BRT Apartments (BRT) - 2020 Q2 - Quarterly Report

FORM 10-Q Filing Information Details the filing of BRT Apartments Corp.'s Form 10-Q for Q2 2020, including its filer status and outstanding common stock - BRT Apartments Corp. filed a Quarterly Report on Form 10-Q for the period ended June 30, 2020[2] - The registrant is classified as an Accelerated Filer and a Smaller Reporting Company[3] - | Metric | Value | | :----- | :---- | | Common Stock Outstanding (as of Aug 1, 2020) | 17,176,401 Shares | Part I - Financial Information Presents the company's unaudited consolidated financial statements and management's discussion and analysis for the reporting period Item 1. Financial Statements This section presents the unaudited consolidated financial statements of BRT Apartments Corp. and its subsidiaries for the quarter and six months ended June 30, 2020, and 2019, along with the audited balance sheet as of December 31, 2019, detailing various financial statements and extensive notes Consolidated Balance Sheets Summarizes the company's financial position, including assets, liabilities, and equity, at June 30, 2020, and December 31, 2019 - | Metric (in thousands) | June 30, 2020 (unaudited) | December 31, 2019 (audited) | Change | | :-------------------- | :------------------------ | :-------------------------- | :----- | | Total Assets | $385,602 | $390,610 | $(5,008) | | Total Liabilities | $190,451 | $191,050 | $(599) | | Total Equity | $195,151 | $199,560 | $(4,409) | - Real estate properties, net, decreased from $169,689 thousand to $166,760 thousand[13] - Investments in unconsolidated joint ventures increased from $177,071 thousand to $180,768 thousand[13] Consolidated Statements of Operations Details the company's revenues, expenses, and net loss for the three and six months ended June 30, 2020, and 2019 - | Metric (in thousands) | 3 Months Ended June 30, 2020 | 3 Months Ended June 30, 2019 | 6 Months Ended June 30, 2020 | 6 Months Ended June 30, 2019 | | :------------------------------------ | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Total Revenues | $6,816 | $7,287 | $13,740 | $14,417 | | Total Expenses | $9,579 | $9,283 | $19,425 | $18,496 | | Net Loss Attributable to Common Stockholders | $(4,246) | $(4,317) | $(9,077) | $(8,564) | | Basic and Diluted Loss Per Share | $(0.25) | $(0.27) | $(0.53) | $(0.54) | - Rental revenue decreased by 6.2% for the three months ended June 30, 2020, and by 4.0% for the six months ended June 30, 2020, compared to the prior year[18] - General and administrative expenses increased significantly by 19.2% for the three months and 25.9% for the six months ended June 30, 2020, primarily due to professional fees related to a restatement and increased compensation costs[18] Consolidated Statements of Comprehensive Income (Loss) Presents the net loss and other comprehensive income components for the three and six months ended June 30, 2020, and 2019 - | Metric (in thousands) | 3 Months Ended June 30, 2020 | 3 Months Ended June 30, 2019 | 6 Months Ended June 30, 2020 | 6 Months Ended June 30, 2019 | | :------------------------------------------ | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Net Loss | $(4,215) | $(4,273) | $(9,014) | $(8,486) | | Unrealized gain (loss) on derivative instruments | $1 | $(15) | $(22) | $(24) | | Comprehensive Loss Attributable to Common Stockholders | $(4,244) | $(4,330) | $(9,095) | $(8,584) | Consolidated Statements of Equity Outlines changes in total equity, common stock, additional paid-in capital, and accumulated deficit for the periods presented - | Metric (in thousands) | December 31, 2019 | March 31, 2020 | June 30, 2020 | | :------------------------------------ | :---------------- | :------------- | :------------ | | Total Equity | $199,560 | $202,726 | $195,151 | | Common Stock | $156 | $164 | $164 | | Additional Paid-In Capital | $232,331 | $244,222 | $244,683 | | Accumulated Deficit | $(32,824) | $(41,477) | $(49,545) | - The company issued 694,298 shares for $12,293,000 through an at-the-market equity offering program during the six months ended June 30, 2020[26][50] - Common stock distributions of $0.22 per share were made, totaling $3,822,000 for each of the quarters ended March 31, 2020, and June 30, 2020[26] Consolidated Statements of Cash Flows Reports cash flows from operating, investing, and financing activities, and the net change in cash and cash equivalents for the six months ended June 30, 2020, and 2019 - | Metric (in thousands) | 6 Months Ended June 30, 2020 | 6 Months Ended June 30, 2019 | | :------------------------------------------ | :--------------------------- | :--------------------------- | | Net Cash (Used in) Provided by Operating Activities | $(1,203) | $2,038 | | Net Cash Used in Investing Activities | $(7,190) | $(16,386) | | Net Cash Provided by Financing Activities | $2,311 | $896 | | Net Decrease in Cash, Cash Equivalents and Restricted Cash | $(6,082) | $(13,452) | | Cash, Cash Equivalents and Restricted Cash at End of Period | $26,336 | $18,267 | - Contributions to unconsolidated joint ventures were $13,700,000 for the six months ended June 30, 2020, a decrease from $24,348,000 in the prior year[36] - Proceeds from the sale of common stock significantly increased cash from financing activities to $12,077,000 in 2020, compared to none in 2019[36] Notes to Consolidated Financial Statements Provides detailed explanations of the accounting policies, significant transactions, and financial instrument disclosures supporting the consolidated financial statements Note 1 – Organization and Background Describes BRT Apartments Corp. as a Maryland REIT focused on multi-family properties, primarily located in the Southeast United States and Texas - BRT Apartments Corp. is a Maryland corporation that owns and operates multi-family properties and conducts operations to qualify as a REIT[42] - | Property Type | Number of Properties | Number of Units | Carrying Value (in thousands) | | :---------------------------- | :------------------- | :-------------- | :---------------------------- | | Wholly Owned Multi-family | 8 | 1,880 | $156,560 | | Unconsolidated Joint Ventures | 31 | 9,162 | $180,678 | - Most of the Company's properties are located in the Southeast United States and Texas[43] Note 2 – Basis of Preparation Explains the basis for preparing interim unaudited financial statements, consolidation policies, and the company's single reportable segment - Interim unaudited consolidated financial statements reflect normal recurring adjustments and are not necessarily indicative of full-year results[45] - The company consolidates wholly-owned subsidiaries and a specific joint venture in Yonkers, NY, where it has controlling rights, while accounting for other unconsolidated joint ventures using the equity method[46][47] - The company operates in one reportable segment, aggregating multi-family real estate assets[48] Note 3 - Equity Details equity transactions, including share offerings, distributions, stock-based compensation, and share repurchases - The company sold 694,298 shares for $12,293,000 through an at-the-market offering during the six months ended June 30, 2020[50] - Quarterly cash distributions of $0.22 per share were declared[50] - | Stock-Based Compensation Expense (in thousands) | 3 Months Ended June 30, 2020 | 3 Months Ended June 30, 2019 | 6 Months Ended June 30, 2020 | 6 Months Ended June 30, 2019 | | :---------------------------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Restricted Stock Units | $35 | $36 | $70 | $71 | | Restricted Stock | $426 | $337 | $829 | $667 | - The company repurchased 39,093 shares of common stock for $616,000 during the six months ended June 30, 2020, under a $5,000,000 repurchase plan[57] - Basic and diluted loss per share were $(0.25) for the three months and $(0.53) for the six months ended June 30, 2020[59] Note 4 - Leases Discusses rent concessions due to COVID-19 and the company's operating lease obligations for ground and corporate office leases - The company granted $75,000 in rent concessions to two commercial tenants due to the COVID-19 pandemic during the three months ended June 30, 2020[61][63] - The company is a lessee under operating leases for a ground lease in Yonkers, NY (expires September 2024) and a corporate office lease in Great Neck, NY (expires December 2031)[64][65] - | Metric (in millions) | June 30, 2020 | December 31, 2019 | | :------------------- | :------------ | :---------------- | | Right of Use (ROU) Assets | $2.75 | $2.82 | | Lease Liabilities | $2.77 | $2.83 | Note 5 ‑ Real Estate Properties Provides a breakdown of real estate properties, including land, buildings, and accumulated depreciation, and details additions and depreciation for the period - | Real Estate Properties (in thousands) | June 30, 2020 | December 31, 2019 | | :------------------------------------ | :------------ | :---------------- | | Land | $29,227 | $29,227 | | Building | $154,854 | $154,854 | | Building improvements | $10,143 | $9,702 | | Real estate properties (gross) | $194,224 | $193,783 | | Accumulated depreciation | $(27,464) | $(24,094) | | Total real estate properties, net | $166,760 | $169,689 | - Additions to multi-family properties totaled $441,000 during the six months ended June 30, 2020, while depreciation was $3,370,000[68] Note 6 - Acquisitions and Dispositions Details a multi-family property acquisition in Wilmington, NC, and confirms no dispositions or impairment charges during the reporting periods - | Acquisition Details (6 months ended June 30, 2020) | Value (in thousands) | | :--------------------------------- | :------------------- | | Location | Wilmington, North Carolina | | Purchase Date | 2/20/2020 | | Number of Units | 264 | | Purchase Price | $38,000 | | Initial BRT Equity | $13,700 | | Ownership Percentage | 80% | - No real estate properties were disposed of, and no impairment charges were recorded during the three and six months ended June 30, 2020 and 2019[71][74] Note 7 - Real Estate Loan Discusses a matured $4 million loan receivable secured by properties in Newark, NJ, and management's assessment of its collectibility - The company has a $4,000,000 loan receivable secured by properties in Newark, NJ[75] - The loan matured on June 30, 2020, and the borrower did not pay the balance[75] - Management believes the loan is collectible and no impairment allowance is needed[75] Note 8 - Restricted Cash Explains the nature and purpose of restricted cash held for capital improvements at unconsolidated joint venture properties - Restricted cash of $9,462,000 at June 30, 2020, is held for capital improvements at unconsolidated joint venture properties[76][13] - These funds are not available for general corporate purposes[76] Note 9 – Investment in Unconsolidated Ventures Provides financial details of unconsolidated joint ventures, including assets, liabilities, BRT's equity interest, and their contribution to rental revenue and net income - | Metric (in thousands) | June 30, 2020 | December 31, 2019 | | :------------------------------------ | :------------ | :---------------- | | Total Assets of Unconsolidated Ventures | $1,135,255 | $1,111,793 | | Total Liabilities of Unconsolidated Ventures | $846,155 | $823,020 | | BRT Interest in Joint Venture Equity | $180,768 | $177,071 | - | Metric (in thousands) | 3 Months Ended June 30, 2020 | 3 Months Ended June 30, 2019 | 6 Months Ended June 30, 2020 | 6 Months Ended June 30, 2019 | | :------------------------------------ | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Rental and Other Revenue | $31,542 | $28,976 | $62,385 | $55,803 | | Net Income (Loss) from Joint Ventures | $(1,977) | $(3,761) | $(4,779) | $(7,125) | | BRT Equity in Loss from Joint Ventures | $(1,387) | $(2,218) | $(3,202) | $(4,286) | - The weighted average interest rate on mortgages payable for unconsolidated joint ventures was 3.96% at June 30, 2020[78] Note 10 – Debt Obligations Details the company's debt structure, including mortgages payable, junior subordinated notes, and credit facilities, along with their interest rates and maturities - | Debt Obligation (in thousands) | June 30, 2020 | December 31, 2019 | | :----------------------------- | :------------ | :---------------- | | Mortgages payable | $132,533 | $134,038 | | Junior subordinated notes | $37,400 | $37,400 | | Deferred financing costs | $(1,020) | $(1,160) | | Total debt obligations, net | $168,913 | $170,278 | - Weighted average interest rate on mortgages payable was 4.15% at June 30, 2020[82] - Junior subordinated notes have an outstanding principal of $37.4 million, mature in April 2036, and bear interest at three-month LIBOR + 2.00% (2.76% at June 30, 2020)[86] - A $10 million credit facility with Valley National Bank, maturing April 2021, had no outstanding balance at June 30, 2020[83][85] Note 11 – Related Party Transactions Outlines fees paid for investment/consulting services, property management, and shared general and administrative expenses with related parties - | Related Party Fees (in thousands) | 3 Months Ended June 30, 2020 | 3 Months Ended June 30, 2019 | 6 Months Ended June 30, 2020 | 6 Months Ended June 30, 2019 | | :------------------------------------ | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Investment/Consulting Services | $349 | $333 | $699 | $666 | | Property Management (Majestic Property) | $8 | $8 | $16 | $15 | | Shared G&A Expenses (Gould Investors) | $238 | $155 | $464 | $297 | Note 12 – Fair Value of Financial Instruments Compares the carrying and fair values of junior subordinated notes and mortgages payable, and details the fair value measurement of derivative instruments - Fair value of junior subordinated notes was approximately $10,794,000 lower than carrying value at June 30, 2020[93] - Fair value of mortgages payable was approximately $6,586,000 greater than carrying value at June 30, 2020[95] - | Financial Liabilities (in thousands) | Carrying and Fair Value (June 30, 2020) | Fair Value Measurements Level 2 | | :--------------------------------- | :-------------------------------------- | :------------------------------ | | Interest rate swap | $34 | $34 | - Derivative financial instruments (interest rate swaps) are valued using Level 2 inputs in the fair value hierarchy[99] Note 13 – Derivative Financial Instruments Explains the company's use of interest rate swaps as cash flow hedges to manage interest rate exposure and their fair value - The company uses interest rate swaps as cash flow hedges to stabilize interest expense and manage interest rate exposure[101] - | Interest Rate Derivative | Notional Amount (in thousands) | Fixed Rate | Maturity | | :----------------------- | :----------------------------- | :--------- | :--------------- | | Interest rate swap | $1,104 | 5.25% | April 1, 2022 | - The fair value of derivatives in a net liability position was $36,000 at June 30, 2020[106] - An estimated $20,000 will be reclassified from other comprehensive loss as an increase to interest expense over the next twelve months[102] Note 14 – New Accounting Pronouncements Discusses the adoption of recent accounting standards and the evaluation of future pronouncements, noting no material effects on financial statements - The company adopted ASU 2020-04 (Reference Rate Reform), ASU 2018-16 (SOFR as Benchmark), ASU 2018-13 (Fair Value Measurement Disclosures), and ASU 2018-07 (Nonemployee Share-Based Payment Accounting), with no material effect on financial statements[107][108][109][110] - The company is evaluating the impact of ASU 2016-13 (Credit Losses on Financial Instruments), effective for fiscal years beginning after December 15, 2022[111] Note 15 – Subsequent Events Highlights the significant risks and uncertainties posed by the COVID-19 pandemic on the company's business and financial performance - The COVID-19 pandemic presents significant risks and uncertainties, with its ultimate impact on the company's business, financial condition, liquidity, results of operations, and prospects being highly uncertain[113] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial condition and results of operations, including an overview of its business, the challenges posed by COVID-19, the status of a significant real estate loan, and a detailed comparison of operating results for the three and six months ended June 30, 2020, versus 2019, also discussing liquidity, capital resources, off-balance sheet arrangements, cash distribution policy, and non-GAAP financial measures like FFO, AFFO, and NOI Cautionary Statement Regarding Forward-Looking Statements Warns that forward-looking statements are subject to various risks and uncertainties, including economic conditions, market risks, and the impact of COVID-19 - Forward-looking statements are subject to change due to various events and factors not all within the company's control[116] - Key risk factors include general economic conditions, capital and liquidity availability, real estate market conditions, regulatory changes, acquisition strategy, competitive environment, geographic concentration in the Southeast U.S. and Texas, and the impact of the COVID-19 pandemic[116][118] Overview Provides an overview of BRT Apartments Corp. as an internally managed REIT focused on multi-family properties, primarily through unconsolidated joint ventures in the Southeast U.S. and Texas - BRT Apartments Corp. is an internally managed REIT focused on multi-family properties, primarily through unconsolidated joint ventures[122] - | Property Type | Number of Properties | Number of Units | Carrying Value (in millions) | | :---------------------------- | :------------------- | :-------------- | :--------------------------- | | Wholly Owned Multi-family | 8 | 1,880 | $156.6 | | Unconsolidated Joint Ventures | 31 | 9,162 | $180.7 | - Most properties are located in the Southeast United States and Texas[122] - Seven properties were designated as "same store properties" for the periods ended June 30, 2020 and 2019[123] Challenges and Uncertainties Presented by COVID-19 Discusses the potential adverse effects of COVID-19 on rent collection, operating expenses, revenues, and property operations, especially in key geographic regions - COVID-19 may adversely affect residents' ability to pay rent, impacting the company's dividends and debt service[123] - The pandemic's resurgence in the Southeast U.S. and Texas, where many properties are located, increases risk[123] - Potential impacts include increased operating expenses, reduced revenues from rent accommodations, limited rent increases, and delays in property marketing, value-add programs, acquisitions, and dispositions[123] Status of $4 million real estate loan Addresses the non-payment of a matured $4 million real estate loan, its collateral, and the potential for future impairment - A $4.0 million real estate loan matured on June 30, 2020, and has not been paid[124] - The loan is secured by properties in Newark, New Jersey, and the company believes the value of these properties exceeds the loan balance[124] - The company may be required to recognize an impairment on this loan in the future and does not anticipate further interest income[124] Results of Operations – Three months ended June 30, 2020 compared to three months ended June 30, 2019. Compares the company's financial performance for the three months ended June 30, 2020, against the same period in 2019, analyzing key revenue and expense drivers Revenues (Three Months) Analyzes the changes in rental and other income, highlighting impacts from property sales, rent abatements, and acquisitions - | Revenue (in thousands) | 3 Months Ended June 30, 2020 | 3 Months Ended June 30, 2019 | Increase (Decrease) | % Change | | :--------------------- | :--------------------------- | :--------------------------- | :------------------ | :------- | | Rental revenue | $6,657 | $7,097 | $(440) | (6.2)% | | Other income | $159 | $190 | $(31) | (16.3)% | | Total revenues | $6,816 | $7,287 | $(471) | (6.5)% | - Rental revenue decreased due to $1.1 million from sold properties and $75,000 from COVID-19 rent abatements[130] - Offsetting increases included $602,000 from a partner buyout property and $118,000 from same-store properties (higher rental rates, lower occupancy)[131] Expenses (Three Months) Examines changes in real estate operating expenses, interest expense, general and administrative costs, and depreciation for the three-month period - | Expense (in thousands) | 3 Months Ended June 30, 2020 | 3 Months Ended June 30, 2019 | Increase (Decrease) | % Change | | :----------------------------- | :--------------------------- | :--------------------------- | :------------------ | :------- | | Real estate operating expenses | $3,004 | $3,325 | $(321) | (9.7)% | | Interest expense | $1,809 | $2,049 | $(240) | (11.7)% | | General and administrative | $2,957 | $2,481 | $476 | 19.2% | | Depreciation | $1,809 | $1,428 | $381 | 26.7% | | Total expenses | $9,579 | $9,283 | $296 | 3.2% | - General and administrative expenses increased by $476,000, primarily due to a $224,000 increase in professional fees (including $165,000 for restatement) and a $120,000 increase in compensation costs[140] - Depreciation increased by $381,000 due to additional depreciation from increased asset values on properties where partner interests were bought out[141] Equity in (loss) of unconsolidated joint ventures (Three Months) Reviews the company's share of income or loss from unconsolidated joint ventures, detailing changes in rental revenues and expenses - | Metric (in thousands) | 3 Months Ended June 30, 2020 | 3 Months Ended June 30, 2019 | Increase (Decrease) | % Change | | :------------------------------------------ | :--------------------------- | :--------------------------- | :------------------ | :------- | | Rental revenues from unconsolidated joint ventures | $31,542 | $28,976 | $2,566 | 8.9% | | Total expenses from unconsolidated joint ventures | $33,857 | $33,254 | $603 | 1.8% | | Net income (loss) from joint ventures | $(1,977) | $(3,761) | $1,784 | (47.4)% | | Equity in (loss) of unconsolidated joint ventures | $(1,387) | $(2,218) | $831 | (37.5)% | - Rental revenue increase was primarily due to $1.7 million from two properties in lease-up, $1.3 million from two acquired properties, and $660,000 from unconsolidated same-store properties[143] - Interest expense decreased by $153,000, mainly due to $394,000 from unconsolidated same-store properties (refinancing) and decreases from sold/partner buyout properties, partially offset by acquired properties[148][149] Results of Operations – Six months ended June 30, 2020 compared to six months ended June 30, 2019. Compares the company's financial performance for the six months ended June 30, 2020, against the same period in 2019, analyzing key revenue and expense drivers Revenues (Six Months) Analyzes the changes in rental and other income for the six-month period, highlighting impacts from property sales, acquisitions, and same-store performance - | Revenue (in thousands) | 6 Months Ended June 30, 2020 | 6 Months Ended June 30, 2019 | Increase (Decrease) | % Change | | :--------------------- | :--------------------------- | :--------------------------- | :------------------ | :------- | | Rental revenue | $13,402 | $13,983 | $(581) | (4)% | | Other income | $338 | $434 | $(96) | (22)% | | Total revenues | $13,740 | $14,417 | $(677) | (5)% | - Rental revenue decreased primarily due to $2.1 million from sold properties in the prior year[155] - Offsetting increases included $1.2 million from a partner buyout property and $366,000 from same-store properties (higher average rent, lower occupancy)[156] Expenses (Six Months) Examines changes in real estate operating expenses, interest expense, general and administrative costs, and depreciation for the six-month period - | Expense (in thousands) | 6 Months Ended June 30, 2020 | 6 Months Ended June 30, 2019 | Increase (Decrease) | % Change | | :----------------------------- | :--------------------------- | :--------------------------- | :------------------ | :------- | | Real estate operating expenses | $6,062 | $6,501 | $(439) | (6.8)% | | Interest expense | $3,669 | $3,995 | $(326) | (8.2)% | | General and administrative | $6,324 | $5,025 | $1,299 | 25.9% | | Depreciation | $3,370 | $2,975 | $395 | 13.3% | | Total expenses | $19,425 | $18,496 | $929 | 5.0% | - General and administrative expenses increased by $1,299,000, primarily due to an $820,000 increase in professional fees ($688,000 for restatement), $199,000 in compensation costs, and $161,000 from shared services[163] - Interest expense decreased by $326,000, mainly due to $411,000 from sold properties and a $224,000 decrease in subordinated debt interest rates, partially offset by a $392,000 increase from the partner buyout property[160][162] Equity in (loss) of unconsolidated joint ventures (Six Months) Reviews the company's share of income or loss from unconsolidated joint ventures for the six-month period, detailing changes in rental revenues and expenses - | Metric (in thousands) | 6 Months Ended June 30, 2020 | 6 Months Ended June 30, 2019 | Increase (Decrease) | % Change | | :------------------------------------------ | :--------------------------- | :--------------------------- | :------------------ | :------- | | Rental revenues from unconsolidated joint ventures | $62,385 | $55,803 | $6,582 | 11.8% | | Total expenses from unconsolidated joint ventures | $67,502 | $63,445 | $4,057 | 6.4% | | Net loss from joint ventures | $(4,779) | $(7,125) | $2,346 | (32.9)% | | Equity in (loss) of unconsolidated joint ventures | $(3,202) | $(4,286) | $1,084 | (25.3)% | - Rental revenue increase was primarily due to $3.5 million from two properties in lease-up, $2.6 million from two properties owned for the entire period, $2.2 million from two acquired properties, and $1.4 million from unconsolidated same-store properties[166] - Interest expense increased by $698,000, mainly due to $706,000 from properties owned for the entire period, $678,000 from acquired properties, and $579,000 from lease-up properties, partially offset by $526,000 from unconsolidated same-store properties (refinancing) and decreases from sold/partner buyout properties[171][172] Liquidity and Capital Resources Assesses the company's liquidity position, including cash, restricted cash, and credit facility availability, and discusses future debt obligations and funding needs - | Liquidity (as of August 1, 2020, in millions) | Amount | | :------------------------------------------ | :----- | | Cash and cash equivalents | $10.6 | | Restricted cash | $9.6 | | Credit facility availability | $10.0 | | Total Available Liquidity | $30.2 | - The company anticipates $115.3 million in mortgage amortization and interest expense and $182.9 million in balloon payments (including $97.3 million from unconsolidated joint ventures) maturing from 2020 to 2022[177] - Operating cash flow and available cash are insufficient to fully fund the $182.9 million balloon payments, potentially requiring additional equity or property dispositions[177] - Junior subordinated notes outstanding principal is $37.4 million, maturing April 2036, with an interest rate of three-month LIBOR + 200 basis points[180] Off Balance Sheet Arrangements Clarifies the company's lack of off-balance sheet arrangements, highlighting its material investments in unconsolidated joint ventures and their associated debt - The company is not a party to any off-balance sheet arrangements as defined by Regulation S-K[184] - The company is a joint venture partner in approximately 31 unconsolidated joint ventures, which are a material source of liquidity[184] - These joint ventures have $830.9 million in mortgage debt not reflected on the company's consolidated balance sheet[184] - Distributions from these joint venture properties were $3.8 million for the quarter ended June 30, 2020[184] Cash Distribution Policy Explains the company's REIT distribution requirements, current dividend policy, and factors influencing future dividend decisions - To qualify as a REIT, the company must distribute at least 90% of its ordinary taxable income[185] - The company had a net operating loss of approximately $16.8 million at December 31, 2019, meaning it is not currently required to pay cash dividends to maintain REIT status[186] - Quarterly cash dividends of $0.22 per share were paid on April 7, 2020, and July 9, 2020[186] - The board evaluates dividend policy quarterly, considering cash/liquidity requirements, debt maturities, REIT taxable income, and the impact of the COVID-19 pandemic[187] Funds from Operations; Adjusted Funds from Operations; Net Operating Income Defines and presents non-GAAP financial measures (FFO, AFFO, NOI) used to evaluate the company's operating and property-specific performance - FFO and AFFO are non-GAAP measures used to evaluate REIT operating performance, excluding real estate depreciation and certain non-cash items[189][190][191] - NOI is a non-GAAP measure used to evaluate property-specific performance, excluding corporate-level expenses[197][198] - | Metric (in thousands) | 3 Months Ended June 30, 2020 | 3 Months Ended June 30, 2019 | 6 Months Ended June 30, 2020 | 6 Months Ended June 30, 2019 | | :------------------------------------------ | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | NAREIT Funds from operations (FFO) | $4,186 | $3,479 | $7,484 | $6,541 | | Adjusted funds from operations (AFFO) | $4,712 | $3,871 | $8,680 | $7,589 | | Net Operating Income (NOI) | $3,653 | $3,772 | $7,340 | $7,482 | - | Per Share Metric | 3 Months Ended June 30, 2020 | 3 Months Ended June 30, 2019 | 6 Months Ended June 30, 2020 | 6 Months Ended June 30, 2019 | | :------------------------------------------ | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | NAREIT Funds from operations per diluted common share | $0.24 | $0.22 | $0.44 | $0.41 | | Adjusted funds from operations per diluted common share | $0.27 | $0.24 | $0.51 | $0.48 | - For the three months ended June 30, 2020, NOI decreased by $119,000, primarily due to sold properties (down $394,000), offset by partner buyout (up $254,000) and same-store NOI (up $40,000)[199] - For the six months ended June 30, 2020, NOI decreased by $142,000, primarily due to sold properties (down $776,000), offset by partner buyout (up $570,000) and same-store NOI (up $93,000)[200] Item 3. Quantitative and Qualitative Disclosures About Market Risks The company's market risks primarily relate to interest rate fluctuations, with most debt fixed-rate or hedged, while junior subordinated notes bear a variable interest rate, impacting annual interest expense by approximately $374,000 for a 100 basis point change - All mortgage debt is fixed rate or effectively fixed by an interest rate swap[202] - Junior subordinated notes bear interest at three-month LIBOR + 200 basis points (3.77% at June 30, 2020)[204] - A 100 basis point increase/decrease in interest rates would change annual interest expense on junior subordinated notes by approximately $374,000[204] - A 100 basis point change in forward interest rates would impact the fair market value of the interest rate swap by approximately $16,000, with no impact on net income or cash[203] Item 4. Controls and Procedures Management concluded that disclosure controls were ineffective as of June 30, 2020, due to a material weakness in internal controls over financial reporting related to property consolidation, though financial statements are deemed fairly presented - Disclosure controls and procedures were not effective as of June 30, 2020, due to a material weakness in internal controls over financial reporting[207] - The material weakness relates to the consolidation of properties that should have been accounted for using the equity method[206] - A remediation plan has been implemented, including enhanced procedures for evaluating property venture accounting, multi-level reviews, and additional training[208] - Management concluded that, despite the material weakness, the financial statements fairly present the company's financial position, results of operations, and cash flows in conformity with GAAP[209] Part II – Other Information Contains additional information, including a list of exhibits and required certifications Item 6. Exhibits This section lists the exhibits accompanying the Form 10-Q, including various certifications required by the Sarbanes-Oxley Act (Sections 302 and 906) from the President, CEO, SVP-Finance, and CFO, also specifying the inclusion of financial information formatted in Inline XBRL - Exhibits include certifications from the President, CEO, SVP-Finance, and CFO pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002[212] - Financial information from the Quarterly Report is provided in Inline XBRL format[212] SIGNATURES Confirms the official signing of the report by the President, CEO, Vice President, and CFO on August 10, 2020 - The report was signed by Jeffrey A. Gould, President and Chief Executive Officer, and George Zweier, Vice President and Chief Financial Officer, on August 10, 2020[219][220]