Bluerock Residential Growth REIT Announces Q1 2015 Results

Bluerock Residential Growth REIT Announces First Quarter 2015 AFFO per share of $0.13 vs. Guidance of $0.10-$0.11 per share; Pro Forma AFFO per share of $0.29 vs. Guidance of $0.26 – $0.28

New York, NY (May 12, 2015) – Bluerock Residential Growth REIT, Inc. (NYSE MKT: BRG) (“the Company”) announced today its financial results for the quarter ended March 31, 2015.

Highlights

  • Adjusted funds from operations (“AFFO”) per share grew to $0.13 for the first quarter of 2015 from a deficit of ($0.48) for the first quarter of 2014. AFFO for the first quarter of $0.13 per share exceeded the Company’s AFFO guidance of $0.10 to $0.11 per share.
  • AFFO grew to $1.6 million for the quarter from a deficit of ($0.5) million for the prior year quarter.
  • Proforma AFFO per share of $0.29 for the first quarter of 2015 exceeded guidance of $0.26 to $0.28 per share.
  • Net income attributable to common stockholders for the first quarter of 2015 was $3.3 million, as compared to a net loss of $1.0 million in the prior year period.
  • Total revenues grew 180% to $9.0 million for the quarter from $3.2 million for the prior year quarter as a result of significant investment activity in the past year.
  • Property Net Operating Income (NOI) margins increased to 57.2% of revenue for the quarter, from 51.0% of revenue in the prior year quarter.
  • Property NOI grew 214% to $5.2 million for the quarter, from $1.6 million in the prior year quarter.
  • Same store NOI increased 19.2% for the quarter, as compared to the prior year quarter.
  • General and administrative expenses (excluding non-cash amortization) as a percentage of revenue declined to 5.1% for the quarter from 16.0% for the prior year quarter.
  • Real estate investments, at cost, increased 22% to $366 million at March 31, 2015 from $300 million at December 31, 2014.
  • BRG invested in three properties totaling 710 units during the first quarter, including two operating properties with 441 units for a total purchase price of $66.0 million and one 269-unit development property for a projected total cost of $48.6 million.
  • BRG disposed of one property during the first quarter for an IRR of 60%, and total return on capital of 282%.
  • On January 20, 2015, the Company completed a follow-on stock offering of 4,600,000 shares of Class A common stock at a public offering price of $12.50 per share, including the full exercise of the underwriter’s overallotment for gross proceeds of $57.5 million.
  • The Company declared monthly dividends for the second quarter of 2015 equal to a quarterly rate of $0.29 per share on the Company’s Class A and B common stock. This equates to an 8.7% annualized yield based on the closing price of $13.33 for the Class A common stock as of March 31, 2015.

Management Commentary
“We continued to execute our business plan during the first quarter of 2015,” said Ramin Kamfar, the Company’s Chairman and CEO. “We successfully raised $57.5 million in our January follow-on offering and committed $52.4 million in five investments including two pending investments for 1,199 total units. We disposed of our 23Hundred@BerryHill property for $61.2 million or $230,000 per unit, one of the highest per unit prices in the Nashville market and recycled the proceeds into an accretive transaction on a tax efficient basis. Our existing portfolio continues to perform at or above our previously issued guidance.”

First Quarter 2015 Acquisition and Disposition Activity

  • On January 12, 2015, the Company made a convertible preferred equity investment in a 269-unit Class A development property, located in Houston, Texas, known as Alexan Blaire House. The investment is structured to provide a 15% current return, with an option to convert into majority ownership of the underlying asset upon stabilization.
  • On January 14, 2015, the Company’s sold its 19.8% interest in 23Hundred@Berry Hill for an aggregate sales price of $61.2 million, generating net proceeds of approximately $7.3 million for the Company, a return on capital of 282% and an IRR of 60.0%.
  • On March 16, 2015, the Company acquired a 47.0% interest in a Class AA, 2014 construction, 153- unit apartment community located in Charlotte, North Carolina, known as Park & Kingston. The total purchase price of the property was approximately $27.9 million. As a second step, the Company plans to acquire an additional 15 units currently under development.
  • On March 26, 2015, the Company acquired an 85.3% interest in a Class A, 2010 construction, 288-unit apartment community located in Austin, Texas, known as Fox Hill. The total purchase price of the property was approximately $38.2 million.

Pending Investments
Subsequent to the end of the quarter, the Company committed to making convertible preferred equity investments in two projects.These investments are structured to provide us with a 15% current return on our investments, with an option to convert into majority ownership of the underlying assets upon stabilization.

  • A 204-unit new-build Class A luxury apartment community currently in lease-up in Durham, North Carolina, known as Whetstone, in partnership with TriBridge Residential, for a total purchase price of $35.6 million. The Company is investing $12.3 million, and underwriting a stabilized cap rate at approximately 6.0%.
  • A 285-unit to be built Class A luxury apartment community located in Atlanta, Georgia, to be known as Cheshire Bridge Apartments, in partnership with Catalyst Development Partners for total projected development costs of $48.2 million. The Company is investing $15.0 million, and is underwriting a return on cost of approximately 7.0% at stabilization versus market cap rates of 4.50% – 5.25% for comparable product.

First Quarter 2015 Financial Results
AFFO for the first quarter of 2015 was $1.6 million, or $0.13 per diluted share, as compared to a deficit of ($0.5) million, or ($0.48) per share in the prior year period. The increase in AFFO from the prior year period was driven by expanding the size of our portfolio by five properties, as we made investments in nine properties subsequent to March 31, 2014 and sold four properties that were owned during the quarter ended March 31, 2014. In addition, we reduced our general and administrative expenses (excluding non-cash expenses) as a percentage of revenue in part as a result of more favorable terms of our new management agreement, which began on April 2, 2014, the date of our initial public offering, and due to growing our asset base.

Net income attributable to common stockholders for the first quarter of 2015 was $3.3 million, as compared to a net loss of $1.0 million in the prior year period. The net income for the 2015 first quarter was partially derived from the five additional operating properties in our portfolio on a net basis when compared to the prior period along with a $5.2 million gain on the sale of 23 Hundred @ Berry Hill, offset by non-cash depreciation and amortization expense of $2.8 million.

Same Store Portfolio Performance
Same store NOI for the first quarter of 2015 increased by 19.2% from the same period in the prior year. There was a 7.4% increase in same store property revenues as compared to the same prior year period, primarily attributable to a 4.0% increase in average rent per occupied unit, the acquisition of 22 additional units at our Enders property, and a 1.44% increase in average occupancy. In addition, same store expenses decreased 7.4% compared to prior year period, primarily due to a decrease in repair and maintenance expenses and lower property level general and administrative expenses.

Portfolio Summary and Transaction Activity
The following is a summary of our investments as of March 31, 2015:

Property Name
Location
Year Built/ Renovated (1)
Ownership Interest
Units
Average Rent
% Occupied
Total/Average (3)
4131
$1,300
94%
MDA Apartments
Chicago, IL
2006
35.3%
190
$2,231
92%
Alexan CityCentre (2)
Houston, TX
Est. 2017
N/A
340
$2,144
-
Alexan Blaire House (2)
Houston, TX
Est. 2017
N/A
269
$2,012
-
Enders Place at Baldwin Park
Orlando, FL
2003
89.5%
220
$1,521
95%
UCF Orlando (2)
Orlando, FL
Est. 2015
N/A
296
$1,214
-
Park & Kingston (4)
Charlotte, NC
2014
47%
153
$1,184
91%
ARIUM Grande Lakes
Orlando, FL
2005
95%
306
$1,130
96%
Lansbrook Village
Palm Harbor, FL
2004
76.8%
595
$1,122
93%
Village Green of Ann Arbor
Ann Arbor, MI
2013
48.6%
520
$1,120
93%
Fox Hill (4)
Austin, TX
2010
85.3%
288
$1,110
98%
North Park Towers
Southfield, MI
2000
100%
313
$1,044
95%
Springhouse at Newport News
Newport News, VA
1985
75%
432
$830
92%
Villas at Oak Crest
Chattanooga, TN
1999
67.2%
209
$806
98%

(1) All dates are for the year construction was completed, except MDA City Apartments, Village Green
Crest and North Park Towers, for which the most recent year that a significant renovation program was completed.

(2) Property is in development and the Company holds a preferred equity investment with an option to convert to into partial ownership of the underlying asset upon stabilization. Average rent represents pro forma average rent expected upon stabilization.

(3) Total average rent excluding pro forma expected rent for the three development properties, Alexan CityCentre, Alexan Blaire House and UCF Orlando is $1,150.

(4) Park & Kingston and Fox Hill were acquired in March 2015 and had a partial period of operations during the quarter. As such, pro forma rental information is disclosed.

Pending Investments
The following is a summary of our pending convertible preferred equity investments:

Property NameLocation
Year Built
Units
Average Rent
Total/Average
489
$1,461
WhetstoneDurham, NC
2015
204
$1,325
Cheshire BridgeAtlanta, GA
2017
285
$1,559

Q2 2015 Outlook
For the second quarter of 2015, the Company anticipates AFFO in the range of $0.15 to $0.16 per share; and $0.26 to $0.28 per share on a pro forma basis. For assumptions underlying earnings guidance, please see p. 24 of Company’s Q1 2015 Earnings Supplement available under Investor Relations on the Company’s website (www.bluerockresidential.com). Pro forma AFFO is used for illustrative purposes only, is hypothetical and does not represent historical performance or management’s estimates or projections for future performance.

Dividend Details
On April 10, 2015, our board of directors authorized, and we declared, monthly dividends for the second quarter of 2015 equal to a quarterly rate of $0.29 per share on our Class A common stock and $0.29 per share on our Class B common stock, payable to the stockholders of record as of April 25, 2015, May 25, 2015 and June 25, 2015, which will be paid in cash on May 5, 2015, June 5, 2015 and July 5, 2015, respectively. Holders of OP and LTIP Units are entitled to receive “distribution equivalents” at the same time as dividends are paid to holders of our Class A common stock.

The declared dividends equal a monthly dividend on the Class A common stock and the Class B common stock as follows: $0.096666 per share for the dividend paid to stockholders of record as of April 25, 2015, $0.096667 per share for the dividend paid to stockholders of record as of May 25, 2015, and June 25, 2015. A portion of each dividend may constitute a return of capital for tax purposes. There is no assurance that we will continue to declare dividends or at this rate.

Non-GAAP Financial Measures
The foregoing supplemental financial data includes certain non-GAAP financial measures that we believe are helpful in understanding our business, as further described below. Our definition and calculation of these non-GAAP financial measures may differ from those of other REITs, and may, therefore, not be comparable.

Funds from Operations and Adjusted Funds from Operations
Funds from operations (“FFO”) is a non-GAAP financial measure that is widely recognized as a measure of REIT operating performance. We consider FFO to be an appropriate supplemental measure of our operating performance as it is based on a net income analysis of property portfolio performance that excludes non-cash items such as depreciation. The historical accounting convention used for real estate assets requires straight- line depreciation of buildings and improvements, which implies that the value of real estate assets diminishes predictablyovertime.Sincerealestatevalueshistoricallyriseandfallwithmarket conditions,presentations of operating results for a REIT, using historical accounting for depreciation, could be less informative. We define FFO, consistent with the National Association of Real Estate Investment Trusts, or (“NAREIT’s”), definition, as net income, computed in accordance with GAAP, excluding gains (or losses) from sales of property, plus depreciation and amortization of real estate assets, plus impairment write-downs of depreciable real estate, and after adjustments for unconsolidated partnerships and joint ventures. Adjustments for unconsolidated partnerships and joint ventures will be calculated to reflect FFO on the same basis.

In addition to FFO, we use adjusted funds from operations (“AFFO”). AFFO is a computation made by analysts and investors to measure a real estate company’s operating performance by removing the effect of items that do not reflect ongoing property operations. To calculate AFFO, we further adjust FFO by adding back certain items that are not added to net income in NAREIT’s definition of FFO, such as acquisition expenses, equity based compensation expenses, and any other non-recurring or non-cash expenses, which are costs that do not relate to the operating performance of our properties, and subtracting recurring capital expenditures (and when calculating the quarterly incentive fee payable to our Manager only, we further adjust FFO to include any realized gains or losses on our real estate investments).

Our calculation of AFFO differs from the methodology used for calculating AFFO by certain other REITs and, accordingly, our AFFO may not be comparable to AFFO reported by other REITs. Our management utilizes FFO and AFFO as measures of our operating performance after adjustment for certain non-cash items, such as depreciation and amortization expenses, and acquisition expenses and pursuit costs that are required by GAAP to be expensed but may not necessarily be indicative of current operating performance and that may not accurately compare our operating performance between periods. Furthermore, although FFO, AFFO and other supplemental performance measures are defined in various ways throughout the REIT industry, we also believe that FFO and AFFO may provide us and our stockholders with an additional useful measure to compare our financial performance to certain other REITs. We also use AFFO for purposes of determining the quarterly incentive fee, if any, payable to our Manager.

Neither FFO nor AFFO is equivalent to net income or cash generated from operating activities determined in accordance with GAAP. Furthermore, FFO and AFFO do not represent amounts available for management’s discretionary use because of needed capital replacement or expansion, debt service obligations or other commitments or uncertainties. Neither FFO nor AFFO should be considered as an alternative to net income as an indicator of our operating performance or as an alternative to cash flow from operating activities as a measure of our liquidity.

We have acquired interests in nine additional properties subsequent to March 31, 2014 and sold four properties that were owned during the quarter ended March 31, 2014. The results presented in the table below are not directly comparable and should not be considered an indication of our future operating performance (unaudited and dollars in thousands, except share and per share data).

 
Three Months Ended
Pro forma AFFO - diluted (2)$0.29N/A
March 31,
2015
2014
Net income (loss) attributable to common shareholders$3,313$(1,047)
Common stockholders pro-rata share of:
Real estate depreciation and amortization (1)
1,911475
Gain on sale of joint venture interests
(5,324)(448)
Funds from Operations (FFO)$(100)$(1,020)
Common stockholders pro-rata share of:
Amortization of non-cash interest expense
2328
Acquisition and disposition costs
475487
Normally recurring capital expenditures
(114)(19)
Non-cash equity compensation
1,36514
Adjusted Funds from Operations (AFFO)$1,649$(510)
Weighted average common shares outstanding12,547,8951,060,989
PER SHARE INFORMATION:
FFO - diluted$(0.01)$(0.96)
AFFO - diluted$0.13$(0.48)

(1) The real estate depreciation and amortization amount includes our share of consolidated real estate-related depreciation and amortization of intangibles, less amounts attributable to noncontrolling interests, and our similar estimated share of unconsolidated depreciation and amortization, which is included in earnings of our unconsolidated real estate joint venture investments.

(2) Proforma AFFO for the three months ended March 31, 2015 assumes the following pipeline transactions had occurred on January 1, 2015: (i) investment of approximately $9 million in the second funding of the Alexan Southside in Houston, Texas; (ii) investment of approximately $17 million in the acquisition of two Class A assets under contract in Austin, Texas, and Charlotte, North Carolina that occurred in March 2015; (iii) investment of approximately $32 million in the acquisition of three Class A assets our Sponsor currently has under LOI in two target North Carolina markets; and (iv) investment of approximately $21 million in convertible preferred equity in two development assets our Sponsor currently has under LOI in two target Florida markets. The proforma AFFO for the three months ended March 31, 2015 is being presented solely for purposes of illustrating the potential impact of these pipeline transactions as if they had occurred at April 1, 2015, based on information currently available to management. The Company is providing no assurances that any of the above transactions will close, and the failure of any of these transactions to close would significantly impact proforma guidance. The actual timing of these investments, if and when made, will vary materially from the assumed timing reflected in the proforma guidance, and actual quarterly results will differ significantly from the proforma guidance shown above.

Earnings Before Interest, Income Taxes, Depreciation and Amortization (“EBITDA”)
EBITDA is defined as earnings before interest, income taxes, depreciation and amortization. We consider EBITDA to be an appropriate supplemental measure of our performance because it eliminates depreciation, income taxes, interest and non-recurring items, which permits investors to view income from operations unclouded by non-cash depreciation, amortization, the cost of debt or non-recurring items. Below is a reconciliation of net income applicable to common stockholders to EBITDA (unaudited and dollars in thousands).

Screen Shot 2015-05-12 at 8.38.42 AM

IRR
When we refer to IRR in this earnings release, we mean the annualized effective compounded return rate or discountratethatresultsinthenetpresentvalueof allcashflowsfromaparticularinvestmentovertheterm of the investment being equal to zero, computed with Microsoft Excel’s XIRR function over the duration of our ownership of the investment. IRR as presented in this earnings release utilizes cash flows that are gross of any acquisition, disposition and/or asset management fees payable to our Manager.

Recurring Capital Expenditures
We define recurring capital expenditures as expenditures that are incurred at every property and exclude development, investment, revenue enhancing and non- recurring capital expenditures.

Non-Recurring Capital Expenditures
We define non-recurring capital expenditures as expenditures for significant projects that upgrade units or common areas and projects that are revenue enhancing.

Same Store Properties
Same store properties are conventional multifamily residential apartments which were owned and operational for the entire periods presented, including each comparative period.

Property Net Operating Income (“Property NOI”)
We believe that net operating income, or NOI, is a useful measure of our operating performance. We define NOI as total property revenues less total property operating expenses, excluding depreciation and amortization and interest. Other REITs may use different methodologies for calculating NOI, and accordingly, our NOI may not be comparable to other REITs. We believe that this measure provides an operating perspective not immediately apparent from GAAP operating income or net income. We use NOI to evaluate our performance on a same store and non-same store basis because NOI measures the core operations of property performance by excluding corporate level expenses and other items not related to property operating performance and captures trends in rental housing and property operating expenses. However, NOI should only be used as an alternative measure of our financial performance. The following table reflects same store and non-same store contributions to consolidated NOI together with a reconciliation of NOI to net loss as computed in accordance with GAAP for the periods presented (unaudited and amounts in thousands):

Screen Shot 2015-05-12 at 8.39.24 AM

(1) Same Store sales related to the following properties: Springhouse at Newport News, Enders Place at Baldwin Park and MDA Apartments.

Conference Call
All interested parties can listen to the live conference call webcast at 12:00 PM ET on Tuesday, May 12, 2015 by dialing +1 (866) 777-2509 within the U.S., or +1 (412) 317-5413, and requesting the “Bluerock Residential Conference.” For those who are not available to listen to the live call, the webcast will be available for replay on the Company’s website two hours after the call concludes, and will remain available until August 12, 2015 at http://services.choruscall.com/links/blue150512.html, as well as by dialing +1 (877) 344-7529 in the U.S., or +1 (412) 317-0088 internationally, and requesting conference number 10065395.

About Bluerock Residential Growth REIT, Inc.
Bluerock Residential Growth REIT, Inc. (NYSE MKT: BRG) is a real estate investment trust. The Company focuses on acquiring a diversified portfolio of Class A institutional-quality apartment properties in demographically attractive growth markets to appeal to the renter by choice category. The Company’s objective is to generate value through off-market/relationship-based transactions and, at the asset level, through improvements to operations and properties. BRG generally invests with strategic regional partners,including some the best-regarded private owner-operators in the United States, enabling the Company to operate as a local sharpshooter in each of its markets and to enhance its off-market sourcing capabilities. BRG has elected to be taxed as a real estate investment trust (REIT) for U.S. federal income tax purposes. For more information, please visit the Company’s website at bluerockresidential.com.

Forward Looking Statements
This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and other federal securities laws. These forward-looking statements are based upon the Company’s present expectations, but these statements are not guaranteed to occur. Furthermore, the Company disclaims any obligation to publicly update or revise any forward-looking statement to reflect changes in underlying assumptions or factors, of new information, data or methods, future events or other changes. Investors should not place undue reliance upon forward-looking statements. For further discussion of the factors that could affect outcomes, please refer to the risk factors set forth in Item 1A of the Company’s Annual Report on Form 10-K filed by the Company with the U.S. Securities and Exchange Commission (“SEC”) on March 4, 2015, and subsequent filings by the Company with the SEC. We claim the safe harbor protection for forward looking statements contained in the Private Securities Litigation Reform Act of 1995.

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