   137,394                
Total mortgages payable  $1,280,029   $1,206,136            

 

(1)ARIUM Grandewood has a fixed rate loan and a floating rate loan.
(2)The loan requires monthly payments of principal and interest.
(3)The principal balance includes a $16.0 million loan at a fixed rate of 3.97% and a $7.6 million supplemental loan at a fixed rate of 5.01%.
(4)The principal balance includes a $15.3 million loan at a fixed rate of 3.21% and a $3.2 million supplemental loan at a fixed rate of 4.34%.
(5)The loan has two one-year extension options subject to certain conditions.
(6)All the Company’s floating rate mortgages bear interest at one-month LIBOR + margin. In June 2019, one-month LIBOR in effect was 2.43%. LIBOR rate is subject to a rate cap. Please refer to Note 11 for further information.
(7)The loan can be extended, subject to certain conditions, in connection with an election to convert to a fixed interest rate loan.

 

  23 

 

 

Deferred financing costs

 

Costs incurred in obtaining long-term financing are amortized on a straight-line basis to interest expense over the terms of the related financing agreements, as applicable, which approximates the effective interest method.

 

Loss on Extinguishment of Debt and Modification Costs

 

Upon repayment of or in conjunction with a material change (i.e. a 10% or greater difference in the cash flows between instruments) in the terms of an underlying debt agreement, the Company writes-off any unamortized deferred financing costs and fair market value adjustments related to the original debt that was extinguished. Prepayment penalties incurred on the early repayment of debt and costs incurred in a debt modification that are not capitalized are also included in loss on extinguishment of debt and debt modification costs on the consolidated statements of operations.

 

Master Credit Facility with Fannie Mae

 

On April 30, 2018, the Company, through certain subsidiaries of the Operating Partnership, entered into a Master Credit Facility Agreement (the “Fannie Facility”), which was issued through Fannie Mae’s Multifamily Delegated Underwriting and Servicing Program. The Fannie Facility includes certain restrictive covenants, including indebtedness, liens, investments, mergers and asset sales, and distributions. The Fannie Facility also contains events of default, including payment defaults, covenant defaults, bankruptcy events, and change of control events. Each note under the Fannie Facility is cross-defaulted and cross-collateralized and the Company has guaranteed the obligations under the Fannie Facility. As of June 30, 2019, the mortgage loans secured by ARIUM Grandewood, ARIUM Metrowest, Ashton Reserve II, Outlook at Greystone and Preston View were issued under the Fannie Facility.

 

The Company may request future fixed rate advances or floating rate advances under the Fannie Facility either by borrowing against the value of the mortgaged properties (based on the valuation methodology established in the Fannie Facility) or adding eligible properties to the collateral pool, subject to customary conditions, including satisfaction of minimum debt service coverage and maximum loan-to-value tests. The proceeds of any future advances made under the Fannie Facility may be used, among other things, for the acquisition and refinancing of additional properties to be identified in the future.

 

Debt maturities

 

As of June 30, 2019, contractual principal payments for the five subsequent years and thereafter are as follows (amounts in thousands):

 

Year  Total 
2019 (July 1–December 31)  $3,960 
2020   30,739 
2021   16,241 
2022   92,556 
2023   222,696 
Thereafter   922,991 
   $1,289,183 
Add: Unamortized fair value debt adjustment   1,987 
Subtract: Deferred financing costs, net   (11,141)
Total  $1,280,029 

 

  24 

 

 

The net book value of real estate assets providing collateral for these above borrowings, including the Senior Credit Facility, Amended Junior Credit Facility and Fannie Facility, was $1,781.5 million as of June 30, 2019.

 

The mortgage loans encumbering the Company’s properties are generally nonrecourse, subject to certain exceptions for which the Company would be liable for any resulting losses incurred by the lender.  These exceptions vary from loan to loan but generally include fraud or a material misrepresentation, misstatement or omission by the borrower, intentional or grossly negligent conduct by the borrower that harms the property or results in a loss to the lender, filing of a bankruptcy petition by the borrower, either directly or indirectly, and certain environmental liabilities.  In addition, upon the occurrence of certain events, such as fraud or filing of a bankruptcy petition by the borrower, the Company or our joint ventures would be liable for the entire outstanding balance of the loan, all interest accrued thereon and certain other costs, including penalties and expenses. The mortgage loans generally have a period where a prepayment fee or yield maintenance would be required.

 

Note 10 – Fair Value of Financial Instruments

 

As of June 30, 2019 and December 31, 2018, based on the discounted amount of future cash flows using rates currently available to the Company for similar liabilities, the fair value of the Company’s mortgages payable is estimated at $1,305.2 million and $1,205.0 million, respectively, compared to the carrying amounts, before adjustments for deferred financing costs, net, of $1,291.2 million and $1,217.6 million, respectively.  The fair value of mortgages payable is estimated based on the Company’s current interest rates (Level 3 inputs, as defined in ASC Topic 820, “Fair Value Measurement”) for similar types of borrowing arrangements.

 

Note 11 – Derivative Financial Instruments

 

Risk Management Objective of Using Derivatives

 

The Company is exposed to certain risk arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate, liquidity, and credit risk, primarily by managing the amount, sources, and duration of its assets and liabilities and the use of derivative financial instruments. Specifically, the Company enters into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates. The Company’s derivative financial instruments are used to manage differences in the amount, timing, and duration of the Company’s known or expected cash payments principally related to the Company’s borrowings.

 

The Company’s objectives in using interest rate derivative financial instruments are to add stability to interest expense and to manage the Company’s exposure to interest rate movements. To accomplish these objectives, the Company primarily uses interest rate caps as part of its interest rate risk management strategy. Interest rate caps involve the receipt of variable-rate amounts from a counterparty if interest rates rise above the strike rate on the contract in exchange for an up-front premium.

 

The Company has not designated any of the interest rate derivatives as hedges. Although these derivative financial instruments were not designated or did not qualify for hedge accounting, the Company believes the derivative financial instruments are effective economic hedges against increases in interest rates. The Company does not use derivative financial instruments for trading or speculative purposes.

 

As of June 30, 2019, the Company had interest rate caps which effectively limit the Company’s exposure to interest rate risk by providing a ceiling on the underlying floating interest rate for $413.8 million of the Company’s floating rate debt.

 

The table below presents the fair value of the Company’s derivative financial instruments as well as their classification on the consolidated balance sheets as of June 30, 2019 and December 31, 2018 (amounts in thousands):

 

Derivatives not designated as hedging
instruments under ASC 815-20
  Balance Sheet Location  Fair values of derivative
instruments
 
     

June 30,

2019

  

December 31,

2018

 
Interest rate caps  Accounts receivable, prepaids and other assets  $231   $2,596 

 

  25 

 

 

The table below presents the effect of Company's derivative financial instruments as well as their classification on the consolidated statements of operations for the three and six months ended June 30, 2019 and 2018 (amounts in thousands):

 

Derivatives not designated
as hedging instruments
under ASC 815-20
  Location of Gain or (Loss)
Recognized in Income
 

The Effect of Derivative Instruments

on the Statements of Operations

 
     

Three Months Ended

June 30,

  

Six Months Ended

June 30,

 
      2019   2018   2019   2018 
Interest rate caps  Interest Expense  $(677)  $   $(2,365)  $ 

  

Note 12 – Related Party Transactions

 

Administrative Services Agreement

 

In October 2017, the Company entered into an Administrative Services Agreement (the “Administrative Services Agreement”) with Bluerock Real Estate, LLC and its affiliate, Bluerock Real Estate Holdings, LLC (together “BRE”). Pursuant to the Administrative Services Agreement, BRE provides the Company with certain human resources, investor relations, marketing, legal and other administrative services (the “Services”) that facilitate a smooth transition in the Company’s management of its operations, enable the Company to benefit from operational efficiencies created by access to such services, and give the Company time to develop such services in-house or to hire other third-party service providers for such services. The Services are provided on an at-cost basis, generally allocated based on the use of such Services for the benefit of the Company’s business, and are invoiced on a quarterly basis. In addition, the Administrative Services Agreement permits, from time to time, certain employees of the Company to provide or cause to be provided services to BRE, on an at-cost basis, generally allocated based on the use of such services for the benefit of the business of BRE, and otherwise subject to the terms of the Services provided by BRE to the Company under the Administrative Services Agreement. Payment by the Company of invoices and other amounts payable under the Administrative Services Agreement will be made in cash or, in the sole discretion of the Company’s board of directors (the “Board”), in the form of fully-vested LTIP Units.

 

The initial term of the Administrative Services Agreement was one year from the date of execution, subject to the Company’s right to renew for successive one-year terms upon sixty (60) days written notice prior to expiration. The initial term of the Administrative Services Agreement expired on October 31, 2018. On August 6, 2018, the Company delivered written notice to BRE of the Company’s intention to renew the Administrative Services Agreement for an additional one-year term, to expire on October 31, 2019. The Administrative Services Agreement will automatically terminate (i) upon termination by the Company of all Services, or (ii) in the event of non-renewal by the Company. Any Company party will also be able to terminate the Administrative Services Agreement with respect to any individual Service upon written notice to the applicable BRE entity, in which case the specified Service will discontinue as of the date stated in such notice, which date must be at least ninety (90) days from the date of such notice. Further, either BRE entity may terminate the Administrative Services Agreement at any time upon the occurrence of a “Change of Control Event” (as defined therein) upon at least one hundred eighty (180) days prior written notice to the Company.

 

Pursuant to the Administrative Services Agreement, BRE is responsible for the payment of all employee benefits and any other direct and indirect compensation for the employees of BRE (or their affiliates or permitted subcontractors) assigned to perform the Services, as well as such employees’ worker’s compensation insurance, employment taxes, and other applicable employer liabilities relating to such employees.

 

Recorded as part of general and administrative expenses, operating expense reimbursements of $0.4 million and $0.6 million were expensed during the three months ended June 30, 2019 and 2018, respectively. Operating expense reimbursements of $0.7 million and $1.1 million were expensed during the six months ended June 30, 2019 and 2018, respectively.

 

Pursuant to the terms of the Administrative Services Agreement, summarized below are the related party amounts payable to BRE as of June 30, 2019 and December 31, 2018 (amounts in thousands):

 

  

June 30,

2019

   December 31,
2018
 
Amounts Payable to BRE under the Administrative Services Agreement, net          
Operating and direct expense reimbursements  $691   $568 
Offering expense reimbursements   82    158 
Total amounts payable to BRE  $773   $726 

  

  26 

 

 

As of June 30, 2019 and December 31, 2018, the Company had $3.5 million and $2.9 million, respectively, in receivables due from related parties other than from BRE, primarily for accrued preferred returns on unconsolidated real estate investments for the most recent month.

 

Selling Commissions and Dealer Manager Fees

 

In conjunction with the offering of the Series B Preferred Stock, the Company engaged a related party as dealer manager, and pays up to 10% of the gross offering proceeds from the offering as selling commissions and dealer manager fees. The dealer manager re-allows the substantial majority of the selling commissions and dealer manager fees to participating broker-dealers and incurs costs in excess of the 10%, which costs are borne by the dealer manager without reimbursement by the Company. For the six months ended June 30, 2019 and 2018, the Company has incurred $6.7 million and $3.5 million in selling commissions and discounts, respectively, and $2.9 million and $1.5 million in dealer manager fees and discounts, respectively. In addition, BRE was reimbursed for offering costs in conjunction with the Series B Preferred Offering of $0.5 million and $0.6 million during the six months ended June 30, 2019 and 2018, respectively. The selling commissions, dealer manager fees, discounts and reimbursements for offering costs were recorded as a reduction to the proceeds of the offering.

 

Preferred Equity Investments and Investments in Unconsolidated Real Estate Joint Ventures

 

The Company invests with related parties in various joint ventures in which the Company owns either preferred or common interests. Please refer to Note 7 and the Company’s Form 10-K for the year ended December 31, 2018 for further information.

 

Notes and interest receivable from related parties

 

The Company provides mezzanine loans to related parties in conjunction with the developments of multifamily communities. Please refer to Notes 6 and 7 and the Company’s Form 10-K for the year ended December 31, 2018 for further information.

 

  27 

 

 

Note 13 – Stockholders’ Equity and Redeemable Preferred Stock

 

Net Loss Per Common Share

 

Basic net loss per common share is computed by dividing net loss attributable to common stockholders, less dividends on restricted stock and LTIP Units expected to vest, by the weighted average number of common shares outstanding for the period.  Diluted net loss per common share is computed by dividing net loss attributable to common stockholders by the sum of the weighted average number of common shares outstanding and any potential dilutive shares for the period.  Net loss attributable to common stockholders is computed by adjusting net loss for the non-forfeitable dividends paid on restricted stock and non-vested LTIP Units.

 

The Company considers the requirements of the two-class method when preparing earnings per share. The Company has two classes of common stock outstanding: Class A common stock, $0.01 par value per share, and Class C common stock, $0.01 par value per share. Earnings per share is not affected by the two-class method because the Company’s Class A and C common stock participate in dividends on a one-for-one basis.

 

The following table reconciles the components of basic and diluted net loss per common share (amounts in thousands, except share and per share amounts):

 

  

Three Months Ended

June 30,

  

Six Months Ended

June 30,

 
   2019   2018   2019   2018 
Net loss attributable to common stockholders  $(10,990)  $(10,212)  $(23,083)  $(19,638)
Dividends on LTIP Units expected to vest   (250)   (172)   (485)   (344)
Basic net loss attributable to common stockholders  $(11,240)  $(10,384)  $(23,568)  $(19,982)
                     
Weighted average common shares outstanding (1)   22,430,619    23,800,770    22,775,203    23,971,129 
                     
Potential dilutive shares (2)                
Weighted average common shares outstanding and potential dilutive shares (1)   22,430,619    23,800,770    22,775,203    23,971,129 
                     
Net loss per common share, basic  $(0.50)  $(0.44)  $(1.03)  $(0.83)
Net loss per common share, diluted  $(0.50)  $(0.44)  $(1.03)  $(0.83)

 

The effect of the conversion of OP Units is not reflected in the computation of basic and diluted earnings per share, as they are exchangeable for Class A common stock on a one-for-one basis. The income allocable to such OP Units is allocated on this same basis and reflected as noncontrolling interests in the accompanying consolidated financial statements. As such, the assumed conversion of these OP Units would have no net impact on the determination of diluted earnings per share.

 

(1)Amounts relate to shares of the Company’s Class A and Class C common stock outstanding.

(2)For the three and six months ended June 30, 2019, the following are excluded from the diluted shares calculations as the effect is antidilutive: a) warrants outstanding from issuances in conjunction with the Company’s Series B Preferred Stock offerings that are potentially exercisable for 125,274 and 49,970 shares of Class A common stock, respectively, and b) potential vesting of restricted stock grants to employees for 11,944 and 8,726 shares of Class A common stock, respectively. Excludes no shares for the three and six months ended June 30, 2018.

 

Series B Redeemable Preferred Stock Offering

 

The Company issued 95,092 shares of Series B Preferred Stock under a continuous registered offering with net proceeds of approximately $85.6 million after commissions, discounts and dealer manager fees of approximately $9.5 million during the six months ended June 30, 2019. As of June 30, 2019, the Company has sold 403,370 shares of Series B Preferred Stock and 403,370 Warrants to purchase 8,067,400 shares of Class A common stock for net proceeds of approximately $363.0 million after commissions, discounts and fees. During the six months ended June 30, 2019, 1,513 Series B Preferred shares were redeemed through the issuance of 131,542 Class A common shares and 86 Series B Preferred shares were redeemed for $80,450 in cash.

 

  28 

 

 

At-the-Market Offerings

 

On August 8, 2016, the Company, its Operating Partnership and its former Manager entered into an At Market Issuance Sales Agreement (the “Original Sales Agreement”) with FBR Capital Markets & Co. (“FBR”). Pursuant to the Original Sales Agreement, FBR acted as distribution agent with respect to the offering and sale of up to $100,000,000 in shares of Class A common stock in “at the market offerings” as defined in Rule 415 under the Securities Act, including without limitation sales made directly on or through the NYSE American, or on any other existing trading market for Class A common stock or through a market maker (the “Original Class A Common Stock ATM Offering”). The Company did not commence any sales through the Original Class A Common Stock ATM Offering before it expired on January 29, 2019.

 

Class A Common Stock Repurchase Program

 

In February 2018, the Company authorized a stock repurchase plan to purchase up to $25 million of the Company’s outstanding shares of Class A common stock over a period of one year pursuant to a stock repurchase plan. In December 2018, the Company renewed its stock repurchase plan for a period of one year. The repurchase plan can be discontinued at any time. The extent to which the Company repurchases shares of its Class A common stock, and the timing of any such purchases, depends on a variety of factors including general business and market conditions and other corporate considerations. The Company purchased 1,255,445 shares of Class A common stock during the six months ended June 30, 2019 for a total purchase price of $13.4 million.

 

The following table is a summary of the Class A common stock repurchase activity during the six months ended June 30, 2019:

 

Period  Total Number
of Shares
Purchased
   Weighted
Average Price
Paid Per Share
   Cumulative Number of
Shares Purchased as
Part of the Publicly
Announced Plan
   Maximum Dollar Value
of Shares that May Yet
Be Purchased Under
the Plan
 
First quarter 2019   505,797   $10.01    1,560,854   $10,919,065 
Second quarter 2019   749,648    11.13    2,310,502    2,578,184 
Total   1,255,445   $10.68           

  

Operating Partnership and Long-Term Incentive Plan Units

 

As of June 30, 2019, limited partners other than the Company owned approximately 28.23% of the common units of the Operating Partnership (6,384,512 OP Units, or 20.48%, is held by OP Unit holders, and 2,414,160 LTIP Units, or 7.75%, is held by LTIP Unit holders, including 4.64% which are not vested at June 30, 2019). Subject to certain restrictions set forth in the Operating Partnership’s Partnership Agreement, OP Units are exchangeable for Class A common stock on a one-for-one basis, or, at the Company’s election, redeemable for cash. LTIP Units may be convertible into OP Units under certain conditions and then may be settled in shares of the Company’s Class A common stock, or, at the Company’s election, cash.

 

Equity Incentive Plans

 

LTIP Unit Grants

 

On January 1, 2018, the Company granted certain equity grants of LTIP Units of the Company’s Operating Partnership to various executive officers under the Second Amended 2014 Incentive Plans pursuant to the executive officers’ employment and service agreements as time-based LTIP Units and performance-based LTIP Units. All such grants of LTIP Units require continuous employment for vesting. Due to a limitation on the number of LTIP Units available for issuance under the Second Amended 2014 Incentive Plans, the long-term performance awards were, in aggregate, approximately 81,000 LTIP Units (the “Shortfall LTIP Units”) lower than those to which the recipients were entitled pursuant to the terms of their respective employment and service agreements, with the Company planning to issue the remaining LTIP Units at such time as such LTIP Units became available under the Incentive Plans. The time-based LTIP Units were comprised of 770,854 LTIP Units that vest over approximately five years and 160,192 LTIP Units that vest over approximately three years. The performance-based LTIP Units were comprised of 125,165 LTIP Units (the “Initial Long-Term Performance Award”), which are subject to a three-year performance period, and will vest immediately upon successful achievement of performance-based conditions. Performance criteria are primarily based on a mixture of objective internal achievement goals and relative performance against its industry peers, with a minimum, threshold, and maximum performance standard for performance criteria. After the determination of the achievement of the performance criteria, any performance-based LTIP Units that were awarded but do not vest will be canceled.

 

In addition, on January 1, 2018, the Company granted 6,263 LTIP Units under the Second Amended 2014 Incentive Plans to each independent member of the Board in payment of the equity portion of their respective annual retainers. Such LTIP Units were fully vested upon issuance and the Company recognized expense of $0.2 million immediately based on the fair value at the date of grant.

 

  29 

 

 

On September 28, 2018, the Company’s stockholders approved the amendment and restatement of each of the Second Amended 2014 Individuals Plan (the “Third Amended 2014 Individuals Plan”) and the Second Amended 2014 Entities Plan (the “Third Amended 2014 Entities Plan”, and together with the Third Amended 2014 Individuals Plan, the “Third Amended 2014 Incentive Plans,” and together with the Second Amended 2014 Incentive Plans, the “Incentive Plans”). The Third Amended 2014 Incentive Plans, which superseded and replaced in their entirety the Second Amended 2014 Incentive Plans, allow for the issuance of up to an aggregate of 2,250,000 additional shares of Class A common stock. The Third Amended 2014 Incentive Plans provide for the grant of options to purchase shares of the Company’s common stock, stock awards, stock appreciation rights, performance units, incentive awards and other equity-based awards.

 

On October 4, 2018, the Company granted an aggregate of 80,798 Shortfall LTIP Units to the executive officers pursuant to their employment and service agreements. The Shortfall LTIP Units vest over a period of three years from the date of grant of each Initial Long-Term Performance Award, followed by immediate vesting based on successful achievement of the performance conditions.

 

In addition, on October 4, 2018, the Company granted 3,165 LTIP Units pursuant to the Third Amended 2014 Incentive Plans to the newly appointed independent member of the Board in payment of the prorated portion of her annual retainer. Such LTIP Units were fully vested upon issuance and the Company recognized expense of $0.03 million immediately based on the fair value at the date of grant.

 

On January 1, 2019, the Company granted certain equity grants of LTIP Units to various executive officers under the Third Amended 2014 Incentive Plans pursuant to the executive officers’ employment and service agreements as time-based LTIP Units and performance-based LTIP Units. All such LTIP Unit grants require continuous employment for vesting. The time-based LTIP Units were comprised of 196,023 LTIP Units that vest over approximately three years. The performance-based LTIP Units were comprised of 294,031 LTIP Units, which are subject to a three-year performance period and will vest immediately upon successful achievement of performance-based conditions. On April 1, 2019, the Company appointed a new executive officer. On June 25, 2019, the Company, under the Third Amended 2014 Incentive Plans pursuant to the executive officer’s employment agreement, granted certain equity grants of LTIP Units as time-based LTIP Units and performance-based LTIP Units to the executive officer. The time-based LTIP Units were comprised of 10,518 LTIP Units and have a similar vesting period to those granted to the other executive officers. The performance-based LTIP Units were comprised of 15,776 LTIP Units, which are subject to a similar performance period to those granted to the other executive officers and will vest immediately upon successful achievement of performance-based conditions.

 

The Company recognizes compensation expense ratably over the requisite service periods for the time-based LTIP Units based on the fair value at the date of grant; thus, the Company recognized compensation expense of approximately $0.9 million and $1.2 million, and $1.8 million and $2.3 million, during the three and six months ended June 30, 2019 and 2018, respectively. The Company recognizes compensation expense based on the fair value at the date of grant and the probability of achievement of performance criteria over the performance period for the performance-based LTIP Units; thus, the Company recognized approximately $0.4 million and $0.1 million, and $0.8 million and $0.2 million, during the three and six months ended June 30, 2019 and 2018, respectively.

 

In addition, on January 1, 2019, the Company granted 6,836 LTIP Units pursuant to the Third Amended 2014 Incentive Plans to each independent member of the Board in payment of the equity portion of their respective annual retainers. Such LTIP Units were fully vested upon issuance and the Company recognized expense of $0.2 million immediately based on the fair value at the date of grant.

 

As of June 30, 2019, there was $8.4 million of total unrecognized compensation cost related to unvested LTIP Units granted under the Incentive Plans. The remaining cost is expected to be recognized over a period of 2.6 years.

 

Restricted Stock Grants

 

On April 1, 2019, the Company provided restricted stock grants (“RSGs”) to employees under the Incentive Plans. The RSGs vest in three equal consecutive one-year tranches from the date of grant. The RSGs were comprised of 90,694 shares of Class A common stock with a fair value of $10.65 per RSG and a total fair value of $1.0 million. The compensation cost of approximately $0.1 million has been recognized for the six months ended June 30, 2019. The remaining compensation cost is expected to be recognized over the remaining 2.75 years.

  

Distributions

 

 

Declaration Date

 

Payable to stockholders

of record as of

  

 

Amount

  

 

Date Paid or Payable

Class A Common Stock           
December 7, 2018  December 24, 2018   $0.162500   January 4, 2019
March 8, 2019  March 25, 2019   $0.162500   April 5, 2019
June 7, 2019  June 25, 2019   $0.162500   July 5, 2019
Class C Common Stock            
December 7, 2018  December 24, 2018   $0.162500   January 4, 2019
March 8, 2019  March 25, 2019   $0.162500   April 5, 2019
June 7, 2019  June 25, 2019   $0.162500   July 5, 2019
Series A Preferred Stock            
December 7, 2018  December 24, 2018   $0.515625   January 4, 2019
March 8, 2019  March 25, 2019   $0.515625   April 5, 2019
June 7, 2019  June 25, 2019   $0.515625   July 5, 2019
Series B Preferred Stock            
October 12, 2018  December 24, 2018   $5.00   January 4, 2019
January 11, 2019  January 25, 2019   $5.00   February 5, 2019
January 11, 2019  February 25, 2019   $5.00   March 5, 2019
January 11, 2019  March 25, 2019   $5.00   April 5, 2019
April 12, 2019  April 25, 2019   $5.00   May 3, 2019
April 12, 2019  May 24, 2019   $5.00   June 5, 2019
April 12, 2019  June 25, 2019   $5.00   July 5, 2019
Series C Preferred Stock            
December 7, 2018  December 24, 2018   $0.4765625   January 4, 2019
March 8, 2019  March 25, 2019   $0.4765625   April 5, 2019
June 7, 2019  June 25, 2019   $0.4765625   July 5, 2019
Series D Preferred Stock            
December 7, 2018  December 24, 2018   $0.4453125   January 4, 2019
March 8, 2019  March 25, 2019   $0.4453125   April 5, 2019
June 7, 2019  June 25, 2019   $0.4453125   July 5, 2019

 

  30 

 

 

A portion of each dividend may constitute a return of capital for tax purposes. There is no assurance that the Company will continue to declare dividends or at this rate. Holders of OP Units and LTIP Units are entitled to receive "distribution equivalents" at the same time as dividends are paid to holders of the Company's Class A common stock.

 

The Company has a dividend reinvestment plan that allows for participating stockholders to have their Class A common stock dividend distributions automatically invested in additional Class A common shares based on the average price of the Class A common shares on the investment date. The Company plans to issue Class A common shares to cover shares required for investment.

 

 Distributions declared and paid for the six months ended June 30, 2019 were as follows (amounts in thousands):

 

   Distributions 
2019  Declared   Paid 
First Quarter          
Class A Common Stock  $3,727   $3,820 
Class C Common Stock   12    12 
Series A Preferred Stock   2,950    2,950 
Series B Preferred Stock   5,058    4,842 
Series C Preferred Stock   1,107    1,107 
Series D Preferred Stock   1,269    1,269 
OP Units   1,038    1,038 
LTIP Units   383    262 
Total first quarter 2019  $15,544   $15,300 
Second Quarter          
Class A Common Stock  $3,623   $3,726 
Class C Common Stock   12    12 
Series A Preferred Stock   2,950    2,950 
Series B Preferred Stock   5,693    5,443 
Series C Preferred Stock   1,107    1,107 
Series D Preferred Stock   1,269    1,269 
OP Units   1,038    1,058 
LTIP Units   392    309 
Total second quarter 2019  $16,084   $15,874 
Total  $31,628   $31,174 

 

  31 

 

 

Note 14 – Commitments and Contingencies

 

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

 

Note 15 – Subsequent Events

 

Declaration of Dividends

 

 

Declaration Date

 

Payable to stockholders

of record as of

  

 

Amount

  

 

Payable Date

Series B Preferred Stock           
July 12, 2019   July 25, 2019   $5.00   August 5, 2019
July 12, 2019   August 23, 2019   $5.00   September 5, 2019
July 12, 2019   September 25, 2019   $5.00   October 4, 2019

 

Holders of OP and LTIP Units are entitled to receive "distribution equivalents" at the same time as dividends are paid to holders of the Company's Class A common stock. A portion of each dividend may constitute a return of capital for tax purposes. There is no assurance that the Company will continue to declare dividends or at this rate.

 

 Distributions Paid

 

The following distributions were declared and/or paid to the Company's stockholders, as well as holders of OP and LTIP Units, subsequent to June 30, 2019 (amounts in thousands):

  

Shares  Declaration
Date
  Record Date  Date Paid  Distributions
per Share
   Total
Distribution
 
Class A Common Stock  June 7, 2019  June 25, 2019  July 5, 2019  $0.162500   $3,623 
Class C Common Stock  June 7, 2019  June 25, 2019  July 5, 2019  $0.162500   $12 
Series A Preferred Stock  June 7, 2019  June 25, 2019  July 5, 2019  $0.515625   $2,950 
Series B Preferred Stock  April 12, 2019  June 25, 2019  July 5, 2019  $5.000000   $1,998 
Series C Preferred Stock  June 7, 2019  June 25, 2019  July 5, 2019  $0.4765625   $1,107 
Series D Preferred Stock  June 7, 2019  June 25, 2019  July 5, 2019  $0.4453125   $1,269 
OP Units  June 7, 2019  June 25, 2019  July 5, 2019  $0.162500   $1,017 
LTIP Units  June 7, 2019  June 25, 2019  July 5, 2019  $0.162500   $317 
                    
Series B Preferred Stock  July 12, 2019  July 25, 2019  August 5, 2019  $5.000000   $2,055 
Total                $14,348 

 

Sale of the Topaz Portfolio

 

On July 15, 2019, the Company, through subsidiaries of the Operating Partnership, closed on the sale of four of the five properties in the Topaz Portfolio pursuant to the terms and conditions of two separate purchase and sales agreements for approximately $226.9 million. The sale of the fifth property in the Topaz Portfolio, ARIUM Palms, is expected to close in August 2019.

 

Acquisition of Denim

 

On July 24, 2019, the Company, through subsidiaries of its Operating Partnership, acquired a 100.0% interest in a 645-unit apartment community located in Scottsdale, Arizona, known as Denim for approximately $141.3 million. The purchase price of $141.3 million was funded, in part, with a $91.6 million senior mortgage loan secured by the Denim property.

 

Acquisition of The Sanctuary

 

On July 31, 2019, the Company, through subsidiaries of its Operating Partnership, acquired a 100.0% interest in a 320-unit apartment community located in Las Vegas, Nevada, known as The Sanctuary (“Sanctuary”) for approximately $51.8 million. The purchase price of $51.8 million was funded, in part, with a $33.7 million senior mortgage loan secured by the Sanctuary property.

 

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

 

The following discussion and analysis should be read in conjunction with the accompanying consolidated financial statements of Bluerock Residential Growth REIT, Inc., and the notes thereto. As used herein, the terms “we,” “our” and “us” refer to Bluerock Residential Growth REIT, Inc., a Maryland corporation, and, as required by context, Bluerock Residential Holdings, L.P., a Delaware limited partnership, which we refer to as our “Operating Partnership,” and to their subsidiaries. We refer to Bluerock Real Estate, L.L.C., a Delaware limited liability company, as “Bluerock”, and we refer to our former external manager, BRG Manager, LLC, a Delaware limited liability company, as our “former Manager.” Both Bluerock and our former Manager are affiliated with the Company.

 

Forward-Looking Statements

 

Statements included in this Quarterly Report on Form 10-Q that are not historical facts (including any statements concerning investment objectives, other plans and objectives of management for future operations or economic performance, or assumptions or forecasts related thereto) are “forward-looking statements,” within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are only predictions. We caution that forward-looking statements are not guarantees. Actual events or our investments and results of operations could differ materially from those expressed or implied in any forward-looking statements. Forward-looking statements are typically identified by the use of terms such as “may,” “should,” “expect,” “could,” “intend,” “plan,” “anticipate,” “estimate,” “believe,” “continue,” “predict,” “potential” or the negative of such terms and other comparable terminology.

  

The forward-looking statements included herein are based upon our current expectations, plans, estimates, assumptions and beliefs that involve numerous risks and uncertainties. Assumptions relating to the foregoing involve judgments with respect to, among other things, future economic, competitive and market conditions and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond our control. Although we believe that the expectations reflected in such forward-looking statements are based on reasonable assumptions, our actual results and performance could differ materially from those set forth in the forward-looking statements. Factors that could have a material adverse effect on our operations and future prospects include, but are not limited to:

 

  the factors included in this Quarterly Report on Form 10-Q, including those set forth under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations”;
     
  use of proceeds of the Company’s securities offerings;
     
  the competitive environment in which we operate;
     
  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 at 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 owner/operators with which we invest through controlling positions in joint ventures;
     
  potential natural disasters such as hurricanes, tornadoes and floods;
     
  national, international, regional and local economic conditions;

 

  33 

 

 

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

 

Any of the assumptions underlying forward-looking statements could be inaccurate. You are cautioned not to place undue reliance on any forward-looking statements included in this report. All forward-looking statements are made as of the date of this report and the risk that actual results will differ materially from the expectations expressed in this report will increase with the passage of time. Except as otherwise required by the federal securities laws, we undertake no obligation to publicly update or revise any forward-looking statements after the date of this report, whether as a result of new information, future events, changed circumstances or any other reason. The forward-looking statements should be read in light of the risk factors set forth in Item 1A of our Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on February 27, 2019, and subsequent filings by us with the SEC, or (“Risk Factors”).

 

Overview

 

We were incorporated as a Maryland corporation on July 25, 2008. Our objective is to maximize long-term stockholder value by acquiring and developing well-located institutional-quality apartment properties in knowledge economy growth markets across the United States. We seek to maximize returns through investments where we believe we can drive substantial growth in our core funds from operations and net asset value primarily through our Value-Add and Invest-to-Own investment strategies.

 

We conduct our operations through Bluerock Residential Holdings, L.P., our operating partnership (the “Operating Partnership”), of which we are the sole general partner. The consolidated financial statements include our accounts and those of the Operating Partnership and its subsidiaries.

 

As of June 30, 2019, our portfolio consisted of investments held in fifty real estate properties, consisting of thirty-five consolidated operating properties and fifteen properties through preferred equity and mezzanine loan investments. Of the property interests held through preferred equity and mezzanine loan investments, five are under development, five are in lease-up and five properties are stabilized. The fifty properties contain an aggregate of 15,251 units, comprised of 11,820 consolidated operating units and 3,431 units through preferred equity and mezzanine loan investments. As of June 30, 2019, our consolidated operating properties were approximately 94% occupied.

 

We have elected to be taxed as a REIT under Sections 856 through 860 of the Code and have qualified as a REIT commencing with our taxable year ended December 31, 2010. In order to continue to qualify as a REIT, we must distribute to our stockholders each calendar year at least 90% of our taxable income (excluding net capital gains). If we qualify as a REIT for federal income tax purposes, we generally will not be subject to federal income tax on income that we distribute to our stockholders. If we fail to qualify as a REIT in any taxable year, we will be subject to federal income tax on our taxable income at regular corporate rates and will not be permitted to qualify as a REIT for four years following the year in which our qualification is denied. Such an event could materially and adversely affect our net income and results of operations. We intend to continue to organize and operate in such a manner as to remain qualified as a REIT.

 

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Significant Developments

 

During the six months ended June 30, 2019, we acquired two stabilized properties, acquired additional interests in three stabilized properties, and provided senior loan funds and mezzanine loan funds in one development project as discussed below.

 

The Park at Chapel Hill Financing

 

On January 23, 2019, we, through an indirect subsidiary, provided a $7.8 million senior loan to BR Chapel Hill, LLC (“BR Chapel Hill”). BR Chapel Hill JV, LLC (“BR Chapel Hill JV”) owns a 100.0% interest in BR Chapel Hill and is a joint venture with common interests held by Fund I, Fund II, and BR Chapel Hill Investment, LLC, all managed by affiliates of the former Manager. The senior loan is secured by BR Chapel Hill’s fee simple interest in the Chapel Hill property.

 

In conjunction with the senior loan, on January 23, 2019, we, through an indirect subsidiary, provided an $0.8 million mezzanine loan to BR Chapel Hill JV, which is secured by the Chapel Hill property. See Note 6 to the interim Consolidated Financial Statements for additional information.

 

Acquisition of Additional Interest in ARIUM Pine Lakes

 

On January 29, 2019, we, through subsidiaries of our Operating Partnership, purchased the non-controlling partner’s interest in ARIUM Pine Lakes for $7.8 million, increasing our interest in the property from 85.0% to 100.0%.

 

Acquisition of Additional Interest in Sorrel

 

On June 25, 2019, we, through subsidiaries of our Operating Partnership, purchased the non-controlling partner’s interest in Sorrel for $0.7 million, increasing our interest in the property from 95.0% to 100.0%.

 

Acquisition of Additional Interest in Sovereign

 

On June 25, 2019, we, through subsidiaries of our Operating Partnership, purchased the non-controlling partner’s interest in Sovereign for $1.2 million, increasing our interest in the property from 95.0% to 100.0%.

 

Acquisition of Element

 

On June 27, 2019, we, through subsidiaries of our Operating Partnership, acquired a 100.0% interest in a 200-unit apartment community located in Las Vegas, Nevada, known as Element for approximately $41.8 million. The purchase price of $41.8 million was funded, in part, with a $29.3 million senior mortgage loan secured by the Element property.

 

Acquisition of Providence Trail

 

On June 27, 2019, we, through subsidiaries of our Operating Partnership, acquired a 100.0% interest in a 334-unit apartment community located in Mount Juliet, Tennessee, known as Providence for approximately $68.5 million. The purchase price of $68.5 million was funded, in part, with a $48.0 million senior mortgage loan secured by the Providence property.

 

Held for sale

 

We have entered into three separate purchase and sales agreements, and three separate amendments thereto, for the sale of ARIUM Palms, Leigh House, Preston View, Sorrel and Sovereign (the “Topaz Portfolio”) at an amount more than their carrying values and have classified the properties as held for sale as of June 30, 2019. On July 15, 2019, we closed on the sale of four of the five properties in the Topaz Portfolio pursuant to the terms and conditions of two separate purchase and sales agreements for approximately $226.9 million. The sale of the fifth property in the Topaz Portfolio, ARIUM Palms, is expected to close in August 2019.

 

Series B Preferred Stock Continuous Offering

 

We issued 95,092 shares of Series B Preferred Stock under a continuous registered offering with net proceeds of approximately $85.6 million after commissions, discounts and dealer manager fees of approximately $9.5 million during the six months ended June 30, 2019.

 

Our total stockholders’ equity decreased $42.9 million from $158.3 million as of December 31, 2018 to $115.4 million as of June 30, 2019. The decrease in our total stockholders’ equity is primarily attributable to dividends declared of $28.8 million and repurchase of Class A common stock of $13.4 million during the six months ended June 30, 2019.

 

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Results of Operations

 

The following is a summary of our stabilized consolidated operating real estate investments as of June 30, 2019:

 

 Multifamily Community Name  Location 

Number of

Units

  

Date

Built/Renovated (1)

  

Ownership

Interest

  

Average

Rent (2)

   %
Occupied(3)
 
ARIUM at Palmer Ranch  Sarasota, FL   320    2016    100.0%  $1,319    96%
ARIUM Glenridge  Atlanta, GA   480    1990    90.0%   1,241    94%
ARIUM Grandewood  Orlando, FL   306    2005    100.0%   1,416    94%
ARIUM Gulfshore  Naples, FL   368    2016    100.0%   1,324    90%
ARIUM Hunter’s Creek  Orlando, FL   532    1999    100.0%   1,409    97%
ARIUM Metrowest  Orlando, FL   510    2001    100.0%   1,392    94%
ARIUM Palms  Orlando, FL   252    2008    100.0%   1,359    97%
ARIUM Pine Lakes  Port St. Lucie, FL   320    2003    100.0%   1,307