BRT Apartments Corp. 10-K

Item 9A. Controls and Procedures. Evaluation of Disclosure Controls and Procedures A review and evaluation was performed by our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act as of the end of the period covered by this Annual Report on Form 10-K. Based on that review and evaluation, our CEO and CFO have concluded that our disclosure controls and procedures, as designed and implemented as of December 31, 2020, were not effective due to the material weakness in our internal control over financial reporting described in “Management’s Report on Internal Control Over Financial Reporting ”. Management's Report on Internal Control Over Financial Reporting Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rules 13a-15(f) and 15d-15(f) promulgated under the Exchange Act as a process designed by, or under the supervision of, a company's principal executive and principal financial officers and effected by a company's board, management and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP and includes those policies and procedures that: • pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of a company; • provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that receipts and expenditures of a company are being made only in accordance with authorizations of management and the board of directors of a company; and • provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of a company's assets that could have a material effect on the financial transactions. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risks that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate. Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, assessed the effectiveness of our internal control over financial reporting as of December 31, 2020. In making this assessment, our management used criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control-Integrated Framework (2013). Based on its assessment, it was concluded that, as of December 31, 2020, our internal control over financial reporting was not effective based on these criteria. In connection with the preparation of our audited consolidated financial statements for the year ended December 31, 2019, a material weakness in our internal control over financial reporting was identified. A “material weakness” is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a 37 Table of Content reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. In connection with the preparation and filing of our Annual Report on Form 10-K for the year ended December 31, 2019, we concluded that our internal controls surrounding the supervision and review of management’s analyses over the accounting for consolidated entities were ineffective and that we had consolidated the accounts and operations of many of our joint ventures into our consolidated financial statements in a manner inconsistent with the requirements of the Consolidation Standard. Although we have taken action to remediate the material weakness, we can only evaluate the effectiveness of such actions when we acquire a property and properly apply the Consolidation Standard to such acquisition. As we have not completed an acquisition since we reported the material weakness in April 2020, we are unable to (i) test the remedial action we have taken and (ii) conclude that our internal controls are effective. Changes in Internal Controls over Financial Reporting There have been no changes in our internal controls over financial reporting, as defined in in Rules 13a-15(f) and 15d-15(f) promulgated under the Exchange Act, that occurred during the three months ended December 31, 2020 that materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting. Item 9B. Other Information. During the quarter ended December 31, 2020, the Board approved the payment of the following fees to the following related parties for the performance of Services in 2021: Israel Rosenzweig, $60,800; Fredric H. Gould, $210,000; Matthew J. Gould, $243,100; David W. Kalish, $231,524; Mark H. Lundy, $110,250; Isaac Kalish, $273,525; and Steven Rosenzweig, $268,700. PART III Item 10. Directors, Executive Officers and Corporate Governance. Apart from certain information concerning our executive officers which is set forth in Part I of this report, the other information required by Item 10 will be incorporated herein by reference to the applicable information to be in the proxy statement to be filed by April 30, 2021 for our 2021 Annual Meeting of Stockholders. Item 11. Executive Compensation. The information concerning our executive compensation required by Item 11 is incorporated herein by reference to the proxy statement to be filed by April 30, 2021 with respect to our 2021 Annual Meeting of Stockholders. 38 Table of Content Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. Except as set forth below, the information required by Item 12 is incorporated herein by reference to the proxy statement to be filed by April 30, 2021 with respect to our 2021 Annual Meeting of Stockholders. Equity Compensation Plan Information As of December 31, 2020, the only equity compensation plan under which equity compensation may be awarded is our 2020 Incentive Plan, which was approved by our stockholders in June 2020. This plan permits us to grant stock options, restricted stock, restricted stock units ("RSUs"), dividend equivalent rights and performance based awards to our employees, officers, directors, consultants and other eligible participants. The table below provides information as of December 31, 2020 with respect to our shares of common stock that may be issued upon exercise of outstanding options, warrants and rights. (See note 10 of our consolidated financial statements for further information about our equity compensation plans). Number of securities to be issued upon exercise (or vesting) of outstanding options, restricted stock units, warrants and rights (a) Weighted-average exercise price of outstanding options, warrants and rights (b) Number of securities remaining available-for future issuance under equity compensation plans—excluding securities reflected in column (a) (c) Equity compensation plans approved by security holders 450,000 (1) — 1,000,000 (2) Equity compensation plans not approved by security holders — — — Total 450,000 — 1,000,000 _______________________________________________________________________________ 1. Represents 450,000 shares of common stock underlying RSUs granted pursuant to our 2016 Amended and Restated Incentive Plan (the "2016 Plan"). Such units vest in 2021 subject to the satisfaction of time, market and performance based vesting conditions. There is no exercise price associated with such units. No further awards may be granted under the 2016 Plan. 2. Represents the number of shares of common stock available for issuance pursuant to our 2020 Incentive Plan. Does not give effect to 156,724 shares of restricted stock granted January 8, 2021 pursuant to the 2020 Incentive Plan. Item 13. Certain Relationships and Related Transactions, and Director Independence. The information concerning relationships and certain transactions required by Item 13 is incorporated herein by reference to the proxy statement to be filed by April 30, 2021 with respect to our 2021 Annual Meeting of Stockholders. Item 14. Principal Accounting Fees and Services. The information concerning our principal accounting fees required by Item 14 is incorporated herein by reference to the proxy statement to be filed by April 30, 2021 with respect to our 2021 Annual Meeting of Stockholders. 39 Table of Content PART IV Item 15. Exhibits, Financial Statement Schedules. (a) 1. All Financial Statements. The response is submitted in a separate section of this report following Part IV. 2. Financial Statement Schedules. The response is submitted in a separate section of this report following Part IV. 3. Exhibits: In reviewing the agreements included as exhibits to this Annual Report on Form10-K, please remember they are included to provide you with information regarding their terms and are not intended to provide any other factual or disclosure information about us or the other parties to the agreements. Certain agreements contain representations and warranties by each of the parties to the applicable agreement. These representations and warranties have been made solely for the benefit of the other parties to the applicable agreement and: • should not in all instances be treated as categorical statements of fact, but rather as a way of allocating the risk to one of the parties if those statements prove to be inaccurate; • have been qualified by disclosures that were made to the other party in connection with the negotiation of the applicable agreement, which disclosures are not necessarily reflected in the agreement; • may apply standards of materiality in a way that is different from what may be viewed as material to you or other investors; and • were made only as of the date of the applicable agreement or such other date or dates as may be specified in the agreement and are subject to more recent developments. Accordingly, these representations and warranties may not describe the actual state of affairs as of the date they were made or at any other time. 40 Table of Content Exhibit No. Title of Exhibits 1.1 Form of Equity Distribution Agreement (incorporated by reference to Exhibit 1.1 to our Current Report on Form 8-K on November 26, 2019). 2.1 Plan of Conversion dated December 8, 2016 (incorporated by reference to Annex B of Amendment No. 1 to our Registration Statement on Form S-4 filed January 12, 2017 (the "S-4 Registration") (Reg. No. 333-215221). 3.1 Articles of Incorporation of the Registrant (incorporated by reference to Exhibit 3.1 to our Current Report on Form 8-K filed March 20, 2017). 3.2 By-laws of the Registrant (incorporated by reference to Exhibit 3.2 to our Current Report on Form 8-K filed March 20, 2017). 4.1 Junior Subordinated Supplemental Indenture, dated as of March 15, 2011, between us and the Bank of New York Mellon (incorporated by reference to Exhibit 4.1 to our Form 8-K filed March 18, 2011). 4.2 Description of Registrant's Securities Registered Pursuant to Section 12 of the Exchange Act. 10.1 * Shared Services Agreement, dated as of January 1, 2002, by and among Gould Investors L.P., us, One Liberty Properties, Inc., Majestic Property Management Corp., Majestic Property Affiliates, Inc. and REIT Management Corp. (incorporated by reference to Exhibit 10.2 to our Form 10-K filed December 11, 2008). 10.2 * Form of Indemnification Agreement between the Registrant on the one hand, and its executive officers and directors, on the other hand (incorporated by reference to Exhibit 10.5 to our Annual Report of Form 10-K filed December 14, 2017). 10.3 * Form of Restricted Shares Agreement for the 2012 Incentive Plan (incorporated by reference to Exhibit 10.1 to our Form 10-Q for the period ended December 31, 2013). 10.4 * 2012 Incentive Plan (incorporated by reference to exhibit 99.1 to our Registration Statement on Form S-8 filed on June 11, 2012 (File No. 333-182044)). 10.5 * Amended and Restated 2016 Incentive Plan (incorporated by reference to Exhibit 10.1 to our Quarterly Report on Form 10-Q for the period ended March 31, 2016) 10.6 Membership Interest Purchase Agreement dated as of February 23, 2016 entered into between TRB Newark Assemblage, LLC ("TRB") and TRB Newark TRS, LLC ("TRB REIT" and together with TRB, collectively, the "Seller") and RBH Partners III, LLC, and joined by RBH-TRB Newark Holdings, LLC and GS-RBH Newark Holdings, LLC (incorporated by reference to exhibit 10.2 to our Quarterly Report on Form 10-Q for the period ended March 31, 2016). 10.7 * Form of Performance Awards Agreement (incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed on June 10, 2016). 10.8 * Form of Restricted Shares Agreement for the Amended and Restated 2016 Incentive Plan (incorporated by reference to Exhibit 10.40 to our Registration Statement on Form S-4/A filed with the SEC on January 12, 2017 (File No 333-215221)). 10.9 * 2018 Incentive Plan (incorporated by reference to exhibit 10.1 to our Current Report on Form 8-K filed on March 13, 2018). 41 Table of Content Exhibit No. Title of Exhibits 10.10 * Form of Restricted Shares Agreement for the 2018 Incentive Plan (incorporated by reference Exhibit 10.10 to our Annual Report on Form 10-K filed December 10, 2018). 10.11 Loan Agreement (the "Loan Agreement") among us and VNB New York, LLC, dated April 18, 2019 (incorporated by reference to Exhibit 10.1 to our Quarterly Report on Form 10-Q filed May 9, 2019). 10.12 Amendment to the Loan Agreement (incorporated by reference to Exhibit 10.2 to our Quarterly Report on Form 10-Q filed May 9, 2019). 10.13 Second Amendment dated January 31, 2020 to the Loan Agreement (incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed February 14, 2020). 10.14 Modification Agreement dated as of December 21, 2020 to the Loan Agreement. 10.15 2020 Incentive Plan 21.1 Subsidiaries of the Registrant. 23.1 Consent of Ernst & Young, LLP. 23.2 Consent of BDO USA, LLP. 31.1 Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (the "Act"). 31.2 Certification of Senior Vice President—Finance pursuant to Section 302 of the Act. 31.3 Certification of Chief Financial Officer pursuant to Section 302 of the Act. 32.1 Certification of Chief Executive Officer pursuant to Section 906 of the Act. 32.2 Certification of Senior Vice President—Finance pursuant to Section 906 of the Act. 32.3 Certification of Chief Financial Officer pursuant to Section 906 of the Act. 101.INS The instance document does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document. _______________________________________________________________________________ * Indicates management contract or compensatory plan or arrangement. (b) Exhibits. See Item 15(a)(3) above. Except as otherwise indicated with respect to a specific exhibit, the file number for all of the exhibits incorporated by reference is: 001-07172. (c) Financial Statements. See Item 15(a)(2) above. Item 16. Form 10-K Summary Not applicable. 42 Table of Content SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. BRT APARTMENTS CORP. Date: March 15, 2021 By: /s/ JEFFREY A. GOULD Jeffrey A. Gould Chief Executive Officer and President Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacity and on the dates indicated. Signature Title Date /s/ ISRAEL ROSENZWEIG Chairman of the Board March 15, 2021 Israel Rosenzweig /s/ JEFFREY A. GOULD Chief Executive Officer, President and Director (Principal Executive Officer) March 15, 2021 Jeffrey A. Gould /s/ ALAN GINSBURG Director March 15, 2021 Alan Ginsburg /s/ FREDRIC H. GOULD Director March 15, 2021 Fredric H. Gould /s/ MATTHEW J. GOULD Director March 15, 2021 Matthew J. Gould /s/ LOUIS C. GRASSI Director March 15, 2021 Louis C. Grassi /s/ GARY HURAND Director March 15, 2021 Gary Hurand /s/ JEFFREY RUBIN Director March 15, 2021 Jeffrey Rubin /s/ JONATHAN SIMON Director March 15, 2021 Jonathan Simon /s/ ELIE WEISS Director March 15, 2021 Elie Weiss /s/ GEORGE E. ZWEIER Chief Financial Officer and Vice President (Principal Financial and Accounting Officer) March 15, 2021 George E. Zweier 43 Table of Contents Index Item 8, Item 15(a)(1) and (2) Index to Consolidated Financial Statements and Consolidated Financial Statement Schedules Page No. Report of Independent Registered Public Accounting Firm F- 2 Report of Independent Registered Public Accounting Firm F- 4 Consolidated Balance Sheets as of December 31, 2020 and 2019 F- 5 Consolidated Statements of Operations for the years ended December 31, 2020 and 2019 F- 6 Consolidated Statements of Comprehensive Income for the years ended December 31, 2020 and 2019 F- 7 Consolidated Statements of Stockholders' Equity for the years ended December 31, 2020 and 2019 F- 8 Consolidated Statements of Cash Flows for the years ended December 31, 2020 and 2019 F- 9 Notes to Consolidated Financial Statements F- 11 Consolidated Financial Statement Schedule for the year ended December 31, 2020 III—Real Estate Properties and Accumulated Depreciation F- 32 All other schedules are omitted because they are not applicable or the required information is shown in the consolidated financial statements or the notes thereto. F-1 Table of Contents Index REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Stockholders and the Board of Directors of BRT Apartments Corp. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheet of BRT Apartments Corp. (the Company) as of December 31, 2020, the related consolidated statements of operations, comprehensive income, stockholders' equity and cash flows for the year then ended, and the related notes and financial statement schedule listed in the Index at Item 15(a)(2) (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2020, and the results of its operations and its cash flows for the year then ended, in conformity with U.S. generally accepted accounting principles. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the account or disclosure to which it relates. F-2 Table of Contents Index Joint Venture Consolidation Assessment Joint Venture Consolidation Assessment Description of the matter The Company accounted for certain investments in real estate joint ventures under the equity method of accounting. At December 31, 2020, the Company’s investments in unconsolidated joint ventures were $169.5 million. As discussed in Note 1 to the consolidated financial statements, for each venture the Company evaluated the rights provided to each party in the venture to assess the consolidation of the venture. Auditing management’s joint venture consolidation analyses was complex and highly judgmental due to the subjectivity in assessing which activities most significantly impact the respective joint venture’s economic performance based on the purpose and design of the entity over the duration of its expected life and assessing which party has rights to direct those activities. How we addressed the matter in our audit To test the Company’s consolidation assessment for real estate joint ventures, our procedures included, among others, reviewing joint venture agreements and discussing with management the nature of the rights conveyed to the Company through the joint venture agreements. We reviewed management’s assessment of the activities that would most significantly impact the joint venture’s economic performance and evaluated whether the joint venture agreements provided participating or protective rights to the Company. We also evaluated transactions with the joint ventures for events which would require a reconsideration of previous consolidation conclusions. /s/ Ernst & Young LLP We have served as the Company’s auditor since 2020. New York, New York March 15, 2021 F-3 Table of Contents Index REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Stockholders and Board of Directors BRT Apartments Corp. Great Neck, New York Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated balance sheet of BRT Apartments Corp. (the “Company”) as of December 31, 2019, the related consolidated statements of income and comprehensive income, stockholders’ equity, and cash flows for the year then ended, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2019, and the results of its operations and its cash flows for the year then ended , in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion The consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audit provides a reasonable basis for our opinion. /s/ BDO USA, LLP We served as the Company's auditor from 2011 to 2020 New York, New York May 15, 2020 F-4 Table of Contents Index BRT APARTMENTS CORP. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Amounts in thousands, except share data) December 31, 2020 2019 ASSETS Real estate properties, net of accumulated depreciation of $30,837 and $24,094 $ 160,192 $ 169,689 Real estate loan — 4,150 Cash and cash equivalents 19,885 22,699 Restricted cash 8,800 9,719 Investment in unconsolidated joint ventures 169,474 177,071 Other assets 7,390 7,282 Total Assets $ 365,741 $ 390,610 LIABILITIES AND EQUITY Liabilities: Mortgages payable, net of deferred costs of $563 and $823 $ 130,434 $ 133,215 Junior subordinated notes, net of deferred costs of $317 and $337 37,083 37,063 Accounts payable and accrued liabilities 20,536 20,772 Total Liabilities 188,053 191,050 Commitments and contingencies Equity: BRT Apartments Corp. stockholders' equity: Preferred shares, $.01 par value: Authorized 2,000 shares, none issued — — Common stock, $.01 par value, 300,000 shares authorized, 16,432 and 15,638 shares issued at December 31, 2020 and 2019 164 156 Additional paid-in capital 245,605 232,331 Accumulated other comprehensive income ( 19 ) ( 10 ) Accumulated deficit ( 67,978 ) ( 32,824 ) Total BRT Apartments Corp. stockholders' equity 177,772 199,653 Non-controlling interests ( 84 ) ( 93 ) Total Equity 177,688 199,560 Total Liabilities and Equity $ 365,741 $ 390,610 See accompanying notes to consolidated financial statements. F-5 Table of Contents Index BRT APARTMENTS CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Dollars in thousands, except share data) Year Ended December 31, 2020 2019 Revenues: Rental and other revenue from real estate properties $ 27,451 $ 27,009 Other income 651 752 Total revenues 28,102 27,761 Expenses: Real estate operating expenses—including $32 and $101 to related parties 12,377 12,332 Interest expense 7,100 7,796 General and administrative—including $761 and $575 to related party 11,701 10,091 Impairment charge 3,642 — Depreciation 6,742 5,916 Total expenses 41,562 36,135 Total revenues less total expenses ( 13,460 ) ( 8,374 ) Equity in loss from unconsolidated joint ventures ( 6,024 ) ( 8,826 ) Equity in earnings from sale of unconsolidated joint venture properties — 9,932 Gain on sale of real estate — 10,618 Loss on extinguishment of debt — ( 1,387 ) (Loss) income from continuing operations ( 19,484 ) 1,963 Provision for taxes 248 270 (Loss) income from continuing operations, net of taxes ( 19,732 ) 1,693 (Income) attributable to non-controlling interests ( 130 ) ( 837 ) Net (loss) income attributable to common stockholders $ ( 19,862 ) $ 856 Weighted average number of shares of common stock outstanding: Basic 17,115,697 15,965,631 Diluted 17,115,697 16,165,631 Per share amounts attributable to common stockholders: Basic $ ( 1.16 ) $ 0.05 Diluted $ ( 1.16 ) $ 0.05 See accompanying notes to consolidated financial statements. F-6 Table of Contents Index BRT REALTY TRUST AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Dollars in thousands) Year Ended December 31, 2020 2019 Net (loss) income $ ( 19,732 ) $ 1,693 Other comprehensive loss: Unrealized loss on derivative instruments ( 12 ) ( 23 ) Other comprehensive loss ( 12 ) ( 23 ) Comprehensive (loss) income ( 19,744 ) 1,670 Comprehensive (income) attributable to non-controlling interests ( 128 ) ( 833 ) Comprehensive (loss) income attributable to common stockholders $ ( 19,872 ) $ 837 See accompanying notes to consolidated financial statements. F-7 Table of Contents Index BRT APARTMENTS CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY Years Ended December 31, 2020 and 2019 (Dollars in thousands, except share data) Shares of Common Stock Additional Paid-In Capital Accumulated Other Comprehensive Income (Loss) (Accumulated Deficit) Non Controlling Interests Total Balances, December 31, 2018 $ 150 $ 223,373 $ 9 $ ( 20,044 ) $ 331 $ 203,819 Distributions - Common Stock - $0.84 per share — — — ( 13,636 ) — ( 13,636 ) Restricted stock vesting 1 ( 1 ) — — — — Compensation expense—restricted stock and restricted stock units — 1,492 — — — 1,492 Distributions to non-controlling interests — — — — ( 1,257 ) ( 1,257 ) Shares issued through equity offering program, net 5 7,513 — — — 7,518 Shares repurchased — ( 46 ) — — — ( 46 ) Net income — — — 856 837 1,693 Other comprehensive loss — — ( 19 ) — ( 4 ) ( 23 ) Comprehensive income — — — — — 1,670 Balances, December 31, 2019 $ 156 $ 232,331 $ ( 10 ) $ ( 32,824 ) $ ( 93 ) $ 199,560 Distributions - Common Stock - $0.88 per share — — — ( 15,292 ) — ( 15,292 ) Restricted stock vesting 1 ( 1 ) — — — — Compensation expense—restricted stock and restricted stock units — 1,821 — — — 1,821 Distributions to non-controlling interests — — — — ( 118 ) ( 118 ) Shares issued through equity offering program, net 7 12,070 — — — 12,077 Shares repurchased — ( 616 ) — — — ( 616 ) Net (loss) income — — — ( 19,862 ) 130 ( 19,732 ) Other comprehensive loss — — ( 9 ) — ( 3 ) ( 12 ) Comprehensive loss — — — — — ( 19,744 ) Balances, December 31, 2020 $ 164 $ 245,605 $ ( 19 ) $ ( 67,978 ) $ ( 84 ) $ 177,688 See accompanying notes to consolidated financial statements F-8 Table of Contents Index BRT APARTMENTS CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in Thousands) Year Ended December 31, 2020 2019 Cash flows from operating activities: Net (Loss) income $ ( 19,732 ) $ 1,693 Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities: Depreciation 6,742 5,916 Amortization of deferred financing fees 280 311 Amortization of restricted stock 1,821 1,492 Impairment charge 3,642 — Equity in loss of unconsolidated joint ventures 6,024 8,826 Equity in earnings on sale of real estate of unconsolidated ventures — ( 9,932 ) Gain on sale of real estate — ( 10,618 ) Loss on extinguishment of debt — 1,387 Distributions from equity in earnings of unconsolidated joint ventures — 7,442 Increases and decreases from changes in other assets and liabilities: (Decrease) increase in accounts payable and accrued liabilities ( 424 ) 3,766 Increase in other assets ( 108 ) ( 1,635 ) Net cash (used in) provided by operating activities ( 1,755 ) 8,648 Cash flows from investing activities: Collections from real estate loans 150 600 Proceeds from the sale of mortgage loan 4,000 — Net costs capitalized to real estate owned ( 887 ) ( 1,580 ) Purchase of partner interests — ( 1,316 ) Proceeds from the sale of real estate owned — 33,588 Distributions from unconsolidated joint ventures 15,273 20,713 Contributions to unconsolidated joint ventures ( 13,700 ) ( 29,069 ) Net cash provided by investing activities 4,836 22,936 Cash flows from financing activities: Mortgage payoffs — ( 20,635 ) Mortgage principal payments ( 3,041 ) ( 2,912 ) Proceeds from credit facility 5,000 15,200 Repayment of credit facility ( 5,000 ) ( 15,200 ) Increase in deferred financing costs — ( 84 ) Dividends paid ( 15,116 ) ( 13,468 ) Distributions to non-controlling interests ( 118 ) ( 1,257 ) F-9 Table of Contents Index BRT APARTMENTS CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in Thousands) Year Ended December 31, 2020 2019 Proceeds from the sale of common stock 12,077 7,517 Repurchase of shares of common stock ( 616 ) ( 46 ) Net cash used in financing activities ( 6,814 ) ( 30,885 ) Net (decrease) increase in cash, cash equivalents and restricted cash ( 3,733 ) 699 Cash, cash equivalents and restricted cash at beginning of year 32,418 31,719 Cash, cash equivalents and restricted cash at end of year $ 28,685 $ 32,418 Supplemental disclosures of cash flow information: Cash paid during the year for interest expense $ 6,886 $ 7,511 Cash paid during the year for income and excise taxes $ 291 $ 324 See accompanying notes to consolidated financial statements. F-10 Table of Contents Index BRT APARTMENTS CORP. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2020 NOTE 1— ORGANIZATION, BACKGROUND AND SIGNIFICANT ACCOUNTING POLICIES Organization and Background BRT Apartments Corp. (“BRT” or the “Company”) is the successor to BRT Realty Trust pursuant to the conversion of BRT Realty Trust from a Massachusetts business trust to a Maryland corporation on March 18, 2017. BRT owns, operates and develops multi-family properties. Generally, these multi-family properties are owned by unconsolidated joint ventures in which the Company contributes a significant portion of the equity. At December 31, 2020, BRT: (i) wholly owns eight multi-family properties located in six states with an aggregate of 1,880 units and a carrying value of $ 153.6 million; and (ii) has ownership interests, through unconsolidated entities, in 31 multi-family properties located in nine states with an aggregate of 9,162 units , and the carrying value of its net equity investment is $ 169.4 million. In total, the Company has properties in 11 states, most of which are located in the Southeast United States and Texas. The Company also owns and operates various other real estate assets. At December 31, 2020, the carrying value of the other real estate assets was $ 6,667,000 . BRT conducts its operations to qualify as a real estate investment trust, or REIT, for Federal income tax purposes. 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. Principles of Consolidation 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. For each venture, the Company evaluated the rights provided to each party in the venture to assess the consolidation of the venture. 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. Certain items on the consolidated financial statements for the year ended December 31, 2019, have been reclassified to conform with the current year's presentation including classifying Deposits and escrows within Other Assets on the consolidated balance sheet. Income Tax Status The Company qualifies as a real estate investment trust under sections 856-860 of the Internal Revenue Code of 1986, as amended. The board of directors may, at its option, elect to revoke or terminate the Company's election to qualify as a real estate investment trust. The Company will not be subject to federal, and generally state and local taxes on amounts it distributes to stockholders, provided it distributes 90% of its ordinary taxable income and meets other conditions. The Company currently has net operating loss carryforwards which it can use to reduce taxable income. F-11 Table of Contents Index BRT APARTMENTS CORP. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2020 NOTE 1—ORGANIZATION, BACKGROUND AND SIGNIFICANT ACCOUNTING POLICIES (Continued) In accordance with Accounting Standards Codification ("ASC") Topic 740 - "Income Taxes", the Company believes that it has appropriate support for the income tax positions taken and, as such, does not have any uncertain tax positions that, if successfully challenged, could result in a material impact on the Company's financial position or results of operations. The Company's income tax returns for the previous six years are subject to review by the Internal Revenue Service. Revenue Recognition Rental revenue from multi-family properties is recorded when due from residents and is recognized monthly as it is earned. Rental payments are due in advance. Leases on residential properties are generally for terms that do not exceed one year . Rental revenue from commercial properties, including the base rent that each tenant is required to pay in accordance with the terms of their respective leases, net of any rent concessions and lease incentives, is reported on a straight-line basis over the non-cancellable term of the lease. Real Estate Properties Real estate properties are stated at cost, net of accumulated depreciation, and include properties acquired through acquisition, development or foreclosure. The Company assesses the fair value of real estate acquired (including land, buildings and improvements, and identified intangibles such as acquired in-place leases) and acquired liabilities and allocates the acquisition price, including transaction costs, based on these assessments. Depreciation for multi-family properties is computed on a straight-line basis over an estimated useful life of 30 years. Intangible assets (and liabilities) are amortized over the remaining life of the related leases at the time of acquisition and is usually less than one year. Expenditures for maintenance and repairs are charged to operations as incurred. Real estate is classified as held for sale when management has determined that the applicable criteria have been met. Real estate assets that are expected to be disposed of are valued at the lower of their carrying amount or their fair value less costs to sell on an individual asset basis. Real estate classified as held for sale is not depreciated. The Company accounts for the sale of real estate when title passes to the buyer, sufficient equity payments have been received, there is no continuing involvement by the Company and there is reasonable assurance that the remaining receivable, if any, will be collected. Asset Impairments The Company reviews each real estate asset owned to determine if there are indicators of impairment. If such indicators are present, the Company determines whether the carrying amount of the asset can be recovered. Recognition of impairment is required if the undiscounted cash flows estimated to be generated by the asset are less than the asset's carrying amount and that carrying amount exceeds the estimated fair value of the asset. The estimated fair value is determined using a discounted cash flow model of the expected future cash flows through the useful life of the property. The analysis includes an estimate of the future cash flows that are expected to result from the real estate investment’s use and eventual disposition. These cash flows consider factors such as expected future operating income, trends, the effects of leasing demands, and other factors. In evaluating a property for impairment, various factors are considered, including estimated current and expected operating cash flow from the property during the projected holding period, costs necessary to extend the life or improve the asset, expected capitalization rates, projected stabilized net operating income, selling costs, and the ability to hold and dispose of such real estate in the ordinary course of business. Valuation adjustments may be necessary in the event that effective interest rates, rent-up periods, future economic conditions, and other relevant factors vary significantly from those assumed in valuing the property. If future evaluations result in a decrease in the value of the property below its carrying value, the reduction will be recognized as an impairment charge. The fair values related to the impaired real estate assets are considered to be a level 3 valuation within the fair value hierarchy. For investment in real estate ventures, if indicators of impairment are present, the Company determines if the fair value of the investment is less than its carrying value. Fair value is determined using a discounted cash flow model of the expected future cash flows through the useful life of the asset. The fair values related to the impaired investments in real estate ventures are considered to be a level 3 valuation within the fair value hierarchy. F-12 Table of Contents Index BRT APARTMENTS CORP. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2020 NOTE 1—ORGANIZATION, BACKGROUND AND SIGNIFICANT ACCOUNTING POLICIES (Continued) Equity Based Compensation Compensation expense for grants of restricted stock, restricted stock units ("RSUs") and dividend equivalent rights are amortized over the vesting period of such awards, based upon the estimated fair value of such award at the grant date. The Company recognizes the effect of forfeitures when they occur and previously recognized compensation expense is reversed in the period the grant or unit is forfeited. The deferred compensation related to the RSUs to be recognized as expense is net of certain performance assumptions which are re-evaluated quarterly. For accounting purposes, the restricted shares and the RSUs are not included in the outstanding shares shown on the consolidated balance sheets until they vest; however, the restricted shares are included in the calculation of both basic and diluted earnings per share as they participate in the earnings of the Company. Derivatives and Hedging Activities The Company's objective in using derivative financial instruments is to manage interest rate risk related to variable rate debt. The Company does not use derivatives for trading or speculative purposes. The Company records all derivatives on its consolidated balance sheets at fair value. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative, whether the Company has elected to designate a derivative in a hedging relationship and apply hedge accounting and whether the hedging relationship has satisfied the criteria necessary to apply hedge accounting. Derivatives designated and qualifying as a hedge of the exposure to variability in expected future cash flows are considered cash flow hedges. For derivatives designated as cash flow hedges, the effective portion of changes in the fair value of the derivative is reported in other comprehensive income (loss). Those amounts are reclassified to earnings in the same income statement line item that is used to present the earnings effect of the hedged item when the hedged item affects earnings. For derivatives not designated as cash flow hedges, changes in the fair value of the derivative are recognized directly in earnings in the period in which they occur. Per Share Data Basic earnings (loss) per share is determined by dividing net income (loss) applicable to holders of common stock for the applicable year by the weighted average number of shares of common stock outstanding during such year. Diluted earnings per share reflects the potential dilution that could occur if securities or other contracts to issue shares of 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 (loss) per share is determined using the treasury stock method by dividing net income (loss) applicable to the holders of common stock for the applicable year by the sum of the weighted average number of shares of common stock outstanding plus the dilutive effect of the Company's unvested RSUs. Cash Equivalents Cash equivalents consist of highly liquid investments; primarily, direct United States treasury obligations with maturities of three months or less when purchased. Restricted Cash Restricted cash consists of cash held for construction costs and property improvements for specific joint venture properties as may be required by contractual arrangements. Deferred Costs Fees and costs incurred in connection with multi-family property financings are deferred and amortized over the term of the related debt obligations. Fees and costs paid related to the successful negotiation of commercial leases are deferred and amortized on a straight-line basis over the terms of the respective leases. Use of Estimates 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 and accompanying notes. Actual results could differ from those estimates. F-13 Table of Contents Index BRT APARTMENTS CORP. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2020 NOTE 1—ORGANIZATION, BACKGROUND AND SIGNIFICANT ACCOUNTING POLICIES (Continued) New 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 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 2— REAL ESTATE PROPERTIES Real estate properties consist of the following (dollars in thousands): December 31, 2020 2019 Land $ 25,585 $ 29,227 Building 154,854 154,854 Building improvements 10,590 9,702 Real estate properties 191,029 193,783 Accumulated depreciation ( 30,837 ) ( 24,094 ) Total real estate properties, net $ 160,192 $ 169,689 F-14 Table of Contents Index BRT APARTMENTS CORP. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2020 NOTE 2 - REAL ESTATE PROPERTIES (Continued) A summary of activity in real estate properties, net for the year ended December 31, 2020 follows (dollars in thousands): December 31, 2019 Balance Improvements Depreciation Impairment Charge December 31, 2020 Balance Multi-family $ 159,434 $ 802 $ ( 6,632 ) $ — $ 153,604 Land - Daytona, FL 8,021 — — ( 3,642 ) 4,379 Retail shopping center - Yonkers, NY/Other 2,234 85 ( 110 ) — 2,209 Total real estate properties $ 169,689 $ 887 $ ( 6,742 ) $ ( 3,642 ) $ 160,192 The following summarizes, by state, information for the year ended December 31, 2020 regarding consolidated properties (dollars in thousands): Location Number of Properties Number of Units 2020 Rental and Other Revenue from Real Estate Properties % of 2020 Rental and Other Revenue from Real Estate Properties Texas 2 464 $ 5,443 20 % Georgia 2 448 6,315 23 % Florida 1 276 4,003 15 % South Carolina 1 208 3,218 12 % Virginia 1 220 4,004 15 % Ohio 1 264 3,039 11 % Other (a) — — 1,429 5 % 8 1,880 $ 27,451 100 % (a) Represents non multi-family revenues Future minimum rentals to be received pursuant to non-cancellable operating leases with terms in excess of one year, from a commercial property owned by the Company at December 31, 2020, are as follows (dollars in thousands): Year Ending December 31, Amount 2021 $ 1,147 2022 1,185 2023 1,252 2024 953 2025 648 Thereafter 1,513 Total $ 6,698 Leases at the Company's multi-family properties are generally for a term of one year or less and are not reflected in this table. F-15 Table of Contents Index BRT APARTMENTS CORP. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2020 NOTE 3— ACQUISITIONS, DISPOSITIONS AND IMPAIRMENT CHARGES Property Acquisitions The Company did not acquire any real estate properties during the year ended December 31, 2020. In the year ended December 31, 2019, the Company purchased its partner's 20 % interest in Parkway Grande Apartments located in San Marcos, TX for $ 1,608,000 . Property Dispositions The Company did not dispose of any real estate properties during the year ended December 31, 2020. The tables below provide information regarding the Company's disposition of real estate properties during the year ended December 31, 2019 (dollars in thousands): Location Sale Date No. of Units Sales Price Gain on Sale Non-Controlling Partner's Share of Gain on Sale Houston, TX (two properties) 7/11/2019 384 $ 33,200 $ 9,938 $ 894 New York, NY (1) 12/16/2019 1 832 680 — 385 $ 34,032 $ 10,618 $ 894 (1) Reflects the sale of a cooperative apartment unit. 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 had entered into a contract to sell this property at a sales price less than 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 year ended December 31, 2019, no impairment charges were recorded. NOTE 4— REAL ESTATE LOAN The Company had a loan receivable secured by several properties in Newark, NJ. The principle 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. F-16 Table of Contents Index BRT APARTMENTS CORP. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2020 NOTE 5— RESTRICTED CASH Restricted cash represents funds for specific purposes and therefore are not generally available for general corporate purposes. As reflected on the consolidated balance sheets, restricted cash represents funds held by or on behalf of the Company specifically allocated for capital improvements at multi-family properties. NOTE 6 - 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 were entered into with the Company’s two commercial 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 concessions provided to the tenants, where the revised cash flows are substantially the same or less than the original lease agreement. As a result, during the year ended December 31, 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 December 31, 2020 , the remaining lease term, including the renewal option, is 24.75 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 December 31, 2020, the remaining lease term, including renewal options deemed exercised, is 16 years. As of December 31, 2020 , the Company's right-of-use ("ROU") assets and lease liabilities were $ 2,652,000 and $ 2,674,000 , respectively. As of December 31, 2019, the Company's ROU assets and lease liabilities were $ 2,822,000 and $ 2,833,000 , respectively and are reported on the consolidated balance sheets in Other assets and Accounts payable and accrued liabilitie s, 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. F-17 Table of Contents Index BRT APARTMENTS CORP. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2020 NOTE 7— INVESTMENT IN UNCONSOLIDATED VENTURES At December 31, 2020, the Company owns interests in unconsolidated joint ventures that own 31 multi-family properties (the "Unconsolidated Properties"). The condensed balance sheet below presents information regarding such properties (dollars in thousands): December 31, 2020 2019 ASSETS Real estate properties, net of accumulated depreciation of $145,600 and $104,001 $ 1,075,178 $ 1,070,941 Cash and cash equivalents 16,939 12,804 Other Assets 29,392 28,048 Total Assets $ 1,121,509 $ 1,111,793 LIABILITIES AND EQUITY Liabilities: Mortgages payable, net of deferred costs of $5,537 and $5,839 $ 829,646 $ 803,289 Accounts payable and accrued liabilities 20,237 19,731 Total Liabilities 849,883 823,020 Commitments and contingencies Equity: Total unconsolidated joint venture equity 271,626 288,773 Total Liabilities and Equity $ 1,121,509 $ 1,111,793 Company equity interest of joint venture equity $ 169,474 $ 177,071 F-18 Table of Contents Index BRT APARTMENTS CORP. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2020 NOTE 7—INVESTMENT IN UNCONSOLIDATED VENTURES (Continued) The condensed income statement below presents information regarding the Unconsolidated Properties (dollars in thousands): Year Ended December 31, 2020 2019 Revenues: Rental and other revenue $ 127,058 $ 118,177 Total revenues 127,058 118,177 Expenses: Real estate operating expenses 60,326 56,684 Interest expense 34,918 35,023 Depreciation 41,657 39,218 Total expenses 136,901 130,925 Total revenues less total expenses ( 9,843 ) ( 12,748 ) Other equity earnings 117 177 Gain on sale of real estate properties — 16,899 Loss on extinguishment of debt — ( 2,018 ) Gain on insurance recoveries 765 787 Net (loss) income from joint ventures ( 8,961 ) 3,097 BRT equity in loss and equity in earnings from sale of unconsolidated joint venture properties $ ( 6,024 ) $ 1,106 On February 2, 2021, the Company entered into an agreement to sell to its joint venture partner, the Company's 80 % interest in Anatole Apartments, Daytona, FL for approximately $ 7.4 million. It is anticipated the transaction will close, subject to satisfaction of customary closing conditions, in March or April 2021. On March 3, 2021, we entered into an agreement to sell Kendall Manor - Houston, Texas to an unrelated third party for approximately $ 24.5 million and anticipate the transaction will close, subject to satisfaction of certain conditions, in April or May 2021. We estimate that we will recognize a gain on the sale of this property of approximately $ 7.5 million. In 2020, our rental revenues, operating expenses, interest expense and depreciation associated with this property were $ 2.9 million, $ 1.9 million, $ 675,000 and $ 848,000 , respectively. Acquisitions The tables below provides information regarding the Company's property acquisitions, through unconsolidated joint ventures, and the properties they purchased during the years ended December 31, 2020 and 2019 (dollars in thousands): 2020 Location Purchase Date No. of Units Purchase Price Acquisition Mortgage Debt Initial BRT Equity Ownership Percentage Capitalized Property Acquisition Costs Wilmington, NC 2/20/2020 264 $ 38,000 $ 23,160 $ 13,700 80 % $ 459 F-19 Table of Contents Index BRT APARTMENTS CORP. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2020 NOTE 7—INVESTMENT IN UNCONSOLIDATED VENTURES (Continued) 2019 Location Purchase Date No. of Units Purchase Price Acquisition Mortgage Debt Initial BRT Equity Ownership Percentage Capitalized Property Acquisition Costs Kannapolis, NC 3/12/2019 312 $ 48,065 $ 33,347 $ 11,231 65 % $ 559 Trussville, AL 5/72019 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 The table below provides information regarding the disposition of a real estate property by an unconsolidated joint venture in the year ended December 31, 2019 (dollars in thousands): Location Sale Date No. of Units Sales Price Gain on Sale Non-Controlling Partner's Share of Gain on Sale Indianapolis, IN 12/17/2019 400 $ 36,500 $ 16,898 $ 9,932 NOTE 8— DEBT OBLIGATIONS Debt obligations consist of the following (dollars in thousands): December 31, 2020 2019 Mortgages payable $ 130,997 $ 134,038 Junior subordinated notes 37,400 37,400 Deferred loan costs ( 880 ) ( 1,160 ) Total debt obligations $ 167,517 $ 170,278 At December 31, 2020, $ 130,997,000 of mortgage debt is outstanding on the Company's eight multi-family properties and one commercial property with a weighted average interest rate of 4.15 % and a weighted average remaining term to maturity of 4.4 years. Scheduled principal repayments for the next five years and thereafter are as follows (dollars in thousands): Year Ending December 31, Scheduled Principal Payments 2021 $ 17,274 2022 62,543 2023 1,270 2024 1,316 2025 16,661 Thereafter 31,933 $ 130,997 F-20 Table of Contents Index BRT APARTMENTS CORP. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2020 NOTE 8—DEBT OBLIGATIONS (Continued) The Company incurred the following mortgage debt in connection with the purchase of our partner's' interest in the year ended December 31, 2019 (dollars in thousands): Location Acquisition Date Mortgage balance at acquisition Interest Rate Maturity Date San Marcos, TX 10/4/2019 $ 17,158 4.42 % October 2025 Credit Facility The Company entered into a credit facility dated April 18, 2019, as amended and modified 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 4.25 %. The interest rate in effect as of December 31, 2020 is 4.25 %. 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 December 31, 2020, the Company is in compliance in all material respects with its obligations under the facility. At December 31, 2020 and December 31, 2019, there was no outstanding balance on the facility. Interest expense for the years ended December 31, 2020 and 2019, which includes amortization of deferred financing costs and unused fees ,was $ 96,000 and $ 204,000 respectively. Deferred costs of $ 12,000 and $ 53,000 are recorded in other assets on the consolidated balance sheets at December 31, 2020 and 2019, respectively. Junior Subordinated Notes At December 31, 2020 and 2019, the outstanding principal balance of the Company's junior subordinated notes was $ 37,400,000 before deferred financing costs of $ 317,000 and $ 337,000 , respectively. The interest rate on the outstanding balance resets quarterly and is based on three month LIBOR + 2.00 % The rate in effect at December 31, 2020 and 2019 was 2.21 % and 3.94 % respectively. The notes mature April 30, 2036. The notes require interest only payments through the maturity date, at which time repayment of all outstanding principal and unpaid interest is due. Interest expense for the years ended December 31, 2020 and 2019, which includes amortization of deferred costs, was $ 1,119,000 and $ 1,711,000 , respectively. NOTE 9— INCOME TAXES The Company elected to be taxed as a REIT pursuant to the Code. As a REIT, the Company is generally not subject to Federal income taxes at the corporate level if it distributes 100% of its REIT taxable income, as defined, to its stockholders. To maintain its REIT status, the Company must distribute at least 90% of its ordinary taxable income; however, if it does not distribute 100% of its taxable income, it will be taxed on undistributed income. There are a number of organizational and operational requirements the Company must meet to remain a REIT. If the Company fails to qualify as a REIT in any taxable year, its taxable income will be subject to Federal income tax at regular corporate tax rates and it may not be able to qualify as a REIT for four subsequent tax years. Even if it is qualified as a REIT, the Company is subject to certain state and local income taxes and to Federal income and excise taxes on undistributed taxable income. For income tax purposes, the Company reports on a calendar year basis. As of December 31, 2020, tax returns for the calendar years 2017 through 2020 remain subject to examination by the Internal Revenue Service and various state and local tax jurisdictions. During the years ended December 31, 2020 and 2019, the Company recorded $ 248,000 and $ 270,000 , respectively, of state franchise tax expense, net of refunds, relating to the 2020 and 2019 calendar years. F-21 Table of Contents Index BRT APARTMENTS CORP. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2020 NOTE 9—INCOME TAXES (Continued) Earnings and profits, which determine the taxability of dividends to stockholders, differs from net income reported for financial statement purposes due to various items, including timing differences related to loan loss provisions, impairment charges, depreciation methods and carrying values. At December 31, 2020, the Company had a net operating loss carryforward of $ 16,800,000 . These net operating losses may be available in future years to reduce taxable income when and if it is generated. These loss carryforwards no longer expire and are available to offset 100% of taxable income. Net operating losses generated in 2018 and thereafter will be available to offset 80% of taxable income. NOTE 10— STOCKHOLDERS' EQUITY Common Stock Dividend Distribution During the years ended December 31, 2020 and 2019, the Company declared an aggregate of $ 0.88 and $ 0.84 per share in cash dividends, respectively. Stock Based Compensation During the year ended December 31, 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. Each of the Company's 2018 Incentive Plan (the "2018 Plan"), Amended and Restated 2016 Incentive Plan (the "2016 Plan") and the 2012 Incentive Plan (the "2012 Plan") authorized the Company to grant: (i) up to 600,000 shares of common stock pursuant to stock options, restricted stock, restricted stock units, and performance shares awards; and (ii) except for the 2012 Plan which did not authorize such awards, cash settled dividend equivalent rights in tandem with the grant of restricted stock units and certain performance based awards. No further awards may be granted pursuant to the 2018 Plan, the 2016 Plan and the 2012 Plan, which are referred to collectively as the "Prior Plans." Restricted Stock Units In June 2016, pursuant to the 2016 Plan, the Company issued restricted stock units (the "Units") to acquire up to 450,000 shares of common stock. The Units entitle the recipients, subject to continued service through March 31,2021 (the “Performance Period”), to receive in the aggregate (i) up to 200,000 shares (the “TSR Award”) of common stock based on achieving, during the Performance Period, specified levels in compounded annual growth rate (“CAGR”) in total stockholder return (“TSR”), and (ii) up to 200,000 shares of common stock based on achieving, during the Performance Period, specified levels in CAGR in adjusted funds from operations, as determined pursuant to the performance agreement (the "AFFO Award"). In addition, up to 50,000 shares (the "Adjustment Award") may be added to or subtracted from the TSR Award, based on attaining or failing to attain, as the case may be, during the Performance Period, of CAGR in TSR relative to the CAGR in TSR for the REITs that comprise, with specified exceptions, the FTSE NAREIT Equity Apartment Index. The recipients also received dividend equivalent rights entitling them to receive cash dividends with respect to the shares of common stock underlying their Units as if the underlying shares were outstanding during the Performance Period, if, when, and to the extent, the related Units vest. The Units were determined not to be participating securities and accordingly, for financial statement purposes, 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. Though the 450,000 shares underlying the units are contingently issuable shares, 250,000 of such shares have not been included in the calculation of diluted earnings per share as the criteria with respect to the AFFO Award and the Adjustment Award were not met at December 31, 2020. The Company included 200,000 shares of F-22 Table of Contents Index BRT APARTMENTS CORP. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2020 NOTE 10—STOCKHOLDERS' EQUITY (Continued) common stock underlying the TSR Awards in the calculation of diluted earnings per share as the market criteria with respect to the TSR award have been met at December 31, 2020. For the TSR Awards, a third party appraiser prepared a Monte Carlo simulation pricing model to assist management in determining fair value. For the AFFO Awards, fair value is based on the market value on the date of grant. Expense is not recognized on the Units which the Company does not expect to vest as a result of conditions the Company does not expect to be satisfied. The total amount recorded at the grant date as deferred compensation with respect to the Units was $ 2,117,000 . As of December 31, 2020, $ 1,432,000 of deferred compensation allocated to the AFFO Award has been reversed, as it is not anticipated that the performance goals will be met. The remaining $ 685,000 allocated to the TSR Award is being charged to general and administrative expense over the Performance Period. The deferred compensation expense to be recognized is net of certain forfeiture and performance assumptions. The Company recorded $ 140,000 and $ 142,000 of compensation expense related to the amortization of unearned compensation with respect to the Units in the years ended December 31, 2020, and 2019, respectively. At December 31, 2020 and 2019, $ 35,000 and $ 177,000 respectively, has been deferred as unearned compensation and will be charged to expense over the balance of the Performance Period. Restricted Stock In January 2020, the Company granted 158,299 shares of restricted stock pursuant to the 2018 Plan. As of December 31, 2020, an aggregate of 744,145 shares of unvested restricted stock are outstanding pursuant to the Plan and the Prior Plans. All 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 basic and diluted earnings per share computation. During the years ended December 31, 2020 and 2019, the Company recorded $ 1,681,000 and $ 1,350,000 , respectively, of compensation expense related to the amortization of unearned compensation with respect to the restricted stock awards. At December 31, 2020 and 2019, $ 4,411,000 and $ 3,328,000 , respectively, 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 vesting period of these restricted shares is 2.1 years. Subsequent to December 31, 2020, the Company granted 156,774 shares of restricted stock pursuant to the 2020 Plan. Changes in the number of restricted shares outstanding under the Company's equity incentive plans are shown below: Year Ended December 31, 2020 2019 Outstanding at beginning of the year 725,296 705,847 Issued 158,299 156,399 Cancelled — — Vested ( 139,450 ) ( 136,950 ) Outstanding at the end of the year 744,145 725,296 The following table reflects the compensation expense recorded for all incentive plans (dollars in thousands): Year Ended December 31, 2020 2019 Restricted stock grants $ 1,681 $ 1,350 Restricted stock units 140 142 Total compensation $ 1,821 $ 1,492 F-23 Table of Contents Index BRT APARTMENTS CORP. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2020 NOTE 10—STOCKHOLDERS' EQUITY (Continued) Earnings Per Share The following table sets forth the computation of basic and diluted earnings per share (dollars in thousands): Year Ended December 31, 2020 2019 Numerator for basic and diluted earnings per share attributable to common stockholders: Net (loss) income attributable to common stockholders $ ( 19,862 ) $ 856 Denominator: Denominator for basic earnings per share—weighted average number of shares 17,115,697 15,965,631 Effect of dilutive securities — 200,000 Denominator for diluted earnings per share—adjusted weighted average number of shares and assumed conversions 17,115,697 16,165,631 Basic earnings per share $ ( 1.16 ) $ 0.05 Diluted earnings per share $ ( 1.16 ) $ 0.05 Equity Distribution Agreements On or about November 26, 2019, the Company terminated the prior ATM and entered into new agreements with three sales agents to sell an aggregate of $ 30,000,000 of its common stock from time-to-time in an at-the market offering. Between November 26, 2019 and December 31, 2019, the Company sold 111,963 shares of common stock for net proceeds of $ 1,966,000 after giving effect to related fees, commissions and offering related expenses of $ 56,000 . During the year ended December 31, 2020, the Company sold 694,298 shares of common stock for net proceeds of $ 12,077,000 after giving effect to related fees, commissions and offering related expenses of $ 185,000 . All of the shares sold in 2020 were sold by February 28, 2020. Stock Buyback On September 5, 2017, the Board of Directors approved a repurchase plan authorizing the Company, effective as of October 1, 2017, to repurchase up to $ 5,000,000 of shares of common stock through September 30, 2019. Pursuant to this authorization, the Company, from such date through September 30, 2019, repurchased 17,364 shares of common stock at an average market price of $ 11.95 per share, for an aggregate purchase price, including commissions, of $ 207,000 . On September 12, 2019, the Board of Directors authorized the Company, effective as of October 1, 2019, to purchase up to $ 5,000,000 of shares of common stock through September 30, 2021. During the year ended December 31, 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 . At December 31, 2020, the remaining availability under this authorization is $ 4,384,000 of shares of common stock. NOTE 11— RELATED PARTY TRANSACTIONS The Company has retained certain of its executive officers and Fredric H. Gould, a director, to provide, among other things, the following services: participating in the Company's multi-family property analysis and approval process ( which includes service on an investment committee), providing investment advice, long term planning and consulting with executives and employees with respect to other business matters, as required. The aggregate fees paid in 2020 and 2019 for these services were $ 1,398,000 and $ 1,331,000 , respectively. F-24 Table of Contents Index BRT APARTMENTS CORP. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2020 NOTE 11—RELATED PARTY TRANSACTIONS (Continued) 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, under renewable year-to-year agreements. Certain of the Company's officers and directors are also officers and directors of Majestic Property. Majestic Property provides real property management, real estate brokerage and construction supervision services to these properties. For the years ended December 31, 2020 and 2019, fees for these services were $ 32,000 and $ 33,000 , respectively. Pursuant to a shared services agreement between the Company and several affiliated entities, including Gould Investors L.P., the owner and operator of a diversified portfolio of real estate and other assets and One Liberty Properties, Inc., a NYSE listed equity REIT, the (i) services of the part time personnel that perform certain executive, administrative, legal, accounting and clerical functions and (ii) certain facilities and other resources, are provided to the Company. The allocation of expenses for the facilities, personnel and other resources shared by, among others, the Company and Gould Investors, is computed in accordance with such agreement and is included in general and administrative expense on the consolidated statements of operations. During the years ended December 31, 2020 and 2019 allocated general and administrative expenses reimbursed by the Company to Gould Investors pursuant to the shared services agreement aggregated $ 761,000 and $ 575,000 , respectively. Fredric H. Gould is executive officer and sole stockholder of Georgetown Partners, Inc., the managing general partner of Gould Investors L.P.("Gould Investors"). Mr Gould is also the vice chairman of the board of directors of One Liberty Properties and certain of the Company's officers and directors are also officers or directors of One Liberty Properties and Georgetown Partners. As of December 31, 2020 and 2019, $ 124,000 and $ 142,000 , res pectively, remains unpaid and is included in accounts payable and accrued liabilities on the consolidated balance sheets. Management of two of the Company's multi-family properties which were sold in 2019, was performed by its joint venture partners or their affiliates, none of which are related to the Company. These management fees amounted to $ 68,000 in the year ended December 31, 2019. The Company obtains certain insurance in conjunction with Gould Investors and reimburses Gould Investors for the Company's share of the insurance cost. Insurance reimbursements to Gould Investors for the years ended December 31, 2020 and 2019 were $ 39,000 and $ 40,000 , respectively. NOTE 12— FAIR VALUE OF FINANCIAL INSTRUMENTS Financial Instruments Not Measured at Fair Value The following methods and assumptions were used to estimate the fair value of each class of financial instruments that are not reported 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 on the balance sheets for these instruments approximate their fair value due to the short term nature of these accounts. Junior subordinated notes: At December 31, 2020 and 2019, the estimated fair value of the Company's junior subordinated notes is less than their carrying value by approximately $ 8,670,000 and $ 9,589,000 , respectively, based on market interest rates of 4.22 % and 6.41 %, respectively. Mortgages payable: At December 31, 2020, the estimated fair value of the Company's mortgages payable is less than their carrying value by approximately $ 3,831,000 , assuming market interest rates between 2.87 % and 3.28 %. At December 31, 2019, the estimated fair value was lower than the carrying value by $ 321,000 , assuming market interest rates between 3.89 % and 4.33 %. Market interest rates were determined using current financing transaction information provided by third party institutions. 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 assumptions. The fair values of debt obligations are considered to be Level 2 valuations within the fair value hierarchy. F-25 Table of Contents Index BRT APARTMENTS CORP. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2020 NOTE 12—FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued) Financial Instruments Measured 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 markets 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 liabilities measured at fair value as of December 31, 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 $ 23 — $ 23 — 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 December 31, 2020, this derivative is included in Accounts payable and accrued 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 counterparty. As of December 31, 2020, 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 derivatives. 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. During the year ended December 31, 2020, the fair value of the real estate investment was determined using the following input levels (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 F-26 Table of Contents Index BRT APARTMENTS CORP. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2020 NOTE 12—FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued) 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 is as follows: Fair Value Valuation Technique Significant Unobservable Inputs Non-Financial Assets: Long-Lived assets: Vacant land - South Daytona Beach, FL $ 4,379 Discounted cash flow Non-binding sales contract /Discount rate 12.5% NOTE 13— COMMITMENT AND CONTINGENCIES The Company maintains a non-contributory defined contribution pension plan covering eligible employees and officers. Contributions by the Company are made through a money purchase plan, based upon a percent of qualified employees' total salary as defined therein. Pension expense approximated $ 386,000 and $ 373,000 during the years ended December 31, 2020 and 2019, respectively. At December 31, 2020 and 2019, $ 186,000 and $ 74,000 , respectively, remains unpaid and is included in accounts payable and accrued liabilities on the consolidated balance sheets. At December 31, 2020, the Company is the carve-out guarantor with respect to mortgage debt in principal amount of $ 120,733,000 at seven multi-family properties. NOTE 14— DERIVATIVE FINANCIAL INSTRUMENTS Cash Flow Hedges of Interest Rate Risk The Company's objectives 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 Income and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. As of December 31, 2020, the Company had the following outstanding interest rate derivative that was designated as a cash flow hedge of interest rate risk (dollars in thousands): Interest Rate Derivative Notional Amount Rate Maturity Interest Rate Swap $ 1,036,000 5.25 % April 1, 2022 F-27 Table of Contents Index BRT APARTMENTS CORP. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2020 NOTE 14—DERIVATIVE FINANCIAL INSTRUMENTS (Continued) Non-designated Derivatives Derivatives not designated as hedges are not speculative and are used to manage the Company's exposure to interest rate movements and other identified risks but do not meet the hedge accounting requirements. Changes in the fair value of derivatives not designated in hedging relationships are recorded directly in earnings. At December 31, 2020, the Company did not have any outstanding derivatives that were not designated as hedges in qualifying hedging relationships. 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: December 31, 2020 December 31, 2019 Balance Sheet Location Fair Value Balance Sheet Location Fair Value Other Assets $ — Other assets $ — Accounts payable and accrued liabilities $ 23 Accounts payable and accrued liabilities $ 12 The following table presents the effect of the Company's derivative financial instrument on the consolidated statements of comprehensive income (loss) for the years ended December 31, 2020 and 2019 and (dollars in thousands): Year Ended December 31, 2020 2019 Amount of loss recognized on derivative in Other Comprehensive Income $ ( 27 ) $ ( 22 ) Amount of (loss) gain reclassified from Accumulated Other Comprehensive (loss) income into Interest Expense $ ( 15 ) $ 1 Total amount of Interest expense presented in the Consolidated Statement of Operations $ 7,100 $ 7,796 No gain or loss was recognized related to hedge ineffectiveness or to amounts excluded from effectiveness testing on the Company's cash flow hedge during the years ended December 31, 2020 or 2019. During the twelve months ending December 31, 2021, the Company estimates an additional $ 19,000 will be reclassified from other comprehensive loss as a decrease to interest expense. Credit-risk-related Contingent Features The agreement between the Company and its derivative counterparty 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 obligation. As of December 31, 2020, the fair value of derivative in a net liability position including accrued interest but excluding any adjustment for nonperformance risk related to these agreements was $ 25,000 . As of December 31, 2020, the Company had not posted any collateral related to these agreements and was not in breach of any agreement provisions. If the Company had breached any of these provisions, it could have been required to settle its obligation under the agreements the termination value of $ 25,000 at December 31, 2020. F-28 Table of Contents Index BRT APARTMENTS CORP. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2020 NOTE 15— QUARTERLY FINANCIAL DATA (Unaudited) 2020 1st Quarter Jan - March 2nd Quarter April - June 3rd Quarter July - September 4th Quarter Oct - Dec Total For Year Revenues: Rental and other revenue $ 6,745 $ 6,657 $ 7,020 $ 7,029 $ 27,451 Other income 179 159 293 20 651 Total revenues 6,924 6,816 7,313 7,049 28,102 Expenses: Real estate operating expenses 3,058 3,004 3,289 3,026 12,377 Interest expense 1,860 1,809 1,731 1,700 7,100 General and administrative 3,367 2,957 2,730 2,647 11,701 Impairment charge — — 3,642 — 3,642 Depreciation 1,561 1,809 1,777 1,595 6,742 Total expenses 9,846 9,579 13,169 8,968 41,562 Total revenues less total expenses ( 2,922 ) ( 2,763 ) ( 5,856 ) ( 1,919 ) ( 13,460 ) Equity in loss of unconsolidated joint ventures ( 1,815 ) ( 1,387 ) ( 1,529 ) ( 1,293 ) ( 6,024 ) Loss from continuing operations ( 4,737 ) ( 4,150 ) ( 7,385 ) ( 3,212 ) ( 19,484 ) Provision for taxes 62 65 65 56 248 Loss from continuing operations, net of taxes ( 4,799 ) ( 4,215 ) ( 7,450 ) ( 3,268 ) ( 19,732 ) (Income) attributable to non-controlling interests ( 32 ) ( 31 ) ( 34 ) ( 33 ) ( 130 ) Net loss attributable to common stockholders $ ( 4,831 ) $ ( 4,246 ) $ ( 7,484 ) $ ( 3,301 ) ( 19,862 ) Basic and diluted and per share amounts attributable to common stockholders Basic loss per share $ ( 0.29 ) $ ( 0.25 ) $ ( 0.44 ) $ ( 0.19 ) $ ( 1.16 ) Diluted loss per share $ ( 0.29 ) $ ( 0.25 ) $ ( 0.44 ) $ ( 0.19 ) $ ( 1.16 ) F-29 Table of Contents Index BRT APARTMENTS CORP. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2020 NOTE 15—QUARTERLY FINANCIAL DATA (Unaudited) (Continued) 2019 1st Quarter Jan - March 2nd Quarter April - June 3rd Quarter July - September 4th Quarter Oct - Dec Total For Year Revenues: Rental and other revenue from real estate properties $ 6,886 $ 7,097 $ 6,261 $ 6,765 $ 27,009 Other income 244 190 161 157 752 Total revenues 7,130 7,287 6,422 6,922 27,761 Expenses: Real estate operating expenses 3,176 3,325 2,741 3,090 12,332 Interest expense 1,946 2,049 1,870 1,931 7,796 General and administrative 2,544 2,481 2,430 2,636 10,091 Depreciation 1,547 1,428 1,373 1,568 5,916 Total expenses 9,213 9,283 8,414 9,225 36,135 Total revenues less total expenses ( 2,083 ) ( 1,996 ) ( 1,992 ) ( 2,303 ) ( 8,374 ) Equity in loss from unconsolidated joint venture properties ( 2,068 ) ( 2,218 ) ( 2,390 ) ( 2,150 ) ( 8,826 ) Equity in earnings from sale of unconsolidated joint venture properties — — — 9,932 9,932 Gain on sale of real estate — — 9,938 680 10,618 Loss on extinguishment of debt — — ( 1,387 ) — ( 1,387 ) (Loss) income from continuing operations ( 4,151 ) ( 4,214 ) 4,169 6,159 1,963 Provision for taxes 62 59 98 51 270 (Loss) income from continuing operations, net of taxes ( 4,213 ) ( 4,273 ) 4,071 6,108 1,693 Net (income) loss attributable to non-controlling interests ( 34 ) ( 44 ) ( 799 ) 40 ( 837 ) Net (loss) income attributable to common stockholders $ ( 4,247 ) $ ( 4,317 ) $ 3,272 $ 6,148 $ 856 Basic and diluted per share amounts attributable to common stockholders Basic (loss) income per share $ ( 0.27 ) $ ( 0.27 ) $ 0.21 $ 0.38 $ 0.05 Diluted income (loss) per share $ ( 0.27 ) $ ( 0.27 ) $ 0.20 $ 0.38 $ 0.05 F-30 Table of Contents Index BRT APARTMENTS CORP. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2020 NOTE 16— SUBSEQUENT EVENTS Subsequent events have been evaluated and any significant events, relative to our consolidated financial statements as of December 31, 2020 that warrant additional disclosure have been included in the notes to the consolidated financial statements. The Company is presented with the risks presented by the novel coronavirus or COVID-19, which has spread and may continue to spread, to 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. F-31 Table of Contents Index BRT APARTMENTS CORP. AND SUBSIDIARIES SCHEDULE III—REAL ESTATE PROPERTIES AND ACCUMULATED DEPRECIATION DECEMBER 31, 2020 (Dollars in thousands) Initial Cost to Company Costs Capitalized Subsequent to Acquisition Gross Amount At Which Carried at December 31, 2020 Depreciation Life Description Encumbrances Land Buildings and Improvements Land Improvements Carrying Costs Land Buildings and Improvements Total (a) Accumulated Depreciation Date of Construction Date Acquired Commercial Yonkers, NY. $ 1,038 — $ 4,000 — $ 320 — — $ 4,320 $ 4,320 $ 2,198 (b) Aug-2000 39 years South Daytona, FL. — $ 10,437 — $ 49 — — $ 4,379 — 4,379 — N/A Feb-2008 N/A Multi-Family Residential North Charleston, SC 15,608 2,436 18,970 — 1,378 — 2,436 20,348 22,784 5,980 2010 Oct-2012 30 years Decatur, GA 14,217 1,698 8,676 — 2,158 — 1,698 10,834 12,532 3,283 1954 Nov-2012 30 years Columbus, OH 9,227 1,372 12,678 — 615 — 1,372 13,293 14,665 3,523 1999 Nov-2013 30 years Houston, TX 14,380 2,268 15,811 — 288 — 2,268 16,099 18,367 1,474 1981 Dec-2018 30 years Pensacola, FL 17,921 2,758 25,192 — 1180 — 2,758 26,372 29,130 5,705 2008 Dec-2014 30 years San Marcos, TX 16,844 2,303 17,605 — 42 — 2,303 17,647 19,950 1,033 2014 Oct-2019 30 years LaGrange, GA 14,259 832 21,969 — 579 — 832 22,548 23,380 4,230 2009 Nov-15 30 years Fredericksburg, VA 27,503 7,540 33,196 — 703 — 7,540 33,895 41,435 3,411 2005 Jul-18 30 years Other assets — — — — — — — 86.00 87 87 Total $ 130,997 $ 31,644 $ 158,097 $ 49 $ 7,263 $ — $ 25,586 $ 165,443 $ 191,029 $ 30,837 ` F-32 Table of Contents Index BRT REALTY TRUST AND SUBSIDIARIES SCHEDULE III—REAL ESTATE PROPERTIES AND ACCUMULATED DEPRECIATION DECEMBER 31, 2020 (Dollars in thousands) Notes to the schedule: (a) Total real estate properties $ 191,029 Less: Accumulated depreciation ( 30,837 ) Net real estate properties $ 160,192 (b) Information not readily obtainable. A reconciliation of real estate properties is as follows: 2020 2019 Balance at beginning of year $ 169,689 $ 176,942 Additions: Acquisitions — 19,907 Capital improvements 887 1,580 887 21,487 Deductions: Sales — 22,824 Depreciation 6,742 5,916 Impairment Charge 3,642 — 10,384 28,740 Balance at end of year $ 160,192 $ 169,689 F-33