August 14, 2020 - 11:34pm EST by
2020 2021
Price: 24.77 EPS NM NA
Shares Out. (in M): 6 P/E NM NA
Market Cap (in $M): 250 P/FCF NM NA
Net Debt (in $M): 1,324 EBIT 0 0
TEV (in $M): 2,457 TEV/EBIT 19.2x NA

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I am recommending the Bluerock Series A 8.25% Term Preferred Stock at $24.77 or a slight discount to par ($25.00).  Admittedly, I had meant to write up the stock in May when it was trading closer to $20 per share but alas I did not get around to doing so.  While the upside to par is minimal at the current price, I still think the preferred stock represents good value and should be viewed as a defensive “yield to call” holding.

The Bluerock Series A is notable because it is effectively a term preferred.  I say effectively because while it does not have a maturity date the preferred stock is puttable on 10/21/2022.  Also, “On 10/21/2022, the issuer will pay cumulative cash dividends on the Series A Preferred Stock at an annual dividend rate increased an additional 2.00% of the liquidation preference per annum on each subsequent anniversary thereafter, subject to a maximum annual dividend rate of 14.0% (see prospectus for further information).” Even absent a holder’s exercise of the put right on 10/21/22, the Company is motivated to refinance the preferred prior to the put date given aforementioned required annual coupon step up on 10/21/22.  The yield to put is approximately 8.7%.

The puttable feature of the preferred term limits the preferred and in doing so it becomes the first preferred to come due and it represents only 16% of the total preferred outstanding ($140 mm of $884 mm of preferred outstanding and in combination with the Series C term preferred (total term preferred of $197 mm) only 22% of total preferred outstanding. 

The first call date on the Series A is 10/21/20 and Bluerock has said on public conference calls they are seriously considering calling the Series A preferred at or near the first call date because they are selling private (non traded) Series T (convertible) preferred stock (at the Company’s option) at 6.125% (lower cost) with no maturity date.  Simply stated, the Company has lower cost preferred stock available to it.

I also like the series 7.625% Series C preferred stock at a price of $24.30 with a put date of 07/19/2023.  The yield to put is substantially similar to the series A at approximately 8.6%.  The Series C preferred stock is call protected until 07/19/21.

I view the risk reward in the Series A and the Series C as substantially similar.  The Series A has a higher coupon but trades closer to par.  The Series C has greater call protection but is puttable 9 months after the Series C.

The put feature of the prefererd and escalating coupon and asset coverage covenant of the Series A and Series C preferreds of Bluerock are extremely rare in the prefererd stock world.  I am only aware of one company (a Greek shipping company with a substantially riskier business) that has this put feature.  The put features of the preferred effectively term limit the preferred and in doing so place them as the first preferreds and only preferreds that are required to be redeemed and in doing so limit the interest rate risk of the preferreds especially when compared to the highly interest rate sensitive perpetual preferred stock that is the standard.

Let’s talk about Bluerock for a moment and explore recent performance.  My goal is modest.  To present Bluerock as an okay business that despite it’s high leverage, minimal free cash flow generation, and modest fixed charge cushion, is highly unlikely to blow up before the preferred stock is puttable.  And to convince you that is has cheaper ways to refinance the Series A and Series C preferred stock and as such is likely to call both of the Series A and C stocks if not on the first call date certainly by the put dates which coincide with the coupon steps on the preferreds.

Bluerock owns and operates 16,000 apartments – their focus in affordable luxury suburban garden style apartments (B+ to A-) in the Sunbelt in business friendly knowledge economies with a low rent to income ratio.  Current markets include Atlanta, Austin, Charlotte, and Nashville.  The apartments themselves are located in first ring suburban neighborhoods at ~$1,100 to $1,300 average rents provide Class B+/A-product at an affordable price point.  In the second quarter, Bluerock collected 97% of rents, including payment plans of 1%.  In the second quarter, same store revenue and NOI decreased 0.4% and 1.1% respectively, as compared to the prior year period.

In 2Q, Bluerock raised $42.8 million of (private) 6.125% Series T Preferred Stock offering in the quarter. 

The Series T Preferred Stock continuous offering offers 20,000,000 preferred shares in the primary offering, along with 12,000,000 preferred shares pursuant to a dividend reinvestment plan. The preferred shares are offered at $25.00 per share and pay cumulative monthly dividends at a 6.15% annual rate, along with an annual stock dividend of up to 0.2% for five years.

Over $29 million has been raised from the Company’s continuous registered Series T Preferred Stock offering since June 30, 2020.  The Company is raising this cheap debt at annualized rate of $200 mm per year and this is obviously highly favorable (cheaper and non-puttable) versus the Series A and Series C publicly traded stock.

As of June 30, 2020, the Company had $236.2 million of unrestricted cash and availability under its revolving credit facilities.

The Company has limited near term debt maturities (prior and coincident with the put maturities of the term preferred) with only $7 mm due in 2020, $95 mm in 2021, $40 mm in 2022, and $154 mm due in 2023.

Fixed charge coverage ratio (EBITDA divided by cash interest expense plus preferred interest expense) is currently 1.2x which is admittedly skinny but nonetheless positive.

Comments from Bluerock management on the 2Q earnings call concerning the preferred were was as follows:

“Even in the depressed economic environment with uncertainties of the pandemic, we raised $43 million of our Series T preferred during the quarter and since then, are running at a number exceeding the $200 million annual pace.”

“So I think you'll see us -- and we have some internal opportunities with respect to the, obviously, the -- our Series A preferred that's coming up for redemption, et cetera, et cetera.”

And there was this Q&A exchange:

Gaurav Mehta, National Securities Corporation, Research Division - MD & Equity Research Analyst

Okay. Great. And second question I have is on the Series A redemption. And in the past, you have talked about probably doing that over the course of a couple of quarters. Is that still your thought that, that when it's up for redemption, it may be done over a couple of quarters? Or you may look to redeem that in 2020?

R. Ramin Kamfar, Bluerock Residential Growth REIT, Inc. - Chairman & CEO [6]

Well, we're getting -- we'd like to -- obviously, it's a very expensive piece of paper, and it's accretive for us, and we'd like to redeem it quickly. It will be -- that is balanced by what the opportunities are out there in terms of acquisition. So we have money coming in every 2 weeks from our Series T that could be a use of proceeds for it. We have significant cash on hand, we have availability and a lot of credit, which is much more -- which is much less expensive, much more cost-effective. So it's going to be a balance of all that. If we don't have acquisition opportunities out there, we'll go out that return higher -- that deliver higher returns, that's going to be our first use of proceeds. So I think it's going to be a mix given what we're seeing out there.

And finally I provide a portrait below of the Company’s capitalization, leverage, valuation and comparable company trading mutiples by way of background.

But my recommendation is not of the Company’s common stock – it is merely to suggest that the preferred stock is “covered” based on where comps are trading and that fixed charge coverage is positive (greater than 1.0x).

BRG Capitalization as of 06/30/20  
Mortgages Payable $1,405.0
Revolving Credit Facilities $130.5
Total Debt $1,535.5
Cash $212.0
Net Debt $1,323.5
Series A 8.25% Redeemable Term Preferred $139.5
Series C 7.625% Redeemable Term Preferred $57.5
Series D 7.125% Perpetual Preferred $69.3
Series B 6.0% Preferred –Redeemable $516.7
Series T 6.125% Preferred –Redeemable $100.6
Net Preferred $883.6
Weighted average common shares and units outstanding $33.08
Share Price $7.56
Market Cap $250.0
Enterprise Value $2,457.2
2020E Adjusted EBITDA $128.0
EV/2020 Adj EBITDA 19.2x
Net Debt+Pref/2020 Adj. EBITDA 17.2x
2Q Adjusted EBITDA $33.1
Annualized $132.4
2Q Cash Interest $13.0
2Q Preferred Stock Dividends $14.2
Total $27.2
Annualized $108.8
Fixed Charge Coverage 1.2x
Tickers Company Name Market Cap Enterprise Value EV/EBITDA - LTM  EV/EBITDA - FY1  Net Debt EBITDA Interest Coverage Ratio EBITDA - Adjusted - LTM Net Debt/EBITDA Adjusted LTM
AIV APARTMENT INVESTMENT & MANAGEMENT  5,450 10,121 18.9x 18.5x 4,363 3.2x 535 8.2x
BRG BLUEROCK RESIDENTIAL GROWTH REIT  186 2,373 20.2x 18.8x 1,412 2.1x 118 12.0x
CPT CAMDEN PROPERTY TRUST 8,565 11,261 18.6x 19.1x 2,501 5.8x 606 4.1x
IRET INVESTORS REAL ESTATE TRUST 912 1,678 19.8x 20.8x 615 2.8x 85 7.3x
IRT INDEPENDENCE REALTY TRUST 1,100 2,103 20.4x 19.8x 976 2.6x 103 9.5x
MAA MID AMERICA APARTMENT COMMUNITIES 13,231 17,914 18.6x 19.3x 4,434 5.3x 963 4.6x
NXRT NEXPOINT RESIDENTIAL TRUST 1,013 2,332 24.6x 24.4x 1,377 1.9x 95 14.6x


I do not hold a position with the issuer such as employment, directorship, or consultancy.
I and/or others I advise hold a material investment in the issuer's securities.


No real catalyst other than potential commentary from the company that they intend to redeem the Series A and or C preferred stock and a pull towards par of the preferred stock as we get closer to the respective put dates of the Series A and Series C preferred stock.

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