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Summary

  • An apartment REIT.
  • With a continuing negative operating cash flow.
  • Expects to pay an annual dividend (payable quarterly) of 4.7%.

Based in New York, Bluerock Residential Growth REIT (NYSEMKT:BRG) scheduled a $50 million IPO on the NYSE with a market capitalization of $65 million at a price range midpoint of $15 for Friday, March 28, 2014.

The full IPO calendar is available at IPOpremium.

SEC Documents
Manager, Joint managers: Wunderlich Securities
Co-Managers: BB&T Capital Markets, National Securities, Boenning & Scattergood, Inc.

End of lockup (180 days): Wednesday, September 24, 2014

End of 25-day quiet period: Tuesday, April 22, 2014

Summary
BRG is an apartment REIT with a continuing negative operating cash flow, that expects to pay an annual dividend (payable quarterly) of 4.7%

Valuation
Glossary

Valuation Ratios

Mrkt

Price /

Price /

Price /

Price /

% offered

Cap (MM)

Sls

Erngs

BkVlue

TanBV

in IPO

Bluerock Residential Growth REIT

$65

2.9

-8.3

0.99

1.30

77%

Conclusion
The rating for BRG is negative.

To put the conclusions and observations in context, the following is reorganized, edited and summarized from the full S-1 referenced above.

Business
BRG was incorporated as a Maryland corporation on July 25, 2008.

BRG's objective is to maximize long-term stockholder value by acquiring well-located institutional-quality apartment properties in demographically attractive growth markets across the United States.

BRG seeks to maximize returns through investments where it believes it can drive substantial growth in BRG's funds from operations and net asset value through one or more of its Core-Plus, Value-Add, Opportunistic and Invest-to-Own investment strategies.

BRG is externally managed by its Manager, an affiliate of Bluerock. BRG conducts its operations through its operating partnership, of which it is the sole general partner.

BRG's revenue is derived from residents under existing leases at the apartment properties underlying its real estate joint ventures.

BRG's operating cash flow is principally dependent on the number of apartment properties in its portfolio; rental rates; occupancy rates; operating expenses associated with these apartment communities; and the ability of residents to make their rental payments.

BRG's ongoing operating expenses exceed the cash flow received from its investments in real estate joint ventures, and therefore, BRG has continuing negative operating cash flow.

As of December 31, 2013, BRG's portfolio consisted of interests in six properties, all acquired through joint ventures, five of which were operational, and one of which was in development.

BRG did not commence real estate operations until the end of 2009, when it made its first equity investment. BRG made several additional equity investments in 2010, made no investments in 2011, made additional equity investments in 2012, as well as one disposition, and made no investments, one full disposition and two partial dispositions in 2013.

BRG intends to make reserve allocations as necessary to aid its objective of preserving capital for its stockholders by supporting the maintenance and viability of properties BRG acquires.

If reserves and any other available income become insufficient to cover BRG's operating expenses and liabilities, it may be necessary to obtain additional funds by borrowing, refinancing properties or liquidating its investment in one or more properties. There is no assurance that such funds will be available or, if available, that the terms will be acceptable to BRG.

Dividend Policy
BRG expects to pay an annual dividend (payable quarterly) of 4.7%.

BRG intends to continue to qualify as a REIT for federal income tax purposes.

The Code generally requires that a REIT annually distribute at least 90% of its REIT taxable income, determined without regard to the deduction for dividends paid and excluding any net capital gain, and imposes tax on any taxable income retained by a REIT, including capital gains.

To satisfy the requirements for qualification as a REIT and generally not be subject to federal income and excise tax, BRG intends to make regular monthly distributions of all or substantially all of BRG's REIT taxable income, determined without regard to dividends paid, to its stockholders out of assets legally available for such purposes.

BRG's board of directors has not yet determined the rate for its future dividends, and all future distributions will be determined at the sole discretion of BRG's board of directors on a quarterly basis.

Competition
BRG is subject to significant competition in seeking real estate investments and tenants.

BRG competes with many third parties engaged in real estate investment activities including other REITs, specialty finance companies, savings and loan associations, banks, mortgage bankers, insurance companies, mutual funds, institutional investors, investment banking firms, lenders, hedge funds, governmental bodies and other entities.

BRG also faces competition from other real estate investment programs, including other Bluerock programs, for investments that may be suitable for us.

Many of BRG's competitors have substantially greater financial and other resources than BRG has and may have substantially more operating experience than either BRG or BRG's Manager.

They also may enjoy significant competitive advantages that result from, among other things, a lower cost of capital.

5% stockholders
Page 154 "Principal Stockholders' only shows one person with a 6.6% of stock, units, etc.
R. Ramin Kamfar
This omission is enough of a reason to pass on the IPO

Use of proceeds
BRG expects to net $44.4 million from its IPO. Proceeds are allocated as follows:

  • $582,000 to fund its acquisition of Fund I's indirect equity interest in the Grove at Waterford Apartments in its contribution transactions;
  • $3.5 million to fund its acquisition of Fund I's indirect equity interest in Springhouse at Newport News in connection with its contribution transactions;
  • $4 million to fund its estimated portion of the projected development costs for UCF Publix;
  • $14 million to acquire substantially all of Fund II's and Fund III's interests in Lansbrook Village;
  • $579,000 to pay acquisition related expenses in connection with its contribution transactions;
  • $556,000 to pay mortgage loan assumption fees in connection with its contribution transactions;
  • $7.6 million to repay in full the indebtedness to Fund II and Fund III, as co-lenders under the Fund LOC;
  • $2.1 million in offering expenses (exclusive of the underwriting discounts and commissions), including reimbursement of BRG's Manager for expenses and fees incurred on its behalf.

Disclaimer: This BRG IPO report is based on a reading and analysis of BRG's S-1 filing, which can be found here, and a separate, independent analysis by IPOdesktop.com. There are no unattributed direct quotes in this article.

Source: IPO Preview: Bluerock Residential Growth