BRT Apartments Corp. 10-Q

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 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 ("the Exchange Act"). 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. Forward-looking statements relate to expectations, beliefs, projections, future plans and strategies, anticipated events or trends concerning matters that are not historical facts. Forward looking statements are generally identifiable by use of words such as "may," "will," "will likely result," "shall," "should," "could," "believe," "expect," "intend," "anticipate," "estimate," "project" or similar expressions or variations thereof. Forward-looking statements contained in this Quarterly Report are based on our beliefs, assumptions and expectations of our future performance taking into account all information currently available to us. These beliefs, assumptions and expectations can change as a result of many possible events or factors, not all of which are known to us or within our control, and which could materially affect actual results, performance or achievements. 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; • the availability of, and costs associated with, sources of capital and liquidity; • accessibility of debt and equity capital markets; • general and local real estate conditions, including any changes in the value of our real estate; • changes in Federal, state and local governmental laws and regulations, including laws and regulations relating to taxes and real estate and related investments; • the level and volatility of interest rates; • our acquisition strategy, which may not produce the cash flows or income expected; • the competitive environment in which we operate, including competition that could adversely affect our ability to acquire properties and/or limit our ability to lease apartments or increase or maintain rental income; • a limited number of multi-family property acquisition opportunities acceptable to us; • our multi-family properties are concentrated in the Southeastern United States and Texas, which makes us more susceptible to adverse developments in those markets; • risks associated with our strategy of acquiring value-add multi-family properties, which involves greater risks than more conservative strategies; • the condition of Fannie Mae or Freddie Mac, which could adversely impact us; • our failure to comply with laws, including those requiring access to our properties by disabled persons, which could result in substantial costs; • 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; • failure of property managers to properly manage properties; • disagreements with, or misconduct by, joint venture partners; • decreased rental rates or increasing vacancy rates; 20 Table of Contents • our ability to lease units in newly acquired or newly constructed multi-family properties; • potential defaults on or non-renewal of leases by tenants; • creditworthiness of tenants; • 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; • the timing of acquisitions and dispositions; • our ability to reinvest the net proceeds of dispositions into more, or as favorable, acquisition opportunities; • potential natural disasters such as hurricanes, tornadoes and floods; • board determinations as to timing and payment of dividends, if any, and our ability or willingness to pay future dividends; • financing risks, including the risks that our cash flows from operations may be insufficient to meet required debt service obligations and we may be unable to refinance our existing debt upon maturity or obtain new financing on attractive terms or at all; • lack of or insufficient amounts of insurance to cover, among other things, losses from catastrophes; • our ability to maintain our qualification as a REIT; • possible environmental liabilities, including costs, fines or penalties that may be incurred due to necessary remediation of contamination of properties presently owned or previously owned by us or a subsidiary owned by us or acquired by us; • our dependence on information systems; • 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 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. Except to the extent otherwise required by applicable law or regulation, we undertake no obligation to update these forward-looking statements to reflect events or circumstances after the date of the filing of this Quarterly Report or to reflect the occurrence of unanticipated events. 21 Table of Contents Overview We are an internally managed real estate investment trust, also known as a REIT, that is focused on the ownership, and operation of multi-family properties. These properties derive revenue from tenant rental payments. Generally, these properties are owned by unconsolidated joint ventures in which we contributed 32% to 90% of the equity. 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 - 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. See- "Off Balance Sheet Arrangements" for information regarding the contributions of our unconsolidated subsidiaries and our reliance upon the cash flow and liquidity provided by such subsidiaries. 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 months ended March 31, 2021 and 2020, there were eight same store properties. Challenges and Uncertainties Presented by COVID-19 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 " 22 Table of Contents 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. Revenues The following table compares our revenues for the periods indicated: Three Months Ended March 31, (Dollars in thousands): 2021 2020 Increase (Decrease) % Change Rental revenue $ 7,095 $ 6,745 $ 350 5.2 Other income 4 179 (175) (97.8) Total revenues $ 7,099 $ 6,924 $ 175 2.5 Rental revenue The increase is primarily due to: • $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). Other income 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. Expenses The following table compares our expenses for the periods indicated: Three Months Ended March 31, (Dollars in thousands) 2021 2020 Increase (Decrease) % Change Real estate operating expenses $ 3,117 $ 3,058 $ 59 1.9 Interest expense 1,660 1,860 (200) (10.8) General and administrative 3,114 3,367 (253) (7.5) Depreciation 1,537 1,561 (24) (1.5) Total expenses $ 9,428 $ 9,846 $ (418) (4.2) Interest expense. 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 $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. The table below reflects the condensed income statements of our Unconsolidated Properties. 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): 23 Table of Contents Three Months Ended March 31, 2021 2020 Increase (Decrease) % change Rental revenues from unconsolidated joint ventures $ 32,672 $ 30,843 $ 1,829 5.9 % Real estate operating expense from unconsolidated joint ventures 15,703 14,532 1,171 8.1 % Interest expense from unconsolidated joint ventures 8,522 8,757 (235) (2.7) % Depreciation from unconsolidated joint ventures 10,385 10,357 28 0.3 % Total expenses from unconsolidated joint ventures 34,610 33,646 964 2.9 % Total revenues less total expenses from unconsolidated joint ventures (1,938) (2,803) 865 30.9 % 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 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: • $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: • $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 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. 24 Table of Contents Liquidity and Capital Resources 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) 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 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 March 31, 2021 and 2020, the interest rate on these notes was 2.21% and 3.77%, respectively. Credit Facility 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 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 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 25 Table of Contents 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 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. is not the obligor with respect to such mortgage debt, the loss of any of these properties due to mortgage foreclosure or similar proceedings would have a material adverse effect on our results of operations and financial condition. These joint venture arrangements have been, and we anticipate that they will continue to be, material to our liquidity and capital resource position. See note 9 to our consolidated financial statements. 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, 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. As a REIT, we generally will not be subject to corporate Federal income tax on taxable income we distribute to stockholders in accordance with the Code. If we fail to qualify as a REIT in any taxable year, we will be subject to Federal income taxes at regular corporate rates and may not be able to qualify as a REIT for four subsequent tax years. 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, 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 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). Each quarter, our board of directors evaluates the timing and amount of our dividend based on its assessment of, among other things, our short and long- term cash and liquidity requirements, prospects, debt maturities, projections of our REIT taxable income, net income, funds from operations, adjusted funds from operations and the dividend policies of our peers. 26 Table of Contents Funds from Operations; Adjusted Funds from Operations; Net Operating Income We disclose below funds from operations (“FFO”) and adjusted funds from operations (“AFFO”) because we believe that such metrics are a widely recognized and appropriate measure of the performance of an equity REIT. We compute FFO in accordance with the “White Paper on Funds From Operations” issued by the National Association of Real Estate Investment Trusts (“NAREIT”) and NAREIT’s related guidance. FFO is defined in the White Paper as net income (calculated in accordance with GAAP), excluding depreciation and amortization related to real estate, gains and losses from the sale of certain real estate assets, gains and losses from change in control, impairment write-downs of certain real estate assets and investments in entities where the impairment is directly attributable to decreases in the value of depreciable real estate held by the entity. Adjustments for unconsolidated partnerships and joint ventures are calculated to reflect funds from operations on the same basis. In computing FFO, we do not add back to net income the amortization of costs in connection with our financing activities or depreciation of non- real estate assets. We compute AFFO by deducting from FFO our straight-line rent accruals, loss on extinguishment of debt, restricted stock and restricted stock unit expense, deferred mortgage costs and gain on insurance recovery. Since the NAREIT White Paper only provides guidelines for computing FFO, the computation of AFFO may vary from one REIT to another. We believe that FFO and AFFO are useful and standard supplemental measures of the operating performance for equity REITs and are used frequently by securities analysts, investors and other interested parties in evaluating equity REITs, many of which present FFO and AFFO when reporting their operating results. FFO and AFFO are intended to exclude GAAP historical cost depreciation and amortization of real estate assets, which assumes that the carrying value of real estate assets diminishes predictably over time. In fact, real estate values have historically risen and fallen with market conditions. As a result, we believe that FFO and AFFO provide a performance measure that when compared year over year, should reflect the impact to operations from trends in occupancy rates, rental rates, operating costs, interest costs and other matters without the inclusion of depreciation and amortization, providing a perspective that may not be necessarily apparent from net income. We also consider FFO and AFFO to be useful to us in evaluating potential property acquisitions. FFO and AFFO do not represent net income or cash flows from operations as defined by GAAP. FFO and AFFO should not be considered to be an alternative to net income as a reliable measure of our operating performance; nor should FFO and AFFO be considered an alternative to cash flows from operating, investing or financing activities (as defined by GAAP) as measures of liquidity. FFO and AFFO do not measure whether cash flow is sufficient to fund all of our cash needs, including principal amortization and capital improvements. FFO and AFFO do not represent cash flows from operating, investing or financing activities as defined by GAAP. Management recognizes that there are limitations in the use of FFO and AFFO. In evaluating our performance, management is careful to examine GAAP measures such as net income and cash flows from operating, investing and financing activities. 27 Table of Contents 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, 2021 2020 GAAP Net loss attributable to common stockholders $ (3,765) $ (4,831) Add: depreciation of properties 1,537 1,561 Add: our share of depreciation in unconsolidated joint ventures 6,599 6,572 Add: our share of impairment charge in unconsolidated joint venture 1,662 — Adjustments for non-controlling interests (4) (4) NAREIT Funds from operations attributable to common stockholders 6,029 3,298 Adjustments for: straight-line rent accruals (10) (10) Add: amortization of restricted stock and restricted stock units 538 438 Add: amortization of deferred borrowing costs 80 80 Add: our share of deferred mortgage costs from unconsolidated joint venture properties 148 160 Less: 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 March 31, 2021 2020 GAAP Net loss attributable to common stockholders $ (0.22) $ (0.29) Add: depreciation of properties 0.09 0.09 Add: our share of depreciation in unconsolidated joint ventures 0.38 0.39 Add: our share of impairment charge in unconsolidated joint venture 0.10 — Adjustment for non-controlling interests — — NAREIT Funds from operations per diluted common share 0.35 0.19 Adjustments for: straight line rent accruals — — Add: amortization of restricted stock and restricted stock units 0.04 0.03 Add: amortization of deferred borrowing costs — — Add: our share of deferred mortgage costs from unconsolidated joint venture properties 0.01 0.01 Less: our share of insurance recovery (0.10) — Adjustments for non-controlling interests — — Adjusted funds from operations per diluted common share $ 0.30 $ 0.23 28 Table of Contents Net Operating Income, or NOI, is a non-GAAP measure of performance. NOI is used by our management and many investors to evaluate and compare the performance of our properties to other comparable properties, to determine trends at our properties and to determine the estimated fair value of our properties. The usefulness of NOI may be limited in that it does not take into account, among other things, general and administrative expense, interest expense, loss on extinguishment of debt, casualty losses, insurance recoveries and gains or losses as determined by GAAP. NOI is a property specific performance metric and does not measure our performance as a whole. We compute NOI, by adjusting net income (loss) to (a) add back (1) depreciation expense, (2) general and administrative expenses, (3) interest expense, (4) loss on extinguishment of debt, (5) equity in loss of unconsolidated joint ventures, (6) provision for taxes, (7) the impact of non-controlling interests, and (b) deduct (1) other income, (2) gain on sale of real estate, and (3) gain on insurance recoveries related to casualty loss. Other REIT’s may use different methodologies for calculating NOI, and accordingly, our NOI may not be comparable to other REIT’s. We believe NOI provides an operating perspective not immediately apparent from GAAP operating income or net income (loss). NOI is one of the measures we use to evaluate our performance because it (i) measures the core operations of property performance by excluding corporate level expenses and other items unrelated to property operating performance and (ii) captures trends in rental housing and property operating expenses. However, NOI should only be used as an alternative measure of our financial performance. 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 March 31, 2021 2020 GAAP Net loss attributable to common stockholders $ (3,765) $ (4,831) Less: Other Income (4) (179) Add: Interest expense 1,660 1,860 General and administrative 3,114 3,367 Impairment charge — — Depreciation 1,537 1,561 Provision for taxes 57 62 Less: Gain on sale of real estate — — Add: Loss on extinguishment of debt — — Equity in loss of unconsolidated joint venture properties 1,345 1,815 Add: Net income attributable to non-controlling interests 34 32 Net Operating Income $ 3,978 $ 3,687 Less: Non-same store Net Operating Income $ (249) $ (245) Same store Net Operating Income $ 3,729 $ 3,442 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. 29 Table of Contents