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Item 2. Management’s Discussion and Analysis

2021-05-07 compared with 2020-11-06 · 94 added, 234 removed, 180 unchanged (65% of the section changed)

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Cautionary Statement Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q (the "Quarterly Report"), together with other statements and information publicly disseminated by us, contains certain forward looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended.

We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995 and include this statement for purposes of complying with these safe harbor provisions.

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Factors which may cause actual results to vary from our forward-looking statements include, but are not limited to:

• the impact of the COVID-19 pandemic;

• general economic and business conditions, including those currently affecting our nation’s economy and real estate markets;

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• insufficient cash flows, which could limit our ability to make required payments on our debt obligations;

• our ability and the ability of our joint venture partners to maintain compliance with the covenants contained in our and our joint venture partners' debt facilities and debt instruments;

• impairment in the value of real estate we own;

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• creditworthiness of tenants;

• our ability to obtain financing for acquisitions;

• our ability to evaluate, finance, complete and integrate acquisitions, including the acquisition of the Remaing Interest (as defined), successfully;

• development and acquisition risks, including rising or unanticipated costs and failure of such acquisitions and developments to perform in accordance with projections;

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• risks associated with breaches of our or our joint venture partners' information technology systems;

• failure to comply with the provisions and covenants and coverage ratios in our debt instruments;

• risks associated with the stock ownership restrictions of the Code for REITs and the stock ownership limit imposed by our charter;

• increases in real estate taxes at properties we acquire due to such acquisitions or other factors;

• the impact of the COVID-19 pandemic;

• the review, and any required response thereto, if any, arising out of the restatements set forth in, and the material weakness in internal control over financial reporting described in, our Annual Report, of our financial statements, accounting, accounting policies and internal control or financial reporting;

• the other factors described in this Quarterly and our Annual Report, including those set forth, as applicable, under the captions "Risk Factors," "Business," and "Management's Discussion and Analysis of Financial Condition and Results of Operations".

• the other factors described in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the year ended December 31, 2020,as amended (the "Annual Report"), including those factors set forth, under the sections of such reports, as applicable, entitled "Risk Factors," "Business," and "Management's Discussion and Analysis of Financial Condition and Results of Operations".

We caution you not to place undue reliance on forward-looking statements, which speak only as of the date of this Quarterly Report.

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Generally, these properties are owned by unconsolidated joint ventures in which we contributed 32% to 90% of the equity.

At September 30, 2020, we:

At March 31, 2021, we:

(i) wholly own eight multi-family properties located in six states with an aggregate of 1,880 units and a carrying value of $152.3 million;

and (ii) have ownership interests, through unconsolidated entities, in 31 multi-family properties located in nine states with 9,162 units (including 741 units at two properties in lease-up) - the carrying value of our net equity investment therein is $175.5 million.

and (ii) have ownership interests, through unconsolidated entities, in 31 multi-family properties located in nine states with 9,162 units - the carrying value of our net equity investment therein is $164.2 million.

These 39 properties are located in 11 states;

most of our properties are located in the southeast United States and Texas.

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As used herein, the term "same store properties" refers to operating properties that were owned for the entirety of the periods being presented.

For the three and nine months ended September 30, 2020 and 2019, there were seven same store properties.

For the three months ended March 31, 2021 and 2020, there were eight same store properties.

Challenges and Uncertainties Presented by COVID-19

We are facing challenges resulting from the outbreak of the COVID-19 pandemic.

While the nation-wide economic hardships resulting from the responses to the pandemic did not have a material impact on our results of operations for the three and nine months ended September 30, 2020, the pandemic, among other things, may adversely affect the ability of our residents to pay rent (due to furloughs, layoffs and/or the expiration of, or reduction in, unemployment benefits) and as a result, our ability to pay dividends and/or the debt service on our mortgages.

Several of our properties ( e.g.

, Silvana Oaks Apartments-N.

Charleston, SC and Crestmont at Thornblade-Greenville, SC.), offer housing near manufacturing and other facilities ( e.g.

, Boeing and BMW, respectively) and several properties ( e.g., Parkway Grande-San Marcos, TX and Chatham Court and Reflections-Dallas, TX), offer housing to students at nearby colleges or universities.

Reductions in employment at these or other manufacturing or employment centers located close to our properties may make it more difficult for those residents employed at such facilities to pay rent.

Changes to the programs offered at educational institutions ( i.e.

, offering on-line classes as opposed to in-person classes) located near our properties has resulted in reduced demand for such properties.

The pandemic (i) may require us to incur additional real estate operating expenses to maintain our properties and promote the health and safety of our residents, (ii) may result in reduced revenues due to rent accommodations offered to current or prospective tenants, (iii) has limited our ability to raise rents, market our properties, delayed efforts to implement value add programs and acquire or dispose of properties.

Any one or more of the foregoing may adversely impact our results of operations and liquidity and capital resource position.

The governmental response to the pandemic has resulted in additional legislation regulating our relationships with our residents, including limitations on our ability to exercise various remedies with respect to residents that do not pay rent or other charges and may result in other legislation changing the relationship between landlords and tenants, including legislation limiting the rents we can charge or collect.

The ultimate extent of the impact of the pandemic on our business, financial condition, liquidity, results of operations and prospects will depend on future developments, which are highly uncertain and cannot be predicted with confidence.

Sale of $4 million real estate loan

Our consolidated balance sheet at June 30, 2020, included a $4.0 million loan representing the remaining unpaid principal balance of a legacy asset from the period in which we were engaged in the real estate lending business.

This loan, which we historically referred to as the Newark Joint Venture loan, matured June 30, 2020.

During the quarter ended September 30, 2020, this loan was sold to an unrelated third party for its unpaid principal balance plus interest and fees of $325,000.

Results of Operations – Three months ended September 30, 2020 compared to three months ended September 30, 2019.

While the nation-wide economic hardships resulting from the responses to the pandemic did not have a material impact on our results of operations for the three months ended March 31, 2021, the pandemic, among other things, may adversely affect the ability of our residents to pay rent (due to furloughs, layoffs and/or the expiration of, or reduction in, unemployment benefits) and as a result, our ability to pay dividends and/or the debt service on our mortgages.

Recent Developments

In February 2021, three of our unconsolidated joint venture properties located in Texas ( i.e., Verandas at Shavano, Verandas at Alamo and The Woodland) sustained damage from several winter storms.

As a result, each of these properties recorded impairment charges, of which BRT's proportionate share is $1.7 million, representing the net book value of the assets damaged.

We anticipate that the cost to replace the damaged property and the lost rents will be covered by insurance and the properties have recorded insurance recoveries in an amount equal to the impairment charges.

On March 3, 2021, we entered into an agreement to sell Kendall Manor - Houston, TX, a wholly-owned property, to an unrelated third party for approximately $24.5 million and anticipate the transaction will close in May 2021.

We estimate that during the quarter ending June 30, 2021, we will recognize a gain on the sale of this property of approximately $7.4 million.

During the quarter ended March 31, 2021, our rental revenues, operating expenses, interest expense and depreciation expense associated with this property were $739,000, $456,000, $164,000 and $123,000, respectively.

Effective as of April 1, 2021, we and VNB New York, LLC, an affiliate of Valley National Bank, entered into a modification agreement with respect to our credit facility.

The modification (i) increased the amount we are permitted to borrow, subject to compliance with borrowing base requirements and other conditions, from $10 million to $15 million, (ii) extended the term of the facility from April 18, 2021 to April 18, 2023 and (iii) increased the number of wholly-owned properties we are required to own from three to four and modified certain requirements with respect to such properties.

On April 20, 2021, we completed the sale of our 80% interest in Anatole Apartments - Daytona Beach, FL, to our joint venture partner, for $7.5 million.

We estimate that during the quarter ending June 30, 2021, we will recognize a gain on sale of our partnership interest of $2.2 million from such sale.

On May 4, 2021, we purchased an additional 14.69% interest in Civic Center I and Civic Center II - Southaven, MS, from our joint venture partner for $6.0 million.

After giving effect to such purchase, we own 74.69% of the venture that owns this property.

On May 7, 2021, we entered into an agreement to acquire the 41.9% interest (the “Remaining Interest”) owned by our joint venture partners in the entity that owns Bells Bluff, a 402-unit multi-family property located in West Nashville, TN.

If we acquire the Remaining Interest, Bells Bluff will be wholly-owned by us.

The purchase price for the Remaining Interest, after giving effect to our partners’ carried interest, is approximately $28 million, subject to working capital and certain other adjustments.

We anticipate that this purchase will be completed in the summer of 2021.

The completion of this purchase is subject to customary closing conditions, including the refinancing of the $47.2 million floating rate ( i.e.

, 2.975% at March 31, 2021) mortgage debt on the property.

See Part II, Item 5.

" Other Information "

We can provide no assurance that the Kendall Manor and Bells Bluff transactions will be completed.

Results of Operations – Three months ended March 31, 2021 compared to three months ended March 31, 2020.

The following table compares our revenues for the periods indicated:

Three Months Ended

September 30,

Three Months Ended March 31,

(Dollars in thousands):

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The increase is primarily due to:

• $655,000 due to the inclusion of revenues from a multi-family property at which we bought out the interests of our joint venture partner in October 2019 (the "Partner Buyout") and which is now wholly owned by us, and

• $243,000 from same store properties primarily due to an increase in average rental rates.

Offsetting this increase is the inclusion, in the corresponding period of the prior year, of $138,000 from two properties that were sold in July 2019 (the "Sold Properties").

The increase is primarily due to default interest that was collected on the Newark loan receivable.

• $176,000 from same store properties due to an increase in average rental rates,

• $ 96,000 from same store properties due to an increase in occupancy, and

• $83,000 from same store properties due to an increase in ancillary income ( e.g., late fees, utility reimbursements, etc).

The decrease is due to the inclusion, in the three months ended March 31, 2020, of the interest that was collected on the Newark loan receivable.

This loan was sold on September 30, 2020.

The following table compares our expenses for the periods indicated:

Three Months Ended

September 30,

Three Months Ended March 31,

(Dollars in thousands) 2021 2020 Increase

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General and administrative 3,114 3,367 (253) (7.5)

Impairment charge 3,642 — 3,642 N/A

Depreciation 1,537 1,561 (24) (1.5)

Total expenses $ 9,428 $ 9,846 $ (418) (4.2)

Real estate operating expenses.

The increase is due primarily to:

• $381,000 due to the inclusion of operating expenses from the Partner Buyout;

• $267,000 from several same store properties, due primarily to increased repairs and maintenance, real estate taxes replacement costs and increase real estate insurance rates and increases in utility costs.

Offsetting these increases is the inclusion, in the corresponding period of the prior year, of $111,000 from the Sold Properties.

Interest expense.

The decrease is due to a:

(i) $200,000 decrease in such expense on our floating rate subordinated debt due to a decline in interest rates and (ii) lesser extent, a decrease in such expense on our credit facility as there was no amount outstanding under the facility in the current quarter.

Offsetting the decrease is an increase of $197,000 due to the inclusion of interest expense from the Partner Buyout.

The decrease is due primarily to a $154,000 decrease in such expense on our floating rate junior subordinated notes due to a decline in interest rates.

General and administrative.

The increase is due primarily to a $226,000 increase in compensation costs, including an $89,000 increase for the non-cash amortization of restricted stock.

The increase is primarily due to a non-cash adjustment to record additional depreciation resulting from an increase in asset values on three properties where we previously bought out our partners interests.

Impairment charge

In the current quarter, we entered into a contract to sell our 8.7 acre vacant land parcel in South Daytona Beach, Florida for $4.7 million, which is approximately $3.3 million less than its carrying value at September 30, 2020.

The sale of this property, which is scheduled to be completed in mid - 2021, is subject to certain conditions, including the purchaser being satisfied with the results of its due diligence review and the ability to obtain enhanced zoning.

As a result of this proposed sale, we took an impairment charge of $3.6 million representing the excess of book value over the sum of the parcel's fair value.

We can provide no assurance that this transaction will be completed.

We anticipate using the $4.4 million of net proceeds from the sale for general working capital purposes, including the payment of our dividend.

The increase is due primarily to a $161,000 increase in professional fees and a $100,000 increase for the non-cash amortization of restricted stock (primarily related to the higher fair value of the shares granted in 2021 in comparison to the shares granted in 2016).

Equity in (loss) of unconsolidated joint ventures.

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In accordance, among other things, with US generally accepted accounting principles, each of the line items in the chart below (other than equity in (loss) of unconsolidated joint ventures) is presented as if these properties are wholly owned by us though, as noted earlier, our equity interests in these properties range from 32% to 90% (see note 9 of our consolidated financial statements) (dollars in thousands):

Three Months Ended

September 30,

2020 2019 Increase

(Decrease) % change

Rental revenues from unconsolidated joint ventures $ 32,341 $ 31,273 $ 1,068 3.4 %

Real estate operating expense from unconsolidated joint ventures 16,092 15,212 880 5.8 %

Interest expense from unconsolidated joint ventures 8,663 9,202 (539) (5.9) %

Depreciation from unconsolidated joint ventures 10,411 9,901 510 5.2 %

Total expenses from unconsolidated joint ventures 35,166 34,315 851 2.5 %

Total revenues less total expenses from unconsolidated joint ventures (2,825) (3,042) 217 (7.1) %

Loss on extinguishment of debt — (379) 379 (100.0) %

Other equity earnings and gain on insurance proceeds 427 — 427 N/A

Net income (loss) (2,398) (3,421) 1023 (29.9) %

Equity in (loss) of unconsolidated joint ventures $ (1,529) $ (2,390)

Set forth below is an explanation of the most significant changes in the components of the income of our unconsolidated joint ventures.

Same store properties at unconsolidated joint ventures represent 25 properties that have been owned for the entirety of both periods being compared and exclude properties in lease up.

Rental revenue from unconsolidated joint ventures

The increase is due primarily to:

• $1.1 million from two properties currently in lease up,

• $802,000 in revenues from a property acquired during the twelve months ended September 30, 2020,

• $602,000 from unconsolidated same store properties - $455,000 of the increase is due to an increase in average rental rates at many properties and $212,000 of the increase is due to the increase in other variable payments ( e.g., utility reimbursements, late fees, etc.), and

• $257,000 from the inclusion, for the entire three months ended September 30, 2020, of a property that was only owned for a portion of the corresponding period in the prior year.

Offsetting the increase is the inclusion, in the corresponding period of the prior year, of $984,000 from a property that was sold in December 2019 and $714,000 from the property that was the subject of the Partner Buyout.

Real estate operating expenses from unconsolidated joint ventures

The increase is due to:

• $1.1 million from same store properties, primarily due to increases of (i) $862,000 in real estate tax expense, of which approximately $445,000 is due to the inclusion, in the corresponding period of the prior year, of refunds and tax reductions received in the corresponding period of the prior year on a property from multi - year tax challenges and the balance is due generally to increases in tax rates, and (ii) $236,000 of increased insurance expense as we have been experiencing increase rates upon renewals,

• $340,000 in expenses incurred from a property acquired during the 12 months ended September 30, 2020,

• $313,000 from two properties currently in lease up, and

• $122,000 from the inclusion, for the entire three months ended September 30, 2020, of one property that was only owned for a portion of the corresponding period in the prior year.

Offsetting the increase is the inclusion, in the corresponding period of the prior year, of $614,000 from a property that was sold in December 2019 and $383,000 from the property that was the subject of the Partner Buyout.

Interest expense from unconsolidated joint ventures

The decrease is due primarily to the inclusion in the corresponding period of the prior year of:

• $200,000 from the property that was the subject of the Partner Buyout,

• $193,000 from same store properties as a result of a mortgage refinancing in the corresponding period of the prior year, and

• $175,000 from a property that was sold in December 2019.

The decrease was offset by the inclusion of $305,000 of interest expense at a property acquired during the 12 months ended September 30, 2020.

Depreciation from unconsolidated joint ventures

The increase is due primarily to:

• $498,000 in expenses from a property acquired during the twelve months ended September 30, 2020, and

• $350,000 from two properties which are currently in lease up and, in the corresponding period in the prior year, were not being fully depreciated because they were in development.

Offsetting the increase is the inclusion, in the corresponding period of the prior year, of $204,000 from the property purchased in the Partner Buyout and $172,000 from a property that was sold in December 2019.

Loss on extinguishment of debt.

During the three months ended September 30, 2019, we incurred a swap termination fee in connection with refinancing a variable rate mortgage to a fixed rate mortgage.

There was no comparable expense in the current three months.

Other equity earnings and gain on insurance proceeds.

During the three months ended September 30, 2020, we recognized a $427,000 gain from the receipt of insurance proceeds related to a casualty loss, representing the proceeds received in excess of the assets written off.

There was no comparable gain in the corresponding period of the prior year.

Gain on sale of real estate.

During the three months ended September 30, 2019, we sold two properties for an aggregate

sales price of $33.2 million and recognized an aggregate gain of $9.9 million, of which $894,000 was allocated to the non-controlling partner.

Loss on extinguishment of debt.

During the three months ended September 30, 2019, we incurred $1.4 million of

mortgage prepayment charges in connection with the sale of the Stone Crossing and Stone Crossing East Apartments,

Results of Operations – Nine months ended September 30, 2020 compared to nine months ended September 30, 2019.

The following table compares our revenues for the periods indicated:

Nine Months Ended September 30,

(Dollars in thousands):

2020 2019 Increase

Rental revenue 20,422 $ 20,244 $ 178 0.9 %

Other income 631 595 36 6.1 %

Total revenues $ 21,053 $ 20,839 $ 214 1.0 %

Rental revenue

The increase is due to:

• $1.9 million from the inclusion of revenues from the Partner Buyout, and

• $609,000 from same store properties due primarily to an increase in the average rent, offset by slight decline in average occupancy.

The increase was offset primarily due to the inclusion, in the corresponding period of the prior year, of $2.3 million from the Sold Properties.

The following table compares our revenues for the periods indicated:

Nine Months Ended September 30,

(Dollars in thousands) 2020 2019 Increase

(Decrease) % Change

Real estate operating expenses $ 9,351 $ 9,242 $ 109 1.2 %

Interest expense 5,400 5,865 (465) (7.9) %

General and administrative 9,054 7,455 1,599 21.4 %

Impairment Charge 3,642 — 3,642 N/A

Depreciation 5,147 4,348 799 18.4 %

Total expenses $ 32,594 26,910 $ 5,684 21.1 %

Real estate operating expenses.

The increase is due to:

• $1.1 million from to the inclusion of operating expenses from the Partner Buyout;

• $540,000 from same store properties, including increases in utilities expense and repairs and maintenance costs, and increased insurance expense due to increase insurance rates.

The increase was offset by the inclusion, in the corresponding period of the prior year, of $1.5 million from the Sold Properties.

Interest expense.

The decrease is due primarily to:

• a $504,000 decrease resulting from the reduction in the interest rate on our floating rate subordinated debt;

• the inclusion, in the corresponding period of the prior year, of $477,000 of interest from the Sold Properties.

Offsetting the decrease is an increase of $589,000 due to the inclusion of interest expense from the property which is the subject of the Partner Buyout.

General and administrative.

The increase is due primarily to:

• a $799,000 increase in professional fees and expenses, of which $688,000 was incurred in connection with the Restatement,

• increased compensation costs of $425,000, including a $251,000 increase due to the non-cash amortization of restricted stock expense and

• increased costs of $228,000 from our shared services agreement due primarily to the allocation of additional costs of part-time executives in connection with the Restatement.

Impairment charge

See "- Results of Operations - Three months ended September 30, 2020 compared to the three months ended September 30, 2019" for a discussion of this charge.

Equity in (loss) of unconsolidated joint ventures.

The table below reflects the condensed income statements of our Unconsolidated Properties.

(dollars in thousands) (see note 8 of our consolidated financial statements):

Nine Months Ended

September 30,

Three Months Ended March 31,

2021 2020 Increase

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Total revenues less total expenses from unconsolidated joint ventures (1,938) (2,803) 865 30.9 %

Loss on extinguishment of debt — (379) 379 (100.0) %

Other equity earnings and gain on insurance proceeds 765 517 248 48.0 %

Other equity earnings 9 8 1 12.5 %

Impairment charges (2,323) — (2,323) N/A

Insurance recoveries 2,323 — 2,323 N/A

Net loss (1,929) (2,795) 866 31.0 %

Equity in (loss) of unconsolidated joint ventures $ (1,345) $ (1,815) $ 470

Set forth below is an explanation of the most significant changes in the components of the income of our unconsolidated joint ventures.

Same store properties at unconsolidated joint ventures represent 25 properties that have been owned for the entirety of both periods being compared and exclude two properties in lease-up.

Set forth below is an explanation of the most significant changes in the components of the net loss of our unconsolidated joint ventures.

Same store properties at unconsolidated joint ventures represent 28 properties that have been owned for the entirety of the periods being compared and exclude any properties that were in lease up during that same period.

Rental revenue from unconsolidated joint ventures

The increase is due primarily to:

• $4.6 million from two properties currently in lease up,

• $4.0 million from the inclusion, for the entire nine months ended September 30, 2020, of three properties that were only owned for a portion of the corresponding period in the prior year,

• $2.0 million from one property acquired during the current period, and

• $1.9 million from unconsolidated same store properties due to an increase in average rental rates at many properties partially offset by a decrease in average occupancy.

Offsetting the increase is the inclusion, in the corresponding period of the prior year, of $2.9 million from a property that was sold in December 2019 and $2.1 million from the property that was the subject of the Partner Buyout.

• $976,000 from unconsolidated same store properties - $447,000 of the increase is due to the increase in variable ancillary fees payments ( e.g., late fees, waiver fees and tech/cable package), $382,000 from increased occupancy and $147,000 from an increase in rental rates,

• $417,000 from the inclusion, for the entire three months ended March 31, 2021, of a property that was only owned for a portion of the corresponding period in the prior year, and

• $386,000 from two properties ( i.e ., Bells Bluff and Sola Station) that were in lease up in the corresponding period in the prior year.

Real estate operating expenses from unconsolidated joint ventures

The increase is due to:

• $1.9 million from the inclusion, for the entire nine months ended September 30, 2020, of three p roperties that were only owned for a portion of the corresponding period in the prior year,

• $1.7 million from unconsolidated same store properties primarily due to a $1.2 million increase in real estate tax expense, of which approximately $445,000 is due to the inclusion, in the corresponding period of the prior year, of refunds and tax reductions on a property from multi - year tax challenges and the balance is generally due to in tax rates and (ii) $422,000 of increased insurance costs as we have been experiencing increased rates on renewals,

• $1.1 million from two properties which are currently in lease up, and

• $727,000 in expenses incurred from one property acquired during the current period.

Offsetting the increase is the inclusion, in the corresponding period of the prior year, of $1.7 million from a property that was sold in December 2019 and $1.1 million from the property that was the subject of the Partner Buyout.

• $718,000 from same store properties, primarily due to increases of (i) $395,000 primarily due to increased water and sewer charges, (ii) $224,000 in real estate tax expense, and (iii) $213,000 due to increased insurance premiums,

• $287,000 from the inclusion, for the entire three months ended March 31, 2021, of a property that was only owned for a portion of the corresponding period in the prior year, and

• $207,000 from the two properties that were in lease up in the corresponding period of the prior year.

The increase was offset by a $242,000 decrease in repairs and maintenance and replacement expense at same store properties.

Interest expense from unconsolidated joint ventures.

The increase is due primarily to:

• $1.1 million from the inclusion, for the entire nine months ended September 30, 2020, of three properties that were only owned for a portion of the corresponding period in the prior year,

• $693,000 in expenses incurred at one property acquired during the current period, and

• $631,000 primarily from a property currently in lease up and at which expense was partially capitalized in the corresponding period of the prior year.

Offsetting the increase is a $357,000 decrease due to the reduction in the interest rate on the variable rate construction debt secured by a property in lease up and the inclusion, in the corresponding period of the prior year, of:

• $713,000 from unconsolidated same store properties primarily due to the Refinancing Transaction,

• $592,000 from the property which was the subject of the Partner Buyout, and

• $522,000 from a property that was sold in December 2019.

Depreciation from unconsolidated joint ventures

The increase is due primarily to:

• $1.9 million from two properties which are in lease up and were in development in the corresponding period in the prior year, and are not being fully depreciated,

• $1.2 million in expenses from one property acquired in the current period, and

• $1.0 million from the inclusion, for the entire nine months ended September 30, 2020, of such expense on three properties that were only owned for a portion of the corresponding period in the prior year.

Offsetting the increase is:

• $858,000 from unconsolidated same store properties primarily due to a lower level of depreciation as lease intangibles on several properties have been fully depreciated,

• the inclusion, in the corresponding period of the prior year, of $610,000 from the property which is the subject of the Partner Buyout, and

• $507,000 from a property that was sold in December 2019.

Loss on extinguishment of debt.

During the nine months ended September 30, 2019, we incurred a swap termination fee in connection with refinancing a variable rate mortgage to a fixed rate mortgage.

There was no comparable expense in the current nine months.

Other equity earnings and gain on insurance proceeds.

During the nine months ended September 30, 2020, we recognized a $765,000 gain from the receipt of insurance proceeds related to casualty losses, representing the proceeds received in excess of the assets written off .

In the corresponding period of the prior year, we recognized a $517,000 gain from the receipt of insurance proceeds related to a casualty loss at a joint venture property.

Gain on sale of real estate.

During the three months ended September 30, 2019, we sold two properties for an aggregate sales price of $33.2 million and recognized an aggregate gain of $9.9 million, of which $894,000 was allocated to the non-controlling partner.

Loss on extinguishment of debt.

During the nine months ended September 30, 2019, we incurred $1.4 million of

mortgage prepayment charges in connection with the sale of the Stone Crossing and Stone Crossing East Apartments,

The decline in is primarily due to the refinancing of a variable rate construction loan to a fixed rate permanent mortgage on the Sola Station, Columbia, SC property.

Impairment charges.

During the three months ended March 31, 2021, we recognized $2.3 million of impairment charges at three of our properties located in Texas due to storm damage.

There were no comparable charges in the corresponding period of the prior year.

Insurance recoveries.

During the three months ended March 31, 2021, we recognized $2.3 million of insurance recoveries related to the impairment charges resulting from the Texas ice storm damage.

Liquidity and Capital Resources

We require funds to pay operating expenses and debt service, acquire properties, make capital improvements and pay dividends.

Generally, our primary sources of capital and liquidity have been the operations of our multi-family properties (including distributions from the joint ventures that own such properties), mortgage debt financings and refinancings, equity contributions for acquisitions from our joint venture partners, our share of the proceeds from the sale of properties, the sale of shares of our common stock pursuant to our at-the-market equity distribution program, our credit facility and our available cash (including restricted cash).

Our available liquidity at November 1, 2020, was $35.1 million, including $15.8 million of cash and cash equivalents, $9.3 million of restricted cash and, subject to borrowing base requirements, up to $10.0 million of availability under our credit facility.

We require funds to pay operating expenses and debt service, acquire properties, make capital improvements, fund capital contributions, pay dividends and, to the extent we deem appropriate, reduce other than in the ordinary course, our indebtedness over time.

Generally, our primary sources of capital and liquidity have been the operations of our multi-family properties (including distributions from the joint ventures that own such properties), mortgage debt financings and re-financings, equity contributions for acquisitions from our joint venture partners, our share of the proceeds from the sale of properties, the sale of shares of our common stock pursuant to our at-the-market equity distribution program, borrowings from our credit facility and our available cash (including restricted cash).

On March 31, 2021 and April 30, 2021, our cash and cash equivalents, were approximately $19.4 million and $22.0 million, respectively, and excludes funds held at our unconsolidated joint ventures.

We anticipate that through 2023, our operating expenses, $122.7 million of mortgage amortization and interest expense and $177.0 million of balloon payments (including $108.0 million and $102.4 million, respectively, from unconsolidated joint ventures) due with respect to mortgages maturing from 2021 to 2023, estimated cash dividend payments of at least $42.6 million (assuming (i) the current quarterly dividend rate of $0.22 per share and (ii) 17.6 million shares outstanding), will be funded from cash generated from operations (including distributions from unconsolidated joint ventures), sales of properties and our credit facility.

Our operating cash flow and available cash is insufficient to fully fund the $177.0 million of balloon payments, and if we are unable to refinance such debt, we may need to issue additional equity or dispose of properties, in each case on potentially unfavorable terms.

Capital improvements at (i) 20 multi-family properties will be funded by approximately $9.1 million of restricted cash available at September 30, 2020 and the cash flow from operations at such properties and (ii) other properties will be funded from the cash flow from operations of such properties.

Our ability to acquire additional multi-family properties (including our acquisition of our partner's interest in properties owned by joint ventures) is limited by our available cash, and our ability to (i) draw on our credit facility (ii) obtain, on acceptable terms, equity contributions from joint venture partners and mortgage debt from lenders and (iii) raise capital from the sale of our common stock.

Capital improvements at (i) 18 multi-family properties will be funded by approximately $8.5 million of restricted cash available at March 31, 2021 and the cash flow from operations at such properties and (ii) other properties will be funded from the cash flow from operations of such properties.

Our ability to acquire additional multi-family properties (including our acquisition of the Remaining Interest in Bells Bluff and the interests of joint venture partners in other properties), is limited by our available cash, and our ability to (i) draw on our credit facility, (ii) obtain, on acceptable terms, equity contributions from joint venture partners and mortgage debt from lenders, (iii) raise capital from the sale of our common stock, and (iv) use the net proceeds available to us from other property sales.

Further, if and to the extent we generate ordinary taxable income, we will be required to make distributions to stockholders to maintain our REIT status and as a result, will be limited in our ability to use gains, if any, from property sales, as a source of funds for operating expenses, debt service and property acquisitions.

Junior Subordinated Notes

As of September 30, 2020, $37.4 million (excluding deferred costs of $322,000) in principal amount of our junior subordinated notes is outstanding.

As of March 31, 2021, $37.4 million (excluding deferred costs of $312,000) in principal amount of our junior subordinated notes is outstanding.

These notes mature in April 2036, contain limited covenants (including covenants prohibiting us from paying dividends or repurchasing capital stock if there is an event of default (as defined therein) on these notes), are redeemable at our option and bear an interest rate, which resets and is payable quarterly, of three-month LIBOR plus 200 basis points.

At September 30, 2020 and 2019, the interest rate on these notes was 2.27% and 4.26%, respectively.

At March 31, 2021 and 2020, the interest rate on these notes was 2.21% and 3.77%, respectively.

Credit Facility

We entered into a credit facility dated April 18, 2019, as amended from time to time, with VNB New York, LLC, an affiliate of Valley National Bank.

The facility allows us to borrow, subject to compliance with borrowing base requirements and other conditions, up to $10 million.

The facility is available for the acquisition of, and investment in, multi-family properties, for working capital (including dividend payments) and operating expenses.

Our credit facility with VNB New York, LLC, an affiliate of Valley National Bank(collectively, "VNB") as amended and modified from time to time, allows us to borrow, subject to compliance with borrowing base requirements and other conditions, up to $15 million.

The facility is available for the (i) acquisition of, and investment in, multi-family properties, and (ii) working capital (including dividend payments) and operating expenses.

It is secured by the cash available in certain cash accounts maintained by the Company at VNB, matures April 2023 and bears an annual interest rate of 50 basis points over the prime rate, with a floor of 4.25%.

At March 31, 2021, the annual interest rate on this facility was 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.

The terms of the facility include certain restrictions and covenants which limit, among other things, the incurrence of liens, and which require compliance with financial ratios relating to, among other things, the minimum amount of debt service coverage with respect to the properties (and amounts drawn on the facility) used in calculating the borrowing base, the minimum number of wholly owned properties and the minimum number of properties used in calculating the borrowing base.

The facility includes restrictions and covenants which limit, among other things, the incurrence of liens, and which require compliance with financial ratios relating to, among other things, the minimum amount of debt service coverage with respect to the properties (and amounts drawn on the facility) used in calculating the borrowing base, the minimum number of wholly owned properties and the minimum number of properties used in calculating the borrowing base.

Net proceeds received from the sale, financing or refinancing of wholly owned properties are generally required to be used to repay amounts outstanding under the facility.

We are in compliance in all material respects with the facility.

Off Balance Sheet Arrangements

We are not a party to any off-balance sheet arrangements (as such term is defined in Item 303(a)(4) of Regulation S-K).

Nevertheless, you should be aware that we are joint venture partners in approximately 31 unconsolidated joint ventures which own multi-family properties and that the distributions from these joint venture properties ($3.7 million in the quarter ended September 30, 2020) are a material source of our liquidity and cash flow.

Although we are not a party to any off-balance sheet arrangements (as such term is defined in Item 303(a)(4) of Regulation S-K), the following information may be of interest to investors.

We are joint venture partners in approximately 31

unconsolidated joint ventures which own multi-family properties and that the distributions from these joint venture properties ($3.9 million in the quarter ended March 31, 2021) are a material source of our liquidity and cash flow.

Further, we may be required to make significant capital contributions with respect to these properties.

At September 30, 2020, these joint venture properties have a net equity carrying value of $175.5 million and are subject to mortgage debt, which is not reflected on our consolidated balance sheet, of $825.8 million.

At March 31, 2021, these joint venture properties have a net equity carrying value of $164.3 million and are subject to net mortgage debt, which is not reflected on our consolidated balance sheet, of $828.6 million.

Although BRT Apartments Corp.

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Cash Distribution Policy

We have elected to be treated as a REIT under the Internal Revenue Code of 1986, as amended, which we refer to as the “Code.” To qualify as a REIT, accordingly we must meet a number of organizational and operational requirements, including a requirement that we distribute to our stockholders within the time frames prescribed by the Code at least 90% of our ordinary taxable income.

We have elected to be treated as a REIT under the Internal Revenue Code of 1986, as amended, which we refer to as the “Code.” To qualify as a REIT, we must meet a number of organizational and operational requirements, including a requirement that we distribute to our stockholders within the time frames prescribed by the Code at least 90% of our ordinary taxable income.

Management currently intends to maintain our REIT status.

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Even if we qualify for Federal taxation as a REIT, we are subject to certain state and local taxes on our income and to Federal income and excise taxes on undistributed taxable income, ( i.e ., taxable income not distributed in the amounts and in the time frames prescribed by the Code).

Our net operating loss at December 31, 2019 was $16.8 million;

Our net operating loss at December 31, 2020 was estimated to be approximately $32.7 million;

therefore, we are not currently required by Code provisions relating to REITs to pay cash dividends to maintain our status as a REIT.

Notwithstanding the foregoing, on each of April 7, 2020, July 9, 2020, and October 12, 2020, we paid a cash dividend of $0.22 per share.

We are carefully monitoring our discretionary spending, particularly in light of the potential reduction in the base cash rent from tenants due to the economic challenges resulting from the pandemic.

Notwithstanding the foregoing, on April 7, 2021, we paid a cash dividend of $0.22 per share.

We are carefully monitoring our discretionary spending, in light of the pandemic.

Our largest recurring discretionary expenditure has been our quarterly dividend (which was $ 0.22 per share of common stock, or in the approximate amount of $3.8 million, for the most recent quarter).

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In evaluating our performance, management is careful to examine GAAP measures such as net income and cash flows from operating, investing and financing activities.

The tables below provides a reconciliation of net loss determined in accordance with Generally Accepted Accounting Principles ("GAAP") to FFO and AFFO on a dollar and per share basis for each of the indicated periods (amounts in thousands):

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

The tables below provides a reconciliation of net loss determined in accordance with GAAP to FFO and AFFO on a dollar and per share basis for each of the indicated periods (dollars in thousands except per share amounts):

Three Months Ended March 31,

GAAP Net loss attributable to common stockholders $ (3,765) $ (4,831)

1 unchanged sentence

our share of depreciation in unconsolidated joint ventures 6,599 6,572

Impairment charge 3,642 — 3,642 —

gain on sale of real estate — (9,938) — (9,938)

our share of impairment charge in unconsolidated joint venture 1,662 —

Adjustments for non-controlling interests (4) (4)

2 unchanged sentences

straight-line rent accruals (10) (10)

loss on extinguishment of debt — 1,387 — 1,387

our share of loss on extinguishment of debt from unconsolidated joint ventures — 273 — 273

amortization of restricted stock and restricted stock units 538 438

amortization of deferred mortgage costs 80 71 240 228

amortization of deferred borrowing costs 80 80

our share of deferred mortgage costs from unconsolidated joint venture properties 148 160

our share of gain on insurance proceeds from unconsolidated joint venture (350) — (519) (414)

our share of insurance recovery (1,662) —

Adjustments for non-controlling interests 2 2

Adjusted funds from operations attributable to common stockholders $ 5,125 $ 3,968

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

Three Months Ended March 31,

GAAP Net loss attributable to common stockholders $ (0.22) $ (0.29)

1 unchanged sentence

our share of depreciation in unconsolidated joint ventures 0.38 0.39

Impairment charge 0.21 — 0.21 —

gain on sale of real estate — (0.62) — (0.63)

our share of impairment charge in unconsolidated joint venture 0.10 —

Adjustment for non-controlling interests — —

2 unchanged sentences

straight line rent accruals — —

loss on extinguishment of debt — 0.09 — 0.09

our share of loss on extinguishment of debt from unconsolidated joint ventures — 0.02 — 0.02

amortization of restricted stock and restricted stock units 0.04 0.03

amortization of deferred mortgage costs — — 0.01 0.01

amortization of deferred borrowing costs — —

our share of deferred mortgage costs from unconsolidated joint venture properties 0.01 0.01

our share of gain on insurance proceeds from unconsolidated joint venture (0.02) — (0.03) (0.03)

our share of insurance recovery (0.10) —

Adjustments for non-controlling interests — —

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The following table provides a reconciliation of net income attributable to common stockholders as computed in accordance with GAAP to NOI of our consolidated properties for the periods presented (dollars in thousands):

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

Three Months Ended March 31,

GAAP Net loss attributable to common stockholders $ (3,765) $ (4,831)

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Equity in loss of unconsolidated joint venture properties 1,345 1,815

Net loss attributable to non-controlling interests 34 799 97 877

Net income attributable to non-controlling interests 34 32

Net Operating Income $ 3,978 $ 3,687

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Same store Net Operating Income $ 3,729 $ 3,442

For the three months ended September 30, 2020, NOI increased $211,000, primarily due to the Partner Buyout and the consolidation of such property.

Same store NOI decreased $23,000 due to increased operating expenses of $278,000 offset by a $242,000 increase in revenues.

For the nine months ended September 30, 2020, NOI increased $69,000, primarily due to the Partner Buyout and the consolidation of such property, offset by a decrease due to the Sold Properties.

Same store NOI increased $69,000 due primarily to increased revenues of $550,000 offset by a $522,000 increase in operating expenses.

For the three months ended March 31, 2021, NOI increased $291,000, from the corresponding period in 2020, primarily due to a $350,000 increase in rental rates offset by a $59,000 increase in operating expenses.

Same store NOI in the three months ended March 31, 2021, increased by $287,000 from the corresponding period in 2020,for the same reasons.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis