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Item 7. Management’s Discussion and Analysis

2023-03-15 compared with 2022-03-16 · 188 added, 196 removed, 236 unchanged (62% of the section changed)

1 unchanged sentence

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

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

These properties may be wholly owned or owned by unconsolidated joint ventures in which we generally have contributed a significant portion of the equity.

At December 31, 2022, we:

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

These 33 properties are located in eleven states;

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

The Impact of the COVID-19 Pandemic;

(i) wholly-own 21 multi-family properties with an aggregate of 5,420 units and a carrying value of $649.7 million, (ii) have ownership interests, through unconsolidated entities, in eight multi-family properties with an aggregate of 2,781 units, for which the carrying value of our net equity investment therein is $39.1 million and (iii) own other assets, through consolidated and unconsolidated entities, with a carrying value of $5.4 million.

The 29 multi-family properties are located in eleven states;

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

2022 and Recent Developments.

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

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

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

The impact of the pandemic on our business, financial condition, liquidity, results of operations and prospects will depend on future developments, which are highly uncertain and cannot be predicted with confidence.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Financing;Other

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

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

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

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

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

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

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

Subsequent to December 31, 2021,

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

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

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

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

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

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

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

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

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

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

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

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

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

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

mortgage debt is currently reflected in Item 7.

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

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

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

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

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

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

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

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

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

2022 Acquisition Plan

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

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

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

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

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

Partner Buyouts

We purchased the interests of our joint venture partners in ventures that owned 11 multi-family properties for an aggregate purchase price of $105.9 million (the "2022 Partner Buyouts").

As a result, these properties are wholly-owned and the accounts (including mortgage debt of approximately $236.6 million) and results of operations of these properties are included directly in our consolidated financial statements as of the applicable date of purchase.

In 2022, (i) since the applicable Partner Buyout, these properties contributed in the aggregate $23.4 million in rental revenues, $10.2 million in operating expenses, $6.6 million in interest expense and $11.2 million in depreciation, and (ii) prior to the applicable Partner Buyout contributed an aggregate of $1.2 million in income from unconsolidated joint ventures.

In 2023, we anticipate that these 11 properties will generate approximately $41.8 million in rental revenues, $18.0 million of real estate operating expense, $11.9 million in interest expense and $16.6 million in depreciation.

These estimates for 2023 assume that rental income and real estate operating expense will remain at the same level in 2023 as in 2022 (although we anticipate that real estate operating expense will be higher in 2023 due to the master insurance program), and assumes an anticipated increases in 2023 from 2022 in interest expense due to a mortgage refinance that occured in May 2022 and depreciation as a result of the additional investments ( i.e.

, the purchase price paid for the remaining interest) made in such properties .

Since August, 2021, we completed the purchase of the remaining interests of our joint venture partners in 14 joint ventures including three partner buyouts completed in 2021 (the "2021 Partner Buyouts";

and together with the 2022 Partner Buyouts, the "Partner Buyouts").

We recorded an aggregate gain of $64.5 million from the sale by unconsolidated subsidiaries, in four separate transactions, of four multi-family properties, and our share of the related aggregate loss on extinguishment of debt was $1.9 million.

During 2022 (through the applicable sales dates) and 2021, these properties contributed a loss of $1.6 million (including our share of the early extinguishment of debt charge related to these sales) and income of $201,000 respectively, of equity in earnings (loss) of unconsolidated joint ventures.

• entered into the Amendment to our Facility.

Among other things, the Amendment (i) increased the amount we are permitted to borrow from $35 million to an aggregate of $60 million, subject to compliance with borrowing base requirements and other conditions, (ii) increased from $15 million to $25 million the amount that may be used for working capital (including dividend payments) and operating expenses, (iii) extended the term of the facility from November 2024 to September 2025, (iv) reduced the interest rate to the prime rate (subject to a floor of 3.5%) by eliminating the 25 basis point spread over the prime rate, (v) increased the number and value of the unencumbered properties we are required to maintain from two properties with a value of at least $50 million to three properties with a value of at least $75 million and (vi) requires that we maintain a tangible net worth of a least $140 million.

• raised approximately $9.9 million of equity from the sale of 447,815 shares of our common stock pursuant to our at-the-market equity offering program.

• implemented, effective with the dividend declared in June 2022, an 8.7% per share increase in our quarterly cash dividends from the immediately preceding dividend payment, and declared dividends of an aggregate of $0.98 per share.

• implemented a dividend reinvestment plan which allows our stockholders to purchase our common stock at a discount (currently 3.0% to the trading price) and which reduced our cash outlay for dividends paid in 2022 by $1.3 million.

• maintained an average occupancy rate of 95.9% across our portfolio of multi-family properties.

• began participating in a master insurance program which covers 17 wholly-owned properties comprising 4,316 units located in 10 states.

Generally, the coverage limit is $100 million ($50 million for named hurricanes) per occurrence with a deductible of $100,000 for all other perils, and varying deductibles for, among other things, wind, flood, and earthquake damage.

We also obtained, on a per occurrence per property basis, general liability and umbrella coverage of $1 million and $25 million, respectively.

• used our available cash to pay-off $14.5 million of 4.29% mortgage debt of Avalon Apartments - Pensacola, FL, a wholly owned property.

• used our credit facility in October 2022 to pay off $14.9 million of maturing mortgage debt at our Silvana Oaks-North Charleston, SC property.

In February 2023, we obtained mortgage debt of $ 21.2 million on our Silvana Oaks - North Charleston, SC multi-family property;

such mortgage debt matures in March 2033, bears an interest rate of 4.45% and is interest only for the term of the mortgage.

We used the net proceeds of such mortgage debt to fully pay down our credit facility.

On March 13, 2023, the unconsolidated joint venture that owns Chatham Court and Reflections, a 494 unit multi-family property located in Dallas, TX, and in which we have a 50% interest, entered into a contract to sell such property.

We estimate that our share of the gain from this sale will be approximately $14.3 million and that our share of the related early extinguishment of debt charge will be $167,000.

In 2022, this property accounted for $753,000 of equity in earnings from unconsolidated joint ventures.

We anticipate that the closing of this transaction, which is subject to customary closing conditions, will be completed in the quarter ending June 30,2023, although we can provide no assurance that this transaction will be completed.

In March 2023, the Company entered into an agreement to acquire a 238-unit multifamily property constructed in 2019 and located in Richmond, VA, for a purchase price of approximately $62.5 million.

The purchase price includes the assumption of approximately $32 million of mortgage debt bearing an interest rate of 3.34% and maturing in 2061.The purchase is subject to the satisfaction of various conditions, including the completion, to BRT’s satisfaction, of its due diligence investigation, as well as the approval by the mortgage lender of the Company’s assumption of the mortgage debt.

BRT anticipates that this transaction will be completed in the fourth quarter of 2023, although we can provide no assurance that this transaction will be completed.

UPREIT Structure

We are evaluating whether to establish an UPREIT structure to enhance our ability to acquire multi-family properties.

There is no timetable for the completion of such evaluation or implementation of such structure and we can provide no assurance that we will implement an UPREIT structure and that if implemented, that it will be beneficial to us and our stockholders.

Results of Operations

Comparison of Years Ended December 31, 2022 and 2021

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

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

The term "same store properties" refers to seven multi-family properties with an aggregate of 1,608 units that were owned for all of 2022 and 2021.

The term "unconsolidated same store properties" with an aggregate of 2,781 units refers to eight properties that were owned for all of 2022 and 2021.

The following table compares our revenues for the years indicated:

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The components of the increase include:

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

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

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

Other income.

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

• $37.1 million due to the revenues from the Partner Buyouts, including $13.7 million from the inclusion, for all of 2022, of the revenues from the 2021 Partner Buyouts;

• $2.6 million from same store properties, substantially all of which is due to higher rental rates.

Offsetting the increase is a $1.2 million decrease due to the sale of the Kendall Manor Property - Houston, TX (the "Kendall Sale") in 2021 and a $191,000 decrease due to lower occupancy at same store properties.

The following table compares our expenses for the periods indicated:

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The components of the increase include:

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

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

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

• $16.2 million from the Partner Buyouts, of which $6.0 million is from the inclusion, for all of 2022, of the expenses from the properties included in the 2021 Partner Buyouts;

• $1.0 million from same store properties, including increases of $440,000 in repairs and maintenance and replacement costs, which includes turnover costs, $160,000 in payroll costs, $132,000 in insurance costs and $106,000 in utility expense.

The increase was offset by a $828,000 decrease due to the Kendall Sale.

We anticipate that these expenses will increase in 2023 because of our implementation of the Insurance Program, industry-wide increases in the cost of property insurance coverage and the impact of inflation.

Interest expense

The decrease is due to a :

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

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

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

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

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

The change is due to a:

• $9.6 million increase due to the Partner Buyouts, including $2.9 million from the inclusion, for all of 2022, of such expense from the properties included in the 2021 Partner Buyouts;

• $612,000 increase in interest expense on our credit facility, due to a $7.9 million increase in the average outstanding balance during 2022;

• $592,000 due to the increase in the interest rate on our floating rate junior subordinated notes.

The increase was offset by a (i) $1.8 million decrease due to the payoff of $61.3 million of mortgage debt since August 2021 ($31.9 million in 2021 and $29.5 million in 2022) and (ii) $271,000 decrease due to the Kendall Sale.

General and administrative.

The increase is due to:

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

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

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

Impairment charge

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

OPOP Properties was sold in November 2021.

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

This property was sold in February 2022.

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

The increase was offset by:

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

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

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

Other revenue and expense items

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

The increase is due to a $1.5 million increase in non-cash compensation expense, including increases of:

• $890,000 due to increased amortization expense from RSUs, of which increases of (i) $510,000 reflects amortization expense related to RSU's granted in June 2022 and (ii) $380,000 reflects net amortization expense primarily related to the RSUs granted in 2021;

• $400,000 due to the amortization expense related to the restricted stock granted in January 2022 (as a result of the higher fair value of the shares granted in 2022 in comparison to the restricted stock granted in 2017);

• $254,000 due to the inclusion, for all of 2022, of the amortization expense related to the restricted stock granted in June 2021.

Also contributing to the increase was a $461,000 increase due to higher levels of cash compensation.

The increase was offset by the inclusion, in 2021, of $114,000 of professional fees related primarily to a terminated stock offering.

Impairment charges

In 2021, we recorded an impairment charge of $520,000 representing the excess of the book value of our investment in the Opop Tower and Loft properties, St Louis, MO, over the anticipated selling price of the investment.

There was no comparable charge in 2022.

Depreciation and amortization

The increase is due $16.9 million of such expense from the Partner Buyouts, including $5.7 million from the inclusion, for all of 2022, of such expense from the properties included in the 2021 Partner Buyouts.

Gain on sale of real estate

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

There was no comparable gain in 2020.

In 2022, we recognized a gain of $6,000 on the sale of a vacant parcel of land in South Daytona Beach, FL.

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

Casualty loss / Insurance recovery of casualty loss

In 2022, we settled a personal injury lawsuit for $850,000.

Our insurance carrier reimbursed us for this loss.

Gain on sale of partnership interest

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

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

In 2021, we sold our interest in a joint venture that owned Anatole Apartments - Daytona, Beach, FL and OPOP Towers and Lofts - St.

Louis, MO (collectively, the Anatole/OPOP Sale) and recognized an aggregate gain of $2.6 million.

There was no comparable gain in 2022.

Loss on extinguishment of debt

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

There was no comparable loss in 2020.

In 2022, we incurred $563,000 of loss on extinguishment of debt related to the mortgage refinancing that took place with the buyout of our joint venture partner's interest in Brixworth at Bridge Street - Huntsville, AL.

In 2021, we incurred $1.6 million of prepayment charges and deferred loan fee write-offs on the payoff of three first mortgage loans and three supplemental loans with an aggregate outstanding principal balance of $31.9 million and the refinance of a mortgage loan in connection with the purchase of the interests of our joint venture partners in Crestmont at Thornblade - Greenville, SC.

Income tax provision

In 2022, income tax provision increased to $821,000 from $206,000 in 2021 due to an increase in state level taxes accrued.

The increase is the result of income generated by property sales in 2022 and the unavailability of net operating loss carryforwards available in certain states to offset such income.

Unconsolidated Joint Ventures - Results of Operations.

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Insurance recoveries from unconsolidated joint ventures 8,553 2,813 5,740 N/A

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

Gain on insurance proceeds from unconsolidated joint ventures 567 2,179 (1,612) (74.0) %

Gain on sale of real estate from unconsolidated joint ventures 118,270 83,984 34,286 N/A

Loss on extinguishment of debt from unconsolidated joint ventures (3,491) (9,401) 5,910 N/A

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

Net income $ 121,187 $ 75,615 $ 45,572

Equity in earnings (loss) and gain on sale of real estate of unconsolidated joint ventures $ 66,426 $ 30,774

Rental revenue from unconsolidated joint ventures

The decrease is due primarily to:

• $7.0 million from the Avenue/Parc Sale;

The decrease is due to:

• $31.0 million from the Partner Buyouts, including $11.0 million from the 2021 Partner Buyouts;

• $10.3 million from the sale, in 2021, of The Avenue Apartments-Ocoee, FL and Parc at 980-Lawrenceville, GA (collectively, the "Avenue/Parc Sale");

• $9.3 million from the sale, in 2022, of Verandas at Shavano-San Antonio, TX, Cinco Ranch-Katy, TX, Vive at Kellswater-Kannapolis, NC and Water's Edge-Columbia, SC (collectively, the "Shavano/Cinco/Vive /Waters Edge sales");

• $3.2 million from the Anatole/OPOP Sale.

• $2.5 million due to the Consolidating Transactions.

The decrease was offset by:

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

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

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

The decrease was offset by a $4.9 million increase in rental revenue from unconsolidated same store properties, primarily from an increase in rental rates.

Real estate operating expenses from unconsolidated joint ventures

The components of the decrease include:

• $14.0 million from the Partner Buyouts, including $5.2 million from the 2021 Partner Buyouts;

• $4.6 million due to the Avenue/Parc Sale;

• $1.4 million from the Consolidating Transactions;

• $4.4 million from the Shavano/Cinco/Vive/Waters Edge sales;

• $2.0 million from the Anatole/OPOP Sales.

The decrease was offset by:

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

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

The decrease was offset by a $1.5 million increase from unconsolidated same store properties, including increases of $417,000 in real estate taxes, $403,000 in utility costs, $258,000 in repairs, maintenance and replacement costs and $224,000 in payroll and leasing commissions.

Interest expense from unconsolidated joint ventures.

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

The components of the decrease are:

• $8.5 million due to the Partner Buyouts, including $2.7 million from the 2021 Partner Buyouts;

• $2.5 million due to the Avenue/Parc Sale;

• $2.3 million from the Shavono/Cinco/Vive/Waters Edge sales;

• $1.3 million from the Anatole/OPOP Sales.

Depreciation from unconsolidated joint ventures .

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

Impairment charges from unconsolidated joint ventures.

The components of the decrease are:

• $10.3 million due to the Partner Buyouts, including $3.9 million from the 2021 Partner Buyouts ;

• $3.5 million from the Shavano/Cinco/Vive/Waters Edge sales;

• $2.4 million due to to the Avenue/Parc Sale;

• $1.3 million from the Anatole/OPOP Sales.

Impairment of assets from unconsolidated joint ventures.

During 2022, we recognized $8.6 million of impairment charges related to a fire at Stono Oaks, a development project located in Johns Island, SC.

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

There were no comparable charges in 2020.

Insurance recoveries from unconsolidated joint ventures.

During 2022, we recognized $8.6 million of insurance recoveries related to the Stono Oaks fire.

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

There were no comparable recoveries in 2020.

Gain on insurance recoveries from unconsolidated joint ventures .

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

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

During 2022, we recognized $567,000 in gains from insurance recoveries at Vernadas at Alamo-San Antonio, TX and Woodlands-Boerne, TX.

In 2021, we recognized $1.9 million in gains from insurance recoveries at two properties ( i.e., Verandas at Shavano and Verandas at Alamo, both located in San Antonio, TX), that were damaged by the Texas Storm, and $325,000 from an insurance claim on Magnolia Pointe - Madison, AL, that sustained fire damage in a prior year.

In each year, the gain represents the amounts received on insurance recoveries in excess of the assets previously written-off.

Gain on sale of real estate from unconsolidated joint ventures

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

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

There were no comparable sales in 2020.

In 2022, we recognized an aggregate gain of $118.2 million from the Shavano/Cinco/Vive/Waters Edge sales and in 2021, we recognized an aggregate gain of $84.0 million from the Avenue/Parc Sales.

Loss on early extinguishment of debt from unconsolidated joint ventures

The loss in 2022 is due to prepayment charges from the Shavano/Cinco/Vive/Waters Edge sales.

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

There was no comparable loss in 2020.

Comparison of Years Ended December 31, 2021 and 2020

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

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

Funds from Operations;

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In computing FFO, we do not add back to net income the amortization of costs in connection with our financing activities or depreciation of non-real estate assets.

We compute AFFO by adjusting FFO for loss on extinguishment of debt, our straight-line rent accruals, restricted stock and RSU compensation expense, gain on insurance recovery, and deferred mortgage and debt costs (including our share of our unconsolidated joint ventures).

We compute AFFO by adjusting FFO for loss on extinguishment of debt, our straight-line rent accruals, restricted stock and RSU compensation expense, fair value adjustment of mortgage debt, gain on insurance recovery, insurance recovery from casualty loss and deferred mortgage and debt costs (including, in each case as applicable, from our share from our unconsolidated joint ventures).

Since the NAREIT White Paper does not provide guidelines for computing AFFO, the computation of AFFO may vary from one REIT to another.

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

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

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

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

GAAP Net income attributable to common stockholders $ 49,955 $ 29,114

depreciation of properties 24,812 8,025

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our share of impairment charge in unconsolidated joint venture properties 1,493 2,010

casualty loss 850 —

gain on sales of real estate and partnership interests (6) (10,325)

our share of earnings in earnings from sale of unconsolidated joint

venture properties (64,531) (34,982)

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

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

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our share of deferred mortgage costs from unconsolidated joint venture properties 227 542

amortization of fair value adjustment for mortgage debt 148 —

insurance recovery of casualty loss (850) —

our share of insurance recovery from unconsolidated joint ventures (1,493) (2,010)

gain on insurance recovery (62) —

our share of gain on insurance proceeds from unconsolidated joint venture

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Adjusted funds from operations $ 28,350 $ 23,811

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

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

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

Net income attributable to common stockholders $ 2.66 $ 1.62

depreciation of properties 1.33 0.45

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our share of impairment charge in unconsolidated joint ventures 0.08 0.11

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

casualty loss 0.05 —

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

our share of earnings from sale of unconsolidated joint venture properties (3.45) (1.95)

Adjustment for non-controlling interests — —

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unconsolidated ventures 0.01 0.03

amortization of fair value adjustment for mortgage debt 0.01 —

insurance recovery of casualty loss (0.05) —

our share of insurance recovery from unconsolidated joint ventures (0.08) (0.11)

gain on insurance recovery — —

our share of gain on insurance proceeds from unconsolidated joint ventures (0.02) (0.09)

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Diluted shares outstanding for FFO and AFFO 18,782,695 17,936,465

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

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

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

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

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

FFO for 2022 increased $5.8 million, or 33%, to $23.2 million from $17.4 million in 2021.

Contributing to the improvement were:

• an $8.2 million increase in our incremental share of the operating income due to the Partner Buyouts (the "Incremental Impact"), including $3.4 million from the inclusion, for all of 2022, of the Incremented Impact from the 2021 Partner Buyouts;

• a $3.7 million decrease in loss on extinguishment of debt;

• a $3.1 million increase due to improved operating margins across our portfolio;

• a $1.7 million decrease in interest expense;

• an $850,000 increase in an insurance recovery from a casualty loss.

The increase was offset by:

• a $7.6 million decrease from the sale of properties (including interests in properties), in 2022 and 2021;

• a $2.0 million increase in General and administrative expense (including $1.5 million of non-cash compensation expense);

• a $701,000 decrease in insurance recoveries and gains from insurance proceeds;

• an $615,000 increase in income tax provision.

AFFO increased $4.5 million, or 19%, to $28.4 million in 2022 from $23.8 million in 2021, due to factors contributing to the improvement in FFO, excluding the $3.7 million loss on extinguishment of debt, $1.5 million in non-cash compensation expense, and a net $701,000 relating to insurance recoveries and gains.

See “—Comparison of Years Ended December 31, 2022 and 2021” for further information regarding these changes.

Diluted per share FFO and AFFO were impacted in the year ended December 31, 2022 by an $846,000 increase in the weighted averages shares of common stock outstanding primarily due to stock issuances pursuant to our at-the-market offering and equity incentive programs.

NOI is a non-GAAP measure of performance.

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

We compute NOI by adjusting net income (loss) to (a) add back (1) depreciation expense, (2) general and administrative expenses, (3) interest expense, (4) loss on extinguishment of debt, (5) equity in loss of unconsolidated joint ventures, (6) provision for taxes, (7) the impact of non-controlling interests, and (b) deduct (1) other income, (2) gain on sale of real estate, and (3) gain on insurance recoveries related to casualty loss.

We compute NOI by adjusting net income (loss) to (a) add back (1) interest expense, (2) general and administrative expenses, (3) depreciation expense, (4) impairment charges, (5) provision for taxes, (6) loss on extinguishment of debt, (7) equity in loss of unconsolidated joint ventures, (8) casualty loss and (9) the impact of non-controlling interests, and (b) deduct (1) other income, (2) gain on sale of real estate (3) gain on sale of partnership interest, (4) equity in earnings from sale of consolidated joint venture properties, (5) insurance recovery of casualty loss and (6) gain on insurance recoveries.

Other REIT’s may use different methodologies for calculating NOI, and accordingly, our NOI may not be comparable to other REIT’s.

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For the year ended December 31,

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

GAAP Net income attributable to common stockholders $ 49,955 $ 29,114

Other Income (12) (16)

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Loss on extinguishment of debt 563 1,575

Equity in loss of unconsolidated joint venture properties 4,208 6,024

Equity in earnings from sale of unconsolidated joint venture properties (34,982) —

Equity in (earnings) loss of unconsolidated joint venture properties (1,895) 4,208

Casualty loss 850 —

Equity in earnings from sale of unconsolidated joint

venture properties (64,531) (34,982)

Insurance recovery of casualty loss (850) —

Gain on insurance recovery (62) —

Net income attributable to non-controlling interests 144 136

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and the prior year.

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

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

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

In 2022, NOI increased by $22.1 million from 2021 primarily due to a $38.5 million increase in rental revenues resulting from the Partner Buyouts.

The increase was offset by a $16.4 million increase, primarily due to the Partner Buyouts, in real estate operating expenses.

Same store NOI increased in 2022 by $1.6 million from 2021 due to a $2.6 million increase in rental revenues (and in particular, the increase in average rental rates) offset by a $1.0 million increase in real estate operating expenses.

See "-Results of Operations - Year Ended December 31, 2022 Compared to the Year Ended December 31, 2021" for a discussion of these changes.

Liquidity and Capital Resources

We require funds to pay operating expenses and debt service obligations, acquire properties, make capital and other improvements, fund capital contributions and pay dividends.

Generally, in 2022, our primary sources of capital and liquidity were the operations of our multi-family properties (including distributions of $10.9 million from the operations of our unconsolidated joint ventures and $80.2 million of distributions from sale transactions), $4.4 million from property sales owned by consolidated entities, net mortgage proceeds of $19.0 million from the refinancing of mortgage debt in connection with the 2022 Partner Buyouts, $9.9 million from the sale of our common stock through our at-the-market equity offering program, and our available cash.

Excluding funds held at our unconsolidated subsidiaries, at December 31, 2022 and March 1, 2023, our available liquidity was approximately $ 61.3 million and $75.3 million, respectively, including $20.3 million and $15.3 million, respectively, of cash and cash equivalents, and subject to compliance with borrowing base and other requirements, up to $41.0 million and $60.0 million, respectively, available under our credit facility.

We anticipate that for the four years beginning January 1, 2023, our operating expenses, $133.9 million of mortgage amortization and interest expense (including $55.4 million from unconsolidated joint ventures) and $118.4 million of balloon payments due with respect to mortgages maturing through 2026, estimated capital expenditures ( for 2023 only) of $11.1

million (including an estimated $3.6 million for our value add program), estimated cash dividend payments of at least $76.4 million (assuming (i) the current quarterly dividend rate of $0.25 per share and (ii) 19.1 million shares outstanding) will be funded from cash generated from operations (including distributions from unconsolidated joint ventures), mortgage financings and re-financings, sales of properties, the issuance of additional equity and, if available as noted below, our $60 million credit facility.

Our operating cash flow and available cash is insufficient to fully fund the $118.4 million of balloon payments, and if we are unable to refinance such debt on acceptable terms, we may need to issue additional equity or dispose of properties, in each case on potentially unfavorable terms.

Our ability to acquire additional multi-family properties and implement value-add projects is limited by our available cash and our ability to (i) draw on our credit facility, (ii) obtain, on acceptable terms, mortgage debt from lenders, and (iii) raise capital from the sale of our common stock.

Further, if and to the extent we generate ordinary taxable income, we will be required to make distributions to stockholders to maintain our REIT status and as a result, will be limited in our ability to use gains, if any, from property sales, as a source of funds for operating expenses, debt service and property acquisitions.

Disclosure of Known Material Contractual Obligations

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See the following table for information regarding same.

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

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

Assumes that the interest rate on the junior subordinated notes will be 6.41% per annum and the interest rate on the credit facility will be 7.50% per annun, which were the rates in effect at December 31, 2022.

(2) Assumes that $1.0 million will be paid annually for the next five years pursuant to the shared services agreement and $ 1.5 million will be paid annually through December 31, 2027 for the Services.

Business—Our Structure."

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No amount has been reflected as payable pursuant thereto after five years as such amount is not determinable.

Excludes $11.1 million of anticipated capital expenditures in 2023,including $3.6 million in connection with our value add program.

Such expenditures subsequent to 2023 are not determinable.

The following table sets forth as of December 31, 2022 information regarding the components of our long-term debt obligations:

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Mortgages on unconsolidated properties (1) 13,845 28,325 81,520 191,610 315,300

Junior subordinated notes (3) 797 1,594 1,594 45,630 49,615

Junior subordinated notes and credit facility(2) 3,822 26,288 4,795 62,173 97,078

Total $ 36,900 $ 110,875 $ 230,437 $ 554,800 $ 933,012

___________________________

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

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

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

Liquidity and Capital Resources

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

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

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

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

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

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

Our ability to acquire additional multi-family properties (including our acquisitions of our partners' interests in properties owned by joint ventures) is limited by our available cash and our ability to (i) draw on our credit facility, (ii) obtain, on acceptable terms and mortgage debt from lenders, and (iii) raise capital from the sale of our common stock.

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

(2) Assumes that the interest rate on the junior subordinated notes will be 6.41% per annum and includes $19 million on our credit facility which was paid off in February 2023.

Corporate Level Financing Arrangements

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notes), are redeemable at our option and bear an interest rate, which resets and is payable quarterly, of three-month LIBOR plus 200 basis points.

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

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

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

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

At December 31, 2022 and 2021, the interest rate on these notes was 6.41% and 2.13%, respectively.

Credit Facility

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

Our credit facility with VNB New York, LLC, an affiliate of Valley National Bank (collectively, "VNB"), allows us to borrow, subject to compliance with borrowing base requirements and other conditions, up to $60 million, (i) for the acquisition of, and investment in, multi-family properties, (ii) to repay mortgage debt secured by multi-family properties and (iii) for Operating Expenses ( i.e.

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

provided, that not more than $25 million may be used for Operating Expenses.

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

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

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

The credit facility bears an annual interest rate, which resets daily, equal to the prime rate, with a floor of 3.50%.

The interest rate at December 31, 2022 and March 1, 2023, was 7.50% and 7.75% respectively.

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

The credit facility matures in November 2024.

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

The terms of the credit facility include certain restrictions and covenants which, among other things, limit the incurrence of liens, require that we maintain and include in the collateral securing the facility at least two unencumbered properties with an aggregate value(as calculated pursuant to the facility) of at least $50 million, and require compliance with financial ratios relating to, among other things, the minimum amount of debt service coverage with respect to the properties (and amounts drawn on the credit facility) used in calculating the borrowing base.

The credit facility matures in September 2025.

As of March 1, 2023, there was no balance outstanding and up to $60 million was available to be borrowed thereunder.

The terms of the credit facility include certain restrictions and covenants which, among other things, limit the incurrence of liens, require that we maintain and include in the collateral securing the facility at least three unencumbered properties with an aggregate value(as calculated pursuant to the facility) of at least $75 million, and require compliance with financial ratios relating to, among other things maintaining a minimum tangible net worth of $140 million, the minimum amount of debt service coverage with respect to the properties (and amounts drawn on the credit facility) used in calculating the borrowing base.

Net proceeds received from the sale, financing or refinancing of wholly-owned properties are generally required to be used to repay amounts outstanding under the credit facility.

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

As of December 31, 2022, we were in compliance in all material respects with the requirements of the facility.

Other Financing Sources and Arrangements

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

The distributions from the properties owned by these ventures, $62.0 million in 2021 (including $46.7 million from the sale of such properties) are a material source of our liquidity and cash flow.

Further, we may be required to make significant capital contributions with respect to these properties.

At December 31, 2022, we are joint venture partners in unconsolidated joint ventures which own eight multi-family properties.

The distributions from the properties owned by these ventures, $6.5 million in 2022 are a meaningful source of our liquidity and cash flow.

Further, we may be required to make capital contributions with respect to these properties.

At December 31, 2022, our investment in these joint venture properties have a net equity carrying value of $39.1 million and are subject to mortgage debt, which is not reflected on our consolidated balance sheet, of $ 256.7 million.

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is not the obligor with respect to such mortgage debt, the loss of any of these properties due to mortgage foreclosure or similar proceedings would have a material adverse effect on our results of operations and financial condition.

These joint venture arrangements have been, and we anticipate that they will continue to be, material to our liquidity and capital resource position.

Prior to the 2022 Partner Buyouts, these joint venture arrangements were material to our liquidity and capital resource position.

After giving affect to the 2022 Partner Buyouts, these arrangements will have a meaningful impact on our liquidity and capital resources.

See note 6 to our consolidated financial statements.

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

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

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

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

Currently, interest rates are less than historical averages.

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

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

Substantially all of our multi-family property leases are for periods of one-year or less.

The short-term nature of these leases generally serves to reduce our risk to adverse effects of inflation on our revenue.

During 2022, we experienced inflationary pressures that drove higher operating expenses, primarily in personnel, repairs and maintenance, insurance and real estate taxes;

such increases may continue in 2023 and thereafter, which will adversely affect our operating results.

Inflation affects the overall cost of our debt.

We mitigate the risks presented by inflation through the use of long-term fixed interest rate debt and interest rate hedges and by paying down, when we deem appropriate, our credit facility debt.

However, increasing interest rates, which generally correlates to increasing inflation, may make it less attractive to obtain mortgage debt or use our credit facility in connection with acquisition, refinancing and value add activities.

Cash Distribution Policy

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

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

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

Accordingly, to qualify as a REIT, we must, among other things, meet a number of organizational and operational requirements, including a requirement that we distribute currently at least 90% of our ordinary taxable income to our stockholders.

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

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

This property was sold in November 2021.

We sold our interests in these properties in November 2021.

Carrying Value of Real Estate Portfolio

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This review is conducted in order to determine if indicators of impairment are present on the real estate.

In reviewing the value of the real estate assets owned, whether by us or our joint ventures, if there is an indicator of impairment and the carrying value of the real estate asset is determined to be unrecoverable, we seek to arrive at the fair value of each real estate asset by using one or more valuation techniques, such as comparable sales, discounted cash flow analysis or replacement cost analysis.

In reviewing the value of the real estate assets owned, if there is an indicator of impairment and the carrying value of the real estate asset is determined to be unrecoverable, we seek to arrive at the fair value of each real estate asset by using one or more valuation techniques, such as comparable sales, discounted cash flow analysis or replacement cost analysis.

A real estate asset is considered to be unrecoverable when an analysis suggests that the undiscounted cash flows to be generated by the property will be insufficient to recover our investment.

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

In making estimates of fair

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

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

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

Quantitative and Qualitative Disclosures About Market Risk.

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

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

Financial Statements and Supplementary Data.

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

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

Not applicable.

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

What changed 10-K

Item 7. Management’s Discussion and Analysis