BRT Apartments -BRT Apartments: Well-Positioned To Benefit From Real Estate Cap Rate Compression

Core Viewpoint - BRT Apartments has underperformed the Vanguard Real Estate Index Fund in 2024 but is expected to outperform going forward due to attractive valuation metrics and potential benefits from Fed rate cuts [1][10]. Company Overview - BRT Apartments is a residential REIT focused on the Sun Belt region, with approximately 81% of net operating income (NOI) from its consolidated portfolio and 19% from joint ventures [2]. - The consolidated portfolio's NOI is primarily derived from Mississippi (16%), Tennessee (14.6%), and Alabama (12.2%) [2]. Operational Overview - In Q2 2024, BRT reported an adjusted FFO of $0.35 per share, a 5% decrease year-over-year, influenced by adjustments for straight-line rent and rent concessions [5]. - Occupancy remained flat year-over-year at 94.3%, with net operating income increasing by 1.8% year-over-year [6]. - BRT's operational performance is weaker compared to peers like Independence Realty Trust, with lower occupancy growth and NOI growth [7]. 2024 Outlook Commentary - The company anticipates that new supply will limit rent growth until the second half of 2024, focusing on maintaining stable occupancy until rental rates can increase [8]. - A more favorable transaction environment is expected in the latter half of 2024, particularly for smaller operators facing capital challenges [8]. Capital Structure - As of Q2 2024, BRT's net debt stood at$ 553 million, representing 62% of its $897 million enterprise value [9]. - The weighted average interest rate for BRT's debt is 4.03%, with a significant portion of floating-rate debt that will benefit from anticipated Fed rate cuts [11]. Prospects and Valuation - BRT is projected to deliver an adjusted FFO of approximately$ 1.35 to $1.40 per share in 2024, translating to an attractive adjusted FFO multiple of about 12.75 [10]. - The market-implied cap rate based on NOI is around 7.1%, which is favorable compared to peers [10]. - There is potential for improvement in general and administrative expenses, which could make BRT an acquisition target in the future [10].