Business Overview and Detailed History Bluerock Homes Trust, Inc. (BHM) is an externally managed real estate investment trust (REIT) that owns and operates high-quality single-family properties in attractive markets across the Sunbelt and Western United States. With a focus on knowledge-economy and high-quality of life regions, BHM aims to generate attractive risk-adjusted returns for its investors through strategic acquisitions, value-add renovations, and build-to-rent developments.
Bluerock Homes Trust was incorporated in Maryland on December 16, 2021, marking the company’s official inception. The REIT’s origins, however, can be traced back to the formation of its operating partnership, Bluerock Residential Holdings, L.P., in 2014. This partnership was initially established as a subsidiary of Bluerock Residential Growth REIT, Inc., a publicly traded REIT that specialized in multifamily properties.
In 2022, Bluerock Residential Growth REIT, Inc. underwent a strategic restructuring, leading to the spin-off of its single-family rental business into a newly formed entity – Bluerock Homes Trust, Inc. This transaction allowed the company to sharpen its focus on the single-family rental market, which had emerged as an increasingly attractive investment thesis amid the COVID-19 pandemic and the subsequent shift in housing preferences.
During its first year of operations in 2022, Bluerock Homes Trust faced initial challenges as it transitioned property management services for over 1,000 homes. This transition resulted in $1.8 million in acquisition and other transaction costs. Despite these challenges, the company continued to grow its portfolio through strategic acquisitions.
In the first half of 2023, Bluerock Homes Trust made significant strides in expanding its portfolio, including the purchase of a 294-unit community in Houston, Texas, and a 200-unit community in Jacksonville, Florida. To fund its growth, the company established a $150 million revolving credit facility and issued $8.7 million of 6% Series A Preferred Stock in 2023. The proceeds from the Series A Preferred Stock offering enabled the company to further expand its single-family residential portfolio and invest in build-to-rent development projects.
Throughout 2023, Bluerock Homes Trust focused on optimizing its existing portfolio through value-add renovations and repositioning lower-quality assets. This strategy helped drive rent growth and margin expansion, contributing to a 13% increase in rental and other property revenues compared to the prior year. The company also selectively sold certain consolidated operating assets, generating $9 million in net proceeds during 2023.
Since its inception, Bluerock Homes Trust has actively grown its portfolio through strategic acquisitions and development projects. As of September 30, 2024, the company held twenty real estate investments, comprising twelve consolidated operating properties and eight preferred equity and loan investments. These investments represent an aggregate of 4,000 residential units, with 2,740 consolidated units (including 170 units under development) and 1,260 units through preferred equity and loan investments.
Financial Performance and Ratios Bluerock Homes Trust reported annual revenue of $41.09 million and net income of -$15.77 million for the fiscal year ended December 31, 2023. The company’s operating cash flow for the same period was $13.88 million, while its free cash flow amounted to $4.35 million.
In terms of financial ratios, Bluerock Homes Trust’s debt-to-equity ratio stood at 1.59 as of December 31, 2023, indicating a moderate level of leverage. The company’s current ratio, a measure of short-term liquidity, was 1.31, suggesting an adequate ability to meet its short-term obligations. Additionally, Bluerock Homes Trust’s quick ratio was also 1.31, indicating that the company has sufficient liquid assets to cover its short-term liabilities.
For the most recent quarter ended September 30, 2024, Bluerock Homes Trust reported revenue of $12.71 million and net income of $3.55 million. The company’s operating cash flow for the quarter was $1.68 million, while its free cash flow was -$0.60 million.
Quarterly Performance For the third quarter of 2024, Bluerock Homes Trust reported rental and other property revenues of $12.00 million, up 18.00% from the same period in the prior year. This increase was primarily driven by the acquisition of 294 units at Villas at Huffmeister in the first quarter of 2024 and 200 units at Avenue at Timberlin Park in the third quarter of 2024, as well as rental rate improvements from the company’s active management and organic market rent growth. The company’s average rent per occupied unit increased 3.40% year-over-year to $1.64K.
Net income for the third quarter of 2024 was $3.55 million, compared to $3.62 million in the same period of the prior year. This slight decrease was largely attributable to a $1.30 million increase in property operating expenses, which were partially offset by a $10.30 million increase in gains on sales of real estate investments.
For the nine months ended September 30, 2024, Bluerock Homes Trust reported rental and other property revenues of $34.67 million, up 13.30% compared to the same period in 2023. The company’s net income for the first nine months of 2024 was $4.79 million, compared to $10.07 million in the prior-year period.
The company’s consolidated operating investments generated $11.98 million in rental and other property revenues for the third quarter of 2024, up 17.6% from the prior year period. This growth was driven by the acquisitions of Villas at Huffmeister and Avenue at Timberlin Park, as well as organic rent growth across the portfolio. Property operating expenses for the consolidated investments increased 26.3% to $6.43 million, primarily due to the new acquisitions and higher turnover costs following earlier renovations.
In addition to its consolidated real estate holdings, Bluerock Homes Trust also maintains a portfolio of eight preferred equity and loan investments, representing an additional 1,260 residential units. During the nine months ended September 30, 2024, the company generated $1.74 million in interest income from these loan investments, a significant increase from the prior year period when it did not hold any loan investments. The company also earned $8.31 million in income from its preferred equity investments during the nine-month period, up slightly from $8.65 million in the prior year.
Guidance and Outlook Bluerock Homes Trust has not provided specific guidance for the full year 2024. However, the company’s management team remains optimistic about the strong demand for single-family rentals in its target Sunbelt and Western U.S. markets, as well as the company’s ability to successfully execute on its investment strategies.
Risks and Challenges While Bluerock Homes Trust’s business model and growth strategy appear promising, the company faces a number of risks and challenges that investors should consider:
Macroeconomic Conditions: Changes in economic factors such as interest rates, inflation, and employment levels can significantly impact the demand for single-family rentals and the company’s operating costs. Bluerock Homes Trust’s performance is closely tied to the broader economic environment.
Regulatory Environment: The REIT industry is subject to various regulatory requirements, including those related to tax status and property operations. Any changes in the regulatory landscape could have a material effect on Bluerock Homes Trust’s business model and financial performance.
Operational Risks: As Bluerock Homes Trust continues to grow its portfolio, it must effectively manage its properties, maintain high occupancy levels, and control operating expenses to ensure profitability.
Despite these risks, Bluerock Homes Trust’s management team has demonstrated a strong track record of navigating the single-family rental market and delivering value for its shareholders. The company’s focus on high-growth Sunbelt and Western U.S. markets, combined with its disciplined investment approach and operational expertise, position it well for continued success in the years ahead.
Liquidity and Capital Resources As of December 31, 2023, Bluerock Homes Trust had a cash position of $80.16 million. The company’s debt-to-equity ratio stood at 1.59, indicating a moderate level of leverage. Bluerock Homes Trust has access to two revolving credit facilities: the Amended DB Credit Facility with a $150 million commitment and the Amended ILE Sunflower Credit Facility with an initial $20 million commitment. As of September 30, 2024, the company had $105 million outstanding on these facilities, leaving approximately $13 million of availability.
The company’s current ratio and quick ratio both stood at 1.31 as of December 31, 2023, suggesting an adequate ability to meet short-term obligations. These liquidity metrics indicate that Bluerock Homes Trust has sufficient resources to fund its operations and pursue growth opportunities in the near term.
Conclusion Bluerock Homes Trust is a unique residential REIT that is capitalizing on the strong demand for single-family rentals in the Sunbelt and Western United States. With a proven management team, a diversified portfolio of quality assets, and a strategic focus on value-add opportunities, the company is well-positioned to generate attractive risk-adjusted returns for its investors. While the company faces competitive pressures and macroeconomic risks, its disciplined approach and innovative strategies suggest a promising future for Bluerock Homes Trust in the dynamic single-family rental market.
The company’s financial performance has shown resilience and growth, with increasing revenues and a strong liquidity position. The recent acquisitions of Villas at Huffmeister and Avenue at Timberlin Park have contributed to the company’s revenue growth, while its focus on high-quality markets in the Sunbelt and Western U.S. has positioned it to capitalize on favorable demographic and economic trends in these regions.
As Bluerock Homes Trust continues to execute its growth strategy, investors should closely monitor the company’s ability to maintain occupancy rates, control operating expenses, and navigate the competitive landscape of the single-family rental market. With its current portfolio of 4,000 residential units and a mix of consolidated investments and preferred equity/loan investments, Bluerock Homes Trust has established a solid foundation for future growth and value creation in the residential REIT sector.
Disclaimer: This article is for informational purposes only. It does not constitute financial, legal, or other types of advice. While every effort has been made to ensure the accuracy of the information presented here, the author and the publisher do not make any guarantees about the completeness, reliability, and accuracy of this information.