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Item 1A. Risk Factors

2023-03-15 compared with 2022-03-16 · 95 added, 91 removed, 224 unchanged (45% of the section changed)

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The categorization of risks set forth below is meant to help you better understand the risks facing our business and is not intended to limit your consideration of the possible effects of these risks to the listed categories.Any adverse effects arising from the realization of any of the risks discussed, including our financial condition and results of operation, may, and likely will, adversely affect many aspects of our business.

Risks Related to the COVID-19 Pandemic

The continuation of the COVID-19 pandemic, the responses thereto and the economic consequences flowing therefrom, may adversely impact our business, income, cash flow, results of operations, financial condition, liquidity, prospects, ability to service our debt obligations, and our ability to pay cash dividends to our stockholders.

We have faced, and may continue to face, challenges resulting from the COVID-19 pandemic.

The economic consequences of the pandemic, among other things, have adversely affected and may continue to adversely affect,the ability of some of our residents to pay rent (due to furloughs, layoffs and/or the expiration of, or reduction in, unemployment benefits).

If economic conditions worsen for an extended period, a significant number of residents may be unable to pay rent, and our ability to pay dividends and/or the debt service on our mortgages may be adversely affected.

The seesaw nature of the pandemic and its impact on the economy and financial markets present material risks and uncertainties.

We are unable to predict the ultimate impact that the pandemic and the related dislocations will have on our business, financial condition, results of operation and cash flows, which will depend largely on various factors outside of our control.

Risks Related to our Business

Risks Related to Real Estate Investments and Our Operations

Unfavorable market and economic conditions could adversely affect rental revenues, occupancy levels and the value of our properties.

General economic conditions in the U.S.

have fluctuated significantly in recent quarters with the U.S.

experiencing negative macroeconomic conditions such as increasing inflationary and labor market concerns.

Unfavorable market and economic conditions may significantly affect our occupancy levels, our rental rates and collections, the value of our properties and our ability to acquire or dispose of multifamily properties on economically favorable terms.

Our ability to lease our multifamily properties at favorable rates is adversely affected by the increase in supply in the multifamily and other rental markets and is dependent upon the overall level in the economy, which may continue to be adversely affected by, among other things, inflationary conditions, job losses and unemployment levels, personal debt levels, a downturn in the housing market, stock market volatility, and uncertainty about the future.

Some of our major expenses generally do not decline when related rents decline.

We would expect that declines in our occupancy levels, rental revenues and/or the values of our multi-family properties would cause us to have less cash available to make payments on our debt and to pay dividends, which could adversely affect our financial condition or the market value of our securities.

Increasing real estate taxes, utilities and insurance premiums may negatively impact operating results

The cost of real estate taxes, utilities and insurance is a significant component of real estate operating expense.

These expenses are subject to significant increases and fluctuations, including the impact of inflation, which we may be unable to control.

For example, our real estate taxes have increased and will continue to increase as our properties are reassessed by taxing authorities and as property tax rates increase.

Further, our real estate taxes have fluctuated and may not be comparable year-over-year because of, among other things, (i) the timing difference as to when we accrue real estate taxes and the results of any tax appeals with respect to such accrued taxes and (ii) determinations, over which we have no control, by governmental authorities to increase tax rates, assessments or procedures.

In 2022, we implemented a new insurance program for 17 of our wholly owned properties and we anticipate that our insurance costs will increase because of such program, the casualty losses that we have sustained the past several years and general increases in the cost of insurance coverage for multi-family properties.

In addition, our share of the insurance premiums at joint venture properties is determined by our joint venture partner at such properties.

If the costs associated with real estate taxes, utilities and insurance premiums should rise, without being offset by a corresponding increase in revenues, our results of operations could be negatively impacted, and our ability to make payments on our debt and to make distributions could be adversely affected.

Most of our multi-family properties are located in the Southeast and Texas which makes us susceptible to adverse developments in such markets.

The operating performance of our multi-family properties is impacted by the economic, environmental and other conditions of the specific markets in which our properties are concentrated.

At December 31, 2021:

(i) our wholly-owned properties generated approximately 22%, 15%, 14% and 14% of our 2021 revenues from properties located in Georgia, Florida, South Carolina and Virginia, respectively, and (ii) properties owned by unconsolidated joint ventures generated 39%, 14%, 13% and 11% of our 2021 JV Rental and Other Revenues at properties located in Texas, South Carolina, Alabama and Mississippi, respectively.

Accordingly, adverse developments in such markets, including economic developments, pandemics, or natural or man-made disasters, could adversely impact the operations of these properties and therefore our operating results and cash flow.

The operating performance and value of our multi-family properties is impacted by the economic environment and other conditions of the specific markets in which our properties are concentrated.

As of December 31, 2022:

(i) our wholly-owned properties generated approximately 72% and 11% of our 2022 revenues from properties located in the Southeast and Texas, respectively, and (ii) the properties owned by unconsolidated joint ventures at December 31, 2022, generated 58% and 42% of our 2022 JV Rental and Other Revenues at properties located in Texas and the Southeast, respectively.

Accordingly, adverse developments in such markets, including economic developments, pandemics, or natural or man-made disasters, could adversely impact the cash flow and value of these properties.

The concentration of our properties in the Southeast United States and Texas exposes us to risks of adverse developments which are greater than the risks of owning properties with a more geographically diverse portfolio.

We may be unable to compete to acquire, finance or dispose of our properties or to lease rental units.

We compete with many third parties including other REITs, specialty finance companies, public and private investors, investment and pension funds, in acquiring, obtaining financing for, and disposing of multi-family properties.

Many of these competitors have substantially greater financial and other resources than we do.

Larger and more established competitors enjoy significant competitive advantages that result from, among other things, enhanced operating efficiencies and more extensive networks providing greater and more favorable access to capital, financing and tax credit allocations and more favorable acquisition opportunities.

In attracting and retaining residents to occupy our multi-family properties, we compete with numerous other housing providers.

Our multi-family properties compete directly with other rental apartments, as well as condominiums and single-family homes that are available for rent or purchase in the markets in which our properties are located.

Principal factors of competition include rent or price charged, attractiveness of the location of multi-family properties, and the quality and breadth of services.

The number of competitive properties relative to demand in a particular area has a material effect on our ability to lease our properties and on the rents we charge.

The failure of property management companies to properly manage our properties could adversely impact our results of operations.

We rely on property management companies to manage our properties.

These management companies are responsible for, among other things, leasing and marketing rental units, selecting tenants (including an evaluation of the creditworthiness of tenants), collecting rent, paying operating expenses and maintaining our properties .

If these property management companies do not perform their duties properly, or, in the case of unconsolidated properties, we and/or our joint venture partners do not effectively supervise the activities of these managers, the occupancy rates and rental rates at the properties managed by such property managers may decline and the expenses at such properties may increase.

At December 31, 2022, one property manager manages eight of our properties, a second property manager manages seven of our properties, and our six other property managers manage five or fewer properties.

Five of these properties are managed by a management company owned by or affiliated with a joint venture partner.

The loss of our property managers, and in particular, the managers that manage multiple properties, could result in a decrease in occupancy rates, rental rates or both or an increase in expenses.

Further, except for our multi-family properties covered by our Insurance Program, property managers are also generally responsible for obtaining insurance coverage with respect to the properties they manage, which coverage is often obtained pursuant to blanket policies covering many properties in which we have no interest.

Losses at properties managed by our property managers but in which we have no interest could reduce significantly the insurance coverage available at our properties managed by these property managers.

It may be difficult to terminate a non-performing management company, particularly a management company owned or affiliated with a joint venture, because such termination may require the approval of the mortgagee, our joint venture partner or both.

If we are unable to terminate an underperforming property manager on a timely basis, our occupancy and rental rates may decrease and our expenses may increase.

Our efforts to buy properties directly may involve greater risks than buying properties with joint venture partners.

Although historically we have acquired properties with joint venture partners with knowledge of the local markets in which we were acquiring properties, we are working to buy properties directly without joint venture partners.

In buying properties directly, we will not have the benefit of a partner’s understanding of the target markets nor the equity they would have contributed to the acquisition.

We cannot provide any assurance that we will properly evaluate the acquisition opportunities we pursue in buying properties directly.

Risks involved in conducting real estate activity through joint ventures.

Most of our multi-family properties are owned through joint ventures with other persons or entities.

Eight of our multi-family properties are owned through joint ventures with other persons or entities.

Joint venture investments involve risks not otherwise present when acquiring real estate directly, including the following:

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We also have had, and expect to continue to have, disagreements with joint venture partners over various issues including, among others, as to whether, and the extent to which, value add programs should be implemented at a property, whether a mortgage debt on a property should be refinanced and the terms and conditions of such refinancing, and, because our joint venture structure may incentivize our joint venture partner to sell the property sooner than we would otherwise desire, the timing and terms and conditions of property sales.

We own 14 multi-family properties with three joint venture partners or their affiliates and may be adversely effected if we are unable to maintain a satisfactory working relationship with any one or more of these joint venture partners.

Joint ventures that own six multi-family properties are owned with one joint venture partner or its affiliates, joint ventures that own four multi-family properties are owned with a second joint venture partner or its affiliates and joint ventures that own four multi-family properties are owned with a third joint venture partner or its affiliates.

This concentration of ownership of properties with a limited number of joint venture partners exposes us to risks of adverse developments, and in particular, disputes or disagreements with such joint venture partners, which are greater than the risks of owning properties with a more diverse group of joint venture partners.

The failure of third party property management companies to properly manage our properties or obtain sufficient insurance coverage could adversely impact our results of operations.

We and our joint venture partners rely on property management companies to manage our properties.

At December 31, 2021, approximately 20 properties are managed by a management company owned by or affiliated with a joint venture partner.

If these property management companies do not perform their duties properly or we or our joint venture partners do not effectively supervise the activities of these managers, the occupancy rates and rental rates at the properties managed by such property managers may decline and the expenses at such properties may increase.

At December 31, 2021, one property manager manages eight of our properties and a second property manager manages six of our properties, other property managers manage four or fewer properties.

The loss of our property managers, and in particular, the managers that manage multiple properties, could result in a decrease in occupancy rates, rental rates or both or an increase in expenses.

Further, property managers are also responsible for obtaining insurance coverage with respect to the properties they manage, which coverage is often obtained pursuant to blanket policies covering many properties in which we have no interest.

It may be difficult to terminate a non-performing management company, particularly a management company owned or affiliated with a joint venture because such termination may require the approval of the mortgagee, our joint venture partner or both.

If we are unable to terminate an underperforming property manager on a timely basis, our occupancy and rental rates may decrease and our expenses may increase.

Increasing real estate taxes, utilities and insurance premiums may negatively impact operating results.

The cost of real estate taxes, utilities and insuring our multi-family properties is a significant component of real estate operating expense.

These expenses are subject to significant increases and fluctuations, which we may be unable to control.

For example, our share of the insurance premiums at joint venture properties is determined by our joint venture partner at such properties;

further, casualty losses at certain properties have resulted in significant increases in the insurance premiums we pay for insurance coverage at such properties.

Real estate taxes may increase as our properties are reassessed by taxing authorities and as property tax rates change.

Our real estate taxes have increased over time;

further, they have fluctuated and may not be comparable year-over-year because of, among other things, (i) the timing difference as to when we accrue real estate taxes and the results of any tax appeals with respect to such accrued taxes and (ii) determinations, over which we have no control, by governmental authorities to increase tax rates, assessments or procedures.

If the costs associated with real estate taxes, utilities and insurance premiums should rise, without being offset by a corresponding increase in revenues, our results of operations

could be negatively impacted, and our ability to make payments on our debt and to make distributions could be adversely affected.

We may not be able to compete with competitors, many of which have greater financial and other resources than we possess.

We compete with many third parties engaged in the ownership and operation of multi-family properties, including other REITs, specialty finance companies, public and private investors, investment and pension funds and other entities.

Many of these competitors have substantially greater financial and other resources than we do.

Our operating results are significantly influenced by demand for multi-family properties generally, and a decrease in such demand will likely have a greater adverse effect on our revenues than if we owned a more diversified real estate portfolio.

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As a result, we are subject to risks inherent in investments in a single industry, and a decrease in the demand for multi-family properties would likely have a greater adverse effect on our rental revenues than if we owned a more diversified real estate portfolio.

Our value-add activities involve greater risks than more conservative investment strategies.

In many cases, we seek to acquire properties at which we believe our investment of additional capital to enhance such properties will result in increased rental rates and higher resale value.

These efforts involve greater risks than more conservative investment strategies.

The risks related to these value-add activities include risks related to delays in the repositioning or improvement process, higher than expected capital improvement costs, the additional capital needed to execute our value-add program, the possibility that these value-add activities may not result in the anticipated higher rents and occupancy rates and the loss of revenue while these properties or units are undergoing capital improvements.

We may also be unable to complete the improvements of these properties and may be forced to hold or sell these properties at a loss.

For these and other reasons, we cannot assure you that we will realize growth in the value of our value-add multifamily properties, and as a result, our ability to make distributions to our stockholders could be adversely affected.

Increased competition and increased affordability of residential homes could limit our ability to retain our tenants or increase or maintain rents.

Our multi-family properties compete with numerous housing alternatives, including other multi-family and single-family rental homes, as well as owner occupied single and multi-family homes.

Our ability to retain tenants and increase or maintain rents or occupancy levels could be adversely affected by the alternative housing in a particular area and, due to declining housing prices, mortgage interest rates and government programs to promote home ownership, the increasing affordability of owner occupied single and multi-family homes.

Our operating results and assets may be negatively affected if our insurance coverage is insufficient to compensate us for casualty events occurring at our properties.

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• the rent loss coverage under a policy may not extend for the full period of time that a tenant or tenants may be entitled to a rent abatement that is a result of, or that may be required to complete restoration following, a casualty event;

• certain types of losses, such as those arising from earthquakes, floods, hurricanes and terrorist attacks, may be uninsurable or may not be economically feasible to insure;

• certain types of losses, such as those arising from earthquakes, floods, hurricanes and terrorist attacks, and losses arising out of claims for exemplary or punitive damages, may be uninsurable or may not be economically feasible to insure;

• changes in zoning, building codes and ordinances, environmental considerations and other factors may make it impossible or impracticable, to use insurance proceeds to replace damaged or destroyed improvements at a property;

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If our insurance coverage is insufficient to cover losses sustained as a result of one or more casualty events, our operating results and the value of our portfolio will be adversely affected.

Development, redevelopment and construction risks could affect our operating results.

We may continue to develop and redevelop multi-family properties.

These activities may be exposed to the following risks:

• we have limited experience in development projects and will be dependent on our joint venture partner or the sponsor of the project to oversee the project's implementation;

• we may abandon opportunities that we have already begun to explore for a number of reasons, including changes in local market conditions or increases in construction or financing costs, and, as a result, we may fail to recover expenses already incurred in exploring those opportunities;

• occupancy rates and rents at development properties may fail to meet our original expectations for a number of reasons, including changes in market and economic conditions beyond our control and the development by competitors of competing properties;

• we may be unable to obtain, or experience delays in obtaining, necessary zoning, occupancy, or other required governmental or third party permits and authorizations, which could result in increased costs or the delay or abandonment of development opportunities;

• we may incur costs that exceed our original estimates due to increased material, labor or other costs;

• we may be unable to complete construction and lease-up of a development project on schedule, resulting in increased construction and financing costs and a decrease in expected rental revenues;

• we may be unable to obtain financing with favorable terms, or at all, for the proposed development of a property, which may cause us to delay or abandon a development opportunity;

• we may be unable to refinance with favorable terms, or at all, any construction or other financing obtained for a development property, which may cause us to sell the property on less favorable terms or surrender the property to the lender.

If we are unable to address effectively these and other risks associated with development projects, our financial condition and results of operations may be adversely effected.

We may be adversely effected if we are unable to maintain a satisfactory working relationship with any one or more of our joint venture partners.

Two of our joint venture partners or their affiliates own an aggregate of six of the eight properties we own through unconsolidated joint ventures.

Our value-add activities involve greater risks than more conservative investment approaches.

From time-to-time, we seek to acquire properties at which we believe our investment of additional capital to enhance such properties will result in increased rental rates and higher resale value.

These efforts involve greater risks than more conservative investment approaches.

We may also be unable to complete the improvements of these properties and may be forced to hold or sell these properties at a loss.

Short-term leases expose us to the effects of declining market rents and we may be unable to renew leases or relet units as leases expire.

Our multi-family leases are generally for a term of one year or less.

The short-term nature of these leases generally serves to reduce our risk to adverse effects of inflation as our leases allow for adjustments in the rental rate at the time of renewal, which may enable us to seek rent increases.

However, since our leases typically permit the residents to leave at the end of the lease term without penalty, our revenues are impacted by declines in market rents more quickly than if our leases were for longer terms.

If we are unable to promptly renew the leases or relet the units, or if the rental rates upon renewal or reletting are significantly lower than expected rates, then our financial condition and results of operations may be adversely affected .

Risks Related to Our Financing Activities, Indebtedness and Capital Resources

If we are unable to refinance $118.4 million in balloon payments on mortgage debt maturing through 2026, we may be forced to sell properties on disadvantageous terms.

As of December 31, 2021, we have balloon payments of $64.7 million on mortgage debt (including $35.3 million of mortgage debt on properties owned by unconsolidated joint ventures) due through 2024 (including $29.4 million and $35.3 million due in 2022 and 2023, respectively).

As of December 31, 2022, we have balloon payments of $118.4 million on mortgage debt (including $33.5 million of mortgage debt on properties owned by unconsolidated joint ventures) due in 2025 and 2026 ( i.e., $15.4 million and $103.1 million due in 2025 and 2026, respectively).

The weighted average interest rate of this debt is 4.30%.

Our operating cash flow and funds available under our credit facility will be insufficient to discharge this debt when due.

Our operating cash flow and funds available under our credit facility will likely be insufficient to discharge all of this debt when due.

Accordingly, we may seek to refinance this debt or sell the related property prior to the maturity of such debt.

Increases in interest rates, or reduced access to credit markets due, among other things, to more stringent lending requirements or our high level of leverage, may make it difficult for us to refinance this mortgage debt on terms as favorable as the current debt.

If we are unsuccessful in refinancing such debt, or if the terms of the refinanced debt are less favorable that the current debt, we may be forced to dispose of properties on disadvantageous terms or convey properties secured by such mortgages to the mortgagees, which would reduce our income and impair the value of our portfolio.

If we are unsuccessful in refinancing such debt, or if the terms of the refinanced debt are less favorable than the current debt, we may be forced to dispose of properties on disadvantageous terms or convey properties secured by such mortgages to the mortgagees, which would reduce our income and impair the value of our portfolio.

Our failure to comply with our obligations under our debt instruments may reduce our stockholders’ equity, and adversely affect our net income and ability to pay dividends.

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To remain competitive and increase occupancy at these properties and/or make them attractive to potential tenants or purchasers, we may have to make significant capital improvements and/or incur deferred maintenance costs with respect to these properties.

At December 31, 2021, we have $6.6 million of restricted cash that can only be used for improvements at specific properties.

The cost of future improvements and deferred maintenance is uncertain and the amounts earmarked for specific properties may be insufficient to effectuate needed improvements.

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Our acquisition, development and value-add activities are limited by the funds available to us.

Our ability to acquire additional multi-family properties, develop new properties and improve the properties in our portfolio is limited by the funds available to us and our ability to obtain, on acceptable terms, equity contributions from joint venture partners and mortgage debt from lenders.

At December 31, 2021, we had $32.3 million of cash and cash equivalents and $6.6 million designated as restricted cash for improvements at 13 multi-family properties.

Our ability to acquire additional multi-family properties, develop new properties and improve the properties in our portfolio is limited by the funds available to us (including funds available pursuant to our credit facility) and our ability to obtain, on acceptable terms, mortgage debt.

At March 1, 2023, we had approximately $20.4 million of cash and cash equivalents and up to $60.0 million available to us under our credit facility.

Our multi-family acquisition and value-add activities are constrained by funds available to us which will limit growth in our revenues and operating results.

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These guarantees are only applicable if and when the borrower directly, or indirectly through an agreement with an affiliate, joint venture partner or other third party, voluntarily files a bankruptcy or similar liquidation or reorganization action or takes other actions that are fraudulent or improper (commonly referred to as “bad boy” guarantees).

Although we believe that “bad boy” carve out guarantees are not guarantees of payment in the event of foreclosure or other actions of the foreclosing lender that are beyond the borrower’s control, some lenders in the real estate industry have recently sought to make claims for payment under such guarantees.

such guarantees.

In the event such a claim were made against us under a “bad boy” carve out guarantee, following foreclosure on mortgages or related loans, and such claim were successful, our business and financial results could be materially adversely affected.

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Should these agencies have their mandates changed or reduced, lose key personnel, be disbanded or reorganized by the government or otherwise discontinue providing liquidity for the multi-family sector, our ability to obtain financing through loan programs sponsored by the agencies could be negatively impacted.

obtain comparable financing for new acquisitions or refinancing for our existing multi-family real estate investments.

In addition, changes in our relationships with Fannie Mae and Freddie Mac, and the lenders that participate in these loan programs, with respect to our existing mortgage financing could impact our ability to obtain comparable financing for new acquisitions or refinancing for our existing multi-family real estate investments.

Should our access to financing provided through Fannie Mae and Freddie Mac loan programs be reduced or impaired, it would significantly reduce our access to debt capital and/or increase borrowing costs and could significantly limit our ability to acquire properties on acceptable terms and reduce the values to be realized upon property sales.

The phasing out of LIBOR may adversely affect our cash flow and financial results.

Excluding the variable rate mortgage debt associated with a property sold in February 2022, at December 31, 2021 we had $37.4 million in variable rate debt in the form of junior subordinated notes maturing in 2036 and bearing an interest rate which resets quarterly and is based on three-month LIBOR plus 200 basis points (the “LIBOR Debt”).

Our exposure to fluctuating interest payments on the LIBOR Debt is unhedged.

The authority regulating LIBOR announced it intends to stop compelling banks to submit rates for the calculation of LIBOR after June 2023 and it is possible that LIBOR will become unavailable at an earlier date.

Although the LIBOR Debt provide for alternative methods of calculating the interest rate when LIBOR becomes unavailable, such alternative rates may be unavailable in which case we may have to negotiate a secondary alternative rate with the counterparties to the LIBOR Debt – we can provide no assurance that we and our counterparties will be able to agree to a secondary alternative rate.

Our cash flow and financial results may be adversely affected if we are unable to arrange a mutually satisfactory alternative rate to LIBOR for our LIBOR Debt.

Further, the absence of LIBOR or a generally acceptable alternative thereto may make it more challenging to hedge our interest rate exposure on variable rate debt that we may incur in the future which in turn may make it more difficult to acquire properties.

At December 31, 2022 we had $37.4 million junior subordinated notes maturing in 2036;

these notes bear interest based on three-month LIBOR plus 200 basis points.

The authority regulating LIBOR announced that after June 2023 it intends to stop compelling banks to submit rates for the calculation of LIBOR.

Although these junior subordinated notes provide for alternative methods of calculating the interest rate when LIBOR becomes unavailable, such alternative rates may be unavailable in which case we may have to negotiate a secondary alternative rate with the counterparties to such debt – we can provide no assurance that we and our counterparties will be able to agree to a secondary alternative rate.

Our cash flow and financial results may be adversely affected if we are unable to arrange a mutually satisfactory alternative rate to LIBOR for our junior subordinated notes.

We depend on our subsidiaries for cash flow and will be adversely impacted if these subsidiaries are prohibited from distributing cash to us.

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We may be subject to environmental liabilities arising from the ownership of properties.

Under various federal, state and local laws, an owner or operator of real property may become liable for the costs of removal of certain hazardous substances released on its property.

Under various federal, state and local laws, an owner or operator of real property may become liable for the costs of removal of certain hazardous substances

released on its property.

These laws often impose liability without regard to whether the owner or operator knew of, or was responsible for, the release of such hazardous substances.

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We do not know whether existing requirements will change or whether compliance with future requirements will require significant unanticipated expenditures that will affect our cash flow and results of operations.

We could be adversely affected if we or any of our subsidiaries are required to register as an investment company under the Investment Company Act of 1940 as amended (the “1940 Act”).

We conduct our operations so that neither we, nor any of our subsidiaries is required to register as investment companies under the 1940 Act.

If we or any of our subsidiaries is required to register as an investment company but fail to do so, the unregistered entity would be prohibited from engaging in certain business, and criminal and civil actions could be brought against such entity.

In addition, the contracts of such entity would be unenforceable unless a court required enforcement, and a court could appoint a receiver to take control of the entity and liquidate its business.

Risks Associated with the Real Estate Industry and REITs.

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These charges and provisions may be required in the future as a result of factors beyond our control, including, among other things, changes in the economic environment and market conditions affecting the value of real property assets or natural or man-made disasters.

In 2021, we incurred a $520,000 impairment charge related to our investment in the joint venture that owned the OPOP Properties and in 2020 we incurred a $3.6 million impairment charge on the South Daytona Property.

In 2021, we incurred a $520,000 impairment charge related to our investment in the joint venture that owned the OPOP Properties.

If we are required to take additional impairment charges, our results of operations will be adversely impacted.

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If we do not continue to pay cash dividends, the price of our common stock may decline.

Our business and operations are subject to physical and transition risks related to climate change.

Several of our multi-family properties are located along or near coastal areas that have historically been subject to the risk of extreme weather events.

To the extent climate change causes changes in weather patterns, areas where many of our properties are located could experience more frequent and intense extreme weather events and rising sea levels, which may cause significant damage to our properties, disrupt our operations and adversely impact our residents.

Over time, such conditions could result in reduced demand for housing in areas where our properties are located and increased costs related to further developing our properties to mitigate the effects of climate change or repairing damage related to the effects of climate change that may or may not be fully covered by insurance.

Likewise, such conditions also may negatively impact the types and pricing of insurance we are able to procure.

Changes in federal, state and local laws and regulations on climate change could result in increased operating costs and/or capital expenditures to improve the energy efficiency of our existing properties without a corresponding increase in rental revenues.

The imposition of such requirements could increase the costs of maintaining or improving our existing properties (for example by requiring retrofits of existing multi-family properties to improve their energy efficiency and/or resistance to inclement weather) without creating corresponding increases in rental revenues, which would have an adverse impact on our operating results.

Risks Related to BRT's Organization, Structure and Ownership of its Stock

Our transactions with affiliated entities involve conflicts of interest ;

certain of our affiliated entities have purchased multi-family properties in the Southeast United States .

Entities affiliated with us and with certain of our executive officers provide services to us and on our behalf.

These transactions may not be on terms as favorable as those that we would receive if the transactions were entered into with unaffiliated entities and persons.

Among other things, we retain certain executive officers and others to provide the Services.

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We also obtain certain insurance in conjunction with Gould Investors and reimbursed Gould Investors $67,000 and $61,000, in 2022 and 2021, respectively, for our share of the insurance cost.

These transactions may not be on terms as favorable as those that we would receive if the transactions were entered into with unaffiliated entities and persons.

Gould Investors from time-to time buys multi-family properties, including properties located in the Southeast United States.

Such properties are generally much smaller than the properties in which we are interested.

See "Item 1 - Business - Our Acquisition Approach"

Senior management and other key personnel are critical to our business and our future success may depend on our ability to retain them.

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In order for us to qualify as a real estate investment trust under the Code, no more than 50% of the value of the outstanding shares of our stock may be owned, directly or indirectly or through application of certain attribution rules, by five or fewer “individuals” (as defined in the Code) at any time during the last half of a taxable year.

To facilitate our qualification as a REIT under the Code, among other purposes, the Charter generally prohibits any person from actually or constructively owning more than 6.0%, in value or number of shares, whichever is more restrictive, of our outstanding shares of common stock, or more than 6.0% in value of the aggregate outstanding shares of all classes and series of our stock, which we refer to as the “ownership limits,” unless our board of directors exempts the person from such ownership limit.

than 6.0% in value of the aggregate outstanding shares of all classes and series of our stock, which we refer to as the “ownership limits,” unless our board of directors exempts the person from such ownership limit.

In addition, the Charter prohibits any person from beneficially or constructively owning shares of our stock that would result in more than 50% of the value of the outstanding shares of our stock to be beneficially owned by five or fewer individuals, regardless of whether such ownership is during the last half of any taxable year, which we refer to as the “Five or Fewer Limit.” Shares owned or acquired in violation of either of these restrictions will be transferred automatically to a trust for the benefit of a charitable beneficiary selected by us.

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Gould, Matthew J.

Gould, Jeffrey A.

Gould or Jeffrey A.

Gould acquiring additional shares of our common stock or otherwise increasing their percentage of ownership of our common stock, meaning that the amount of our stock that other persons or entities may acquire without violating the Five or Fewer Limit could be reduced in the future and without notice.

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In June 2018, our common stock was added to the Russell 3000® Index.

In the short term this may have favorably impacted the price, trading volume, and liquidity of our common stock, in part, because holders attempting to track the composition of that index may have been required to buy our common stock, which could cause a material increase in the price at which our common stock trades.

If our common stock is removed from the Russell 3000® Index because it does not meet the criteria for continued inclusion in such index, index funds, institutional investors, or other holders attempting to track the composition of that index may be required to sell our common stock, which would adversely impact the price and frequency at which it trades.

If our common stock is removed from the Russell 3000® Index because it does not meet the criteria for continued inclusion in such index, index funds,

institutional investors, or other holders attempting to track the composition of that index may be required to sell our common stock, which would adversely impact the price and frequency at which it trades.

General Business Risks

7 unchanged sentences

Not applicable.

Our executive office is located at 60 Cutter Mill Road, Suite 303, Great Neck, New York.

We believe that such facilities are satisfactory for our current and projected needs.

Our principal executive office is located at 60 Cutter Mill Road, Suite 303, Great Neck, NY.

We believe that this facility is satisfactory for our current and projected needs.

See "Item 1—Business" for additional information regarding our properties.

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

What changed 10-K

Item 1A. Risk Factors