BRT Apartments Corp. 10-Q

Item 1. Financial Statements BRT APARTMENTS CORP. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Amounts in thousands, except per share data) September 30, 2022 December 31, 2021 (unaudited) (audited) ASSETS Real estate properties, net of accumulated depreciation and amortization of $ 49,008 and $ 36,467 $ 655,645 $ 293,550 Investments in unconsolidated joint ventures 43,759 112,347 Cash and cash equivalents 21,865 32,339 Restricted cash 872 6,582 Other assets 21,518 10,341 Real estate property held for sale — 4,379 Total Assets $ 743,659 $ 459,538 LIABILITIES AND EQUITY Liabilities: Mortgages payable, net of deferred costs of $ 4,327 and $ 980 $ 419,115 $ 199,877 Junior subordinated notes, net of deferred costs of $ 282 and $ 297 37,118 37,103 Credit facility, net of deferred costs of $ 551 and $ — 6,449 — Accounts payable and accrued liabilities 23,862 19,607 Total Liabilities 486,544 256,587 Commitments and contingencies Equity: BRT Apartments Corp. stockholders' equity: Preferred shares $ 0.01 par value 2,000 shares authorized, none outstanding — — Common stock, $ 0.01 par value, 300,000 shares authorized; 17,973 and 17,349 shares outstanding 180 173 Additional paid-in capital 271,904 258,161 Accumulated deficit ( 14,952 ) ( 55,378 ) Total BRT Apartments Corp. stockholders’ equity 257,132 202,956 Non-controlling interest ( 17 ) ( 5 ) Total Equity 257,115 202,951 Total Liabilities and Equity $ 743,659 $ 459,538 See accompanying notes to consolidated financial statements. 3 Table of Contents BRT APARTMENTS CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (Amounts in thousands, except shares and per share data) Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 Revenues: Rental and other revenue from real estate properties $ 21,691 $ 7,709 $ 47,804 $ 21,762 Other income 6 5 12 12 Total revenues 21,697 7,714 47,816 21,774 Expenses: Real estate operating expenses - including $ 9 and $ 8 to related parties for the three months ended and $ 28 and $ 23 for the nine months ended 9,195 3,404 20,296 9,687 Interest expense 5,061 1,535 9,994 4,804 General and administrative - including $ 183 and $ 172 to related parties for the three months ended and $ 614 and $ 523 for the nine months ended 3,673 3,114 10,839 9,382 Impairment charge — — — 520 Depreciation and amortization 8,165 1,787 16,781 4,740 Total expenses 26,094 9,840 57,910 29,133 Total revenues less total expenses ( 4,397 ) ( 2,126 ) ( 10,094 ) ( 7,359 ) Equity in earnings (loss) of unconsolidated joint ventures 135 ( 4,196 ) 1,315 ( 6,033 ) Equity in earnings from sale of unconsolidated joint ventures properties 11,472 34,982 64,531 34,982 Gain on sale of real estate — 414 6 7,693 Gain on sale of partnership interest — — — 2,244 Gain on insurance recoveries 62 — 62 — Loss on extinguishment of debt — ( 902 ) ( 563 ) ( 902 ) Income from continuing operations 7,272 28,172 55,257 30,625 Income tax provision 178 31 976 155 Net income from continuing operations, net of taxes 7,094 28,141 54,281 30,470 Net income attributable to non-controlling interest ( 35 ) ( 35 ) ( 107 ) ( 102 ) Net income attributable to common stockholders $ 7,059 $ 28,106 $ 54,174 $ 30,368 Weighted average number of shares of common stock outstanding: Basic 17,928,197 17,261,520 17,721,700 16,916,623 Diluted 17,994,457 17,292,988 17,784,362 16,992,974 Per share amounts attributable to common stockholders: Basic $ 0.37 $ 1.55 $ 2.91 $ 1.71 Diluted $ 0.37 $ 1.54 $ 2.89 $ 1.70 See accompanying notes to consolidated financial statements. 4 Table of Contents BRT APARTMENTS CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited) (Dollars in thousands) Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 Net income $ 7,094 $ 28,141 $ 54,281 $ 30,470 Other comprehensive income : Unrealized gain on derivative instruments — 12 — 22 Other comprehensive income — 12 — 22 Comprehensive income 7,094 28,153 54,281 30,492 Comprehensive (income) attributable to non-controlling interests ( 35 ) ( 37 ) ( 107 ) ( 106 ) Comprehensive income attributable to common stockholders $ 7,059 $ 28,116 $ 54,174 $ 30,386 See accompanying notes to consolidated financial statements. 5 Table of Contents BRT APARTMENTS CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EQUITY (Unaudited) (Dollars in thousands, except per share data) Common Stock Additional Paid-In Capital Accumulated Deficit Non- Controlling Interest Total Balances, December 31, 2021 $ 173 $ 258,161 $ ( 55,378 ) $ ( 5 ) $ 202,951 Distributions - common stock - $ 0.23 per share — — ( 4,305 ) — ( 4,305 ) Restricted stock and restricted stock units vesting 2 ( 2 ) — — — Compensation expense - restricted stock and restricted stock units — 974 — — 974 Shares issued through equity offering program, net 1 3,037 — — 3,038 Net income — — 11,508 36 11,544 Comprehensive income 11,544 Balances, March 31, 2022 $ 176 $ 262,170 $ ( 48,175 ) $ 31 $ 214,202 Distributions - common stock - $ 0.25 per share — — ( 4,723 ) — ( 4,723 ) Compensation expense - restricted stock and restricted stock units — 1,001 — — 1,001 Distributions to non-controlling interests — — — ( 60 ) ( 60 ) Shares issued through equity offering program, net 2 3,085 — — 3,087 Net income — — 35,607 36 35,643 Comprehensive income 35,643 Balances, June 30, 2022 $ 178 $ 266,256 $ ( 17,291 ) $ 7 $ 249,150 Distributions - common stock - $ 0.25 per share — — ( 4,720 ) — ( 4,720 ) Compensation expense - restricted stock and restricted stock units — 1,208 — — 1,208 Distributions to non-controlling interests — — — ( 59 ) ( 59 ) Shares issued through equity offering program, net 2 3,818 — — 3,820 Shares issues through DRIP — 622 — — 622 Net income — — 7,059 35 7,094 Comprehensive income 7,094 Balances, September 30, 2022 $ 180 $ 271,904 $ ( 14,952 ) $ ( 17 ) $ 257,115 6 Table of Contents BRT APARTMENTS CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EQUITY (Unaudited) (Dollars in thousands, except per share data) Common Stock Additional Paid-In Capital Accumulated Other Comprehensive income Accumulated Deficit Non- Controlling Interest Total Balances, December 31, 2020 $ 164 $ 245,605 $ ( 19 ) $ ( 67,978 ) $ ( 84 ) $ 177,688 Distributions - common stock - $ 0.22 per share — — — ( 4,011 ) — ( 4,011 ) Restricted stock vesting 4 ( 4 ) — — — — Compensation expense - restricted stock and restricted stock units — 538 — — — 538 Net (loss) income — — — ( 3,765 ) 34 ( 3,731 ) Other comprehensive income — — 4 — 1 5 Comprehensive loss ( 3,726 ) Balances, March 31, 2021 $ 168 $ 246,139 $ ( 15 ) $ ( 75,754 ) $ ( 49 ) $ 170,489 Distributions - common stock - $ 0.22 per share — — — ( 4,007 ) — ( 4,007 ) Compensation expense - restricted stock and restricted stock units — 569 — — — 569 Shares issued through equity offering program, net 4 7,345 — — — 7,349 Net income — — — 6,027 33 6,060 Other comprehensive income — — 4 — 1 5 Comprehensive income 6,065 Balances, June 30, 2021 $ 172 $ 254,053 $ ( 11 ) $ ( 73,734 ) $ ( 15 ) $ 180,465 Distributions - common stock - $ 0.22 per share — — — ( 4,233 ) — ( 4,233 ) Compensation expense - restricted stock and restricted stock units — 842 — — — 842 Shares issued through equity offering program, net 1 1,065 — — — 1,066 Net income — — — 28,106 35 28,141 Other comprehensive income — — 11 — 1 12 Comprehensive income 28,153 Balances, September 30, 2021 $ 173 $ 255,960 $ — $ ( 49,861 ) $ 21 $ 206,293 See accompanying notes to consolidated financial statements 7 Table of Contents BRT APARTMENTS CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (Dollars in Thousands) Nine Months Ended September 30, 2022 2021 Cash flows from operating activities: Net income $ 54,281 $ 30,470 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 16,781 4,740 Amortization of deferred financing costs 399 216 Amortization of debt fair value adjustment ( 28 ) — Amortization of restricted stock and restricted stock units 3,183 1,949 Equity in (earnings) loss of unconsolidated joint ventures ( 1,315 ) 6,033 Equity in earnings from sale of real estate of unconsolidated joint venture properties ( 64,531 ) ( 34,982 ) Impairment charge — 520 Gain on sale of real estate ( 6 ) ( 7,693 ) Gain on sale of partnership interest — ( 2,244 ) Gain on insurance recovery ( 62 ) — Loss on extinguishment of debt 563 902 Increases and decreases from changes in other assets and liabilities: Decrease in other assets 1,820 1,868 Decrease in accounts payable and accrued liabilities ( 2,635 ) ( 2,000 ) Net cash provided by (used in) operating activities 8,450 ( 221 ) Cash flows from investing activities: Improvements to real estate properties ( 4,151 ) ( 794 ) Purchase of investment in joint ventures ( 105,262 ) ( 22,420 ) Proceeds from the sale of real estate 4,385 24,632 Proceeds from the sale of partnership interest — 7,540 Distributions from unconsolidated joint ventures 89,476 58,312 Contributions to unconsolidated joint ventures ( 3,500 ) ( 6,031 ) Proceeds from insurance recoveries 62 — Net cash (used in) provided by investing activities ( 18,990 ) 61,239 Cash flows from financing activities: Proceeds from mortgages payable 18,953 — Mortgage payoffs ( 26,761 ) ( 46,963 ) Mortgage principal payments ( 1,475 ) ( 2,180 ) Proceeds from credit facility 22,000 — Repayment of credit facility ( 15,000 ) — Increase in deferred financing costs ( 672 ) ( 38 ) Dividends paid ( 13,136 ) ( 11,779 ) Distributions to non-controlling interests ( 119 ) — Proceeds from the sale of common stock 9,945 8,415 Proceeds from issuance of DRP shares 622 — Net cash used in financing activities ( 5,643 ) ( 52,545 ) 8 Table of Contents BRT APARTMENTS CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (Dollars in Thousands) Nine Months Ended September 30, 2022 2021 Net (decrease) increase in cash, cash equivalents and restricted cash: ( 16,184 ) 8,473 Cash, cash equivalents and restricted cash at beginning of period 38,921 28,685 Cash, cash equivalents and restricted cash at end of period $ 22,737 $ 37,158 Supplemental disclosure of cash flow information: Cash paid during the period for interest $ 9,169 $ 4,591 Cash paid for income taxes $ 291 $ 174 Consolidation on buyout of partnership interests: Increase in real estate assets $ ( 370,513 ) $ ( 85,301 ) Increase in other assets ( 17,489 ) ( 2,263 ) Increase in mortgage payable 231,896 52,000 Increase in deferred loan costs ( 3,892 ) ( 178 ) Increase in accounts payable and accrued liabilities 6,278 1,474 Decrease in investment in unconsolidated joint ventures 48,458 11,848 $ ( 105,262 ) ( 22,420 ) See accompanying notes to consolidated financial statements 9 Table of Contents BRT APARTMENTS CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (Dollars in Thousands) The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the consolidated balance sheets that sum to the total of the same such amounts shown in the consolidated statements of cash flows. September 30, 2022 2021 Cash and cash equivalents $ 21,865 $ 29,598 Restricted cash 872 7,560 Total cash, cash equivalents and restricted cash, shown in consolidated statement of cash flows $ 22,737 $ 37,158 10 Table of Contents BRT APARTMENTS CORP. AND SUBSIDIARIES Notes to Consolidated Financial Statements September 30, 2022 Note 1 – Organization and Background BRT Apartments Corp. (the "Company" or "BRT"), a Maryland corporation, owns, operates and, to a lesser extent, holds interest in joint ventures that own multi-family properties. The Company conducts its operations to qualify as a real estate investment trust, or REIT, for federal income tax purposes. These multi-family properties may be wholly owned by the Company (including its consolidated subsidiaries) or by unconsolidated joint ventures in which the Company generally contributes a significant portion of the equity. At September 30, 2022, the Company: (a) wholly owns 21 multi-family properties located in eleven states with an aggregate of 5,420 units and a carrying value of $ 653,716,000 ; (b) has interests, through unconsolidated entities, in eight multi-family properties located in four states with an aggregate of 2,781 units with a carrying value of $ 40,281,000 ; and (c) has a 17.45 % interest in a development project with a carrying value of $ 3,500,000 . BRT's equity interests in these unconsolidated entities range from 17.45 % to 80 %. Most of the Company's properties are located in the Southeast United States and Texas. The Company also owns and operates various other real estate assets. At September 30, 2022, the carrying value of the other real estate assets was $ 1,929,000 . Note 2 – Basis of Preparation The accompanying interim unaudited consolidated financial statements, reflect all normal recurring adjustments which, in the opinion of management, are necessary for a fair presentation of the results for such interim periods. The results of operations for the three and nine months ended September 30, 2022 and 2021, are not necessarily indicative of the results for the full year. The consolidated audited balance sheet as of December 31, 2021, has been derived from the audited financial statements at that date but does not include all the information and footnotes required by accounting principles generally accepted in the United States ("GAAP"). Accordingly, these unaudited statements should be read in conjunction with the Company's audited financial statements included in its Annual Report on Form 10-K for the year ended December 31, 2021 (the "Annual Report") filed with the Securities and Exchange Commission ("SEC"). The consolidated financial statements include the accounts and operations of the Company and its wholly-owned subsidiaries. The Company accounts for its investments in unconsolidated joint ventures under the equity method of accounting. For each venture, the Company evaluated the rights provided to each party in the venture to assess the consolidation of the venture. All investments in unconsolidated joint ventures have sufficient equity at risk to permit the entity to finance its activities without additional subordinated financial support and, as a group, the holders of the equity at risk have power through voting rights to direct the activities of these ventures. As a result, none of these joint ventures are variable interest entities ("VIEs"). Additionally, as determined in accordance with GAAP, the Company does not exercise substantial operating control over these entities, and therefore the entities are not consolidated. These investments are recorded initially at cost, as investments in unconsolidated joint ventures, and subsequently adjusted for their share of equity in earnings, cash contributions and distributions. The distributions to each joint venture partner are determined pursuant to the applicable operating agreement and may not be pro-rata to the percentage equity interest each partner has in the applicable venture. The joint venture that owns a property in Yonkers, New York, was determined not to be a VIE but is consolidated because the Company has controlling rights in such entity. The preparation of the financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements. Actual results could differ from those estimates. Substantially all of the Company's assets are comprised of multi- family real estate assets generally leased to tenants on a one-year basis. Therefore, the Company aggregates real estate assets for reporting purposes and operates in one reportable segment. 11 Table of Contents Note 3 - Equity Equity Distribution Agreements Effective as of March 18, 2022, the Company (i) terminated the equity distribution agreements dated November 26, 2019, as amended March 31, 2021 and (ii) entered into separate equity distribution agreements with three sales agents to sell up to $ 40,000,000 of its common stock from time-to-time in an at-the-market offering. During the three and nine months ended September 30, 2022, the Company sold 174,059 and 447,815 shares for an aggregate sales price of $ 3,867,000 and $ 10,076,000 before commissions and fees of $ 48,000 and $ 131,166 , respectively. During the three and nine months ended September 30, 2021, the Company sold 469,490 shares for an aggregate sales price of $ 8,542,000 before commissions and fees of $ 126,000 . Common Stock Dividend Distribution The Company declared a quarterly cash distribution of $ 0.25 per share, payable on October 7, 2022 to stockholders of record on September 27, 2022. Dividend Reinvestment Plan The Dividend Reinvestment Plan (the “DRP”), among other things, provides stockholders with the opportunity to reinvest all or a portion of their cash dividends paid on the Company’s common stock in additional shares of its common stock, at a discount, determined in the Company’s sole discretion, of up to 5 % from the market price for the common stock (as such price is calculated pursuant to the DRP). The discount from the market price is currently 3 %. The DRP is effective with the dividend paid on July 8, 2022. In the three and nine months ended September 30, 2022, we issued 29,190 shares in lieu of cash dividends of $ 622,000 . Stock Based Compensation In 2022, the Company's board of directors adopted, and the stockholders' approved, the 2022 Incentive Plan (the "2022 Plan"). This plan permits the Company to grant: (i) stock options, restricted stock, restricted stock units, performance shares awards and any one or more of the foregoing, for up to a maximum of 1,000,000 shares; and (ii) cash settled dividend equivalent rights in tandem with the grant of restricted stock units and certain performance based awards. As of September 30, 2022, 787,531 shares are available for issuance pursuant to awards under the 2022 Plan. Awards to acquire 934,092 shares of common stock are outstanding under the 2020 Incentive Plan and the 2018 Incentive Plan (collectively the "Prior Plans") and no further awards may be made pursuant to the Prior Plans. Restricted Stock Units In June 2022 and 2021, the Company issued restricted stock units (the "RSUs") to acquire up to 212,469 and 210,375 shares of common stock pursuant to the 2022 Plan and the 2020 Incentive Plan, respectively. Generally, the RSUs entitle the recipients, subject to continued service through the three-year vesting period to receive (i) the underlying shares if and to the extent certain performance and/or market conditions are satisfied at the vesting date, and (ii) an amount equal to the cash dividends that would have been paid during the three-year vesting period with respect to the shares of common stock underlying the RSUs if, when, and to the extent, the related RSUs vest. The shares underlying the RSUs are not participating securities but are contingently issuable shares. Expense is recognized on the RSU's which the Company expects to vest over the applicable vesting period. For the three months ended September 30, 2022 and 2021, the Company recorded $ 457,000 and $ 200,000 , respectively, and for the nine months ended September 30, 2022 and 2021, the Company recorded $ 957,000 and $ 271,000 , respectively, of compensation expense related to the amortization of unearned compensation with respect to the RSUs issued under the 2020 and 2022 Incentive Plans. At September 30, 2022 and December 31, 2021, $ 3,786,000 and $ 2,248,000 of compensation expense, respectively, has been deferred and will be charged to expense over the remaining vesting periods. Restricted Stock In January 2022, the Company granted 158,973 shares of restricted stock pursuant to the 2020 Plan. As of September 30, 2022 , an aggregate of 934,092 shares of unvested restricted stock are outstanding pursuant to the Prior Plans. The shares of restricted stock vest five years from the date of grant and under specified circumstances, including a change in control, may vest earlier. For financial statement purposes, the restricted stock is not included in the outstanding shares shown on the consolidated balance sheets until they vest, but is included in the earnings per share computation. 12 Table of Contents For the three months ended September 30, 2022 and 2021, the Company recorded $ 751,000 and $ 642,000 , respectively, and for the nine months ended September 30, 2022 and 2021, the Company recorded $ 2,226,000 and $ 1,678,000 , respectively, of compensation expense related to the amortization of unearned compensation with respect to the restricted stock awards. At September 30, 2022 and December 31, 2021, $ 8,480,000 and $ 7,332,000 , respectively, has been deferred as unearned compensation and will be charged to expense over the remaining vesting periods of these restricted stock awards. The weighted average remaining vesting period of these shares of restricted stock is 2.8 years. Stock Buyback On September 13, 2021, the Board of Directors approved a stock repurchase plan authorizing the Company, effective as of October 1, 2021, to repurchase up to $ 5,000,000 of shares of common stock through December 31, 2023. During the three and nine months ended September 30, 2022 and 2021, the Company did not repurchase any shares of common stock. Per Share Data Basic earnings (loss) per share is determined by dividing net income (loss) applicable to common stockholders for the applicable period by the weighted average number of shares of common stock outstanding during such period. Net income is also allocated to the unvested restricted stock outstanding during each period, as the restricted stock is entitled to receive dividends and is therefore considered a participating security. The RSUs are excluded from the basic earnings per share calculation as they are not participating securities. Diluted earnings per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into shares of common stock or resulted in the issuance of shares of common stock that share in the earnings of the Company. Diluted earnings per share is determined by dividing net income applicable to common stockholders for the applicable period by the weighted average number of shares of common stock deemed to be outstanding during such period. In calculating diluted earnings per share, the Company includes only those shares underlying the RSUs that it anticipates will vest based on management's estimates as of the end of the most recent quarter. The Company excludes any shares underlying the RSUs from such calculation if their effect would have been anti-dilutive. The following table provides a reconciliation of the numerator and denominator of earnings per share calculations (amounts in thousands, except per share amounts): Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 Numerator for basic and diluted earnings per share: Net income $ 7,094 $ 28,141 $ 54,281 $ 30,470 Deduct net income attributable to non-controlling interests ( 35 ) ( 35 ) ( 107 ) ( 102 ) Deduct earnings allocated to unvested restricted stock ( 349 ) ( 1,426 ) ( 2,684 ) ( 1,441 ) Net income available for common stockholders: basic and diluted $ 6,710 $ 26,680 $ 51,490 $ 28,927 Denominator for basic earnings per share: Weighted average number of common shares outstanding 17,928,197 17,261,520 17,721,700 16,916,623 Effect of dilutive securities: RSUs 66,260 31,468 62,662 76,351 Denominator for diluted earnings per share: Weighted average number of shares 17,994,457 17,292,988 17,784,362 16,992,974 Earnings per common share, basic $ 0.37 $ 1.55 $ 2.91 $ 1.71 Earnings per common share, diluted $ 0.37 $ 1.54 $ 2.89 $ 1.70 13 Table of Contents Note 4 - Leases Lessor Accounting The Company owns a commercial building leased to two tenants under operating leases expiring from 2024 to 2028, with tenant options to extend the leases. Revenues from such leases are reported as rental income, net, and are comprised of (i) lease components, which includes fixed lease payments and (ii) non-lease components, which includes reimbursements of property level operating expenses. The Company does not separate non-lease components from the related lease components, as the timing and pattern of transfer are the same, and accounts for the combined component in accordance with ASC 842. Lessee Accounting The Company is a lessee under a ground lease in Yonkers, NY which is classified as an operating lease. The ground lease expires September 30, 2024 and provides for one 21-year renewal option. As of September 30, 2022, the remaining lease term, including the renewal option deemed exercised, is 23.0 years. The Company is a lessee under a corporate office lease in Great Neck, New York, which is classified as an operating lease. The lease expires on December 31, 2031 and provides a five-year renewal option. As of September 30, 2022, the remaining lease term, including renewal options deemed exercised, is 14.3 years. As of September 30, 2022, the Company's Right of Use ("ROU") assets and lease liabilities were $ 2,420,000 and $ 2,510,000 , respectively. As of December 31, 2021, the Company's ROU assets and lease liabilities were $ 2,568,000 and $ 2,629,000 , respectively. The discount rate applied to measure each ROU asset and lease liability is based on the Company’s incremental borrowing rate (“IBR”). The Company considers the general economic environment and its historical borrowing rate activity and factors in various financing and asset specific adjustments to ensure the IBR is appropriate to the intended use of the underlying lease. As the Company did not elect to apply the hindsight practical expedient, lease term assumptions determined under ASC 840 were carried forward and applied in calculating the lease liabilities recorded under ASC 842. The Company’s ground lease offers a renewal option which it assesses against relevant economic factors to determine whether it is reasonably certain of exercising or not exercising the option. Lease payments associated with renewal periods that the Company is reasonably certain will be exercised, if any, are included in the measurement of the corresponding lease liability and ROU asset. Note 5 ‑ Real Estate Properties Real estate properties, excluding real estate held for sale in December 2021, consists of the following (dollars in thousands): September 30, 2022 December 31, 2021 Land $ 74,246 $ 38,822 Building 617,102 281,841 Building improvements 13,305 9,354 Real estate properties 704,653 330,017 Accumulated depreciation ( 49,008 ) ( 36,467 ) Total real estate properties, net $ 655,645 $ 293,550 A summary of real estate properties owned is as follows (dollars in thousands): December 31, 2021 Balance Partner Buyouts Improvements Depreciation September 30, 2022 Balance Multi-family $ 291,538 $ 370,513 $ 4,151 $ ( 12,486 ) $ 653,716 Retail shopping center and other 2,012 — — ( 83 ) 1,929 Total real estate properties $ 293,550 $ 370,513 $ 4,151 $ ( 12,569 ) $ 655,645 14 Table of Contents Partner Buyouts In the nine months ended September 30, 2022, the Company completed the purchase of its partners' remaining interests in the unconsolidated joint ventures that own the properties identified below. As a result of these purchases, these properties (including the related mortgage debt - see note 9 - "Debt Obligations") are wholly-owned and effective as of the closing of such purchase, are included in the Company's consolidated balance sheet and results of operations (dollars in thousands): Buyout Date Property Name Location Units Remaining Interest Purchased Purchase Price (1) 03/23/2022 Verandas at Alamo San Antonio, TX 288 28.1 % $ 8,721 04/07/2022 Vanguard Heights Creve Coeur, MO 174 21.6 % 4,880 05/11/2022 Jackson Square Tallahassee, FL 242 20 % 7,215 05/24/2022 Brixworth at Bridge Street Huntsville, AL 208 20 % 10,697 05/26/2022 Woodland Apartments Boerne, TX 120 20 % 3,881 06/30/2022 Grove at River Place Macon, GA 240 20 % 7,485 07/12/2022 Civic I Southaven, MS 392 25 % 18,233 07/12/2022 Civic II Southaven, MS 384 25 % 17,942 07/14/2022 Abbotts Run Wilmington, NC 264 20 % 9,010 07/19/2022 Somerset at Trussville Trussville, AL 328 20 % 10,558 08/03/2022 Magnolia Pointe Madison, AL 204 20 % 7,246 Total 2,844 $ 105,868 _________________ (1) The purchase price gives effect to the purchase of the "promote interest" (as more fully described in the Annual Report) of the Company's joint venture partners and does not include closing costs of $ 2,191 and operating cash acquired from the ventures of $ 2,797 . The Company determined that the gross assets purchased in each of these 11 acquisitions is concentrated in a single identifiable asset. Therefore, the transactions do not meet the definition of a business and are accounted for as asset acquisitions. The Company assessed the fair value of the tangible assets of the properties as of the acquisition date using the cost accumulation and income approach which utilized market capitalization rates between 4.25 % and 4.75 %, which are Level 3 unobservable inputs in the fair value hierarchy. 15 Table of Contents The following table summarizes the allocation of the book value based on the proportionate share of the estimated fair value of the property on the acquisition date (dollars in thousands): Property Land Building and Improvements Total Land and Building Acquisition and Intangible Assets Total Assets Acquisition Related Mortgage Intangible Verandas at Alamo $ 3,336 $ 33,465 $ 36,801 $ 797 $ 37,598 $ ( 61 ) Vanguard Heights 5,466 30,826 36,292 508 36,800 578 Jackson Square 3,398 27,167 30,565 634 31,199 283 Brixworth at Bridge Street 1,959 20,080 22,039 321 22,360 — The Woodland Apts 1,289 12,853 14,142 233 14,375 — Grove at River Place 2,866 16,416 19,282 396 19,678 136 Civic I 3,646 45,554 49,200 913 50,113 562 Civic II 3,847 46,452 50,299 1,013 51,312 1,254 Abbotts Run 3,468 37,312 40,780 701 41,481 481 Somerset at Trussville 4,095 42,943 47,038 869 47,907 1,090 Magnolia Pointe 2,052 22,023 24,075 503 24,578 396 Total Purchase Price Allocation $ 35,422 $ 335,091 $ 370,513 $ 6,888 $ 377,401 $ 4,719 Property Disposition On February 2, 2022 the Company sold a vacant land parcel located in Daytona, Florida for a sales price of $ 4,700,000 , and, after closing costs, recognized a nominal gain. In 2020, we recognized an impairment charge of $ 3,600,000 in connection with this property. At December 31, 2021, this property was classified as held-for-sale. Note 6 - Impairment Charges The Company reviews each real estate asset owned, including those held through investments in unconsolidated joint ventures, for impairment when there is an event or a change in circumstances indicating that the carrying amount may not be recoverable. The Company measures and records impairment charges, and reduces the carrying value of owned properties, when indicators of impairment are present and the expected undiscounted cash flows related to those properties are less than their carrying amounts. For its unconsolidated joint venture investments, the Company measures and records impairment losses, and reduces the carrying value of the equity investment when indicators of impairment are present and the expected discounted cash flows related to the investment is less than the carrying value. When the Company does not expect to recover its carrying value on properties held for use, the Company reduces its carrying value to fair value, and for properties held for sale, the Company reduces its carrying value to the fair value less costs to sell. When the Company does not expect to recover its carrying value on unconsolidated joint ventures that are under contract for sale, the Company, when it is determined that the sale is probable, reduces its carrying value to its fair value. For the three and nine months ended September 30, 2022, the Company did not record any impairment charges. In the three and nine months ended September 30, 2021, the Company recorded an impairment charge of $ 520,000 related to its investment in the OPOP Towers and Loft properties, St Louis, MO, as the carrying value exceeded the fair value by that amount. The fair value was based upon the contractual price of the sale agreement which closed in November 2021. Note 7 - Restricted Cash Restricted cash represents funds held for specific purposes and are therefore not available for general corporate purposes. The restricted cash reflected on the consolidated balance sheets represents funds that are held by the Company specifically for capital improvements at certain multi-family properties owned by unconsolidated joint ventures. 16 Table of Contents Note 8 – Investment in Unconsolidated Ventures At September 30, 2022 and December 31, 2021, the Company held interests in unconsolidated joint ventures that own eight and 23 multi-family properties (the "Unconsolidated Properties"), respectively. The condensed balance sheets below present information regarding such properties (dollars in thousands): September 30, 2022 December 31, 2021 ASSETS Real estate properties, net of accumulated depreciation of $ 64,104 and $ 133,615 $ 320,772 $ 734,247 Cash and cash equivalents 14,706 13,741 Other assets 31,832 25,535 Total Assets $ 367,310 $ 773,523 LIABILITIES AND EQUITY Liabilities: Mortgages payable, net of deferred costs of $ 1,531 and $ 3,423 $ 249,575 $ 584,479 Accounts payable and accrued liabilities 11,819 17,064 Total Liabilities 261,394 601,543 Commitments and contingencies Equity: Total unconsolidated joint venture equity 105,916 171,980 Total Liabilities and Equity $ 367,310 $ 773,523 BRT's interest in joint venture equity $ 43,759 $ 112,347 At the indicated dates, real estate properties of the unconsolidated joint ventures consist of the following (dollars in thousands): September 30, 2022 December 31, 2021 Land $ 59,404 $ 97,230 Building 315,400 739,577 Building improvements 10,072 31,055 Real estate properties 384,876 867,862 Accumulated depreciation ( 64,104 ) ( 133,615 ) Total real estate properties, net $ 320,772 $ 734,247 At September 30, 2022 and December 31, 2021, the weighted average interest rate on the mortgages payable is 3.90 % and 3.97 %, respectively, and the weighted average remaining term to maturity is 6.5 years and 7.6 years, respectively. 17 Table of Contents The condensed income statements below present information regarding the Unconsolidated Properties (dollars in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 Revenues: Rental and other revenue $ 13,502 $ 29,818 $ 60,840 $ 95,495 Total revenues 13,502 29,818 60,840 95,495 Expenses: Real estate operating expenses 6,512 14,587 27,523 45,523 Interest expense 2,843 7,568 13,762 24,562 Depreciation 3,113 8,288 14,957 28,464 Total expenses 12,468 30,443 56,242 98,549 Total revenues less total expenses 1,034 ( 625 ) 4,598 ( 3,054 ) Other equity earnings 12 7 89 21 Impairment of assets — — — ( 2,813 ) Insurance recoveries — — — 2,813 Gain on insurance recoveries — 1,246 567 1,246 Gain on sale of real estate 16,937 83,984 118,270 83,984 Loss on extinguishment of debt ( 573 ) ( 9,401 ) ( 3,491 ) ( 9,401 ) Net income from joint ventures $ 17,410 $ 75,211 $ 120,033 $ 72,796 BRT's equity in (loss) earnings and equity in earnings from sale of unconsolidated joint venture properties $ 11,607 $ 30,786 $ 65,846 $ 28,949 Joint Venture Sales On February 8, 2022, the unconsolidated joint venture in which the Company had a 65 % equity interest sold The Verandas at Shavano, a 288 -unit multi-family property in San Antonio, TX, for a sales price of $ 53,750,000 . The gain on the sale of this property was $ 23,652,000 and BRT's share of the gain was $ 12,961,000 . In connection with the sale, mortgage debt of $ 25,100,000 with 1.2 years of remaining term to maturity and bearing an interest rate of 3.61 % was repaid. On June 14, 2022, the unconsolidated joint ventures in which the Company had a 75 % equity interest sold Retreat at Cinco Ranch, a 268 -unit multi family property in San Antonio, TX for $ 68,300,000 . The gain on the sale of this property was $ 30,595,000 and BRT's share of the gain was $ 17,378,000 . In connection with the sale, mortgage debt of $ 30,096,000 with 3.6 years of remaining term to maturity and bearing an interest rate of 4.44 % was repaid and the joint venture incurred $ 1,257,000 from the loss on the extinguishment of debt, of which BRT's share was $ 686,000 . On June 30, 2022, the unconsolidated joint venture in which the Company had a 65 % equity interest sold The Vive, a 312 -unit multi-family property in Kannapolis, NC for $ 91,250,000 . The gain on the sale of this property was $ 47,086,000 and BRT's share of the gain was $ 22,720,000 . In connection with the sale, mortgage debt of $ 31,420,000 with 29.7 years of remaining term to maturity and bearing an interest rate of 3.52 % was repaid and the joint venture incurred $ 1,631,000 from the loss on extinguishment of debt, of which BRT's share was $ 787,000 . On August 31, 2022, the unconsolidated joint venture in which the Company had a 80 % equity interest sold Water's Edge, a 204 -unit multi-family property in Columbia, SC for $ 32,400,000 . The gain on the sale of this property was $ 16,937,000 and BRT's share of the gain was $ 11,472,000 . In connection with the sale, mortgage debt of $ 12,241,000 with 3.8 years of remaining term to maturity and bearing an interest rate of 4.28 % was repaid and the joint venture incurred $ 573,000 from the loss on extinguishment of debt, of which BRT's share was $ 388,000 . Acquisition of Interest in Joint Venture On March 10, 2022, the Company purchased a 17.45 % interest in a planned 240 -unit development property, Stono Oaks, located in Johns Island, SC. The purchase price for the interest was $ 3,500,000 . 18 Table of Contents Joint Venture Buyouts The Company completed the partner buyout transactions in the unconsolidated joint ventures that own the properties identified in note 5 - Real Estate Properties - Partner Buyouts. As a result of these purchases, these properties (including the related mortgage debt - see note 9 - Debt Obligations) are wholly-owned effective as of the closing of each purchase, and are included in the Company's consolidated balance sheet and results of operations as of such applicable date. Note 9 – Debt Obligations Debt obligations consist of the following (dollars in thousands): September 30, 2022 December 31, 2021 Mortgages payable $ 423,442 $ 200,857 Junior subordinated notes 37,400 37,400 Credit facility 7,000 — Deferred financing costs ( 5,160 ) ( 1,277 ) Total debt obligations, net of deferred costs $ 462,682 $ 236,980 Mortgages Payable At September 30, 2022, the weighted average interest rate on the Company's mortgages payable was 3.99 % and the weighted average remaining term to maturity is 7.8 years. For the three months ended September 30, 2022 and 2021, interest expense, which includes amortization of deferred financing costs, was $ 4,423,000 and $ 1,305,000 , respectively. For the nine months ended September 30, 2022 and 2021, interest expense, which includes amortization of deferred financing costs, was $ 8,749,000 and $ 4,113,000 , respectively. During the three and nine months ended September 30, 2022, the Company paid off mortgage debt of $ 15,613,000 on two properties. On October 31, 2022, the Company paid off maturing mortgage debt of $ 14,900,000 . Partner Buyouts The following table summarizes the information regarding the mortgages relating to the property in which BRT purchased the remaining interests of its joint venture partners during the nine months ended September 30, 2022 (dollars in thousands): Property Name Location Debt at Purchase Date (1) Interest Rate Maturity Date Interest Only through Verandas at Alamo San Antonio, TX $ 27,000 3.64 % Oct 2029 October 2024 Vanguard Heights Creve Coeur, MO 29,700 4.41 % July 2031 June 2025 Jackson Square Tallahassee, FL 21,524 4.19 % Sept 2027 September 2022 Brixworth at Bridge Street (2) Huntsville, AL 11,147 4.25 % June 2032 Maturity The Woodland Apartments Boerne, TX 7,914 4.74 % Feb 2026 N/A Grove at River Place (3) Macon, GA 11,426 4.39 % Feb 2026 N/A Civic I Southaven, MS 27,389 4.24 % March 2026 N/A Civic II Southaven, MS 30,105 3.73 % September 2026 N/A Abbotts Wilmington, NC 23,160 4.71 % July 2030 July 2025 Somerset at Trussville Trussville, AL 32,250 4.19 % June 2029 May 2025 Magnolia Pointe Madison, AL 15,000 4.08 % January 2028 December 2022 Total $ 236,615 ___________________ (1) Excludes fair value adjustments of $ 4,719 determined as part of the purchase price allocation. (2) The original mortgage debt of $ 11,147 was refinanced with a new ten-year mortgage debt of $ 18,592 immediately following the buyout. (3) Includes a supplemental mortgage of $ 1,056 which was paid off immediately following the buyout. 19 Table of Contents Credit Facility On September 15, 2022, the Company's credit facility with an affiliate of Valley National Bank ("VNB"), was amended to, among other things, increase the amount the Company may borrow, subject to compliance with borrowing base requirements and other conditions, to $ 60,000,000 , extend the facility's maturity date to September 2025, reduce the adjustable interest rate to prime, with a floor of 3.50 %, and revise certain financial and other covenants. The facility can be used to facilitate the acquisition of multi-family properties, repay mortgage debt secured by multi-family properties and for operating expenses ( i.e., working capital (including dividend payments)); provided that no more than $ 25,000,000 may be used for operating expenses. The interest rate in effect as of September 30, 2022 is 6.25 %. There is an unused facility fee of 0.25 % per annum. At September 30, 2022, the Company is in compliance in all material respects with its obligations under the facility. At September 30, 2022, there was $ 7,000,000 outstanding balance on the facility and no outstanding balance at December 31, 2021. At September 30, 2022 and December 31, 2021, $ 53,000,000 and $ 35,000,000 , respectively, was available to be borrowed. At November 4, 2022, there was an outstanding balance of $ 19,000,000 on the facility bearing an interest rate of 7.00 % and $ 41,000,000 available to be borrowed. Interest expense for the three months ended September 30, 2022 and 2021, which includes amortization of deferred financing costs and unused fees, was $ 227,000 and $ 18,000 , respectively. Interest expense for the nine months ended September 30, 2022 and 2021, which includes amortization of deferred financing costs and unused fees, was $ 334,000 and $ 54,000 , respectively. Deferred financing costs of $ 551,000 and $ 270,000 , are recorded in other assets on the Consolidated balance sheets at September 30, 2022 and December 31, 2021, respectively. Junior Subordinated Notes At September 30, 2022 and December 31, 2021, the outstanding principal balance of the Company's junior subordinated notes was $ 37,400,000 , before deferred financing costs of $ 282,000 and $ 297,000 , respectively. The interest rate on the outstanding balance resets quarterly and is based on three months LIBOR + 2.00 %. The rate in effect at September 30, 2022 and 2021 was 4.78 % and 2.21 %, respectively. The notes mature April 30, 2036. The interest rate that will be in effect for the three months ending January 31, 2023 is 6.41 %. The junior subordinated notes require interest only payments through the maturity date of April 30, 2036, at which time repayment of the outstanding principal and unpaid interest become due. Interest expense for the three months ended September 30, 2022 and 2021, which includes amortization of deferred financing costs, was $ 413,000 and $ 210,000 , respectively. Interest expense for the nine months ended September 30, 2022 and 2021, which includes amortization of deferred financing costs, was $ 911,000 and $ 636,000 , respectively. Note 10 – Related Party Transactions The Company has retained certain of its executive officers and Fredric H. Gould, a director, among other things, to participate in the Company's multi-family property analysis and approval process (which includes service on an investment committee), provide investment advice, and provide long-term planning and consulting with executives and employees with respect to other business matters, as required. The aggregate fees incurred for these services in each of the three months ended September 30, 2022 and 2021 were $ 367,000 and $ 350,000 , respectively, and $ 1,101,000 and $ 1,049,000 for the nine months ended September 30, 2022 and 2021, respectively. Management of certain properties owned by the Company and certain joint venture properties is provided by Majestic Property Management, Corp. ("Majestic Property"), a company wholly owned by Fredric H. Gould. Certain of the Company's officers and directors are also officers and directors of Majestic Property. Majestic Property may also provide real estate brokerage and construction supervision services to these properties. These fees amounted to $ 9,000 and $ 9,000 for the three months ended September 30, 2022 and 2021, respectively, and $ 28,000 and $ 23,000 for the nine months ended September 30, 2022 and 2021, respectively. Pursuant to a shared services agreement between the Company and several affiliated entities, including Gould Investors L.P. ("Gould Investors"), the owner and operator of a diversified portfolio of real estate and other assets, and One Liberty Properties, Inc., a NYSE listed equity REIT, (i) the services of the part- time personnel that perform certain executive, administrative, legal, accounting and clerical functions and (ii) certain facilities and other resources, are provided to the Company. The allocation of expenses for the facilities, personnel and other resources shared by, among others, the Company and Gould Investors, is computed in accordance with such agreement and is included in general and administrative expense on the consolidated statements of operations. During the three months ended September 30, 2022 and 2021, allocated general and administrative expenses reimbursed by the Company to Gould Investors pursuant to the shared services agreement aggregated 20 Table of Contents $ 183,000 and $ 172,000 , respectively, and $ 614,000 and $ 523,000 for the nine months ended September 30, 2022 and 2021, respectively. Jeffrey A. Gould and Matthew J. Gould, executive officers and directors of the Company are executive officers of Georgetown Partners, LLC, the managing general partner of Gould Investors. Note 11 – Fair Value Measurements Financial Instruments Not Carried at Fair Value The following methods and assumptions were used to estimate the fair value of each class of financial instruments that are not recorded at fair value on the consolidated balance sheets: Cash and cash equivalents, restricted cash, accounts receivable (included in other assets), accounts payable and accrued liabilities: The carrying amounts reported in the balance sheets for these instruments approximate their fair value due to the short term nature of these accounts. Junior subordinated notes: At September 30, 2022 and December 31, 2021, the estimated fair value of the notes is lower than their carrying value by approximately $ 6,772,000 and $ 8,296,000 , respectively, based on a market interest rate of 6.78 % and 4.21 %, respectively. Mortgages payable: At September 30, 2022, the estimated fair value of the Company’s mortgages payable is lower than their carrying value by approximately $ 37,083,000 , assuming market interest rates between 5.13 % and 6.18 %. At December 31, 2021, the estimated fair value of the Company's mortgages payable was greater than their carrying value by approximately $ 511,000 , assuming market interest rates between 3.12 % and 3.87 %. Market interest rates were determined using rates which the Company believes reflects institutional lender yield requirements at the balance sheet dates. Considerable judgment is necessary to interpret market data and develop estimated fair value. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value. Non-recurring fair value measurements The Company reviews each investment in real estate and joint venture interests when events or circumstances change, indicating the carrying value of the investment may not be recoverable. In the evaluation of an investment for impairment, many factors are considered, including estimated current and expected cash flows from the asset during the projected hold period, costs necessary to extend the life of the asset, expected capitalization rates, projected stabilized net operating income, and the ability to hold or dispose of the asset in the ordinary course of business. Note 12 – Derivative Financial Instruments Cash Flow Hedges of Interest Rate Risk The Company's objective in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish this objective, the Company primarily uses interest rate swaps as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. The changes in the fair value of derivatives designated and that qualify as cash flow hedges is recorded in Accumulated Other Comprehensive income and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. As of September 30, 2022 and December 31, 2021, the Company did not have any outstanding interest rate derivatives that were designated as cash flow hedges of interest rate risk. 21 Table of Contents The following table presents the effect of the Company’s interest rate swaps on the consolidated statements of comprehensive income (loss) for the dates indicated (dollars in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2021 2021 Amount of (loss) gain recognized on derivative in Other Comprehensive Income $ ( 1 ) $ ( 1 ) Amount of (loss) gain reclassified from Accumulated Other Comprehensive Income into Interest expense $ ( 2 ) $ ( 12 ) Total amount of Interest expense presented in the Consolidated Statements of Operations $ 1,535 $ 4,804 Note 13 – New Accounting Pronouncements In March 2020, the Financial Accounting Standard Board issued ASU 2020-04, Reference Rate Reform (Topic 848). ASU 2020-04 contains practical expedients for reference rate reform related activities that impact debt, lease, derivatives and other contracts. This guidance in ASU 2020-04 is optional and may be elected over time as reference rate reform activities occur. During the first quarter of 2020, the Company has elected to apply hedge accounting expedients related to probability and the assessments of effectiveness for future LIBOR-indexed cash flows to assume that the index upon which future hedged transactions will be based matches the index on the corresponding derivatives. Application of these expedients preserves the presentation of derivatives consistent with past presentation. The Company continues to evaluate the impact of the guidance and may apply other elections as applicable as additional changes in the market occur. Note 14 – Commitments and Contingencies From time to time, the Company and/or its subsidiaries are parties to legal proceedings that arise in the ordinary course of business, and in particular, personal injury claims involving the operations of the Company's properties. Although management believes that the primary and umbrella insurance coverage maintained with respect to such properties is sufficient to cover claims for compensatory damages, many of these personal injury claims also assert claims for exemplary ( i.e punitive) damages. Generally, insurance does not cover claims for exemplary damages. The Company is one of several defendants in a wrongful death lawsuit seeking an unspecified amount in excess of $ 1,000,000 and an unspecified amount of exemplary damages. The Company’s primary insurance carrier is defending the claim. Although management is not able to determine the probability and/or magnitude of any potential loss, if any, management believes the Company has sufficient primary and umbrella insurance to cover the claim for compensatory damages. In connection with a mediation conducted subsequent to September 30, 2022, the parties to a personal injury lawsuit in which the Company is one of the defendants have agreed, subject to the signing of a definitive agreement, to a settlement pursuant to which the Company’s insurance carrier would pay the plaintiff $ 850,000 . Note 15 – Subsequent Events Subsequent events have been evaluated and any significant events, relative to our consolidated financial statements as of September 30, 2022, that warrant additional disclosure, have been included in the notes to the consolidated financial statements. 22 Table of Contents