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 well-located institutional-quality apartment properties in demographically
attractive growth markets across the United States. The Company seeks to maximize returns through investments where it believes
it can drive substantial growth in its funds from operations and net asset value through one or more of its Core-Plus, Value-Add,
Opportunistic and Invest-to-Own investment strategies.
As of June 30, 2016,
the Company's portfolio consisted of interests in twenty-four properties (seventeen operating properties and seven development
properties). The Company’s twenty-four properties contain an aggregate of 7,717 units, comprised of 5,668 operating units
and 2,049 units under development. As of June 30, 2016, these properties, exclusive of development properties, and Whetstone,
Sorrel and EOS, the lease-up properties, were approximately 95% 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 of the property interests acquired on the Company’s
behalf. As of June 30, 2016, limited partners other than the Company owned approximately 7.01% of the Operating Partnership (1.45%
is held by holders of limited partnership interest in the Operating Partnership (“OP Units”) and 5.56% is held by
holders of the Operating Partnership’s long-term incentive plan units (“LTIP Units”)). Bluerock Real Estate,
L.L.C., a Delaware limited liability company, is referred to as Bluerock (“Bluerock”), and the Company’s external
manager, BRG Manager, LLC, a Delaware limited liability company, is referred to as its Manager (“Manager”). Both Bluerock
and the Manager are related parties with respect to the Company, but are not within the Company’s control and are not consolidated
in the Company’s financial statements.
Because the Company
is the sole general partner of its 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 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 over which
the Company has the ability to exercise significant influence, but for which it 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 joint ventures for consolidation in accordance with the provisions required by the Financial Accounting Standards Board
(“FASB”) Accounting Standards Codification (“ASC”) Topic 810: Consolidation.
Certain amounts in
prior year financial statement presentation have been reclassified to conform to the current period presentation.
Investments in Unconsolidated Real
Estate Joint Ventures
The Company first
analyzes its investments in joint ventures to determine if the joint venture is a variable interest entity (“VIE”)
in accordance with 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 with changes in the fair value of the VIE’s net assets. The Company continuously re-assesses at each level
of the joint venture whether the entity is (i) a VIE, and (ii) if the Company is the primary beneficiary of the VIE.
If it was determined an entity in which the Company holds a joint venture interest qualified as a VIE and the Company was the
primary beneficiary, the entity would be consolidated.
If, after consideration
of the VIE accounting literature, the Company has determined that VIE accounting is not applicable to the joint ventures, 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, or through determination
of control by virtue of the Company being the general partner in a limited partnership or the controlling member of a limited
liability company.
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 that are not otherwise protective rights.
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.
Interim Financial Information
The accompanying
unaudited consolidated financial statements of the Company have been prepared in accordance with accounting principles generally
accepted in the United States of America (“GAAP”) for interim financial reporting, and the instructions to Form 10-Q
and Article 10-1 of Regulation S-X. Accordingly, the financial statements for interim reporting do not include all of 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, 2015 has been derived from the audited financial statements at that date, but does not include all of the
information and disclosures required by GAAP for complete financial statements. For further information, refer to the financial
statements and notes thereto included in our audited consolidated financial statements for the year ended December 31, 2015
contained in the Annual Report on Form 10-K as filed with the Securities and Exchange Commission (“SEC”) on February
24, 2016.
Summary of Significant Accounting
Policies
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, 2015.
Use of Estimates
The preparation of
the financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
New Accounting Pronouncements
In March 2016, the
Financial Accounting Standards Board (“FASB”) issued ASU No. 2016-09, “Compensation – Stock Compensation
(Topic 718): Improvements to Employee Share-Based Payment Accounting” (“ASU-2016-09”). The ASU includes multiple
provisions intended to simplify various aspects of the accounting for share-based payments. While aimed at reducing the cost and
complexity of the accounting for share-based payments, the amendments are expected to impact net income, earnings per share, and
the statement of cash flows. ASU No. 2016-09 is effective for annual reporting periods (including interim periods with those periods)
beginning after December 15, 2016. Early adoption is permitted. The Company is still in the process of determining the impact
that the implementation of ASU 2016-09 will have on the Company’s financial statements.
In March 2016, the
FASB issued ASU No. 2016-07, “Simplifying the Transition to the Equity Method of Accounting”, which eliminates the
requirement to retroactively adjust an investment, results of operations, and retained earnings when the investment qualifies
for the use of the equity method as a result of an increase in the level of ownership interest or degree of influence. The new
standard is effective for annual reporting periods beginning after December 15, 2016 and early adoption is permitted. The Company
is still in the process of determining the impact that the implementation of ASU 2016-07 will have on the Company’s 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, and requires a modified retrospective adoption, with early adoption permitted. The Company is in the process of evaluating
the future impact of ASU 2016-02 on our consolidated financial position, results of operations and cash flows.
In August 2014, the
FASB issued ASU No. 2014-15, “Presentation of Financial Statements - Going Concern” (“ASU 2014-15”), which
requires an entity's management to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial
doubt about the entity's ability to continue as a going concern within one year after the date that the financial statements are
issued. ASU 2014-15 is effective for periods beginning after December 15, 2016. ASU 2014-15 is not expected to have a material
impact on the Company's financial statements.
In May 2014, the
FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606)” (“ASU 2014-09”). The
updated standard is a new comprehensive revenue recognition model that requires revenue to be recognized in a manner that depicts
the transfer of goods or services to a customer at an amount that reflects the consideration expected to be received in exchange
for those goods or services. In July 2015, the FASB voted to approve the deferral of the effective date of ASU 2014-09 by one
year. Therefore, ASU 2014-09 will become effective for the Company in the first quarter of the fiscal year ending December 31,
2018. Early adoption is permitted, but not earlier than the first quarter of the fiscal year ending December 31, 2017. The ASU
allows for either full retrospective or modified retrospective adoption. In April 2016, the FASB issued ASU No. 2016-10, “Revenue
from Contracts with Customers” (Topic 606): Identifying Performance Obligations and Licensing, which adds guidance on identifying
performance obligations within a contract. The Company has not selected a transition method, and is currently evaluating the effect
that ASU 2014-09, as amended, will have on the consolidated financial statements and related disclosures.
Note 3 –
Sale of Unconsolidated
Real Estate Joint Ventures and Held for Sale Property
Sale of Joint Venture Equity Interests
On January 14, 2015,
the Company, along with the other two holders of tenant-in-common interests in Berry Hill, sold their respective interests to
2300 Berry Hill General Partnership, an unaffiliated third party. The aggregate purchase price was $61.2 million, subject to certain
prorations and adjustments typical in such real estate transactions. After deduction for payment of the existing mortgage indebtedness
and payment of closing costs and fees, the sale of the Company’s interest in Berry Hill generated net proceeds of approximately
$7.3 million to the Company and a consolidated gain on sale of $11.3 million, of which the Company’s pro rata share of gain
is $5.3 million before disposition expenses of $0.1 million, which was included in the Company’s statement of operations
for the six months ended June 30, 2015.
Held for sale
The Company has signed
an agreement to sell the Springhouse at Newport News property at an amount in excess of its carrying value and has classified
the property as held for sale as of June 30, 2016. Closing of the transaction is subject to the satisfactory completion of the
purchaser’s
due diligence and other customary closing conditions,
and there is no assurance that the conditions will be satisfied or that the sale will occur as contemplated.
Note 4 – Investments in Real Estate
As of June 30, 2016,
the Company was invested in seventeen operating real estate properties and seven development properties generally through joint
ventures. The following tables provide summary information regarding our operating and development investments, which are either
consolidated or presented on the equity method of accounting.
Operating Properties
Multifamily Community Name/Location
|
|
Number of
Units
|
|
|
Date
Built/Renovated
(1)
|
|
Ownership
Interest
|
|
ARIUM at Palmer Ranch, Sarasota, FL
|
|
|
320
|
|
|
2016
|
|
|
95.0
|
%
|
ARIUM Grandewood, Orlando, FL
|
|
|
306
|
|
|
2005
|
|
|
95.0
|
%
|
ARIUM Gulfshore, Naples, FL
|
|
|
368
|
|
|
2016
|
|
|
95.0
|
%
|
ARIUM Palms, Orlando, FL
|
|
|
252
|
|
|
2008
|
|
|
95.0
|
%
|
Ashton Reserve, Charlotte, NC
|
|
|
473
|
|
|
2015
|
|
|
100.0
|
%
|
Enders Place at Baldwin Park, Orlando, FL
|
|
|
220
|
|
|
2003
|
|
|
89.5
|
%
|
EOS, Orlando, FL
|
|
|
296
|
|
|
2015
|
|
|
—
|
|
Fox Hill, Austin, TX
|
|
|
288
|
|
|
2010
|
|
|
94.6
|
%
|
Lansbrook Village, Palm Harbor, FL
|
|
|
617
|
|
|
2004
|
|
|
90.0
|
%
|
MDA Apartment, Chicago, IL
|
|
|
190
|
|
|
2006
|
|
|
35.3
|
%
|
Park & Kingston, Charlotte, NC
|
|
|
168
|
|
|
2015
|
|
|
96.0
|
%
|
Sorrel, Frisco, TX
|
|
|
352
|
|
|
2015
|
|
|
95.0
|
%
|
Sovereign, Fort Worth, TX
|
|
|
322
|
|
|
2015
|
|
|
95.0
|
%
|
Springhouse at Newport News, Newport News, VA
|
|
|
432
|
|
|
1985
|
|
|
75.0
|
%
|
The Preserve at Henderson Beach, Destin, FL
|
|
|
340
|
|
|
2009
|
|
|
100.0
|
%
|
Village Green of Ann Arbor, Ann Arbor, MI
|
|
|
520
|
|
|
2013
|
|
|
48.6
|
%
|
Whetstone, Durham, NC
|
|
|
204
|
|
|
2015
|
|
|
—
|
|
Total/Average
|
|
|
5,668
|
|
|
|
|
|
|
|
(1)
Represents date of
last significant renovation or year built if there were no renovations.
Depreciation expense was $5.8 million and $2.8 million for
the three months ended June 30, 2016 and 2015, respectively, and $10.8 million and $5.1 million for the six months ended June
30, 2016 and 2015, 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 $2.0 million and $0.9 million
for the three months ended June 30, 2016 and 2015, respectively, and $4.5 million and $1.4 million for the six months ended June
30, 2016 and 2015, respectively.
Development Properties
Multifamily Community Name/Location
|
|
Planned
Number of
Units
|
|
|
Anticipated
Initial
Occupancy
|
|
Anticipated
Final Units to
be Delivered
|
|
|
|
|
|
|
|
|
Alexan CityCentre, Houston, TX
|
|
|
340
|
|
|
2Q 2017
|
|
4Q 2017
|
Alexan Southside Place, Houston, TX
|
|
|
269
|
|
|
4Q 2017
|
|
2Q 2018
|
Cheshire Bridge, Atlanta, GA
|
|
|
285
|
|
|
1Q 2017
|
|
3Q 2017
|
Domain, Garland, TX
|
|
|
301
|
|
|
2Q 2018
|
|
3Q 2018
|
Flagler Village, Ft. Lauderdale, FL
|
|
|
326
|
|
|
2Q 2019
|
|
2Q 2020
|
Lake Boone Trail, Raleigh, NC
|
|
|
245
|
|
|
1Q 2018
|
|
3Q 2018
|
West Morehead, Charlotte, NC
|
|
|
283
|
|
|
2Q 2018
|
|
4Q 2018
|
Total/Average
|
|
|
2,049
|
|
|
|
|
|
(1)
Represents
the average pro forma effective monthly rent per occupied unit for all expected occupied units upon stabilization.
Note 5 – Acquisition of Real Estate
The following describes
the Company’s significant acquisition activity during the six months ended June 30, 2016:
Acquisition of Summer Wind and Citation
Club Apartments
On January 5, 2016,
the Company, through subsidiaries of its Operating Partnership, completed investments of approximately $15.9 million and approximately
$13.6 million in a multi-tiered joint venture along with an affiliate of Carroll Organization, to acquire (i) a 368-unit apartment
community located in Naples, Florida to be known as ARIUM Gulfshore, formerly known as the Summer Wind Apartments (“ARIUM
Gulfshore”) and (ii) a 320-unit apartment community located in Sarasota, Florida to be known as ARIUM at Palmer Ranch, formerly
known as Citation Club Apartments (“ARIUM at Palmer Ranch”), respectively. The Company’s indirect ownership
interest in the joint venture that owns ARIUM Gulfshore and ARIUM at Palmer Ranch is 95.0%. ARIUM Gulfshore’s purchase price
of approximately $47.0 million was funded, in part, with a $32.6 million senior mortgage loan secured by ARIUM Gulfshore property
and improvements. ARIUM at Palmer Ranch’s purchase price of approximately $39.3 million was funded, in part, with a $26.9
million senior mortgage loan secured by the ARIUM at Palmer Ranch property and improvements.
Acquisition of The Preserve at Henderson
Beach
On March 15, 2016,
the Company, through subsidiaries of its Operating Partnership, acquired a 340-unit apartment community located in Destin, Florida,
known as Alexan Henderson Beach to be rebranded as The Preserve at Henderson Beach (“Henderson Beach”) for approximately
$53.7 million. The purchase price for Henderson Beach included the assumption of a $37.5 million loan secured by Henderson
Beach.
Preliminary Purchase Price Allocations
The acquisitions
of ARIUM Gulfshore, ARIUM at Palmer Ranch and The Preserve at Henderson Beach have been accounted for as business combinations.
The purchase prices were allocated to the acquired assets and assumed liabilities based on their estimated fair values at the
dates of acquisition. The preliminary measurements of fair value reflected below are subject to change. The Company expects to
finalize the purchase price allocations as soon as practical, but no later than one year from each property’s respective
acquisition date.
The following table
summarizes the assets acquired and liabilities assumed at the acquisition date. The amounts listed below reflect provisional amounts
that will be updated as information becomes available (amounts in thousands):
|
|
Preliminary Purchase
Price Allocation
|
|
Land
|
|
$
|
21,900
|
|
Building
|
|
|
110,637
|
|
Building improvements
|
|
|
769
|
|
Land improvements
|
|
|
2,875
|
|
Furniture and fixtures
|
|
|
2,479
|
|
In-place leases
|
|
|
2,868
|
|
Total assets acquired
|
|
$
|
141,528
|
|
Mortgages assumed
|
|
$
|
37,476
|
|
Fair value adjustments
|
|
|
1,578
|
|
Total liabilities assumed
|
|
$
|
39,054
|
|
In connection with
the acquisition of The Preserve at Henderson Beach, the Company assumed mortgage debt with a fair value of approximately $39.1
million.
The pro-forma information
presented below represents the change in consolidated revenue and earnings as if the Company's significant acquisitions of Park
& Kingston, Fox Hill, Ashton Reserve, ARIUM Palms, Sorrel, Sovereign, ARIUM Gulfshore, ARIUM at Palmer Ranch and The Preserve
at Henderson Beach (collectively, the "Recent Acquisitions"), had occurred on January 1, 2015 (amounts in thousands,
except per share amounts).
|
|
Six Months Ended June 30,
|
|
|
Six Months Ended June 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
As Reported
|
|
|
Pro-Forma
Adjustments
|
|
|
Pro-Forma
|
|
|
As Reported
|
|
|
Pro-Forma
Adjustments
|
|
|
Pro-Forma
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
35,033
|
|
|
$
|
1,044
|
|
|
$
|
36,077
|
|
|
$
|
19,505
|
|
|
$
|
14,300
|
|
|
$
|
33,805
|
|
Net (loss) income
|
|
$
|
(4,585
|
)
|
|
$
|
4,201
|
|
|
$
|
(384
|
)
|
|
$
|
8,643
|
|
|
$
|
(10,855
|
)
|
|
$
|
(2,212
|
)
|
Net (loss) income attributable to common stockholders
|
|
$
|
(9,179
|
)
|
|
$
|
4,045
|
|
|
$
|
(5,134
|
)
|
|
$
|
2,731
|
|
|
$
|
(10,455
|
)
|
|
$
|
(7,724
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) earnings per share, basic and diluted
(1)
|
|
$
|
(0.45
|
)
|
|
|
|
|
|
$
|
(0.25
|
)
|
|
$
|
0.19
|
|
|
|
|
|
|
$
|
(0.53
|
)
|
(1)
Pro-forma (loss) earnings per share, both basic
and diluted, are calculated based on the net (loss) income attributable to BRG.
Aggregate property level revenues and net
loss for the Recent Acquisitions, since the properties’ respective acquisition dates, that are reflected in the Company’s
consolidated statement of operations for the six months ended June 30, 2016 amounted to $18.1 million and $5.3 million, respectively.
Note 6 – Preferred Equity Investments and Investments
in Unconsolidated Real Estate Joint Ventures
Following is a summary
of the Company’s ownership interests in the investments reported under the equity method of accounting. The carrying amount
of the Company’s investments in unconsolidated real estate joint ventures as of June 30, 2016 and December 31, 2015 is summarized
in the table below (amounts in thousands):
Property
|
|
June 30,
2016
|
|
|
December 31,
2015
|
|
|
|
|
|
|
|
|
Alexan CityCentre
|
|
$
|
7,395
|
|
|
$
|
6,505
|
|
Alexan Southside Place
|
|
|
17,322
|
|
|
|
17,322
|
|
Cheshire Bridge
|
|
|
16,360
|
|
|
|
16,360
|
|
Domain
|
|
|
3,733
|
|
|
|
3,806
|
|
EOS
|
|
|
3,629
|
|
|
|
3,629
|
|
Flagler Village
|
|
|
8,781
|
|
|
|
5,451
|
|
Lake Boone Trail
|
|
|
9,919
|
|
|
|
9,919
|
|
West Morehead
|
|
|
3,493
|
|
|
|
—
|
|
Whetstone
|
|
|
12,932
|
|
|
|
12,231
|
|
Total
|
|
$
|
83,564
|
|
|
$
|
75,223
|
|
As of June 30, 2016,
the Company had outstanding preferred equity investments in nine multi-tiered joint ventures, each of which were created to develop
a multifamily property. In each case, a wholly-owned subsidiary of the Operating Partnership made a preferred investment in a
joint venture, except Flagler Village, which is a common interest. The common interests in these joint ventures, as well as preferred
interests in some cases, are owned by affiliates of the Manager. In each case, the Company’s investment in the joint venture
generates a preferred return of 15% on its outstanding capital contributions and the Company is not allocated any of the income
or loss in the joint ventures. The joint venture then becomes the controlling member in an entity whose purpose is to develop
a multifamily property. Each joint venture is required to redeem the Company’s preferred membership interests plus any accrued
but unpaid preferred return on the earlier of the date which is six months following the maturity of the related development’s
construction loan, or any earlier acceleration or due date. Additionally, the Company has the right, in its sole discretion, to
convert its preferred membership interest in each joint venture into a common membership interest for a period of six months from
the date upon which 70% of the units in the related development have been leased.
The following provides
additional information regarding the Company’s preferred equity and investments as of June 30, 2016:
The preferred returns
and equity in income of the Company’s unconsolidated real estate joint ventures for the three and six months ended June
30, 2016 and 2015 are summarized below (amounts in thousands):
|
|
Three Months Ended June
30,
|
|
|
Six Months Ended June
30,
|
|
Property
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Alexan CityCentre
|
|
$
|
253
|
|
|
$
|
243
|
|
|
$
|
496
|
|
|
$
|
484
|
|
Alexan Southside Place
|
|
|
648
|
|
|
|
424
|
|
|
|
1,296
|
|
|
|
686
|
|
Cheshire Bridge
|
|
|
612
|
|
|
|
196
|
|
|
|
1,224
|
|
|
|
196
|
|
Domain
|
|
|
140
|
|
|
|
—
|
|
|
|
277
|
|
|
|
—
|
|
EOS
|
|
|
134
|
|
|
|
136
|
|
|
|
272
|
|
|
|
270
|
|
Flagler Village
|
|
|
2
|
|
|
|
—
|
|
|
|
(1
|
)
|
|
|
—
|
|
Lake Boone Trail
|
|
|
371
|
|
|
|
—
|
|
|
|
742
|
|
|
|
—
|
|
Villas at Oak Crest
|
|
|
—
|
|
|
|
106
|
|
|
|
—
|
|
|
|
212
|
|
West Morehead
|
|
|
131
|
|
|
|
—
|
|
|
|
294
|
|
|
|
—
|
|
Whetstone
|
|
|
484
|
|
|
|
206
|
|
|
|
943
|
|
|
|
206
|
|
Other
|
|
|
—
|
|
|
|
(16
|
)
|
|
|
—
|
|
|
|
(29
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred returns and equity in earnings of unconsolidated joint venture
|
|
$
|
2,775
|
|
|
$
|
1,295
|
|
|
$
|
5,543
|
|
|
$
|
2,025
|
|
Summary combined
financial information for the Company’s investments in unconsolidated real estate joint ventures as of June 30, 2016 and
December 31, 2015 and for the three and six months ended June 30, 2016 and 2015, is as follows:
|
|
June 30,
2016
|
|
|
December 31,
2015
|
|
Balance Sheets:
|
|
|
|
|
|
|
|
|
Real estate, net of depreciation
|
|
$
|
170,974
|
|
|
$
|
132,265
|
|
Other assets
|
|
|
18,354
|
|
|
|
24,737
|
|
Total assets
|
|
$
|
189,328
|
|
|
$
|
157,002
|
|
|
|
|
|
|
|
|
|
|
Mortgages payable
|
|
$
|
65,521
|
|
|
$
|
55,066
|
|
Other liabilities
|
|
|
16,129
|
|
|
|
5,018
|
|
Total liabilities
|
|
$
|
81,650
|
|
|
$
|
60,084
|
|
Members’ equity
|
|
|
107,678
|
|
|
|
96,918
|
|
Total liabilities and members’ equity
|
|
$
|
189,328
|
|
|
$
|
157,002
|
|
|
|
Three Months Ended June
30,
|
|
|
Six Months Ended June
30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Operating Statement:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental revenues
|
|
$
|
1,469
|
|
|
$
|
643
|
|
|
$
|
2,614
|
|
|
$
|
1,327
|
|
Operating expenses
|
|
|
(807
|
)
|
|
|
(352
|
)
|
|
|
(1,539
|
)
|
|
|
(631
|
)
|
Income before debt service, acquisition costs, and depreciation and amortization
|
|
|
662
|
|
|
|
291
|
|
|
|
1,075
|
|
|
|
696
|
|
Interest expense, net
|
|
|
(331
|
)
|
|
|
(197
|
)
|
|
|
(655
|
)
|
|
|
(377
|
)
|
Acquisition costs
|
|
|
(1
|
)
|
|
|
(65
|
)
|
|
|
(1
|
)
|
|
|
(66
|
)
|
Depreciation and amortization
|
|
|
(767
|
)
|
|
|
(142
|
)
|
|
|
(1,526
|
)
|
|
|
(355
|
)
|
Operating (loss)
|
|
|
(437
|
)
|
|
|
(113
|
)
|
|
|
(1,107
|
)
|
|
|
(102
|
)
|
Gain on sale
|
|
|
-
|
|
|
|
2
|
|
|
|
-
|
|
|
|
29,200
|
|
Net (loss) income
|
|
$
|
(437
|
)
|
|
$
|
(111
|
)
|
|
$
|
(1,107
|
)
|
|
$
|
29,098
|
|
Acquisition of Alexan Southside Place
(formerly referred to as Alexan Blaire House) Interests
On January 12, 2015,
through BRG Southside, LLC, a wholly-owned subsidiary of its Operating Partnership, the Company made a convertible preferred equity
investment in a multi-tiered joint venture, along with Bluerock Special Opportunity + Income Fund II, LLC, (“Fund II”)
and Bluerock Special Opportunity + Income Fund III, LLC (“Fund III”), which are affiliates of the Manager, and an
affiliate of Trammell Crow Residential, to develop an approximately 269-unit Class A apartment community located in Houston, Texas,
to be known as Alexan Southside Place. Alexan Southside Place will be developed upon a tract of land ground leased from Prokop
Industries BH, L.P., a Texas limited partnership, by BR Bellaire BLVD, LLC, as tenant under an 85-year ground lease. The Company
has made a capital commitment of $17.3 million to acquire 100% of the preferred equity interests in BRG Southside, LLC, all of
which has been funded as of June 30, 2016.
Alexan Southside Place Construction
Financing
On April 7, 2015, an
indirect unconsolidated subsidiary, entered into a $31.8 million construction loan with Bank of America, NA which is secured by
the leasehold interest in the Alexan Southside Place property. The loan matures on April 7, 2019, and contains a one-year extension
option, subject to certain conditions including a debt service coverage, loan to value ratio and payment of an extension fee.
The loan bears interest on a floating basis on the amount drawn based on the base rate plus 1.25% or LIBOR plus 2.25%. Regular
monthly payments are interest-only during the initial term, with payments during the extension period based on a thirty year amortization.
The loan can be prepaid without penalty.
Acquisition of Whetstone Interests
On May 20, 2015, through
BRG Whetstone Durham, LLC, a wholly-owned subsidiary of its Operating Partnership, the Company made a convertible preferred equity
investment in a multi-tiered joint venture, along with Fund III and an affiliate of TriBridge Residential, LLC, to acquire a 204-unit
Class A apartment community located in Durham, North Carolina, to be known as Whetstone Apartments. The Company has made a capital
commitment of $12.9 million to acquire 100% of the preferred equity interests in BRG Whetstone Durham, LLC, all of which has been
funded as of June 30, 2016. The acquisition of Whetstone Apartments was partially funded by a bridge loan of approximately $25.2
million secured by the Whetstone Apartment property. The loan maturity date was extended in May 2016 and matures September 15,
2016 and bears interest on a floating basis based on LIBOR plus 2.0%. The loan can be prepaid without penalty. The Company provided
certain standard scope non-recourse carveout guaranties in conjunction with the loan. The Company is in the process of placing
permanent financing to refinance the Whetstone bridge loan.
Acquisition of Cheshire Bridge Interests
On May 29, 2015, through
BRG Cheshire, LLC, a wholly-owned subsidiary of its Operating Partnership, the Company made a convertible preferred equity investment
in a multi-tiered joint venture, along with Fund III and an affiliate of Catalyst Development Partners II, to develop a 285-unit
Class A apartment community located in Atlanta, Georgia, to be known as Cheshire Bridge Apartments. The Company has made a capital
commitment of $16.4 million to acquire 100% of the preferred equity interests in BRG Cheshire, LLC, all of which has been funded
as of June 30, 2016.
Cheshire Bridge Construction Financing
On December 16, 2015,
an indirect unconsolidated subsidiary, entered into a $38.1 million construction loan with The PrivateBank and Trust Company which
is secured by the fee simple interest in the Cheshire property. The loan matures on December 16, 2018, and contains two one-year
extension options, subject to certain conditions including a debt service coverage, loan to value ratio and payment of an extension
fee. The loan bears interest on a floating basis on the amount drawn based on one-month LIBOR plus 2.50%. Regular monthly payments
are interest-only during the initial term, with payments during the extension period based on a thirty year amortization. The
loan can be prepaid without penalty.
Acquisition of Domain Phase 1 Interest
On November 20, 2015,
through a wholly-owned subsidiary of the Operating Partnership, BRG Domain Phase 1, LLC, the Company made a convertible preferred
equity investment in a multi-tiered joint venture along with Fund II, an affiliate of the Manager, and an affiliate of ArchCo
Residential, to develop an approximately 301-unit, class A, apartment community located in Garland, Texas. The property will be
developed upon a tract of approximately 10 acres of land. The Company has made a capital commitment of $20.6 million to acquire
100% of the preferred equity interests in BR Member Domain Phase I, LLC, of which $3.7 million has been funded at June 30, 2016.
Acquisition of Flagler Village Interest
On December 18, 2015,
through a wholly-owned subsidiary of the Operating Partnership, BRG Flagler Village, LLC, the Company made an investment in a
multi-tiered joint venture along with Fund II, an affiliate of the Manager, and an affiliate of ArchCo Residential, to develop
an approximately 326-unit, Class A apartment community located in Ft. Lauderdale, Florida. The Company has made a capital commitment
of $37.5 million to acquire interests in BR Flagler Village, LLC, of which $8.8 million has been funded at June 30, 2016.
Acquisition of Lake Boone Trail
On December 18, 2015,
through a wholly-owned subsidiary of the Operating Partnership, BRG Lake Boone, LLC, the Company made a convertible preferred
equity investment in a multi-tiered joint venture along with Fund II, an affiliate of the Manager, and an affiliate of Tribridge
Residential, LLC, to develop an approximately 245-unit, class A, apartment community located in Raleigh, North Carolina. The Company
has made a capital commitment of $12.1 million to acquire 100% of the preferred equity interests in BR Lake Boone, LLC, of which
$9.9 million has been funded at June 30, 2016.
Acquisition of West Morehead interest
On January 6, 2016,
through a wholly-owned subsidiary of the Operating Partnership, BRG Morehead NC, LLC, the Company made a convertible preferred
equity investment in a multi-tiered joint venture along with Fund II, an affiliate of the Manager, and an affiliate of ArchCo
Residential, to develop an approximately 283-unit Class A apartment community located in Charlotte, North Carolina to be known
as West Morehead. The Company has made a capital commitment of approximately $20.2 million to acquire 100% of the preferred
equity interests in BR Morehead JV Member, LLC, of which $3.5 million has been funded at June 30, 2016.
Alexan CityCentre Construction Loan
Modification
On June 7, 2016, an
indirectly owned unconsolidated subsidiary, entered into a loan modification agreement to amend the terms of its construction
loan financing the construction and development of the 340-unit Class A apartment community located in Houston, Texas to be known
as Alexan CityCentre. The maximum principal amount available to the borrower under the terms of the modified loan is $55.1 million.
The maturity date is January 1, 2020, subject to a single one-year extension exercisable at the option of the borrower. The interest
rate on the loan is a variable per annum rate equal to the prime rate plus 0.5%, or LIBOR plus 3.00%, at the borrower’s
option. The loan requires monthly interest payments until the maturity date, after which $60,000 monthly payments of principal
will be required in addition to payment of accrued interest during the maturity extension period. The borrower was required to
initially fund approximately $2.6 million as an interest reserve and approximately $0.6 million as an operating deficit reserve.
Certain unaffiliated third parties agreed to guaranty the completion of the Alexan Development and provided partial guaranties
of the borrower’s principal and interest obligations under the loan. The borrower is required to complete the Alexan Development
by December 31, 2017 (without extension for any reason). To obtain the loan modification, the borrower was required to contribute
additional equity for the Alexan Development in the amount of approximately $2.2 million to be applied to development costs, of
which the Company funded approximately $0.7 million.
Lake Boone Construction Financing
On June 23, 2016, an
indirect unconsolidated subsidiary, entered into a $25.2 million construction loan with Citizens Bank, National Association which
is secured by the fee simple interest in the Lake Boone property. The loan matures on December 23, 2019, and contains one extension
option for one year to five years, subject to certain conditions including construction completion, a debt service coverage, loan
to value ratio and payment of an extension fee. The loan bears interest on a floating basis on the amount drawn based on one-month
LIBOR plus 2.65%. Regular monthly payments are interest-only during the initial term, with payments during the extension period
based on a thirty year amortization. The loan can be prepaid without penalty.
Note 7 – Mortgages Payable
The following table summarizes certain information as of June
30, 2016 and December 31, 2015, with respect to the Company’s indebtedness (amounts in thousands):
|
|
Outstanding Principal
|
|
|
As of June 30, 2016
|
Property
|
|
June 30, 2016
|
|
|
December 31,
2015
|
|
|
Interest Rate
|
|
|
Fixed/ Floating
|
|
Maturity Date
|
ARIUM at Palmer Ranch
|
|
$
|
26,925
|
|
|
$
|
—
|
|
|
|
2.64
|
%
|
|
Floating
(1)
|
|
February 1, 2023
|
ARIUM Grandewood
|
|
|
29,444
|
|
|
|
29,444
|
|
|
|
2.14
|
%
|
|
Floating
(2)
|
|
December 1, 2024
|
ARIUM Gulfshore
|
|
|
32,626
|
|
|
|
—
|
|
|
|
2.64
|
%
|
|
Floating
(3)
|
|
February 1, 2023
|
ARIUM Palms
|
|
|
24,999
|
|
|
|
24,999
|
|
|
|
2.69
|
%
|
|
Floating
(4)
|
|
September 1, 2022
|
Ashton Reserve I
|
|
|
31,900
|
|
|
|
31,900
|
|
|
|
4.67
|
%
|
|
Fixed
|
|
December 1, 2025
|
Ashton Reserve II
|
|
|
15,270
|
|
|
|
15,270
|
|
|
|
3.09
|
%
|
|
Floating
(5)
|
|
January 1, 2026
|
Enders Place at Baldwin Park
(6)
|
|
|
24,946
|
|
|
|
25,155
|
|
|
|
4.30
|
%
|
|
Fixed
|
|
November 1, 2022
|
Fox Hill
|
|
|
26,705
|
|
|
|
26,705
|
|
|
|
3.57
|
%
|
|
Fixed
|
|
April 1, 2022
|
Lansbrook Village
|
|
|
44,405
|
|
|
|
43,628
|
|
|
|
4.41
|
%
|
|
Blended
(7)
|
|
March 31, 2018
|
MDA Apartments
|
|
|
37,386
|
|
|
|
37,600
|
|
|
|
5.35
|
%
|
|
Fixed
|
|
January 1, 2023
|
Park & Kingston
(8)
|
|
|
18,432
|
|
|
|
15,250
|
|
|
|
3.41
|
%
|
|
Fixed
|
|
April 1, 2020
|
Sorrel
|
|
|
38,684
|
|
|
|
38,684
|
|
|
|
2.76
|
%
|
|
Floating
(9)
|
|
May 1, 2023
|
Sovereign
|
|
|
28,880
|
|
|
|
28,880
|
|
|
|
3.46
|
%
|
|
Fixed
|
|
November 10, 2022
|
Springhouse at Newport News
|
|
|
—
|
|
|
|
22,176
|
|
|
|
|
|
|
|
|
|
The Preserve at Henderson Beach
|
|
|
37,318
|
|
|
|
—
|
|
|
|
4.65
|
%
|
|
Fixed
|
|
January 5, 2023
|
Village Green of Ann Arbor
|
|
|
41,940
|
|
|
|
42,326
|
|
|
|
3.92
|
%
|
|
Fixed
|
|
October 1, 2022
|
Total
|
|
|
459,860
|
|
|
|
382,017
|
|
|
|
|
|
|
|
|
|
Fair value adjustments
|
|
|
1,451
|
|
|
|
1,620
|
|
|
|
|
|
|
|
|
|
Deferred financing costs, net
|
|
|
(4,860
|
)
|
|
|
(3,535
|
)
|
|
|
|
|
|
|
|
|
Total continuing operations
|
|
$
|
456,451
|
|
|
$
|
380,102
|
|
|
|
|
|
|
|
|
|
Held for sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Springhouse at Newport News
|
|
$
|
22,001
|
|
|
$
|
—
|
|
|
|
5.66
|
%
|
|
Fixed
|
|
January 1, 2020
|
Fair value adjustments
|
|
|
1,507
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Deferred financing costs, net
|
|
|
(3
|
)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Total held for sale
|
|
$
|
23,505
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
479,956
|
|
|
$
|
380,102
|
|
|
|
|
|
|
|
|
|
(1)
ARIUM at Palmer Ranch loan bears interest at
a floating rate of 2.17% plus one-month LIBOR. At June 30, 2016, the interest rate was 2.64%.
(2)
ARIUM Grandewood Loan bears interest at a floating
rate of 1.67% plus one month LIBOR. At June 30, 2016, the interest rate was 2.14%.
(3)
ARIUM Gulfshore loan bears interest at a floating
rate of 2.17% plus one month LIBOR. At June 30, 2016, the interest rate was 2.64%.
(4)
ARIUM Palms loan bears interest at a floating
rate of 2.22% plus one month LIBOR. At June 30, 2016, the interest rate was 2.69%.
(5)
Ashton Reserve II loan bears interest at a floating
rate of 2.62% plus one-month LIBOR. At June 30, 2016, the interest rate was 3.09%.
(6)
The principal includes a $17.0 million loan
at a fixed rate of 3.97% and a $7.9 million supplemental loan at a fixed rate of 5.01%.
(7)
The principal balance includes the initial advance
of $42.0 million at a fixed rate of 4.45% and an additional advance of $2.4 million that bears interest at a floating rate of
three month LIBOR plus 3.00%, as of June 30, 2016, the additional advance had an interest rate of 3.69%.
(8)
The principal includes a $15.3 million loan
at a fixed rate of 3.21% and a $3.1 million supplemental loan at a fixed rate of 4.34%.
(9)
Sorrel loan bears interest at a floating rate
of 2.29% plus one-month LIBOR. At June 30, 2016, the interest rate was 2.76%.
Deferred financing costs
Costs incurred in
obtaining long-term financing, included in Mortgages Payable in the accompanying Consolidated Balance Sheets, are amortized on
a straight-line basis, which approximates the effective interest method, over the terms of the related debt agreements, as applicable.
ARIUM Gulfshore Mortgage Payable
On January 5, 2016,
the Company, through an indirect subsidiary (the “ARIUM Gulfshore Borrower”), entered into an approximately $32.6
million loan with Jones Long LaSalle Multifamily, LLC, on behalf of Freddie Mac, which is secured by ARIUM Gulfshore. The loan
matures February 1, 2023 and bears interest on a floating basis based on LIBOR plus 2.17%, with interest only payments until maturity.
After January 5, 2017 the loan may be prepaid with a 1% prepayment fee through October 31, 2022, and thereafter at par.
ARIUM at Palmer Ranch Mortgage Payable
On January 5, 2016,
the Company, through an indirect subsidiary (the “ARIUM at Palmer Ranch Borrower”), entered into an approximately
$26.9 million loan with Jones Long LaSalle Multifamily, LLC, on behalf of Freddie Mac, which is secured by ARIUM at Palmer Ranch.
The loan matures February 1, 2023 and bears interest on a floating basis based on LIBOR plus 2.17%, with interest only payments
until maturity. After January 5, 2017 the loan may be prepaid with a 1% prepayment fee through October 31, 2022, and thereafter
at par.
The Preserve at Henderson Beach Mortgage Payable
On March 15, 2016,
the Company, through an indirect subsidiary (the “Henderson Beach Borrower”), assumed an approximately $37.5 million
loan with Western-Southern Life Assurance Company, which is secured by Henderson Beach. The loan matures January 5, 2023 and bears
interest at a fixed rate of 4.65%, with fixed monthly payments based on 30-year amortization. The loan may be prepaid with the
greater of 1% prepayment fee or yield maintenance.
Park & Kingston Mortgage Payable
On May 27, 2016,
the Company, through an indirect subsidiary (the “Park & Kingston II Borrower”), entered into an additional loan
of approximately $3.2 million loan with CBRE Multifamily Capital, Inc., on behalf of Fannie Mae, which is secured by 15-units
of Park & Kingston. The loan matures April 1, 2020 and bears interest at a fixed rate of 4.34%, with interest only payments
until maturity. The loan can be prepaid with the greater of 1% prepayment fee or yield maintenance until September 30, 2019, and
thereafter at par.
As of June 30, 2016, contractual principal
payments for the five subsequent years and thereafter are as follows (amounts in thousands):
Year
|
|
Total
|
|
2016 (July 1-December 31)
|
|
$
|
1,720
|
|
2017
|
|
|
4,147
|
|
2018
|
|
|
47,394
|
|
2019
|
|
|
4,998
|
|
2020
|
|
|
45,050
|
|
Thereafter
|
|
|
378,552
|
|
|
|
$
|
481,861
|
|
Add: Unamortized fair value debt adjustment
|
|
|
2,958
|
|
Subtract: Deferred financing costs, net
|
|
|
(4,863
|
)
|
Total
|
|
$
|
479,956
|
|
The net book value of real estate assets
providing collateral for these above borrowings were $664.8 million and $530.6 million at June 30, 2016 and December 31, 2015,
respectively.
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.
Note 8 – Fair Value of Financial Instruments
As
of June 30, 2015 and December 31, 2015, the Company believes the carrying value of cash and cash equivalents, accounts receivable,
due to and from affiliates, accounts payable, accrued liabilities, and distributions payable approximate their fair value based
on their highly-liquid nature and/or short-term maturities. As of June 30, 2016 and December 31, 2015, the approximate fair
value of mortgages payable were $500.7 million and $387.1 million, respectively, compared to the carrying value, before adjustments
for deferred financing costs, net, of $484.8 million and $383.6 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 9 – Related Party Transactions
In connection with
the Company’s acquisition of an interest in the Villas at Oak Crest, the Company assumed a receivable of $0.3 million from
Fund II related to accrued interest on Fund II’s investment in the Villas at Oak Crest prior to the contribution of their
interest to the Company, and as of December 31, 2014, the Company had a corresponding payable to Fund II for this amount. The
payable to Fund II of $0.3 million was paid off in September 2015 in conjunction with the sale of the Villas at Oak Crest.
In May 2015, the
Company invested an additional $6.5 million, plus customary prorations, in equity in Park & Kingston, increasing the Company’s
indirect ownership interest in the property from 46.95% to approximately 96.0%. The additional interests were purchased from Fund
III, an affiliate of our Manager, based on the original purchase price on a pro rata basis, plus customary prorations.
In May 2015, the
Company invested an additional $1.1 million, plus customary prorations, in equity in Fox Hill, increasing the Company’s
indirect ownership interest in the property from 85.27% to approximately 94.62%. The additional interests were purchased from
Fund III, an affiliate of our Manager, based on the original purchase price on a pro rata basis, plus customary prorations.
In December 2015,
the Company invested an additional $3.7 million, plus customary prorations, in equity in Lansbrook, increasing the Company’s
indirect ownership interest in the property from 76.8% to approximately 90.00%. The additional interests were purchased from Fund
II and Fund III, affiliates of our Manager, based on an appraisal value, plus customary prorations.
In December 2015,
in conjunction with the sale of Villas at Oak Crest, two former joint venture partners, who were related to the Company’s
Chief Executive Officer, converted their ownership in Villas at Oak Crest into 22,809 Operating Partnership Units.
Substantially concurrently
with the completion of the IPO, the Company completed a series of related contribution transactions pursuant to which it acquired
indirect equity interests in four apartment properties, and a 100% fee simple interest in a fifth apartment property for an aggregate
asset value of $152.3 million (inclusive of the Villas at Oak Crest, which was accounted for under the equity method, and Springhouse,
in which the Company already owned an interest and which had been reported as consolidated for the periods presented). As holders
of shares of the Company’s Class A common stock issued in the contribution transactions in connection with the IPO, Fund
II and Fund III and their respective managers have certain registration rights covering the resale of their shares of Class A
common stock. In addition, BR-NPT Springing Entity, LLC (“NPT”) and Bluerock Property Management, LLC, the property
manager of North Park Towers (“BPM”), as holders of OP Units issued in the contribution transactions, and the Manager
and the former advisor, as holders of LTIP Units, have certain registration rights covering the resale of shares of the Class
A common stock issued or issuable, at the Company’s option, in exchange for OP Units, including OP Units into which LTIP
Units may be converted. On January 13, 2016, the Company filed, and on January 29, 2016, the SEC declared effective, a resale
registration statement on Form S-3 (File No. 333-208988) (the “Resale Registration Statement”) with respect to the
resale of their shares of Class A common stock, including the Class A common stock issued or issuable, at the Company’s
option, in exchange for OP Units, including OP Units into which LTIP Units may be converted.
The Company entered
into a management agreement (the “Management Agreement”), with the Manager, on April 2, 2014. The terms and conditions
of the Management Agreement, which became effective as of April 2, 2014, are described below.
Management Agreement
The Management Agreement
requires the Manager to manage the Company’s business affairs in conformity with the investment guidelines and other policies
that are approved and monitored by the Company’s board of directors. The Manager acts under the supervision and direction
of the Board. Specifically, the Manager is responsible for (1) the selection, purchase and sale of the Company’s investment
portfolio, (2) the Company’s financing activities, and (3) providing the Company with advisory and management services.
The Manager provides the Company with a management team, including a chief executive officer, president, chief accounting officer
and chief operating officer, along with appropriate support personnel. None of the officers or employees of the Manager are dedicated
exclusively to the Company. The Company is dependent on its Manager to provide these services that are essential to the Company.
In the event that the Manager or its affiliates are unable to provide the respective services, the Company will be required to
obtain such services from other sources.
The Company pays the
Manager a base management fee in an amount equal to the sum of: (A) 0.25% of the Company’s stockholders’ existing
and contributed equity prior to the IPO and in connection with our contribution transactions, per annum, calculated quarterly
based on the Company’s stockholders’ existing and contributed equity for the most recently completed calendar quarter
and payable in quarterly installments in arrears, and (B) 1.5% of the equity per annum of the Company’s stockholders who
purchase shares of the Company’s stock, calculated quarterly based on their equity for the most recently completed calendar
quarter and payable in quarterly installments in arrears. The base management fee is payable independent of the performance of
the Company’s investments. The Company amended the Management Agreement to provide that the base management fee can be payable
in cash or LTIP Units, at the election of the Board. The number of LTIP Units issued for the base management fee or incentive
fee will be based on the fees earned divided by the 5-day trailing average Class A common stock price prior to issuance. Base
management fees for the Manager of $0.5 million was expensed for the three months ended March 31, 2015. Base management fees of
$0.7 million were expensed during the three months ended June 30, 2015, which were paid through the issuance of 59,077 LTIP Units
on August 13, 2015. Base management fees of $0.9 million were expensed during the three months ended September 30, 2015, which
were paid through the issuance of 77,497 LTIP Units on November 18, 2015. Base management fees of $1.1 million were expensed during
the three months ended December 31, 2015, which were paid through the issuance of 115,304 LTIP Units on February 29, 2016. Base
management fees of $1.2 million were expensed during the three months ended March 31, 2016, which were paid through the issuance
of 108,045 LTIP Units on May 10, 2016. Base management fees of $1.4 million were expensed during the three months ended June 30,
2016, which will be paid through the issuance of approximately 108,833 LTIP Units assuming the $13.00 closing share price for
the Company’s Class A common stock on June 30, 2016. The actual number of LTIP Units to be issued in payment of the base
management fees for the three months ended June 30, 2016 is subject to change based on the average closing share price of the
Company’s Class A common stock on the five business days prior to the date of issuance.
The Company also
pays the Manager an incentive fee with respect to each calendar quarter in arrears. The incentive fee is equal to the difference
between (1) the product of (x) 20% and (y) the difference between (i) the Company’s adjusted funds from operations (“AFFO”),
for the previous 12-month period, and (ii) the product of (A) the weighted average of the issue price of equity securities issued
in the IPO and in future offerings and transactions, multiplied by the weighted average number of all shares of the Company’s
Class A common stock outstanding on a fully-diluted basis (including any restricted stock units, any restricted shares of Class
A common stock, LTIP Units, and other shares of common stock underlying awards granted under the Incentive Plans and OP Units)
in the previous 12-month period, exclusive of equity securities issued prior to the IPO or in the contribution transactions, and
(B) 8%, and (2) the sum of any incentive fee paid to the Manager with respect to the first three calendar quarters of such previous
12-month period; provided, however, that no incentive fee is payable with respect to any calendar quarter unless AFFO is greater
than zero for the four most recently completed calendar quarters, or the number of completed calendar quarters since the closing
date of the IPO, whichever is less. For purposes of calculating the incentive fee during the first 12 months after completion
of the IPO, AFFO will be determined by annualizing the applicable period following completion of the IPO. One half of each quarterly
installment of the incentive fee will be payable in LTIP Units, calculated pursuant to the formula above. The remainder of the
incentive fee will be payable in cash or in LTIP Units, at the election of the Board, in each case calculated pursuant to the
formula above. Incentive fees of $0.15 million were expensed during the three months ended December 31, 2014, which resulted in
the issuance of 10,896 LTIP Units on February 18, 2015. Incentive fees to the Manager of $0.9 million were expensed during the
three months ended March 31, 2015, which resulted in the issuance of 67,837 LTIP Units on May 14, 2015. No incentive fees to the
Manager were earned or expensed during the nine months ended December 31, 2015. No incentive fees were earned or expensed during
the six months ended June 30, 2016.
Management fee expense
of $0.2 million and $0.2 million, and $0.2 million and $0.6 million, was recorded as part of general and administrative expenses
for the three and six months ended June 30, 2016 and 2015, respectively, related to the 179,562 LTIP Units granted in connection
with the IPO. The expense recognized during 2016 and 2015 was based on the Class A common stock closing price at the vesting date
or end of the period, as applicable. These LTIP Units vest over a three year period that began in April 2014, with 59,854 LTIP
Units vested on April 30, 2015 and 59,854 LTIP Units vested on April 30, 2016.
On July 2, 2015,
the Company issued a grant of LTIP Units under the Amended 2014 Incentive Plans to the Company’s external manager, BRG Manager,
LLC. The equity grant consisted of 283,390 LTIP Units. The LTIP Units will vest ratably over a three year period that began in
July 2015, subject to certain terms and conditions. The 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. The LTIP Units provide for the payment of distribution
equivalents at the same time distributions are paid to holders of the Company’s Class A common stock. LTIP expense of $0.8
million and $1.2 million for the three and six months ended June 30, 2016 and $1.0 million was recorded as part of general and
administrative expenses for the year ended December 31, 2015, respectively, related to these LTIP Units. The expense recognized
during 2016 and 2015 was based on the Class A common stock closing price at the end of the period, as applicable.
The Company is also
required to reimburse the Manager for certain expenses and pay all operating expenses, except those specifically required to be
borne by the Manager under the Management Agreement. The Manager waived all reimbursements through the six months ended June 30,
2015. Reimbursements of $0.3 million were expensed during the six months ended December 31, 2015 and are recorded as part of general
and administrative expenses. Reimbursements of $0.2 million and $0.3 million were expensed during the three and six months ended
June 30, 2016, respectively, and are recorded as part of general and administrative expenses.
The initial term
of the Management Agreement expires on April 2, 2017 (the third anniversary of the closing of the IPO), and will be automatically
renewed for a one-year term on each anniversary date thereafter unless previously terminated in accordance with the terms of the
Management Agreement. Following the initial term of the Management Agreement, the Management Agreement may be terminated annually
upon the affirmative vote of at least two-thirds of the Company’s independent directors, based upon (1) unsatisfactory performance
that is materially detrimental to the Company, or (2) the Company’s determination that the fees payable to the Manager are
not fair, subject to the Manager’s right to prevent such termination due to unfair fees by accepting a reduction of the
fees agreed to by at least two-thirds of the Company’s independent directors. The Company must provide 180 days’ prior
notice of any such termination. Unless terminated for cause, as further described in the Management Agreement, the Manager will
be paid a termination fee equal to three times the sum of the base management fee and incentive fee earned, in each case, by the
Manager during the 12-month period immediately preceding such termination, calculated as of the end of the most recently completed
fiscal quarter before the date of termination. The Company may also terminate the Management Agreement at any time, including
during the initial term, without the payment of any termination fee, for cause with 30 days’ prior written notice from the
Board.
During the initial
three-year term of the Management Agreement, the Company may not terminate the Management Agreement except as described above
or in the following circumstance: At the earlier of (i) April 2, 2017 (three years following the completion of the IPO), and (ii)
the date on which the value of the Company’s stockholders’ equity exceeds $250.0 million, the Board may, but is not
obligated to, internalize the Company’s management. The Manager may terminate the Management Agreement if it becomes required
to register as an investment company under the Investment Company Act, with such termination deemed to occur immediately before
such event, in which case the Company would not be required to pay a termination fee. In addition, if the Company defaults in
the performance of any material term of the Management Agreement and the default continues for a period of 30 days after written
notice to the Company, the Manager may terminate the Management Agreement upon 60 days’ written notice. If the Management
Agreement is terminated by the Manager upon a breach by the Company, the Company is required to pay the Manager the termination
fee described above.
The Manager may retain,
at its sole cost and expense, the services of such persons and firms as the Manager deems necessary in connection with our management
and operations (including accountants, legal counsel and other professional service providers), provided that such expenses are
in amounts no greater than those that would be payable to third-party professionals or consultants engaged to perform such services
pursuant to agreements negotiated on an arm’s-length basis.
Prior and Terminated Advisory Agreement
Prior to the entry
by the Company into the Management Agreement upon the completion of the IPO and the concurrent termination of the Advisory Agreement,
the Former Advisor performed essentially the same duties and responsibilities as the Company’s new Manager. The Advisory
Agreement had a one-year term expiring October 14, 2014, and was renewable for an unlimited number of successive one-year
periods upon the mutual consent of the Company and its Advisor.
The Former Advisor
was entitled to the payment of certain fees in compensation for advisory and general management services rendered thereunder for
periods prior to the Company’s initial public offering on April 2, 2014, and reimbursements for certain costs and expenses
incurred in connection with the provision thereof, in an aggregate amount of $1.18 million. Effective on September 4, 2015, the
Former Advisor and Manager entered into an Assignment Agreement pursuant to which the Former Advisor assigned its right to payment
of the obligation due to the Former Advisor to the Manager. The Manager agreed to receive the payment entirely in LTIP Units of
the Operating Partnership. The obligation was paid by the number of LTIP Units equal to (i) the dollar amount of the obligation
payable in such LTIP Units (calculated as $1.18 million), divided by (ii) the average of the closing prices of the Company’s
Class A Common Stock, $0.01 par value per share, on the NYSE MKT on the five business days prior to the issuance date. The payment
was made through the issuance of 108,119 LTIP Units by the Operating Partnership to the Manager on the September 14, 2015. The
LTIP Units were fully vested upon issuance, and may convert to OP Units upon reaching capital account equivalency with the OP
Units held by the Company, and may then be settled in shares of the Company’s Class A common stock. The Manager will be
entitled to receive “distribution equivalents” with respect to the LTIP Units at the same time distributions are paid
to the holders of the Company’s Class A common stock.
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 may re-allow the selling commissions and dealer manager fees to participating broker-dealers, and is expected to
incur costs in excess of the 10%, which costs will be borne by the dealer manager. As of June 30, 2016, the Company has incurred
$0.13 million and $0.06 million, in selling commissions and dealer manager fees, respectively.
All of the Company’s
executive officers, and some of its directors, are also executive officers, managers and/or holders of a direct or indirect controlling
interest in the Manager and other Bluerock-affiliated entities. As a result, they owe fiduciary duties to each of these
entities, their members, limited partners and investors, which fiduciary duties may from time to time conflict with the fiduciary
duties that they owe to the Company and its stockholders.
Some of the
material conflicts that the Manager or its affiliates face are: 1) the determination of whether an investment opportunity should
be recommended to us or another Bluerock-sponsored program or Bluerock-advised investor; 2) the allocation of the time of key
executive officers, directors, and other real estate professionals among the Company, other Bluerock-sponsored programs and Bluerock-advised
investors, and the activities in which they are involved; and 3) the fees received by the Manager and its affiliates.
Pursuant to the terms
of the Management Agreement, summarized below are the related party amounts payable to our Manager, as of June 30, 2016 and December 31,
2015 (in thousands):
|
|
June 30,
2016
|
|
|
December 31,
2015
|
|
Amounts Payable to the Manager under the Management Agreement
|
|
|
|
|
|
|
|
|
Base management fee
|
|
$
|
1,415
|
|
|
$
|
1,133
|
|
Operating expense reimbursements and direct expense reimbursements
|
|
|
160
|
|
|
|
218
|
|
Offering expense reimbursements
|
|
|
100
|
|
|
|
-
|
|
Total amounts payable to Manager
|
|
$
|
1,675
|
|
|
$
|
1,351
|
|
As of June 30, 2016
and December 31, 2015, the Company had no amounts and $0.1 million, respectively, in payables due to related parties other than
the Manager.
As of June 30, 2016
and December 31, 2015, the Company had $1.0 million and $0.9 million, respectively, in receivables due from related parties other
than the Manager primarily for accrued preferred returns for the most recent month.
Bluerock Property Management, LLC
The Company incurred
$0.09 million in property management fees to Bluerock Property Management, LLC, an affiliate of Bluerock, on behalf of the North
Park Towers property during the six months ended June 30, 2015. No property management fees were payable in 2016 due to the sale
of North Park Towers in October 2015.
Note 10 – Stockholders’
Equity
Net Income (Loss) Per Common Share
Basic net income
(loss) per common share is computed by dividing net income (loss) attributable to common stockholders, less dividends on restricted
stock expected to vest plus gains on redemptions on common stock, by the weighted average number of common shares outstanding
for the period. Diluted net income (loss) per common share is computed by dividing net income (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 income (loss) attributable to common stockholders is computed by adjusting net income (loss) for the non-forfeitable
dividends paid on non-vested restricted stock.
The Company considers
the requirements of the two-class method when preparing earnings per share. Earnings per share is not affected by the two-class
method because the Company’s Class A, B-1, B-2 and B-3 common stock and LTIP Units participate in dividends on a one-for-one
basis.
The following table reconciles the components
of basic and diluted net (loss) income per common share (amounts in thousands, except share and per share amounts):
|
|
Three Months Ended June
30,
|
|
|
Six Months Ended June
30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Net (loss) income attributable to common stockholders
|
|
$
|
(5,043
|
)
|
|
$
|
(582
|
)
|
|
|
(9,179
|
)
|
|
$
|
2,731
|
|
Dividends on restricted stock expected to vest
|
|
|
(1
|
)
|
|
|
(5
|
)
|
|
|
(4
|
)
|
|
|
(7
|
)
|
Basic net (loss) income attributable to common stockholders
|
|
$
|
(5,044
|
)
|
|
$
|
(587
|
)
|
|
$
|
(9,183
|
)
|
|
$
|
2,724
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding
(1)
|
|
|
20,686,652
|
|
|
|
16,353,209
|
|
|
|
20,604,124
|
|
|
|
14,461,064
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Potential dilutive shares
(2)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
10,792
|
|
Weighted average common shares outstanding
and potential dilutive shares
(1)
|
|
|
20,686,652
|
|
|
|
16,353,209
|
|
|
|
20,604,124
|
|
|
|
14,471,856
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income per common share, basic
|
|
$
|
(0.24
|
)
|
|
$
|
(0.04
|
)
|
|
$
|
(0.45
|
)
|
|
$
|
0.19
|
|
Net (loss) income per common share, diluted
|
|
$
|
(0.24
|
)
|
|
$
|
(0.04
|
)
|
|
$
|
(0.45
|
)
|
|
$
|
0.19
|
|
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 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 units
would have no net impact on the determination of diluted earnings per share.
|
(1)
|
For 2016, amounts relate to shares of the Company’s
Class A, B-3 common stock and LTIP Units outstanding. For 2015, amounts relate to shares of Class A, B-1, B-2 and B-3 common
stock and LTIP Units outstanding.
|
|
(2)
|
Excludes 1,979 and 7,679 shares of common stock,
for the three and six months ended June 30, 2016 and 16,454 shares of common stock, for the three months ended June 30, 2015,
related to non-vested restricted stock, as the effect would be anti-dilutive.
|
Class A Common Stock
and Class B Common Stock
The Company raised
capital in a continuous registered offering, carried out in a manner consistent with offerings of non-listed REITs, from its inception
until September 9, 2013, when it terminated the continuous registered offering in connection with the Board’s consideration
of strategic alternatives to maximize value to the Company’s stockholders. Through September 9, 2013, the Company had raised
an aggregate of $22.6 million in gross proceeds through its continuous registered offering, including its distribution reinvestment
plan.
The Company subsequently
determined to register shares of newly authorized Class A common stock that were to be offered in a firmly underwritten public
offering (the “IPO”), by filing a registration statement on Form S-11 (File No. 333-192610) with the Securities and
Exchange Commission (the “SEC”) on November 27, 2013. On March 28, 2014, the SEC declared the registration statement
effective and the Company announced the pricing of the IPO of 3,448,276 shares of Class A common stock at a public offering price
of $14.50 per share for total gross proceeds of $50.0 million. The net proceeds of the IPO, which closed on April 2, 2014, were
approximately $44.0 million after deducting underwriting discounts and commissions and offering costs. The Company listed its
Class A common stock on the NYSE MKT on March 28, 2014.
In connection with
the IPO, on January 23, 2014, the Company's stockholders approved the second articles of amendment and restatement to the Company’s
charter (the “Second Charter Amendment”), which provided, among other things, for the designation of a new share class
of Class A common stock, and for the change of each existing outstanding share of the Company’s common stock into:
|
•
|
1/3
of a share of Class B-1 common stock; plus
|
|
•
|
1/3
of a share of Class B-2 common stock; plus
|
|
•
|
1/3
of a share of Class B-3 common stock.
|
This transaction
was effective upon filing the Second Charter Amendment with the State Department of Assessments and Taxation of the State of Maryland
on March 26, 2014. Immediately following the filing of the Second Charter Amendment, the Company effectuated a 2.264881 to 1 reverse
stock split of its outstanding shares of Class B-1 common stock, Class B-2 common stock and Class B-3 common stock, and on March
31, 2014, the Company effected an additional 1.0045878 to 1 reverse stock split of its outstanding shares of Class B-1 common
stock, Class B-2 common stock and Class B-3 common stock.
The Company refers
to Class B-1 common stock, Class B-2 common stock and Class B-3 common stock collectively as “Class B” common stock.
The Class B common stock is identical to the Class A common stock, except that (i) the Company does not intend to list the Class
B common stock on a national securities exchange, and (ii) shares of the Class B common stock convert automatically into shares
of Class A common stock at specified times, as follows:
|
•
|
March
23, 2015, in the case of the Class B-1 common stock;
|
|
•
|
September
19, 2015, in the case of the Class B-2 common stock; and
|
|
•
|
March
17, 2016, in the case of the Class B-3 common stock.
|
On March 23, 2015,
353,630 shares of Class B-1 common stock converted into Class A common stock in accordance with the above, and no Class B-1 common
stock remains outstanding. On September 19, 2015, 353,630 shares of Class B-2 common stock converted into Class A common stock
in accordance with the above, and no Class B-2 common stock remains outstanding. On March 17, 2016, 353,629 shares of Class B-3
common stock converted into Class A common stock in accordance with the above, and no Class B-3 common stock remains outstanding.
Follow-On Equity Offerings
On January 20, 2015,
the Company completed an underwritten shelf takedown offering (the “January 2015 Follow-On Offering”) of 4,600,000
shares of its Class A common stock, par value $0.01 per share, inclusive of shares sold pursuant to the full exercise of the overallotment
option by the underwriters. The shares were registered with the SEC pursuant to a registration statement on Form S-3 (File No.
333-200359) filed with the SEC on November 19, 2014 and declared effective on December 19, 2014 (the “December 2014 Shelf
Registration Statement”). The public offering price of $12.50 per share was announced on January 14, 2015. Net proceeds
of the January 2015 Follow-On Offering were approximately $53.7 million after deducting underwriting discounts and commissions
and estimated offering expenses.
On May 22, 2015, the
Company completed an underwritten shelf takedown offering (the “May 2015 Follow-On Offering”) of 6,348,000 shares
of Class A common stock, par value $0.01 per share, inclusive of shares sold pursuant to the full exercise of the overallotment
option by the underwriters. The shares were registered with the SEC pursuant to the December 2014 Shelf Registration Statement.
The public offering price of $13.00 per share was announced on May 19, 2015. Net proceeds of the May 2015 Follow-On Offering were
approximately $77.6 million after deducting underwriting discounts and commissions and offering costs.
On October 21, 2015,
the Company completed an underwritten offering of 2,875,000 shares of 8.250% Series A Cumulative Redeemable Preferred Stock, par
value $0.01 per share, liquidation preference $25.00 per share (the “Series A Preferred Stock”), inclusive of shares
sold pursuant to the full exercise of the overallotment option by the underwriters (the “October 2015 Preferred Stock Offering”).
The shares were registered with the SEC pursuant to the December 2014 Shelf Registration Statement. The public offering price
of $25.00 per share was announced on October 16, 2015. Net proceeds of the October 2015 Preferred Stock Offering were approximately
$69.2 million after deducting underwriting discounts and commissions and estimated offering costs.
On April 25, 2016,
the Company completed an underwritten offering of 2,300,000 shares of Series A Preferred Stock, inclusive of shares sold pursuant
to the full exercise of the overallotment option by the underwriters (the “April 2016 Preferred Stock Offering”).
The shares were registered with the SEC pursuant to the January 2016 Shelf Registration Statement. The public offering price of
$25.00 per share was announced on April 20, 2016. Net proceeds of the April 2016 Preferred Stock Offering were approximately
$55.3 million after deducting underwriting discounts and commissions and estimated offering costs.
On May 26, 2016, the
Company completed an offering of 400,000 shares of Series A Preferred Stock, (the “May 2016 Preferred Stock Offering”).
The shares were registered with the SEC pursuant to the January 2016 Shelf Registration Statement. The offering price of $25.00
per share was announced on May 26, 2016. Net proceeds of the May 2016 Preferred Stock Offering were approximately $9.5 million
after deducting underwriting discounts and commissions and estimated offering costs.
At-the-Market Offering of Series A
Cumulative Redeemable Preferred Stock
On March 29, 2016,
the Company, its Operating Partnership and its Manager entered into an At Market Issuance Sales Agreement (the “Sales Agreement”)
with FBR Capital Markets & Co. (“FBR”), and MLV & Co. LLC (“MLV”). Pursuant to the Sales Agreement,
FBR and MLV will act as distribution agents with respect to the offering and sale of up to $100,000,000 in shares of Series A
Preferred 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 MKT, or on any other existing trading market for Series A Preferred Stock or through
a market maker (the “ATM Offering”). Since March 31, 2016, the Company sold 146,460 shares of Series A Preferred Stock
in the ATM Offering through April 8, 2016. On April 8, 2016, the Company delivered notice to each of FBR and MLV, pursuant to
the terms of the Sales Agreement, to suspend all sales under the ATM Offering. As of June 30, 2016, the Company has sold 146,460
shares of Series A Preferred Stock for net proceeds of approximately $3.6 million after commissions.
Shelf Registration Statements
On January 12, 2016,
the Company filed, and on January 29, 2016, the SEC declared effective on Form S-3 (File No. 333-208956), a shelf registration
statement that expires in January 2019 (the “January 2016 Shelf Registration Statement”). The securities covered by
the January 2016 Shelf Registration Statement cannot exceed $1,000,000,000 in the aggregate and include common stock, preferred
stock, depositary shares representing preferred stock, debt securities, warrants to purchase stock or debt securities and units.
The Company may periodically offer one or more of these securities in amounts, prices and on terms to be announced when and if
these securities are offered. The specifics of any future offerings, along with the use of proceeds of any securities offered,
will be described in detail in a prospectus supplement, or other offering materials, at the time of the offering.
On January 13, 2016,
the Company filed, and on January 29, 2016, the SEC declared effective on Form S-3 (File No. 333-208988), a resale shelf registration
statement that expires in January 2019 (the “Resale Registration Statement”). The Resale Registration Statement provides
that selling stockholders named therein may offer for sale up to 2,262,621 shares of Class A common stock currently held or issuable
in exchange for units of limited partnership in the Operating Partnership, tendered for redemption by the selling stockholders.
The Company will not receive any proceeds from the sale of these securities.
Termination of Original Series B Preferred Stock Offering,
Reclassification of Original Series B Preferred Stock, and Filing of New Prospectus Supplement for
Offering of Reclassified
Series B Preferred Stock
On December 17, 2015,
the Company filed a prospectus supplement to the December 2014 Shelf Registration Statement offering a maximum of 150,000 Units
(the “Original Units”) consisting of 150,000 shares of Series B redeemable preferred stock (the “Original Series
B Preferred Stock”) and warrants (the “Original Warrants”) to purchase 3,000,000 shares of Class A common stock
(liquidation preference $1,000 per share of Original Series B Preferred Stock). As of December 31, 2015, no Original Units had
been sold.
On February 22, 2016,
the Company’s board of directors authorized the termination of the offering of the Original Series B Preferred Stock in
order to revise certain terms thereof, and the reclassification of the Original Series B Preferred Stock. On February 23, 2016,
the Company terminated the offering of the Original Series B Preferred Stock, and on February 24, 2016, the Company filed a new
prospectus supplement to the December 2014 Shelf Registration Statement offering a maximum of 150,000 Units (the “Series
B Units”) consisting of 150,000 shares of the reclassified Series B redeemable preferred stock (the “Series B Preferred
Stock”) and warrants (the “Warrants”) to purchase 3,000,000 shares of Class A common stock (liquidation preference
$1,000 per share of Series B Preferred Stock) (the “Series B Preferred Offering”). As of June 30, 2016, the Company
has sold 1,890 shares of Series B Preferred Stock and 1,890 Warrants to purchase 37,800 shares of Class A common stock for net
proceeds of approximately $1.7 million after commissions and fees.
Series A Cumulative Redeemable Preferred
Stock
The Series A Preferred
Stock ranks senior to common stock and on parity with the Series B Preferred Stock. The Series A Preferred Stock is entitled to
priority cumulative dividends to be paid quarterly, in arrears, when, as and if authorized by the board of directors. Commencing
October 21, 2022, the annual dividend rate will increase by 2.0% annually, if not redeemed by the holder or not previously redeemed
by the Company. Holders may, at their option, elect to have the Company redeem their shares at a redemption price of $25.00 per
share, plus an amount equal to accrued but unpaid dividends, payable by the Company at its option in cash or shares of Class A
common stock. The Company may not redeem the Series A Preferred Stock before October 21, 2020, except in limited circumstances
related to its qualification as a REIT, complying with an asset coverage ratio or upon a change in control. After October 21,
2020, the Company can redeem for a redemption price of $25.00 per share plus any accrued and unpaid dividends.
At the date of issuance,
the carrying amount of the Series A Preferred Stock was less than the redemption value. As a result of the Company’s determination
that redemption is probable, the carrying value will be increased by periodic accretions so that the carrying value will equal
the redemption amount at the earliest redemption date. Such accretion is recorded as a preferred stock dividend on the Statement
of Stockholders’ Equity.
Series B Cumulative Redeemable Preferred
Stock
The Series B Preferred
Stock ranks senior to common stock and on parity with the Series A Preferred Stock. The Series B Preferred Stock is entitled to
priority cumulative dividends to be paid monthly, in arrears, when, as and if authorized by the board of directors. Holders may,
at their option, elect to have the Company redeem their shares through the first year from issuance subject to a 13% redemption
fee. After year one, the redemption fee decreases to 10%, after year three it decreases to 5%, after year four it decrease to
3%, and after year five there is no redemption fee. Any redeemed shares are entitled to any accrued but unpaid dividends at the
time of the redemption, payable by the Company at its option in cash or shares of Class A common stock. The Company may redeem
the Series B Preferred Stock beginning two years from the original issuance for the liquidation preference per share plus any
accrued and unpaid dividends in either cash or shares of Class A common stock, based on the volume weighted average price for
the Class A common shares for the 20 trading days prior to the redemption.
At the date of issuance,
the carrying amount of the Series B Preferred Stock was less than the redemption value. As a result of the Company’s determination
that redemption is probable, the carrying value will be increased by periodic accretions so that the carrying value will equal
the redemption amount at the earliest redemption date. Such accretion is recorded as a preferred stock dividend on the Statement
of Stockholders’ Equity.
Operating Partnership and Long-Term
Incentive Plan Units
On April 2, 2014,
concurrently with the completion of the IPO, the Company entered into the Second Amended and Restated Agreement of Limited Partnership
of its Operating Partnership, Bluerock Residential Holdings, L.P. Pursuant to the amendment, the Company is the sole general partner
of the Operating Partnership and may not be removed as general partner by the limited partners with or without cause. The limited
partners of the Operating Partnership were Bluerock REIT Holdings, LLC, BR-NPT Springing Entity, LLC (“NPT”), Bluerock
Property Management, LLC (“BPM”), our Manager, and Bluerock Multifamily Advisor, LLC (the “Former Advisor”),
all of which are affiliates of Bluerock.
Prior to the completion
of the IPO, the Company owned, directly and indirectly, 100% of the limited partnership units in the Operating Partnership. Effective
as of the completion of the IPO, limited partners other than the Company owned approximately 9.87% of the Operating Partnership
(282,759 OP Units, or 4.59%, were held by OP Unit holders, and 325,578 LTIP Units, or 5.28%, were held by LTIP Unit holders.)
As of June 30, 2016, limited partners other than the Company owned approximately 7.01% of the Operating Partnership (305,568 OP
Units, or 1.45%, is held by OP Unit holders, and 1,169,881 LTIP Units, or 5.56%, is held by LTIP Unit holders.)
The Partnership Agreement,
as amended, provides, among other things, that the Operating Partnership initially has two classes of limited partnership interests,
which are units of limited partnership interest (“OP Units”), and the Operating Partnership’s long-term incentive
plan units (“LTIP Units”). In calculating the percentage interests of the partners in the Operating Partnership, LTIP
Units are treated as OP Units. In general, LTIP Units will receive the same per-unit distributions as the OP Units. Initially,
each LTIP Unit will have a capital account balance of zero and, therefore, will not have full parity with OP Units with respect
to any liquidating distributions. However, the Partnership Agreement Amendment provides that “book gain,” or economic
appreciation, in the Company’s assets realized by the Operating Partnership as a result of the actual sale of all or substantially
all of the Operating Partnership’s assets, or the revaluation of the Operating Partnership’s assets as provided by
applicable U.S. Department of Treasury regulations, will be allocated first to the holders of LTIP Units until their capital account
per unit is equal to the average capital account per-unit of the Company’s OP Unit holders in the Operating Partnership.
The Company expects that the Operating Partnership will issue OP Units to limited partners, and the Company, in exchange for capital
contributions of cash or property, and will issue LTIP Units pursuant to the Company’s Amended and Restated 2014 Equity
Incentive Plan for Individuals and Amended and Restated 2014 Equity Incentive Plan for Entities (collectively, the “Amended
2014 Incentive Plans”), to persons who provide services to the Company, including the Company’s officers, directors
and employees.
Pursuant to the Partnership
Agreement, as amended, any holders of OP Units, other than the Company or its subsidiaries, will receive redemption rights which,
subject to certain restrictions and limitations, will enable them to cause the Operating Partnership to redeem their OP Units
in exchange for cash or, at the Company’s option, shares of the Company’s Class A common stock, on a one-for-one basis.
The Company agreed to file, not earlier than one year after the closing of the IPO, one or more registration statements registering
the issuance or resale of shares of its Class A common stock issuable upon redemption of the OP Units issued upon conversion of
LTIP Units, which include those issued to the Manager and the Former Advisor. Subject to certain exceptions, the Operating Partnership
will pay all expenses in connection with the exercise of registration rights under the Partnership Agreement. The Resale Shelf
Registration Statement covers all such OP Units and LTIP Units issued prior to January 18, 2016.
Equity Incentive Plans
Prior to the
Company’s IPO on April 2, 2014, the Company’s independent directors received an automatic grant of 5,000 shares
of restricted stock on the initial effective date of the continuous registered offering and received an automatic grant of 2,500 shares
of restricted stock when such directors were re-elected at each annual meeting of the Company’s stockholders thereafter
through the 2013 annual meeting held on August 5, 2013. The restricted stock vested 20% at the time of the grant and 20% on each
anniversary thereafter over four years from the date of the grant. All shares of restricted stock granted to the independent directors
receive distributions, whether vested or unvested. The value of the restricted stock granted was determined at the date of grant.
Commencing with the Company’s IPO, the Company’s independent directors no longer receive automatic grants upon appointment
or reelection at each annual meeting of the Company’s stockholders.
On March 24, 2015,
in accordance with the Company’s 2014 Equity Incentive Plan for Individuals (the “2014 Individuals Plan”), the
Board authorized and each of the Company’s independent directors received two grants of 2,500 restricted shares of the Company’s
Class A common stock. The first grant of 2,500 restricted shares related to services rendered in 2014 (each, a “2014 Restricted
Stock Award”), while the second grant of 2,500 restricted shares relates to services rendered or to be rendered in 2015
(each, a “2015 Restricted Stock Award”). The vesting schedule for each 2014 Restricted Stock Award was as follows:
(i) 834 shares as of March 24, 2015, (ii) 833 shares on March 24, 2016, and (iii) 833 shares on March 24, 2017. The vesting schedule
for each 2015 Restricted Stock Award was as follows: (i) 834 shares as of March 24, 2016, (ii) 833 shares on March 24, 2017, and
(iii) 833 shares on March 24, 2018. The stock awards were made pursuant to certain stock award agreements by and between
the Company and each independent director, each dated effective as of March 24, 2015 (collectively, the “2014-2015 Stock
Award Agreements”).
On February
22, 2016, the board reviewed peer REIT compensation practices for independent directors, and found that equity awards for peer
REITs generally vest either on the grant date, or after one year. In order to normalize compensation practices with peer REITs,
on February 22, 2016, the board approved the amendment of each of the 2014-2015 Stock Award Agreements, effective as of March
24, 2016, such that the Stock Awards that did not vest on the grant date of March 24, 2015 vested on the one-year anniversary
of such grant date. As a result, (i) 1,666 shares of the 2014 Stock Award to each independent director, and (ii) all 2,500 shares
of the 2015 Stock Award to each independent director, became vested and nonforfeitable on March 24, 2016. The expense for the
accelerated vesting was approximately $0.1 million which was recorded in the three months ended March 31, 2016.
On May 28, 2015,
the Company’s stockholders approved the amendment and restatement of the 2014 Individuals Plan (the “Amended 2014
Individuals Plan”), and the Company’s 2014 Entities Plan (the “Amended 2014 Entities Plan” and together
with the Amended 2014 Individuals Plan, the “Amended 2014 Incentive Plans”). The Amended 2014 Incentive Plans allow
for the issuance of up to 475,000 shares of Class A common stock. The 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 March 24, 2016,
the Company granted a total of 7,500 shares of Class A Common Stock to its independent directors. The fair value of the grants
was approximately $0.1 million and the shares vested immediately.
A summary of the
status of the Company’s non-vested shares as of June 30, 2016 is as follows (amounts in thousands, except share amounts):
Non-Vested shares
|
|
Shares
(1)
|
|
|
Weighted average grant-date
fair value
(1)
|
|
Balance at January 1, 2016
|
|
|
14,476
|
|
|
$
|
14.46
|
|
Granted
|
|
|
7,500
|
|
|
|
10.33
|
|
Vested
|
|
|
(19,998
|
)
|
|
|
12.09
|
|
Forfeited
|
|
|
—
|
|
|
|
—
|
|
Balance at June 30, 2016
|
|
|
1,978
|
|
|
$
|
22.75
|
|
(1)
The number of shares
and per share amounts for the prior period have been retroactively restated to reflect the two reverse stock splits of the Class
B common stock discussed above.
At June 30, 2016,
there was $0.02 million of total unrecognized compensation cost related to unvested restricted stocks granted under the independent
director compensation plan. The original cost is expected to be recognized over a period of 1.1 years.
Equity Incentive Plans - LTIP Grants
On July 2, 2015,
the Company issued a grant of LTIP Units under the Amended 2014 Incentive Plans to the Company’s external manager, BRG Manager,
LLC. The equity grant consisted of 283,390 LTIP Units. The LTIP Units will vest ratably over a three year period that began in
July 2015, subject to certain terms and conditions. The 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. The LTIP Units provide for the payment of distribution
equivalents at the same time distributions are paid to holders of the Company’s Class A common stock. LTIP expense of $0.8
million and $1.2 million was recorded as part of general and administrative expenses for the three and six months ended June 30,
2016, respectively, related to these LTIP Units. The expense recognized during 2016 was based on a price of $13.00 per LTIP Unit,
which represents the closing share price for the Company’s Class A common stock on June 30, 2016.
Distributions
Declaration Date
|
|
Payable
to stockholders
of
record as of
|
|
Amount
|
|
|
Date Paid
|
Class A common stock
|
|
|
|
|
|
|
|
|
October 7, 2015
|
|
December 25, 2015
|
|
$
|
0.096667
|
|
|
January 5, 2016
|
January 13, 2016
|
|
January 25, 2016
|
|
$
|
0.096666
|
|
|
February 5, 2016
|
January 13, 2016
|
|
February 25, 2016
|
|
$
|
0.096667
|
|
|
March 5, 2016
|
January 13, 2016
|
|
March 24, 2016
|
|
$
|
0.096667
|
|
|
April 5, 2016
|
April 8, 2016
|
|
April 25, 2016
|
|
$
|
0.096666
|
|
|
May 5, 2016
|
April 8, 2016
|
|
May 25, 2016
|
|
$
|
0.096667
|
|
|
June 6, 2016
|
April 8, 2016
|
|
June 24, 2016
|
|
$
|
0.096667
|
|
|
July 5, 2016
|
Class B-3 common stock
|
|
|
|
|
|
|
|
|
October 7, 2015
|
|
December 25, 2015
|
|
$
|
0.096667
|
|
|
January 5, 2016
|
January 13, 2016
|
|
January 25, 2016
|
|
$
|
0.096666
|
|
|
February 5, 2016
|
January 13, 2016
|
|
February 25, 2016
|
|
$
|
0.096667
|
|
|
March 5, 2016
|
Series A Preferred Stock
|
|
|
|
|
|
|
|
|
December 14, 2015
|
|
December 24, 2015
|
|
$
|
0.401000
|
|
|
January 5, 2016
|
March 11, 2016
|
|
March 24, 2016
|
|
$
|
0.515625
|
|
|
April 5, 2016
|
June 10, 2016
|
|
June 24, 2016
|
|
$
|
0.515625
|
|
|
July 5, 2016
|
Series B Preferred Stock
|
|
|
|
|
|
|
|
|
April 15, 2016
|
|
April 25, 2016
|
|
$
|
5.00
|
|
|
May 5, 2016
|
May 13, 2016
|
|
May 25, 2016
|
|
$
|
5.00
|
|
|
June 3, 2016
|
June 10, 2016
|
|
June 24, 2016
|
|
$
|
5.00
|
|
|
July 5, 2016
|
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 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 dividend distributions automatically invested
in additional Class A common shares based on the average price of the 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, 2016 were as follows (amounts in thousands):
|
|
Distributions
|
|
2016
|
|
Declared
|
|
|
Paid
|
|
First Quarter
|
|
|
|
|
|
|
|
|
Class A Common Stock
|
|
$
|
5,604
|
|
|
$
|
5,569
|
|
Class B-3 Common Stock
|
|
|
68
|
|
|
|
102
|
|
Series A Preferred Stock
|
|
|
1,482
|
|
|
|
1,153
|
|
OP Units
|
|
|
89
|
|
|
|
89
|
|
LTIP Units
|
|
|
283
|
|
|
|
270
|
|
Total first quarter 2016
|
|
$
|
7,526
|
|
|
$
|
7,183
|
|
Second Quarter
|
|
|
|
|
|
|
|
|
Class A Common Stock
|
|
$
|
5,674
|
|
|
$
|
5,674
|
|
Series A Preferred Stock
|
|
|
2,951
|
|
|
|
1,481
|
|
Series B Preferred Stock
|
|
|
18
|
|
|
|
8
|
|
OP Units
|
|
|
89
|
|
|
|
89
|
|
LTIP Units
|
|
|
328
|
|
|
|
319
|
|
Total second quarter 2016
|
|
$
|
9,060
|
|
|
$
|
7,571
|
|
Total year-to-date
|
|
$
|
16,586
|
|
|
$
|
14,754
|
|
Note 11 – 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.
On March 15, 2016,
the Company, through its Operating Partnership and several affiliated unconsolidated co-borrowers that are accounted for on the
equity method of accounting, entered into an approximately $14.9 million secured credit facility (“Credit Facility”)
with KeyBank as lender. The proceeds of the Credit Facility may be used for payment (or reimbursement) of acquisition costs, fees
and expenses of the mortgaged properties and to fund interest advances. Draws under the Credit Facility are secured by properties
owned by unconsolidated real estate joint ventures in Garland, Texas, Charlotte, North Carolina and Fort Lauderdale, Florida.
At the closing of the loan, an initial advance of approximately $10.4 million was made directly to the affiliated property entities
and the liability was recorded by the unconsolidated entities and prior advances were repaid to the Operating Partnership. Principal
amounts may be repaid at any time without penalty, and amounts repaid may not be re-borrowed. The borrowings under the Credit
Facility are at a rate equal to LIBOR plus 3.75% or the base rate plus 2.75%, at the company’s option. Our Operating Partnership’s
obligations with respect to the Credit Facility are guaranteed by us, pursuant to the terms of a limited recourse guaranty dated
as of March 15, 2016. The outstanding credit facility balance at June 30, 2016, was $10.5 million.
Note 12 – Subsequent Events
Declaration of Dividends
Declaration Date
|
|
Payable
to stockholders
of
record as of
|
|
Amount
|
|
|
Payable Date
|
Class A common stock
|
|
|
|
|
|
|
|
|
July 8, 2016
|
|
July 25, 2016
|
|
$
|
0.096666
|
|
|
August 5, 2016
|
July 8, 2016
|
|
August 25, 2016
|
|
$
|
0.096667
|
|
|
September 5, 2016
|
July 8, 2016
|
|
September 23, 2016
|
|
$
|
0.096667
|
|
|
October 5, 2016
|
Series B Preferred Stock
|
|
|
|
|
|
|
|
|
July 8, 2016
|
|
July 25, 2016
|
|
$
|
5.00
|
|
|
August 5, 2016
|
July 8, 2016
|
|
August 25, 2016
|
|
$
|
5.00
|
|
|
September 5, 2016
|
July 8, 2016
|
|
September 23, 2016
|
|
$
|
5.00
|
|
|
October 5, 2016
|
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 paid to the Company's holders of Class A common stock, Series A Preferred Stock, as well as holders of OP and LTIP Units
subsequent to June 30, 2016 (amounts in thousands):
Shares
|
|
Declaration
Date
|
|
Record Date
|
|
Date Paid
|
|
Distributions
per
Share
|
|
|
Total
Distribution
|
|
Class A Common Stock
|
|
April 8, 2016
|
|
June 24, 2016
|
|
July 5, 2016
|
|
$
|
0.096667
|
|
|
$
|
1,891
|
|
Series A Preferred Stock
|
|
June 10, 2016
|
|
June 24, 2016
|
|
July 5, 2016
|
|
$
|
0.515625
|
|
|
$
|
2,950
|
|
Series B Preferred Stock
|
|
June 10, 2016
|
|
June 24, 2016
|
|
July 5, 2016
|
|
$
|
5.000000
|
|
|
$
|
9
|
|
OP Units
|
|
April 8, 2016
|
|
June 24, 2016
|
|
July 5, 2016
|
|
$
|
0.096667
|
|
|
$
|
30
|
|
LTIP Units
|
|
April 8, 2016
|
|
June 24, 2016
|
|
July 5, 2016
|
|
$
|
0.096667
|
|
|
$
|
113
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A Common Stock
|
|
July 8, 2016
|
|
July 25, 2016
|
|
August 5, 2016
|
|
$
|
0.096666
|
|
|
$
|
1,891
|
|
Series B Preferred Stock
|
|
July 8, 2016
|
|
July 25, 2016
|
|
August 5, 2016
|
|
$
|
5.000000
|
|
|
$
|
16
|
|
OP Units
|
|
July 8, 2016
|
|
July 25, 2016
|
|
August 5, 2016
|
|
$
|
0.096666
|
|
|
$
|
30
|
|
LTIP Units
|
|
July 8, 2016
|
|
July 25, 2016
|
|
August 5, 2016
|
|
$
|
0.096666
|
|
|
$
|
113
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
$
|
7,043
|
|
Refinancing of Lansbrook Village property
Subsequent to quarter
end, on July 8, 2016, the Company, through an indirect subsidiary (the “Lansbrook Village Borrower”), entered into
an approximately $57.2 million loan with Walker & Dunlop, LLC, on behalf of Fannie Mae, which is secured by Lansbrook Village.
The loan matures August 1, 2026 and bears interest on a floating basis based on LIBOR plus 2.44%, with interest only payments
until August 1, 2020, and thereafter will require principal installments of $92,671 in addition to accrued interest monthly until
maturity. After July 8, 2017 the loan may be prepaid with a 1% prepayment fee through March 31, 2026, and thereafter at par. The
loan is nonrecourse to the Company and the Lansbrook Village Borrower with certain standard scope non-recourse carve-outs for
certain deeds, acts or failures to act on the part of the Company and the Lansbrook Village Borrower, or any of its officers,
members, managers or employees.
July 2016 Offering of 7.625% Series
C Cumulative Redeemable Preferred Stock
Subsequent to quarter
end, on July 19, 2016, the Company completed an underwritten offering (the “July 2016 Preferred Stock Offering”) of
2,300,000 shares of 7.625% Series C Cumulative Redeemable Preferred Stock, par value $0.01 per share, liquidation preference $25.00
per share, inclusive of shares sold pursuant to the full exercise of the overallotment option by the underwriters. The shares
were registered with the SEC pursuant to the January 2016 Shelf Registration Statement. The public offering price of $25.00 per
share was announced on July 12, 2016. Net proceeds of the July 2016 Preferred Stock Offering were approximately $55.3 million
after deducting underwriting discounts and commissions and estimated offering costs.
Acquisition of ARIUM Westside
On July 14, 2016,
the Company, through joint venture subsidiaries of its Operating Partnership, acquired a leasehold interest in a 336-unit, Class
A, mixed-use apartment community located in Atlanta, Georgia, known as Tenside Apartment Homes to be rebranded as ARIUM Westside
(“Westside”). The Company’s indirect ownership interest in the joint venture that owns Westside is 90%.
The purchase price for Westside of approximately $74.5 million was funded, in part, with a $52.2 million senior mortgage loan
made by Walker & Dunlop, LLC on behalf of Fannie Mae and secured by the Westside leasehold interest (the “Westside Loan”).
The Westside Loan matures August 1, 2023 and bears interest at a rate of 3.68%. The Company provided certain standard scope non-recourse
carveout guarantees in conjunction with the Westside Loan.
Equity Incentive Plans - LTIP Grants
On August 3, 2016,
the Company issued a grant of certain long-term incentive plan units, or LTIP Units, under the Amended 2014 Incentive Plans to
the Company’s external manager, BRG Manager, LLC. The equity grant consisted of 176,610 LTIP Units. The LTIP Units will
vest ratably over three years, subject to certain terms and conditions. The 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. The LTIP Units provide for the
payment of distribution equivalents at the same time distributions are paid to holders of the Company’s Class A common stock.