BRT Apartments (BRT) - 2022 Q1 - Quarterly Report

Part I - Financial Information Item 1. Financial Statements This section presents BRT Apartments Corp.'s unaudited consolidated financial statements, including balance sheets, statements of operations, comprehensive income, equity, and cash flows, along with detailed explanatory notes Consolidated Balance Sheets This table provides a snapshot of the company's assets, liabilities, and equity at specific reporting dates | Metric | March 31, 2022 (unaudited) (in thousands) | December 31, 2021 (audited) (in thousands) | | :---------------------------------------------------------------- | :---------------------------------------- | :--------------------------------------- | | ASSETS | | | | Real estate properties, net | $328,334 | $293,550 | | Investments in unconsolidated joint ventures | $106,025 | $112,347 | | Cash and cash equivalents | $29,688 | $32,339 | | Total Assets | $483,000 | $459,538 | | LIABILITIES AND EQUITY | | | | Mortgages payable, net | $211,565 | $199,877 | | Junior subordinated notes, net | $37,108 | $37,103 | | Total Liabilities | $268,798 | $256,587 | | Total Equity | $214,202 | $202,951 | | Total Liabilities and Equity | $483,000 | $459,538 | Consolidated Statements of Operations This table summarizes the company's revenues, expenses, and net income (loss) over specific periods | Metric | Three Months Ended March 31, 2022 (in thousands) | Three Months Ended March 31, 2021 (in thousands) | | :------------------------------------------------- | :----------------------------------------------- | :----------------------------------------------- | | Total revenues | $11,434 | $7,099 | | Total expenses | $14,013 | $9,428 | | Income (loss) from continuing operations | $11,618 | $(3,674) | | Net income (loss) attributable to common stockholders | $11,508 | $(3,765) | | Basic and Diluted EPS | $0.62 | $(0.22) | Consolidated Statements of Comprehensive Income (loss) This table presents the company's net income (loss) and other comprehensive income (loss) for the reported periods | Metric | Three Months Ended March 31, 2022 (in thousands) | Three Months Ended March 31, 2021 (in thousands) | | :---------------------------------------------- | :----------------------------------------------- | :----------------------------------------------- | | Net income (loss) | $11,544 | $(3,731) | | Comprehensive income (loss) | $11,544 | $(3,726) | | Comprehensive income (loss) attributable to common stockholders | $11,508 | $(3,761) | Consolidated Statements of Equity This table details changes in the company's total equity, including net income, distributions, and stock issuances | Metric | December 31, 2021 (in thousands) | March 31, 2022 (in thousands) | | :------------------------------------------------- | :------------------------------- | :------------------------------ | | Total Equity | $202,951 | $214,202 | | Net income | $11,544 | $11,544 | | Distributions - common stock | $(4,305) | $(4,305) | | Shares issued through equity offering program, net | $3,038 | $3,038 | Consolidated Statements of Cash Flows This table outlines the cash inflows and outflows from operating, investing, and financing activities for the reported periods | Metric | Three Months Ended March 31, 2022 (in thousands) | Three Months Ended March 31, 2021 (in thousands) | | :--------------------------------------- | :----------------------------------------------- | :----------------------------------------------- | | Net cash provided by operating activities | $469 | $152 | | Net cash provided by investing activities | $12,969 | $3,658 | | Net cash used in financing activities | $(16,128) | $(4,578) | | Cash, cash equivalents and restricted cash at end of period | $36,231 | $27,917 | Notes to Consolidated Financial Statements This section provides detailed explanations and disclosures supporting the consolidated financial statements Note 1 – Organization and Background This note describes BRT Apartments Corp.'s business as a REIT focused on multi-family properties and its property portfolio - BRT Apartments Corp. operates as a REIT, focusing on owning, operating, and developing multi-family properties, primarily in the Southeast United States and Texas[31] | Property Type | Number of Properties | Units | Carrying Value (in thousands) | | :-------------------------------- | :------------------- | :------ | :---------------------------- | | Wholly-owned multi-family properties | 11 | 2,864 | $326,350 | | Interests in unconsolidated multi-family properties | 21 | 6,121 | $103,917 | | Interest in development project | 1 | 240 | $2,122 | | Other real estate assets | N/A | N/A | $1,984 | Note 2 – Basis of Preparation This note explains the accounting principles and methods used in preparing the interim unaudited consolidated financial statements - The interim unaudited consolidated financial statements include all normal recurring adjustments and are prepared in conformity with GAAP[33] - The Company accounts for investments in unconsolidated joint ventures using the equity method, as these are not considered variable interest entities (VIEs) and the Company does not exercise substantial operating control[33] Note 3 – Equity This note details changes in the company's equity, including stock offerings, distributions, and stock-based compensation - The Company entered into new equity distribution agreements to sell up to $40 million of common stock via an at-the-market offering, replacing prior agreements[35] - During Q1 2022, 136,279 shares were sold for $3.08 million gross proceeds[35] - A quarterly cash distribution of $0.23 per share was declared, payable April 7, 2022[36] | Stock-Based Compensation (in thousands) | Q1 2022 | Q1 2021 | | :-------------------------------------- | :------ | :------ | | RSU compensation expense | $250 | $37 | | Restricted stock compensation expense | $724 | $501 | | Total deferred compensation expense (RSUs) as of March 31, 2022 | $1,997 | N/A | | Total deferred compensation expense (Restricted Stock) as of March 31, 2022 | $9,986 | N/A | - The Company did not repurchase any shares under its $5 million stock repurchase plan during Q1 2022[42] | Per Share Data | Q1 2022 | Q1 2021 | | :------------------------------------------------- | :------ | :------ | | Net income (loss) available for common stockholders (in thousands) | $10,934 | $(3,602) | | Weighted average common shares outstanding (Basic) | 17,561,802 | 17,319,222 | | Weighted average common shares outstanding (Diluted) | 17,654,349 | 17,319,222 | | Basic and Diluted EPS | $0.62 | $(0.22) | Note 4 – Leases This note outlines the company's lease arrangements, both as a lessor and a lessee, including ROU assets and lease liabilities - The Company acts as a lessor for a commercial building with leases expiring 2024-2028[47] - The Company acts as a lessee for a ground lease in Yonkers, NY (expiring 2024 with a 21-year renewal option) and a corporate office lease in Great Neck, NY (expiring 2031 with a five-year renewal option)[48][50] | Lease Metrics (in thousands) | March 31, 2022 | December 31, 2021 | | :--------------------------- | :------------- | :---------------- | | Right of Use ("ROU") assets | $2,518 | $2,568 | | Lease liabilities | $2,589 | $2,629 | Note 5 – Real Estate Properties This note provides details on the company's real estate property portfolio, including acquisitions and dispositions | Real Estate Properties (in thousands) | March 31, 2022 | December 31, 2021 | | :------------------------------------ | :------------- | :---------------- | | Land | $42,158 | $38,822 | | Building | $315,279 | $281,841 | | Total real estate properties, net | $328,334 | $293,550 | - On March 23, 2022, the Company acquired the remaining 28.1% interest in Verandas at Alamo, San Antonio, TX, for $8.721 million, making it wholly-owned and consolidated[54] - On February 2, 2022, a vacant land parcel in Daytona, Florida, was sold for $4.7 million, recognizing a nominal gain[58] Note 6 – Impairment Charges This note discloses whether any impairment charges were recorded for the reported periods - No impairment charges were recorded for the three months ended March 31, 2022, or 2021[62] Note 7 – Restricted Cash This note explains the nature and purpose of the company's restricted cash balances - Restricted cash represents funds held for specific purposes, primarily capital improvements at multi-family properties owned by unconsolidated joint ventures[63] Note 8 – Investment in Unconsolidated Ventures This note provides details on the company's investments in unconsolidated joint ventures, including their financial performance and significant transactions - At March 31, 2022, the Company held interests in 21 unconsolidated joint ventures, down from 23 at December 31, 2021[65] | Unconsolidated Joint Ventures (in thousands) | March 31, 2022 | December 31, 2021 | | :------------------------------------------- | :------------- | :---------------- | | Total real estate properties, net | $675,246 | N/A | | Weighted average interest rate on mortgages payable | 4.07% | 3.97% | | Weighted average remaining term to maturity | 7.64 years | 7.60 years | | Unconsolidated Joint Ventures Income (in thousands) | Q1 2022 | Q1 2021 | | :-------------------------------------------------- | :------ | :------ | | Rental and other revenue | $25,231 | $32,672 | | Total expenses | $23,831 | $34,610 | | Net income (loss) from joint ventures | $25,592 | $(1,929) | | BRT's equity in earnings (loss) and equity in earnings from sale | $14,191 | $(1,345) | - An unconsolidated joint venture sold The Verandas at Shavano for $53.75 million, resulting in a $12.961 million gain for BRT[69] - Subsequent to March 31, 2022, two joint ventures entered contracts to sell Retreat at Cinco Ranch for $68.5 million and The Vive for $92.0 million, anticipated to close in Q2 2022[69] - The Company purchased a 17.45% interest in the Stono Oaks development property for $3.5 million[70] - The Company completed the acquisition of the remaining 28.1% interest in Verandas at Alamo for $8.721 million, leading to its consolidation[71] - Subsequent to March 31, 2022, the Company acquired the remaining 21.6% interest in Vanguard Heights for $4.8 million, leading to its consolidation[72][73] Note 9 – Debt Obligations This note provides a breakdown of the company's debt, including mortgages payable and junior subordinated notes, along with interest rates and maturities | Debt Obligations (in thousands) | March 31, 2022 | December 31, 2021 | | :------------------------------ | :------------- | :---------------- | | Mortgages payable | $212,862 | $200,857 | | Junior subordinated notes | $37,400 | $37,400 | | Total debt obligations, net | $248,673 | $236,980 | - The weighted average interest rate on consolidated mortgage payables was 3.73% with a 10.2-year remaining term to maturity at March 31, 2022[75] - Interest expense for Q1 2022 was $1.763 million, up from $1.430 million in Q1 2021[75] - The Company paid off $14.558 million in mortgage debt during Q1 2022[76] - The credit facility with Valley National Bank allows borrowing up to $35 million for acquisitions, debt repayment, and operating expenses[78] - As of March 31, 2022, no balance was outstanding, and $35 million was available[79] - Junior subordinated notes have an outstanding principal of $37.4 million, mature in April 2036, and bear interest at three-month LIBOR + 2.00% (2.30% at March 31, 2022)[80] Note 10 – Related Party Transactions This note discloses transactions with related parties, including fees for services and expense reimbursements - Fees for executive officer and director services related to property analysis and investment advice totaled $367,000 in Q1 2022, up from $350,000 in Q1 2021[83] - Property management services provided by Majestic Property Management Corp. (wholly owned by a director) amounted to $11,000 in Q1 2022, up from $7,000 in Q1 2021[84] - Allocated general and administrative expenses reimbursed to Gould Investors L.P. under a shared services agreement were $246,000 in Q1 2022, up from $172,000 in Q1 2021[84] Note 11 – Fair Value Measurements This note provides information on the fair value of financial instruments, particularly debt obligations - The fair value of junior subordinated notes was approximately $8.15 million lower than their carrying value at March 31, 2022, based on a market interest rate of 4.30%[86] - The estimated fair value of mortgages payable was approximately $36.739 million lower than their carrying value at March 31, 2022, assuming market interest rates between 3.92% and 4.67%[87] Note 12 – Derivative Financial Instruments This note describes the company's use of derivative instruments, specifically interest rate swaps, for risk management - The Company uses interest rate swaps as cash flow hedges to manage interest rate risk[91] - As of March 31, 2022, and December 31, 2021, there were no outstanding interest rate derivatives designated as cash flow hedges[92] Note 13 – New Accounting Pronouncements This note discusses the adoption and impact of new accounting standards on the company's financial reporting - The Company elected to apply hedge accounting expedients under ASU 2020-04 (Reference Rate Reform) for LIBOR-indexed cash flows to preserve derivative presentation consistent with past practices[94] Note 14 – Subsequent Events This note reports on significant events that occurred after the balance sheet date but before the financial statements were issued - Significant subsequent events have been evaluated and included in the notes to the consolidated financial statements[95] 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 operational results, highlighting key strategies, recent transactions, and performance metrics Cautionary Statement Regarding Forward-Looking Statements This statement advises readers that the report contains forward-looking information subject to various risks and uncertainties - The report contains forward-looking statements subject to various risks and uncertainties, including the impact of COVID-19, economic conditions, capital availability, real estate market changes, and regulatory shifts[97][98] Overview This section provides a high-level summary of BRT's business, its property portfolio, and strategic focus as an internally managed REIT - BRT is an internally managed REIT focused on multi-family properties, with 11 wholly-owned properties (2,864 units, $326.3 million carrying value), interests in 21 unconsolidated joint ventures (6,121 units, $103.9 million carrying value), and a 17.45% interest in a 240-unit development property ($2.1 million carrying value) as of March 31, 2022[101][103] Challenges and Uncertainties Presented by COVID-19 This section discusses the impact of the COVID-19 pandemic on the company's operations and financial strategies - The COVID-19 pandemic did not have a direct material adverse effect on financial condition but led to conservative approaches in rent increases, acquisitions, and value-add programs, potentially limiting additional income[104] Buyout of Interests in Joint Ventures This section details the company's strategy of acquiring remaining interests from joint venture partners to increase consolidated assets and revenues - The Company's 2022 acquisition strategy focuses on purchasing remaining interests from joint venture partners ('Partner Buyouts'), which will significantly increase consolidated assets, liabilities, revenues, and expenses[105] - On March 23, 2022, BRT acquired the remaining 28.1% interest in Verandas at Alamo Ranch for $8.7 million, consolidating the 288-unit property and its $27 million mortgage debt[107] - Subsequent to Q1 2022, on April 7, 2022, BRT acquired the remaining 21.6% interest in Vanguard Heights for $4.8 million, consolidating the 174-unit property and its $29.7 million mortgage debt[108] | Property Name | Location | Units | Remaining Interest to be Purchased | Purchase Price (in thousands) | Estimated Debt to be Included (in thousands) | | :-------------------------- | :--------------- | :---- | :------------------------------- | :---------------------------- | :------------------------------------------- | | Jackson Square | Tallahassee, FL | 242 | 20% | $6,220 | $21,524 | | Grove at River Place | Macon, GA | 240 | 20% | $7,485 | $11,481 | | The Woodland Apartments | Boerne, TX | 120 | 20% | $3,550 | $7,935 | | Brixworth at Bridge Street | Huntsville, AL | 208 | 20% | $10,851 | $18,500 | | Abbotts Run | Willmington, NC | 264 | 20% | $8,560 | $23,160 | | Civic Center I | Southaven, MS | 392 | 25% | $18,063 | $27,544 | | Civic Center II | Southaven, MS | 384 | 25% | $17,694 | $30,288 | | Magnolia Pointe at Madison | Madison, AL | 204 | 20% | $7,132 | $15,000 | | Somerset at Trussville | Birmingham, AL | 328 | 20% | $9,785 | $32,250 | | Total | | 2,382 | | $89,340 | $187,682 | Property Dispositions This section outlines the sales of properties by the company and its joint ventures, including the gains realized - On February 8, 2022, a joint venture sold The Verandas at Shavano for $53.8 million, generating a $13.0 million gain for BRT[112] - In April 2022, a joint venture agreed to sell Retreat at Cinco Ranch for $68.5 million, with BRT's anticipated share of the gain being approximately $16.4 million[113] - In May 2022, a joint venture agreed to sell The Vive for $92.0 million, with BRT's anticipated share of the gain being approximately $21.5 million[115] - On February 2, 2022, a vacant land parcel in Daytona, Florida, was sold for $4.7 million, resulting in a nominal gain[116] Other Activities During the Three Months Ended March 31, 2022 This section summarizes other notable financial and operational activities undertaken by the company during the first quarter of 2022 - BRT invested $3.5 million for a 17.45% interest in Stono Oaks, a planned 240-unit multi-family development in Johns Island, SC, expected to be completed in Q4 2023[117] - The Company paid off $14.6 million of mortgage debt on Avalon Apartments-Pensacola, FL, one month prior to its maturity[118] - 136,279 shares of common stock were sold through the ATM program at an average price of $22.61 per share, generating $3.0 million in net proceeds[119] Results of Operations – Three months ended March 31, 2022 compared to three months ended March 31, 2021 This section analyzes the company's financial performance by comparing revenues and expenses for the first quarter of 2022 against the same period in 2021 | Revenues (in thousands) | Q1 2022 | Q1 2021 | Increase (Decrease) | % Change | | :--------------------------------------- | :------ | :------ | :------------------ | :------- | | Rental and other revenue from real estate properties | $11,430 | $7,095 | $4,335 | 61.1% | | Total revenues | $11,434 | $7,099 | $4,335 | 61.1% | - The increase in rental revenue was primarily due to $4.4 million from Partner Buyouts (Consolidating Transactions) and $614,000 from increased average rental rates at same-store properties, partially offset by a $739,000 decrease from the Kendall Manor property sale[122][124] | Expenses (in thousands) | Q1 2022 | Q1 2021 | Increase (Decrease) | % Change | | :-------------------------------- | :------ | :------ | :------------------ | :------- | | Real estate operating expenses | $4,753 | $3,117 | $1,636 | 52.5% | | Interest expense | $2,021 | $1,660 | $361 | 21.7% | | General and administrative | $3,633 | $3,114 | $519 | 16.7% | | Depreciation and amortization | $3,606 | $1,537 | $2,069 | 134.6% | | Total expenses | $14,013 | $9,428 | $4,585 | 48.6% | - Real estate operating expenses increased by $1.9 million due to Consolidating Transactions and $224,000 at same-store properties, partially offset by a $456,000 decline from the Kendall Sale[126][127] - Interest expense increased by $1.0 million from Consolidating Transactions, offset by a $664,000 decrease due to mortgage debt payoffs in 2021 and the current period[128] - General and administrative expenses increased by $436,000, primarily due to higher non-cash compensation expense from restricted stock units and restricted stock grants[130] - Depreciation and amortization increased by $2.2 million due to Consolidating Transactions[131] | Unconsolidated Joint Ventures (in thousands) | Q1 2022 | Q1 2021 | Increase (Decrease) | % Change | | :------------------------------------------------------------------------------------------------------- | :------ | :------ | :------------------ | :------- | | Rental and other revenues | $25,231 | $32,672 | $(7,441) | (22.8)% | | Real estate operating expense | $11,169 | $15,703 | $(4,534) | (28.9)% | | Interest expense | $6,026 | $8,522 | $(2,496) | (29.3)% | | Depreciation | $6,636 | $10,385 | $(3,749) | (36.1)% | | Net income (loss) | $25,592 | $(1,929) | $27,521 | N/A | | Equity in earnings (loss) and equity in earnings from sale of unconsolidated joint venture properties | $14,191 | $(1,345) | $15,536 | N/A | - Rental revenues from unconsolidated joint ventures decreased by $7.4 million, primarily due to property sales (Avenue/Parc, Anatole/Opop, Shavano) and Consolidating Transactions, partially offset by a $2.4 million increase from same-store sales[135][136] - Real estate operating expenses from unconsolidated joint ventures decreased by $4.5 million due to property sales and Consolidating Transactions, partially offset by a $193,000 increase at same-store properties[137] - Interest expense from unconsolidated joint ventures decreased by $2.5 million due to reduced mortgage debt from property sales and Consolidating Transactions[140] - Depreciation from unconsolidated joint ventures decreased by $3.7 million due to property sales and Consolidating Transactions[141] - In Q1 2022, BRT recognized $515,000 in gains on insurance recoveries, primarily from Texas Storm claims exceeding previous write-offs, compared to $2.3 million impairment charges and corresponding insurance recoveries in Q1 2021[142][143][144] - A $23.652 million gain on sale of real estate from unconsolidated joint ventures was recognized in Q1 2022 due to the Shavano Sale, with no comparable gain in Q1 2021[145] Liquidity and Capital Resources This section discusses the company's sources and uses of cash, including operating activities, debt, and equity offerings - Primary capital sources include property operations, mortgage debt, property sales, ATM equity offerings, credit facility borrowings, and available cash[146] - Cash and cash equivalents were $29.7 million at March 31, 2022[146] - Anticipated funding needs for operating expenses, $104.5 million in mortgage amortization and interest, $25.7 million in balloon payments, and $47.0 million in dividends through 2024 will be met by operations, property sales, and the credit facility[146] - Total mortgage debt was $747.3 million at March 31, 2022, including $534.5 million from unconsolidated subsidiaries[149] - Consolidated debt had a 3.73% weighted average interest rate and 10.2-year term, while unconsolidated debt had a 4.07% rate and 7.6-year term[149] - The $35 million credit facility with VNB had no outstanding balance and full availability at March 31, 2022, maturing in November 2024 with an adjustable interest rate of 25 basis points over prime (3.75% at March 31, 2022)[150] - Distributions from unconsolidated joint ventures ($19.7 million in Q1 2022, including $14.9 million from property sales) are a material source of liquidity[153] Cash Distribution Policy This section outlines the company's policy for distributing cash to shareholders to maintain its REIT status - To maintain REIT status, the Company must distribute at least 90% of its ordinary taxable income[154] - Despite a net operating loss of $35.7 million at December 31, 2021, a quarterly cash dividend of $0.23 per share was paid on April 7, 2022[155] Application of Critical Accounting Estimates This section confirms whether there have been any significant changes in the company's critical accounting estimates - There have been no significant changes in critical accounting estimates since December 31, 2021[157] Funds from Operations; Adjusted Funds from Operations; Net Operating Income This section defines and presents key non-GAAP financial measures used to evaluate the company's operating performance and property-level profitability - FFO and AFFO are non-GAAP measures used to evaluate REIT operating performance, excluding real estate depreciation/amortization and certain gains/losses[159][160][161][171][172] - NOI is a property-specific metric for evaluating property performance[159][160][161][171][172] | Metric (in thousands) | Q1 2022 | Q1 2021 | | :-------------------------------------------------- | :------ | :------ | | GAAP Net income (loss) attributable to common stockholders | $11,508 | $(3,765) | | NAREIT Funds from operations attributable to common stockholders | $6,461 | $6,029 | | Adjusted funds from operations attributable to common stockholders | $7,243 | $5,125 | | Per Share Metric | Q1 2022 | Q1 2021 | | :-------------------------------------------------- | :------ | :------ | | NAREIT Funds from operations per diluted common share | $0.35 | $0.35 | | Adjusted funds from operations per diluted common share | $0.39 | $0.30 | | Diluted shares outstanding for FFO and AFFO | 18,570,639 | 17,319,222 | - FFO increased due to improved operating margins at consolidated and unconsolidated same-store properties, Consolidating Transactions, and reduced interest expense, offset by property sales and increased non-cash equity award expense[167] - AFFO increased due to factors impacting FFO, excluding the effects of significant insurance recoveries in 2021 and non-cash compensation expense in Q1 2022[168] | Net Operating Income (in thousands) | Q1 2022 | Q1 2021 | | :---------------------------------- | :------ | :------ | | Net Operating Income | $6,677 | $3,978 | | Same store Net Operating Income | $3,836 | $3,446 | - Total NOI increased by $2.7 million, driven by a $4.4 million increase in rental revenues (Consolidating Transactions) offset by a $1.9 million increase in operating expenses[173] - Same-store NOI increased by $390,000 due to higher rental rates[173] Item 3. Quantitative and Qualitative Disclosures About Market Risks This section outlines the Company's exposure to market risks, specifically focusing on interest rate fluctuations affecting its debt obligations - All mortgage debt bears fixed interest rates[175] - Junior subordinated notes bear interest at three-month LIBOR plus 200 basis points (2.30% at March 31, 2022)[175] - A 100 basis point increase in the LIBOR rate would increase annual interest expense by approximately $374,000, while a 100 basis point decrease would reduce it by $112,000[175] Item 4. Controls and Procedures This section confirms the effectiveness of the Company's disclosure controls and procedures and reports on any changes to internal control over financial reporting - Management, including the CEO and SVP-Finance/CFO, concluded that disclosure controls and procedures were effective as of March 31, 2022[176] - There were no material changes in internal control over financial reporting during the quarter ended March 31, 2022[177] Part II – Other Information Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including various certifications and financial information formatted in Inline XBRL - Exhibits include certifications from the CEO and SVP-Finance/CFO pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002, and financial information formatted in Inline XBRL[180]