BRT Apartments (BRT) - 2023 Q2 - Quarterly Report

Part I - Financial Information Item 1. Financial Statements This section presents the unaudited consolidated financial statements for BRT Apartments Corp. as of June 30, 2023, and for the three and six-month periods then ended, including balance sheets, statements of operations, equity, and cash flows, with detailed notes on preparation and significant transactions Consolidated Balance Sheets As of June 30, 2023, total assets slightly decreased to $727.8 million from $732.1 million at year-end 2022, while total liabilities remained stable at approximately $482.1 million, and total equity decreased to $245.7 million from $250.1 million due to distributions and share repurchases Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2023 (unaudited) | December 31, 2022 (audited) | | :--- | :--- | :--- | | Total Assets | $727,806 | $732,118 | | Real estate properties, net | $643,869 | $651,603 | | Cash and cash equivalents | $31,336 | $20,281 | | Total Liabilities | $482,060 | $482,048 | | Mortgages payable, net | $423,383 | $403,792 | | Credit facility, net | $0 | $18,502 | | Total Equity | $245,746 | $250,070 | Consolidated Statements of Operations For Q2 2023, net income attributable to common stockholders significantly decreased to $11.2 million ($0.58 per diluted share) from $35.6 million ($1.91 per diluted share) in Q2 2022, primarily due to lower equity in earnings from joint venture property sales, with six-month net income at $7.1 million compared to $47.1 million year-over-year Statement of Operations Summary (in thousands, except per share data) | Metric | Q2 2023 | Q2 2022 | H1 2023 | H1 2022 | | :--- | :--- | :--- | :--- | :--- | | Total Revenues | $23,318 | $14,685 | $46,257 | $26,119 | | Total Expenses | $27,452 | $17,803 | $55,432 | $31,816 | | Equity in earnings from sale of JV properties | $14,744 | $40,098 | $14,744 | $53,059 | | Net Income Attributable to Common Stockholders | $11,202 | $35,607 | $7,104 | $47,115 | | Diluted EPS | $0.58 | $1.91 | $0.37 | $2.53 | Consolidated Statements of Equity Total equity decreased from $250.1 million at year-end 2022 to $245.7 million as of June 30, 2023, primarily due to $9.7 million in common stock distributions and $5.8 million in share repurchases, partially offset by $7.1 million in net income - Key changes in equity for the six months ended June 30, 2023 include: - Distributions to common stockholders: $9.7 million ($4.8M in Q1, $4.8M in Q2) - Share repurchases: $5.8 million - Net income: $7.1 million[18] Consolidated Statements of Cash Flows For the first six months of 2023, net cash from operating activities was $6.9 million, investing activities provided $18.2 million (largely from $23.2 million in JV distributions), and financing activities used $14.1 million due to credit facility repayment, dividends, and share repurchases, partially offset by new mortgage proceeds Cash Flow Summary - Six Months Ended June 30 (in thousands) | Cash Flow Category | 2023 | 2022 | | :--- | :--- | :--- | | Net Cash from Operating Activities | $6,860 | $2,779 | | Net Cash from Investing Activities | $18,245 | $31,420 | | Net Cash from Financing Activities | ($14,092) | ($11,288) | | Net Increase in Cash | $11,013 | $22,911 | Notes to Consolidated Financial Statements The notes provide detailed information on the company's portfolio of 21 wholly-owned and 7 joint venture multi-family properties, significant events including the sale of a JV property for $73 million and an agreement to acquire a property for $62.5 million, and details on debt obligations and the extended $10 million share repurchase program - As of June 30, 2023, the company wholly owns 21 multi-family properties (5,420 units) and has interests in 7 JV properties (2,287 units), primarily located in the Southeast US and Texas[37] - On May 12, 2023, an unconsolidated JV sold a 494-unit property in Dallas, TX for $73 million. BRT's 50% share of the gain was $14.7 million[72] - The company's share repurchase program was extended to December 31, 2025, and the total authorization was increased to $10 million. In Q2 2023, 309,153 shares were repurchased for $5.8 million[49] - The company entered into an agreement to acquire a 238-unit property in Richmond, VA, for approximately $62.5 million, which includes the assumption of ~$32 million in mortgage debt[66] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's performance, noting that revenue and expense growth was primarily driven by 2022 "Partner Buyouts" and addressing economic challenges like inflation and rising interest rates, with same-store property performance remaining relatively flat and liquidity solid at $86.7 million available as of August 1, 2023, alongside analysis of non-GAAP measures like FFO, AFFO, and NOI Overview and Key Activities BRT, a REIT focused on multi-family properties in the Southeast US and Texas, engaged in key activities including the sale of a joint venture property in Dallas for $73 million (resulting in a $14.7 million gain for BRT), the repurchase of $5.8 million of common stock, and an agreement to acquire a property in Richmond, VA, while navigating an uncertain economic environment with inflation and rising interest rates - The company's portfolio consists of 21 wholly-owned properties (5,420 units) and interests in 7 unconsolidated joint venture properties (2,287 units) as of June 30, 2023[249] - During Q2 2023, the company repurchased 309,153 shares of common stock for an aggregate cost of $5.8 million[193] - An unconsolidated joint venture sold a property in Dallas, TX (the "Chatham Sale"), generating a $14.7 million gain for BRT[270] Results of Operations For Q2 2023, total revenues increased 58.8% to $23.3 million, and for H1 2023, they rose 77.1% to $46.3 million, primarily due to the consolidation of properties from 2022 "Partner Buyouts," while Same Store Net Operating Income (NOI) decreased slightly by $376,000 in Q2 and $20,000 in H1 2023, indicating flat underlying performance Revenue and Expense Comparison (in thousands) | Period | Total Revenues | % Change YoY | Total Expenses | % Change YoY | | :--- | :--- | :--- | :--- | :--- | | Q2 2023 | $23,318 | 58.8% | $27,452 | 54.2% | | H1 2023 | $46,257 | 77.1% | $55,432 | 74.2% | - Same Store NOI decreased by $376,000 in Q2 2023 and by $20,000 in H1 2023 compared to the same periods in 2022[114][115] - The significant increase in both revenues and expenses is primarily attributed to the "Partner Buyouts" of ten properties in 2022, which moved them from unconsolidated joint ventures to wholly-owned, consolidated properties[176][195][228] Liquidity and Capital Resources As of August 1, 2023, the company had $86.7 million in available liquidity, including $26.7 million in cash and $60 million available under its credit facility, and faces $123.4 million in mortgage balloon payments maturing in 2025 and 2026, which it plans to address through refinancing, property sales, or equity issuance, while maintaining a quarterly dividend of $0.25 per share - Total available liquidity was $86.7 million as of August 1, 2023, including $60 million available on the credit facility[264] - The company has $123.4 million in mortgage balloon payments maturing in 2025 and 2026, which will require refinancing or other capital sources[92] - The company paid a quarterly cash dividend of $0.25 per share on July 6, 2023[97] Non-GAAP Financial Measures (FFO, AFFO, NOI) The company provides reconciliations for non-GAAP measures, showing that for Q2 2023, FFO per diluted share increased to $0.28 from $0.20 YoY, while AFFO per share was flat at $0.37, and for the six-month period, FFO per share was flat at $0.55, with AFFO per share declining slightly to $0.73 from $0.76, reflecting factors like lower gains on sales, higher interest expense, and increased non-cash compensation FFO and AFFO Per Diluted Share | Metric | Q2 2023 | Q2 2022 | H1 2023 | H1 2022 | | :--- | :--- | :--- | :--- | :--- | | FFO per diluted share | $0.28 | $0.20 | $0.55 | $0.55 | | AFFO per diluted share | $0.37 | $0.37 | $0.73 | $0.76 | - Q2 2023 FFO increased primarily due to lower charges for early extinguishment of debt and a lower income tax provision, offset by higher interest expense[130] - H1 2023 AFFO decreased mainly due to higher interest expense on subordinated debt, partially offset by a lower income tax provision[109] Quantitative and Qualitative Disclosures About Market Risks The company's primary market risk is interest rate changes on its variable-rate debt, including junior subordinated notes and the credit facility, with a hypothetical 100 basis point (1%) increase in interest rates projected to increase annual interest expense by approximately $374,000 - The company's variable-rate debt consists of junior subordinated notes (tied to 3-month Term SOFR) and the credit facility (tied to the prime rate)[117] - A 100 basis point change in interest rates would result in an approximate $374,000 change in annual interest expense[117] Controls and Procedures Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of June 30, 2023, with no material changes to internal control over financial reporting during the second quarter - Management concluded that disclosure controls and procedures were effective as of June 30, 2023[118] - There were no changes in internal control over financial reporting during the quarter that materially affected, or are reasonably likely to materially affect, internal controls[119] Part II – Other Information Legal Proceedings The company is involved in ordinary course legal proceedings, primarily personal injury claims, and while management believes insurance coverage is sufficient for compensatory damages, punitive damages are generally not covered, with no material changes to previously disclosed litigation status - There are no material changes to the litigation status previously disclosed in the Annual Report[86] - The company is a defendant in a wrongful death lawsuit seeking over $1 million plus exemplary (punitive) damages, which are typically not covered by insurance[165][87] Unregistered Sales of Equity Securities and Use of Proceeds During Q2 2023, the company repurchased 309,153 shares of common stock at an average price of $18.87 per share, totaling approximately $5.8 million, and the board extended the share repurchase program to December 31, 2025, increasing the authorization to $10 million Share Repurchases - Q2 2023 | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | April 2023 | — | — | | May 2023 | 125,914 | $17.82 | | June 2023 | 183,239 | $19.34 | | Total Q2 | 309,153 | $18.87 | - On June 14, 2023, the Board extended the share repurchase program to December 31, 2025, and increased the total authorization to $10 million[88] Other Information The company states that none of its officers or directors had a Rule 10b5-1 trading plan or any other non-Rule 10b5-1 trading arrangement in effect during the three months ended June 30, 2023 - No officers or directors had a Rule 10b5-1 trading plan in effect during Q2 2023[274] Exhibits This section lists all exhibits filed with the Form 10-Q, including the Form of Performance Award Agreement for the 2022 Incentive Plan, certifications from the CEO and CFO as required by Sections 302 and 906 of the Sarbanes-Oxley Act, and financial statements formatted in Inline XBRL - The filing includes certifications from the President and Chief Executive Officer, and the Vice President and Chief Financial Officer, pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002[287]