Bluerock Residential Growth REIT 10Q 2015 Q3 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

FORM 10-Q

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2015

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _______ to ______

Commission File Number 000-54946

BLUEROCK RESIDENTIAL GROWTH REIT, INC.

(Exact Name of Registrant as Specified in Its Charter)

Maryland		26-3136483
(State or other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

712 Fifth Avenue, 9th Floor, New York, NY		10019
(Address or Principal Executive Offices)		(Zip Code)

(212) 843-1601

(Registrant’s Telephone Number, Including Area Code)

None

(Former name, former address or former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yesx No¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yesx No¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer	¨		Accelerated Filer	¨
Non-Accelerated Filer	¨	(Do not check if a smaller reporting company)	Smaller reporting company	x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes¨ Nox

Number of shares outstanding of the registrant’s

classes of common stock, as of November 4, 2015:

Class A Common Stock: 19,201,565 shares

Class B-3 Common Stock: 353,629 shares

BLUEROCK RESIDENTIAL GROWTH REIT, INC.

FORM 10-Q

September 30, 2015

PART I – FINANCIAL INFORMATION

Item 1.	Financial Statements (Unaudited)

	Consolidated Balance Sheets as of September 30, 2015 and December 31, 2014	3

	Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2015 and 2014	4

	Consolidated Statement of Stockholders’ Equity for the Nine Months Ended September 30, 2015	5

	Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2015 and 2014	6

	Notes to Consolidated Financial Statements	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	27

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	41

Item 4.	Controls and Procedures	41

PART II – OTHER INFORMATION

Item 1.	Legal Proceedings	43

Item 1A.	Risk Factors	43

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	43

Item 3.	Defaults Upon Senior Securities	43

Item 4.	Mine Safety Disclosures	43

Item 5.	Other Information	43

Item 6.	Exhibits	43

SIGNATURES		45

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

BLUEROCK RESIDENTIAL GROWTH REIT, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share amounts)

	(Unaudited)
	September 30, 2015			December 31, 2014
ASSETS
Net Real Estate Investments
Land	$	53,335		$	37,909
Buildings and improvements		369,496			240,074
Furniture, fixtures and equipment		10,910			6,481
Total Gross Operating Real Estate Investments		433,741			284,464
Accumulated depreciation		(19,220	)		(10,992	)
Total Net Operating Real Estate Investments		414,521			273,472
Operating real estate held for sale, net		15,185			14,939
Total Net Real Estate Investments		429,706			288,411
Cash and cash equivalents		64,933			23,059
Restricted cash		11,200			11,091
Due from affiliates		914			570
Accounts receivable, prepaid and other assets		4,015			753
Investments in unconsolidated real estate joint ventures		55,326			18,331
In-place lease intangible assets, net		1,315			745
Deferred financing costs, net		2,953			2,199
Non-real estate assets associated with operating real estate held for sale		992			927
Total Assets	$	571,354		$	346,086

LIABILITIES AND EQUITY
Mortgages payable	$	301,268		$	201,343
Mortgage payable associated with operating real estate held for sale		11,500			11,500
Accounts payable		659			634
Other accrued liabilities		7,585			3,345
Due to affiliates		1,669			1,946
Distributions payable		2,000			889
Liabilities associated with operating real estate held for sale		387			418
Total Liabilities		325,068			220,075
Equity
Stockholders’ Equity
Preferred stock, $0.01 par value, 250,000,000 shares authorized; none issued and outstanding		—			—
Common stock - Class A, $0.01 par value, 747,586,185 shares authorized; 19,201,450 and 7,531,188 shares issued and outstanding as of September 30, 2015 and December 31, 2014, respectively		192			75
Common stock - Class B-1, $0.01 par value, 804,605 shares authorized; none and 353,630 shares issued and outstanding as of September 30, 2015 and December 31, 2014, respectively		—			4
Common stock - Class B-2, $0.01 par value, 804,605 shares authorized; none and 353,630 shares issued and outstanding as of September 30, 2015 and December 31, 2014, respectively		—			4
Common stock - Class B-3, $0.01 par value, 804,605 shares authorized; 353,629 shares issued and outstanding		4			4
Additional paid-in-capital		248,563			113,511
Distributions in excess of cumulative earnings		(34,040	)		(21,213	)
Total Stockholders’ Equity		214,719			92,385
Noncontrolling Interests
Operating partnership units		2,760			2,949
Partially owned properties		28,807			30,677
Total Noncontrolling Interests		31,567			33,626
Total Equity		246,286			126,011
TOTAL LIABILITIES AND EQUITY	$	571,354		$	346,086

See Notes to Consolidated Financial Statements

BLUEROCK RESIDENTIAL GROWTH REIT, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

(In thousands, except share and per share amounts)

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2015			2014			2015			2014
Revenues
Net rental income	$	11,049		$	9,185		$	29,611		$	19,754
Other property revenues		511			371			1,454			793
Total revenues		11,560			9,556			31,065			20,547
Expenses
Property operating		4,698			4,067			12,924			9,008
General and administrative		1,246			778			2,912			2,048
Management fees		896			225			3,051			548
Acquisition costs		739			379			1,409			3,528
Depreciation and amortization		3,993			4,781			10,499			9,598
Total expenses		11,572			10,230			30,795			24,730
Operating (loss) income		(12	)		(674	)		270			(4,183	)
Other income (expense)
Other income		—			52			62			185
Equity in income of unconsolidated real estate joint ventures		2,366			412			4,391			492
Gain on sale of unconsolidated real estate joint venture interest		11			—			11,303			—
Interest expense, net		(2,967	)		(2,549	)		(7,985	)		(5,817	)
Total other (expense) income		(590	)		(2,085	)		7,771			(5,140	)

Net (loss) income from continuing operations		(602	)		(2,759	)		8,041			(9,323	)

Discontinued operations
Income (loss) on operations of rental property		—			114			—			(3	)
Loss on early extinguishment of debt		—			—			—			(880	)
Gain on sale of joint venture interest		—			—			—			1,006
Income from discontinued operations		—			114			—			123

Net (loss) income		(602	)		(2,645	)		8,041			(9,200	)
Net (loss) income attributable to noncontrolling interests
Operating partnership units		(8	)		(116	)		57			(321	)
Partially-owned properties		(20	)		(382	)		5,827			(1,149	)
Net (loss) income attributable to noncontrolling interests		(28	)		(498	)		5,884			(1,470	)
Net (loss) income attributable to common stockholders	$	(574	)	$	(2,147	)	$	2,157		$	(7,730	)

(Loss) income per common share - Basic⁽¹⁾
Continuing operations	$	(0.03	)	$	(0.38	)	$	0.13		$	(1.84	)
Discontinued operations	$	-		$	0.02		$	-		$	0.03
	$	(0.03	)	$	(0.36	)	$	0.13		$	(1.81	)

(Loss) income per common share – Diluted⁽¹⁾
Continuing operations	$	(0.03	)	$	(0.38	)	$	0.13		$	(1.84	)
Discontinued operations	$	-		$	0.02		$	-		$	0.03
	$	(0.03	)	$	(0.36	)	$	0.13		$	(1.81	)

Weighted average basic common shares outstanding⁽¹⁾		20,166,384			5,877,417			16,383,736			4,269,378
Weighted average diluted common shares outstanding⁽¹⁾		20,166,384			5,877,417			16,396,038			4,269,378

⁽¹⁾ Share and per share amounts have been restated to reflect the effects of two reverse stock splits of the Company’s Class B common stock, which occurred during the first quarter of 2014. See Note 1, "Organization and Nature of Business" and Note 11, "Stockholders' Equity" for further discussion.

See Notes to Consolidated Financial Statements

BLUEROCK RESIDENTIAL GROWTH REIT, INC.

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2015

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (Unaudited)

(In thousands, except share and per share amounts)

	Class A Common Stock				Class B-1 Common Stock						Class B-2 Common Stock						Class B-3 Common Stock
	Number of Shares		Par Value		Number of Shares			Par Value			Number of Shares			Par Value			Number of Shares		Par Value		Additional Paid- in Capital			Cumulative Distributions			Net loss to Common Stockholders			Noncontrolling Interests			Total Equity
Balance, January 1, 2015		7,531,188	$	75		353,630		$	4			353,630		$	4			353,629	$	4	$	113,511		$	(9,930	)	$	(11,283	)	$	33,626		$	126,011

Issuance of Class A common stock, net		10,948,002		109		-			-			-			-			-		-		131,204			-			-			-			131,313
Conversion of Class B-1 into Class A shares		353,630		4		(353,630	)		(4	)		-			-			-		-		-			-			-			-			-
Conversion of Class B-2 into Class A shares		353,630		4		-			-			(353,630	)		(4	)		-		-		-			-			-			-			-
Vesting of restricted stock compensation		-		-		-			-			-			-			-		-		102			-			-			-			102
Issuance of restricted stock		15,000		-		-			-			-			-			-		-		-			-			-			-			-
Issuance of Long-Term Incentive Plan ("LTIP") units for compensation		-		-		-			-			-			-			-		-		2,964			-			-			-			2,964
Vesting of LTIP Unit compensation		-		-		-			-			-			-			-		-		1,239			-			-			-			1,239
Capital contributions from noncontrolling interests		-		-		-			-			-			-			-		-		-			-			-			1,334			1,334
Distributions declared		-		-		-			-			-			-			-		-		-			(14,984	)		-			(246	)		(15,230	)
Disposition of noncontrolling interests		-		-		-			-			-			-			-		-		-			-			-			(7,409	)		(7,409	)
Change in additional paid-in capital due to acquisitions		-		-		-			-			-			-			-		-		(457	)		-			-			-			(457	)
Distributions to noncontrolling interests		-		-		-			-			-			-			-		-		-			-			-			(1,622	)		(1,622	)
Net income		-		-		-			-			-			-			-		-		-			-			2,157			5,884			8,041

Balance, September 30, 2015		19,201,450	$	192		-		$	-			-		$	-			353,629	$	4	$	248,563		$	(24,914	)	$	(9,126	)	$	31,567		$	246,286

See Notes to Consolidated Financial Statements

BLUEROCK RESIDENTIAL GROWTH REIT, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(In thousands, except share and per share amounts)

	Nine Months Ended
	September 30,
	2015			2014

Cash flows from operating activities
Net income (loss)	$	8,041		$	(9,200	)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization		10,824			10,048
Amortization of fair value adjustments on mortgages payable		(204	)		(225	)
Equity in income of unconsolidated joint ventures		(4,391	)		(492	)
Gain on sale of real estate assets of unconsolidated joint ventures		(11,303	)		(1,006	)
Distributions from unconsolidated real estate joint ventures		6,958			383
Share-based compensation attributable to directors' stock compensation plan		102			36
Share-based compensation to Former Advisor - LTIP Units		-			2,117
Share-based compensation to Manager - LTIP Units		4,203			672
Changes in operating assets and liabilities:
Due to affiliates, net		734			(409	)
Accounts receivable, prepaids and other assets		(3,329	)		(862	)
Accounts payable and other accrued liabilities		4,232			3,303
Net cash provided by operating activities		15,867			4,365

Cash flows from investing activities:
Increase in restricted cash		(112	)		(2,275	)
Acquisitions of consolidated real estate investments		(116,952	)		(16,850	)
Capital expenditures		(2,470	)		(7,435	)
Proceeds from sale of joint venture interests		-			4,985
Proceeds from sale of unconsolidated real estate joint venture interests		15,590			-
Purchases of interests from noncontrolling members		(7,866	)		(15,447	)
Investments in unconsolidated joint ventures		(45,192	)		(8,512	)
Net cash used in investing activities		(157,002	)		(45,534	)

Cash flows from financing activities:
Distributions to common stockholders		(14,119	)		(3,396	)
Distributions to noncontrolling interests		(1,622	)		(4,977	)
Capital contributions from noncontrolling interests		1,334			4,271
Borrowings on mortgages payable		68,224			15,566
Repayments on mortgages payable		(1,037	)		(238	)
Repayments of line of credit		-			(7,571	)
Payments of deferred financing fees		(1,084	)		(1,835	)
Net proceeds from issuance of common stock		131,313			43,977
Net cash provided by financing activities		183,009			45,797

Net increase in cash and cash equivalents	$	41,874		$	4,628

Cash and cash equivalents at beginning of period	$	23,059		$	2,984

Cash and cash equivalents at end of period	$	64,933		$	7,612
Supplemental Disclosure of Cash Flow Information

Cash paid during the period for interest	$	7,622		$	5,400
Distributions payable – declared and unpaid	$	1,111		$	452
Accrued offering costs	$	-		$	635
Mortgages assumed upon property acquisitions	$	32,942		$	116,800
Class A common stock issued for property acquisitions	$	-		$	15,188
OP Units issued for property acquisition	$	-		$	4,100

See Notes to Consolidated Financial Statements

BLUEROCK RESIDENTIAL GROWTH REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1 – Organization and Nature of Business

Bluerock Residential Growth REIT, Inc. (the “Company”) was incorporated as a Maryland corporation on July 25, 2008. The Company’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. The Company seeks to maximize returns through investments where it believes it can drive substantial growth in its funds from operations and net asset value through one or more of its Core-Plus, Value-Add, Opportunistic and Invest-to-Own investment strategies.

The Company has elected to be treated, and currently qualifies, as a real estate investment trust (“REIT”), for federal income tax purposes. As a REIT, the Company generally is not subject to corporate-level income taxes. To maintain its REIT status, the Company is required, among other requirements, to distribute annually at least 90% of its “REIT taxable income,” as defined by the Internal Revenue Code of 1986, as amended (the “Code”), to the Company’s stockholders. If the Company fails to qualify as a REIT in any taxable year, it would be subject to federal income tax on its taxable income at regular corporate tax rates.

The Company raised capital in a continuous registered offering, carried out in a manner consistent with offerings of non-listed REITs, from its inception until September 9, 2013, when it terminated the continuous registered offering in connection with the Company’s Board of Directors (the “Board’s”) consideration of strategic alternatives to maximize value to its stockholders. The Company subsequently determined to register shares of newly authorized Class A common stock that were to be offered in a firmly underwritten public offering (the “IPO”), by filing a registration statement on Form S-11 (File No. 333-192610) with the SEC, on November 27, 2013. On March 28, 2014, the SEC declared the registration statement effective and the Company announced the pricing of the IPO of 3,448,276 shares of Class A common stock at a public offering price of $14.50 per share for total gross proceeds of $50.0 million. The net proceeds of the IPO, which closed on April 2, 2014, were approximately $44.0 million after deducting underwriting discounts and commissions and offering costs.

In connection with the IPO, shares of the Company’s Class A common stock were listed on the NYSE MKT for trading under the symbol “BRG.” Pursuant to the second articles of amendment and restatement to its charter filed on March 26, 2014 (the “Second Charter Amendment”), each share of its common stock outstanding immediately prior to the listing, including shares sold in its continuous registered offering, was changed into one-third of a share of each of Class B-1 common stock, Class B-2 common stock and Class B-3 common stock. Following the filing of the Second Charter Amendment, the Company effected a 2.264881-to-1 reverse stock split of its outstanding shares of Class B-1 common stock, Class B-2 common stock and Class B-3 common stock, and on March 31, 2014, the Company effected an additional 1.0045878-to-1 reverse stock split of its outstanding shares of Class B-1 common stock, Class B-2 common stock and Class B-3 common stock.

As of March 31, 2014, the Company was externally managed by Bluerock Multifamily Advisor, LLC, an affiliate of Bluerock (the “Former Advisor”), pursuant to an advisory agreement (the “Advisory Agreement”). In connection with the completion of the IPO, the Company engaged BRG Manager, LLC, also an affiliate of Bluerock (the “Manager”), to provide external management services to us under a new management agreement (the “Management Agreement”), and terminated the Advisory Agreement with the Former Advisor.

Substantially concurrently with the completion of the IPO, the Company completed a series of related contribution transactions pursuant to which it acquired indirect equity interests in four apartment properties, and a 100% fee simple interest in a fifth apartment property for an aggregate asset value of $152.3 million (inclusive of Villas at Oak Crest, which is accounted for under the equity method, and Springhouse, in which the Company already owned an interest and which has been reported as consolidated prior to the IPO).

The Company subsequently determined to register additional shares of its Class A common stock to be offered in a firmly underwritten public offering, (the “October 2014 Follow-On Offering”), by filing a registration statement on Form S-11 (File No. 333-198770) with the SEC on September 16, 2014. On October 2, 2014, the SEC declared the Registration Statement effective and the Company announced the pricing of the October 2014 Follow-On Offering at a public offering price of $11.90 per share. The Company closed the October 2014 Follow-On Offering of 3,035,444 shares of Class A common stock, inclusive of shares sold pursuant to the full exercise of the overallotment option by the underwriters, on October 8, 2014. Net proceeds of the October 2014 Follow-On Offering were approximately $32.9 million after deducting underwriting discounts and commissions and offering costs.

On January 20, 2015, the Company completed an underwritten shelf takedown offering (the “January 2015 Follow-On Offering”) of 4,600,000 shares of Class A common stock, par value $0.01 per share, inclusive of shares sold pursuant to the full exercise of the overallotment option by the underwriters. The shares were registered with the SEC pursuant to a registration statement on Form S-3 (File No. 333-200359) filed with the SEC on November 19, 2014 and declared effective on December 19, 2014. The public offering price of $12.50 per share was announced on January 14, 2015. Net proceeds of the January 2015 Follow-On Offering were approximately $53.7 million after deducting underwriting discounts and commissions and offering costs.

On May 22, 2015, the Company completed an underwritten shelf takedown offering (the “May 2015 Follow-On Offering”) of 6,348,000 shares of Class A common stock, par value $0.01 per share, inclusive of shares sold pursuant to the full exercise of the overallotment option by the underwriters. The shares were registered with the SEC pursuant to a registration statement on Form S-3 (File No. 333-200359) filed with the SEC on November 19, 2014 and declared effective on December 19, 2014. The public offering price of $13.00 per share was announced on May 19, 2015. Net proceeds of the May 2015 Follow-On Offering were approximately $77.6 million after deducting underwriting discounts and commissions and offering costs.

BLUEROCK RESIDENTIAL GROWTH REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

As of September 30, 2015, the Company's portfolio consisted of interests in sixteen properties (thirteen operating properties and three development properties). The Company’s sixteen properties contain an aggregate of 4,991 units, comprised of 4,097 operating units and 894 units under development. As of September 30, 2015, these properties, exclusive of our development properties, and Whetstone and EOS, the lease-up properties, were approximately 95% occupied.

Note 2 – Basis of Presentation and Summary of Significant Accounting Policies

Principles of Consolidation and Basis of Presentation

The Company operates as an umbrella partnership REIT in which Bluerock Residential Holdings, L.P. (its “Operating Partnership”), or its wholly-owned subsidiaries, owns substantially all of the property interests acquired on the Company’s behalf. As of September 30, 2015, limited partners other than the Company owned approximately 5.50% of the Operating Partnership (1.37% is held by holders of limited partnership interest in the Operating Partnership (“OP Units”) and 4.13% is held by holders of the Operating Partnership’s long-term incentive plan units (“LTIP Units”)). Bluerock Real Estate, L.L.C., a Delaware limited liability company, is referred to as Bluerock (“Bluerock”), and the Company’s external manager, BRG Manager, LLC, a Delaware limited liability company, is referred to as its Manager (“Manager”). Both Bluerock and the Manager are related parties with respect to the Company, but are not within the Company’s control and are not consolidated in the Company’s financial statements.

Because the Company is the sole general partner of its Operating Partnership and has unilateral control over its management and major operating decisions (even if additional limited partners are admitted to the Operating Partnership), the accounts of the Operating Partnership are consolidated in its consolidated financial statements. The Company consolidates entities in which it controls more than 50% of the voting equity and in which control does not rest with other investors. Investments in real estate joint ventures over which the Company has the ability to exercise significant influence, but for which it does not have financial or operating control, are accounted for using the equity method of accounting. These entities are reflected on the Company’s consolidated financial statements as “Investments in unconsolidated real estate joint ventures.” All significant intercompany accounts and transactions have been eliminated in the consolidated financial statements. The Company will consider future joint ventures for consolidation in accordance with the provisions required by the of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 810: Consolidation.

Certain amounts in prior year financial statement presentation have been reclassified to conform to the current period presentation.

Interim Financial Information

The accompanying unaudited consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial reporting, and the instructions to Form 10-Q and Article 10-1 of Regulation S-X. Accordingly, the financial statements for interim reporting do not include all of the information and notes or disclosures required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring items) considered necessary for a fair presentation have been included. Operating results for interim periods should not be considered indicative of the operating results for a full year.

The balance sheet at December 31, 2014 has been derived from the audited financial statements at that date, but does not include all of the information and disclosures required by GAAP for complete financial statements. For further information, refer to the financial statements and notes thereto included in our audited consolidated financial statements for the year ended December 31, 2014 contained in the Annual Report on Form 10-K as filed with the Securities and Exchange Commission (“SEC”) on March 4, 2015.

Summary of Significant Accounting Policies

There have been no significant changes to the Company’s accounting policies since it filed its audited consolidated financial statements in its Annual Report on Form 10-K for the year ended December 31, 2014.

Use of Estimates

The preparation of the financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

New Accounting Pronouncements

In April 2015, the FASB issued Accounting Standards Update No. 2015-03, “Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs” (“ASU 2015-03”). The amendments in ASU 2015-03 require that debt issuance costs be presented in the balance sheet as a direct deduction from the carrying amount of that liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by the amendments in ASU 2015-03. The amendments in ASU 2015-03 become effective for public business entities in the first annual period beginning after December 15, 2015, and interim periods within those fiscal years, with early application permitted. The Company is currently evaluating the impact of this accounting standard.

BLUEROCK RESIDENTIAL GROWTH REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In February 2015, the FASB issued Accounting Standards Update No. 2015-02, “Consolidation (Topic 810): Amendments to the Consolidation Analysis” (“ASU 2015-02”). ASU 2015-02 eliminates specific consolidation guidance for limited partnerships and revises other aspects of consolidation analysis, including how kick-out rights, fee arrangements and related parties are assessed. ASU 2015-02 is effective for public business entities for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2015, with early adoption permitted. The Company is currently evaluating the impact of ASU 2015-02 on the Company’s financial statements.

In January 2015, the FASB issued Accounting Standards Update No. 2015-01, “Income Statement - Extraordinary and Unusual Items (Subtopic 225-20): Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items” (“ASU 2015-01”), which eliminates the concept of extraordinary items and require items that are either unusual in nature or infrequently occurring to be reported as a separate component of income from continuing operations or disclosed in the notes to the financial statements. ASU 2015-01 is effective for periods beginning after December 15, 2015, with early adoption permitted. ASU 2015-01 is not expected to have a material impact on the Company's financial statements.

In August 2014, the FASB issued ASU No. 2014-15, “Presentation of Financial Statements - Going Concern” (“ASU 2014-15”), which requires an entity's management to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the entity's ability to continue as a going concern within one year after the date that the financial statements are issued. ASU 2014-15 is effective for periods beginning after December 15, 2016. ASU 2014-15 is not expected to have a material impact on the Company's financial statements.

In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606)” (“ASU 2014-09”). The updated standard is a new comprehensive revenue recognition model that requires revenue to be recognized in a manner that depicts the transfer of goods or services to a customer at an amount that reflects the consideration expected to be received in exchange for those goods or services. In July 2015, the FASB voted to approve the deferral of the effective date of ASU 2014-09 by one year. Therefore, ASU 2014-09 will become effective for the Company in the first quarter of the fiscal year ending December 31, 2018. Early adoption is permitted, but not earlier than the first quarter of the fiscal year ending December 31, 2017. The ASU allows for either full retrospective or modified retrospective adoption. The Company has not selected a transition method, and is currently evaluating the effect that ASU 2014-09 will have on the consolidated financial statements and related disclosures.

Note 3 – Real Estate Assets Held for Sale, Discontinued Operations and Sale of Joint Venture Equity Interests

Real Estate Assets Held for Sale and Discontinued Operations

The Company had reported its Creekside property as held for sale in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013. On March 28, 2014, the special purpose entity that owned the Creekside property, in which the Company held a 24.7% indirect equity interest, sold the Creekside property as discussed below. On August 28, 2014, the Company’s Investment Committee approved a plan to sell North Park Towers and the Company has classified amounts related to the property as held for sale as of December 31, 2014 and September 30, 2015. See Note 14 for information regarding the sale of North Park Towers on October 16, 2015.

Property Classified as Discontinued Operations

The following is a summary of the results of operations of the Creekside property classified as discontinued operations for the three and nine months ended September 30, 2014 (amounts in thousands); there were no operations for the three and nine months ended September 30, 2015 as the property was sold on March 28, 2014:

	Three Months Ended				Nine Months Ended
	September 30,		September 30,		September 30,		September 30,
	2015		2014		2015		2014
Total revenues	$	—	$	—	$	—	$	508
Expenses
Property operating		—		114		—		(171	)
Depreciation and amortization		—		—		—		(183	)
Management fees		—		—		—		(8	)
Interest, net		—		—		—		(149	)
Loss on operations of rental property	$	—	$	114	$	—	$	(3	)
Gain on sale of joint venture interest		—		—		—		1,006
Loss on early extinguishment of debt		—		—		—		(880	)
(Loss) Income from discontinued operations	$	—	$	114	$	—	$	123

BLUEROCK RESIDENTIAL GROWTH REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Sale of Joint Venture Equity Interests

On December 10, 2014, the Company through BEMT Augusta, LLC, sold its 25.0% interest in the Estates at Perimeter/Augusta, Bluerock Special Opportunity + Income Fund II, LLC (“Fund II”) sold its 25.0% interest, and an unaffiliated third party (“BRG Co-Owner”), sold its 50.0% interest, to Waypoint Residential Services, LLC, an unaffiliated third party, for an aggregate of $26.0 million, subject to a loan prepayment penalty and certain prorations and adjustments typical in such real estate transactions. After deduction for payment of the existing mortgage indebtedness and loan prepayment penalty, closing costs and fees, the sale of the Company’s interest in the Estates at Perimeter/Augusta generated net proceeds to the Company of approximately $1.7 million and a gain on sale of $0.6 million.

On December 9, 2014, the Company, through BEMT Berry Hill, LLC, a Delaware limited liability company and a wholly-owned subsidiary of the Operating Partnership (“BEMT Berry Hill’), entered into a series of transactions and agreements to restructure the ownership of Berry Hill (the “Restructuring Transactions”).

Prior to the Restructuring Transactions, the Company held a 25.1% indirect equity interest in Berry Hill, Bluerock Special Opportunity + Income Fund III, LLC (“Fund III”), a Delaware limited liability company and an affiliate of the Company’s Manager, held a 28.4% indirect equity interest, Bluerock Growth Fund, LLC (“BGF”), a Delaware limited liability company and an affiliate of the Company’s Manager, held a 29.0% indirect equity interest, and Stonehenge 23Hundred JV Member, LLC (“Stonehenge JV Member”), an affiliate of Stonehenge Real Estate Group, LLC (“Stonehenge”), an unaffiliated third party, held the remaining 17.5% indirect equity interest plus a promote interest based on investment return hurdles for its service as developer of the property. These indirect equity interests were all held in BR Stonehenge 23Hundred JV, LLC, a Delaware limited liability company, which owns 100% of 23Hundred, LLC (“23Hundred”), a Delaware limited liability company, which in turn owned 100% of Berry Hill.

Following the Restructuring Transactions, as of December 31, 2014, Berry Hill was owned in tenancy-in-common interests, adjusted for the agreed Stonehenge promote interest as follows: (i) BEMT Berry Hill and Fund III, through 23Hundred, held a 42.2% undivided tenant-in-common interest (the Company, through BEMT Berry Hill own a 19.8% indirect equity interest and Fund III owns a 22.4% indirect equity interest); (ii) BGF’s subsidiary BGF 23Hundred, LLC, a Delaware limited liability company, holds a 22.9% undivided tenant-in-common interest; and (iii) Stonehenge JV Member’s subsidiary SH 23Hundred TIC, LLC, a Delaware limited liability company, holds a 34.8% undivided tenant-in-common interest.

As a result of the restructuring, the Company no longer controlled Berry Hill through its voting rights. The Company’s investment in Berry Hill has been deconsolidated and was subsequently accounted for under the equity method of accounting as of December 31, 2014.

On January 14, 2015, the Company, along with the other two holders of tenant-in-common interests in Berry Hill, sold their respective interests to 2300 Berry Hill General Partnership, an unaffiliated third party. The aggregate purchase price was $61.2 million, subject to certain prorations and adjustments typical in such real estate transactions. After deduction for payment of the existing mortgage indebtedness and payment of closing costs and fees, the sale of the Company’s interest in Berry Hill generated net proceeds of approximately $7.3 million to the Company and a consolidated gain on sale of $11.3 million, of which the Company’s pro rata share of gain is $5.3 million before disposition expenses of $0.1 million, which was included in the Company’s statement of operations for the nine months ended September 30, 2015.

On December 3, 2014, the Company, through BR Waterford Crossing JV, LLC, a Delaware limited liability company and a wholly-owned subsidiary of the Operating Partnership (“BRG Grove”) and Bell HNW Waterford, LLC, a Delaware limited liability company and an unaffiliated third party (“BRG Co-Owner”), owned a 252-unit apartment community located in Hendersonville, Tennessee named the Grove at Waterford, as tenants-in-common. BRG Grove owned a 60.0% tenant-in-common interest in the Grove at Waterford property. On December 18, 2014, BRG Grove sold its 60.0% tenant-in-common interest in the Grove at Waterford property, and BRG Co-Owner its 40.0% tenant-in-common interest, to Bell Hendersonville, an unaffiliated third party, for an aggregate of $37.7 million, subject to a loan prepayment penalty and certain prorations and adjustments typical in such real estate transactions. After deduction for payment of the existing mortgage indebtedness and loan prepayment penalty, closing costs and fees, the sale of the Company’s interest in the Grove at Waterford generated net proceeds to the Company of approximately $9.0 million and a gain on sale of $3.5 million.

On March 28, 2014, BR Creekside, LLC, a special-purpose entity in which the Company holds a 24.7% indirect equity interest, sold the Creekside property to SIR Creekside, LLC, an unaffiliated third party, for $18.9 million, subject to certain prorations and adjustments typical in such real estate transactions. After deduction for payment of the existing mortgage indebtedness encumbering the Creekside property in the approximate amount of $13.5 million and payment of closing costs and fees, excluding disposition fees of approximately $0.1 million deferred by the Former Advisor, the sale of the Creekside property generated net proceeds to the Company of approximately $1.2 million and a gain on sale of $1.0 million.

Note 4 – Investments in Real Estate

As of September 30, 2015, the Company was invested in thirteen operating real estate properties and three development properties through joint venture partnerships. The following tables provide summary information regarding our operating and development investments, which are either consolidated or presented on the equity method of accounting.

BLUEROCK RESIDENTIAL GROWTH REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Operating Properties

Multifamily Community Name/Location	Number of Units		Date Built/Renovated⁽¹⁾		Ownership Interest			Average Rent⁽²⁾		% Occupied⁽³⁾
ARIUM Grandewood/ Orlando, FL⁽⁴⁾		306		2005		95.00	%	$	1,169		96	%
ARIUM Palms/ Orlando, FL		252		2008		95.00	%		1,156		92	%
Ashton I/ Charlotte, NC		322		2012		100.0	%		1,022		91	%
Enders Place at Baldwin Park/ Orlando, FL		220		2003		89.50	%		1,563		97	%
EOS/ Orlando, FL⁽⁵⁾		296		Est. 2015		—			1,211		30	%
Fox Hill/ Austin , TX		288		2010		94.62	%		1,093		99	%
Lansbrook Village/ Palm Harbor, FL		601		2004		76.81	%		1,167		93	%
MDA Apartment/ Chicago, IL		190		2006		35.31	%		2,244		96	%
North Park Towers/ Southfield, MI⁽⁶⁾		313		2000		100.0	%		1,065		95	%
Park & Kingston/ Charlotte, NC		153		2014		96.00	%		1,195		98	%
Springhouse at Newport News/Newport News, VA		432		1985		75.00	%		826		95	%
Village Green of Ann Arbor/ Ann Arbor, MI		520		2013		48.61	%		1,159		95	%
Whetstone / Durham, NC⁽⁵⁾		204		2015		—			1,325		67	%
Total/Average		4,097						$	1,189		95	%

⁽¹⁾ Represents date of last significant renovation or year built if there were no renovations.

⁽²⁾ Represents the average effective monthly rent per occupied unit for all occupied units for the three months ended September 30, 2015, excluding Whetstone and EOS which are still in lease-up. Total concessions for the three months ended September 30, 2015 amounted to approximately $91,000.

⁽³⁾ Percent occupied is calculated as (i) the number of units occupied as of September 30, 2015, divided by (ii) total number of units, expressed as a percentage, excluding Whetstone and EOS which are still in lease-up.

⁽⁴⁾ ARIUM Grandewood was formerly called ARIUM Grande Lakes.

⁽⁵⁾ Whetstone and EOS are currently preferred equity investments providing a stated investment return and both properties are in leaseup and actual average rents were $966 and $1,174, respectively, net of upfront leaseup concessions.

⁽⁶⁾ This property is classified as held for sale as of September 30, 2015 and accounted for on a consolidated basis based on our 100% ownership in the property. Amounts related to this investment are classified as held for sale assets/liabilities on the Company’s consolidated balance sheet.

Depreciation expense was $3.1 million and $2.6 million for the three months ended September 30, 2015 and 2014, respectively, and $8.2 million and $6.0 million, for the nine months ended September 30, 2015 and 2014, respectively, including amounts in discontinued operations.

Intangibles related to the Company’s consolidated investments in real estate consist of the value of in-place leases. In-place leases are amortized over the remaining term of the in-place leases, which is approximately six months. Amortization expense related to the in-place leases was $0.9 million and $2.1 million for the three months ended September 30, 2015 and 2014, respectively, and $2.3 million and $3.8 million for the nine months ended September 30, 2015 and 2014, respectively.

Development Properties

Multifamily Community Name/Location	Number of Units		Initial Occupancy	Final Units to be Delivered	Pro Forma Average Rent ⁽¹⁾

Alexan CityCentre / Houston, TX		340	4Q 2016	4Q 2017	$	2,144
Alexan Southside Place / Houston, TX		269	3Q 2017	2Q 2018	$	2,019
Cheshire Bridge / Atlanta, GA		285	1Q 2017	3Q 2017	$	1,559
Total/Average		894			$	1,921

⁽¹⁾ Represents the average pro forma effective monthly rent per occupied unit for all expected occupied units upon stabilization.

Note 5 – Acquisition of Real Estate

The following describes the Company’s significant acquisition activity during the nine months ended September 30, 2015:

Acquisition of Interest in Park & Kingston

On March 16, 2015, the Company, through a wholly-owned subsidiary of its Operating Partnership, completed an investment of $6.3 million in a multi-tiered joint venture along with Fund III to acquire 153 newly-constructed units (the “Phase I Units”) in a Class AA apartment community in Charlotte, North Carolina known as the Park & Kingston Apartments (“Park & Kingston”). The Company’s indirect ownership interest in Park & Kingston was 46.95%. The purchase price for the Phase I Units of $27.85 million was funded, in part, with a $15.25 million senior mortgage loan secured by the Park & Kingston property and improvements.

The Company also has the ability to acquire 15 units under development at Park & Kingston (the “Phase II Units”), for a purchase price of $2.87 million. The seller has commenced, and will manage and complete the development of the Phase II Units. Upon completion of the development of and upon the issuance of a certificate of occupancy for the Phase II Units, closing will occur, financed with supplemental financing of up to 70% of the appraised value of the Phase II Units per the senior mortgage loan discussed above.

BLUEROCK RESIDENTIAL GROWTH REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In May 2015, the Company invested an additional $6.5 million, plus customary prorations, in equity in Park & Kingston, increasing the Company’s indirect ownership interest in the property from 46.95% to approximately 96.0%. The additional interests were purchased from Fund III based on the original purchase price on a pro rata basis, plus customary prorations.

Acquisition of Interest in Fox Hill

On March 26, 2015, the Company, through subsidiaries of its Operating Partnership, completed an investment of $10.2 million in a multi-tiered joint venture along with Fund III, and three unaffiliated investors (collectively, the “Third Parties”), to acquire a 288-unit apartment community located in Austin, Texas known as the Fox Hill Apartments (“Fox Hill”). The Company’s indirect ownership in Fox Hill was 85.27%. The purchase price of $38.15 million was funded, in part, with a $26.71 million senior mortgage loan secured by the Fox Hill Property and improvements.

In May 2015, the Company invested an additional $1.1 million, plus customary prorations, in equity in Fox Hill, increasing the Company’s indirect ownership interest in the property from 85.27% to approximately 94.62%. The additional interests were purchased from Fund III based on the original purchase price on a pro rata basis, plus customary prorations.

Acquisition of Interest in Ashton I

On August 19, 2015, the Company, through subsidiaries of its Operating Partnership, completed an investment of $13.5 million to acquire a 100% fee simple interest in a 322-unit apartment community located in Charlotte, North Carolina known as the Ashton Reserve at Northlake Phase I (“Ashton I”). The purchase price of $44.75 million was funded, in part, with the assumption of a $31.9 million senior mortgage loan secured by the Ashton I Property and improvements.

In addition, the Company, through a subsidiary of the Operating Partnership, expects to subsequently acquire an additional 151-unit apartment community currently under construction on land immediately adjacent to Ashton I, to be known as Ashton Reserve at Northlake Phase II, or Ashton II. On August 19, 2015, the Company entered into an assignment and assumption of purchase and sale agreement with an unaffiliated third-party, pursuant to which it assumed the obligations under the purchase agreement to acquire Ashton II following completion of construction and stabilization thereof. The Company expects to close on the acquisition of Ashton II for a purchase price of approximately $20.6 million, subject to customary adjustments and prorations, and subject to final adjustment and pricing based on the then existing financial condition of Ashton II based on a closing rent roll.

Acquisition of ARIUM Palms at World Gateway, formerly known as Century Palms at World Gateway

On August 20, 2015, the Company, through subsidiaries of its Operating Partnership, completed an investment of $13.0 million in a multi-tiered joint venture along with an unaffiliated investor, to acquire a 252-unit apartment community located in Orlando, Florida known as the ARIUM Palms at World Gateway Apartments (“ARIUM Palms”). The Company’s indirect ownership in ARIUM Palms was 95.0%. The purchase price of $37.0 million was funded, in part, with a $25.0 million senior mortgage loan secured by the ARIUM Palms Property and improvements.

Preliminary Purchase Price Allocations

The acquisitions of Park & Kingston, Fox Hill, Ashton I and ARIUM Palms have been accounted for as business combinations. 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 practical, but no later than one year from each property’s respective acquisition date.

The following table summarizes the assets acquired at the acquisition date. The amounts listed below reflect provisional amounts that will be updated as information becomes available (amounts in thousands):

	Preliminary Purchase Price Allocation
Land	$	15,270
Building		112,431
Building improvements		8,884
Land improvements		6,265
Furniture and fixtures		3,136
In-place leases		2,806
Total assets acquired	$	148,792

In connection with the acquisition of Ashton I, the Company assumed mortgage debt with a fair value of approximately $32.9 million.

The pro-forma information presented below represents the change in consolidated revenue and earnings as if the Company's significant acquisitions of Village Green of Ann Arbor, North Park Towers, Lansbrook Village, ARIUM Grandewood, Fox Hill, Ashton I and ARIUM Palms (collectively, the "Recent Acquisitions"), had occurred on January 1, 2014 (amounts in thousands, except per share amounts). Park & Kingston is excluded from the pro forma information as the property was under development during 2014.

BLUEROCK RESIDENTIAL GROWTH REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

	Nine Months Ended September 30,						Nine Months Ended September 30,
	2015						2014
	As Reported		Pro-Forma Adjustments		Pro-Forma		As Reported			Pro-Forma Adjustments			Pro-Forma

Revenues	$	31,065	$	5,811	$	36,876	$	20,547		$	17,292		$	37,839
Net income (loss)	$	8,041	$	2,283	$	10,324	$	(9,200	)	$	(6,140	)	$	(15,340	)
Net income (loss) attributable to BRG	$	2,157	$	2,173	$	4,330	$	(7,730	)	$	(5,521	)	$	(13,251	)

Earnings (loss) per share, basic and diluted⁽¹⁾	$	0.13			$	0.26	$	(1.81	)				$	(3.10	)

⁽¹⁾ Pro-forma earnings (loss) per share, both basic and diluted, are calculated based on the net income (loss) attributable to BRG.

Aggregate property level revenues and net loss for the Recent Acquisitions, since the properties’ respective acquisition dates, that are reflected in the Company’s consolidated statement of operations for the nine months ended September 30, 2015 amounted to $20.1 million and $1.1 million, respectively.

Note 6 – Investments in Unconsolidated Real Estate Joint Ventures

Following is a summary of the Company’s ownership interests in the investments reported under the equity method of accounting. The carrying amount of the Company’s investments in unconsolidated real estate joint ventures as of September 30, 2015 and December 31, 2014 is summarized in the table below (amounts in thousands):

Property	September 30, 2015		December 31, 2014

Alexan CityCentre	$	6,505	$	6,505
EOS		3,629		3,629
Alexan Southside Place		17,322		-
Whetstone		12,231		-
Cheshire Bridge		15,639		-
23Hundred@Berry Hill		-		4,906
Villas at Oak Crest		-		3,170
Other		-		121
Total	$	55,326	$	18,331

The Company’s investments in Alexan CityCentre, EOS, Alexan Southside Place, Whetstone and Cheshire Bridge represent preferred equity investments with the following stated returns:

	Current Pay Annualized			Accrued Annualized		Total Annualized
Property	Preferred Return			Preferred Return		Preferred Return
Alexan CityCentre		15.0	%		—		15.0	%
EOS		15.0	%		—		15.0	%
Alexan Southside Place		15.0	%		—		15.0	%
Whetstone		15.0	%		—		15.0	%
Cheshire Bridge		15.0	%		—		15.0	%

The equity in income (loss) of the Company’s unconsolidated real estate joint ventures for the three and nine months ended September 30, 2015 and 2014 is summarized below (amounts in thousands):

BLUEROCK RESIDENTIAL GROWTH REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

	Three Months Ended September 30,					Nine Months Ended September 30,
Property	2015			2014		2015			2014
Villas at Oak Crest	$	278		$	100	$	489		$	214
Alexan CityCentre		246			181		730			181
Alexan Southside Place		655			—		1,341			—
EOS		137			93		407			93
Whetstone		462			—		669			—
Cheshire Bridge		591			—		787			—
The Estates at Perimeter/Augusta		—			38		(1	)		4
Other		(3	)		—		(31	)		—
Equity in earnings of unconsolidated joint venture	$	2,366		$	412	$	4,391		$	492

Summary combined financial information for the Company’s investments in unconsolidated real estate joint ventures as of September 30, 2015 and December 31, 2014 and for the three and nine months ended September 30, 2015 and 2014, is as follows:

	September 30, 2015		December 31, 2014
Balance Sheets:
Real estate, net of depreciation	$	119,649	$	55,091
Real estate, net of depreciation, held for sale		—		31,334
Other assets		22,254		1,193
Other assets, held for sale		—		2,458
Total assets	$	141,903	$	90,076

Mortgages payable	$	61,998	$	19,820
Mortgage payable, held for sale		—		23,569
Other liabilities		3,680		2,812
Other liabilities, held for sale		—		1,026
Total liabilities	$	65,678	$	47,227
Members’ equity		76,225		42,849
Total liabilities and members’ equity	$	141,903	$	90,076

	Three Months Ended September 30,						Nine Months Ended September 30,
	2015			2014			2015			2014
Operating Statement:
Rental revenues	$	561		$	694		$	1,885		$	1,992
Operating expenses		(695	)		(264	)		(2,166	)		(786	)
Income before debt service, acquisition costs, and depreciation and amortization		(134	)		430			(281	)		1,206
Interest expense, net		(167	)		(189	)		(544	)		(562	)
Acquisition costs		—			—			(66	)		—
Depreciation and amortization		(721	)		(204	)		(1,304	)		(605	)
Operating (loss)		(1,022	)		37			(2,195	)		39
Gain on sale		—			—			29,200			—
Net (loss) income	$	(1,022	)	$	37		$	27,005		$	39

Acquisition of Alexan Southside Place (formerly referred to as Alexan Blaire House) Interests

On January 12, 2015, through BRG Southside, LLC, a wholly-owned subsidiary of its Operating Partnership, the Company made a convertible preferred equity investment in a multi-tiered joint venture, along with Fund II and Fund III, which are affiliates of the Manager, and an affiliate of Trammell Crow Residential, to develop an approximately 269-unit Class A apartment community located in Houston, Texas, to be known as Alexan Southside Place. Alexan Southside Place will be developed upon a tract of land ground leased from Prokop Industries BH, L.P., a Texas limited partnership, by BR Bellaire BLVD, LLC, as tenant under an 85-year ground lease. We have made a capital commitment of $17.3 million to acquire 100% of the preferred equity interests in BRG Southside, LLC all of which has been funded as of September 30, 2015.

BLUEROCK RESIDENTIAL GROWTH REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Alexan Southside Place Construction Financing

On April 7, 2015, the Company, through BR Bellaire BLVD, LLC, an indirect subsidiary, entered into a $31.8 million construction loan with Bank of America, NA which is secured by the leasehold interest in the Alexan Southside Place property. The loan matures on April 7, 2019, and contains a one-year extension option, subject to certain conditions including a debt service coverage, loan to value ratio and payment of an extension fee. The loan bears interest on a floating basis on the amount drawn based on the base rate plus 1.25% or LIBOR plus 2.25%. Regular monthly payments are interest-only during the initial term, with payments during the extension period based on a thirty year amortization. The loan can be prepaid without penalty.

Acquisition of Whetstone Interests

On May 20, 2015, through BRG Whetstone Durham, LLC, a wholly-owned subsidiary of its Operating Partnership, the Company made a convertible preferred equity investment in a multi-tiered joint venture, along with Fund III and an affiliate of TriBridge Residential, LLC, to acquire a 204-unit Class A apartment community located in Durham, North Carolina, to be known as Whetstone Apartments. The Company has made a capital commitment of $12.2 million to acquire 100% of the preferred equity interests in BRG Whetstone Durham, LLC all of which has been funded as of September 30, 2015. The acquisition of Whetstone Apartments was partially funded by a bridge loan of approximately $25.2 million secured by the Whetstone Apartment property. The loan matures May 18, 2016 and bears interest on a floating basis based on LIBOR plus 2.0%. The loan can be prepaid without penalty. The Company provided certain standard scope non-recourse carveout guaranties in conjunction with the loan.

Acquisition of Cheshire Bridge Interests

On May 29, 2015, through BRG Cheshire, LLC, a wholly-owned subsidiary of its Operating Partnership, the Company made a convertible preferred equity investment in a multi-tiered joint venture, along with Fund III and an affiliate of Catalyst Development Partners II, to develop a 285-unit Class A apartment community located in Atlanta, Georgia, to be known as Cheshire Bridge Apartments. The Company has made a capital commitment of $15.6 million to acquire 100% of the preferred equity interests in BRG Cheshire, LLC, all of which has been funded as of September 30, 2015.

Sale of Villas at Oak Crest

The controlling member of the joint venture that owned the Villas at Oak Crest apartment community determined to sell the property. The property was sold in September 2015 and upon closing, the Company received a distribution of its original investment plus accrued return.

Note 7 – Mortgages Payable

The following table summarizes certain information as of September 30, 2015 and December 31, 2014, with respect to the Company’s indebtedness (amounts in thousands):

	Outstanding Principal				As of September 30, 2015
Property	September 30, 2015		December 31, 2014		Interest Rate			Fixed/ Floating	Maturity Date
ARIUM Grandewood	$	29,444	$	29,444		1.87	%	Floating⁽¹⁾	December 1, 2024
ARIUM Palms		24,999		-		2.42	%	Floating⁽²⁾	September 1, 2022
Ashton I		31,900		-		4.67	%	Fixed	December 1, 2025
Enders Place at Baldwin Park⁽³⁾		25,250		25,475		4.30	%	Fixed	November 1, 2022
Fox Hill		26,705		-		3.57	%	Fixed	April 1, 2022
Lansbrook Village		43,628		42,357		4.40	%	Blended⁽⁴⁾	March 31, 2018
MDA Apartments		37,600		37,600		5.35	%	Fixed	January 1, 2023
Park & Kingston		15,250		-		3.21	%	Fixed	April 1, 2020
Springhouse at Newport News		22,264		22,515		5.66	%	Fixed	January 1, 2020
Village Green of Ann Arbor		42,518		43,078		3.92	%	Fixed	October 1, 2022
Total		299,558		200,469
Fair value adjustments		1,710		874
Total continuing operations		301,268		201,343
North Park Towers - held for sale		11,500		11,500		5.65	%	Fixed	January 6, 2024
Total	$	312,768	$	212,843

⁽¹⁾ ARIUM Grandewood Senior Loan bears interest at a floating rate of 1.67% plus one month LIBOR. At September 30, 2015, the interest rate was 1.87%.

⁽²⁾ ARIUM Palms loan bears interest at a floating rate of 2.22% plus one month LIBOR. At September 30, 2015, the interest rate was 2.42%.

⁽³⁾ The principal includes a $17.3 million loan at a 3.97% interest rate and an $8.0 million supplemental loan at a 5.01% interest rate.

⁽⁴⁾ The principal balance includes the initial advance of $42.0 million at a fixed rate of 4.45% and an additional advance of $1.6 million that bears interest at a floating rate of three month LIBOR plus 3.00%, as of September 30, 2015, the additional advance had an interest rate of 3.31%.

BLUEROCK RESIDENTIAL GROWTH REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Lansbrook Village Mortgage Payable

On March 21, 2014, the Company, through an indirect subsidiary (the “Lansbrook Borrower”), entered into a $48 million loan with General Electric Capital Corporation, which is secured by Lansbrook Village. The $48.0 million is comprised of a $42.0 million initial advance and an additional $6.0 million of additional borrowing for the acquisition and improvement of additional units. At September 30, 2015, the Lansbrook Borrower has borrowed $1.6 million of the $6.0 million of additional borrowable funds. The loan matures on March 31, 2018 and bears interest at a fixed rate 4.45% per annum, with interest-only payments due until May 1, 2016 and principal payments beginning thereafter based upon a 30-year amortization schedule. Yield maintenance payments will be required to the extent the loan is prepaid before the third month prior to the maturity date and thereafter the loan may be prepaid without penalty. At the time of repayment, whether prepaid or paid at maturity, a $240,000 exit fee is due to the lender. The loan is nonrecourse to the Company and the Lansbrook Borrower, with recourse carve-outs for certain deeds, acts or failures to act on the part of the Lansbrook Borrower or any of its officers, members, managers or employees.

Park & Kingston Mortgage Payable

On March 16, 2015, the Company, through an indirect subsidiary (the “Park & Kingston Borrower”), entered into a $15.25 million loan with the Federal National Mortgage Association (“Fannie Mae”), which is secured by Park & Kingston. The loan matures on April 1, 2020 and bears interest at a fixed rate of 3.21%, with interest-only payments due for the entire loan term. Yield maintenance payments will be required to the extent prepaid before the sixth month prior to the maturity date; during the period from the sixth month prior to the maturity date to the third month prior to the maturity date, a prepayment premium of 1% of the principal being prepaid will be required, and thereafter the loan may be prepaid without penalty. The loan is nonrecourse to the Park & Kingston Borrower with recourse carve-outs for certain deeds, acts or failures to act on the part of the Park & Kingston Borrower, or any of its officers, members, managers or employees.

Fox Hill Mortgage Payable

On March 26, 2015, the Company, through an indirect subsidiary (the “Fox Hill Borrower”), entered into a $26.7 million loan with Walker & Dunlop, LLC, which is secured by Fox Hill. The loan was subsequently assigned to Fannie Mae. The loan matures on April 1, 2022 and bears interest at a fixed rate of 3.57%, with interest-only payments due until May 1, 2019 and fixed monthly payments based on 30-year amortization thereafter. During the first 60 months of the term, the loan may be prepaid at any time with at least 30 business days prior notice and the payment of a prepayment premium equal to the greater of (i) 1% of the principal balance and (ii) a yield maintenance amount calculated as set forth in the loan agreement. After the first 60 months of the term through the fourth month prior to the end of the term, the loan may be prepaid at any time with at least 30 business days prior notice and the payment of a prepayment premium equal to 1% of the principal balance, and thereafter, the loan may be prepaid at any time at par. The loan is nonrecourse to the Company and the Fox Hill Borrower with recourse carve-outs for certain deeds, acts or failures to act on the part of the Company and the Fox Hill Borrower, or any of its officers, members, managers or employees.

Ashton I Mortgage Payable

On August 19, 2015, the Company, through an indirect subsidiary (the “Ashton I Borrower”), assumed a $31.9 million loan with Sun Life Assurance Company of Canada which is secured by Ashton I. The loan matures on December 1, 2025 and bears interest at a fixed rate of 4.67%, with interest-only payments due through December 1, 2016, and fixed monthly payments based on 30-year amortization thereafter. The loan may be prepaid in full at any time with thirty (30) days' prior written notice to the lender, and the payment of a prepayment premium equal to the greater of (i) 1.0% of the unpaid principal balance or (ii) a yield maintenance amount calculated as set forth in the loan documents. The loan is nonrecourse to the Ashton I Borrower with recourse carve-outs for certain deeds, acts or failures to act on the part of the Ashton I Borrower, or any of its officers, members, managers or employees.

ARIUM Palms Mortgage Payable

On August 20, 2015, the Company, through an indirect subsidiary (the “ARIUM Palms Borrower”), entered into a $25.0 million loan with Jones Long LaSalle Operations, L.L.C., on behalf of Freddie Mac, which is secured by ARIUM Palms. The loan matures on September 1, 2022 and bears interest on a floating basis based on LIBOR plus 2.22%, with interest-only payments due until September 1, 2019 and fixed monthly payments based on 30-year amortization thereafter. The ARIUM Palms Borrower also entered into a three-year interest rate cap agreement with a cap rate of 5.75%. After the first 24 months of the term through the fourth month prior to the end of the term, the loan may be prepaid at any time with at least 30 business days prior notice and the payment of a make whole premium equal to 1% of the principal balance, and thereafter, the loan may be prepaid at any time at par. The loan is nonrecourse to the Company and the ARIUM Palms Borrower with recourse carve-outs for certain deeds, acts or failures to act on the part of the Company and the ARIUM Palms Borrower, or any of its officers, members, managers or employees.

As of September 30, 2015, contractual principal payments for the five subsequent years and thereafter are as follows (amounts in thousands):

BLUEROCK RESIDENTIAL GROWTH REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Year	Total
2015 (October 1-December 31)	$	375
2016		2,762
2017		3,532
2018		45,364
2019		3,888
Thereafter		255,137
	$	311,058
Add: Unamortized fair value debt adjustment		1,710
Total	$	312,768

The net book value of real estate assets providing collateral for these above borrowings were $429.7 million and $288.4 million at September 30, 2015 and December 31, 2014, respectively.

Note 8 – Line of Credit

As of January 1, 2014, the outstanding balance on the Company's working capital line of credit provided by Fund II and Fund III, both of which are affiliates of our Manager, was $7.6 million. On April 2, 2014, the line of credit was paid in full with proceeds from the IPO and extinguished.

Note 9 – Fair Value of Financial Instruments

As of September 30, 2015 and December 31, 2014, the Company believes the carrying value of cash and cash equivalents, accounts receivable, due to and from affiliates, accounts payable, accrued liabilities, and distributions payable approximate their fair value based on their highly-liquid nature and/or short-term maturities. As of September 30, 2015 and December 31, 2014, the approximate fair value of mortgages payable were $319.1 million and $215.8 million, respectively, compared to the carrying value of $312.8 million and $212.8 million, respectively, inclusive of the North Park Towers mortgage payable, which is classified as held for sale. The fair value of mortgages payable is estimated based on the Company’s current interest rates (Level 3 inputs, as defined in ASC Topic 820, “Fair Value Measurement”) for similar types of borrowing arrangements.

Note 10 – Related Party Transactions

In connection with the Company’s investments in the Enders Place at Baldwin Park, Berry Hill and MDA Apartments, it entered into a line of credit agreement with Fund II and Fund III. As of January 1, 2014, the outstanding balance on the Company's working capital line of credit provided by Fund II and Fund III, both of which are affiliates of our Manager, was $7.6 million. On April 2, 2014, the line of credit was paid in full with proceeds of the IPO and extinguished.

In connection with the Company’s acquisition of an interest in the Villas at Oak Crest, the Company assumed a receivable of $0.3 million from Fund II related to accrued interest on Fund II’s investment in the Villas at Oak Crest prior to the contribution of their interest to the Company, and as of December 31, 2014, the Company had a corresponding payable to Fund II for this amount. The payable to Fund II of $0.3 million was paid off in September 2015 in conjunction with the sale of the Villas at Oak Crest.

In May 2015, the Company invested an additional $6.5 million, plus customary prorations, in equity in Park & Kingston, increasing the Company’s indirect ownership interest in the property from 46.95% to approximately 96.0%. The additional interests were purchased from Fund III, an affiliate of our Manager, based on the original purchase price on a pro rata basis, plus customary prorations.

In May 2015, the Company invested an additional $1.1 million, plus customary prorations, in equity in Fox Hill, increasing the Company’s indirect ownership interest in the property from 85.27% to approximately 94.62%. The additional interests were purchased from Fund III, an affiliate of our Manager, based on the original purchase price on a pro rata basis, plus customary prorations.

As of March 31, 2014, the Company was externally managed by our Former Advisor pursuant to the Advisory Agreement. In connection with the completion of the IPO, the Company terminated the Advisory Agreement with the Former Advisor, and the Company entered into a new management agreement (the “Management Agreement”), with the Manager, on April 2, 2014. The terms and conditions of the Management Agreement, which became effective as of April 2, 2014, and the Advisory Agreement, which was effective for the reported periods prior to April 2, 2014, are described below.

Management Agreement

The Management Agreement requires the Manager to manage the Company’s business affairs in conformity with the investment guidelines and other policies that are approved and monitored by the Company’s board of directors. The Manager acts under the supervision and direction of the Board. Specifically, the Manager is responsible for (1) the selection, purchase and sale of the Company’s investment portfolio, (2) the Company’s financing activities, and (3) providing the Company with advisory and management services. The Manager provides the Company with a management team, including a chief executive officer, president, chief accounting officer and chief operating officer, along with appropriate support personnel. None of the officers or employees of the Manager are dedicated exclusively to the Company.

BLUEROCK RESIDENTIAL GROWTH REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Company pays the Manager a base management fee in an amount equal to the sum of: (A) 0.25% of the Company’s stockholders’ existing and contributed equity prior to the IPO and in connection with our contribution transactions, per annum, calculated quarterly based on the Company’s stockholders’ existing and contributed equity for the most recently completed calendar quarter and payable in quarterly installments in arrears, and (B) 1.5% of the equity per annum of the Company’s stockholders who purchase shares of the Company’s Class A common stock, calculated quarterly based on their equity for the most recently completed calendar quarter and payable in quarterly installments in arrears. The base management fee is payable independent of the performance of the Company’s investments. The base management fee expense for the Manager was $0.9 million and $2.1 million for the three and nine months ended September 30, 2015. The Company has amended the Management Agreement to provide that the base management fee can be payable in cash or LTIP Units, at the election of the Board. Base management fees of $0.7 million were expensed during the three months ended June 30, 2015, which were paid through the issuance of 59,077 LTIP Units on August 13, 2015. The number of LTIP Units issued for the base management fee or incentive fee will be based on the fees earned divided by the 5-day trailing average Class A common stock price prior to issuance. Base management fees of $0.9 million were expensed during the three months ended September 30, 2015, which will be paid through the issuance of approximately 74,780 LTIP Units assuming the $11.98 common stock price at September 30, 2015.

The Company also pays the Manager an incentive fee with respect to each calendar quarter in arrears. The incentive fee is equal to the difference between (1) the product of (x) 20% and (y) the difference between (i) the Company’s adjusted funds from operations (“AFFO”), for the previous 12-month period, and (ii) the product of (A) the weighted average of the issue price of equity securities issued in the IPO and in future offerings and transactions, multiplied by the weighted average number of all shares of the Company’s Class A common stock outstanding on a fully-diluted basis (including any restricted stock units, any restricted shares of Class A common stock, LTIP Units, and other shares of common stock underlying awards granted under the Incentive Plans and OP Units) in the previous 12-month period, exclusive of equity securities issued prior to the IPO or in the contribution transactions, and (B) 8%, and (2) the sum of any incentive fee paid to the Manager with respect to the first three calendar quarters of such previous 12-month period; provided, however, that no incentive fee is payable with respect to any calendar quarter unless AFFO is greater than zero for the four most recently completed calendar quarters, or the number of completed calendar quarters since the closing date of the IPO, whichever is less. For purposes of calculating the incentive fee during the first 12 months after completion of the IPO, AFFO will be determined by annualizing the applicable period following completion of the IPO. One half of each quarterly installment of the incentive fee will be payable in LTIP Units, calculated pursuant to the formula above. The remainder of the incentive fee will be payable in cash or in LTIP Units, at the election of the Board, in each case calculated pursuant to the formula above. Incentive fees of $0.15 million were expensed during the three months ended December 31, 2014, which resulted in the issuance of 10,896 LTIP Units on February 18, 2015. Incentive fees to the Manager of $0.9 million were expensed during the three months ended March 31, 2015, which resulted in the issuance of 67,837 LTIP Units on May 14, 2015. No incentive fees to the Manager were earned or expensed during the three months ended June 30, 2015 or September 30, 2015.

Management fee expense of $0.1 million and $0.7 million was recorded as part of general and administrative expenses for the three and nine months ended September 30, 2015 and $1.0 million for the year ended December 31, 2014, respectively, related to the 179,562 LTIP Units granted in connection with the IPO. The expense recognized during 2014 was based on a price of $12.43 per LTIP Unit, which represents the closing share price for the Company’s Class A common stock on December 31, 2014. These LTIP Units vest over a three year period that began in April 2014, and 59,854 LTIP Units vested on April 30, 2015.

On July 2, 2015, the Company issued a grant of LTIP Units under the Amended 2014 Incentive Plans to the Company’s external manager, BRG Manager, LLC. The equity grant consisted of 283,390 LTIP Units. The LTIP Units will vest ratably over a three year period that began in July 2015, subject to certain terms and conditions. The LTIP Units may be convertible into OP Units under certain conditions and then may be settled in shares of the Company’s Class A common stock. The LTIP Units provide for the payment of distribution equivalents at the same time distributions are paid to holders of the Company’s Class A common stock. LTIP expense of $0.5 million and $0.5 million was recorded as part of general and administrative expenses for the three and nine months ended September 30, 2015, respectively, related to these LTIP Units. The expense recognized during 2015 was based on a price of $11.98 per LTIP Unit, which represents the closing share price for the Company’s Class A common stock on September 30, 2015.

The Company is also required to reimburse the Manager for certain expenses and pay all operating expenses, except those specifically required to be borne by the Manager under the Management Agreement. The Manager waived all reimbursements for the three and six months ended June 30, 2015. Reimbursements of $0.1 million were expensed during the three months ended September 30, 2015 and are recorded as part of general and administrative expenses.

The initial term of the Management Agreement expires on April 2, 2017 (the third anniversary of the closing of the IPO), and will be automatically renewed for a one-year term on each anniversary date thereafter unless previously terminated in accordance with the terms of the Management Agreement. Following the initial term of the Management Agreement, the Management Agreement may be terminated annually upon the affirmative vote of at least two-thirds of the Company’s independent directors, based upon (1) unsatisfactory performance that is materially detrimental to the Company, or (2) the Company’s determination that the fees payable to the Manager are not fair, subject to the Manager’s right to prevent such termination due to unfair fees by accepting a reduction of the fees agreed to by at least two-thirds of the Company’s independent directors. The Company must provide 180 days’ prior notice of any such termination. Unless terminated for cause, as further described in the Management Agreement, the Manager will be paid a termination fee equal to three times the sum of the base management fee and incentive fee earned, in each case, by the Manager during the 12-month period immediately preceding such termination, calculated as of the end of the most recently completed fiscal quarter before the date of termination. The Company may also terminate the Management Agreement at any time, including during the initial term, without the payment of any termination fee, for cause with 30 days’ prior written notice from the Board.

BLUEROCK RESIDENTIAL GROWTH REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

During the initial three-year term of the Management Agreement, the Company may not terminate the Management Agreement except as described above or in the following circumstance: At the earlier of (i) April 2, 2017 (three years following the completion of the IPO), and (ii) the date on which the value of the Company’s stockholders’ equity exceeds $250.0 million, the Board may, but is not obligated to, internalize the Company’s management. The Manager may terminate the Management Agreement if it becomes required to register as an investment company under the Investment Company Act, with such termination deemed to occur immediately before such event, in which case the Company would not be required to pay a termination fee. In addition, if the Company defaults in the performance of any material term of the Management Agreement and the default continues for a period of 30 days after written notice to the Company, the Manager may terminate the Management Agreement upon 60 days’ written notice. If the Management Agreement is terminated by the Manager upon a breach by the Company, the Company is required to pay the Manager the termination fee described above.

The Manager may retain, at its sole cost and expense, the services of such persons and firms as the Manager deems necessary in connection with our management and operations (including accountants, legal counsel and other professional service providers), provided that such expenses are in amounts no greater than those that would be payable to third-party professionals or consultants engaged to perform such services pursuant to agreements negotiated on an arm’s-length basis. The Manager has in the past retained, and going forward may retain Konig & Associates, P.C., a professional corporation wholly-owned by Michael L. Konig, the Company’s Chief Operating Officer, Secretary and General Counsel, to provide transaction based legal services, if the Manager determines that such retention would be less expensive than retaining third party professionals. The Company incurred $0.2 million in fees and expenses during the year ended December 31, 2014 for the firm’s transaction-related work on the contribution transactions, the IPO and the October 2014 Follow-On Offering. There was approximately $25,000 of fees and expenses payable by the Company to Konig & Associates, P.C. in conjunction with the October 2014 Follow-On Offering, as of December 31, 2014.

Prior and Terminated Advisory Agreement

Prior to the entry by the Company into the Management Agreement upon the completion of the IPO and the concurrent termination of the Advisory Agreement, the Former Advisor performed essentially the same duties and responsibilities as the Company’s new Manager. The Advisory Agreement had a one-year term expiring October 14, 2014, and was renewable for an unlimited number of successive one-year periods upon the mutual consent of the Company and its Advisor.

The Former Advisor was entitled to receive a monthly asset management fee for the services it provided pursuant to the Advisory Agreement. For 2013 and subsequent, the monthly asset management fee was one-twelfth of 0.65% of the higher of the cost or the value of each asset, where (A) cost equals the amount actually paid, excluding acquisition fees and expenses, to purchase each asset it acquires, including any debt attributable to the asset (including any debt encumbering the asset after acquisition), provided that, with respect to any properties the Company develops, constructs or improves, cost will include the amount expended by the Company for the development, construction or improvement, and (B) the value of an asset is the value established by the most recent independent valuation report, if available, without reduction for depreciation, bad debts or other non-cash reserves. The asset management fee was based only on the portion of the cost or value attributable to our investment in an asset if the Company did not own all of an asset.

Pursuant to the Advisory Agreement, the Former Advisor was entitled to receive an acquisition fee for its services in connection with the investigation, selection, sourcing, due diligence and acquisition of a property or investment. For 2013 and subsequent, the acquisition fee was 2.50% of the purchase price. The purchase price of a property or investment was equal to the amount paid or allocated to the purchase, development, construction or improvement of a property, inclusive of expenses related thereto, and the amount of debt associated with such real property or investment. The purchase price allocable for joint venture investments was equal to the product of (1) the purchase price of the underlying property and (2) the Company’s ownership percentage in the joint venture.

The Former Advisor was also entitled to receive a financing fee for any loan or line of credit, made available to the Company. The Former Advisor was entitled to re-allow some, or all, of this fee to reimburse third parties with whom it subcontracted to procure such financing for the Company. On October 21, 2013, the Company amended its Advisory Agreement to decrease the financing fee from 1.0% to 0.25% of any loan made to the Company. In addition, to the extent the Former Advisor provided a substantial amount of services in connection with the disposition of one or more of our properties or investments (except for securities traded on a national securities exchange), the Former Advisor would receive fees equal to the lesser of (A) 1.5% of the sales price of each property or other investment sold or (B) 50% of the selling commission that would have been paid to a third-party broker in connection with such a disposition. In no event were disposition fees paid to the Former Advisor or its affiliates and unaffiliated third parties to exceed, in the aggregate, 6% of the contract sales price. On October 21, 2013, the Company amended its Advisory Agreement to change the disposition fee to only 1.5% of the sales price of each property or other investment sold, such that the disposition fee was no longer determined based on selling commissions payable to third-party sales brokers.

In addition to the fees payable to the Former Advisor, the Company reimbursed the Former Advisor for all reasonable expenses incurred in connection with services provided to the Company, subject to the limitation that it would not reimburse any amount that would cause the Company’s total operating expenses at the end of the four preceding fiscal quarters to exceed the greater of 2% of our average invested assets or 25% of its net income determined (1) without reductions for any additions to reserves for depreciation, bad debts or other similar non-cash reserves and (2) excluding any gain from the sale of our assets for the period. Notwithstanding the above, the Company was permitted to reimburse amounts in excess of the limitation if a majority of its independent directors determined such excess amount was justified based on unusual and non-recurring factors. If such excess expenses were not approved by a majority of the Company’s independent directors, the Former Advisor was required to reimburse us at the end of the four fiscal quarters the amount by which the aggregate expenses during the period paid or incurred by us exceeded the limitations provided above. The Company was not permitted to reimburse the Former Advisor for personnel costs in connection with services for which the Former Advisor received acquisition, asset management or disposition fees. Due to the limitation discussed above and because operating expenses incurred directly by the Company exceeded the 2% threshold, the Board, including all of its independent directors, reviewed the total operating expenses for the four fiscal quarters ended December 31, 2013 and the Company’s total operating expenses for the four fiscal quarters ended March 31, 2014 and unanimously determined the excess amounts to be justified because of the costs of operating a public company in its early stage of operation and the Company’s initial difficulties with raising capital were considered to be non-recurring in nature. As the Board has previously approved such expenses, all operating expenses for the year ended 2013 and the three months ended March 31, 2014 have been expensed as incurred.

BLUEROCK RESIDENTIAL GROWTH REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Company had issued 1,000 shares of convertible stock, par value $0.01 per share, to the Former Advisor, pursuant to the Advisory Agreement, that upon completion of the IPO were convertible to shares of common stock if and when: (A) the Company had made total distributions on the then outstanding shares of its common stock equal to the original issue price of those shares plus an 8% cumulative, non-compounded, annual return on the original issue price of those shares or (B) subject to specified conditions, the Company listed its common stock for trading on a national securities exchange. We listed shares of our Class A common stock on the NYSE MKT on March 28, 2014. At that time, the terms for converting the convertible stock would not be achieved and so we amended our charter on March 26, 2014 to remove the convertible stock as an authorized class of our capital stock.

In general, under the Advisory Agreement, the Company contracted property management services for certain properties directly to non-affiliated third parties, in which event it was to pay the Former Advisor an oversight fee equal to 1% of monthly gross revenues of such properties.

All of the Company’s executive officers, and some of its directors, are also executive officers, managers and/or holders of a direct or indirect controlling interest in the Manager and other Bluerock-affiliated entities. As a result, they owe fiduciary duties to each of these entities, their members, limited partners and investors, which fiduciary duties may from time to time conflict with the fiduciary duties that they owe to the Company and its stockholders.

Some of the material conflicts that the Manager or its affiliates face are: 1) the determination of whether an investment opportunity should be recommended to us or another Bluerock-sponsored program or Bluerock-advised investor; 2) the allocation of the time of key executive officers, directors, and other real estate professionals among the Company, other Bluerock-sponsored programs and Bluerock-advised investors, and the activities in which they are involved; and 3) the fees received by the Manager and its affiliates.

Pursuant to the terms of the Advisory Agreement and the Management Agreement, summarized below are the related party amounts payable to our Former Advisor and the Manager, as of September 30, 2015 and December 31, 2014 (in thousands):

	September 30, 2015		December 31, 2014
Amounts Payable to the Former Advisor under our Prior and Terminated Advisory Agreement
Asset management and oversight fees	$	-	$	404
Acquisition fees and disposition fees		-		740
Financing fees		-		36
Total payable to the Former Advisor		-		1,180

Amounts Payable to the Manager under the New Management Agreement
Base management fee		896		310
Incentive fee		-		146
Other		143		7
Total payable to the Manager		1,039		463
Total amounts payable to Former Advisor and Manager	$	1,039	$	1,643

The Former Advisor was entitled to the payment of certain fees in compensation for advisory and general management services rendered thereunder for periods prior to the Company’s initial public offering on April 2, 2014, and reimbursements for certain costs and expenses incurred in connection with the provision thereof, in an aggregate amount of $1.18 million. Effective on September 4, 2015, the Former Advisor and Manager entered into an Assignment Agreement pursuant to which the Former Advisor assigned its right to payment of the obligation due to the Former Advisor to the Manager. The Manager agreed to receive the payment entirely in LTIP Units of the Operating Partnership. The obligation was paid by the number of LTIP Units equal to (i) the dollar amount of the obligation payable in such LTIP Units (calculated as $1.18 million), divided by (ii) the average of the closing prices of the Company’s Class A Common Stock, $0.01 par value per share, on the NYSE MKT on the five business days prior to the issuance date. The payment was made through the issuance of 108,119 LTIP Units by the Operating Partnership to the Manager on the September 14, 2015. The LTIP Units were fully vested upon issuance, and may convert to OP Units upon reaching capital account equivalency with the OP Units held by the Company, and may then be settled in shares of the Company’s Class A common stock. The Manager will be entitled to receive “distribution equivalents” with respect to the LTIP Units at the same time distributions are paid to the holders of the Company’s Class A common stock.

BLUEROCK RESIDENTIAL GROWTH REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

As of September 30, 2015 and December 31, 2014, we had $0.6 million and $0.3 million, respectively, in payables due to related parties other than our Manager and Former Advisor.

As of September 30, 2015 and December 31, 2014, we had $0.9 million and $0.6 million, respectively, in receivables due to us from related parties other than our Manager and Former Advisor.

Bluerock Property Management, LLC

The Company incurred $0.05 million and $0.14 million in property management fees to Bluerock Property Management, LLC, an affiliate of Bluerock, on behalf of the North Park Towers property during the three and nine months ended September 30, 2015.

Note 11 – Stockholders’ Equity

Net Income (Loss) Per Common Share

Basic net income (loss) per common share is computed by dividing net income (loss) attributable to common stockholders, less dividends on restricted stock expected to vest plus gains on redemptions on common stock, by the weighted average number of common shares outstanding for the period. Diluted net income (loss) per common share is computed by dividing net income (loss) attributable to common stockholders by the sum of the weighted average number of common shares outstanding and any potential dilutive shares for the period. Net income (loss) attributable to common stockholders is computed by adjusting net income (loss) for the non-forfeitable dividends paid on non-vested restricted stock.

The Company considers the requirements of the two-class method when preparing earnings per share. Earnings per share is not affected by the two-class method because the Company’s Class A, B-1, B-2 and B-3 common stock and LTIP Units participate in dividends on a one-for-one basis.

The following table reconciles the components of basic and diluted net (loss) income per common share (amounts in thousands, except share and per share amounts):

	Three Months Ended September 30,						Nine Months Ended September 30,
	2015			2014			2015			2014
Net (loss) income from continuing operations attributable to common stockholders	$	(574	)	$	(2,261	)		2,157		$	(7,853	)
Dividends on restricted stock expected to vest		(4	)		(1	)		(12	)		(6	)
Basic net (loss) income from continuing operations attributable to common stockholders	$	(578	)	$	(2,262	)	$	2,145		$	(7,859	)
Basic net (loss) income from discontinued operations attributable to common stockholders	$	-		$	114		$	-		$	123

Weighted average common shares outstanding⁽¹⁾		20,166,384			5,877,417			16,383,736			4,269,378

Potential dilutive shares⁽²⁾		—			—			12,302			—
Weighted average common shares outstanding and potential dilutive shares⁽¹⁾		20,166,384			5,877,417			16,396,038			4,269,378

(Loss) income per common share, basic
Continuing operations	$	(0.03	)	$	(0.38	)	$	0.13		$	(1.84	)
Discontinued operations	$	-		$	0.02		$	-		$	0.03
	$	(0.03	)	$	(0.36	)	$	0.13		$	(1.81	)

(Loss) income per common share, diluted
Continuing operations	$	(0.03	)	$	(0.38	)	$	0.13		$	(1.84	)
Discontinued operations	$	-		$	0.02		$	-		$	0.03
	$	(0.03	)	$	(0.36	)	$	0.13		$	(1.81	)

The number of shares and per share amounts for the prior period have been retroactively restated to reflect the two reverse stock splits of the Class B common stock discussed below.

The effect of the conversion of OP Units is not reflected in the computation of basic and diluted earnings per share, as they are exchangeable for Class A Common Stock on a one-for-one basis. The income allocable to such units is allocated on this same basis and reflected as noncontrolling interests in the accompanying consolidated financial statements. As such, the assumed conversion of these units would have no net impact on the determination of diluted earnings per share.

BLUEROCK RESIDENTIAL GROWTH REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

⁽¹⁾

For 2015, amounts relate to shares of the Company’s Class A, B-1, B-2, B-3 common stock and LTIP Units outstanding. For 2014, amounts relate to shares of Class A, B-1, B-2 and B-3 common stock, common shares and LTIP Units outstanding.

⁽²⁾

Excludes 15,272 shares of common stock, for the three months ended September 30, 2015 and 4,794 and 5,726 shares of common stock, for the three and nine months ended September 30, 2014, related to non-vested restricted stock, as the effect would be anti-dilutive.

Class B Common Stock

On January 23, 2014, the Company's stockholders approved the second articles of amendment and restatement to our charter (the “Second Charter Amendment”), that provided, among other things, for the designation of a new share class of Class A common stock, and for the change of each existing outstanding share of our common stock into:

•

1/3 of a share of our Class B-1 common stock; plus

•

1/3 of a share of our Class B-2 common stock; plus

•

1/3 of a share of our Class B-3 common stock.

This transaction was effective upon filing the Second Charter Amendment with the State Department of Assessments and Taxation of the State of Maryland on March 26, 2014. Immediately following the filing of the Second Charter Amendment, we effectuated a 2.264881 to 1 reverse stock split of our outstanding shares of Class B-1 common stock, Class B-2 common stock and Class B-3 common stock, and on March 31, 2014, we effected an additional 1.0045878 to 1 reverse stock split of our outstanding shares of Class B-1 common stock, Class B-2 common stock and Class B-3 common stock.

The Company refers to Class B-1 common stock, Class B-2 common stock and Class B-3 common stock collectively as “Class B” common stock. We listed our Class A common stock on the NYSE MKT on March 28, 2014. Our Class B common stock is identical to our Class A common stock, except that (i) we do not intend to list our Class B common stock on a national securities exchange, and (ii) shares of our Class B common stock convert automatically into shares of Class A common stock at specified times, as follows:

•

March 23, 2015, in the case of our Class B-1 common stock;

•

September 19, 2015, in the case of our Class B-2 common stock; and

•

March 17, 2016, in the case of our Class B-3 common stock.

On March 23, 2015, 353,630 shares of Class B-1 common stock converted into Class A common stock in accordance with the above, and no Class B-1 common stock remains outstanding. On September 19, 2015, 353,630 shares of Class B-2 common stock converted into Class A common stock in accordance with the above, and no Class B-2 common stock remains outstanding.

Follow-On Equity Offerings

On January 20, 2015, the Company closed its January 2015 Follow-On Offering of 4,600,000 shares of its Class A common stock, par value $0.01 per share, inclusive of shares sold pursuant to the full exercise of the overallotment option by the underwriters. The shares were registered with the SEC pursuant to a registration statement on Form S-3 (File No. 333-200359) filed with the SEC on November 19, 2014 and declared effective on December 19, 2014. The public offering price of $12.50 per share was announced on January 14, 2015. Net proceeds of the January 2015 Follow-On Offering were approximately $53.7 million after deducting underwriting discounts and commissions and estimated offering expenses.

Operating Partnership and Long-Term Incentive Plan Units

On April 2, 2014, concurrently with the completion of the IPO, the Company entered into the Second Amended and Restated Agreement of Limited Partnership of its Operating Partnership, Bluerock Residential Holdings, L.P. Pursuant to the amendment, the Company is the sole general partner of the Operating Partnership and may not be removed as general partner by the limited partners with or without cause. The limited partners of the Operating Partnership are Bluerock REIT Holdings, LLC, BR-NPT Springing Entity, LLC (“NPT”), Bluerock Property Management, LLC (“BPM”), our Manager, and Bluerock Multifamily Advisor, LLC (the “Former Advisor”), all of which are affiliates of Bluerock.

BLUEROCK RESIDENTIAL GROWTH REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Prior to the completion of the IPO, the Company owned, directly and indirectly, 100% of the limited partnership units in the Operating Partnership. Effective as of the completion of the IPO, limited partners other than the Company owned approximately 9.87% of the Operating Partnership (282,759 OP Units, or 4.59%, were held by OP Unit holders, and 325,578 LTIP Units, or 5.28%, were held by LTIP Unit holders.) As of September 30, 2015, limited partners other than the Company owned approximately 5.50% of the Operating Partnership (282,759 OP Units, or 1.40%, is held by OP Unit holders, and 854,897 LTIP Units, or 4.10%, is held by LTIP Unit holders.)

The Partnership Agreement, as amended, provides, among other things, that the Operating Partnership initially has two classes of limited partnership interests, which are units of limited partnership interest (“OP Units”), and the Operating Partnership’s long-term incentive plan units (“LTIP Units”). In calculating the percentage interests of the partners in the Operating Partnership, LTIP Units are treated as OP Units. In general, LTIP Units will receive the same per-unit distributions as the OP Units. Initially, each LTIP Unit will have a capital account balance of zero and, therefore, will not have full parity with OP Units with respect to any liquidating distributions. However, the Partnership Agreement Amendment provides that “book gain,” or economic appreciation, in the Company’s assets realized by the Operating Partnership as a result of the actual sale of all or substantially all of the Operating Partnership’s assets, or the revaluation of the Operating Partnership’s assets as provided by applicable U.S. Department of Treasury regulations, will be allocated first to the holders of LTIP Units until their capital account per unit is equal to the average capital account per-unit of the Company’s OP Unit holders in the Operating Partnership. We expect that the Operating Partnership will issue OP Units to limited partners, and the Company, in exchange for capital contributions of cash or property, and will issue LTIP Units pursuant to the Company’s 2014 Equity Incentive Plan for Individuals and 2014 Equity Incentive Plan for Entities (collectively, the “Incentive Plans”), to persons who provide services to the Company, including the Company’s officers, directors and employees.

Pursuant to the Partnership Agreement, as amended, any holders of OP Units, other than the Company or its subsidiaries, will receive redemption rights which, subject to certain restrictions and limitations, will enable them to cause the Operating Partnership to redeem their OP Units in exchange for cash or, at the Company’s option, shares of the Company’s Class A common stock, on a one-for-one basis. The Company has agreed to file, not earlier than one year after the closing of the IPO, one or more registration statements registering the issuance or resale of shares of its Class A common stock issuable upon redemption of the OP Units issued upon conversion of LTIP Units, which include those issued to the Manager and the Former Advisor. Subject to certain exceptions, the Operating Partnership will pay all expenses in connection with the exercise of registration rights under the Partnership Agreement.

Equity Incentive Plans

Prior to the Company’s IPO on April 2, 2014, the Company’s independent directors received an automatic grant of 5,000 shares of restricted stock on the initial effective date of the continuous registered offering and received an automatic grant of 2,500 shares of restricted stock when such directors were re-elected at each annual meeting of the Company’s stockholders thereafter through the 2013 annual meeting held on August 5, 2013. The restricted stock vested 20% at the time of the grant and 20% on each anniversary thereafter over four years from the date of the grant. All shares of restricted stock granted to the independent directors receive distributions, whether vested or unvested. The value of the restricted stock granted was determined at the date of grant. Commencing with the Company’s IPO, the Company’s independent directors will no longer receive automatic grants upon appointment or reelection at each annual meeting of the Company’s stockholders.

On March 24, 2015, in accordance with the Company’s 2014 Equity Incentive Plan for Individuals (the “2014 Individuals Plan”), the Board authorized and each of the Company’s independent directors received two grants of 2,500 restricted shares of the Company’s Class A common stock. The first grant of 2,500 restricted shares related to services rendered in 2014 (each, a “2014 Restricted Stock Award”), while the second grant of 2,500 restricted shares relates to services rendered or to be rendered in 2015 (each, a “2015 Restricted Stock Award”). The vesting schedule for each 2014 Restricted Stock Award is as follows: (i) 834 shares as of March 24, 2015, (ii) 833 shares on March 24, 2016, and (iii) 833 shares on March 24, 2017. The vesting schedule for each 2015 Restricted Stock Award is as follows: (i) 834 shares as of March 24, 2016, (ii) 833 shares on March 24, 2017, and (iii) 833 shares on March 24, 2018.

On May 28, 2015, the Company’s stockholders approved the amendment and restatement of the 2014 Individuals Plan, or the Amended Individuals Plan, and the 2014 Entities Plan, or the Amended Entities Plan (and together with the Amended Individuals Plan, the Amended 2014 Incentive Plans). The Amended 2014 Incentive Plans allow for the issuance of up to 475,000 shares of Class A common stock. The Amended 2014 Incentive Plans provide for the grant of options to purchase shares of the Company’s common stock, stock awards, stock appreciation rights, performance units, incentive awards and other equity-based awards.

A summary of the status of the Company’s non-vested shares as of September 30, 2015 is as follows (amounts in thousands, except share amounts):

Non-Vested shares	Shares⁽¹⁾			Weighted average grant-date fair value⁽¹⁾
Balance at January 1, 2015		3,956		$	90
Granted		15,000			197
Vested		(4,480	)		(78	)
Forfeited		—			—
Balance at September 30, 2015		14,476		$	209

⁽¹⁾ The number of shares and per share amounts for the prior period have been retroactively restated to reflect the two reverse stock splits of the Class B common stock discussed above.

BLUEROCK RESIDENTIAL GROWTH REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

At September 30, 2015, there was $0.17 million of total unrecognized compensation cost related to unvested restricted stocks granted under the independent director compensation plan. The original cost is expected to be recognized over a period of 2.4 years.

The Company currently uses authorized and unissued shares to satisfy share award grants.

Equity Incentive Plans - LTIP Grants

LTIP Unit activity

A summary of the activity in the Company’s LTIP Units as of September 30, 2015 is as follows:

LTIP Units	Date of Issuance	Number of LTIP Units
Balance at January 1, 2015			325,578
Fourth quarter 2014 Incentive Fee	2/18/2015		10,896
First quarter 2015 Incentive Fee	5/14/2015		67,837
Equity Incentive Plan Manager Incentive Grant	7/2/2015		283,390
Second quarter 2015 Base Management Fee	8/13/2015		59,077
Former Advisor Obligation	9/14/2015		108,119
Balance at September 30, 2015			854,897

Distributions

On October 10, 2014, the Board declared monthly dividends for the fourth quarter of 2014 equal to a quarterly rate of $0.29 per share on both the Company’s Class A common stock and Class B common stock, payable monthly to the stockholders of record as of October 25, 2014, November 25, 2014 and December 25, 2014, which was paid in cash on November 5, 2014, December 5, 2014 and January 5, 2015, respectively.

The declared dividends equal a monthly dividend on the Class A common stock and Class B common stock as follows: $0.096666 per share for the dividend paid to stockholders of record as of October 25, 2014, and $0.096667 per share for the dividend paid to stockholders of record as of November 25, 2014, and December 25, 2014.

On January 9, 2015, the Board declared monthly dividends for the first quarter of 2015 equal to a quarterly rate of $0.29 per share on both the Company’s Class A common stock and Class B common stock, payable monthly to the stockholders of record as of January 25, 2015, February 25, 2015 and March 25, 2015, which was paid in cash on February 5, 2015, March 5, 2015 and April 5, 2015, respectively.

The declared dividends equal a monthly dividend on the Class A common stock and Class B common stock as follows: $0.096666 per share for the dividend paid to stockholders of record as of January 25, 2015, and $0.096667 per share for the dividend paid to stockholders of record as of February 25, 2015, and March 25, 2015.

On April 10, 2015, the Board declared monthly dividends for the second quarter of 2015 equal to a quarterly rate of $0.29 per share on both the Company’s Class A common stock and Class B common stock, payable monthly to the stockholders of record as of April 25, 2015, May 25, 2015 and June 25, 2015, which was paid in cash on May 5, 2015, June 5, 2015 and July 2, 2015, respectively.

The declared dividends equal a monthly dividend on the Class A common stock and Class B common stock as follows: $0.096666 per share for the dividend paid to stockholders of record as of April 25, 2015, and $0.096667 per share for the dividend paid to stockholders of record as of May 25, 2015, and June 25, 2015.

BLUEROCK RESIDENTIAL GROWTH REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

On July 10, 2015, the Board declared monthly dividends for the third quarter of 2015 equal to a quarterly rate of $0.29 per share on both the Company’s Class A common stock and Class B common stock, payable monthly to the stockholders of record as of July 25, 2015, August 25, 2015 and September 25, 2015, which was paid in cash on August 5, 2015, September 4, 2015 and October 5, 2015, respectively.

The declared dividends equal a monthly dividend on the Class A common stock and Class B common stock as follows: $0.096667 per share for the dividend paid to stockholders of record as of July 25, 2015, and as of August 25, 2015, and $0.096666 per share for the dividend paid to stockholders of record as of September 25, 2015.

A portion of each dividend may constitute a return of capital for tax purposes. There is no assurance that the Company will continue to declare dividends or at this rate.

Holders of OP and LTIP Units are entitled to receive "distribution equivalents" at the same time as dividends are paid to holders of the Company's Class A common stock.

The Company has a dividend reinvestment plan that allows for participating stockholders to have their dividend distributions automatically invested in additional Class A common shares based on the average price of the shares on the investment date. The Company plans to issue Class A common shares to cover shares required for investment.

Distributions declared and paid for the three and nine months ended September 30, 2015 were as follows (amounts in thousands):

	Distributions
2015	Declared		Paid
First Quarter
Class A Common Stock	$	3,554	$	3,073
Class B-1 Common Stock		68		103
Class B-2 Common Stock		103		103
Class B-3 Common Stock		103		103
OP Units		82		82
LTIP Units		96		96
Total first quarter 2015	$	4,006	$	3,560
Second Quarter
Class A Common Stock	$	4,852	$	4,236
Class B-2 Common Stock		103		103
Class B-3 Common Stock		103		103
OP Units		82		82
LTIP Units		110		104
Total second quarter 2015	$	5,250	$	4,628
Third Quarter
Class A Common Stock	$	5,500	$	5,465
Class B-2 Common Stock		68		103
Class B-3 Common Stock		103		103
OP Units		82		82
LTIP Units		221		178
Total third quarter 2015	$	5,974	$	5,931
Total nine months ended September 30, 2015	$	15,230	$	14,119

Note 12 – Commitments and Contingencies

The Company is subject to various legal actions and claims arising in the ordinary course of business. Although the outcome of any legal matter cannot be predicted with certainty, management does not believe that any of these legal proceedings or matters will have a material adverse effect on the consolidated financial position or results of operations or liquidity of the Company.

Note 13 – Economic Dependency

The Company is dependent on its Manager, an affiliate of Bluerock, to provide external management services for certain services that are essential to the Company, including the identification, evaluation, negotiation, purchase and disposition of properties and other investments; management of the daily operations of its real estate portfolio; and other general and administrative responsibilities. In the event that the Manager or its affiliates are unable to provide the respective services, the Company will be required to obtain such services from other sources.

BLUEROCK RESIDENTIAL GROWTH REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 14 – Subsequent Events

Declaration of Dividends

On October 7, 2015, the Board declared monthly dividends for the fourth quarter of 2015 equal to a quarterly rate of $0.29 per share on the Company’s Class A common stock and $0.29 per share on the Company’s Class B common stock, payable monthly to the stockholders of record as of October 25, 2015, November 25, 2015 and December 25, 2015, which will be paid in cash on November 5, 2015, December 5, 2015 and January 5, 2016, respectively. Holders of OP and LTIP Units are entitled to receive "distribution equivalents" at the same time as dividends are paid to holders of the Company's 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 October 25, 2015, $0.096667 per share for the dividend paid to stockholders of record as of November 25, 2015, and $0.096667 per share for the dividend paid to stockholders of record as of December 25, 2015. A portion of each dividend may constitute a return of capital for tax purposes. There is no assurance that the Company will continue to declare dividends or at this rate.

Distributions Paid

The following distributions were paid to the Company's holders of Class A, Class B-3 common stock as well as holders of OP and LTIP Units subsequent to September 30, 2015 (amounts in thousands):

Shares	Declaration Date	Record Date	Date Paid	Distributions per Share		Total Distribution
Class A Common Stock	July 10, 2015	September 25, 2015	October 5, 2015	$	0.096666	$	1,856
Class B-3 Common Stock	July 10, 2015	September 25, 2015	October 5, 2015	$	0.096666	$	34
OP Units	July 10, 2015	September 25, 2015	October 5, 2015	$	0.096666	$	27
LTIP Units	July 10, 2015	September 25, 2015	October 5, 2015	$	0.096666	$	83

Class A Common Stock	October 7, 2015	October 25, 2015	November 5, 2015	$	0.096666	$	1,856
Class B-3 Common Stock	October 7, 2015	October 25, 2015	November 5, 2015	$	0.096666	$	34
OP Units	October 7, 2015	October 25, 2015	November 5, 2015	$	0.096666	$	27
LTIP Units	October 7, 2015	October 25, 2015	November 5, 2015	$	0.096666	$	83
Total						$	4,000

October 2015 8.250% Series A Cumulative Redeemable Preferred Stock Offering

On October 21, 2015, the Company closed its October 2015 underwritten offering of 2,875,000 shares of 8.250% Series A Cumulative Redeemable Preferred Stock, par value $0.01 per share, liquidation preference $25.00 per share, inclusive of shares sold pursuant to the full exercise of the overallotment option by the underwriters (the “October 2015 Preferred Stock Offering”). The shares were registered with the SEC pursuant to a registration statement on Form S-3 (File No. 333-200359) filed with the SEC on November 19, 2014 and declared effective on December 19, 2014. The public offering price of $25.00 per share was announced on October 16, 2015. Net proceeds of the October 2015 Preferred Stock Offering were approximately $69.2 million after deducting underwriting discounts and commissions and estimated offering costs.

Sale of North Park Towers

On October 16, 2015, the Company closed on the sale of the North Park Towers property, located in Southfield, Michigan. The 100% owned property was sold for approximately $18.2 million, subject to certain prorations and adjustments typical in such real estate transactions. After deduction for payment of the existing mortgage indebtedness encumbering the North Park Towers property in the amount of $11.5 million and payment of closing costs and fees, the sale of the property generated net proceeds for the Company of approximately $6.6 million.

Acquisition of Phillips Creek and Sovereign Apartments

On October 29, 2015, the Company, through subsidiaries of its Operating Partnership, completed investments of approximately $17.7 million and approximately $15.2 million in a multi-tiered joint venture along with an affiliate of Carroll Organization, to acquire (i) a 352-unit Class A apartment community located in Frisco, Texas known as the Sorrel Phillips Creek Ranch Apartments (the “Phillips Creek Property”) and (ii) a 322-unit Class A apartment community located in Fort Worth, Texas known as The Sovereign Apartments (the “Sovereign Property”), respectively. The Company’s indirect ownership interest in the joint venture that owns the Phillips Creek Property and the Sovereign Property is 95.0%.

The Phillips Creek Property’s purchase price of approximately $55.3 million was funded, in part, with a $38.7 million senior mortgage loan secured by the Phillips Creek Property and improvements (the “Phillips Creek Loan”). The Phillips Creek Loan matures May 1, 2023, bears interest on a floating basis based on LIBOR plus 2.29%, and requires interest only payments for the first 48 months. The Phillips Creek Loan can be prepaid after the first 18 months with a 1% make whole premium through and including January 31, 2023, and thereafter at par. The Company provided certain standard scope non-recourse carveout guaranties in conjunction with the Phillips Creek Loan.

The Sovereign Property’s purchase price of approximately $44.4 million was funded, in part, with a $28.9 million senior mortgage loan secured by the Sovereign Property and improvements (the “Sovereign Loan”). The Sovereign Loan matures November 10, 2022 and bears interest at a fixed rate of 3.46%. The Sovereign Loan can be prepaid at any time, subject to certain prepayment fees. The Company provided certain standard non-recourse carveout guaranties in conjunction with the Sovereign Loan.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis should be read in conjunction with the accompanying consolidated financial statements of Bluerock Residential Growth REIT, Inc., and the notes thereto. As used herein, the terms “we,” “our” and “us” refer to Bluerock Residential Growth REIT, Inc., a Maryland corporation, and, as required by context, Bluerock Residential Holdings, L.P., a Delaware limited partnership, which we refer to as our “Operating Partnership,” and to their subsidiaries. We refer to Bluerock Real Estate, L.L.C., a Delaware limited liability company, as “Bluerock”, and we refer to our external manager, BRG Manager, LLC, a Delaware limited liability company, as our “Manager.” Both Bluerock and our Manager are affiliated with the Company.

Forward-Looking Statements

Statements included in this Quarterly Report on Form 10-Q that are not historical facts (including any statements concerning investment objectives, other plans and objectives of management for future operations or economic performance, or assumptions or forecasts related thereto) are “forward-looking statements,” within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are only predictions. We caution that forward-looking statements are not guarantees. Actual events or our investments and results of operations could differ materially from those expressed or implied in any forward-looking statements. Forward-looking statements are typically identified by the use of terms such as “may,” “should,” “expect,” “could,” “intend,” “plan,” “anticipate,” “estimate,” “believe,” “continue,” “predict,” “potential” or the negative of such terms and other comparable terminology.

The forward-looking statements included herein are based upon our current expectations, plans, estimates, assumptions and beliefs that involve numerous risks and uncertainties. Assumptions relating to the foregoing involve judgments with respect to, among other things, future economic, competitive and market conditions and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond our control. Although we believe that the expectations reflected in such forward-looking statements are based on reasonable assumptions, our actual results and performance could differ materially from those set forth in the forward-looking statements. Factors that could have a material adverse effect on our operations and future prospects include, but are not limited to:

	•	the factors included in this Quarterly Report on Form 10-Q, including those set forth under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations”;

	•	use of proceeds of the Company’s equity offerings;

	•	the competitive environment in which we operate;

	•	real estate risks, including fluctuations in real estate values and the general economic climate in local markets and competition for tenants in such markets;

	•	risks associated with geographic concentration of our investments;

	•	decreased rental rates or increasing vacancy rates;

	•	our ability to lease units in newly acquired or newly constructed apartment properties;

	•	potential defaults on or non-renewal of leases by tenants;

	•	creditworthiness of tenants;

	•	our ability to obtain financing for and complete acquisitions under contract;

	•	development and acquisition risks, including failure of such acquisitions and developments to perform in accordance with projections;

	•	the timing of acquisitions and dispositions;

	•	the performance of the Bluerock strategic partners in our joint venture investments;

	•	potential natural disasters such as hurricanes, tornadoes and floods;

	•	national, international, regional and local economic conditions;

	•	our ability to pay future distributions;

	•	the general level of interest rates;

	•	potential changes in the law or governmental regulations that affect us and interpretations of those laws and regulations, including changes in real estate and zoning or tax laws, and potential increases in real property tax rates;

	•	financing risks, including the risks that our cash flows from operations may be insufficient to meet required payments of principal and interest and we may be unable to refinance our existing debt upon maturity or obtain new financing on attractive terms or at all;

	•	lack of or insufficient amounts of insurance;

	•	our ability to maintain our qualification as a REIT;

	•	litigation, including costs associated with prosecuting or defending claims and any adverse outcomes; and

	•	possible environmental liabilities, including costs, fines or penalties that may be incurred due to necessary remediation of contamination of properties presently owned or previously owned by us or a subsidiary owned by us or acquired by us.

Any of the assumptions underlying forward-looking statements could be inaccurate. You are cautioned not to place undue reliance on any forward-looking statements included in this report. All forward-looking statements are made as of the date of this report and the risk that actual results will differ materially from the expectations expressed in this report will increase with the passage of time. Except as otherwise required by the federal securities laws, we undertake no obligation to publicly update or revise any forward-looking statements after the date of this report, whether as a result of new information, future events, changed circumstances or any other reason. The forward-looking statements should be read in light of the risk factors set forth in Item 1A of our Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on March 4, 2015, and subsequent filings by us with the SEC.

Overview

We were incorporated as a Maryland corporation on July 25, 2008. Our 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. We seek to maximize returns through investments where we believe we can drive substantial growth in our funds from operations, adjusted funds from operations and net asset value through one or more of our Core-Plus, Value-Add, Opportunistic and Invest-to-Own investment strategies.

We are externally managed by our Manager, an affiliate of Bluerock. We conduct our operations through Bluerock Residential Holdings, L.P., our operating partnership (the “Operating Partnership”), of which we are the sole general partner. The consolidated financial statements include our accounts and those of the Operating Partnership and its subsidiaries.

As of September 30, 2015, our portfolio consisted of interests in sixteen properties (thirteen operating properties and three development properties). The sixteen properties contain an aggregate of 4,991 units, comprised of 4,097 operating units and 894 units under development. As of September 30, 2015, these properties, exclusive of our development properties, and Whetstone and EOS, the lease-up properties, were approximately 95% occupied.

We have elected to be taxed as a REIT under Sections 856 through 860 of the Code and have qualified as a REIT commencing with our taxable year ended December 31, 2010. In order to continue to qualify as a REIT, we must distribute to our stockholders each calendar year at least 90% of our taxable income (excluding net capital gains). If we qualify as a REIT for federal income tax purposes, we generally will not be subject to federal income tax on income that we distribute to our stockholders. If we fail to qualify as a REIT in any taxable year, we will be subject to federal income tax on our taxable income at regular corporate rates and will not be permitted to qualify as a REIT for four years following the year in which our qualification is denied. Such an event could materially and adversely affect our net income and results of operations. We intend to continue to organize and operate in such a manner as to remain qualified as a REIT.

Our IPO, Contribution Transactions and Follow-On Offerings

We raised capital in a continuous registered offering, carried out in a manner consistent with offerings of non-listed REITs, from our inception until September 9, 2013, when we terminated the continuous registered offering in connection with the Board’s consideration of strategic alternatives to maximize value to our stockholders. We subsequently determined to register shares of newly authorized Class A common stock that were to be offered in a firmly underwritten public offering (the “IPO”), by filing a registration statement on Form S-11 (File No. 333-192610) with the SEC, on November 27, 2013. On March 28, 2014, the SEC declared the registration statement effective and we announced the pricing of the IPO of 3,448,276 shares of Class A common stock at a public offering price of $14.50 per share for total gross proceeds of $50.0 million. The net proceeds of the IPO were approximately $44.0 million after deducting underwriting discounts and commissions and estimated offering costs.

In connection with the IPO, shares of our Class A common stock were listed on the NYSE MKT for trading under the symbol “BRG.” Pursuant to the second articles of amendment and restatement to our charter filed on March 26, 2014 (the “Second Charter Amendment”), each share of our common stock outstanding immediately prior to the listing, including shares sold in our Prior Public Offering and our Follow On Offering, was changed into one-third of a share of each of Class B-1 common stock, Class B-2 common stock and Class B-3 common stock. Following the filing of the Second Charter Amendment, we effected a 2.264881-to-1 reverse stock split of our outstanding shares of Class B-1 common stock, Class B-2 common stock and Class B-3 common stock, and on March 31, 2014, we effected an additional 1.0045878-to-1 reverse stock split of our outstanding shares of Class B-1 common stock, Class B-2 common stock and Class B-3 common stock.

Substantially concurrently with the completion of the IPO, we completed a series of related contribution transactions pursuant to which we acquired indirect equity interests in four apartment properties, and a 100% fee simple interest in a fifth apartment property for an aggregate asset value of $152.3 million (inclusive of the Villas at Oak Crest, which is accounted for under the equity method, and Springhouse, in which we already owned an interest and which has been reported as consolidated for the periods presented). As holders of shares of our Class A common stock issued in our contribution transactions in connection with our IPO, Fund II and Fund III and their respective managers have certain registration rights covering the resale of their shares of Class A common stock. In addition, BR-NPT Springing Entity, LLC (“NPT”) and Bluerock Property Management, LLC, the property manager of North Park Towers (“BPM”), as holders of OP Units issued in our contribution transactions, and our Manager and our former advisor, as holders of LTIP Units, have certain registration rights covering the resale of shares of our Class A common stock issued or issuable, at our option, in exchange for OP Units, including OP Units into which LTIP Units may be converted. Fund II, Fund III and their respective managers have agreed not to require us to file a registration statement with respect to the resale of their shares of Class A common stock until January 4, 2016. In addition, NPT and BPM, and our Manager and our Former Advisor, have agreed not to require us to file a registration statement with respect to the resale of their shares of our Class A common stock issued or issuable, at our option, in exchange for OP Units, including OP Units into which LTIP Units may be converted, until January 4, 2016.

In October 2014, we completed an underwritten follow-on offering (the “October 2014 Follow-On Offering”), of 3,035,444 shares of Class A common stock, inclusive of shares sold pursuant to the full exercise of the overallotment option by the underwriters, on October 8, 2014. Net proceeds of the October 2014 Follow-On Offering were approximately $32.9 million after deducting underwriting discounts and commissions and estimated offering costs.

On January 20, 2015, we completed an underwritten shelf takedown offering (the “January 2015 Follow-On Offering”) of 4,600,000 shares of Class A common stock, inclusive of shares sold pursuant to the full exercise of the overallotment option by the underwriters, on January 20, 2015. The shares were registered with the SEC pursuant to a registration statement on Form S-3 (File No. 333-200359) filed with the SEC on November 19, 2014 and declared effective on December 19, 2014. Net proceeds of the January 2015 Follow-On Offering were approximately $53.7 million after deducting underwriting discounts and commissions and offering costs.

On May 22, 2015, we completed an underwritten shelf takedown offering (the “May 2015 Follow-On Offering”) of 6,348,000 shares of Class A common stock, par value $0.01 per share, inclusive of shares sold pursuant to the full exercise of the overallotment option by the underwriters. The shares were registered with the SEC pursuant to a registration statement on Form S-3 (File No. 333-200359) filed with the SEC on November 19, 2014 and declared effective on December 19, 2014. The public offering price of $13.00 per share was announced on May 19, 2015. Net proceeds of the May 2015 Follow-On Offering were approximately $77.6 million after deducting underwriting discounts and commissions and offering costs.

Our total stockholders’ equity increased $122.3 million from $92.4 million as of December 31, 2014 to $214.7 million as of September 30, 2015. The increase in our total stockholders’ equity is primarily attributable to the January 2015 Follow-On Offering and the May 2015 Follow-On Offering, which increased our stockholders’ equity by approximately $131.3 million, our net income of $2.2 million, and was partially offset by dividends declared of $15.0 million, during the nine months ended September 30, 2015.

October 2015 Preferred Stock Offering

Subsequent to quarter end, on October 21, 2015, the Company completed an underwritten shelf takedown offering of 2,875,000 shares of 8.250% Series A Cumulative Redeemable Preferred Stock, par value $0.01 per share, liquidation preference $25.00 per share, inclusive of shares sold pursuant to the full exercise of the overallotment option by the underwriters (the “October 2015 Preferred Stock Offering”). The shares were registered with the SEC pursuant to a registration statement on Form S-3 (File No. 333-200359) filed with the SEC on November 19, 2014 and declared effective on December 19, 2014. The public offering price of $25.00 per share was announced on October 16, 2015. Net proceeds of the October 2015 Preferred Stock Offering were approximately $69.2 million after deducting underwriting discounts and commissions and estimated offering costs.

Other Significant Developments

During the nine months ended September 30, 2015, we made three convertible preferred investments, acquired four stabilized properties, and disposed of two joint venture equity interests as discussed below. Further, subsequent to quarter end, we disposed of an additional joint venture equity interest and made an additional joint venture equity investment, each as discussed below.

Acquisition of Alexan Southside Place (formerly referred to as Alexan Blaire House) Interests

On January 12, 2015, through a wholly-owned subsidiary of its Operating Partnership, BRG Southside, LLC, we made a convertible preferred equity investment in a multi-tiered joint venture, along with Bluerock Special Opportunity + Income Fund II, LLC (“Fund II”) and Bluerock Special Opportunity + Income Fund III, LLC (“Fund III”), which are affiliates of the Company’s Manager, and an affiliate of Trammell Crow Residential, to develop an approximately 269-unit Class A, apartment community located in Houston, Texas, to be known as Alexan Southside Place. Alexan Southside Place will be developed upon a tract of land ground leased from Prokop Industries BH, L.P., a Texas limited partnership, by BR Bellaire BLVD, LLC, as tenant under an 85-year ground lease. We have made a capital commitment of $17.3 million to acquire 100% of the preferred equity interests in BRG Southside, LLC, all of which has been funded as of September 30, 2015. Our preferred membership interest earns and shall be paid on a current basis a preferred return at the annual rate of 15% times our outstanding amount of our capital contribution. We have the right to convert our preferred membership interest into a majority common membership interest upon stabilization.

On April 7, 2015, we, through BR Bellaire BLVD, LLC, entered into a $31.8 million construction loan with Bank of America, NA which is secured by the leasehold interest in the Alexan Southside Place property. The loan matures on April 7, 2019, and contains a one-year extension option, subject to certain conditions including a debt service coverage, loan to value ratio and payment of an extension fee. The loan bears interest on a floating basis on the amount drawn based on the base rate plus 1.25% or LIBOR plus 2.25%. Regular monthly payments are interest-only during the initial term, with payments during the extension period based on a thirty year amortization. The loan can be prepaid without penalty.

Acquisition of Interest in Park & Kingston

On March 16, 2015, we, through a wholly-owned subsidiary of its Operating Partnership, completed an investment in a multi-tiered joint venture, along with Fund III, to acquire 153 newly-constructed units (the “Phase I Units”) in a Class AA apartment community in Charlotte, North Carolina known as the Park & Kingston Apartments (“Park & Kingston”). Our indirect ownership interest in Park & Kingston was 46.95%. The purchase price for the Phase I Units of $27.87 million was funded, in part, with a $15.25 million senior mortgage loan secured by the Park & Kingston property and improvements.

We also have the ability to acquire 15 units under development at Park & Kingston (the “Phase II Units”), for a purchase price of $2.87 million. The seller has commenced, and will manage and complete the development of the Phase II Units. Upon completion of the development of and upon the issuance of a certificate of occupancy for the Phase II Units, closing will occur, financed with supplemental financing of up to 70% of the appraised value of the Phase II Units per the senior mortgage loan discussed above.

In May 2015, we invested an additional $6.5 million, plus customary prorations, in equity in Park & Kingston, increasing our indirect ownership interest in the property from 46.95% to approximately 96.0%. The additional interests were purchased from Fund III based on the original purchase price on a pro rata basis, plus customary prorations.

Acquisition of Interest in Fox Hill

On March 26, 2015, we, through subsidiaries of its Operating Partnership, completed an investment in a multi-tiered joint venture, along with Fund III and three unaffiliated investors (collectively, the “Third Parties”), to acquire a 288-unit apartment community located in Austin, Texas (“Fox Hill”). Our indirect ownership in Fox Hill was 85.27%. The purchase price of $38.15 million was funded, in part, with a $26.71 million senior mortgage loan is secured by the Fox Hill Property and improvements.

In May 2015, we invested an additional $1.1 million, plus customary prorations, in equity in Fox Hill, increasing our indirect ownership interest in the property from 85.27% to approximately 94.62%. The additional interests were purchased from Fund III based on the original purchase price on a pro rata basis, plus customary prorations.

Sale of 23Hundred@Berry Hill Joint Venture Equity Interest (“Berry Hill”)

On January 14, 2015, we, along with the other two holders of tenant-in-common interests in 23Hundred@Berry Hill, sold their respective interests to 2300 Berry Hill General Partnership, an unaffiliated third party. The aggregate purchase price was $61.2 million, subject to certain prorations and adjustments typical in such real estate transactions. After deduction for payment of the existing mortgage indebtedness and payment of closing costs and fees, the sale of the our interest in 23Hundred@Berry Hill generated net proceeds of approximately $7.3 million to the Company and a consolidated gain of $11.3 million, of which the our pro rata share of gain is $5.3 million before disposition expenses of $0.1 million.

Acquisition of Whetstone Interests

On May 20, 2015, through BRG Whetstone Durham, LLC, a wholly-owned subsidiary of its Operating Partnership, we made a convertible preferred equity investment in a multi-tiered joint venture, along with Fund III and an affiliate of TriBridge Residential, LLC, to develop a 204-unit Class A apartment community located in Durham, North Carolina, to be known as Whetstone Apartments. We have made a capital commitment of $12.2 million to acquire 100% of the preferred equity interests in BRG Whetstone Durham, LLC, all of which has been funded as of September 30, 2015. The acquisition of Whetstone Apartments was partially funded by a bridge loan of approximately $25.2 million secured by the Whetstone Apartment property. The loan matures May 18, 2016 and bears interest on a floating basis based on LIBOR plus 2.0%. The loan can be prepaid without penalty. We provided certain standard scope non-recourse carveout guaranties in conjunction with the loan.

Acquisition of Cheshire Bridge Interests

On May 29, 2015, through BRG Cheshire, LLC, a wholly-owned subsidiary of its Operating Partnership, we made a convertible preferred equity investment in a multi-tiered joint venture, along with Fund III and an affiliate of Catalyst Development Partners II, to develop a 285-unit Class A apartment community located in Atlanta, Georgia, to be known as Cheshire Bridge Apartments. We have made a capital commitment of $15.6 million to acquire 100% of the preferred equity interests in BRG Cheshire, LLC, all of which has been funded as of September 30, 2015.

Acquisition of Interest in Ashton I

On August 19, 2015, we, through subsidiaries of its Operating Partnership, completed an investment of $13.5 million to acquire a 100% fee simple interest in a 322-unit apartment community located in Charlotte, North Carolina known as the Ashton Reserve at Northlake Phase I (“Ashton I”). The purchase price of $44.75 million was funded, in part, with the assumption of a $31.9 million senior mortgage loan secured by the Ashton I Property and improvements.

In addition, we, through a subsidiary of the Operating Partnership, expect to subsequently acquire an additional 151-unit apartment community currently under construction on land immediately adjacent to Ashton I, to be known as Ashton Reserve at Northlake Phase II, or Ashton II. On August 19, 2015, we entered into an assignment and assumption of purchase and sale agreement with an unaffiliated third-party, pursuant to which it assumed the obligations under the purchase agreement to acquire Ashton II following completion of construction and stabilization thereof. We expect to close on the acquisition of Ashton II for a purchase price of approximately $20.6 million, subject to customary adjustments and prorations, and subject to final adjustment and pricing based on the then existing financial condition of Ashton II based on a closing rent roll.

Acquisition of ARIUM Palms at World Gateway, formerly known as Century Palms at World Gateway

On August 20, 2015, we, through subsidiaries of its Operating Partnership, completed an investment of $13.0 million in a multi-tiered joint venture along with an unaffiliated investor, to acquire a 252-unit apartment community located in Orlando, Florida known as the ARIUM Palms at World Gateway Apartments (“ARIUM Palms”). Our indirect ownership in ARIUM Palms was 95.0%. The purchase price of $37.0 million was funded, in part, with a $25.0 million senior mortgage loan secured by the ARIUM Palms Property and improvements.

Sale of Villas at Oak Crest

Held for Sale – North Park Towers

Subsequent to quarter end, on October 16, 2015, the Company closed on the sale of the North Park Towers property, located in Southfield, Michigan. The 100% owned property was sold for approximately $18.2 million, subject to certain prorations and adjustments typical in such real estate transactions. After deduction for payment of the existing mortgage indebtedness encumbering the North Park Towers property in the amount of $11.5 million and payment of closing costs and fees, the sale of the property generated net proceeds for the Company of approximately $6.6 million.

Acquisition of Phillips Creek and Sovereign Apartments

Subsequent to quarter end, on October 29, 2015, the Company, through subsidiaries of its Operating Partnership, completed investments of approximately $17.7 million and approximately $15.2 million in a multi-tiered joint venture along with an affiliate of Carroll Organization, to acquire (i) a 352-unit Class A apartment community located in Frisco, Texas known as the Sorrel Phillips Creek Ranch Apartments (the “Phillips Creek Property”) and (ii) a 322-unit Class A apartment community located in Fort Worth, Texas known as The Sovereign Apartments (the “Sovereign Property”), respectively. The Company’s indirect ownership in the joint venture that owns the Phillips Creek Property and the Sovereign Property is 95.0%. The Phillip Creek Property’s approximate purchase price of $55.3 million was funded, in part, with a $38.7 million senior mortgage loan secured by the Phillip Creek Property and improvements. The Sovereign Property’s approximate purchase price of $44.4 million was funded, in part, with a $28.9 million senior mortgage loan secured by the Sovereign Property and improvements.

Results of Operations

The following is a summary of our stabilized operating real estate investments as of September 30, 2015:

Multifamily Community	Date Acquired	Number of Units		Our Ownership Interest in Property Owner			Occupancy %
Springhouse at Newport News	12/3/2009		432		75.0	%		95	%
Enders Place at Baldwin Park⁽¹⁾	10/2/2012		220		89.5	%		97	%
MDA Apartments	12/17/2012		190		35.3	%		96	%
Village Green of Ann Arbor	4/2/2014		520		48.6	%		95	%
North Park Towers	4/3/2014		313		100.0	%		95	%
Lansbrook Village⁽²⁾	5/23/2014		601		76.8	%		93	%
ARIUM Grandewood	11/4/2014		306		95.0	%		96	%
Park & Kingston	3/16/2015		153		96.0	%		98	%
Fox Hill	3/26/2015		288		94.6	%		99	%
Ashton I	8/19/2015		322		100.0	%		91	%
ARIUM Palms	8/20/2015		252		95.0	%		92	%
Total			3,597					95	%

⁽¹⁾ Includes an additional 22 units acquired during the second quarter of 2014.

⁽²⁾ Includes an additional 28 units acquired since the original acquisition in May 2014 of which 13 units were acquired in the nine months ended September 30, 2015.

Three Months Ended September 30, 2015 Compared to Three Months Ended September 30, 2014

Revenue

Net rental incomeincreased $1.8 million, or 20%, to $11.0 million for the three months ended September 30, 2015 as compared to $9.2 million for the same prior year period. This increase was primarily due to the acquisition of various interests in five properties subsequent to September 30, 2014, ARIUM Grandewood, Park & Kingston, Fox Hill, Ashton I and ARIUM Palms, offset by the sale of Berry Hill.

Other property revenueincreased $0.1 million, or 25%, to $0.5 million for the three months ended September 30, 2015 as compared to $0.4 million for the same prior year period. This increase was primarily due to the acquisition of interests in the properties noted above.

Expenses

Property operating expensesincreased $0.6 million, or 15%, to $4.7 million for the three months ended September 30, 2015 as compared to $4.1 million for the same prior year period. This increase was primarily due to the acquisition of interests in the properties noted above. Property NOI margins improved to 59.4% of total revenues for the three months ended September 30, 2015 from 57.4% in the prior year quarter. Property NOI margins are computed as total revenues less property operating expenses, divided by total revenues.

General and administrative expensesamounted to $1.2 million for the three months ended September 30, 2015 as compared to $0.8 million for the same prior year period. Excluding non-cash amortization of LTIP Units and restricted stock expense of $0.6 million and $0.3 million for the three months ended September 30, 2015 and 2014, respectively, general and administrative expenses were $0.6 million, or 5.2% of revenues for the three months ended September 30, 2015 as compared to $0.4 million, or 4.6% of revenues, for the same prior year period.

Management feesincreased to $0.9 million for the three months ended September 30, 2015 as compared to $0.2 million for the same prior year period. This was primarily due to an increase in equity as a result of the October 2014 Follow-On Offering, the January 2015 Follow-On Offering and the May 2015 Follow-On Offering. Base management fees of $0.9 million for the quarter ended September 30, 2015 will be paid in LTIP Units in lieu of cash.

Acquisition costsincreased to $0.7 million for the three months ended September 30, 2015 as compared to $0.4 million for the same prior year period. This increase was primarily due to the acquisition of the Ashton I and ARIUM Palms apartment communities during the three months ended September 30, 2015 as compared to the acquisition of two preferred equity investments during the third quarter of 2014.

Depreciation and amortization expenseswas $4.0 million for the three months ended September 30, 2015 as compared to $4.8 million for the same prior year period.

Other Income and Expense

Other income and expensesamounted to an expense of $0.6 million for the three months ended September 30, 2015 as compared to other expense of $2.1 million same prior year period. This was primarily due to an increase of $2.0 million in income from unconsolidated joint venture interests due to an additional four investments, partially offset by an increase in interest expense, net, of $0.4 million, as the result of the increase in mortgages payable resulting from the acquisition of interests in the properties mentioned above.

Income from Discontinued Operations

Loss from discontinued operationswas $0.1 million for the three months ended September 30, 2014. There was no income from discontinued operations in 2015. The 2014 amount related to the discontinued operations of our Creekside property, which was sold on March 28, 2014.

Nine Months Ended September 30, 2015 Compared to Nine Months Ended September 30, 2014

Revenue

Net rental incomeincreased $9.8 million, or 49%, to $29.6 million for the nine months ended September 30, 2015 as compared to $19.8 million for the same prior year period. This increase was primarily due to the acquisition of various interests in four properties during 2014, Village Green of Ann Arbor, North Park Towers, Lansbrook Village and ARIUM Grandewood, and four properties during 2015, Park & Kingston, Fox Hill, Ashton I and ARIUM Palms, offset by the sale of Berry Hill.

Other property revenueincreased $0.7 million, or 87%, to $1.5 million for the nine months ended September 30, 2015 as compared to $0.8 million for the same prior year period. This increase was primarily due to the acquisition of interests in the properties noted above.

Expenses

Property operating expensesincreased $3.9 million, or 43%, to $12.9 million for the nine months ended September 30, 2015 as compared to $9.0 million for the same prior year period. This increase was primarily due to the acquisition of interests in the properties noted above. Property NOI margins improved to 58.4% of total revenues for the nine months ended September 30, 2015 from 56.2% in the prior year period.

General and administrative expensesamounted to $2.9 million for the nine months ended September 30, 2015 as compared to $2.0 million for the same prior year period. Excluding non-cash amortization of LTIP Units and restricted stock expense of $1.3 million and $0.7 million for the nine months ended September 30, 2015 and 2014, respectively, general and administrative expenses were $1.6 million, or 5.1% of revenues for the nine months ended September 30, 2015 as compared to $1.3 million, or 6.5% of revenues, for the same prior year period.

Management feesincreased to $3.1 million for the nine months ended September 30, 2015 as compared to $0.5 million for the same prior year period. This was primarily due to an increase in equity as a result of our IPO on April 2, 2014, the October 2014 Follow-On Offering, the January 2015 Follow-On Offering and the May 2015 Follow-On Offering. Base management fees of $1.6 million for the nine months ended September 30, 2015 are paid in LTIP Units in lieu of cash.

Acquisition costsdecreased to $1.4 million for the nine months ended September 30, 2015 as compared to $3.5 million for the same prior year period. This decrease was due primarily to the acquisition of numerous properties during the second quarter of 2014 in conjunction with the IPO as compared to the acquisitions during the nine months ended September 30, 2015.

Depreciation and amortization expensesincreased to $10.5 million for the nine months ended September 30, 2015 as compared to $9.6 million for the same prior year period. This increase was primarily due to additional depreciation expense related to the acquisition of interests in the properties noted above.

Other Income and Expense

Other income and expensesamounted to income of $7.8 million for the nine months ended September 30, 2015 as compared to an expense of $5.1 million same prior year period. This was primarily due to a gain on the sale of an unconsolidated joint venture interest of $11.3 million in 2015 related to Berry Hill, an increase of $3.9 million in income from unconsolidated joint venture interests due to an additional four investments, partially offset by an increase in interest expense, net, of $2.2 million, as the result of the increase in mortgages payable resulting from the acquisition of interests in the properties mentioned above.

Income from Discontinued Operations

Income from discontinued operationswas $0.1 million for the nine months ended September 30, 2014. There was no income from discontinued operations in 2015. The 2014 amount related to the discontinued operations of our Creekside property, which was sold on March 28, 2014.

Property Operations

We define “same store” properties as those that we owned and operated for the entirety of both periods being compared, except for properties that are in the construction or lease-up phases, or properties that are undergoing development or significant redevelopment. We move properties previously excluded from our same store portfolio for these reasons into the same store designation once they have stabilized or the development or redevelopment is complete and such status has been reflected fully in all quarters during the applicable periods of comparison. For newly constructed or lease-up properties or properties undergoing significant redevelopment, we consider a property stabilized upon attainment of 90% physical occupancy, subject to loss-to-lease, bad debt and rent concessions. For comparison of our three months ended September 30, 2015 and 2014, the same store properties included properties owned at July 1, 2014, excluding the Berry Hill property, which was under construction. Our same store properties for the three months ended September 30, 2015 and 2014 were Springhouse at Newport News, Enders Place at Baldwin Park, Village Green of Ann Arbor, North Park Towers, MDA and Lansbrook Village. Our non-same store properties for the same period were The Estates at Perimeter/Augusta, The Reserve at Creekside Village, 23Hundred@Berry Hill, ARIUM Grandewood, Park & Kingston, Fox Hill, Ashton I and ARIUM Palms. Our same store properties for the nine months ended September 30, 2015 and 2014 were Springhouse at Newport News, Enders Place at Baldwin Park and MDA Apartments. Our non-same store properties for the same period were The Estates at Perimeter/Augusta, The Reserve at Creekside Village, 23Hundred@Berry Hill, Grove, Village Green of Ann Arbor, North Park Towers, Lansbrook Village, ARIUM Grandewood, Park & Kingston, Fox Hill, Ashton I and ARIUM Palms.

The Estates at Perimeter/Augusta was accounted for under the equity method and Creekside was accounted for as discontinued operations during the three months ended September 30, 2014. For the three months ended September 30, 2014, the components of non-same store property revenues, property expenses and net operating income represented by these properties were $0.7 million, $0.2 million and $0.5 million, respectively. There were no operating properties accounted for under the equity method during the three months ended September 30, 2015.

The Estates at Perimeter/Augusta was accounted for under the equity method and Creekside were accounted for as discontinued operations during the nine months ended September 30, 2014. For the nine months ended September 30, 2014, the components of non-same store property revenues, property expenses and net operating income represented by these properties were $2.5 million, $1.0 million, and $1.5 million, respectively. The Estates at Perimeter/Augusta, Berry Hill, and Grove were accounted for under the equity method during the nine months September 30, 2015, but are reflected in our table of net operating income as if they were consolidated. For the nine months ended September 30, 2015, the components of non-same store property revenues, property expenses and net operating income represented by these properties were $0.2 million, $0.05 million and $0.1 million, respectively.

The Estates at Perimeter/Augusta’s and Berry Hill financial information can be found at Note 6, "Equity Method Investments," and Creekside financial information can be found at Note 3, “Real Estate Assets Held for Sale, Discontinued Operations and Sale of Joint Venture Equity Interests” in our Notes to Consolidated Financial Statements. Creekside was sold on March 28, 2014, The Estates at Perimeter/Augusta was sold on December 10, 2014 and Berry Hill was sold on January 14, 2015.

The following table presents the same store and non-same store results from operations for the three and nine months ended September 30, 2015 and 2014:

	Three Months Ended September 30,				Change
	2015		2014		$		%
Property Revenues
Same Store	$	8,174	$	7,704	$	470		6.1	%
Non-Same Store		3,386		2,552		834		32.7	%
Total property revenues		11,560		10,256		1,304		12.7	%

Property Expenses
Same Store		3,423		3,333		90		2.7	%
Non-Same Store		1,304		968		336		34.7	%
Total property expenses		4,727		4,301		426		9.9	%

Same Store NOI		4,751		4,371		380		8.7	%
Non-Same Store NOI		2,082		1,584		498		31.4	%
Total NOI⁽¹⁾	$	6,833	$	5,955	$	878		14.7	%

	Nine Months Ended September 30,				Change
	2015		2014		$		%
Property Revenues
Same Store	$	9,771	$	9,206	$	565		6.1	%
Non-Same Store		21,444		13,841		7,603		54.9	%
Total property revenues		31,215		23,047		8,168		35.4	%

Property Expenses
Same Store		3,810		3,731		79		2.1	%
Non-Same Store		9,123		6,265		2,858		45.6	%
Total property expenses		12,933		9,996		2,937		29.4	%

Same Store NOI		5,961		5,475		486		8.9	%
Non-Same Store NOI		12,321		7,576		4,745		62.6	%
Total NOI⁽¹⁾	$	18,282	$	13,051	$	5,231		40.1	%

⁽¹⁾See “Net Operating Income” below for a reconciliation of Same Store NOI, Non-Same Store NOI and Total NOI to net income (loss) and a discussion of how management uses this non-GAAP financial measure.

Three Months Ended September 30, 2015 Compared to Three Months Ended September 30, 2014

Same store NOI for the three months ended September 30, 2015 increased by 8.7% to $4.8 million from $4.4 million for the 2014 period. There was a 6.1% increase in same store property revenues as compared to the 2014 period, primarily attributable to a 4.9% increase in average rental rates and 20 additional units at our Lansbrook Village property; average occupancy remained flat at approximately 95.3%. Same store expenses increased 2.7% as a result of higher taxes driven by rising assessed property values from municipalities.

Property revenues and property expenses for our non-same store properties increased significantly due to the properties acquired during 2014 and 2015. The results of operations for these properties have been included in our consolidated statements of operations from the date of acquisition.

Nine Months Ended September 30, 2015 Compared to Nine Months Ended September 30, 2014

Same store NOI for the nine months ended September 30, 2015 increased by 8.9% to $6.0 million from $5.5 million for the 2014 period. There was a 6.1% increase in same store property revenues as compared to the 2014 period, primarily attributable to a 3.4% increase in average rental rates, the acquisition of 22 additional units at our Enders property, and a 120 basis point increase in average occupancy. Same store expenses increased 2.1% compared to prior year period primarily as a result of higher in taxes driven by rising assessed property values from municipalities, offset by a decrease in HOA expenses at our Enders property.

Net Operating Income

We believe that net operating income (“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 allows us to evaluate the operating performance of our properties because it 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) income, as computed in accordance with GAAP for the periods presented (amounts in thousands):

	Three Months Ended September 30,							Nine Months Ended September 30,
	2015				2014			2015		2014
Net operating income
Same store	$	4,751		��	$	4,371		$	5,961	$	5,475
Non-same store		2,082				1,584			12,321		7,576
Total net operating income		6,833				5,955			18,282		13,051
Less:
Interest expense		2,942				2,583			7,980		6,062
Total property income		3,891				3,372			10,302		6,989
Less:
Noncontrolling interest pro-rata share of property income		752				1,638			2,673		3,650
Other (income) loss related to JV/MM entities		14				17			66		56
Pro-rata share of properties’ income		3,125				1,717			7,563		3,283
Less pro-rata share of:
Depreciation and amortization		3,082				2,872			7,641		5,494
Amortization of non-cash interest expense		148				81			243		150
Line of credit interest, net		—				—			—		191
Management fees		890				219			3,011		536
Acquisition and disposition costs		682				318			1,367		3,657
Corporate operating expenses		1,245				769			2,886		2,000
Add pro-rata share of:
Other income		23				31			91		103
Equity in operating earnings of unconsolidated joint ventures		2,327				364			4,331		464
Gain on sale of joint venture interest, net of fees		(2	)			—			5,320		448
Net (loss) income attributable to common stockholders	$	(574	)		$	(2,147	)	$	2,157	$	(7,730	)

Liquidity and Capital Resources

Liquidity is a measure of our ability to meet potential cash requirements. Our primary liquidity requirements relate to (a) our operating expenses and other general business needs, (b) distributions to our stockholders, (c) investments and capital requirements to fund development and renovations at existing properties and (d) ongoing commitments to repay borrowings, including our maturing short-term debt.

We believe the properties underlying the Company’s real estate investments are performing well and had a portfolio-wide debt service coverage ratio of 2.03x and occupancy of 95% at September 30, 2015. Prior to our IPO, our cash resources had been inadequate to meet our primary liquidity needs as our corporate operating expenses exceeded the cash flow received from our investments in real estate joint ventures. The primary reason for our previous negative operating cash flow had been the size of our portfolio relative to the general and administrative expenses required to operate as a public company. These costs included accounting and related fees to our independent auditors, legal fees, costs of being an SEC reporting company, director compensation and director and officer insurance premiums.

In January 2015, we completed an underwritten shelf takedown offering (the “January 2015 Follow-On Offering”) of 4,600,000 shares of Class A common stock, inclusive of shares sold pursuant to the full exercise of the overallotment option by the underwriters, on January 20, 2015. Net proceeds of the January 2015 Follow-On Offering were approximately $53.7 million after deducting underwriting discounts and commissions and offering costs.

The net proceeds of our IPO, the October 2014 Follow-On Offering, the January 2015 Follow-On Offering and the May 2015 Follow-On Offering (collectively the “Follow-On Offerings”), provided us with the ability to grow our asset base quickly and better service our general and administrative expenses. The Management Agreement with our Manager should provide an overall lower fee structure than our previous Advisory Agreement with our Former Advisor, which we believe will help reduce our corporate general and administrative expenses.

In general, we believe our cash flows from operations, available cash balances, the use of equity offerings, including the October 2015 Preferred Stock Offering, and other financing arrangements will be sufficient to fund our liquidity requirements with respect to our existing portfolio for the next 12 months. We expect that the additional properties added to our portfolio in the contribution transactions at the initial closing of the IPO, together with borrowings we or our subsidiaries may obtain and the investments and acquisitions we have made with the proceeds from the IPO and have made and expect to make as a result of the completion of the Follow-On Offerings and the October 2015 Preferred Stock Offering, will have a significant positive impact on our future results of operations. In general, we expect that our income and expenses related to our portfolio will increase in future periods as a result of anticipated future investments in and acquisitions of real estate, including our investments in development projects.

We may also selectively sell assets at appropriate times, which would be expected to generate cash sources for our liquidity needs.

We intend to continue to use prudent amounts of leverage in making our investments, which we define as having total indebtedness of approximately 65% of the fair market value of the properties in which we have invested as determined by our Manager. For purposes of calculating our leverage, we assume full consolidation of all of our real estate investments, whether or not they would be consolidated under GAAP, include assets we have classified as held for sale, and include any joint venture level indebtedness in our total indebtedness. However, we are not subject to any limitations on the amount of leverage we may use, and accordingly, the amount of leverage we use may be significantly less or greater than we currently anticipate. We expect our leverage to decline commensurately as we execute our business plan to grow our net asset value.

We may seek to utilize credit facilities or loans from unaffiliated parties when possible. Previously, we have relied on borrowing from affiliates to help finance our business activities. On October 2, 2012, we entered into the Fund LOC pursuant to which we were initially entitled to borrow up to $12.5 million. On April 2, 2014, the Fund LOC was paid in full with proceeds from our IPO and extinguished.

If we are unable to obtain financing on favorable terms or at all, we may have to curtail our investment activities, including acquisitions and improvements, to and developments of, real properties, which could limit our growth prospects. This, in turn, could reduce cash available for distribution to our stockholders and may hinder our ability to raise capital by issuing more securities or borrowing more money. We also may be forced to dispose of assets at inopportune times in order to maintain our REIT qualification and Investment Company Act exemption.

In prior quarters, including the three and six months ended June 30, 2015, our Former Advisor deferred payment by us as needed of asset management fees, acquisition fees and organizational and offering costs incurred by us. Effective on September 4, 2015, the Former Advisor and Manager entered into an Assignment Agreement pursuant to which the Former Advisor assigned its right to payment of the obligation due to the Former Advisor to the Manager. The Manager agreed to receive payment entirely in LTIP Units of the Operating Partnership, and payment was made through the issuance of 108,119 LTIP Units by the Operating Partnership on September 14, 2015.

In prior quarters, including the three and six months ended June 30, 2015, our Manager waived current year reimbursable operating expenses, to support our continued operations. Reimbursements of $0.1 million were expensed during the three months ended September 30, 2015 and are recorded as part of general and administrative expenses.

For the remainder of 2015, the Company expects to maintain a distribution paid on a monthly basis to all of our stockholders at a quarterly rate of $0.29 per share. To the extent the Company continues to pay distributions at this rate, the Company expects to substantially use cash flows from operations to fund distribution payments. The Board will review the distribution rate quarterly, and there can be no assurance that the current distribution level will be maintained. While our policy is generally to pay distributions from cash flow from operations, our distributions through September 30, 2015 have been paid from proceeds from our continuous registered public offering, proceeds from the IPO and Follow-On Offerings and sales of assets, and may in the future be paid from additional sources, such as from borrowings.

Off-Balance Sheet Arrangements

As of September 30, 2015, we did not have any off-balance sheet arrangements that have had or are reasonably likely to have a material effect on our financial condition, revenues or expenses, results of operations, liquidity, capital resources or capital expenditures. As of September 30, 2015, we own interests in five joint ventures that are accounted for under the equity method as we exercise significant influence over, but do not control, the investee.

Cash Flows from Operating Activities

As of September 30, 2015, we owned indirect equity interests in sixteen real estate properties (thirteen operating properties and three development properties), eleven of which are consolidated for reporting purposes. During the nine months ended September 30, 2015, net cash provided by operating activities was $15.9 million. After the net income of $8.0 million was reduced for $0.7 million of non-cash items, net cash provided by operating activities consisted of the following:

•

Distributions from unconsolidated joint ventures of $7.0 million;

	•	Increase in accounts payable and accrued liabilities of $4.2 million;

	•	Increase in our payables due to affiliates of $0.7 million; and offset by an

	•	Increase in accounts receivable and other assets of $3.3 million.

Cash Flows from Investing Activities

During the nine months ended September 30, 2015, net cash used in investing activities was $157.0 million, primarily due to the following:

	•	$116.9 million used in acquiring consolidated real estate investments;

	•	$45.2 million used in acquiring investments in unconsolidated joint ventures;

	•	$2.5 million used on capital expenditures;

	•	$7.9 million used on purchases of interests from noncontrolling members;

	•	$0.1 million in our restricted cash balance; and

	•	Partially offset by a decrease of $15.6 million in cash proceeds received for the sale of the Berry Hill property.

Cash Flows from Financing Activities

During the nine months ended September 30, 2015, net cash provided by financing activities was $183.0 million, primarily due to the following:

	•	$131.3 million raised in our January and May 2015 Follow-On Offerings on January 20, 2015 and May 22, 2015, respectively;

	•	net borrowings of $68.2 million on mortgages payable;

	•	$1.3 million increase in capital contributions from noncontrolling interests;

	•	partially offset by $1.6 million in distributions paid to our noncontrolling interests;

	•	$14.1 million paid in cash distributions paid to stockholders;

	•	$1.1 million increase in deferred financing costs; and

	•	$1.0 million of repayments of our mortgages payable.

Capital Expenditures

The following table summarizes our total capital expenditures for the three and nine months ended September 30, 2015 and 2014 (amounts in thousands):

	For the nine months ended September 30,
	2015		2014
New development	$	-	$	5,946
Redevelopment/renovations		1,380		912
Routine capital expenditures		1,091		577
Total capital expenditures	$	2,471	$	7,435

The majority of our capital expenditures during the nine months ended September 30, 2014 related to our development property, Berry Hill, which was acquired in October 2012 and became stabilized during the three months ended September 30, 2014.

We define redevelopment and renovation costs as non-recurring capital expenditures for significant projects that upgrade units or common areas and projects that are revenue enhancing for the three and nine months ended September 30, 2015. We define routine capital expenditures as capital expenditures that are incurred at every property and exclude development, investment, revenue enhancing and non-recurring capital expenditures.

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 predictably over time. Since real estate values historically rise and fall with market 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.

In computing 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).

During the three months ended September 30, 2015, we incurred $0.7 million of acquisition expense and $0.1 million of disposition expense, of which $0.7 million was our pro rata share of the expense. During the nine months ended September 30, 2015, we incurred $1.4 million of acquisition expense and $0.8 million of disposition expense, of which $1.4 million was our pro-rata share of the expense.

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.

The table below presents our calculation of FFO and AFFO for the three and nine months ended September 30, 2015 and 2014 (in thousands).

We have acquired interests in ten additional properties subsequent to June 30, 2014 and sold four properties that were owned during the quarter ended September 30, 2014. The results presented in the table below are not directly comparable and should not be considered an indication of our future operating performance.

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2015			2014			2015			2014
Net (loss) income attributable to common stockholders	$	(574	)	$	(2,147	)	$	2,157		$	(7,730	)
Common stockholders pro-rata share of:
Real estate depreciation and amortization⁽¹⁾		3,082			2,872			7,641			5,494
Loss (gain) on sale of joint venture interests		2			—			(5,320	)		(448	)
FFO	$	2,510		$	725		$	4,478		$	(2,684	)
Common stockholders pro-rata share of:
Amortization of non-cash interest expense (income)		148			81			243			150
Acquisition and disposition costs		682			318			1,367			3,657
Normally recurring capital expenditures⁽²⁾		(215	)		(162	)		(513	)		(250	)
Non-cash equity compensation		1,529			326			3,821			676
Non-recurring equity in earnings of unconsolidated joint ventures		(289	)		—			(289	)		—
AFFO	$	4,365		$	1,288		$	9,107		$	1,549
FFO per share	$	0.12		$	0.12		$	0.27		$	(0.63	)
AFFO per share	$	0.22		$	0.22		$	0.56		$	0.36
Weighted average common shares outstanding		20,181,656			5,877,417			16,396,038			4,269,378

⁽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⁾Normally recurring capital expenditures exclude development, investment, revenue enhancing and non-recurring capital expenditures.

Operating cash flow, FFO and AFFO may also be used to fund all or a portion of certain capitalizable items that are excluded from FFO and AFFO, such as tenant improvements, building improvements and deferred leasing costs.

Presentation of this information is intended to assist the reader in comparing the sustainability of the operating performance of different REITs, although it should be noted that not all REITs calculate FFO or AFFO the same way, so comparisons with other REITs may not be meaningful. FFO or AFFO should not be considered as an alternative to net income (loss), as an indication of our liquidity, nor is either indicative of funds available to fund our cash needs, including our ability to make distributions. Both FFO and AFFO should be reviewed in connection with other GAAP measurements.

Distributions

On October 10, 2014, the Board declared monthly dividends for the fourth quarter of 2014 equal to a quarterly rate of $0.29 per share on both the Company’s Class A common stock and Class B common stock, payable to the stockholders of record as of October 25, 2014, November 25, 2014 and December 25, 2014, which was paid in cash on November 5, 2014, December 5, 2014 and January 5, 2015, respectively.

On January 9, 2015, the Board declared monthly dividends for the first quarter of 2015 equal to a quarterly rate of $0.29 per share on both the Company’s Class A common stock and Class B common stock, payable to the stockholders of record as of January 25, 2015, February 25, 2015 and March 25, 2015, which was paid in cash on February 5, 2015, March 5, 2015 and April 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 the Company's Class A common stock.

The declared dividends equal a monthly dividends on the Class A common stock and the Class B common stock as follows: $0.096666 per share for the distributions paid to stockholders of record as of January 25, 2015, $0.096667 per share for the distributions paid to stockholders of record as of February 25, 2015, and $0.096667 per share for the distributions paid to stockholders of record as of March 25, 2015.

On April 10, 2015, the Board declared monthly dividends for the second quarter of 2015 equal to a quarterly rate of $0.29 per share on both the Company’s Class A common stock and Class B common stock, payable to the stockholders of record as of April 25, 2015, May 25, 2015 and June 25, 2015, which was 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 the Company's Class A common stock.

The declared dividends equal a monthly dividends on the Class A common stock and the Class B common stock as follows: $0.096666 per share for the distributions paid to stockholders of record as of April 25, 2015, $0.096667 per share for the distributions paid to stockholders of record as of May 25, 2015, and $0.096667 per share for the distributions paid to stockholders of record as of June 25, 2015.

On July 10, 2015, the Board declared monthly dividends for the third quarter of 2015 equal to a quarterly rate of $0.29 per share on the Company’s Class A common stock and $0.29 per share on the Company’s Class B common stock, payable monthly to the stockholders of record as of July 25, 2015, August 25, 2015 and September 25, 2015, which will be paid in cash on August 5, 2015, September 5, 2015 and October 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 the Company's 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: $0.096667 per share for the dividend paid to stockholders of record as of July 25, 2015, $0.096667 per share for the dividend paid to stockholders of record as of August 25, 2015, and $0.096666 per share for the dividend paid to stockholders of record as of September 25, 2015.

A portion of each dividend may constitute a return of capital for tax purposes. There is no assurance that the Company will continue to declare dividends or at this rate.

Our Board will determine the amount of dividends to be paid to our stockholders. The Board’s determination will be based on a number of factors, including funds available from operations, our capital expenditure requirements and the annual distribution requirements necessary to maintain our REIT status under the Internal Revenue Code. As a result, our distribution rate and payment frequency may vary from time to time. However, to qualify as a REIT for tax purposes, we must make distributions equal to at least 90% of our “REIT taxable income” each year. Especially during the early stages of our operations, we may declare distributions in excess of funds from operations.

Significant Accounting Policies and Critical Accounting Estimates

Our significant accounting policies and critical accounting estimates are disclosed in our Annual Report on Form 10-K for the year ended December 31, 2014 and Note 2 “Basis of Presentation and Summary of Significant Accounting Policies” to the Consolidated Financial Statements.

Subsequent Events

Other than the items disclosed in Note 14, “Subsequent Events” to our interim Consolidated Financial Statements for the period ended September 30, 2015, no material events have occurred that required recognition or disclosure in these financial statements. See Note 14 to our interim Consolidated Financial Statements for discussion.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

We have omitted a discussion of quantitative and qualitative disclosures about market risk because, as a smaller reporting company, we are not required to provide such information.

Item 4. Controls and Procedures

Disclosure Controls and Procedures

Evaluation of Disclosure Controls and Procedures

As required by Rule 13a-15(b) and Rule 15d-15(b) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), our management, including our Chief Executive Officer and Chief Accounting Officer, evaluated, as of September 30, 2015, the effectiveness of our disclosure controls and procedures as defined in Exchange Act Rule 13a-15(e) and Rule 15d-15(e). Based on that evaluation, our Chief Executive Officer and Chief Accounting Officer concluded that our disclosure controls and procedures were effective as of September 30, 2015, to provide reasonable assurance that information required to be disclosed by us in this report filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the rules and forms of the Exchange Act and is accumulated and communicated to management, including the Chief Executive Officer and Chief Accounting Officer, as appropriate to allow timely decisions regarding required disclosures.

We believe, however, that a controls system, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the controls systems are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud or error, if any, within a company have been detected.

Changes in Internal Control over Financial Reporting

There has been no change in internal control over financial reporting that occurred during the nine months ended September 30, 2015 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

None.

Item 1A. Risk Factors

Other than the following, there have been no material changes to our potential risks and uncertainties presented in the section entitled “Risk Factors” in our Annual Report on Form 10-K for the twelve months ended December 31, 2014 filed with the SEC on March 4, 2015.

We have paid and may continue to pay distributions from offering proceeds, borrowings or the sale of assets to the extent our cash flow from operations or earnings are not sufficient to fund declared distributions. Rates of distribution to you will not necessarily be indicative of our operating results. If we make distributions from sources other than our cash flows from operations or earnings, we will have fewer funds available for the acquisition of properties and your overall return may be reduced.

Our organizational documents permit us to make distributions from any source, including the net proceeds from an offering. There is no limit on the amount of offering proceeds we may use to pay distributions. During the early stages of our operations, we have funded and expect to continue to fund distributions from the net proceeds of our offerings, borrowings and the sale of assets to the extent distributions exceed our earnings or cash flows from operations. While our policy is generally to pay distributions from cash flow from operations, our distributions through September 30, 2015 have been paid from proceeds from our continuous registered offerings conducted prior to the IPO, proceeds from the IPO and the Follow-On Offerings, and sales of assets, and may in the future be paid from additional sources, such as from borrowings. To the extent we fund distributions from sources other than cash flow from operations, such distributions may constitute a return of capital and we will have fewer funds available for the acquisition of properties and your overall return may be reduced. Further, to the extent distributions exceed our earnings and profits, a stockholder’s basis in our stock will be reduced and, to the extent distributions exceed a stockholder’s basis, the stockholder will be required to recognize capital gain.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3. Defaults upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

Item 6. Exhibits

10.1	Limited Liability Company Agreement of BR Carroll World Gateway, LLC by and between BR Carroll World Gateway Orlando JV, LLC, Michael L. Konig and Jordan B. Ruddy, effective as of July 7, 2015

10.2	Limited Liability Company Agreement of BR Carroll World Gateway Orlando JV, LLC by and between BR World Gateway JV Member, LLC and Carroll Co-Invest III World Gateway, LLC, dated as of August 20, 2015

10.3	Limited Liability Company Agreement of BRG World Gateway Orlando, LLC by Bluerock Residential Holdings, L.P., effective as of June 24, 2015

10.4	Multifamily Loan and Security Agreement by and between BR Carroll World Gateway, LLC and Jones Lang LaSalle Operations, L.L.C., dated as of August 20, 2015

10.5	Guaranty by Bluerock Residential Growth REIT, Inc. and MPC Partnership Holdings LLC for the benefit of Jones Lang LaSalle Operations, L.L.C., dated as of August 20, 2015

10.6	Florida Amended and Restated Multifamily Note by and between BR Carroll World Gateway, LLC and Jones Lang LaSalle Operations, L.L.C., dated as of August 20, 2015

10.7	Amended and Restated Multifamily Mortgage, Assignment of Rents and Security Agreement by and between BR Carroll World Gateway, LLC and Jones Lang LaSalle Operations, L.L.C., dated as of August 20, 2015

10.8	Agreement to Amend or Comply by and between BR Carroll World Gateway, LLC and Jones Lang LaSalle Operations, L.L.C., dated as of August 20, 2015

10.9	Assignment of Management Agreement and Subordination of Management Fees by and between BR Carroll World Gateway, LLC, Jones Lang LaSalle Operations, L.L.C. and Carroll Management Group, LLC, dated as of August 20, 2015
10.10	60-Day Letter by BR Carroll World Gateway, LLC for the benefit of Jones Lang LaSalle Operations, L.L.C., dated as of August 20, 2015

10.11	Borrower’s Underwriting Certificateby BR Carroll World Gateway, LLC for the benefit of Jones Lang LaSalle Operations, L.L.C., dated as of August 20, 2015

10.12	MMPandO&MPrograms Implementation Certificate by BR Carroll World Gateway, LLC for the benefit of Jones Lang LaSalle Operations, L.L.C., dated as of August 20, 2015

10.13	Backstop Agreement by and between MPC Partnership Holdings LLC, Carroll Management Group, LLC, and Bluerock Residential Growth REIT, Inc., dated as of August 20, 2015

10.14

LTIP Unit Vesting Agreement by and between Bluerock Residential Growth REIT, Inc., Bluerock Residential Holdings, L.P., and BRG Manager, LLC, dated July 2, 2015, incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on July 9, 2015

10.15

Presentation, dated July 15, 2015, incorporated by reference to Exhibit 99.1 to the Company’s Current Report on Form 8-K filed on July 15, 2015

10.16

Press Release, dated August 11, 2015, incorporated by reference to Exhibit 99.1 to the Company’s Current Report on Form 8-K filed on August 11, 2015

10.17

Supplemental Financial Information incorporated by reference to Exhibit 99.2 to the Company’s Current Report on Form 8-K filed on August 11, 2015

10.18

Second Amendment to Management Agreement, by and among Bluerock Residential Growth REIT, Inc., Bluerock Residential Holdings, L.P. and BRG Manager, LLC, dated August 6, 2015, incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on August 12, 2015

10.19

Promissory Note by AR I Borrower, LLC for the benefit of Sun Life Assurance Company of Canada, dated as of November 22, 2013, incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on August 25, 2015

10.20

Deed of Trust and Security Agreement and Fixture Filing by AR I Borrower, LLC, in favor of Sun Life Assurance Company of Canada, dated as of November 22, 2013, incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on August 25, 2015

10.21

Assignment of Leases and Rents by AR I Borrower, LLC for the benefit of Sun Life Assurance Company of Canada, dated as of November 22, 2013, incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on August 25, 2015

10.22

Note, Deed of Trust, and Related Loan Documents Assignment, Assumption and Modification Agreement by and among Sun Life Assurance Company of Canada, BR Ashton I Owner, LLC, Bluerock Residential Growth REIT, Inc., AR I Borrower, LLC, and Rob Meyer, Mark Mechlowitz, Jorge Sardinas, Robert Fishel, and Harold Katz, dated as of August 19, 2015, incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed on August 25, 2015

10.23

Environmental Indemnity by Bluerock Residential Growth REIT, Inc. and BR Ashton I Owner, LLC for the benefit of Sun Life Assurance Company of Canada, dated as of August 19, 2015, incorporated by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K filed on August 25, 2015

10.24

Guaranty of Non-Recourse Carve-Outs by Bluerock Residential Growth REIT, Inc. in favor of Sun Life Assurance Company of Canada, dated as of August 19, 2015, incorporated by reference to Exhibit 10.6 to the Company’s Current Report on Form 8-K filed on August 25, 2015

10.25

Letter of Undertaking by and between BR Ashton I Owner, LLC and Sun Life Assurance Company of Canada, dated as of August 19, 2015, incorporated by reference to Exhibit 10.7 to the Company’s Current Report on Form 8-K filed on August 25, 2015

10.26

Management Agreement by and between BR Ashton I Owner, LLC and GREP Southeast, LLC, dated as of August 19, 2015, incorporated by reference to Exhibit 10.8 to the Company’s Current Report on Form 8-K filed on August 25, 2015

10.27

Estoppel and Agreement by AR I Borrower, LLC for the benefit of BR Ashton I Owner, LLC, dated as of August 18, 2015, incorporated by reference to Exhibit 10.9 to the Company’s Current Report on Form 8-K filed on August 25, 2015

10.28

Assignment of Purchase and Sale Agreement and Escrow Instructions by and between BRG Ashton NC, LLC and BR Ashton I Owner, LLC, dated as of August 19, 2015, incorporated by reference to Exhibit 10.10 to the Company’s Current Report on Form 8-K filed on August 25, 2015

10.29

Bill of Sale and Assignment and Assumption of Leases and Service Contracts by and between AR I Borrower, LLC and BR Ashton I Owner, LLC, dated as of August 19, 2015, incorporated by reference to Exhibit 10.11 to the Company’s Current Report on Form 8-K filed on August 25, 2015

10.30

Limited Liability Company Agreement of BRG Ashton NC, LLC by and between BRG Ashton NC, LLC and Bluerock Residential Holdings, L.P., dated as of April 15, 2015, incorporated by reference to Exhibit 10.12 to the Company’s Current Report on Form 8-K filed on August 25, 2015

10.31

Limited Liability Company Agreement of BR Ashton I Owner, LLC by and between BR Ashton I Owner, LLC and BRG Ashton NC, LLC, dated as of July 7, 2015, incorporated by reference to Exhibit 10.13 to the Company’s Current Report on Form 8-K filed on August 25, 2015

10.32	Assignment Agreement, between and among Bluerock Multifamily Advisor, LLC and BRG Manager, LLC, dated September 4, 2015, incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on September 11, 2015

31.1	Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2	Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1	Certification of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002.

101.1	The following information from the Company’s quarterly report on Form 10-Q for the quarter ended September 30, 2015, formatted in XBRL (eXtensible Business Reporting Language): (i) Balance Sheets; (ii) Statements of Operations; (iii) Statement of Stockholders’ Equity; (iv) Statements of Cash Flows.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	BLUEROCK RESIDENTIAL GROWTH REIT, INC.

DATE: November 12, 2015		/s/ R. Ramin Kamfar
		R. Ramin Kamfar
		Chief Executive Officer and President
		(Principal Executive Officer)

DATE: November 12, 2015		/s/ Christopher J. Vohs
		Christopher J. Vohs
		Chief Accounting Officer and Treasurer
		(Principal Financial Officer, Principal Accounting Officer)

Positive
Negative
Uncertain
Constraining
Legalese
Litigous
Readability	H.S. senior Avg

Bluerock Residential Growth REIT (BRG) 10-Q2015 Q3 Quarterly report

Content analysis