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," "apparent," "experiencing," 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 the 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 and the governmental and non-governmental responses thereto; • 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 ancillary revenues, or increasing vacancy rates; 23 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 successfully evaluate, finance, complete and integrate acquisitions, including the acquisitions of the interests of our joint venture partners in unconsolidated subsidiaries; • 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, or obtain waivers of, the provisions of, 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, 2021 (the "Annual Report"), including those factors set forth under the sections of such reports, as applicable, entitled " Cautionary Statement Regarding Forward-Looking Statements," "Risk Factors," "Business," and "Management's Discussion and Analysis of Financial Condition and Results of Operations" . We caution you not to rely on forward-looking statements since they involve known and unknown risks, uncertainties and other factors which are, in some cases, beyond our control, and which could materially affect actual results, performance or achievements. Except to the extent otherwise required by applicable law or regulation, we undertake no obligation to update 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. Overview 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 by unconsolidated joint ventures in which we generally contribute a significant portion of the equity. At June 30, 2022, we: (i) wholly-own sixteen multi-family with an aggregate of 3,848 units and a carrying value of $445.9 million; (ii) have ownership interests, through unconsolidated entities, in 14 multi-family properties with 4,557 units and a carrying value of $76.7 million; and (iii) have a 17.45% interest in a 240-unit multi-family development property with a carrying value of $3.0 million 24 Table of Contents (excluding $500,000 held in escrow). The 31 properties are located in 11 states; most of the properties are located in the Southeast United States and Texas. See " -Other Financing Sources And Arrangements " for information regarding the contributions to, and our reliance on, the cash flow and liquidity provided by the properties owned by our unconsolidated subsidiaries. Challenges and Uncertainties Presented by COVID-19 The pandemic did not have a direct material adverse effect on our financial condition and results of operations; however, there were some direct 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. Buyout of Interests in Joint Ventures Over the past nine months, our efforts have been focused on purchasing the remaining interests of our joint venture partners in the unconsolidated ventures that own multi-family properties. We refer to such purchases and the related effects on our financial statements (as described below), as the “Partner Buyouts”. In 2021, the six months ended June 30, 2022 and subsequent thereto, we completed three, six and five Partner Buyouts, respectively. After a Partner Buyout is completed, such multi-family property is wholly owned and the accounts and operations of such property are included in our consolidated balance sheet and statements of operations, respectively, as of the date of completion of such purchase. Our assets, liabilities, revenues and expenses have increased significantly as a result of these Partner Buyouts. Had the 11 properties included in the Partner Buyouts completed in 2022 been included as of January 1, 2022 in our consolidated statements of operations, such properties would have contributed, for the six months ended June 30, 2022, an aggregate of $17.5 million of rental income and $16.4 million of expense (including $4.3 million of mortgage interest expense and $4.8 million of depreciation expense). Completed Purchases of the Remaining Interests of Joint Venture Partners Set forth below is information regarding the Partner Buyouts completed during the periods indicated below. Except as otherwise indicated, the mortgage debt reflects the debt that was on such property at the time of the purchase of the remaining interest. The purchase price gives effect to our purchase of the joint venture partners' "promote interests" (as more fully described in the Annual Report) (dollars in thousands): During the Three Months Ended June 30, 2022 Property Name Location Units Percent Acquired Purchase Price (1) Mortgage Debt (2) Closing Date Interest Rate Maturity Vanguard Heights Creve Couer, MO 174 21.6 % $ 4,880 $ 29,700 April 2022 4.41 % July 2031 Jackson Square Tallahassee, FL 242 20.0 % 7,215 21,524 May 2022 4.19 % September 2027 Brixworth at Bridge Street (3) Huntsville, AL 208 20.0 % 10,697 11,147 May 2022 4.25 % June 2032 Woodland Apartments Boerne, TX 120 20.0 % 3,881 7,905 May 2022 4.74 % February 2026 Grove at River Place (4) Macon, GA 240 20.0 % 7,485 11,426 June 2022 4.39 % February 2026 Total 984 $ 34,158 $ 81,702 ____________________________________ (1) Excludes closing costs and operating cash acquired from the joint ventures. (2) Excludes fair value adjustments of $945 determined as part of the purchase price allocation. (3) The original mortgage debt of $11,147 was refinanced with a new ten-year mortgage debt of $18,592 immediately following the buyout. (4) Includes a supplemental mortgage of $1,056 which was paid off immediately following the buyout. 25 Table of Contents Subsequent to the quarter ended June 30, 2022, the Company completed the purchase of partners' remaining interests in five joint ventures that own the properties identified below: Property Name Location Units Percent Acquired Purchase Price Closing Date Estimated Amount of Debt to be Included on our Consolidated Balance Sheet (1) Maturity Interest Rate Civic Center I Southaven, MS 392 25% $ 18,233 July 12, 2022 $ 27,429 March 2026 4.24 % Civic Center II Southaven, MS 384 25% 17,942 July 12, 2022 30,153 September 2026 3.73 % Abbotts Run Willmington, NC 264 0.20 9,010 July 14, 2022 23,160 July 2030 4.71 % Somerset at Trussville Birmingham, AL 328 20% 10,558 July 19, 2022 32,250 June 2029 4.19 % Magnolia Pointe at Madison Madison, AL 204 20% 7,246 Aug 3, 2022 15,000 January 2028 4.08 % Total 1,572 $ 62,989 $ 127,992 (1) Excludes fair value adjustments to be determined as part of the purchase price allocations Joint Venture Property Dispositions Completed Dispositions On June 14, 2022, the unconsolidated joint venture that owns Retreat at Cinco Ranch, located in Katy, Texas and in which we hold a 75% equity interest, sold the property for $68.3 million, recognized a $30.6 million gain on the sale of this property and recorded a $1.1 million mortgage prepayment charge. As a result of the sale, we recorded a $17.4 million gain and $686,000 mortgage prepayment charge, representing our share of the gain and the mortgage prepayment charge, respectively. The mortgage debt securing the property and paid off in connection with the sale was in principal amount of $30.1 million, with a remaining term to maturity of 3.6 years and an interest rate of 4.44%. In 2021, this property contributed $336,000 of equity in loss of unconsolidated joint ventures. On June 30, 2022, the unconsolidated joint venture that owns The Vive, a 312-unit multi-family property located in Kannapolis, NC, in which we hold a 65% equity interest, sold the property for $91.3 million, recognized a $47.1 million gain on the sale of this property and recorded a $1.6 million mortgage prepayment charge. As a result of the sale, we recorded a $22.7 million gain and $787,000 share of the mortgage prepayment charge, representing our share of the gain and the mortgage prepayment charge, respectively. The mortgage debt securing the property and paid off in connection with the sale was in principal amount of $31.4 million, with a remaining term to maturity of 29.7 years and an interest rate of 3.52%. In 2021, this property contributed $77,000 of equity in earnings of unconsolidated joint ventures. Anticipated Dispositions On June 20, 2022, an unconsolidated joint venture in which we hold an 80% equity interest entered into an agreement to sell Waters Edge at Harbison, a 204-unit multi-family property located in Columbia, SC, for a sales price of approximately $32.4 million. We anticipate that this transaction, which is subject to the satisfaction of customary closing conditions, will be completed in August/September 2022, and we estimate that we will recognize a gain on the sale of this property of approximately $11.5 million, and an approximate $263,000 mortgage prepayment charge, representing our share of the gain and the mortgage prepayment charge, respectively. As of June 30, 2022, this property had mortgage debt of $12.3 million with a remaining term to maturity of 4.2 years and an interest rate of 4.28%. In 2021, this property contributed $66,000 of equity in loss of unconsolidated joint ventures. Other Activities During the Three Months Ended June 30, 2022 Dividend increase We increased our quarterly dividend by to $0.25, an increase of 8.7% from the immediately preceding dividend payment. This dividend was payable on July 8, 2022. Sale of Common Stock Pursuant to the ATM Program 26 Table of Contents We sold 137,477 shares pursuant to our at-the-market offering program at an average price of $22.75 per share. Net proceeds after commissions and fees was $3.1 million. Equity Incentive Program Activity In June 2022, we awarded to 16 individuals restricted stock units (“RSUs”) and related dividend equivalent rights to acquire an aggregate of up to 212,69 shares of common stock,. Generally, the awards vest in 2025 subject to satisfaction of, among other things, market and performance conditions similar to the RSUs granted in 2021. See note 3 to our consolidated financial statements. Dividend Reinvestment Plan See Note 3 to our consolidated financial statements for information regarding our dividend reinvestment plan. Results of Operations – Three months ended June 30, 2022 compared to three months ended June 30, 2021. As used herein, the term "same store properties" refers to operating properties that were owned for the entirety of the periods presented. For the three and six months ended June 30, 2022 and 2021, there were seven same store properties in our consolidated portfolio. Revenues The following table compares our revenues for the periods indicated: Three Months Ended June 30, (Dollars in thousands): 2022 2021 Increase (Decrease) % Change Rental and other revenue from real estate properties $ 14,683 $ 6,958 $ 7,725 111.0 % Other income 2 3 (1) (33.3) % Total revenues $ 14,685 $ 6,961 $ 7,724 111.0 % Rental and other revenue from real estate properties The increase is due to the following changes: • $7.5 million due to the Partner Buyouts, including $1.8 million from the Partner Buyouts completed during the three months ended June 30, 2022; and • $683,000 primarily due to an increase in average rental rates at same store properties. Offsetting the increase is a $423,000 decrease due to the sale of the Kendall Manor property in May 2021 (the "Kendall Sale"). Expenses The following table compares our expenses for the periods indicated: Three Months Ended June 30, (Dollars in thousands) 2022 2021 Increase (Decrease) % Change Real estate operating expenses $ 6,348 $ 3,166 $ 3,182 100.5 % Interest expense 2,912 1,609 1,303 81.0 % General and administrative 3,533 3,154 379 12.0 % Impairment charge — 520 (520) N/M Depreciation and amortization 5,010 1,416 3,594 253.8 % Total expenses $ 17,803 $ 9,865 $ 7,938 80.5 % 27 Table of Contents Real estate operating expense. The increase is due primarily to: • $3.3 million relating to the Partner Buyouts, including $731,000 from the Partner Buyouts completed during the three months ended June 30, 2022; and • $279,000 at same store properties due to a $93,000 increase in replacement costs and a $186,000 increase across other expense categories. The increase was offset by a decline of $357,000 due to the Kendall Sale. Interest expense. The change is due to a $1.6 million increase from the Partner Buyouts, including $618,000 from the Partner Buyouts completed during the three months ended June 30, 2022. This was offset by decreases of $354,000 due to the payoff of $31.9 million of mortgage debt in 2021, $208,000 due to the payoff of the Avalon Debt ( i.e., $14.6 million of mortgage debt on Avalon Apartments - Pensacola, FL) in the three months ended March 31, 2022 and $107,000 due to the Kendall Sale. We anticipate that our interest expense will increase due to the Partner Buyouts, the increasing interest rate on our junior subordinated notes and the increase in borrowings from, and the interest rate on, our credit facility. See Item 3 " Quantitative and Qualitative Disclosures About Market Risks " for information regarding the impact of changing interest rates on our floating rate junior subordinated notes. General and administrative. The increase is due primarily to a $431,000 increase in non-cash compensation expense including increases of: • $216,000 due to the inclusion, for the entire three months ended June 30, 2022 of the amortization expense related to the performance and market based restricted stock units (the "RSUs") granted in June 2021; • $111,000 due to the inclusion, for the entire three months ended June 30, 2022, of the amortization expense with respect to the restricted stock granted in June 2021; and • $104,000 due to the amortization expense related to restricted stock granted in January 2022 (as a result of the higher fair value of the shares granted in 2021 in comparison to the restricted stock granted in 2017). Offsetting this increase was a reduction of professional fees of $182,000 due primarily to the inclusion, in the corresponding period of the prior year, of costs related to a terminated stock offering. Impairment charge In the three months ended June 30, 2021, we recorded an impairment charge of $520,000 representing the excess of the book value of our investment in the Opop Tower and Loft properties, St Louis, MO, over the anticipated selling price of the investment. There was no comparable charge in the current period. Depreciation and amortization The increase is due primarily to $3.6 million from the Partner Buyouts, including $ 870,000 from the Partner Buyouts completed during the three months ended June 30, 2022. Loss on extinguishment of debt In the three months ended June 30, 2022, we incurred a $563,000 of loss on extinguishment of debt in connection with the refinance of a mortgage that occurred in connection with a Partner Buyout. There was no comparable expense in the corresponding period of the prior year. Income tax provision In the three months ended June 30, 2022, income tax provision increased to $724,000 from $67,000 in the corresponding period of the prior years due to an increase in state level taxes accrued, the result of higher income in the current period and the reduction in certain states in net operating loss carryforwards available to offset the income. 28 Table of Contents Unconsolidated Joint Ventures - Results of Operations Equity in earnings (loss) of unconsolidated joint ventures. The table below reflects the condensed income statements of our Unconsolidated Properties. In accordance with US generally accepted accounting principles, each of the line items in the chart below (other than equity in income (loss) of unconsolidated joint ventures and equity in earnings from sale of unconsolidated joint ventures) is presented as if these properties are wholly owned by us although our equity interests in these properties ranges from 17.45% to 80% (see note 8 of our consolidated financial statements) (dollars in thousands): Three Months Ended June 30, 2022 2021 Increase (Decrease) % change Rental and other revenues from unconsolidated joint ventures $ 22,107 $ 33,005 $ (10,898) (33.0) % Real estate operating expense from unconsolidated joint ventures 9,842 15,233 (5,391) (35.4) % Interest expense from unconsolidated joint ventures 4,893 8,472 (3,579) (42.2) % Depreciation from unconsolidated joint ventures 5,208 9,791 (4,583) (46.8) % Total expenses from unconsolidated joint ventures 19,943 33,496 (13,553) (40.5) % Total revenues less total expenses from unconsolidated joint ventures 2,164 (491) 2,655 540.7 % Other equity earnings 22 5 17 340.0 % Impairment of assets from unconsolidated joint ventures — (490) 490 N/A Insurance recoveries from unconsolidated joint ventures — 490 (490) N/A Gain on insurance recoveries from unconsolidated joint ventures 52 — 52 N/A Loss on extinguishment of debt from unconsolidated joint ventures (2,888) — (2,888) N/A Gain on sale of real estate from unconsolidated joint ventures 77,681 — 77,681 N/A Net income (loss) from unconsolidated joint ventures $ 77,031 $ (486) $ 77,517 N/A Equity in earnings (loss) of unconsolidated joint ventures and equity in earnings from sale of unconsolidated joint venture properties $ 40,048 $ (492) $ 40,540 Set forth below is an explanation of the most significant changes in the components of the equity in earnings (loss) of unconsolidated joint ventures. Same store properties at Unconsolidated Properties represent 14 properties that were owned for the entirety of the periods being compared. Rental and other revenues from unconsolidated joint ventures The decrease is composed of : • $6.0 million from the Partner Buyouts, including a net $1.4 million from the Partner Buyouts effected during the three months ended June 30, 2022; • $4.7 million from the sale in 2021 of the properties by the unconsolidated joint ventures which owned The Avenue Apartments-Ocoee, FL and Parc at 980-Lawrenceville, GA (collectively, the "Avenue/Parc Sales"); • $916,000 from the sale in 2021 of the properties owned by the unconsolidated joint ventures which owned Verandas at Shavano - San Antonio, TX ("Shavano"), Retreat at Cinco Ranch - Katy, TX ("Cinco") and The Vive - Kanapolis, NC, (the "Vive"; collectively with Shavano and Cinco, the "Shavano/Cinco/Vive Sales"), and in particular, the sale of Shavano; and • $863,000 from the sale in 2021 of our interests in the unconsolidated joint ventures that owned Anatole Apartments-Daytona Beach, FL and Tower at Opop and Lofts at Opop-St. Louis, MO (collectively, the "Anatole/Opop Sales"). Offsetting the decrease was $1.6 million increase from same store sales, including $1.5 million from increased rental rates. 29 Table of Contents Real estate operating expenses from unconsolidated joint ventures The decrease is composed of: • $2.9 million from the Partner Buyouts, including $614,000 from the Partner Buyouts completed during the three months ended June 30, 2022; • $2.0 million from the Avenue/Parc Sales; • $697,000 from the Shavano/Cinco/Vive Sales, including $547,000 from the sale of Shavano; and • $540,000 from the Anatole/Opop Sales. Offsetting this decrease was a $762,000 increase in such expenses at same store properties, with expenses generally increasing across most expense categories including payroll, utilities and repairs and maintenance. Interest expense from unconsolidated joint ventures. The decrease is due to the decrease in mortgage debt due to property sales and the Partner Buyouts-in particular: • $1.7 million from the Partner Buyouts, including $551,000 from the Partner Buyouts completed during the three months ended June 30, 2022; • $1.1 million from the Avenue/Parc Sales; • $365,000 from the sale of Shavano and The Vive; and • $358,000 from the Anatole/Opop Sales. Depreciation from unconsolidated joint ventures The decrease is composed of: • $2.2 million from the Partner Buyouts, including $539,000 from the Partner Buyouts completed during the three months ended June 30, 2022; • $1.1 million from the Avenue/Parc Sale; • $898,000 from the Shavano/Cinco/Vive Sales; and • $371,000 from the Anatole/Opop Sales. Impairment of assets from unconsolidated joint ventures During the three months ended June 30, 2021, we recognized $490,000 of impairment charges at two properties located in Texas due to storm damage in 2021 (the "Texas Storm"); there were no comparable charges in the current period. Insurance recoveries from unconsolidated joint ventures During the three months ended June 30, 2021, we recognized $490,000 of insurance recoveries related to the impairment charges resulting from the Texas Storm; there were no comparable recoveries in the current period. Loss on extinguishment of debt See " - Completed Dispositions" for information about the loss on extinguishment of debt from the sales of Cinco and The Vive. There was no comparable loss in the three months ended June 30, 2021. Gain on sale of real estate from unconsolidated joint ventures See "- Completed Dispositions" for information about the gain from the sales of Cinco and The Vive. There was no comparable gain in the three months ended June 30, 2021. 30 Table of Contents Results of Operations – Six months ended June 30, 2022 compared to six months ended June 30, 2021. Revenues The following table compares our revenues for the periods indicated: Six Months Ended June 30, (Dollars in thousands): 2022 2021 Increase (Decrease) % Change Rental and other revenue from real estate properties 26,113 14,053 $ 12,060 85.8 % Other income 6 7 (1) (14.3) % Total revenues $ 26,119 $ 14,060 $ 12,059 85.8 % Rental and other revenue from real estate properties The increase is due to the following changes: • $11.9 million due to the Partner Buyouts including $3.1 million from the Partner Buyouts completed during the six months ended June 30, 2022; and • $1.2 million primarily due to an increase in average rental rates at same store properties. Offsetting the increase is a $1.2 million decrease due to the Kendall Sale. Expenses The following table compares our expenses for the periods indicated: Six Months Ended June 30, (Dollars in thousands) 2022 2021 Increase (Decrease) % Change Real estate operating expenses 11,101 6,283 $ 4,818 76.7 % Interest expense 4,933 3,269 1,664 50.9 % General and administrative 7,166 6,268 898 14.3 % Impairment charges — 520 (520) N/M Depreciation and amortization 8,616 2,953 5,663 191.8 % Total expenses 31,816 19,293 $ 12,523 64.9 % Real estate operating expense. The increase is due primarily to: • $5.2 million relating to the Partner Buyouts, including $1.4 million from the Partner Buyouts completed during the six months ended June 30, 2022; and • $503,000 at same store properties due to increases of $134,000 in replacement costs, $96,000 in payroll and costs and $273,000 across other expense categories. The increase was offset by a decline of $813,000 due to the Kendall Sale. Interest expense. The change is due to a (i) $2.9 million increase from the inclusion of interest expense related to the Partner Buyouts, including $905,000 from Partner Buyouts completed during the six months ended June 30, 2022 and (ii) $115,000 due to the increase in interest expense on our floating rate junior subordinated notes. The increase was offset by a $820,000 decrease due to the payoff of $31.9 million of mortgage debt in 2021, $280,000 related to the payoff of the Avalon Debt and $271,000 due to the Kendall Sale. See Item 3 " Quantitative and Qualitative Disclosures About Market Risks " for information regarding the impact of changing interest rates on our floating rate junior subordinated notes. 31 Table of Contents General and administrative. The increase is due to a: • $867,000 increase in non-cash compensation expense including increases of: – $429,000 due to the inclusion, for the entire six months ended June 30, 2022, of the amortization expense related to the RSUs granted in June 2021; – $254,000 due to the inclusion, for the entire six months ended June 30, 2022, of the amortization expense related to the restricted stock granted in June 2021; and – $184,000 due to the amortization expense related to the restricted stock granted in January 2022 (as a result of the higher fair value of the shares granted in 2022 in comparison to the restricted stock granted in 2017); and • $139,000 increase in cash compensation costs, including compensation allocated pursuant to the shared services agreement. The increase was offset by the inclusion, in the corresponding period of the prior year, of $230,000 of professional fees and other costs incurred in connection with a terminated stock offering. Impairment Charges In the corresponding period of the prior year, we recorded an impairment charge of $520,000 representing the excess of the book value of our investment in the Opop Tower and Loft properties, St Louis, MO, over the anticipated selling price of the investment. There was no comparable charge in the current period. Depreciation and amortization The increase is due primarily to the inclusion of $5.8 million of such expense from the Partner Buyouts, including $1.4 million from the Partner Buyouts completed during the six months ended June 30, 2022, offset by $123,000 from the Kendall Sale. Gain on Sale of Real Estate In the six months ended June 30, 2021, we recognized a $7.3 million gain on the Kendall Sale. There was no comparable gain in the six months ended June 30, 2022. Gain on Sales of Partnership Interest In the six months ended June 30, 2021, we sold our interest in a joint venture that owned Anatole Apartments - Daytona, Beach, FL and recognized a gain of $2.2 million. There was no comparable gain in the six months ended June 30, 2022. Loss on extinguishment of debt In the six months ended June 30, 2021, we incurred $563,000 of loss on extinguishment of debt with the refinance of a mortgage that took place with a Partner Buyout. There was no comparable expense in the corresponding period of the prior year. Income tax provision In the six months ended June 30, 2022 income tax provision increased to $798,000 from $124,000 in the corresponding period of the prior year due to an increase in state level taxes accrued, the result of higher income in the current period and the reduction in certain states in net operating loss carryforwards available to offset the income. 32 Table of Contents Unconsolidated Joint Ventures - Results of Operations Equity in earnings (loss) of unconsolidated joint ventures. The table below reflects the condensed income statements of our Unconsolidated Properties. In accordance with US generally accepted accounting principles, each of the line items in the chart below (other than equity in income (loss) of unconsolidated joint ventures) is presented as if these properties are wholly owned by us although our equity interests in these properties ranges from 17.45% to 80% (see note 8 of our consolidated financial statements) (dollars in thousands): Six Months Ended June 30, 2022 2021 Increase (Decrease) % change Rental and other revenues from unconsolidated joint ventures $ 47,338 $ 65,677 $ (18,339) (27.9) % Real estate operating expense from unconsolidated joint ventures 21,011 30,936 (9,925) (32.1) % Interest expense from unconsolidated joint ventures 10,919 16,994 (6,075) (35.7) % Depreciation from unconsolidated joint ventures 11,844 20,176 (8,332) (41.3) % Total expenses from unconsolidated joint ventures 43,774 68,106 (24,332) (35.7) % Total revenues less total expenses from unconsolidated joint ventures 3,564 (2,429) 5,993 246.7 % Other equity earnings 77 14 63 450.0 % Impairment of assets from unconsolidated joint ventures — (2,813) 2,813 N/A Insurance recoveries from unconsolidated joint ventures — 2,813 (2813) N/A Gain on insurance recoveries from unconsolidated joint ventures 567 — 567 N/A Loss on extinguishment of debt from unconsolidated joint ventures (2,918) — (2,918) N/A Gain on sale of real estate from unconsolidated joint ventures 101,333 — 101,333 N/A Net income (loss) from unconsolidated joint ventures 102,623 (2,415) $ 105,038 N/A Equity in earnings (loss) of unconsolidated joint ventures and equity in earnings from sale of unconsolidated joint venture properties $ 54,239 $ (1,837) $ 56,076 Set forth below is an explanation of the most significant changes in the components of the equity in earnings (loss) of unconsolidated joint ventures. Same store properties at Unconsolidated Properties represent 14 properties that were owned for the entirety of the periods being compared and excludes four properties, three of which were sold and the fourth which is the subject of the Consolidating Transaction. Rental and other revenues from unconsolidated joint ventures The decrease is composed of : • $9.2 million from the Avenue/Parc Sales; • $9.2 million from the Partner Buyouts, including $2.1 million from the Partner Buyouts completed during the six months ended June 30, 2022; • $2.2 million from the Anatole/Opop Sales; and • a net $1.1 million, primarily due to the sale of Shavano. Offsetting the decrease was $3.5 million increase from same store sales, including $2.8 million from increased rental rates, $584,000 from increased occupancy, and $136,000 from increased ancillary fees. 33 Table of Contents Real estate operating expenses from unconsolidated joint ventures The decrease is composed of: • $4.5 million from the Partner Buyouts, including $973,000 from the Partner Buyouts completed during the six months ended June 30, 2022; • $3.9 million from the Avenue/Parc Sales; • $1.4 million from the Anatole/Opop Sales; and • $870,000 from the sales of Shavano and Cinco, including $786,000 from the sale of Shavano. Offsetting this decrease was a $782,000 increase in such expenses at same store properties, resulting from increases in payroll, utilities and repairs and maintenance. Interest expense from unconsolidated joint ventures. The decrease is due to the decrease in mortgage debt due to property sales and the Partner Buyouts-in particular: • $2.7 million from the Partner Buyouts, including $840,000 from the Partner Buyouts completed during the six months ended June 30, 2022; • $2.2 million from the Avenue/Parc Sales; • $822,000 from the Anatole/Opop Sales; and • $322,000 from the sales of Shavano and Cinco. Depreciation from unconsolidated joint ventures The decrease is composed of: • $3.7 million from the Partner Buyouts, including $917,000 from the Partner Buyouts completed during the six months ended June 30, 2022; • $2.4 million from the Avenue/Parc Sale; • $1.2 million from the Shavano/Cinco/Vive Sales; and • $882,000 from the Anatole/Opop Sales Impairment of assets from unconsolidated joint ventures During the six months ended June 30, 2021, we recognized $2.8 million of impairment charges at three properties located in Texas due to storm damage in 2021 (the "Texas Storm"); there were no comparable charges in the current period. Insurance recoveries from unconsolidated joint ventures During the six months ended June 30, 2021, we recognized $2.8 million of insurance recoveries related to the impairment charges resulting from the Texas Storm; there were no comparable recoveries in the current period. Gain on insurance recoveries from unconsolidated joint ventures . In the six months ended June 30, 2022, we recognized $567,000 in gains primarily due to the fact that the amounts we received on claims related to insurance recoveries from the Texas Storm exceeded the assets previously written-off. Loss on early extinguishment of debt from unconsolidated joint ventures See "- Completed Dispositions " for information about the loss on extinguishment of debt from the sales of Cinco and The Vive. There was no comparable charge in the six months ended June 30, 2021. Gain on sale of real estate from unconsolidated joint ventures See "- Completed Dispositions" for information about the gain from the Shavano/Cinco/Vive Sales. There was no comparable gain in the six months ended June 30, 2021. 34 Table of Contents Liquidity and Capital Resources We require funds to pay operating expenses and debt service obligations, acquire properties (including the acquisition of interests of our joint venture partners) , make capital and other 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 are the operations of our multi-family properties (including distributions from the operations of our multi-family joint ventures and distributions from sale transactions), mortgage debt financings and re-financings, 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 June 30, 2022 and August 5, 2022, our cash and cash equivalents, were approximately $57.0 million and $13.9 million, respectively, and excludes funds held at our unconsolidated joint ventures. We anticipate that from July 1, 2022 through 2024, our operating expenses, $93.4 million of mortgage amortization and interest expense (including $56.3 million from unconsolidated joint ventures), and $14.9 million of balloon payments due with respect to mortgages maturing from 2022 to 2024, estimated cash dividend payments of at least $46.8 million (assuming (i) the current quarterly dividend rate of $0.25 per share and (ii) 18.7 million shares outstanding), will be funded from cash generated from operations (including distributions from unconsolidated joint ventures), sales of properties and, to the extent available, our credit facility. Our operating cash flow and available cash is insufficient to fully fund the $14.9 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. At June 30, 2022 , we had mortgage debt of $689.9 million (including $390.0 million of mortgage debt of our unconsolidated subsidiaries). The mortgage debt at our: (i) consolidated subsidiaries had a weighted average interest rate of 3.91% and a weighted average remaining term to maturity of approximately 9.15 years, and (ii) at our unconsolidated subsidiaries had a weighted average interest rate of 4.00% and a remaining term to maturity of approximately 6.25 years. Capital improvements at (i) nine multi-family properties will be funded by approximately $4.8 million of restricted cash available at June 30, 2022 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. Junior Subordinated Notes As of June 30, 2022, $37.4 million (excluding deferred costs of $287,000) 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 August 5, 2022, June 30, 2022 and 2021, the interest rate on these notes was 4.78%, 3.29% and 2.19%, respectively. Credit 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, $22 million is outstanding on the credit facility and $13 million is 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. At June 30, 2022, we were in compliance in all material respects with the requirements of the facility. 35 Table of Contents Other Financing Sources and Arrangements At June 30, 2022, we are joint venture partners in unconsolidated joint ventures which own 15 multi-family properties (including a development project) and the distributions to us from these joint venture properties ($54.9 million (including $51.7 million from the sale of two properties) in the quarter ended June 30, 2022) 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 June 30, 2022, these joint venture properties have a net equity carrying value of $79.8 million and are subject to net mortgage debt, which is not reflected on our consolidated balance sheet, of $390.0 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 8 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, 2021 was approximately $36.0 million and we anticipate applying this amount to offset income generated in 2022. On July 8, 2022, we paid a quarterly cash dividend of $0.25 per share. We carefully monitor our discretionary spending. Our largest recurring discretionary expenditure has been our quarterly dividend (which was $0.25 per share of common stock, or in the approximate amount of $4.7 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, and adjusted funds from operations. Application of Critical Accounting Estimates A complete discussion of our critical accounting estimates is included in our Annual Report. There have been no significant changes in such estimates since December 31, 2021. 36 Table of Contents Funds from Operations; Adjusted Funds from Operations; Net Operating Income We disclose below funds from operations (“FFO”), adjusted funds from operations (“AFFO”) and net operating income ("NOI") 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. 37 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 June 30, Six Months Ended June 30, 2022 2021 2022 2021 GAAP Net income attributable to common stockholders $ 35,607 $ 6,027 $ 47,115 $ 2,262 Add: depreciation of properties 5,010 1,416 8,616 2,953 Add: our share of depreciation in unconsolidated joint venture properties 3,259 6,276 7,577 12,875 Add: Impairment charge — 520 — 520 Add: our share of impairment charge in unconsolidated joint venture properties — 348 — 2,010 Deduct: our share of equity in earnings from sale of unconsolidated joint venture properties (40,098) — (53,059) — Deduct: gain on sale of real estate and partnership interests — (9,523) (6) (9,523) Adjustments for non-controlling interests (4) (4) (8) (8) NAREIT Funds from operations attributable to common stockholders 3,774 5,060 10,235 11,089 Adjustments for: straight-line rent accruals 6 (10) 12 (20) Add: loss on extinguishment of debt 563 — 563 — Add: our share of loss on extinguishment of debt from unconsolidated joint venture properties 1,473 — 1,492 — Add: amortization of restricted stock and RSU expense 1,001 569 1,975 1,107 Add: amortization of deferred mortgage and debt costs 102 73 179 153 Add: our share of deferred mortgage costs from unconsolidated joint venture properties 73 143 166 291 Less: our share of insurance recovery — (348) — (2,010) Less: our share of gain on insurance proceeds from unconsolidated joint venture properties (46) — (432) — Adjustments for non-controlling interests (1) 2 (2) 4 Adjusted funds from operations attributable to common stockholders $ 6,945 $ 5,489 $ 14,188 $ 10,614 38 Table of Contents Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 Net income (loss) attributable to common stockholders $ 1.91 $ 0.34 $ 2.53 $ 0.13 Add: depreciation of properties 0.26 0.09 0.46 0.17 Add: our share of depreciation in unconsolidated joint venture properties 0.17 0.35 0.41 0.73 Add: Impairment charge — 0.03 — 0.03 Add: our share of impairment charge in unconsolidated joint venture properties — 0.02 — 0.11 Deduct: our share of equity in earnings from sale of unconsolidated joint venture properties (2.14) — (2.85) — Deduct: gain on sale of real estate and partnership interests — (0.54) — (0.54) Adjustment for non-controlling interests — — — — NAREIT Funds from operations per diluted common share 0.20 0.29 0.55 0.63 Adjustments for: straight line rent accruals — — — — Add: loss on extinguishment of debt 0.03 — 0.03 — Add: our share of loss on extinguishment of debt from unconsolidated joint venture properties 0.08 — 0.08 — Add: amortization of restricted stock and RSU expense 0.05 0.03 0.10 0.06 Add: amortization of deferred mortgage and debt costs 0.01 — 0.01 0.01 Add: our share of deferred mortgage and debt costs from unconsolidated joint venture properties — 0.01 0.01 0.02 Less: our share of insurance recovery from unconsolidated joint venture properties — (0.02) — (0.11) Less: our share of gain on insurance proceeds from unconsolidated joint venture properties — — (0.02) — Adjustments for non-controlling interests — — — — Adjusted funds from operations per diluted common share $ 0.37 $ 0.31 $ 0.76 $ 0.61 Diluted shares outstanding for FFO and AFFO 18,661 17,320 18,616 17,521 Three Months Ended June 30, 2022 and 2021 FFO for the three months ended June 30, 2022 decreased from the corresponding quarter in the prior year primarily due to increases in mortgage prepayment charges, state income taxes and non-cash compensation expense, and a decrease in insurance recoveries. The decrease was offset by our share of reduced interest expense at our unconsolidated subsidiaries and improved operating margins at same store properties. AFFO for the three months ended June 30, 2022 increased from the three months ended June 30, 2021, primarily reflecting improved operating margins and our share of reduced interest expense at our unconsolidated subsidiaries, offset by the increase in state income tax. Diluted per share FFO and AFFO were impacted in the three months ended June 30, 2022 by a 1.3 million increase in the weighted average shares of common stock outstanding from the second quarter of 2021 through the current quarter, primarily due to stock issuances pursuant to our at-the market offering and our equity incentive programs. 39 Table of Contents Six Months Ended June 30, 2022 and 2021 - See " Results of Operations - Three Months Ended June 30, 2022 compared to three months ended June 30, 2021 ", for a discussion of these changes. FFO decreased for the six months ended June 30, 2022 from the corresponding period in the prior year primarily due to the inclusion in the six months ended June 30, 2021 of significant insurance recoveries, and in the six months ended June 30, 2022, increases in the early extinguishment of debt charges, restricted stock and RSU amortization expense, and state income tax expense. The decrease was offset by increased operating margins across our portfolio and our share of reduced interest expense at our unconsolidated subsidiaries. AFFO increased for the six months ended June 30, 2022 from the corresponding period in 2021 primarily due to the increased operating margins across our portfolio and our share of reduced interest expense at our unconsolidated subsidiaries, offset by increased income tax expense. Diluted per share FFO and AFFO were impacted in the six months ended June 30, 2022 by a 1.1 million increase in the weighted average shares of common stock outstanding from January 1, 2021 through the current quarter, primarily due to stock issuances pursuant to our at-the-market offering and equity incentive programs. See - " Results of Operations - Six Months Ended June 30, 2022 compared to the six months ended June 30, 2021" , for a discussion of these changes. 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): 40 Table of Contents Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 GAAP Net income attributable to common stockholders $ 35,607 $ 6,027 $ 47,115 $ 2,262 Less: Other Income (2) (3) (6) (7) Add: Interest expense 2,912 1,609 4,933 3,269 General and administrative 3,533 3,154 7,166 6,268 Impairment charge — 520 — 520 Depreciation 5,010 1,416 8,616 2,953 Provision for taxes 724 67 798 124 Less: Gain on sale of real estate — (7,279) (6) (7,279) Gain on sale of partnership interest — (2,244) — (2,244) Equity in earnings from sale of unconsolidated joint venture properties (40,098) — (53,059) — Add: Loss on extinguishment of debt 563 — 563 — Adjust for: Equity in (earnings) loss of unconsolidated joint venture properties 50 492 (1,180) 1,837 Add: Net income attributable to non-controlling interests 36 33 72 67 Net Operating Income $ 8,335 $ 3,792 $ 15,012 $ 7,770 Less: Non-same store Net Operating Income (loss) $ 4,452 $ 313 $ (7,293) $ (845) Same store Net Operating Income $ 3,883 $ 3,479 $ 7,719 $ 6,925 For the three months ended June 30, 2022, NOI increased $4.5 million from the corresponding period in 2021 primarily due to a $7.7 million increase in rental revenues (and in particular, the impact of the Partner Buyouts) offset by a $3.2 million increase, primarily from the Partner Buyouts, in real estate operating expenses. Same store NOI in the three months ended June 30, 2022 increased by $404,000 from the corresponding period in 2021, due to a $683,000 increase in rental revenues (and in particular, the increase in average rental rates) offset by a $279,000 increase in real estate operating expenses. See "-Results of Operations - Three Months Ended June 30, 2022 Compared to the three Months ended June 30, 2021 " for a discussion of these changes. For the six months ended June 30, 2022, NOI increased $7.2 million from the corresponding period in 2021 primarily due to a $12.1 million increase in rental revenues (and in particular, the impact of the Partner Buyouts) offset by a $4.8 million increase, primarily from the Partner Buyouts, in real estate operating expenses. Same store NOI in the six months ended June 30, 2022, increased by $794,000 from the corresponding period in 2021, due to a $1.3 million increase in rental revenues (and in particular, the increase in average rental rates) offset by a $503,000 increase in real estate operating expenses. See "-Results of Operations - Six Months Ended June 30, 2022 Compared to the Three Months Ended June 30, 2021 " for a discussion of these changes. 41 Table of Contents