Bluerock Homes Trust (BHM) risk factors, FY2024 10-K

Risks Related to Our Business, Properties and Industry

1. 01We face numerous risks associated with the real estate industry that could adversely affect our results of operations through decreased revenues or increased costs
2. 02Many of our costs, such as operating expenses and general and administrative expenses, interest expense and real estate acquisition and construction costs, could be adversely impacted by periods of heightened inflation
3. 03Our current portfolio primarily consists of interests in residential properties, located primarily in markets in the Sunbelt and Western United States. Any adverse developments in local economic conditions or the demand for residential properties in these markets may negatively impact our results of operations
4. 04We are employing a business model with a limited track record, which may make our business difficult to evaluate
5. 05We have a limited operating history as a REIT and an independent publicly traded company and may not be able to operate our business successfully or generate sufficient cash flows to make or sustain distributions to our stockholders
6. 06A significant portion of our costs and expenses are fixed and we may not be able to adapt our cost structure to offset declines in our revenue
7. 07Legislative or other actions affecting the single-family residential housing industry could have a negative effect on our business and financial results
8. 08Increasing property taxes, HOA fees, and insurance costs may negatively affect our financial results
9. 09Our investments are and will continue to be concentrated in our markets and in the residential properties sector of the real estate industry, which exposes us to seasonal fluctuations in rental demand and downturns in our markets or in the residential properties sector
10. 10We may not be able to effectively control the timing and costs relating to the renovation and maintenance of our properties, which may adversely affect our operating results and ability to make distributions to our stockholders
11. 11We have in the past acquired and may from time to time in the future acquire some of our residential properties through the auction process, which could subject us to significant risks that could adversely affect us
12. 12Title defects could lead to material losses on our investments in our properties
13. 13We are subject to certain risks associated with bulk portfolio acquisitions and dispositions
14. 14Our leases are relatively short-term, exposing us to the risk that we may have to re-lease our properties frequently, which we may be unable to do on attractive terms, on a timely basis, or at all
15. 15Climate change may adversely affect our business
16. 16Eminent domain could lead to material losses on our investments in our properties
17. 17Tenant relief laws, including laws regulating evictions, rent control laws, and other regulations that limit our ability to increase rental rates may negatively impact our rental income and profitability
18. 18We may become a target of legal demands, litigation (including class actions), and negative publicity by tenant and consumer rights organizations, which could directly limit and constrain our operations and may result in significant litigation expenses and reputational harm
19. 19We may not be successful in identifying and consummating suitable investment opportunities
20. 20Adverse economic conditions may negatively affect our results of operations and, as a result, our ability to make distributions to our stockholders or to realize appreciation in the value of our properties
21. 21Our revenues are significantly influenced by demand for residential rental properties generally, and a decrease in such demand will likely have a greater adverse effect on our revenues than if we owned a more diversified real estate portfolio
22. 22The properties in our investment pipeline are subject to contingencies that could delay or prevent acquisition or investment in those properties
23. 23Our expenses may remain constant or increase, even if our revenues decrease, causing our results of operations to be adversely affected
24. 24Competition in identifying and acquiring our properties could adversely affect our ability to implement our business and growth strategies, which could materially and adversely affect us
25. 25Our investments will be dependent on tenants for revenue, and tenant failure to pay in a timely manner could reduce our revenues from rents, resulting in the decline in the value of your investment
26. 26Our operating results and distributable cash flow depend on our ability to generate revenue from leasing our properties to tenants on terms favorable to us
27. 27As the owner of real property, we could become subject to liability for asbestos-containing building materials in the buildings on our properties
28. 28Costs associated with addressing indoor air quality issues, moisture infiltration and resulting mold remediation may be costly
29. 29A change in the United States government policy with regard to Fannie Mae and Freddie Mac could impact our financial condition
30. 30If we are not able to cost-effectively maximize the life of our properties, we may incur greater than anticipated capital expenditure costs, which may adversely affect our ability to make distributions to our stockholders
31. 31Any uninsured losses or high insurance premiums will reduce our net income and the amount of our cash distributions to stockholders
32. 32We may have difficulty selling real estate investments, and our ability to distribute all or a portion of the net proceeds from such sale to our stockholders may be limited
33. 33Representations and warranties made by us in connection with sales of our properties may subject us to liability that could result in losses and could harm our operating results and, therefore, distributions we make to our stockholders
34. 34Our investments could be adversely affected if a member of our Bluerock operating partner network performs poorly at one or more of our projects, which could adversely affect returns to our stockholders
35. 35Actions of our joint venture partners could subject us to liabilities in excess of those contemplated or prevent us from taking actions which are in the best interests of our stockholders, which could result in lower investment returns to our stockholders
36. 36Your investment return may be reduced if we are required to register as an investment company under the Investment Company Act; if we are subject to registration under the Investment Company Act, we will not be able to continue our business
37. 37If we or the Operating Partnership are required to register as an investment company under the Investment Company Act, the additional expenses and operational limitations associated with such registration may reduce your investment return or impair our ability to conduct our business as planned
38. 38Our internal control over financial reporting may not be effective, which could adversely affect our reputation, results of operations and stock price
39. 39We have limited sources of capital other than proceeds from future mortgage debt financings for acquisition and/or development projects, cash generated from operating activities, our $200 million revolving credit facilities, the net proceeds of offerings of our securities, and the proceeds from our DST Program
40. 40You will have limited control over changes in our policies and day-to-day operations, which limited control increases the uncertainty and risks you face as a stockholder. In addition, our Board may change our major operational policies without your approval
41. 41We are highly dependent on information systems and therefore systems failures, cybersecurity incidents or other technology disruptions could negatively impact our business
42. 42Security breaches and other disruptions could compromise our information and expose us to liability, which would cause our business and reputation to suffer
43. 43Conflicts of interest may exist or could arise in the future with our Operating Partnership and its limited partners, which may impede business decisions that could benefit our stockholders
44. 44Conflicts of interest exist between our interests and the interests of our Manager and its affiliates
45. 45The ownership by our executive officers of interests representing a significant portion of our common stock on a fully diluted basis could allow our executive officers to exert significant influence over our company in a manner that may not be in the best interests of our other stockholders
46. 46Our executive officers will have competing demands on their time and attention
47. 47We may use mortgage and other debt financing to acquire properties or interests in properties and otherwise incur other indebtedness, which increases our expenses and could subject us to the risk of losing properties in foreclosure if our cash flow is insufficient to make loan payments
48. 48High levels of debt or increases in interest rates could increase the amount of any future loan payments, which could reduce the cash available for distribution to stockholders
49. 49High mortgage rates may make it difficult for us to finance or refinance properties, which could reduce the number of properties we can acquire, our cash flow from operations and the amount of cash distributions we can make
50. 50Lenders may require us to enter into restrictive covenants relating to our operations, which could limit our ability to make distributions to you
51. 51If mortgage debt is unavailable at reasonable rates, it may make it difficult for us to finance or refinance properties, which could reduce the number of properties we can acquire, our cash flows from operations and the amount of cash distributions we can make
52. 52Volatility in the commercial mortgage-backed securities market could impact the pricing of secured debt
53. 53Some of our mortgage loans may have “due-on-sale” provisions, which may impact the manner in which we acquire, sell and/or finance our properties
54. 54Lenders may be able to recover against our other properties under our mortgage loans
55. 55If we are required to make payments under any “bad boy” carve-out guaranties that we may provide in connection with certain mortgages and related loans, our business and financial results could be materially adversely affected
56. 56Interest-only indebtedness may increase our risk of default and ultimately may reduce our funds available for distribution to our stockholders
57. 57To hedge against interest rate fluctuations, we may use derivative financial instruments that may be costly and ineffective, may reduce the overall returns on your investment and may expose us to the credit risk of counterparties
58. 58Complying with REIT requirements may limit our ability to hedge risk effectively
59. 59You may not receive any profits resulting from the sale of one of our properties, or receive such profits in a timely manner, because we may provide financing for the purchaser of such property
60. 60We are subject to increasing scrutiny from investors with respect to the social and environmental impact of our business, which may adversely impact our business and ability to raise capital from such investors
61. 61Global economic, political and market conditions, including uncertainty about the financial stability of the United States, could have a significant adverse effect on our business, financial condition and results of operations
62. 62Our business, results of operations, financial condition, and cash flows may be adversely affected by pandemics and outbreaks of infectious disease, which may include COVID-19
63. 63We may acquire co-ownership interests in property that are subject to certain co-ownership agreements which may have an adverse effect on our results of operations, relative to if the co-ownership agreements did not exist
64. 64The terms of the Master Leases entered into by subsidiaries of our Operating Partnership in connection with the DST Program may subject us to risk
65. 65The Operating Partnership’s private placements of beneficial interests in specific Delaware statutory trusts under our DST Program could subject us to liabilities from litigation or otherwise
66. 66The Operating Partnership’s private placements of beneficial interests in specific Delaware statutory trusts under our DST Program will not shield us from risks related to the performance of the real properties held through such structures
67. 67We may own beneficial interests in DSTs owning real property that will be subject to the agreements under our DST Program, which may have an adverse effect on our results of operations, relative to if the DST Program agreements did not exist
68. 68Properties that are placed into the DST Program and later reacquired may be less liquid than other assets, which could impair our ability to utilize cash proceeds from sales of such properties for other purposes such as paying down debt, distributions, or additional investments

Risks Related to Our Management and Relationships with Our Manager

1. 69We are dependent on our Manager and its key personnel for our success
2. 70Our Manager may not be successful in identifying and consummating suitable investment opportunities
3. 71The inability of our Manager to retain or obtain key personnel could delay or hinder implementation of our investment strategies, which could impair our ability to make distributions and could reduce the value of your investment
4. 72Non-renewal of the Management Agreement, even for poor performance, could be difficult and costly, including as a result of termination fees, and may cause us to be unable to execute our business plan
5. 73Because we will be dependent upon our Manager and its affiliates to conduct our operations, any adverse changes in the financial health of our Manager or its affiliates or our relationship with them could hinder our operating performance and the return on your investment
6. 74Our Board will approve very broad investment guidelines for our Manager and will not approve each investment and financing decision made by our Manager unless required by our investment guidelines
7. 75The Management Agreement with our Manager was not negotiated on an arm’s-length basis and may not be as favorable to us as if it had been negotiated with an unaffiliated third party
8. 76We may have conflicts of interest with our Manager and other affiliates, which could result in investment decisions that are not in the best interests of our stockholders
9. 77The Incentive Fee we pay our Manager may induce it to make riskier investments, which could adversely affect our financial condition, results of operations and the trading price of our stock
10. 78We may be obligated to pay our Manager quarterly Incentive Fees even if we incur a net loss during a particular quarter and our Manager will receive a Base Management Fee regardless of the performance of our portfolio
11. 79If we acquire properties from affiliates of our Manager, the price may be higher than we would pay if the transaction were the result of arm’s-length negotiations
12. 80If we internalize our management functions, we could incur other significant costs associated with being self-managed

Risks Related to the Separation and Distribution

1. 81Bluerock Residential may fail to perform under various transaction agreements executed as part of the Separation
2. 82Potential indemnification obligations owed to Bluerock Residential pursuant to the Separation and Distribution Agreement may have a material adverse effect on our business, financial condition and results of operations

Risks Related to Offerings of our Series A Preferred Stock

1. 83To the extent that our distributions represent a return of capital for tax purposes, stockholders may recognize an increased gain or a reduced loss upon subsequent sales (including cash redemptions) of their shares of Series A Preferred Stock
2. 84Your interests could be subordinated and/or diluted by the incurrence of additional debt, the issuance of additional shares of preferred stock, including additional shares of Series A Preferred Stock, and by other transactions
3. 85In the event a holder of our Series A Preferred Stock exercises their redemption option we may redeem such shares of Series A Preferred Stock either for cash, or for shares of our Class A common stock, or any combination thereof, in our sole discretion
4. 86The Series A Preferred Stock has not been rated
5. 87Dividend payments on the Series A Preferred Stock are not guaranteed
6. 88There is a risk of delay in our redemption of Series A Preferred Stock and we may fail to redeem such securities as required by their terms
7. 89The Series A Preferred Stock will bear a risk of early redemption by us
8. 90Our ability to redeem the Series A Preferred Stock may subject investors to certain risks, including reinvestment risk and volatility risk
9. 91Holders of Series A Preferred Stock should not expect us to redeem all or any such shares on the date they first become redeemable or on any particular date after they become redeemable
10. 92Holders of the Series A Preferred Stock will be subject to inflation risk
11. 93Holders of the Series A Preferred Stock have extremely limited voting rights
12. 94The amount of the liquidation preference is fixed and holders of Series A Preferred Stock will have no right to receive any greater payment
13. 95Our ability to pay dividends or redeem shares is limited by the requirements of Maryland law
14. 96If our Class A common stock is no longer listed on the NYSE American or another national securities exchange, we will be required to terminate any continuous offering(s) of Series A Preferred Stock
15. 97There is currently no public trading market for our Series A Preferred Stock, and one may never exist; therefore, your ability to dispose of your shares will likely be limited
16. 98You will not have the opportunity to evaluate our future investments prior to purchasing shares of our Series A Preferred Stock
17. 99The payment of fees and expenses to the Manager and its affiliates and Bluerock Capital Markets, LLC (the “Dealer Manager”) reduces the cash available for distribution and increases the risk that you will not be able to recover the amount of your investment in shares of our stock
18. 100We will be required to pay substantial compensation to the Manager and its affiliates or related parties, regardless of whether we operate at a profit or a loss
19. 101There may not be a broad market for our Class A common stock, which may cause our Class A common stock to trade at a discount and make it difficult for you to sell the Class A common stock for which your Series A Preferred Stock may be redeemable at our option
20. 102Shares of Series A Preferred Stock may be redeemed for shares of our Class A common stock, which rank junior to the Series A Preferred Stock with respect to dividends and upon liquidation
21. 103We will be able to call shares of Series A Preferred Stock for redemption under certain circumstances without the consent of the holder
22. 104Our requirement to redeem the Series A Preferred Stock in the event of a Change of Control may, in either case, deter a change of control transaction otherwise in the best interests of our stockholders
23. 105We established the offering price for the Series A Preferred Stock pursuant to negotiations among us and our affiliated dealer manager; as a result, the actual value of an investment in the Series A Preferred Stock may be substantially less than the amount paid
24. 106Our Board determines our major policies, including with regard to investment objectives, financing, growth, debt capitalization, REIT qualification and distributions. Our Board may amend or revise these and other policies without a vote of the stockholders

Risks Related to Our Status as a REIT

1. 107Failure to maintain our qualification as a REIT would materially and adversely affect us and the value of our common stock
2. 108In certain circumstances, we may be subject to certain U.S. federal, state and local taxes despite our qualification as a REIT, which would reduce our cash available for distribution to you
3. 109If Bluerock Residential failed to qualify as a REIT during certain periods prior to the Distribution, we would be prevented from electing to qualify as a REIT
4. 110If certain of our subsidiaries, including our Operating Partnership, fail to qualify as partnerships or disregarded entities for U.S. federal income tax purposes, we would cease to qualify as a REIT and suffer other material adverse consequences
5. 111Distribution requirements imposed by law limit our flexibility
6. 112We may pay dividends on our common stock in common stock and/or cash. Our stockholders may sell shares of our common stock to pay tax on such dividends, placing downward pressure on the market price of our common stock
7. 113Distributions payable by REITs do not qualify for the reduced tax rates that apply to other corporate distributions
8. 114We may enter into certain hedging transactions that may have a potential impact on our REIT qualification
9. 115Our ability to provide certain services to our tenants may be limited by the REIT rules or may have to be provided through a TRS
10. 116Any ownership of a TRS will be subject to limitations, and our transactions with a TRS will cause us to be subject to a 100% penalty tax on certain income or deductions if those transactions are not conducted on arm’s-length terms
11. 117The prohibited transactions tax may limit our ability to dispose of our properties
12. 118The ability of our Board to revoke our REIT qualification without stockholder approval may cause adverse consequences to our stockholders
13. 119Legislative or other actions affecting REITs could have a negative effect on us or our investors
14. 120Distributions to tax-exempt investors may be classified as unrelated business taxable income and, in certain circumstances, tax-exempt investors would be required to pay tax on the unrelated business taxable income and to file income tax returns

Risks Related to Ownership of Our Common Stock

1. 121You may be restricted from acquiring or transferring certain amounts of our common stock
2. 122The stock ownership restrictions of the Code for REITs and the 9.8% stock ownership limits in our charter may inhibit market activity in our capital stock and restrict our business combination opportunities
3. 123A limit on the percentage of our capital stock and common stock a person may own may discourage a takeover or business combination, which could prevent our common stockholders from realizing a premium price for their common stock
4. 124Our charter permits our Board to issue stock with terms that may subordinate the rights of our common stockholders or discourage a third party from acquiring us in a manner that could result in a premium price to our stockholders
5. 125Maryland law may limit the ability of a third party to acquire control of us
6. 126Your rights as stockholders and our rights to recover claims against our officers and directors are limited
7. 127An increase in market interest rates may have an adverse effect on the market price of our Class A common stock
8. 128Our ability to pay dividends is limited by the requirements of Maryland law
9. 129We may change our dividend policy, and the cash distributions you receive may be less frequent or lower in amount than you expect
10. 130We will incur increased costs as a result of operating as a public company. If we fail to maintain proper and effective internal controls, our ability to produce accurate and timely financial statements could be impaired, which could result in sanctions or other penalties that would harm our business