What changed in this filing

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Item 7. Management’s Discussion and Analysis

2022-03-16 compared with 2021-03-15 · 244 added, 163 removed, 188 unchanged (68% of the section changed)

Management's Discussion and Analysis of Financial Condition and Results of Operations.

We are an internally managed real estate investment trust, also known as a REIT, that is focused on the ownership, operation and development of multi-family properties.

Generally, these properties are owned by unconsolidated joint ventures in which we contributed 65% to 80% of the equity.

At December 31, 2020:

(i) eight multi-family properties with an aggregate of 1,880 units and a carrying value of $153.6 million are wholly-owned by us;

and (ii) we have ownership interests, through unconsolidated entities, in 31 multi-family properties with an aggregate of 9,162 units, and the carrying value of our net equity investment therein is $169.4 million.

These 39 properties are located in 11 states;

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

We are an internally managed real estate investment trust, also known as a REIT, that is focused on the ownership, operation and, to a lesser extent, development of multi-family properties.

These properties may be wholly owned or owned by unconsolidated joint ventures in which we generally contributed 65% to 80% of the equity.

At December 31, 2021, we:

(i) wholly-own ten multi-family properties with an aggregate of 2,576 units and a carrying value of $291.5 million, and (ii) have ownership interests, through unconsolidated entities, in 23 multi-family properties with an aggregate of 6,697 units, and the carrying value of our net equity investment therein is $112.3 million.

These 33 properties are located in eleven states;

most of which are located in the Southeast United States and Texas.

The Impact of the COVID-19 Pandemic;

2021 and Recent Developments.

In 2020, we focused primarily on responding to the challenges presented by the COVID-19 pandemic:

ensuring the health and safety of our residents, employees, and the property managers’ employees;

working with our residents to facilitate the collectability of rent;

maintaining an appropriate balance between rental rates and occupancy levels;

and ensuring that we have sufficient liquidity and capital resources to address the challenges presented by the pandemic.

The pandemic did not have a direct material adverse effect on our financial condition and results of operations;

however, there were indirect negative effects( e.g., we were conservative in implementing our value add program, raising rents and pursuing acquisitions, all of which, if more aggressively pursued, may have allowed us to generate additional income).

If current economic conditions worsen or continue for an extended period, there may be significant direct adverse effects, including reductions in our rental revenue and cash flow and difficultly in satisfying our debt service obligations.

however, there were some direct negative effects ( e.g.

, properties adjacent to colleges and universities experienced lower occupancy levels and rental income due to remote learning) and indirect negative effects ( e.g., we were more conservative in raising rents, pursuing acquisitions and in implementing our value add program, all of which, if more aggressively pursued, may have allowed us to generate additional income).

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.

During 2020, we:

• acquired, in early February, through an unconsolidated joint venture, an 80% interest Abbotts Run - Wilmington, North Carolina, a 264 unit multi-family property, for a purchase price of $38.9 million, including mortgage debt of $23.2 million and $37.2 million of equity, of which we contributed $13.7 million;

• sold a $4.0 million loan, which we refer to as the Newark Loan, a legacy asset.

The loan was sold for its principal balance plus interest and fees of $325,000;

• took a $3.6 million impairment charge related to our entering into a contract to sell our 8.7 acre vacant land parcel in South Daytona Beach, Florida for $4.7 million.

This sale, which is scheduled to be completed in mid - 2021, is subject to certain conditions, including the purchaser's satisfaction with its due diligence review and obtaining certain zoning treatment.

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.

See note 3 to our consolidated financial statements;

• amended the credit facility to allow for its use for working capital (including dividend payments) and operating expenses and reduced the annual interest rate payable thereon from 5.00% to 4.25%;

• raised approximately $12.1 million of equity in the first quarter from the sale of 694,298 shares of our common stock;

• declared cash dividends of an aggregate of $0.88 per share;

• maintained an average occupancy rate of 92.3%.

On February 2, 2021,we entered into an agreement to sell to our joint venture partner our 80% interest in Anatole Apartments - Daytona Beach, Florida for approximately $7.4 million and anticipate the transaction will close, subject to satisfaction of customary closing conditions, in March or April 2021.

We estimate that we will recognize a gain on sale of our partnership interest of $2.0 million from such sale.

In 2020, equity in loss from unconsolidated joint ventures from this property was $250,000.

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.

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Years Ended December 31, 2020 and 2019

• we purchased the interests of our joint venture partners in ventures that own three multi-family properties ( i.e., Bells Bluff, Crestmont at Thornblade, and Crossings at Bellevue) for an aggregate purchase price of $45.6 million.

As a result, these properties are wholly-owned and the accounts and results of operations of these properties are included directly in our consolidated financial statements as of the applicable date of purchase (the "Consolidating Transactions").

In connection with these transactions, we assumed mortgage debt of $26.4 million at Crestmont at Thornblade and obtained replacement mortgage debt of $89.7 million to replace the existing debt of $61.8 million on the other two properties.

In 2021, these three properties contributed in the aggregate, $4.4 million in rental revenues, $2.0 million in operating expenses, $1.0 million in interest expense and $2.2 million in depreciation, respectively, in the aggregate in 2021.

In 2022, we anticipate that these three properties will generate approximately $17.0 million in rental revenues, $7.4 million of real estate operating expense, $4.0 million in interest expense and $8.1 million in depreciation.

• we purchased an additional 14.7% interest in Civic Center I and Civic Center II - Southaven, MS from our joint venture partner for $6.0 million.

After giving effect to this purchase, we own 74.7% of the venture that owns these properties.

• we sold Kendall Manor - Houston, TX, a wholly-owned property ("Kendall Manor"), to an unrelated third party for $24.5 million and recognized a gain on the sale of this property of $7.3 million.

In connection with the sale, we paid off the $14.3 million of mortgage debt maturing in August 2021 and bearing an annual interest rate of 4.29%.

During (a) 2021(through the May 26 sale date), this property contributed $1.2 million of rental income, $830,000 thousand million of real estate operating expenses, $272,000 of interest expense and $123,000 of depreciation, and (b) 2020, this property contributed $2.9 million of rental income, $1.9 million of real estate operating expenses, $675,000 of interest expense and $848,000 of depreciation.

• we sold our interests in the unconsolidated joint ventures that owned (a) Anatole Apartments - Daytona Beach, FL(“Anatole Apartments”), and (b)Tower at OPOP and Lofts at OPOP-St Louis, MO (collectively, the "OPOP Properties”), to our joint venture partners, for $10.5 million and recognized a gain on sales of our partnership interests of $2.6 million, after giving effect to the impairment charge of $520,000 taken in connection with the sale of OPOP Properties.

We refer to the sale of the interests in Anatole Apartments and OPOP Properties as the "Anatole/OPOP Sales".

In 2021 and 2020, these properties contributed $1.0 million and $1.1 million, respectively, in equity in loss of unconsolidated joint ventures.

• the unconsolidated joint venture which owned The Avenue Apartments, Ocoee, FL, and Parc at 980, Lawrenceville, GA, sold these properties (collectively, the "Avenue/Parc Sale") for an aggregate of $225.9 million and recognized an aggregate gain on the sale of these properties of $84.0 million.

As a result of these sales, we recorded an aggregate gain of $35.0 million.

The mortgage debt secured by these properties and discharged in connection with the sales was in aggregate principal amount of $107.5 million, had weighted average interest rate of 3.94% and a weighted average remaining term to maturity of 6.6 years.

In connection with these sales, the joint venture recognized an aggregate loss on the extinguishment of debt of $9.4 million, of which our share was $4.6 million.

During 2021 (through the applicable sales dates) and 2020, these properties contributed $60,000 and $(54,000), respectively, of equity in earnings (loss) of unconsolidated joint ventures.

• we sold a cooperative apartment unit located in New York, NY for a sale price of $545,000 and recognized a gain of $414,000

Financing;Other

• we amended and restated our credit facility, among other things, to increase the amount available to be borrowed to $35 million, reduce the interest rate to 25 basis points over the prime rate with a floor of 3.5%, and extend the facility through November 2024.

• our consolidated subsidiaries paid-off three first mortgages and three supplemental mortgages with an aggregate balance of $31.9 million.

These mortgages had a weighted average interest rate of 4.53% and a remaining term to maturity of nine months.

In connection with the payoffs, we incurred a loss on the extinguishment of debt of $822,000.

• we raised approximately $9.6 million of equity from the sale of 529,126 shares of our common stock.

• we effected, in September 2021, a 4.5% per share increase in our cash dividend, and declared dividends of an aggregate of $0.90 per share in 2021.

• we maintained an average occupancy rate of 97.1% at our wholly owned properties and 94.2% at our joint venture properties.

Subsequent to December 31, 2021,

• we sold a vacant land parcel located in Daytona, Florida (the "South Daytona Property") for a sales price of $4.7 million, and after closing costs recognized a nominal gain.

In 2020, we recognized an impairment charge of $3.6 million in connection with this property.

• we acquired for $ 3.5 million a 17.45% interest in a planned 240-unit development property located in John's Island SC.

We anticipate that this development will be completed in the fourth quarter of 2023.

• the unconsolidated joint venture in which we have a 65% equity interest sold The Veranda at Shavano, a 288-unit multi-family property in San Antonio, Texas, for a sales price of $53.8 million.

We estimate that the gain on the sale of this property will be approximately $23.7 million and that our share of the gain, which will be recognized in the first quarter of 2022, will be approximately $12.7 million.

This property was secured by $25.1 million of floating rate mortgage debt with 1.4 years of remaining term to maturity which was repaid in connection with the sale.

The venture also terminated an interest rate swap and paid a termination fee of $188,000, of which our share will be approximately $122,000.

During the year ended December 31, 2021, this property generated $526,000 of equity in earnings from unconsolidated joint ventures, which includes a $616,000 gain from insurance proceeds.

During the year ended December 31, 2020, this property generated $322,000 of equity in loss from unconsolidated joint ventures.

• we used our available cash to pay-off $15.5 million of 4.29% mortgage debt of Avalon Apartments - Pensacola, FL, a wholly owned property, that was scheduled to mature in March 2022.

• we raised $2.2 million of equity from the sale of 100,000 shares of our common stock pursuant to our at-the-market offering program through March 1, 2022.

• we announced that we entered into separate agreements to acquire (the “2022 Partner Buyouts”) the remaining interests of five of our joint venture partners at five multi-family properties with an aggregate of 1,064 units.

The aggregate purchase price for these interests is approximately $30.4 million and in connection with such purchases, we will assume mortgage debt that as of December 31, 2021, was in aggregate principal amount of $97.7 million.

mortgage debt is currently reflected in Item 7.

“Management's Discussion and Analysis of Financial Condition and Results of Operations- Disclosure of Known Material Contractual Obligations”).

The completion of these purchases is subject to customary closing conditions (including with respect to four of the purchases, the approval of the holder of the applicable mortgage debt), and no purchase is contingent upon the completion of any other purchase.

The weighted average remaining term to maturity of the mortgage debt to be assumed is 7.1 years and the weighted average interest rate thereon is 4.17%.

This mortgage debt will be non-recourse to us at the BRT parent level and to our subsidiary that owns the applicable property, subject to customary carve-out guarantees and indemnities at the parent and property subsidiary levels.

During 2021, these properties contributed an aggregate of $295,000 of equity in loss of unconsolidated joint ventures.

We anticipate using our available cash to fund these purchases and that these transactions will be completed over the next several months.

After a purchase is completed, such property will be wholly owned and the accounts and operations of such property will be included directly, from the date of such purchase, in our consolidated balance sheets and consolidated statement of operations, respectively.

As a result, we anticipate that our revenues, total expenses, assets and liabilities, will increase.

We can provide no assurance that any of these transactions will be completed or that if completed, will be accretive.

2022 Acquisition Plan

Given the highly competitive environment to acquire multi-family properties, and our belief that in the current environment buying properties from third parties will not generate an appropriate risk adjusted return for our stockholders, we are emphasizing the purchase of the interests of our joint venture partners (“Partner Buyouts”).

Although we believe that the blended rate of return we anticipate generating from the Partner Buyouts will be superior to that available from other acquisition opportunities currently available in the market, the blended rate of return on our investment generated from Partner Buyouts will not be as favorable as those we generated in the past from such properties prior to such Partner Buyouts.

We also anticipate making a greater effort to buy properties directly ( i.e.

, without joint venture partners) as direct purchases may be attractive if we do not have to pay a promote.

See “ Item 1.Business-Our Acquisition Approach-Current Acquisition Approach ”.

Results of Operations

Comparison of Years Ended December 31, 2021 and 2020

The term "same store properties" refers to seven multi-family properties that were owned for all of 2021 and 2020.

The term "unconsolidated same store properties" refers to 25 properties that were owned for all of 2020 and 2019, other than the Sola/Bells Properties as they were in lease up.

The term "unconsolidated same store properties" refers to 21 properties that were owned for all of 2021 and 2020, other than the Sola Station property that was in lease-up.

The following table compares our revenues for the years indicated:

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The components of the increase include:

• $1.8 million due to the inclusion, for all of 2020, of the revenues from a multi-family property at which we bought out the interest of our joint venture partner in 2019 and which is now wholly owned by us (the "2019 Consolidating Acquisition") - prior thereto, this property was owned by an unconsolidated joint venture;

• $929,000 from same store properties, of which approximately $805,000 is due to higher rental rates and the balance is due to the increase in other rental revenues and slightly higher occupancy.

The increase was offset by the inclusion, in 2019, of $2.3 million of rental and other revenue from two multi-family properties that were sold in 2019 (the "2019 Sold Properties").

• $4.4 million due to the inclusion of the revenues from the Consolidating Transactions;

• $1.8 million from same store properties, of which approximately $909,000 is due to higher rental rates, $511,000 from increased occupancy and $361,000 is due to an increase in ancillary income ( e.g., utility reimbursements and late fees)- approximately $592,000 of the $1.8 million increase is due to increased rents and occupancy at Avalon Apartments - Pensacola, Florida.

The increase was offset by the inclusion, in 2020, of $1.7 million of rental and other revenue from the Kendall Property.

Other income.

The decrease is due to reduced interest income resulting from the sale of the Newark Loan on September 30, 2020.

The decrease is due to reduced interest income resulting from the sale of a loan on September 30, 2020.

The following table compares our expenses for the periods indicated:

3 unchanged sentences

General and administrative 12,621 11,701 920 7.9 %

Impairment charge 3,642 — 3,642 N/A

Impairment charge 520 3,642 (3,122) (85.7) %

Depreciation 8,025 6,742 1,283 19.0 %

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The components of the increase include:

• $932,000 from the inclusion, for all of 2020, of the expenses from the property acquired in the 2019 Consolidating Acquisition;

• $609,000 from same store properties, due primarily to increased real estate taxes at our Houston TX property, increased insurance premiums upon renewals and general increases in utilities and repairs and maintenance.

The increase was offset by the inclusion in 2019 of $1.5 million of expenses related to 2019 Sold Properties.

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• $2.0 million from the inclusion of the expenses from the Consolidating Transactions;

• $765,000 from same store properties, including a $303,000 increase in real estate taxes at Avondale Station - Decatur, GA, due to an increase in the assessment of the property's value and a $164,000 increase in insurance premiums across the portfolio.

The increase was offset by $1.0 million of expenses related to the Kendall Manor sale.

Interest expense.

The change is due to:

• a $592,000 decrease due to the 158 basis point decrease in the average interest rate on our floating rate junior subordinated debt resulting from the decline in the three-month LIBOR rate;

• a $477,000 decrease due to the inclusion, in 2019, of interest expense related to the 2019 Sold Properties.

Offsetting the decrease was a $586,000 increase due to the inclusion, for all of 2020, of the interest expense on the mortgage of the 2019 Consolidating Acquisition.

General and administrative expense.

The decrease is due to a :

• $693,000 decrease from same store properties due to the payoff of mortgage debt;

• $404,000 decrease from the Kendall Manor sale;

• $270,000 decrease primarily due to the 73 basis point decrease in the average interest rate on our floating rate junior subordinated debt resulting from the decline in the three-month LIBOR rate.

"Quantitative and Qualitative Disclosures About Market Risk" for information regarding the impact of changes in the LIBOR rate .

This was offset by an $1.0 million increase in interest expense from the Consolidating Transactions.

General and administrative.

The increase is due to:

• an $868,000 increase in professional fees and expenses, of which $712,000 was incurred in connection with the Restatement;

• a $431,000, increase in compensation costs, including a $332,000 increase in non-cash compensation expense related to the amortization of expense related to restricted stock awards (primarily related to the increase in the number, and higher fair value, of the shares granted in 2020 in comparison to the awards granted in 2015);

• increased costs of $170,000 from our shared services agreement due primarily to the increased time spent by our part-time executives addressing the Restatement and the corresponding allocation to us of such related additional costs.

• a $1.2 million increase in compensation expense, including $478,000 of increased non-cash amortization expense due primarily to the RSUs granted in 2021, $323,000 due to the non-cash amortization of restricted stock expense (primarily related to the higher fair value of the shares granted in January 2021 in comparison to the shares issued in 2016 and that vested in 2021), and $318,000 due to the non-cash amortization of restricted stock expense that was issued in June 2021;

• a $469,000 increase in professional expenses incurred during the 2021 period, including $291,000 related to the follow-on-equity offering terminated in May 2021 and $178,000 in general legal and accounting fees and consulting fees related to compensation and insurance matters.

These increases were offset by the inclusion, in the corresponding period of 2020, of (i) $712,000 of professional fees and expenses related to the restatement of our financial statements in 2020 and (ii) $120,000 in costs related to our shared services agreement, primarily related to costs related to the restatement of our financial statements in 2020.

Impairment charge

We recognized this impairment in connection with our proposed sale of a vacant land parcel in Daytona, Florida.

See "-The Impact of the COVID-19 Pandemic;

2020 and Recent Developments".

Depreciation.

The increase is due to:

• a $626,000 increase from the inclusion, for all of 2020, of such expense from the 2019 Consolidated Acquisition;

• a $457,000 non-cash adjustment to record additional depreciation.

In connection with the Restatement, we increased the asset values on three properties at which we previously bought out our partners' interests which necessitated an increase in depreciation at such properties

The increase was offset by a $248,000 decrease due to the sale of the 2019 Sold Properties.

In 2021, we recorded an impairment charge of $520,000 representing the excess of the book value of our investment in OPOP Properties over the expected sale price of the investment.

OPOP Properties was sold in November 2021.

In 2020, we recorded a $3.6 million impairment charge with respect to the South Daytona Property.

This property was sold in February 2022.

The increase is due the inclusion of $2.2 million of depreciation from the Consolidating Transactions.

The increase was offset by:

• a $726,000 decline due to the Kendall Manor sale;

• the inclusion in 2020 of a $233,000 adjustment ( i.e.

, to reflect an increase in the asset value) to such expense in connection with our purchase of our joint venture partner's interest in the ventures that owns Kilburn Crossing and Parkway Grande.

Other revenue and expense items

Equity in (loss) earnings of unconsolidated joint ventures.

See "- Unconsolidated Joint Ventures - Results of Operations " below for a discussion of Equity in loss on unconsolidated joint ventures and Equity in earnings from sale of unconsolidated joint venture properties

Gain on sale of real estate

In 2021, we recognized gains of $7.3 million from the Kendall Sale and $414,000 from the sale of a cooperative apartment in New York, NY.

There was no comparable gain in 2020.

Gain on sale of partnership interest

In 2021, we recognized gains of $2.2 million in connection with the sale of our interest in the joint venture which owns Anatole Apartments, and $388,000 from the sale of our interest in the joint venture which owns the OPOP Properties.

The gain on the sale of OPOP Properties is net of an impairment charge of $520,000 taken in 2021 to reduce the carrying value of the investment to its fair value.

There was no comparable gain in 2020.

Loss on extinguishment of debt.

In 2021, we incurred $1.6 million of prepayment charges and deferred loan fee write-offs on the payoff of three first mortgage loans and three supplemental loans with an aggregate outstanding principal balance of $37.9 million and the refinance of a mortgage loan in connection with the purchase of the interests of our joint venture partners in Crestmont at Thornblade.

There was no comparable loss in 2020.

Unconsolidated Joint Ventures - Results of Operations.

Equity in (loss) earnings of unconsolidated joint venture s

The table below reflects the condensed income statements of our unconsolidated properties included in note 7 of our consolidated financial statements.

In accordance with US generally accepted accounting principles, each of the line items in the chart below is presented as if these properties are wholly owned by us though, as reflected under " Item 1.

In accordance with US generally accepted accounting principles, each of the line items in the chart below is presented as if these properties are wholly owned by us, although as reflected under " Item 1.

Business - Our Multi- Family Properties ", our equity interests in these properties range from 32% to 90% (dollars in thousands):

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2021 2020 Increase

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Total revenues less total expenses from unconsolidated joint ventures (1,201) (9,843) 8,642 (87.8) %

Other equity in earnings from unconsolidated joint ventures 117 177.00 (60) N/A

Gain on sale of real estate from unconsolidated joint ventures — 16,899 (16,899) (100.0) %

Other equity in earnings from unconsolidated joint ventures 54 117 (63) (53.8) %

Impairment of assets (2,813) — (2,813) N/A

Insurance recoveries from unconsolidated joint ventures 2,813 — 2,813 N/A

Gain on sale of real estate from unconsolidated joint ventures 83,984 — 83,984 N/A

Gain on insurance proceeds from unconsolidated joint ventures 2,179 765 1,414 184.8 %

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Net (loss) income $ 75,615 $ (8,961) $ 84,576

Equity in (loss) earnings of unconsolidated joint ventures $ (6,024) $ 1,106

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

Equity in earnings (loss) and gain on sale of real estate of unconsolidated joint ventures $ 30,774 $ (6,024)

Rental revenue from unconsolidated joint ventures

The increase is due primarily to:

• $5.2 million from the Sola/Bells Properties due primarily to increased occupancy and to a lesser extent, higher rental rates at such properties,

• $4.2 million due to the inclusion, for all of 2020, of revenues from three properties that were only owned for a portion of 2019 (the "2019 Unconsolidated Acquisitions"),

• $2.8 million due to the inclusion of revenue from a multi-family property purchased in 2020 (the "2020 Unconsolidated Acquisition"), and

• $2.5 million from unconsolidated same store properties primarily due to an increase in average rental rates and to a lesser extent increases in other variable payments ( e.g., utility reimbursements, late fees, etc.).

Offsetting the increase is the inclusion, in 2019, of $3.7 million from our Indianapolis IN.

property, which was sold in December 2019 (the "2019 Unconsolidated Sold Property") and $2.1 from the 2019 Consolidating Acquisition.

The decrease is due primarily to:

• $7.0 million from the Avenue/Parc Sale;

• $2.5 million from the Anatole/OPOP Sale;

• $2.5 million due to the Consolidating Transactions.

The decrease was offset by:

• a $5.7 million increase in rental revenue from unconsolidated same store properties - $3.3 million from an increase in rental rates, $1.4 million from increased occupancy and $1.0 million due to an increase in ancillary fees ( e.g., late fees, waiver fees and tech/cable package) - approximately $967,000 of the increase is due to Mercer Crossing - Farmers Branch, TX, $542,000 is due to Chatham Court and Reflections - Dallas, TX and $480,000 is due to Cinco Ranch- Katy, TX;

• $605,000 from the inclusion, for all of 2021, a property ( i.e ., Sola Station- Columbia, SC) that was in lease-up for a portion of 2020, and

• $594,000 from the inclusion, for all of 2021, of Abbotts Run-Wilmington, NC ("Abbots Run"), that was only owned for a portion of 2020.

Real estate operating expenses from unconsolidated joint ventures

The increase is due to:

• $2.3 million from unconsolidated same store properties, primarily due to,

– an increase of $1.4 million in real estate tax expense, of which approximately (i) $330,000 is due to the inclusion, in 2019, of refunds and tax reductions received on a property from multi - year tax challenges and (ii) the balance is due generally to increased assessed values, and

– $629,000 of increased insurance expense due to increased premiums,

• $1.9 million due to the inclusion, for all of 2020, of expenses from the 2019 Unconsolidated Acquisitions that were only owned for a portion of 2019,

• $1.5 million primarily from the Sola property due to increased operating expenses as occupancy has increased throughout 2020 and increased real estate taxes as the property was fully assessed in 2020, and

• $1.1 million due to the inclusion of expenses from the 2020 Unconsolidated Acquisition.

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Offsetting the increase is the inclusion, in 2019, of $2.2 million from the 2019 Unconsolidated Sold Property and $1.1 million from the 2019 Consolidating acquisition.

The components of the decrease include:

• $3.3 million due to the Avenue/Parc Sale;

• $1.4 million from the Consolidating Transactions;

• $1.3 million from the Anatole/OPOP Sales.

The decrease was offset by:

• a $1.8 million increase from unconsolidated same store properties, including increases of $579,000 in repairs, maintenance and replacement costs, $576,000 in utility costs, $352,000 in payroll and leasing commissions, and $315,000 in insurance costs, and

• $409,000 from the inclusion, for all of 2021, of Abbotts Run.

Interest expense from unconsolidated joint ventures.

The decrease is due primarily to:

• a $727,000 reduction in such expense at unconsolidated same store properties due to the inclusion, for all of 2020, of the benefits of three mortgage re-financings that occurred in 2019,

• the inclusion, in 2019, of $662,000 of such expense from the 2019 Unconsolidated Sold Property, and

• the inclusion, in 2019, of $592,000 of such expense for the 2019 Consolidating Acquisition.

The decrease was offset by (i) the inclusion for all of 2020 of $1.0 million of the interest expense of the 2019 Unconsolidated Acquisitions that were only owned for a portion of 2019 and (ii) $834,000 from the 2020 Unconsolidated Acquisition.

The components of the decrease are $1.9 million due to the Avenue/Parc Sale, $1.2 million due to the Consolidating Transactions, $616,000 from the Anatole/OPOP Sales and the balance is due primarily to reduced principal balances on mortgages at unconsolidated same store properties resulting from amortization.

Depreciation from unconsolidated joint ventures .

The increase is due primarily to:

• $2.0 million from the Sola/Bells Properties which in 2019 were not being fully depreciated because they had not been fully completed,

• $1.7 million from the inclusion of such expense from the 2020 Unconsolidated Acquisition, and

• $720,000 from the inclusion, for all of 2020, of such expense from the 2019 Unconsolidated Acquisitions that were only owned for a portion of 2019.

Offsetting the increase is (i) $819,000 from unconsolidated same store properties due to a lower level of depreciation as lease intangibles at several properties have been fully depreciated and (ii) the inclusion, in 2019, of $610,000 from the property acquired in the 2019 Consolidating Acquisition and $566,000 from the 2019 Unconsolidated Sold Property.

The components of the decrease are $2.8 million due to to the Avenue/Parc Sale, $1.5 million due to the Consolidating Transactions, $692,000 from the Anatole/OPOP Sales and $1.0 million due to a decrease in depreciable assets.

Impairment charges from unconsolidated joint ventures.

During 2021, we recognized $2.8 million of impairment charges related to the February 2021 Texas winter storm (the "Texas Storm").

There were no comparable charges in 2020.

Insurance recoveries from unconsolidated joint ventures.

During 2021, we recognized $2.8 million of insurance recoveries related to the Texas Storm.

There were no comparable recoveries in 2020.

Gain on insurance recoveries from unconsolidated joint ventures .

During 2021, we recognized $1.9 million in gains from insurance recoveries at two properties ( i.e., Verandas at Shavano and Retreat at Cinco Ranch, both located in San Antonio, TX), that were damaged by the Texas Storm, and $325,000 from an insurance claim on Magnolia Pointe - Madison, AL, that sustained fire damage in a prior year, as in each case, the amounts received on claims exceeded the assets previously written-off.

In 2020, we also recognized a gain of $765,000 related to Magnolia Pointe - Madison, AL, property.

Gain on sale of real estate from unconsolidated joint ventures

In 2019, a joint venture sold a property in Indianapolis, IN and recognized a gain of $16.9 million on the sale.

There was no comparable gain in 2020.

Loss on extinguishment of debt.

In 2019, a joint venture incurred a swap termination fee in connection with the refinancing of a variable rate mortgage to a fixed rate mortgage.

There was no comparable expense in 2020.

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On July 20, 2021, the unconsolidated joint venture which owned The Avenue Apartments, Ocoee, FL, sold the property for $107.7 million and recognized a gain on the sale of this property of $39.7 million.

On July 28, 2021, the unconsolidated joint venture which owned Parc at 980, Lawrenceville, GA, sold the property for $118.3 million and recognized a gain on the sale of this property of $44.3 million.

There were no comparable sales in 2020.

Loss on early extinguishment of debt from unconsolidated joint ventures

The loss in 2021 is due to prepayment charges in connection with the payoff of the mortgages related to the Avenue/Parc Sale.

There was no comparable loss in 2020.

Comparison of Years Ended December 31, 2020 and 2019

As we qualify as a smaller reporting company, this comparison is omitted in accordance with Instruction 1 to Item 303(a) of Regulation S-K.

Funds from Operations;

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Management also reviews the reconciliation of net income (loss) to FFO and AFFO.

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The table below provides a reconciliation of net (loss) income determined in accordance with GAAP to FFO and AFFO for each of the indicated years (amounts in thousands):

Net (loss)income attributable to common stockholders $ (19,862) $ 856

GAAP Net income (loss) attributable to common stockholders $ 29,114 $ (19,862)

depreciation of properties 8,025 6,742

our share of depreciation in unconsolidated joint venture properties 23,083 26,493

impairment charge 520 3,642

our share of depreciation from unconsolidated joint venture properties 26,493 24,935

our share of earnings from sale of unconsolidated joint venture properties — (9,932)

gain on sales of real estate — (10,618)

our share of impairment charge in unconsolidated joint venture properties 2,010 —

our share of earnings in earnings from sale of unconsolidated joint

venture properties (34,982) —

gain on sales of real estate and partnership interests (10,325) —

Adjustment for non-controlling interests (16) (16)

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loss on extinguishment of debt 1,575 —

our share of loss on extinguishment of debt from unconsolidated joint venture properties — 1,236

our share of loss on extinguishment of debt from unconsolidated joint

venture properties 4,581 —

amortization of restricted stock and RSU expense 2,941 1,821

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our share of deferred mortgage costs from unconsolidated joint venture properties 542 626

our share of gain on insurance proceeds from unconsolidated joint venture properties (519) (630)

our share of insurance recovery from unconsolidated joint ventures (2,010) —

our share of gain on insurance proceeds from unconsolidated joint venture

properties (1,528) (519)

Adjustment for non-controlling interests 4 6

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The table below provides a reconciliation of net (loss) income per common share (on a diluted basis) determined in accordance with GAAP to FFO and AFFO.

Net (loss) income attributable to common stockholders $ (1.16) $ 0.05

Net income (loss) attributable to common stockholders $ 1.62 $ (1.16)

depreciation of properties 0.45 0.39

impairment charge 0.21 —

our share of depreciation from unconsolidated joint venture properties 1.29 1.55

impairment charge 0.03 0.21

our share of impairment charge in unconsolidated joint ventures 0.11 —

our share of earnings from sale of unconsolidated joint venture properties (1.95) —

gain on sales of real estate — (0.66)

gain on sales of real estate and partnership interest (0.58) —

Adjustment for non-controlling interests — —

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amortization of deferred mortgage and debt costs 0.02 0.02

our share of amortization of deferred mortgage and debt costs from unconsolidated ventures 0.04 0.06

our share of gain on insurance recovery from unconsolidated joint ventures (0.03) (0.04)

our share of amortization of deferred mortgage and debt costs from

unconsolidated ventures 0.03 0.04

our share of insurance recovery from unconsolidated joint ventures (0.11) —

our share of gain on insurance proceeds from unconsolidated joint ventures (0.09) (0.03)

Adjustment for non-controlling interests — —

Adjusted funds from operations $ 1.33 $ 1.12

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FFO increased in 2020 from 2019 due primarily to a decline in prepayment charges and reduced interest expense due to re-financings and lower interest costs on our junior subordinated debt, improved operating margins at our wholly owned and unconsolidated joint venture properties.

The increase was offset by an increase in professional fees related to the Restatement and to a lesser extent, an increase in restricted stock expense.

AFFO increased in 2020 from 2019 due primarily to improved operating margins and reduced interest expense due to re-financings and lower interest costs on our junior subordinated debt.

The increase was offset by the increase in professional fees related to the Restatement.

Diluted shares outstanding for FFO and AFFO 17,936,465 17,115,697

FFO for 2021 increased $430,000, or 2.5%, to $17.4 million from $17.0 million in 2020 due primarily to improved operating margins at same store properties, the Consolidating Transactions (including the purchase of the interest in Civic Center I and II), reduced interest expense, insurance recoveries and gain on insurance proceeds.

The increase was offset by the increase in debt prepayment charges, the sale of properties, the sale of properties by joint ventures and the sale of interests in joint ventures (collectively referred to as, the "2021 Sales"), the non-cash amortization of equity award expense and the inclusion, in 2020, of other income related to a loan receivable that was paid-off in September 2020.

FFO for 2021 decreased $ 0.02 per diluted share, or 2.0%, from $0.99 per diluted share to $0.97 per diluted share due primarily to issuances pursuant to our equity incentive and at-the-market equity offering programs.

AFFO for 2021 increased $4.6 million, or 23.9%, to $23.8 million from $19.2 million in 2020, primarily due to improved operating margins, the Consolidated Transactions (including the purchase of the interest in Civic Center I and II) and reduced interest expense offset by the 2021 Sales and the inclusion, in 2020, of other income from a loan receivable that was paid off in September 2020.

Per share AFFO was impacted negatively by issuances pursuant to our equity incentive and at-the-market equity offering programs.

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 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.

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.

Same store NOI reflects the operations of seven of our eight wholly owned properties

Same store NOI reflects the operations of seven of our ten wholly-owned properties.

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.

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For the year ended December 31,

GAAP Net (loss) income attributable to common stockholders $ (19,862) $ 856

GAAP Net income (loss) attributable to common stockholders $ 29,114 $ (19,862)

Other Income (16) (651)

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Gain on sale of real estate (7,693) —

Gain on the sale of partnership interests (2,632) —

Loss on extinguishment of debt 1,575 —

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Same Store Net Operating Income $ 14,107 $ 13,091

(1) Prior year amounts have been adjusted to reflect the current year composition to reflect only those properties that were same store for both the current and the prior year.

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NOI increased $397,000, primarily due to $907,000 from the 2019 Consolidating Acquisition and an increase in Same Store NOI of $320,000 offset by a $784,000 decrease due to the sale of the 2019 Sold Properties.

The Same Store NOI increase is primarily due to a $929,000 increase in rental revenue from increased rental rates and, to a lesser extent, higher occupancy rates, offset by a $609,000 increase in operating expenses.

See " - Years Ended December 31, 2020 and 2019"

Disclosure of Contractual Obligations

The following table sets forth as of December 31, 2020 our known contractual obligations:

________________________

(1) Prior year amounts have been adjusted to reflect the current year composition to reflect only those properties that were same store for both the current

and the prior year.

NOI increased in 2021 by $2.8 million, or 18.2%, to $ 17.9 million from $15.1 million in 2020, primarily due to $2.4 million from the Consolidating Transactions and a $1.0 million increase in Same Store NOI offset by a $678,000 decrease due to the sale of Kendall Manor.

The Same Store NOI increase is due primarily to a $1.7 million increase in rental revenue from increased rental rates and, to a lesser extent, higher occupancy rates and higher ancillary income, offset by a $765,000 increase in operating expenses.

See " Results of Operations - Years Ended December 31, 2021 and 2020"

Disclosure of Known Material Contractual Obligations

The following table sets forth as of December 31, 2021 our known material contractual obligations:

Payment Due by Period

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(1) Reflects payments of principal (including amortization payments) and interest and excludes deferred costs.

Includes all of the debt of unconsolidated joint ventures, regardless of the non-controlling interests therein.

Includes all of the debt of unconsolidated joint ventures.

See the following table for information regarding same.

Assumes that the interest rate on the junior subordinated notes will be 2.13% per annum which was the rate in effect at December 31, 2021.

(2) Assumes that $1.0 million will be paid annually for the next five years pursuant to the shared services agreement and $1.4 million will be paid annually through December 31, 2025 for the Services.

(2) Assumes that $922,000 will be paid annually for the next five years pursuant to the shared services agreement and $1.5 million will be paid annually through December 31, 2027 for the Services.

Business—Our Structure."

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(1) Includes payments of principal (including amortization payments), and interest and excludes deferred costs.

(2) Includes all of the debt of unconsolidated joint ventures, regardless of the non-controlling interests therein.

(2) Includes all of the debt of unconsolidated joint ventures, including Verandas at Shavano which was sold in February 2022.

(3) Assumes that the interest rate on the junior subordinated notes will be 2.13% per annum.

Liquidity and Capital Resources

We require funds to pay operating expenses and debt service obligations, acquire properties, make capital improvements, fund capital contributions, pay dividends and to the extent we deem appropriate, repurchase shares pursuant to our share buy back program .

In 2020, our primary sources of capital and liquidity were the operations of our multi-family properties (including distributions of $15.3 million from our unconsolidated joint ventures, $12.1 million from the sale of our common stock through our at-the-market equity offering program, borrowings from our $10 million credit facility and our available cash (including restricted cash).

At December 31, 2020 and February 28, 2021, our available cash and cash equivalents is approximately $28.7 million and $26.1 million, respectively, excluding any funds held at our unconsolidated joint ventures.

We anticipate that through 2023, our operating expenses, $134.5 million of mortgage amortization and interest expense and $177.0 million of balloon payments (including $117.5 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 $45.4 million (assuming (i) the current quarterly dividend rate of $0.22 per share and (ii) 17.2 million shares outstanding) and share repurchases, if any, pursuant to our share buy back program, will be funded from cash generated from operations (including distributions from unconsolidated joint ventures), mortgage refinancing, sales of properties, the issuance of additional equity

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and, if available as noted below, our credit facility.

We require funds to pay operating expenses and debt service obligations, acquire properties (including the acquisition of interest of our joint venture partners), make capital improvements, fund capital contributions, pay dividends and to the extent we deem appropriate, repurchase shares pursuant to our share buy back program .

In 2021, our primary sources of capital and liquidity were the operations of our multi-family properties (including distributions of $15.3 million from the operations of our unconsolidated joint ventures and $46.7 million of distributions from sale transactions), $35.2 million from property sales (including sales of properties owned by consolidated entities and sales of interests in unconsolidated joint ventures), net mortgage proceeds of $21.5 from the refinancing of mortgage debt in connection with the purchase of the remaining interests of certain joint ventures, $9.6 million from the sale of our common stock through our at-the-market equity offering program, and our available cash (including restricted cash).

Excluding funds held at our unconsolidated subsidiaries, at December 31, 2021 and February 28, 2022, our available liquidity was approximately $67.3 million and $75.7 million, respectively, including $32.3 million and $40.7 million, respectively, of cash and cash equivalents, and subject to compliance with borrowing base and other requirements, up to $35 million and $35 million, respectively, available under our credit facility.

After giving effect to the sale of Verandas at Shavano, we anticipate that for the three years beginning January 1, 2022, our operating expenses, $112.8 million of mortgage amortization and interest expense and $40.2 million of balloon payments (including $87.6 million and $10.8 million, respectively, from unconsolidated joint ventures) due with respect to mortgages maturing from 2022 to 2024, estimated cash dividend payments of at least $51.1 million (assuming (i) the current quarterly dividend rate of $0.23 per share and (ii) 18.5 million shares outstanding) and share repurchases, if any, pursuant to our share buy back program, will be funded from cash generated from operations (including distributions from unconsolidated joint ventures), mortgage financings and re-financings, sales of properties, the issuance of additional equity and, if available as noted below, our $35 million credit facility.

Our operating cash flow and available cash is insufficient to fully fund the $64.7 million of balloon payments, and if we are unable to refinance such debt on acceptable terms, we may need to issue additional equity or dispose of properties, in each case on potentially unfavorable terms.

We are negotiating an extension to our $10 million credit facility as the facility matures April 18, 2021.

If this facility is not renewed, it will be more difficult to address our working capital needs and complete acquisitions, which would adversely affect us.

Capital improvements at (i) 13 multi-family properties will be funded by approximately $6.6 million of restricted cash available at December 31, 2021 and (ii) other properties will be funded from the operations of such properties.

Our ability to acquire additional multi-family properties (including our acquisitions of our partner's interests 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.

Our ability to acquire additional multi-family properties (including our acquisitions of our partners' interests 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 and mortgage debt from lenders, and (iii) raise capital from the sale of our common stock.

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.

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As of December 31, 2021 $37.4 million (excluding deferred costs of $297,000) 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.

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.

Although these notes provide for an alternate method of calculating interest when LIBOR becomes unavailable in June 2023, if not earlier, such alternative rate may not be available in which case we may have to negotiate a secondary alternative rate with the counterparties to such debt.

If we and the counterparties to this debt are unable to agree to a satisfactory secondary alternate rate, our cash flow and operating results may be adversely efffected.

At December 31, 2021 and 2020, the interest rate on these notes was 2.13% and 2.21%, respectively.

Credit Facility

Our credit facility with VNB New York, LLC, an affiliate of Valley National Bank (collectively, "VNB"), as amended and modified, allows us to borrow, subject to compliance with borrowing base requirements and other conditions, up to $10 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, is secured by certain cash accounts maintained by us at VNB, matures April 18, 2021 and bears an annual interest rate, which resets daily, of 50 basis points over the prime rate, with a floor of 4.25%.

At December 31, 2020, the annual interest rate on the 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.

We are required to maintain substantially all our bank accounts at VNB.

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.

Our credit facility with VNB New York, LLC, an affiliate of Valley National Bank (collectively, "VNB"), as amended and restated, allows us to borrow, subject to compliance with borrowing base requirements and other conditions, up to $35 million, (i) for the acquisition of, and investment in, multi-family properties, (ii) to repay mortgage debt secured by multi-family properties and (iii) for Operating Expenses ( i.e.

, working capital (including dividend payments) and operating expenses);

provided, that not more than $15 million may be used for Operating Expenses.

(The facility provides that it may be expanded to provide for up to $60 million of availability if another lender(s) is willing to provide an additional $25 million of availability).

The credit facility is secured by cash accounts maintained by us at VNB (and we are required to maintain substantially all of our bank accounts at VNB), and the pledge of our interests in the entities that own the unencumbered multi-family properties used in calculating the borrowing base.

The credit facility bears an annual interest rate, which resets daily, of 25 basis points over the prime rate, with a floor of 3.50%.

There is an annual fee of 0.25% on the total amount committed by VNB and unused by us.

The credit facility matures in November 2024.

As of the date of this filing, no amounts are outstanding on the credit facility and $35 million was available to be borrowed thereunder.

The terms of the credit facility include certain restrictions and covenants which, among other things, limit the incurrence of liens, require that we maintain and include in the collateral securing the facility at least two unencumbered properties with an aggregate value(as calculated pursuant to the facility) of at least $50 million, and 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 credit facility) 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 credit facility.

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

Off Balance Sheet Arrangements

Though 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 29 unconsolidated joint ventures which own multi-family properties.

The distributions from the properties owned by these joint ventures ($15.3 million in 2020) are a material source of our liquidity and cash flow.

Other Financing Sources and Arrangements

At December 31, 2021, we are joint venture partners in unconsolidated joint ventures which own 23 multi-family properties.

The distributions from the properties owned by these ventures, $62.0 million in 2021 (including $46.7 million from the sale of such properties) 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 December 31, 2020, these joint venture properties have a net equity carrying value of $169.5 million and are subject to mortgage debt, which is not reflected on our consolidated balance sheet, of $835.2 million.

At December 31, 2021, our investment in these joint venture properties have a net equity carrying value of $112.3 million and are subject to mortgage debt, which is not reflected on our consolidated balance sheet, of $587.9 million.

Although BRT Apartments Corp.

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See note 6 to our consolidated financial statements.

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Significant Accounting Estimates and Critical Accounting Policies

" Business-Mortgage Debt " for information regarding our mortgage debt at consolidated and unconsolidated subsidiaries.

As the majority of our lease terms are for a period of one-year or less we are able to reset rental rates to market if renewed.

Accordingly, due to the short-term nature of our leases, we do not believe our results will be materially adversely affected by inflation.

Inflation may also affect the overall cost of debt, as the implied cost of capital increases.

Currently, interest rates are less than historical averages.

However, the Federal Reserve, in response to or in anticipation of continued inflation concerns, could continue to raise interest rates.

Other than with respect to our LIBOR Debt and debt incurred pursuant to our credit facility, we intend to mitigate these risks through long-term fixed interest rate loans and interest rate hedges.

Cash Distribution Policy

We have elected to be taxed as a REIT under the Internal Revenue Code of 1986, as amended.

Accordingly, to qualify as a REIT, we must, among other things, meet a number of organizational and operational requirements, including a requirement

that we distribute currently at least 90% of our ordinary taxable income to our stockholders.

It is our current intention to comply with these requirements and maintain our REIT status.

As a REIT, we generally will not be subject to corporate federal, state or local income taxes on taxable income we distribute currently (in accordance with the Internal Revenue Code and applicable regulations) to our stockholders.

If we fail to qualify as a REIT in any taxable year, we will be subject to federal, state and local 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 may be subject to certain state and local taxes on our income and to federal income taxes on our undistributed taxable income ( i.e.

, taxable income not distributed in the amounts and in the time frames prescribed by the Internal Revenue Code and applicable regulations thereunder) and are subject to Federal excise taxes on our undistributed taxable income.

It is our intention to pay to our stockholders within the time periods prescribed by the Internal Revenue Code no less than 90%, and, if possible, 100% of our annual taxable income, including taxable gains from the sale of real estate.

It will continue to be our policy to make sufficient distributions to stockholders in order for us to maintain our REIT status under the Internal Revenue Code.

Our board of directors will continue to evaluate, on a quarterly basis, the amount of dividend payments based on its assessment of, among other things, our short and long-term cash and liquidity requirements, prospects, debt maturities, net income, funds from operations, and adjusted funds from operations.

Critical Accounting Estimates

Our significant accounting policies are more fully described in note 1 to our consolidated financial statements.

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Our estimates consider available evidence including the present value of the expected future cash flows discounted at market rates, general economic conditions and other relevant factors.

We did not record any impairments related to our equity-method investments for the years ended December 31, 2020 and 2019.

In 2021, we recorded an impairment related to our equity investment in the OPOP Properties.

This property was sold in November 2021.

Carrying Value of Real Estate Portfolio

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Any impairment taken with respect to our real estate assets reduces our net income, assets and stockholders' equity to the extent of the amount of the allowance, but it will not affect our cash flow until such time as the property is sold.

Revenue Recognition

Rental revenue from residential 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.

Purchase Price Allocations

We allocate the purchase price of properties, including acquisition costs and assumed debt, when appropriate, to the tangible and identified intangible assets and liabilities acquired based on their relative fair values.

In making estimates of fair values for purposes of allocating purchase price, we use a number of sources, including independent appraisals that may be obtained in connection with the acquisition or financing of the respective property, our own analysis of recently acquired and existing comparable properties in our portfolio and other market data.

In making estimates of fair

values for purposes of allocating purchase price, we use a number of sources, including independent appraisals that may be obtained in connection with the acquisition or financing of the respective property, our own analysis of recently acquired and existing comparable properties in our portfolio and other market data.

We also consider information obtained about each property as a result of its pre-acquisition due diligence, marketing and leasing activities in estimating the fair value of the tangible and intangible assets acquired.

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Quantitative and Qualitative Disclosures About Market Risk.

Our junior subordinated notes bear interest at the rate of three-month LIBOR plus 200 basis points.

A 100 basis point increase in the rate would result in an increase in interest expense in 2022 of $374,000 and a 100 basis point decrease in the rate would result in a $77,000 decrease in interest expense in 2022.

Financial Statements and Supplementary Data.

The information required by this item appears in a separate section of this Report following Part IV.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

Not applicable.

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-K

Item 7. Management’s Discussion and Analysis