BRT Apartments Corp. 10-Q

Item 1. Financial Statements BRT APARTMENTS CORP. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Amounts in thousands, except per share data) September 30, 2020 December 31, 2019 (unaudited) (audited) ASSETS Real estate properties, net of accumulated depreciation and amortization of $29,237 and $24,094 $ 161,594 $ 169,689 Investments in unconsolidated joint ventures 175,484 177,071 Real estate loan — 4,150 Cash and cash equivalents 15,650 22,699 Restricted cash 9,129 9,719 Other assets 12,390 7,282 Total Assets $ 374,247 $ 390,610 LIABILITIES AND EQUITY Liabilities: Mortgages payable, net of deferred costs of $628 and $823 $ 131,148 $ 133,215 Junior subordinated notes, net of deferred costs of $322 and $337 37,078 37,063 Accounts payable and accrued liabilities 21,678 20,772 Total Liabilities 189,904 191,050 Commitments and contingencies Equity: BRT Apartments Corp. stockholders' equity: Preferred shares $.01 par value 2,000 shares authorized, none outstanding — — Common stock, $.01 par value, 300,000 shares authorized; 16,432 and 15,638 shares outstanding 164 156 Additional paid-in capital 245,144 232,331 Accumulated other comprehensive loss ( 24 ) ( 10 ) Accumulated deficit ( 60,853 ) ( 32,824 ) Total BRT Apartments Corp. stockholders’ equity 184,431 199,653 Non-controlling interests ( 88 ) ( 93 ) Total Equity 184,343 199,560 Total Liabilities and Equity $ 374,247 $ 390,610 See accompanying notes to consolidated financial statements. 3 Table of Contents BRT APARTMENTS CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (Dollars in thousands, except per share data) Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 2020 2019 Revenues: Rental revenue $ 7,020 $ 6,261 $ 20,422 $ 20,244 Other income 293 161 631 595 Total revenues 7,313 6,422 21,053 20,839 Expenses: Real estate operating expenses - including $8 and $13 to related parties for the three months ended and $24 and $93 for the nine months ended 3,289 2,741 9,351 9,242 Interest expense 1,731 1,870 5,400 5,865 General and administrative - including $167 and $105 to related parties for the three months ended and $631 and $403 for the nine months ended 2,730 2,430 9,054 7,455 Impairment charge 3,642 — 3,642 — Depreciation 1,777 1,373 5,147 4,348 Total expenses 13,169 8,414 32,594 26,910 Total revenues less total expenses ( 5,856 ) ( 1,992 ) ( 11,541 ) ( 6,071 ) Equity in loss of unconsolidated joint ventures ( 1,529 ) ( 2,390 ) ( 4,731 ) ( 6,676 ) Gain on sale of real estate — 9,938 — 9,938 Loss on extinguishment of debt — ( 1,387 ) — ( 1,387 ) (Loss) income from continuing operations ( 7,385 ) 4,169 ( 16,272 ) ( 4,196 ) Income tax provision 65 98 192 219 Net (loss) income from continuing operations, net of taxes ( 7,450 ) 4,071 ( 16,464 ) ( 4,415 ) Net income attributable to non-controlling interests ( 34 ) ( 799 ) ( 97 ) ( 877 ) Net (loss) income attributable to common stockholders $ ( 7,484 ) $ 3,272 $ ( 16,561 ) $ ( 5,292 ) Weighted average number of shares of common stock outstanding: Basic 17,176,401 15,913,975 17,095,315 15,900,362 Diluted 17,176,401 16,113,975 17,095,315 15,900,362 Per share amounts attributable to common stockholders: Basic $ ( 0.44 ) $ 0.21 $ ( 0.97 ) $ ( 0.33 ) Diluted $ ( 0.44 ) $ 0.20 $ ( 0.97 ) $ ( 0.33 ) See accompanying notes to consolidated financial statements. 4 Table of Contents BRT APARTMENTS CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Unaudited) (Dollars in thousands) Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 2020 2019 Net (loss) income $ ( 7,450 ) $ 4,071 $ ( 16,464 ) $ ( 4,415 ) Other comprehensive income (loss): Unrealized gain (loss) on derivative instruments 5 ( 3 ) ( 17 ) ( 27 ) Other comprehensive income (loss) 5 ( 3 ) ( 17 ) ( 27 ) Comprehensive (loss) income ( 7,445 ) 4,068 ( 16,481 ) ( 4,442 ) Comprehensive income attributable to non-controlling interests ( 36 ) ( 799 ) ( 95 ) ( 873 ) Comprehensive (loss) income attributable to common stockholders $ ( 7,481 ) $ 3,269 $ ( 16,576 ) $ ( 5,315 ) See accompanying notes to consolidated financial statements. 5 Table of Contents BRT APARTMENTS CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EQUITY (Unaudited) (Dollars in thousands, except per share data) Common Stock Additional Paid-In Capital Accumulated Other Comprehensive (Loss) income Accumulated Deficit Non- Controlling Interest Total Balances, December 31, 2019 $ 156 $ 232,331 $ ( 10 ) $ ( 32,824 ) $ ( 93 ) $ 199,560 Distributions - common stock - $0.22 per share — — — ( 3,822 ) — ( 3,822 ) Restricted stock vesting 1 ( 1 ) — — — — Compensation expense - restricted stock and restricted stock units — 438 — — — 438 Distributions to non-controlling interests — — — — ( 89 ) ( 89 ) Shares issued through equity offering program, net 7 12,070 12,077 Shares repurchased — ( 616 ) ( 616 ) Net (loss) income — — — ( 4,831 ) 32 ( 4,799 ) Other comprehensive loss — — ( 20 ) — ( 3 ) ( 23 ) Comprehensive loss ( 4,822 ) Balances, March 31, 2020 $ 164 $ 244,222 $ ( 30 ) $ ( 41,477 ) $ ( 153 ) $ 202,726 Distributions - common stock - $0.22 per share — — — ( 3,822 ) — ( 3,822 ) Compensation expense - restricted stock and restricted stock units — 461 — — — 461 Net (loss) income — — — ( 4,246 ) 31 ( 4,215 ) Other comprehensive income (loss) — — 2 — ( 1 ) 1 Comprehensive loss ( 4,214 ) Balances, June 30, 2020 $ 164 $ 244,683 $ ( 28 ) $ ( 49,545 ) $ ( 123 ) $ 195,151 Distributions - common stock - $0.22 per share — — — ( 3,824 ) — ( 3,824 ) Compensation expense - restricted stock and restricted stock units — 461 — — — 461 Net (loss) income — — — ( 7,484 ) 34 ( 7,450 ) Other comprehensive income — — 4 — 1 5 Comprehensive loss ( 7,445 ) Balances, September 30, 2020 $ 164 $ 245,144 $ ( 24 ) $ ( 60,853 ) $ ( 88 ) $ 184,343 See accompanying notes to consolidated financial statements. 6 Table of Contents BRT APARTMENTS CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EQUITY (Unaudited) (Dollars in thousands, except per share data) Common Stock Additional Paid-In Capital Accumulated Other Comprehensive (Loss) income Accumulated Deficit Non- Controlling Interest Total Balances, December 31, 2018 $ 150 $ 223,373 $ 9 $ ( 20,044 ) $ 331 $ 203,819 Distributions - common stock - $0.20 per share — — — ( 3,221 ) — ( 3,221 ) Restricted stock vesting 2 ( 2 ) — — — — Compensation expense - restricted stock and restricted stock units — 365 — — — 365 Distributions to non-controlling interests — — — — ( 46 ) ( 46 ) Net (loss) income — — — ( 4,247 ) 34 ( 4,213 ) Other comprehensive loss — — ( 7 ) — ( 2 ) ( 9 ) Comprehensive loss ( 4,222 ) Balances, March 31, 2019 $ 152 $ 223,736 $ 2 $ ( 27,512 ) $ 317 $ 196,695 Distributions - common stock - $0.20 per share — — — ( 3,220 ) — ( 3,220 ) Compensation expense - restricted stock and restricted stock units — 373 — — — 373 Distributions to non-controlling interests — — — — ( 39 ) ( 39 ) Shares repurchased — ( 46 ) — — — ( 46 ) Net (loss) income — — — ( 4,317 ) 44 ( 4,273 ) Other comprehensive loss — — ( 13 ) — ( 2 ) ( 15 ) Comprehensive loss ( 4,288 ) Balances, June 30, 2019 $ 152 $ 224,063 $ ( 11 ) $ ( 35,049 ) $ 320 $ 189,475 Distributions - common stock - $0.20 per share — — — ( 3,554 ) — ( 3,554 ) Compensation expense - restricted stock and restricted stock units — 372 — — — 372 Distributions to non-controlling interests — — — — ( 1,134 ) ( 1,134 ) Shares issued through equity offering program, net — 774 — — — 774 Net income — — — 3,272 799 4,071 Other comprehensive loss — — ( 3 ) — — ( 3 ) Comprehensive income 4,068 Balances, September 30, 2019 $ 152 $ 225,209 $ ( 14 ) $ ( 35,331 ) $ ( 15 ) $ 190,001 See accompanying notes to consolidated financial statements 7 Table of Contents BRT APARTMENTS CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (Dollars in Thousands) Nine Months Ended September 30, 2020 2019 Cash flows from operating activities: Net loss $ ( 16,464 ) $ ( 4,415 ) Adjustments to reconcile net loss to net cash (used in) provided by operating activities: Depreciation 5,147 4,348 Amortization of deferred financing costs 210 228 Amortization of restricted stock and restricted stock units 1,360 1,110 Equity in loss of unconsolidated joint ventures 4,731 6,676 Impairment charge 3,642 — Gain on sale of real estate — ( 9,938 ) Loss on extinguishment of debt — 1,387 Increases and decreases from changes in other assets and liabilities: Decrease (increase) in other assets ( 1,108 ) ( 2,166 ) Increase in accounts payable and accrued liabilities 757 5,834 Net cash (used in) provided by operating activities ( 1,725 ) 3,064 Cash flows from investing activities: Collections from real estate loan 150 450 Improvements to real estate properties ( 694 ) ( 1,169 ) Distributions from unconsolidated joint ventures 10,556 12,034 Proceeds from the sale of real estate owned — 32,801 Contributions to unconsolidated joint ventures ( 13,700 ) ( 29,069 ) Net cash (used in) provided by investing activities ( 3,688 ) 15,047 Cash flows from financing activities: Mortgage payoffs — ( 20,635 ) Mortgage principal payments ( 2,262 ) ( 2,189 ) Proceeds from credit facility 5,000 13,500 Repayment of credit facility ( 5,000 ) ( 9,900 ) Increase in deferred financing costs — ( 83 ) Dividends paid ( 11,336 ) ( 9,871 ) Distributions to non-controlling interests ( 89 ) ( 1,220 ) Proceeds from the sale of common stock 12,077 774 Repurchase of shares of common stock ( 616 ) ( 46 ) Net cash used in financing activities ( 2,226 ) ( 29,670 ) Net decrease in cash, cash equivalents and restricted cash ( 7,639 ) ( 11,559 ) Cash, cash equivalents and restricted cash at beginning of period 32,418 31,719 Cash, cash equivalents and restricted cash at end of period $ 24,779 $ 20,160 Supplemental disclosure of cash flow information: Cash paid during the period for interest $ 5,261 $ 5,616 Cash paid for income taxes $ 297 $ 44 See accompanying notes to consolidated financial statements 8 Table of Contents BRT APARTMENTS CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (Dollars in Thousands) The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the consolidated balance sheets that sum to the total of the same such amounts shown in the consolidated statements of cash flows. Nine Months Ended September 30, 2020 2019 Cash and cash equivalents 15,650 9,371 Restricted cash 9,129 10,789 Total cash, cash equivalents and restricted cash, shown in consolidated statement of cash flows $ 24,779 $ 20,160 9 Table of Contents BRT APARTMENTS CORP. AND SUBSIDIARIES Notes to Consolidated Financial Statements September 30, 2020 Note 1 – Organization and Background BRT Apartments Corp. (the "Company"), a Maryland corporation, owns and operates multi-family properties. The Company conducts its operations to qualify as a real estate investment trust, or REIT, for federal income tax purposes. Generally, the multi-family properties are acquired with joint venture partners in transactions in which the Company contributes a significant portion of the equity. At September 30, 2020, the Company: (a) wholly owns eight multi-family properties located in six states with an aggregate of 1,880 units, and a carrying value of $ 154,987,000 ; and (b) has interests, through unconsolidated entities, in 31 multi-family properties located in nine states with an aggregate of 9,162 units (including 741 units at two properties currently in lease-up) and the carrying value of this net equity investment is $ 175,409,000 . BRT's equity interests in these unconsolidated entities range from 32 % to 90 %. Most of the Company's properties are located in the Southeast United States and Texas. The Company also owns and operates various other real estate assets. At September 30, 2020, the carrying value of the other real estate assets was $ 6,682,000 . Note 2 – Basis of Preparation The accompanying interim unaudited consolidated financial statements as of September 30, 2020, and for the three and nine months ended September 30, 2020 and 2019, reflect all normal recurring adjustments which, in the opinion of management, are necessary for a fair presentation of the results for such interim periods. The results of operations for the three and nine months ended September 30, 2020 and 2019, are not necessarily indicative of the results for the full year. The consolidated audited balance sheet as of December 31, 2019, has been derived from the audited financial statements at that date but does not include all the information and footnotes required by accounting principles generally accepted in the United States ("GAAP"). Accordingly, these unaudited statements should be read in conjunction with the Company's audited financial statements included in its Annual Report on Form 10-K for the year ended December 31, 2019, filed with the Securities and Exchange Commission ("SEC") on May 15, 2020, for complete financial statements. The consolidated financial statements include the accounts and operations of the Company and its wholly owned subsidiaries. The joint venture that owns a property in Yonkers New York, was determined not to be a variable interest entity ("VIE") but is consolidated because the Company has controlling rights in such entity. The Company accounts for its investments in unconsolidated joint ventures under the equity method of accounting. All investments in unconsolidated joint ventures have sufficient equity at risk to permit the entity to finance its activities without additional subordinated financial support and, as a group, the holders of the equity at risk have power through voting rights to direct the activities of these ventures. As a result, none of these joint ventures are VIEs. Additionally, the Company does not exercise substantial operating control over these entities, and therefore the entities are not consolidated. These investments are recorded initially at cost, as investments in unconsolidated joint ventures, and subsequently adjusted for their share of equity in earnings, cash contributions and distributions. The distributions to each joint venture partner are determined pursuant to the applicable operating agreement and may not be pro-rata to the percentage equity interest each partner has in the applicable venture. The preparation of the financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements. Actual results could differ from those estimates. Substantially all of the Company's assets are comprised of multi- family real estate assets generally leased to tenants on a one-year basis. Therefore, the Company aggregates real estate assets for reporting purposes and operates in one reportable segment. 10 Table of Contents Note 3 - Equity Equity Distribution Agreements In November 2019, the Company entered into equity distribution agreements with three sales agents to sell up to an aggregate of $ 30,000,000 of its common stock from time-to-time in an at-the-market offering. During the nine months ended September 30, 2020, the Company sold 694,298 shares for an aggregate sales price of $ 12,293,000 (all of which shares were sold during the three months ended March 31, 2020), before commissions and fees of $ 185,000 and offering related expenses of $ 31,000 . From the commencement of this program through September 30, 2020, the Company sold 806,261 shares for an aggregate sales price of $ 14,316,000 before commissions and fees of $ 314,000 and offering related expenses of $ 56,000 . Common Stock Dividend Distribution The Company declared a quarterly cash distribution of $ 0.22 per share, payable on October 12, 2020 to stockholders of record on September 25, 2020. Stock Based Compensation During the nine months ended September 30, 2020, the Company's board of directors adopted and the stockholders' approved the 2020 Incentive Plan. This plan permits the Company to grant: (i) stock options, restricted stock, restricted stock units, performance shares awards and any one or more of the foregoing, up to a maximum of 1,000,000 shares; and (ii) cash settled dividend equivalent rights in tandem with the grant of restricted stock units and certain performance based awards. Restricted Stock Units In June 2016, the Company issued restricted stock units (the "Units") to acquire up to 450,000 shares of common stock pursuant to the 2016 Amended and Restated Incentive Plan (the "2016 Incentive Plan"). The Units entitle the recipients, subject to continued service through the March 31, 2021 vesting date, to receive (i) the underlying shares if and to the extent certain performance and/or market conditions are satisfied at the vesting date, and (ii) an amount equal to the cash dividends paid from the grant date through the vesting date with respect to the shares of common stock underlying the Units if, when, and to the extent, the related Units vest. For financial statement purposes, because the Units are not participating securities, the shares underlying the Units are excluded in the outstanding shares reflected on the consolidated balance sheet and from the calculation of basic earnings per share. The shares underlying the Units are contingently issuable shares. Expense is recognized over the five -year vesting period on the Units which the Company expects to vest. For the three months ended September 30, 2020 and 2019, the Company recorded $ 35,000 and $ 35,000 , respectively, of compensation expense related to the amortization of unearned compensation with respect to the Units. For the nine months ended September 30, 2020 and 2019, the Company recorded $ 105,000 and $ 106,000 , respectively, of compensation expense related to the amortization of unearned compensation with respect to the Units. At September 30, 2020 and December 31, 2019, $ 72,000 and $ 177,000 of compensation expense, respectively, had been deferred and will be charged to expense over the remaining vesting period. Restricted Stock In January 2020, the Company granted 158,299 shares of restricted stock pursuant to the 2018 Incentive Plan. As of September 30, 2020 , an aggregate of 744,145 shares of unvested restricted stock are outstanding pursuant to the 2018 Incentive Plan, the 2016 Incentive Plan and the 2012 Incentive Plan (collectively, the "Prior Plans"). No additional awards may be granted under the Prior Plans. The shares of restricted stock vest five years from the date of grant and under specified circumstances, including a change in control, may vest earlier. For financial statement purposes, the restricted stock is not included in the outstanding shares shown on the consolidated balance sheets until they vest, but are included in the earnings per share computation. For the three months ended September 30, 2020 and 2019, the Company recorded $ 426,000 and $ 337,000 , respectively, and for the nine months ended September 30, 2020 and 2019, the Company recorded $ 1,255,000 and $ 1,004,000 , respectively, of compensation expense related to the amortization of unearned compensation with respect to the restricted stock awards. At September 30, 2020 and December 31, 2019 , $ 4,837,000 and $ 3,328,000 has been deferred as unearned compensation and will be charged to expense over the remaining vesting periods of these restricted stock awards. The weighted average remaining vesting period of these shares of restricted stock is 2.5 years. 11 Table of Contents Stock Buyback On September 12, 2019, the Board of Directors approved a repurchase plan authorizing the Company, effective as of October 1, 2019, to repurchase up to $ 5,000,000 of shares of common stock through September 30, 2021. During the nine months ended September 30, 2020 , the Company repurchased 39,093 shares of common stock (all of which were repurchased during the three months ended March 31, 2020), at an average market price of $ 15.76 for an aggregate cost of $ 616,000 . During the three and nine months ended September 30, 2019, the Company repurchased 3,590 shares of common stock at an average market price of $ 12.80 at an aggregate cost of $ 46,000 . Per Share Data Basic earnings (loss) per share is determined by dividing net income (loss) applicable to common stockholders for the applicable period by the weighted average number of shares of common stock outstanding during such period. The Units are excluded from the basic earnings per share calculation, as they are not participating securities. Diluted earnings per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into shares of common stock or resulted in the issuance of shares of common stock that share in the earnings of the Company. Diluted earnings per share is determined by dividing net income applicable to common stockholders for the applicable period by the weighted average number of shares of common stock deemed to be outstanding during such period. In calculating diluted earnings per share for the three months ended September 30, 2020 and the nine months ended September 30, 2020 and 2019, the Company did no t include any shares underlying the Units as their effect would have been anti-dilutive. The following table sets forth the computation of basic and diluted earnings per share (dollars in thousands, except share amounts): Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 2020 2019 Numerator for basic and diluted earnings (loss) per share attributable to common stockholders: Net (loss) income attributable to common stockholders $ ( 7,484 ) $ 3,272 $ ( 16,561 ) $ ( 5,292 ) Denominator: Denominator for basic earnings per share—weighted average number of shares 17,176,401 15,913,975 17,095,315 15,900,362 Effect of diluted securities — 200,000 — — Denominator for diluted earnings per share—adjusted weighted average number of shares and assumed conversions 17,176,401 16,113,975 17,095,315 15,900,362 Basic (loss) income per share $ ( 0.44 ) $ 0.21 $ ( 0.97 ) $ ( 0.33 ) Diluted (loss) income per share $ ( 0.44 ) $ 0.20 $ ( 0.97 ) $ ( 0.33 ) Note 4 - Leases Lessor Accounting The Company owns one commercial rental property which is leased to two tenants under operating leases with current expirations ranging from 2024 to 2028, with options to extend or terminate the leases. Revenues from such leases are reported as rental income, net, and are comprised of (i) lease components, which includes fixed lease payments and (ii) non-lease components which includes reimbursements of property level operating expenses. The Company does not separate non-lease components from the related lease components, as the timing and pattern of transfer are the same, and account for the combined component in accordance with ASC 842. Due to the impact of the COVID-19 pandemic, concession agreements have been executed with the Company’s two tenants. In accordance with the FASB Staff Q&A, Topic 842 and 840 - Accounting for Lease Concessions Related to the Effects of COVID-19 Pandemic, a lessor may make an accounting policy election to (i) not evaluate whether such COVID-19 pandemic related rent-relief is a lease modification under ASC 842 and (ii) treat each tenant rent deferral or forgiveness as if it were contemplated as part of the existing lease contract. The Company elected to apply this accounting policy to the two lease agreements, based on the type of concession provided to the tenant, where the revised cash flows are substantially the same or 12 Table of Contents less than the original lease agreement. As a result, during the nine months ended September 30, 2020, the Company issued total abatements of $ 75,000 for the two tenants. Lessee Accounting The Company is a lessee under a ground lease in Yonkers, NY which is classified as an operating lease. The ground lease expires September 30, 2024 and provides for one 21 -year renewal option. As of September 30, 2020, the remaining lease term, including the renewal option, is 25.0 years. The Company is also a lessee under a corporate office lease in Great Neck, New York, which is classified as an operating lease. The lease expires on December 31, 2031 and provides a 5 -year renewal option. As of September 30, 2020 , the remaining lease term, including renewal options deemed exercised, is 16.3 years. In the quarter ended March 31, 2019, the Company recorded $ 2,900,000 of right of use assets ("ROU") and lease liabilities related to these operating leases. As of September 30, 2020, the Company's ROU assets and lease liabilities were $ 2,701,000 and $ 2,720,000 , respectively. As of December 31, 2019, the Company's ROU assets and lease liabilities were $ 2,822,000 and $ 2,833,000 , respectively. The discount rate applied to measure each ROU asset and lease liability is based on the Company’s incremental borrowing rate (“IBR”). The Company considers the general economic environment and its historical borrowing rate activity and factors in various financing and asset specific adjustments to ensure the IBR is appropriate to the intended use of the underlying lease. As the Company did not elect to apply the hindsight practical expedient, lease term assumptions determined under ASC 840 were carried forward and applied in calculating the lease liabilities recorded under ASC 842. The Company’s ground lease offers a renewal option which it assesses against relevant economic factors to determine whether it is reasonably certain of exercising or not exercising the option. Lease payments associated with renewal periods that the Company is reasonably certain will be exercised, if any, are included in the measurement of the corresponding lease liability and ROU asset. Note 5 ‑ Real Estate Properties Real estate properties consist of the following (dollars in thousands): September 30, 2020 December 31, 2019 Land $ 25,585 $ 29,227 Building 154,854 154,854 Building improvements 10,392 9,702 Real estate properties 190,831 193,783 Accumulated depreciation ( 29,237 ) ( 24,094 ) Total real estate properties, net $ 161,594 $ 169,689 A summary of real estate properties owned is as follows (dollars in thousands): December 31, 2019 Balance Additions Depreciation Impairment Charge September 30, 2020 Balance Multi-family $ 159,434 $ 617 $ ( 5,064 ) $ — $ 154,987 Land - Daytona, FL 8,021 — — ( 3,642 ) 4,379 Retail shopping center and other 2,234 77 ( 83 ) — 2,228 Total real estate properties $ 169,689 $ 694 $ ( 5,147 ) $ ( 3,642 ) $ 161,594 13 Table of Contents Note 6 - Acquisitions and Dispositions Property Acquisitions The table below provides information regarding the Company's acquisition of a multi-family property, through an unconsolidated joint venture, during the nine months ended September 30, 2020 (dollars in thousands): Location Purchase Date No. of Units Purchase Price Acquisition Mortgage Debt Initial BRT Equity Ownership Percentage Capitalized Acquisition Costs Wilmington, North Carolina 2/20/2020 264 $ 38,000 $ 23,160 $ 13,700 80 % $ 459 The table below provides information regarding the Company's acquisition of multi-family properties, through unconsolidated joint ventures, during the nine months ended September 30, 2019 (dollars in thousands): Location Purchase Date No. of Units Purchase Price Acquisition Mortgage Debt Initial BRT Equity Ownership Percentage Capitalized Acquisition Costs Kannapolis, North Carolina 3/12/2019 312 $ 48,065 $ 33,347 $ 11,231 65 % $ 559 Birmingham, Alabama 5/7/2019 328 43,000 32,250 11,625 80 % 546 Auburn, AL 8/8/2019 200 18,400 14,500 4,320 80 % 140 840 $ 109,465 $ 80,097 $ 27,176 $ 1,245 Property Dispositions The Company did not dispose of any real estate properties during the nine months ended September 30, 2020. The following table is a summary of the real estate properties disposed of by the Company during the nine months ended September 30, 2019 (dollars in thousands): Location Sale Date No. of Units Sales Price Gain on Sale Non-controlling partner's portion of the gain Houston, TX (two properties) 7/11/2019 384 $ 33,200 $ 9,938 $ 894 Impairment Charges The Company reviews each real estate asset owned, including those held through investments in unconsolidated joint ventures, for impairment when there is an event or a change in circumstances indicating that the carrying amount may not be recoverable. The Company measures and records impairment charges, and reduces the carrying value of owned properties, when indicators of impairment are present and the expected undiscounted cash flows related to those properties are less than their carrying amounts. For its unconsolidated joint venture investments, the Company measures and records impairment losses, and reduces the carrying value of the equity investment when indicators of impairment are present and the expected discounted cash flows related to the investment is less than the carrying value. In cases where the Company does not expect to recover its carrying value on properties held for use, the Company reduces its carrying value to fair value, and for properties held for sale, the Company reduces its carrying value to the fair value less costs to sell. In the quarter ended September 30, 2020, indicators of impairment were present on its 8.7 acre vacant land parcel located in South Daytona Beach, Florida. The Company has entered into a contract to sell this property below its carrying value and accordingly the Company took an impairment charge related to this asset of $ 3,642,000 representing the excess of the carrying value over the fair value. During the three and nine months ended September 30, 2019, no impairment charges were recorded. 14 Table of Contents Note 7 - Real Estate Loan The Company had a loan receivable secured by several properties in Newark, NJ. At June 30, 2020 the principal balance of this loan was $ 4,000,000 . This loan was sold on September 30, 2020, to an unrelated third party at its book value plus interest and fees of $ 325,000 . Accordingly, no gain or loss was recognized on the sale. Funds were received on October 1, 2020 and the amounts receivable are included in other assets. Note 8 - Restricted Cash Restricted cash represents funds held for specific purposes and are therefore not available for general corporate purposes. The restricted cash reflected on the consolidated balance sheets represents funds that are held by the Company specifically for capital improvements at certain multi-family properties owned by unconsolidated joint ventures. Note 9 – Investment in Unconsolidated Ventures At September 30, 2020 and December 31, 2019, the Company held interests in unconsolidated joint ventures (the "Unconsolidated Properties") that own 31 and 30 multi-family properties, respectively. The condensed balance sheets below present information regarding such properties (dollars in thousands): September 30, 2020 December 31, 2019 ASSETS Real estate properties, net of accumulated depreciation of $135,126 and $104,001 $ 1,082,703 $ 1,070,941 Cash and cash equivalents 16,595 12,804 Deposits and escrows 26,368 23,912 Other assets 5,164 4,136 Total Assets $ 1,130,830 $ 1,111,793 LIABILITIES AND EQUITY Liabilities: Mortgages payable, net of deferred costs of $4,605 and $5,839 $ 825,822 $ 803,289 Accounts payable and accrued liabilities 23,602 19,731 Total Liabilities 849,424 823,020 Commitments and contingencies Equity: Total unconsolidated joint venture equity 281,406 288,773 Total Liabilities and Equity $ 1,130,830 $ 1,111,793 BRT interest in joint venture equity $ 175,484 $ 177,071 15 Table of Contents Real estate properties of our unconsolidated joint ventures consist of the following (dollars in thousands): September 30, 2020 December 31, 2019 Land $ 148,341 $ 144,136 Building 1,028,205 993,643 Building improvements 41,283 37,163 Real estate properties 1,217,829 1,174,942 Accumulated depreciation ( 135,126 ) ( 104,001 ) Total real estate properties, net $ 1,082,703 $ 1,070,941 At September 30, 2020, the weighted average interest rate on the mortgages payable is 3.95 % and the weighted average remaining term to maturity is 7.41 years. The condensed income statement below presents information regarding the Unconsolidated Properties (dollars in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 2020 2019 Revenues: Rental and other revenue $ 32,341 $ 31,273 $ 94,726 $ 87,076 Total revenues 32,341 31,273 94,726 87,076 Expenses: Real estate operating expenses 16,092 15,212 45,298 42,612 Interest expense 8,663 9,202 26,186 26,027 Depreciation 10,411 9,901 31,184 29,121 Total expenses 35,166 34,315 102,668 97,760 Total revenues less total expenses ( 2,825 ) ( 3,042 ) ( 7,942 ) ( 10,684 ) Loss on extinguishment of debt — ( 379 ) — ( 379 ) Gain on insurance recoveries 427 — 765 517 Net income from joint ventures $ ( 2,398 ) $ ( 3,421 ) $ ( 7,177 ) $ ( 10,546 ) BRT equity in loss from joint ventures $ ( 1,529 ) $ ( 2,390 ) $ ( 4,731 ) $ ( 6,676 ) Note 10 – Debt Obligations Debt obligations consist of the following (dollars in thousands): September 30, 2020 December 31, 2019 Mortgages payable $ 131,776 $ 134,038 Junior subordinated notes 37,400 37,400 Deferred financing costs ( 950 ) ( 1,160 ) Total debt obligations, net of deferred costs $ 168,226 $ 170,278 16 Table of Contents Mortgages Payable The weighted average interest rate on the Company's mortgages payable at September 30, 2020 was 4.15 %. For the three months ended September 30, 2020 and 2019 interest expense, which includes amortization of deferred financing costs, was $ 1,475,000 and $ 1,373,000 , respectively. For the nine months ended September 30, 2020 and 2019 interest expense, which includes amortization of deferred financing costs, was $ 4,418,000 and $ 4,385,000 , respectively. Credit Facility The Company entered into a credit facility dated April 18, 2019, as amended from time-to-time, with an affiliate of Valley National Bank. The facility allows the Company to borrow, subject to compliance with borrowing base requirements and other conditions, up to $ 10,000,000 to facilitate the acquisition of multi-family properties and for working capital (including dividend payments) and operating expenses. The facility is secured by the cash available in certain cash accounts maintained by the Company at Valley National Bank, matures April 2021 and bears an adjustable interest rate of 50 basis points over the prime rate, with a floor of 5 %. The interest rate in effect as of September 30, 2020 is 5 %. For the three months ended September 30, 2020 and 2019, interest expense, which includes amortization of deferred financing costs and unused fees, was $ 17,000 and $ 57,000 . For the nine months ended September 30, 2020 and 2019, interest expense, which includes amortization of deferred financing costs and unused fees, was $ 79,000 and $ 153,000 , respectively. Deferred financing costs of $ 22,000 and $ 53,000 , are recorded in other assets on the Consolidated balance sheets at September 30, 2020 and December 31, 2019, respectively. There is an unused facility fee of 0.25 % per annum on the difference between the outstanding loan balance and maximum amount then available under the facility. At September 30, 2020, the Company is in compliance in all material respects with its obligation under the facility. At September 30, 2020 and November 1, 2020, there was no outstanding balance on the facility. Junior Subordinated Notes At September 30, 2020 and December 31, 2019, the Company's junior subordinated notes had an outstanding principal balance of $ 37,400,000 , before deferred financing costs of $ 322,000 and $ 337,000 , respectively. At September 30, 2020, the interest rate on the outstanding balance is three month LIBOR + 2.00 % or 2.27 %. The junior subordinated notes require interest only payments through the maturity date of April 30, 2036, at which time repayment of the outstanding principal and unpaid interest become due. Interest expense for the three months ended September 30, 2020 and 2019, which includes amortization of deferred financing costs, was $ 240,000 and $ 438,000 , respectively, and for the nine months ended September 30, 2020 and 2019, which includes amortization of deferred financing costs, wa s $ 903,000 and $ 1,326,000 , respectively. Note 11 – Related Party Transactions The Company has retained certain of its executive officers and Fredric H. Gould, a director, among other things, to participate in the Company's multi-family property analysis and approval process (which includes service on an investment committee); provide investment advice; and provide long-term planning and consulting with executives and employees with respect to other business matters, as required. The aggregate fees incurred and paid for these services in the three months ended September 30, 2020 and 2019 were $ 350,000 and $ 332,000 , respectively, and for the nine months ended September 30, 2020 and 2019 wer e $ 1,049,000 and $ 998,000 , respectively. Management of certain properties owned by the Company and certain joint venture properties is provided by Majestic Property Management Corp. ("Majestic Property"), a company wholly owned by Fredric H. Gould. Certain of the Company's officers and directors are also officers and directors of Majestic Property. Majestic Property may also provide real estate brokerage and construction supervision services to these properties. These fees amounted to $ 8,000 and $ 9,000 for the three months ended September 30, 2020 and 2019, respectively, and $ 24,000 and $ 25,000 for the nine months ended September 30, 2020 and 2019, respectively. The Company shares facilities, personnel and other resources with One Liberty Properties, Inc. ("One Liberty"), Majestic Property, and Gould Investors L.P. ("Gould Investors"). Certain of the Company's executive officers and/or directors also serve in management positions, and have ownership interests, in One Liberty, Majestic Property and/or Georgetown Partners Inc., the managing general partner of Gould Investors. The allocation of expenses for the facilities, personnel and other resources shared by the Company, One Liberty, Majestic Property and Gould Investors is computed in accordance with a shared services 17 Table of Contents agreement by and among the Company and these entities and is included in general and administrative expense on the consolidated statements of operations. For the three months ended September 30, 2020 and 2019, net allocated general and administrative expenses reimbursed by the Company to Gould Investors pursuant to the shared services agreement aggregated $ 167,000 and $ 105,000 , and $ 631,000 and $ 403,000 for the nine months ended September 30, 2020 and 2019, respectively. Management of two of the Company's multi-family properties, which were sold in July 2019, were performed by its joint venture partners or their affiliates, none of which are otherwise related to the Company. These management fees amounted to $ 4,000 and $ 68,000 , in the three and nine months ended September 30, 2019, respectively. Note 12 – Fair Value Measurements Financial Instruments Not Carried at Fair Value The following methods and assumptions were used to estimate the fair value of each class of financial instruments that are not recorded at fair value on the consolidated balance sheets: Cash and cash equivalents, restricted cash, accounts receivable (included in other assets), accounts payable and accrued liabilities: The carrying amounts reported in the balance sheets for these instruments approximate their fair value due to the short term nature of these accounts. Junior subordinated notes: At September 30, 2020 and December 31, 2019, the estimated fair value of the notes is lower than their carrying value by approximately $ 10,542,000 and $ 9,589,000 , respectively, based on a market interest rate of 4.74 % and 6.41 %, respectively. Mortgages payable: At September 30, 2020, the estimated fair value of the Company’s mortgages payable is greater than their carrying value by approximately $ 5,258,000 , assuming market interest rates between 2.69 % and 3.04 % and at December 31, 2019, the estimated fair value of the Company's mortgages payable was lower than their carrying value by approximately $ 321,000 , assuming market interest rates between 3.89 % and 4.33 %. Market interest rates were determined using rates which the Company believes reflects institutional lender yield requirements at the balance sheet dates. Considerable judgment is necessary to interpret market data and develop estimated fair value. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value. Financial Instruments Carried at Fair Value The Company’s fair value measurements are based on the assumptions that market participants would use in pricing the asset or liability. As a basis for considering market participant assumptions in fair value measurements, there is a fair value hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity and the reporting entity’s own assumptions about market participant assumptions. Level 1 assets/liabilities are valued based on quoted prices for identical instruments in active markets, Level 2 assets/liabilities are valued based on quoted prices in active markets for similar instruments, on quoted prices in less active or inactive markets, or on other “observable” market inputs, and Level 3 assets/liabilities are valued based significantly on “unobservable” market inputs. The Company does not currently own any financial instruments that are classified as Level 3. Set forth below is information regarding the Company’s financial assets and liabilities measured at fair value as of September 30, 2020 (dollars in thousands): Carrying and Fair Value Fair Value Measurements Using Fair Value Hierarchy Level 1 Level 2 Level 3 Financial Liabilities: Interest rate swap $ 28 $ — $ 28 $ — 18 Table of Contents Set forth below is information regarding the Company’s financial assets and liabilities measured at fair value as of December 31, 2019 (dollars in thousands): Carrying and Fair Value Fair Value Measurements Using Fair Value Hierarchy Level 1 Level 2 Level 3 Financial Liabilities: Interest rate swap $ 12 $ — $ 12 $ — Derivative financial instruments: Fair values are approximated using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of the derivatives. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves, and implied volatilities. At September 30, 2020 and December 31, 2019, these derivatives are included in other liabilities on the consolidated balance sheet. Although the Company has determined that the majority of the inputs used to value its derivative fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with it utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by itself and its counterparties. As of September 30, 2020 and December 31, 2019, the Company assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative position and determined that the credit valuation adjustments are not significant to the overall valuation of its derivative. As a result, the Company determined that its derivative valuation is classified in Level 2 of the fair value hierarchy. Long-lived assets The Company measures its real estate investments at fair value on a nonrecurring basis. The fair value of the real estate investment was determined using the following input levels as of September 30, 2020 (dollars in thousands): Carrying and Fair Value Fair Value Measurements Using Fair Value Hierarchy Level 1 Level 2 Level 3 Non-Financial Assets: Long-lived assets $ 4,379 $ — $ — $ 4,379 The Company reviews its investments in real estate when events or circumstances change indicating the carry value of the investment may not be recoverable. In the evaluation of an investment for impairment, many factors are considered, including estimated current and expected cash flows from the asset during the projected hold period, costs necessary to extend the life of the asset, expected capitalization rates, and projected stabilized net operating income and the ability to hold or dispose of the asset in the ordinary course of business. Quantitative information about Level 3 measurements at September 30, 2020 is as follows: Fair Value Valuation Technique Significant Unobservable Inputs Financial Liabilities: Long-lived asset: Vacant land - South Daytona Beach, FL $ 4,379 Discounted cash flow Non-binding sales contract /Discount rate 12.5% 19 Table of Contents Note 13 – Derivative Financial Instruments Cash Flow Hedges of Interest Rate Risk The Company's objective in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish this objective, the Company primarily uses interest rate swaps as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. The changes in the fair value of derivatives designated and that qualify as cash flow hedges is recorded in Accumulated Other Comprehensive (Loss) income and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. As of September 30, 2020, the Company had the following outstanding interest rate derivatives that were designated as cash flow hedges of interest rate risk (dollars in thousands): Interest Rate Derivative Current Notional Amount Fixed Rate Maturity Interest rate swap $ 1,070 5.25 % April 1, 2022 The table below presents the fair value of the Company’s derivative financial instruments as well as its classification on the consolidated balance sheets as of the dates indicated (dollars in thousands): Derivatives as of: September 30, 2020 December 31, 2019 Balance Sheet Location Fair Value Balance Sheet Location Fair Value Other Assets $ — Other Assets $ — Accounts payable and accrued liabilities $ 28 Accounts payable and accrued liabilities $ 12 The following table presents the effect of the Company’s interest rate swaps on the consolidated statements of comprehensive income (loss) for the dates indicated (dollars in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 2020 2019 Amount of (loss) gain recognized on derivative in Other Comprehensive Income $ — $ ( 3 ) $ ( 27 ) $ ( 25 ) Amount of (loss) gain reclassified from Accumulated Other Comprehensive Income into Interest expense $ ( 5 ) $ — $ ( 10 ) $ 2 Total amount of Interest expense presented in the Consolidated Statements of Operations $ 1,731 $ 1,870 $ 5,400 $ 5,865 The Company estimates an additional $ 20,000 will be reclassified from other comprehensive loss as an increase to interest expense over the next twelve months. Credit-risk-related Contingent Features The agreement between the Company and its derivative counterparties provides that if the Company defaults on any of its indebtedness, including default where repayment of the indebtedness has not been accelerated by the lender, the Company could be declared in default on its derivative obligations. As of September 30, 2020 and December 31, 2019, the fair value of derivatives in a net liability position including interest but excluding any adjustment for nonperformance risk related to these agreements was $ 30,000 and $ 13,000 , respectively. As of September 30, 2020 and December 31, 2019, the Company has not posted any collateral related to this agreement and was not in breach of any agreement provisions. If the Company had breached any of these provisions, it could have been required to 20 Table of Contents settle it obligations under the agreement termination value of $ 30,000 and $ 13,000 , at September 30, 2020 and December 31, 2019 respectively. Note 14 – New Accounting Pronouncements In March 2020, the Financial Accounting Standard Board issued ASU 2020-04, Reference Rate Reform (Topic 848). ASU 2020-04 contains practical expedients for reference rate reform related activities that impact debt, lease, derivatives and other contracts. This guidance in ASU 2020-04 is optional and may be elected over time as reference rate reform activities occur. During the first quarter of 2020, the Company has elected to apply hedge accounting expedients related to probability and the assessments of effectiveness for future LIBOR-indexed cash flows to assume that the index upon which future hedged transactions will be based matches the index on the corresponding derivatives. Application of these expedients preserves the presentation of derivatives consistent with past presentation. The Company continues to evaluate the impact of the guidance and may apply other elections as applicable as additional changes in the market occur. In October 2018, the FASB issued ASU 2018-16, (Topic 815): Inclusion of the Secured Overnight Financing Rate (SOFR) Overnight Index Swap (OIS) as a Benchmark Interest Rate for Hedging Purposes . The amendments in this update permit the OIS rate based on SOFR as an eligible benchmark interest rate. The amendments in this update are effective for fiscal years beginning after December 15, 2018. The Company adopted this guidance on January 1, 2019. The Company does not believe this guidance will have a material effect on its consolidated financial statements. In August 2018, the FASB issued ASU 2018-13, Disclosure Framework — Changes to the Disclosure Requirements for Fair Value Measurement , which removes, modifies, and adds certain disclosure requirements related to fair value measurements in ASC Topic 820. This guidance is effective for public companies in fiscal years beginning after December 15, 2019, with early adoption permitted. The Company adopted this guidance effective January 1, 2020. The adoption of this guidance did not have a material effect on the consolidated financial statements. In June 2018, the FASB issued ASU 2018-07, Compensation—Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting . This update provides specific guidance for transactions for acquiring goods and services from nonemployees and specifies that Topic 718 applies to all share-based payment transactions in which a grantor acquires goods or services to be used or consumed in a grantor’s own operations by issuing share-based payment awards. The amendments also clarify that Topic 718 does not apply to share-based payments used to effectively provide (i) financing to the issuer or (ii) awards granted in conjunction with selling goods or services to customers as part of a contract accounted for under ASC Topic 606, Revenue from Contracts with Customers. The Company adopted this guidance effective January 1, 2020. The adoption of this guidance did not have a material effect on the consolidated financial statements. In February 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”) establishing ASC Topic 326, Financial Instruments - Credit Losses (“ASC 326”), as amended by subsequent ASUs on the topic. ASU 2016-13 changes how entities will account for credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. The guidance replaces the current “incurred loss” model with an “expected loss” model that requires consideration of a broader range of information to estimate expected credit losses over the lifetime of the financial asset. ASU 2016-13 is effective for interim and annual reporting periods in fiscal years beginning after December 15, 2022. We are currently evaluating the impact of the adoption of ASU 2016-13 on our consolidated financial statements. Note 15 – Subsequent Events Subsequent events have been evaluated and any significant events, relative to our consolidated financial statements as of September 30, 2020, that warrant additional disclosure, have been included in the notes to the consolidated financial statements. The Company is presented with the continued risks presented by the novel coronavirus or COVID-19, which is increasing across most areas of the country and may continue to increase in the markets in which it operates. The ultimate extent of the impact of the pandemic on the Company’s business, financial condition, liquidity, results of operations and prospects will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the duration, the severity of, and the actions taken to control, the pandemic, and the short-term and long-term economic impact thereof. 21 Table of Contents