Statements in this Current
Report on Form 8-K, including intentions, beliefs, expectations or projections relating to items such as the long-term performance
of the Company’s portfolio are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933,
as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such statements are based on current expectations
and assumptions with respect to, among other things, future economic, competitive and market conditions and future business decisions
that may prove incorrect or inaccurate. Important factors that could cause actual results to differ materially from those in the
forward looking statements include the risks described under the heading “Risk Factors” in the Company’s Annual
Report on Form 10-K filed with the SEC on February 24, 2016 and its other filings with the SEC.
Independent Auditor’s Report
Board of Directors and Stockholders
Bluerock Residential Growth REIT, Inc.
New York, New York
We have audited the accompanying
Historical Statement of Revenues and Certain Direct Operating Expenses for the year ended December 31, 2015 of Roswell City Walk
(the “Property”) and the related notes (“Historical Statement”).
Management’s Responsibility for the Historical Statement
Management is responsible for the
preparation and fair presentation of the Historical Statement in accordance with accounting principles generally accepted in the
United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation
and fair presentation of the Historical Statement that are free from material misstatement, whether due to fraud or error.
Auditor’s Responsibility
Our responsibility is to express
an opinion on the Historical Statement based on our audit. We conducted our audit in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance
about whether the Historical Statement is free from material misstatement.
An audit involves performing procedures
to obtain audit evidence about the amounts and disclosures in the Historical Statement. The procedures selected depend on the
auditor’s judgment, including the assessment of the risks of material misstatement of the Historical Statement, whether
due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s
preparation and fair presentation of the Historical Statement in order to design audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly,
we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness
of significant accounting estimates made by management, as well as evaluating the overall presentation of the Historical Statement.
We believe that the audit evidence
we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the Historical Statement
referred to above presents fairly, in all material respects, the revenues and certain direct operating expenses of Roswell City
Walk for the year ended December 31, 2015, in accordance with accounting principles generally accepted in the United States of
America.
Emphasis of Matter
The accompanying Historical Statement
was prepared for the purpose of complying with Rule 3-14 of the U.S. Securities and Exchange Commission Regulation S-X, as
described in Note 2, and is not intended to be a complete presentation of Roswell City Walk’s revenues and expenses.
Our opinion is not modified with respect to this matter.
/s/ BDO USA, LLP
New York, New York
February 13, 2017
Roswell City Walk
Historical Statements of Revenues and
Certain Direct Operating Expense
(Dollars in thousands)
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Year Ended
December 31,
2015
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Nine Months
Ended
September 30,
2016
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Nine Months
Ended
September 30,
2015
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(Unaudited)
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(Unaudited)
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Revenues
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|
|
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Rental income
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$
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1,698
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|
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$
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3,663
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|
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$
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726
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Other rental revenue
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|
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257
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|
|
|
386
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|
|
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154
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|
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|
|
|
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|
|
|
|
|
|
|
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Total Revenues
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|
|
1,955
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|
|
|
4,049
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|
|
|
880
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|
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|
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|
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Certain Direct Operating Expenses
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|
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Property operating expenses
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760
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979
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|
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478
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Property taxes
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311
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735
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284
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Total Certain
Direct Operating Expenses
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1,071
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|
|
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1,714
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|
|
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762
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|
|
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|
|
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|
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|
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|
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Revenues in
Excess of Certain Direct Operating Expenses
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$
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884
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|
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$
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2,335
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|
|
$
|
118
|
|
See accompanying notes to historical statements
of revenues and
certain direct operating expenses.
Roswell City Walk
Notes to Historical Statements of Revenues
and Certain Direct Operating Expenses
Roswell City Walk (the “Property”),
a multi-family apartment community located in Roswell, Georgia, was acquired pursuant to a purchase agreement between an affiliate
of Bluerock Residential Holdings, L.P. (Bluerock Residential Growth REIT, Inc.’s operating partnership) and GGT LMI City
Walk GA, LLC on December 1, 2016.
The accompanying Historical Statements of
Revenues and Certain Direct Operating Expenses (“Historical Statements”) have been prepared for the purpose of complying
with Rule 3-14 of the United States Securities and Exchange Commission Regulation S-X and are not intended to be a complete presentation
of the Property’s revenues and expenses. The Historical Statements have been prepared on the accrual basis of accounting
and requires management of the Property to make estimates and assumptions that affect the reported amounts of the revenues and
expenses during the reporting periods. Actual results may differ from those estimates.
In preparation of the
accompanying Historical Statements, subsequent events were evaluated for recognition and disclosure through February 13,
2017, which is the date the Historical Statements were available to be issued.
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3.
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Unaudited Interim
Information
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In the opinion of the Property’s management,
all adjustments, consisting only of normal and recurring adjustments, necessary for a fair presentation (in accordance with the
Basis of Presentation as described in Note 2) have been made to the accompanying unaudited amounts for the nine month periods
ended September 30, 2016 and 2015.
The Property contains 320 units that are
rented to tenants under various lease agreements that are generally one year in length. All leases are accounted for as
operating leases. Rental income is recognized as earned over the life of the lease agreements on a straight-line basis. Some
of the leases include provisions under which the Property is reimbursed for certain operating costs. Revenue related to these
reimbursed costs is recognized in the period the applicable costs are incurred and billed to tenants pursuant to the lease
agreements and is netted with Property Operating Expense in the Historical Statements. Other rental revenue in the
Historical Statements consists of charges billed to tenants for pet, administrative, application and other fees and is
recognized when earned.
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5.
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Certain Direct Operating
Expenses
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Certain direct operating expenses include
only those costs expected to be comparable to the proposed future operations of the Property. Property operating costs include
administrative, maintenance, marketing, personnel costs, utilities, taxes and insurance, repairs, and improvements. Costs such
as depreciation, amortization, interest, and professional fees are excluded.
BLUEROCK RESIDENTIAL GROWTH REIT, INC.
Unaudited Pro Forma Condensed Consolidated
Financial Statements Information
The following unaudited pro forma condensed consolidated financial
statements of Bluerock Residential Growth REIT, Inc. (together with its consolidated subsidiaries, the “Company,”
“we,” “our” or “us”) should be read in conjunction with our historical audited consolidated
financial statements as of and for the year ended December 31, 2015, and as of and for the nine months ended September 30, 2016
(unaudited), and the related notes thereto.
The unaudited pro forma condensed consolidated balance sheet,
as of September 30, 2016, and statements of operations for the year ended December 31, 2015, and nine months
ended September 30, 2016, have been prepared to provide pro forma financial information with regard to the City Walk Apartments
acquisition on December 1, 2016, which the Company expects to consolidate and includes pro forma information for each of the transactions
described below for which pro forma information has been provided in previous filings. The unaudited pro forma financial information
gives effect to:
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(1)
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The purchase of a 98.0% direct interest in Tenside Apartments
on July 14, 2016, which the Company consolidates on its balance sheet.
The completion of the Company’s underwritten offering
of 2,875,000 shares of 8.250% Series A Cumulative Redeemable Preferred Stock on October 21, 2015, or the October 2015
Series A Preferred Offering.
The completion of the Company’s underwritten offering
of 2,300,000 shares of 8.250% Series A Cumulative Redeemable Preferred Stock on April 25, 2016, or the April 2016 Series
A Preferred Offering.
The completion of the Company’s underwritten offering
of 400,000 shares of 8.250% Series A Cumulative Redeemable Preferred Stock on May 26, 2016, or the May 2016 Series A Preferred
Offering.
The completion of the Company’s underwritten offering
of 2,300,000 shares of 7.625% Series C Cumulative Redeemable Preferred Stock on July 19, 2016, or the Series C Preferred
Offering.
The completion of the Company’s underwritten offering
of 2,850,602 shares of 7.125% Series D Preferred Stock on October 13, 2016, or the Series D Preferred Offering.
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(2)
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The sale of the Company’s 100.00% direct equity interest
in the North Park Towers property on October 16, 2015, to non-affiliated buyers. The pro forma financial statements do
not reflect the net proceeds from the sale of the North Park Towers asset and the subsequent reinvestment.
The sale of the Company’s 75.0% indirect equity interest
in the Springhouse at Newport News property, to non-affiliated buyers, and the paydown of the mortgage payable, which
was included in the Company’s historical consolidated balance sheet. The pro forma financial statements do not reflect
the net proceeds from the sale of the Springhouse at Newport News asset and the subsequent reinvestment.
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The pro forma condensed consolidated balance sheet assumes that
the Roswell City Walk acquisition and the April 2016 Series A Preferred Offering, the May 2016 Series A Preferred Offering, the
Series C Preferred Offering and the Series D Preferred Offering transactions referred to above occurred on January 1, 2015.
The pro forma consolidated statements of operations assume the transactions
referred to above occurred on January 1, 2015.
BLUEROCK RESIDENTIAL GROWTH REIT, INC.
Unaudited Pro Forma Condensed Consolidated
Financial Statements Information
(Continued)
Our pro forma financial information is not necessarily indicative
of what our actual financial position and results of operations would have been as of the date and for the periods indicated,
nor does it purport to represent our future financial position or results of operations.
The pro forma financial statements do not reflect the following:
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·
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the
operations of the Estates at Perimeter, Grove at Waterford, Berry Hill, Oak Crest Villas,
North Park Towers, and Springhouse at Newport News properties in the statement of operations,
as these assets have been sold; and
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·
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the
net proceeds from the sale of the North Park Towers Property and the Springhouse at Newport
News Property and subsequent reinvestment; and
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·
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the
investment of net proceeds from the October 2015 Series A Preferred Offering, the April
2016 Series A Preferred Offering, the May 2016 Series A Preferred Offering, the Series
C Preferred Offering and the Series D Preferred Offering.
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All completed acquisitions are accounted for using the acquisition
method of accounting. The fair value of these assets and liabilities is allocated in accordance with Accounting Standards Codification
805, Business Combinations (“ASC 805”). The purchase prices were allocated to the acquired assets and 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 practicable, but no later than one
year from each property’s respective acquisition date.
These unaudited pro forma condensed consolidated financial statements
are prepared for informational purposes only. In management’s opinion, all material adjustments necessary to reflect the
effects of the transactions referred to above, have been made. Our pro forma condensed consolidated financial statements are based
on assumptions and estimates considered appropriate by the Company’s management. However, they are not necessarily indicative
of what our consolidated financial condition or results of operations actually would have been assuming the transactions referred
to above had occurred as of the dates indicated, nor do they purport to represent our consolidated financial position or results
of operations for future periods.
See Notes to Unaudited Pro Forma Condensed
Consolidated Statement of Operations
See Notes to Unaudited Pro Forma Condensed Consolidated Statement
of Operations
