BRT Apartments Corp. 10-K

Item 9A. Controls and Procedures. Evaluation of Disclosure Controls and Procedures A review and evaluation was performed by our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act as of the end of the period covered by this Annual Report on Form 10-K. Based on that review and evaluation, our CEO and CFO have concluded that our disclosure controls and procedures, as designed and implemented as of December 31, 2022, were effective. Management's Report on Internal Control Over Financial Reporting Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rules 13a-15(f) and 15d-15(f) promulgated under the Exchange Act as a process designed by, or under the supervision of, a company's principal executive and principal financial officers and effected by a company's board, management and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP and includes those policies and procedures that: • pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of a company; • provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that receipts and expenditures of a company are being made only in accordance with authorizations of management and the board of directors of a company; and • provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of a company's assets that could have a material effect on the financial transactions. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risks that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate. 42 Table of Contents Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, assessed the effectiveness of our internal control over financial reporting as of December 31, 2022. In making this assessment, our management used criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control-Integrated Framework (2013). Based on its assessment, our management concluded that, as of December 31, 2022, our internal control over financial reporting was effective based on these criteria. Changes in Internal Controls over Financial Reporting There have been no changes in our internal controls over financial reporting, as defined in in Rules 13a-15(f) and 15d-15(f) promulgated under the Exchange Act, that occurred during the three months ended December 31, 2022 that materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting. Item 9B. Other Information. Not applicable Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections. Not applicable 43 Table of Contents PART III Item 10. Directors, Executive Officers and Corporate Governance. Apart from certain information concerning our executive officers which is set forth in Part I of this report, the other information required by Item 10 will be incorporated herein by reference to the applicable information to be in the proxy statement to be filed by May 1, 2023 for our 2023 Annual Meeting of Stockholders. Item 11. Executive Compensation. The information concerning our executive compensation required by Item 11 is incorporated herein by reference to the proxy statement to be filed by May 1, 2023 with respect to our 2023 Annual Meeting of Stockholders. Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. Except as set forth below, the information required by Item 12 is incorporated herein by reference to the proxy statement to be filed by May 1, 2023 with respect to our 2023 Annual Meeting of Stockholders. Equity Compensation Plan Information The following table provides information as of December 31, 2022 about shares of our common stock that may be issued upon the exercise of options, warrants and rights under our 2018 Incentive Plan (the “2018 Plan”), and our 2020 Incentive Plan (the “2020 Plan”; and together with the 2018 Plan, the “Prior Plans”) and our 2022 Incentive Plan (the “2022 Plan”; and together with the Prior Plans, the “Incentive Plans”). No further awards may be granted under the Prior Plans. Number of securities to be issued upon exercise of outstanding options, warrants and rights (1) (a) Weighted-average exercise price of outstanding options, warrants and rights (b) Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a) (2) (c) Equity compensation plans approved by security holders 422,844 (1) — 787,531 (2) Equity compensation plans not approved by security holders — — — Total 422,844 (1) — 787,531 (2) _______________________________________________________________________________ (1) Includes up to 210,375 shares and 212,469 shares of common stock issuable pursuant to restricted stock units (“RSUs”) that vest as of March 31, 2024 and June 30, 2025, respectively, if and to the extent specified conditions are satisfied by such vesting dates. RSUs granted pursuant to the 2020 Plan and the 2022 Plan account for 210,375 shares and 212,469 shares, respectively. Excludes 934,092 shares of restricted stock issued pursuant to the Incentive Plans as such shares, although subject to forfeiture, are outstanding. See Note 10 to our consolidated financial statements . (2) Does not give effect to 163,914 shares of restricted stock granted January 5, 2023 pursuant to the 2022 Plan. Item 13. Certain Relationships and Related Transactions, and Director Independence. The information concerning relationships and certain transactions required by Item 13 is incorporated herein by reference to the proxy statement to be filed by May 1, 2023 with respect to our 2023 Annual Meeting of Stockholders. Item 14. Principal Accounting Fees and Services. The information concerning our principal accounting fees required by Item 14 is incorporated herein by reference to the proxy statement to be filed by May 1, 2023 with respect to our 2023 Annual Meeting of Stockholders. 44 Table of Contents PART IV Item 15. Exhibits, Financial Statement Schedules. (a) 1. All Financial Statements. The response is submitted in a separate section of this report following Part IV. 2. Financial Statement Schedules. The response is submitted in a separate section of this report following Part IV. 3. Exhibits: In reviewing the agreements included as exhibits to this Annual Report on Form10-K, please remember they are included to provide you with information regarding their terms and are not intended to provide any other factual or disclosure information about us or the other parties to the agreements. Certain agreements contain representations and warranties by each of the parties to the applicable agreement. These representations and warranties have been made solely for the benefit of the other parties to the applicable agreement and: • should not in all instances be treated as categorical statements of fact, but rather as a way of allocating the risk to one of the parties if those statements prove to be inaccurate; • have been qualified by disclosures that were made to the other party in connection with the negotiation of the applicable agreement, which disclosures are not necessarily reflected in the agreement; • may apply standards of materiality in a way that is different from what may be viewed as material to you or other investors; and • were made only as of the date of the applicable agreement or such other date or dates as may be specified in the agreement and are subject to more recent developments. Accordingly, these representations and warranties may not describe the actual state of affairs as of the date they were made or at any other time. 45 Table of Contents Exhibit No. Title of Exhibits 1.1 Form of Equity Distribution Agreement dated March 18, 2022 (incorporated by reference to Exhibit 1.1 to our Current Report on Form 8-K on March 18, 2022). 2.1 Plan of Conversion dated December 8, 2016 (incorporated by reference to Annex B of Amendment No. 1 to our Registration Statement on Form S-4 filed January 12, 2017 (the "S-4 Registration") (Reg. No. 333-215221). 3.1 Articles of Incorporation of the Registrant (incorporated by reference to Exhibit 3.1 filed with our Current Report on Form 8-K on March 20, 2017). 3.2 By-laws of the Registrant effective as of December 6, 2022 (incorporated by reference to Exhibit 3.2 filed with our Current Report on Form 8-K on December 6, 2022). 4.1 Junior Subordinated Supplemental Indenture, dated as of March 15, 2011, between us and the Bank of New York Mellon (incorporated by reference to Exhibit 4.1 filed with our Current Report on Form 8-K on March 18, 2011). 4.2 Description of Registrant's Securities Registered Pursuant to Section 12 of the Exchange Act (incorporated by reference to Exhibit 4.2 filed with our Annual Report on Form 10-K for the year ended December 31, 2020). 10.1 * Shared Services Agreement, dated as of January 1, 2002, by and among Gould Investors L.P., us, One Liberty Properties, Inc., Majestic Property Management Corp., Majestic Property Affiliates, Inc. and REIT Management Corp. (incorporated by reference to Exhibit 10.2 filed with our Annual Report on Form 10-K for the year ended September 30, 2008). 10.2 * Form of Indemnification Agreement between the Registrant on the one hand, and its executive officers and directors, on the other hand (incorporated by reference to Exhibit 10.5 to our Annual Report of Form 10-K for the year ended September 30, 2017). 10.3 * Amended and Restated 2016 Incentive Plan (incorporated by reference to Exhibit 10.1 filed with our Quarterly Report on Form 10-Q for the period ended March 31, 2016) 10.4 Membership Interest Purchase Agreement dated as of February 23, 2016 entered into between TRB Newark Assemblage, LLC ("TRB") and TRB Newark TRS, LLC ("TRB REIT" and together with TRB, collectively, the "Seller") and RBH Partners III, LLC, and joined by RBH-TRB Newark Holdings, LLC and GS-RBH Newark Holdings, LLC (incorporated by reference to exhibit 10.2 filed with our Quarterly Report on Form 10-Q for the period ended March 31, 2016). 10.5 * Form of Restricted Shares Agreement for the Amended and Restated 2016 Incentive Plan (incorporated by reference to Exhibit 10.40 filed with our Registration Statement on Form S-4/A on January 12, 2017 (File No 333-215221)). 10.6 * 2018 Incentive Plan (incorporated by reference to Exhibit 10.1 filed with our Current Report on Form 8-K on March 13, 2018). 46 Table of Contents Exhibit No. Title of Exhibits 10.7 * Form of Restricted Shares Agreement for the 2018 Incentive Plan (incorporated by reference to Exhibit 10.10 filed with our Annual Report on Form 10-K filed December 10, 2018). 10.8 * 2020 Incentive Plan (incorporated by reference to Exhibit 10.15 filed with our Annual Report on Form 10-K for the year ended December 31, 2020). 10.9 * Form of Performance Awards Agreement granted in 2021 pursuant to the 2020 Incentive Plan (incorporated by reference to exhibit 10.1 of our Current Report on Form 8-K filed on June 11, 2021) 10.10 Amended and Restated Loan Agreement (the "Loan Agreement") made as of November 18, 2021, by and among us and VNB New York, LLC. (incorporated by reference to Exhibit 10.1 filed with our Current Report on Form 8-K on November 18, 2021). 10.11 Unlimited guaranty given by us in favor of VNB (incorporated by reference to Exhibit 10.2 filed with our Current Report on Form 8-K on November 18, 2021). 10.12 Form of Pledge Agreement (incorporated by reference to Exhibit 10.3 filed with our Current Report on Form 8-K on November 18, 2021). 10.13 Form of Negative Pledge Agreement (incorporated by reference to Exhibit 10.4 filed with our Current Report on Form 8-K on November 18, 2021). 10.14 Letter agreement dated as of November 19, 2021 with respect to the Loan Agreement. 10.15 Amendment dated September 14, 2022 to the Loan Agreement (incorporated by reference to Exhibit 10.1 filed with our Current Report on Form 8-K on September 16, 2022). 10.16 * 2022 Incentive Plan (incorporated by reference to Exhibit 10.1 filed with our Current Report on Form 8-K on June 10, 2022). 10.17 * Form of Performance Awards Agreement granted in 2022 pursuant to the 2022 Incentive Plan (incorporated by reference to Exhibit 10.5 filed with our Quarterly Report on Form 10-Q for the period ended June 30, 2022). 10.18 Form of Membership Interest Purchase Agreement used to effectuate the purchase of the interests of our joint venture partners (incorporated by reference to Exhibit 10.1 filed with our Quarterly Report on Form 10-Q for the period ended March 31, 2022). 10.19 * Form of Restricted Share Agreement for the 2022 Incentive Plan 21.1 Subsidiaries of the Registrant. 23.1 Consent of Ernst & Young, LLP. 31.1 Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (the "Act"). 31.2 Certification of Senior Vice President—Finance pursuant to Section 302 of the Act. 31.3 Certification of Chief Financial Officer pursuant to Section 302 of the Act. 32.1 Certification of Chief Executive Officer pursuant to Section 906 of the Act. 32.2 Certification of Senior Vice President—Finance pursuant to Section 906 of the Act. 32.3 Certification of Chief Financial Officer pursuant to Section 906 of the Act. 101.INS The instance document does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document. _______________________________________________________________________________ * Indicates management contract or compensatory plan or arrangement. (b) Exhibits. See Item 15(a)(3) above. Except as otherwise indicated with respect to a specific exhibit, the file number for all of the exhibits incorporated by reference is: 001-07172. (c) Financial Statements. See Item 15(a)(2) above. Item 16. Form 10-K Summary Not applicable. 47 Table of Contents SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. BRT APARTMENTS CORP. Date: March 15, 2023 By: /s/ Jeffrey A. Gould Jeffrey A. Gould Chief Executive Officer and President Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. Signature Title Date /s/ Israel Rosenzweig Chairman of the Board March 15, 2023 Israel Rosenzweig /s/ Jeffrey A. Gould Chief Executive Officer, President and Director (Principal Executive Officer) March 15, 2023 Jeffrey A. Gould /s/ Carol Cicero Director March 15, 2023 Carol Cicero /s/ Matthew J. Gould Director March 15, 2023 Matthew J. Gould /s/ Louis C. Grassi Director March 15, 2023 Louis C. Grassi /s/ Gary Hurand Director March 15, 2023 Gary Hurand /s/ Jonathan Simon Director March 15, 2023 Jonathan Simon /s/ Elie Weiss Director March 15, 2023 Elie Weiss /s/ George E. Zweier Chief Financial Officer and Vice President (Principal Financial and Accounting Officer) March 15, 2023 George E. Zweier 48 Table of Contents Index Item 8, Item 15(a)(1) and (2) Index to Consolidated Financial Statements and Consolidated Financial Statement Schedules Page No. Report of Independent Registered Public Accounting Firm (PCAOB ID: 42 ) F- 2 Consolidated Balance Sheets as of December 31, 202 2 and 202 1 F- 4 Consolidated Statements of Operations for the years ended December 31, 202 2 and 202 1 F- 5 Consolidated Statements of Comprehensive Income for the years ended December 31, 202 2 and 202 1 F- 6 Consolidated Statements of Stockholders' Equity for the years ended December 31, 202 2 and 202 1 F- 7 F- 8 Consolidated Statements of Cash Flows for the years ended December 31, 202 2 and 202 1 F- 11 Consolidated Financial Statement Schedule for the year ended December 31, 2022 III—Real Estate Properties and Accumulated Depreciation F- 36 All other schedules are omitted because they are not applicable or the required information is shown in the consolidated financial statements or the notes thereto. F-1 Table of Contents Index REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Stockholders and the Board of Directors of BRT Apartments Corp. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of BRT Apartments Corp. and subsidiaries (the Company) as of December 31, 2022 and 2021, the related consolidated statements of operations, comprehensive income, changes in stockholders’ equity and cash flows for the years then ended, and the related notes and financial statement schedule listed in the Index at Item 15(a) (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2022 and 2021, and the results of its operations and its cash flows for the years then ended, in conformity with U.S. generally accepted accounting principles. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the account or disclosures to which it relates. F-2 Table of Contents Index Purchase Price Allocation Joint Venture Consolidation Assessment Description of the matter During the year ended December 31, 2022, the Company bought out eleven of the remaining interests of joint venture partners for an aggregate purchase price of $377.4 million, making them wholly owned and consolidated. The transactions were accounted for as asset acquisitions and the purchase prices were allocated based on the relative fair values of the tangible and identified intangible assets acquired and liabilities assumed. As more fully described in Note 3 of the consolidated financial statements, the estimates used in determining the relative fair values may be based on comparable transactions, replacement costs of assets, and other market data, which are unobservable inputs. Auditing management’s purchase price allocations was complex due to the judgement required in developing the fair value of the acquired tangible and intangible assets. In particular, the estimate was sensitive to unobservable significant assumptions, including comparable transactions and replacement costs of assets. How we addressed the matter in our audit Our audit procedures included, among others, evaluating the appropriateness of the methodology and model applied to determine the fair value of the acquired tangible and intangible assets and liabilities used in the purchase price allocation and recalculating the models’ results. With the assistance of our real estate valuation specialists, we compared the significant assumptions used by management, including comparable transactions and replacement costs of assets, to current market data. We also tested the completeness and accuracy of the underlying data used in management’s models. In addition, we utilized third-party data to test management’s estimate and identify potential sources of corroborative or contrary information. /s/ Ernst & Young LLP We have served as the Company’s auditor since 2020. New York, New York March 15, 2023 F-3 Table of Contents Index BRT APARTMENTS CORP. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Amounts in thousands, except share data) December 31, 2022 2021 ASSETS Real estate properties, net of accumulated depreciation of $ 55,195 and $ 36,467 $ 651,603 $ 293,550 Investment in unconsolidated joint ventures 42,576 112,347 Cash and cash equivalents 20,281 32,339 Restricted cash 872 6,582 Other assets 16,786 10,341 Real estate property held for sale — 4,379 Total Assets $ 732,118 $ 459,538 LIABILITIES AND EQUITY Liabilities: Mortgages payable, net of deferred costs of $ 4,166 and $ 980 $ 403,792 $ 199,877 Junior subordinated notes, net of deferred costs of $ 277 and $ 297 37,123 37,103 Credit facility, net of deferred costs of $ 498 and $ — 18,502 — Accounts payable and accrued liabilities 22,631 19,607 Total Liabilities 482,048 256,587 Commitments and contingencies Equity: BRT Apartments Corp. stockholders' equity: Preferred shares $ 0.01 par value 2,000 shares authorized, none outstanding — — Common stock, $ 0.01 par value, 300,000 shares authorized, 18,006 and 17,349 shares issued at December 31, 2022 and 2021 180 173 Additional paid-in capital 273,863 258,161 Accumulated deficit ( 23,955 ) ( 55,378 ) Total BRT Apartments Corp. stockholders' equity 250,088 202,956 Non-controlling interests ( 18 ) ( 5 ) Total Equity 250,070 202,951 Total Liabilities and Equity $ 732,118 $ 459,538 See accompanying notes to consolidated financial statements. F-4 Table of Contents Index BRT APARTMENTS CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Dollars in thousands, except share data) Year Ended December 31, 2022 2021 Revenues: Rental and other revenue from real estate properties $ 70,515 $ 32,041 Other income 12 16 Total revenues 70,527 32,057 Expenses: Real estate operating expenses—including $ 36 and $ 31 to related parties 30,558 14,202 Interest expense 15,514 6,757 General and administrative—including $ 739 and $ 641 to related party 14,654 12,621 Impairment charge — 520 Depreciation and amortization 24,812 8,025 Total expenses 85,538 42,125 Total revenues less total expenses ( 15,011 ) ( 10,068 ) Equity in earnings (loss) from unconsolidated joint ventures 1,895 ( 4,208 ) Equity in earnings from sale of unconsolidated joint venture properties 64,531 34,982 Gain on sale of real estate 6 7,693 Casualty loss ( 850 ) — Insurance recovery of casualty loss 850 — Gain on insurance recovery 62 — Gain on sale of partnership interest — 2,632 Loss on extinguishment of debt ( 563 ) ( 1,575 ) Income from continuing operations 50,920 29,456 Provision for taxes 821 206 Income from continuing operations, net of taxes 50,099 29,250 Income attributable to non-controlling interests ( 144 ) ( 136 ) Net income attributable to common stockholders $ 49,955 $ 29,114 Weighted average number of shares of common stock outstanding: Basic 17,793,035 17,017,690 Diluted 17,852,951 17,084,642 Per share amounts attributable to common stockholders Basic $ 2.67 $ 1.63 Diluted $ 2.66 $ 1.62 See accompanying notes to consolidated financial statements. F-5 Table of Contents Index BRT REALTY TRUST AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Dollars in thousands) Year Ended December 31, 2022 2021 Net income $ 50,099 $ 29,250 Other comprehensive income: Unrealized gain on derivative instruments — 22 Other comprehensive income — 22 Comprehensive income 50,099 29,272 Comprehensive income attributable to non-controlling interests ( 144 ) ( 140 ) Comprehensive income attributable to common stockholders $ 49,955 $ 29,132 See accompanying notes to consolidated financial statements. F-6 Table of Contents Index BRT APARTMENTS CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY Years Ended December 31, 2022 and 2021 (Dollars in thousands, except share data) Shares of Common Stock Additional Paid-In Capital Accumulated Other Comprehensive (Loss) Income (Accumulated Deficit) Non-Controlling Interests Total Balances, December 31, 2020 $ 164 $ 245,605 $ ( 19 ) $ ( 67,978 ) $ ( 84 ) $ 177,688 Distributions - Common Stock - $ 0.90 per share — — — ( 16,514 ) — ( 16,514 ) Restricted stock and restricted stock units vesting 4 ( 4 ) — — — — Compensation expense—restricted stock and restricted stock units — 2,941 — — — 2,941 Distributions to non-controlling interests — — — — ( 60 ) ( 60 ) Shares issued through equity offering program, net 5 9,619 — — — 9,624 Net income — — — 29,114 136 29,250 Other comprehensive income — — 19 — 3 22 Comprehensive income — — — — — 29,272 Balances, December 31, 2021 $ 173 $ 258,161 $ — $ ( 55,378 ) $ ( 5 ) $ 202,951 Distributions - Common Stock - $ 0.98 per share — — — ( 18,532 ) — ( 18,532 ) Restricted stock and restricted stock units vesting 2 ( 2 ) — — — — Compensation expense—restricted stock and restricted stock units — 4,486 — — — 4,486 Distributions to non-controlling interests — — — — ( 157 ) ( 157 ) Shares issued through equity offering program, net 5 9,940 — — — 9,945 Shares issued through DRIP — 1,278 1,278 Net income — — — 49,955 144 50,099 Other comprehensive income — — — — — — Comprehensive income — — — — — 50,099 Balances, December 31, 2022 $ 180 $ 273,863 $ — $ ( 23,955 ) $ ( 18 ) $ 250,070 See accompanying notes to consolidated financial statements F-7 Table of Contents Index BRT APARTMENTS CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in Thousands) Year Ended December 31, 2022 2021 Cash flows from operating activities: Net Income $ 50,099 $ 29,250 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 24,812 8,025 Amortization of deferred financing fees 628 295 Amortization of debt fair value adjustment 137 ( 60 ) Amortization of restricted stock and restricted stock units 4,486 2,941 Equity in (earnings) loss of unconsolidated joint ventures ( 1,895 ) 4,208 Equity in earnings on sale of real estate of unconsolidated ventures ( 64,531 ) ( 34,982 ) Impairment charge — 520 Gain on sale of real estate ( 6 ) ( 7,693 ) Gain on sale of partnership interest — ( 2,632 ) Gain on insurance recovery ( 62 ) — Loss on extinguishment of debt 563 1,575 Increases and decreases from changes in other assets and liabilities: Decrease in other assets 4,717 2,203 Decrease in accounts payable and accrued liabilities ( 3,923 ) ( 4,179 ) Net cash provided by (used in) operating activities 15,025 ( 529 ) Cash flows from investing activities: Improvements to real estate owned ( 6,295 ) ( 1,308 ) Purchase and consolidation of joint venture properties ( 105,262 ) ( 111,956 ) Proceeds from the sale of real estate owned 4,385 24,632 Proceeds from the sale of joint venture interests — 10,540 Distributions from unconsolidated joint ventures 91,239 62,025 Contributions to unconsolidated joint ventures ( 3,500 ) ( 6,031 ) Proceeds from insurance recoveries 62 — Net cash used in investing activities ( 19,371 ) ( 22,098 ) Cash flows from financing activities: Proceeds from mortgages payable 18,953 89,680 Mortgage payoffs ( 41,666 ) ( 47,605 ) Mortgage principal payments ( 2,219 ) ( 2,688 ) Proceeds from credit facility 43,000 — Repayment of credit facility ( 24,000 ) — Increase in deferred financing costs ( 693 ) ( 319 ) Dividends paid ( 17,863 ) ( 15,769 ) Distributions to non-controlling interests ( 157 ) ( 60 ) Proceeds from the sale of common stock 9,945 9,624 Proceeds from the issuance of DRP shares 1,278 — Net cash (used in) provided by financing activities ( 13,422 ) 32,863 F-8 Table of Contents Index BRT APARTMENTS CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in Thousands) Year Ended December 31, 2022 2021 Net (decrease) increase in cash, cash equivalents and restricted cash: ( 17,768 ) 10,236 Cash, cash equivalents and restricted cash at beginning of year 38,921 28,685 Cash, cash equivalents and restricted cash at end of year $ 21,153 $ 38,921 Supplemental disclosures of cash flow information: Cash paid during the year for interest expense $ 14,086 $ 6,523 Cash paid during the year for income and excise taxes $ 283 $ 173 Consolidation on buyout of partnership interest: Increase in real estate assets $ ( 370,513 ) $ ( 160,583 ) Increase in other assets ( 17,489 ) $ ( 5,671 ) Increase in mortgage payable 231,896 $ 29,067 Increase in deferred loan costs ( 3,892 ) $ ( 748 ) Increase in accounts payable and accrued liabilities 6,278 $ 2,621 Decrease in investment in unconsolidated joint ventures 48,458 $ 23,358 $ ( 105,262 ) $ ( 111,956 ) Cash and cash equivalents $ 20,281 $ 32,339 Restricted cash 872 6,582 Total cash, cash equivalents and restricted cash, shown in consolidated statement of cash flows $ 21,153 $ 38,921 See accompanying notes to consolidated financial statements. F-9 Table of Contents Index BRT APARTMENTS CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (Dollars in Thousands) The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the consolidated balance sheets that sum to the total of the same such amounts shown in the consolidated statements of cash flows. September 30, 2022 2021 Cash and cash equivalents $ 20,281 $ 32,339 Restricted cash 872 6,582 Total cash, cash equivalents and restricted cash, shown in consolidated statement of cash flows $ 21,153 $ 38,921 F-10 Table of Contents Index BRT APARTMENTS CORP. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2022 NOTE 1— ORGANIZATION, BACKGROUND AND SIGNIFICANT ACCOUNTING POLICIES Organization and Background BRT Apartments Corp. (“BRT” or the “Company”) owns, operates and, to a lesser extent, develops multi-family properties. These multi-family properties may be wholly owned by us or by unconsolidated joint ventures in which the Company contributes a significant portion of the equity. At December 31, 2022, BRT: (i) wholly-owns twenty-one multi-family properties located in eleven states with an aggregate of 5,420 units and a carrying value of $ 649,701,000 ; (ii) has ownership interests, through unconsolidated entities, in eight multi-family properties located in four states with an aggregate of 2,781 units, and the carrying value of its net equity investment is $ 39,076,000 ; and (iii) owns other assets, through consolidated and unconsolidated subsidiaries, with a carrying value of $ 5,402,000 . The Company's 29 multi-family properties are located in 11 states; most of these properties are located in the Southeast United States and Texas. BRT conducts its operations to qualify as a real estate investment trust, or REIT, for Federal income tax purposes. Substantially all of the Company's assets are comprised of multi-family real estate assets generally leased to tenants on a one-year basis. Therefore, the Company aggregates real estate assets for reporting purposes and operates in one reportable segment. Principles of Consolidation The consolidated financial statements include the accounts and operations of the Company and its wholly owned subsidiaries. The joint venture that owns a property in Yonkers, NY was determined not to be a variable interest entity ("VIE") but is consolidated because the Company has controlling rights in such entity. The Company accounts for its investments in unconsolidated joint ventures under the equity method of accounting. For each venture, the Company evaluated the rights provided to each party in the venture to assess the consolidation of the venture. All investments in unconsolidated joint ventures have sufficient equity at risk to permit the entity to finance its activities without additional subordinated financial support and, as a group, the holders of the equity at risk have power through voting rights to direct the activities of these ventures. As a result, none of these joint ventures are VIEs. Additionally, the Company does not exercise substantial operating control over these entities, and therefore the entities are not consolidated. These investments are recorded initially at cost, as investments in unconsolidated joint ventures, and subsequently adjusted for their share of equity in earnings, cash contributions and distributions. The distributions to each joint venture partner are determined pursuant to the applicable operating agreement and may not be pro-rata to the percentage equity interest each partner has in the applicable venture. Income Tax Status The Company qualifies as a real estate investment trust under sections 856-860 of the Internal Revenue Code of 1986, as amended. The board of directors may, at its option, elect to revoke or terminate the Company's election to qualify as a real estate investment trust. The Company will not be subject to federal, and generally state and local taxes on amounts it distributes to stockholders, provided it distributes 90% of its ordinary taxable income and meets other conditions. The Company currently has net operating loss carryforwards which it can use to reduce taxable income. F-11 Table of Contents Index BRT APARTMENTS CORP. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2022 NOTE 1—ORGANIZATION, BACKGROUND AND SIGNIFICANT ACCOUNTING POLICIES (continued) In accordance with Accounting Standards Codification ("ASC") Topic 740 - "Income Taxes", the Company believes that it has appropriate support for the income tax positions taken and, as such, does not have any uncertain tax positions that, if successfully challenged, could result in a material impact on the Company's financial position or results of operations. The Company's income tax returns for the tax years 2019 through 2021 are subject to review by the Internal Revenue Service. Revenue Recognition Rental revenue from multi-family properties is recorded when due from residents and is recognized monthly as it is earned. Rental payments are due in advance. Leases on residential properties are generally for terms that do not exceed one year . Rental revenue from commercial properties, including the base rent that each tenant is required to pay in accordance with the terms of their respective leases, net of any rent concessions and lease incentives, is reported on a straight-line basis over the non-cancellable term of the lease. Real Estate Properties Real estate properties are stated at cost, net of accumulated depreciation, and include properties acquired through acquisition or development. When the Company purchases real estate assets from third-parties, the Company allocates the purchase price of real estate, including direct transaction costs applicable to an asset acquisition, among land, building, improvements and intangibles (e.g., the value of above, below and at market leases, and origination costs associated with in-place leases and above or below-market mortgages assumed at the acquisition date). The value, as determined, is allocated to the gross assets acquired based on management’s determination of the relative fair values of these assets and liabilities. Whenever the Company buys out the remaining interest from joint venture partners, the Company follows a cost-accumulation approach, wherein the Company allocates the cost basis of their existing interest and the purchase price of the remaining partner interest to the real estate acquired (including land, buildings and improvements, and identified intangibles such as acquired in-place leases) and acquired liabilities. Depreciation for multi-family properties is computed on a straight-line basis over an estimated useful life of 30 years. Intangible assets (and liabilities) are amortized over the remaining life of the related leases at the time of acquisition and is usually less than one year. Expenditures for maintenance and repairs are charged to operations as incurred. Real estate is classified as held for sale when management has determined that the applicable criteria have been met. Real estate assets that are expected to be disposed of are valued at the lower of their carrying amount or their fair value less costs to sell on an individual asset basis. Real estate classified as held for sale is not depreciated. The Company accounts for the sale of real estate when title passes to the buyer, sufficient equity payments have been received, there is no continuing involvement by the Company and there is reasonable assurance that the remaining receivable, if any, will be collected. Asset Impairments The Company reviews each real estate asset owned quarterly to determine if there are indicators of impairment. If such indicators are present, the Company determines whether the carrying amount of the asset can be recovered. Recognition of impairment is required if the undiscounted cash flows estimated to be generated by the asset are less than the asset's carrying amount and that carrying amount exceeds the estimated fair value of the asset. The impairment recognized is the difference between the carrying value and the fair value. The estimated fair value is determined using a discounted cash flow model of the expected future cash flows through the useful life of the property. The analysis includes an estimate of the future cash flows that are expected to result from the real estate investment’s use and eventual disposition. These cash flows consider factors such as expected future operating income, trends, the effects of leasing demands, and other factors. In evaluating a property for impairment, various factors are considered, including estimated current and expected operating cash flow from the property during the projected holding period, costs necessary to extend the life or improve the asset, expected capitalization rates, projected stabilized net operating income, selling costs, and the ability to hold and dispose of such real estate in the ordinary course of business. Valuation adjustments may be necessary in the event that effective interest rates, rent-up periods, future economic conditions, and other relevant factors vary significantly from those assumed in valuing the property. If future evaluations result in a decrease in the value of the property below its carrying value, the reduction will be recognized as an F-12 Table of Contents Index BRT APARTMENTS CORP. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2022 NOTE 1—ORGANIZATION, BACKGROUND AND SIGNIFICANT ACCOUNTING POLICIES (continued) impairment charge. The fair values related to the impaired real estate assets are considered to be a level 3 valuation within the fair value hierarchy because they are based on unobservable inputs and are subjective in nature. For investment in real estate ventures, if indicators of impairment are present, the Company determines if the fair value of the investment is less than its carrying value. Fair value is determined using a discounted cash flow model of the expected future cash flows through the useful life of the asset. The fair values related to the impaired investments in real estate ventures are considered to be a level 3 valuation within the fair value hierarchy. Equity Based Compensation Compensation expense for grants of restricted stock, restricted stock units ("RSUs") and dividend equivalent rights are amortized over the vesting period of such awards, based upon the estimated fair value of such award at the grant date. The Company recognizes the effect of forfeitures when they occur and previously recognized compensation expense is reversed in the period the grant or unit is forfeited. The deferred compensation related to the RSUs to be recognized as expense is net of certain performance assumptions which are re-evaluated quarterly. For accounting purposes, the restricted shares and the RSUs are not included in the outstanding shares shown on the consolidated balance sheets until they vest; however, the restricted shares are included in the calculation of both basic and diluted earnings per share as they participate in the earnings of the Company. Derivatives and Hedging Activities The Company's objective in using derivative financial instruments is to manage interest rate risk related to variable rate debt. The Company does not use derivatives for trading or speculative purposes. The Company records all derivatives on its consolidated balance sheets at fair value. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative, whether the Company has elected to designate a derivative in a hedging relationship and apply hedge accounting and whether the hedging relationship has satisfied the criteria necessary to apply hedge accounting. Derivatives designated and qualifying as a hedge of the exposure to variability in expected future cash flows are considered cash flow hedges. For derivatives designated as cash flow hedges, the effective portion of changes in the fair value of the derivative is reported in other comprehensive income (loss). Those amounts are reclassified to earnings in the same income statement line item that is used to present the earnings effect of the hedged item when the hedged item affects earnings. For derivatives not designated as cash flow hedges, changes in the fair value of the derivative are recognized directly in earnings in the period in which they occur. Per Share Data Basic earnings (loss) per share is determined by dividing net income (loss) applicable to holders of common stock for the applicable year by the weighted average number of shares of common stock outstanding during such year. Net income is also allocated to the unvested restricted stock outstanding during each period, as the restricted stock is entitled to receive dividends and is therefore considered a participating security. The RSU's are excluded from the basic earnings per share calculation, as they are not participating securities. Diluted earnings per share reflects the potential dilution that could occur if securities or other contracts to issue shares of common stock were exercised or converted into shares of common stock or resulted in the issuance of shares of common stock that share in the earnings of the Company. Diluted earnings per share is determined by dividing net income applicable to common stockholders for the applicable period by the weighted average number of shares of common stock deemed to be outstanding during such period. In calculating diluted earnings per share, the Company includes only those shares underlying the RSUs that it anticipates will vest based on management's current estimates. The Company excludes any shares underlying the RSUs from such calculation if their effect would have been anti-dilutive. Cash Equivalents Cash equivalents consist of highly liquid investments; primarily, direct United States treasury obligations with maturities of three months or less when purchased. F-13 Table of Contents Index BRT APARTMENTS CORP. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2022 NOTE 1—ORGANIZATION, BACKGROUND AND SIGNIFICANT ACCOUNTING POLICIES (continued) Restricted Cash Restricted cash consists of cash held for construction costs and property improvements for specific joint venture properties as may be required by contractual arrangements. Deferred Costs Fees and costs incurred in connection with multi-family property financings are deferred and amortized over the term of the related debt obligations. Fees and costs paid related to the successful negotiation of commercial leases are deferred and amortized on a straight-line basis over the terms of the respective leases. Use of Estimates The preparation of the financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. NOTE 2— REAL ESTATE PROPERTIES Real estate properties, excluding a property held for sale in 2021 (see Note 7), consist of the following (dollars in thousands): December 31, 2022 2021 Land $ 74,246 $ 38,822 Building 617,041 281,841 Building improvements 15,511 9,354 Real estate properties 706,798 330,017 Accumulated depreciation ( 55,195 ) ( 36,467 ) Total real estate properties, net $ 651,603 $ 293,550 A summary of activity in real estate properties, net for the year ended December 31, 2022 follows (dollars in thousands): December 31, 2021 Balance Partner Buyouts Improvements Depreciation December 31, 2022 Balance Multi-family $ 291,538 $ 370,513 $ 6,295 $ ( 18,645 ) $ 649,701 Retail shopping center - Yonkers, NY/Other 2,012 — — ( 110 ) 1,902 Total real estate properties $ 293,550 $ 370,513 $ 6,295 $ ( 18,755 ) $ 651,603 F-14 Table of Contents Index BRT APARTMENTS CORP. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2022 NOTE 2—REAL ESTATE PROPERTIES (Continued) The following summarizes, by state, information for the year ended December 31, 2022 regarding consolidated properties (dollars in thousands): Location Number of Properties Number of Units 2022 Rental and Other Revenue % of 2022 Rental and Other Revenue Tennessee 2 702 $ 13,812 20 % Georgia 3 688 8,785 12 % South Carolina 2 474 8,111 12 % Florida 2 518 7,605 11 % Texas 3 600 7,578 11 % Mississippi 2 776 5,438 8 % Alabama 3 740 5,099 7 % Virginia 1 220 4,556 6 % Ohio 1 264 3,563 5 % Missouri 1 174 2,630 4 % North Carolina 1 264 1,824 3 % Other (a) — — 1,514 2 % 21 5,420 $ 70,515 __________________________________________ (a) Represents non-multi-family revenues. Future minimum rentals to be received pursuant to non-cancellable operating leases with terms in excess of one year, from a commercial property owned by the Company at December 31, 2022, are as follows (dollars in thousands): Year Ending December 31, Amount 2023 $ 1,252 2024 953 2025 648 2026 648 2027 648 Thereafter 217 Total $ 4,366 Leases at the Company's multi-family properties are generally for a term of one year or less and are not reflected in this table. NOTE 3— ACQUISITIONS, DISPOSITIONS AND IMPAIRMENT CHARGES Acquisitions of Interests in Joint Ventures During 2022 and 2021, the Company purchased its partners' remaining interests in 11 and three joint ventures, respectively. The Company determined that in each acquisition the gross assets acquired are concentrated in a single identifiable asset. Therefore, these transactions do not meet the definition of a business and are accounted for as asset acquisitions. F-15 Table of Contents Index BRT APARTMENTS CORP. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2022 NOTE 3—ACQUISITIONS, DISPOSITIONS AND IMPAIRMENT CHARGES (continued) The following table summarizes these purchases (dollars in thousands): Buyout Date Property Name Location Units Remaining Interest Purchased Purchase Price (1) 2022 03/23/2022 Verandas at Alamo San Antonio, TX 288 28 % $ 8,721 04/07/2022 Vanguard Heights Creve Coeur, MO 174 22 % 4,880 05/11/2022 Jackson Square Tallahassee, FL 242 20 % 7,215 05/24/2022 Brixworth at Bridge Street Huntsville, AL 208 20 % 10,697 05/26/2022 Woodland Apartments Boerne, TX 120 20 % 3,881 06/30/2022 Grove at River Place Macon, GA 240 20 % 7,485 07/12/2022 Civic I Southaven, MS 392 25 % 18,233 07/12/2022 Civic II Southaven, MS 384 25 % 17,942 07/14/2022 Abbotts Run Wilmington, NC 264 20 % 9,010 07/19/2022 Somerset at Trussville Trussville, AL 328 20 % 10,558 08/03/2022 Magnolia Pointe Madison, AL 204 20 % 7,246 Total 2,844 $ 105,868 2021 08/18/2021 Bells Bluff Nashville, TN 402 42 % $ 27,860 10/01/2021 Crestmont at Thornblade Greenville , SC 266 10 % 1,600 12/01/2021 Crossings of Bellevue Nashville, TN 300 20 % 16,128 Total 968 $ 45,588 ____________________________ (1) The purchase price reflects our purchase of our joint venture partners' promote interest in the venture and in 2022 excludes closing costs of $ 2,191 and operating cash acquired from the joint venture of $ 2,797 and in 2021 excludes closing costs of $ 793 , operating cash acquired from the joint ventures of $ 2,608 and the payoff of the existing mortgages of $ 68,183 . F-16 Table of Contents Index BRT APARTMENTS CORP. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2022 NOTE 3—ACQUISITIONS, DISPOSITIONS AND IMPAIRMENT CHARGES (continued) The Company assessed the fair value of the tangible assets of each acquired property as of the applicable acquisition date using estimated building costs between $ 90 and $ 215 per square foot, with a weighted average square foot cost of $ 158 and estimated land costs between $ 4.11 and $ 50.14 per square foot with a weighted average square foot cost of $ 6.65 , which are Level 3 unobservable input in the fair value hierarchy. The following table summarizes the purchase price allocation of the book values of those properties whose remaining interest was purchased and consolidated in 2022 or 2021 and is based on the proportionate share of the estimated fair value of the property on the acquisition date (dollars in thousands): Property Land Building and Improvements Total Land and building Acquisition related lease intangible Total Assets Acquisition related mortgage intangible 2022 Verandas at Alamo $ 3,336 $ 33,465 $ 36,801 $ 797 $ 37,598 $ ( 61 ) Vanguard Heights 5,466 30,826 36,292 508 36,800 578 Jackson Square 3,398 27,167 30,565 634 31,199 283 Brixworth at Bridge Street 1,959 20,080 22,039 321 22,360 — Woodland Apartments 1,289 12,853 14,142 233 14,375 — Grove at River Place 2,866 16,416 19,282 396 19,678 136 Civic I 3,646 45,554 49,200 913 50,113 562 Civic II 3,847 46,452 50,299 1,013 51,312 1,254 Abbotts Run 3,468 37,312 40,780 701 41,481 481 Somerset at Trussville 4,095 42,943 47,038 869 47,907 1,090 Magnolia Pointe 2,052 22,023 24,075 503 24,578 396 $ 35,422 $ 335,091 $ 370,513 $ 6,888 $ 377,401 $ 4,719 2021 Bells Bluff $ 6,172 $ 77,532 $ 83,704 $ 1,597 $ 85,301 — Crestmont at Thornblade 4,033 34,052 38,085 818 38,903 $ 2,641 Crossings of Bellevue 9,679 29,115 38,794 730 39,524 — $ 19,884 $ 140,699 $ 160,583 $ 3,145 $ 163,728 $ 2,641 The unamortized balance of acquisition related lease intangibles, which is included in Other assets in the consolidated balance sheet, was $ 3,181,000 at December 31, 2022, and amortizes over one year . 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 $ 62,500,000 . The purchase price includes the assumption of approximately $ 32,000,000 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. Property Dispositions During the year ended December 31, 2022, the Company sold a land parcel located in Daytona, FL for a sales price of $ 4,700,000 and after closing costs, recognized a nominal gain. In 2020, the Company recognized an impairment charge of $ 3,600,000 in connection with this property. At December 31, 2021, this property was classified as held-for-sale on the Company's consolidated balance sheet ( see Note 7 - Real Estate Property Held for Sale). F-17 Table of Contents Index BRT APARTMENTS CORP. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2022 NOTE 3—ACQUISITIONS, DISPOSITIONS AND IMPAIRMENT CHARGES (continued) The tables below provide information regarding the Company's disposition of real estate properties during the year ended December 31, 2021 (dollars in thousands): Location Sale Date No. of Units Sales Price Gain on Sale Kendall Manor - Houston, TX 5/26/2021 272 $ 24,500 $ 7,279 New York, NY (1) 8/20/2021 1 545 414 273 $ 25,045 $ 7,693 _______________________________________ (1) Reflects the sale of a cooperative apartment unit. Impairment Charges In cases where the Company does not expect to recover its carrying value on properties held for use, the Company reduces its carrying value to fair value, and for properties held for sale, the Company reduces its carrying value to the fair value less costs to sell. In the year ended December 31, 2021, the Company took an impairment charge of $ 520,000 related to its investment in OPOP Tower and OPOP Loft properties, St Louis, MO, as the carrying value exceeded the fair value by that amount. The fair value is based upon the sale price at which the Company contracted to sell this joint venture interest. This investment was sold in 2021 and no further impairments were recorded. The Company did not record any impairment charges in 2022. NOTE 4— RESTRICTED CASH Restricted cash represents funds for specific purposes and therefore are not generally available for general corporate purposes. As reflected on the consolidated balance sheets, restricted cash represents funds held by or on behalf of the Company specifically allocated for capital improvements at joint venture multi-family properties. NOTE 5 - LEASES Lessor Accounting The Company owns one commercial rental property which is leased to two tenants under operating leases with current expirations ranging from 2024 to 2028, with options to extend or terminate the leases. Revenues from such leases are reported as rental income, net, and are comprised of (i) lease components, which includes fixed lease payments and (ii) non-lease components which includes reimbursements of property level operating expenses. The Company does not separate non-lease components from the related lease components, as the timing and pattern of transfer are the same, and account for the combined component in accordance with ASC 842. Lessee Accounting The Company is a lessee under a ground lease in Yonkers, NY which is classified as an operating lease. The ground lease expires September 30, 2024 and provides for one 21-year renewal option. As of December 31, 2022 , the remaining lease term, including the renewal option, is 22.8 years. The Company is also a lessee under a corporate office lease in Great Neck, NY, which is classified as an operating lease. The lease expires on December 31, 2031 and provides a 5-year renewal option. As of December 31, 2022, the remaining lease term, including renewal options deemed exercised, is 14.0 years. F-18 Table of Contents Index BRT APARTMENTS CORP. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2022 NOTE 5 - LEASES (continued) As of December 31, 2022 , the Company's right-of-use ("ROU") assets and lease liabilities were $ 2,371,000 and $ 2,472,000 , respectively and as of December 31, 2021, the Company's ROU assets and lease liabilities were $ 2,568,000 and $ 2,629,000 , respectively. The ROU assets and lease liabilities are reported on the consolidated balance sheets in Other assets and Accounts payable and accrued liabilities , respectively. The discount rate applied to measure each ROU asset and lease liability is based on the Company’s incremental borrowing rate (“IBR”). The Company considers the general economic environment and its historical borrowing rate activity and factors in various financing and asset specific adjustments to ensure the IBR is appropriate to the intended use of the underlying lease. As the Company did not elect to apply the hindsight practical expedient, lease term assumptions determined under ASC 840 were carried forward and applied in calculating the lease liabilities recorded under ASC 842. The Company’s ground lease offers a renewal option which it assesses against relevant economic factors to determine whether it is reasonably certain of exercising or not exercising the option. Lease payments associated with renewal periods that the Company is reasonably certain will be exercised, if any, are included in the measurement of the corresponding lease liability and ROU asset. As of December 31, 2022, the minimum future lease payments related to the operating ground and office leases are as follows (dollars in thousands): Year Ending December 31, Amount 2023 $ 236 2024 243 2025 252 2026 257 2027 262 Thereafter 3,240 Total undiscounted cash flows $ 4,490 Present value discount ( 2,018 ) Lease liability $ 2,472 F-19 Table of Contents Index BRT APARTMENTS CORP. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2022 NOTE 6— INVESTMENT IN UNCONSOLIDATED VENTURES At December 31, 2022 and 2021, the Company owned interests in unconsolidated joint ventures that own eight and 23 multi-family properties (the "Unconsolidated Properties"), respectively. The condensed balance sheets below presents information regarding such properties (dollars in thousands): December 31, 2022 2021 ASSETS Real estate properties, net of accumulated depreciation of $ 66,945 and $ 133,615 $ 318,304 $ 734,247 Cash and cash equivalents 6,591 13,741 Other Assets 35,372 25,535 Total Assets $ 360,267 $ 773,523 LIABILITIES AND EQUITY Liabilities: Mortgages payable, net of deferred costs of $ 1,421 and $ 3,423 $ 255,261 $ 584,479 Accounts payable and accrued liabilities 8,222 17,064 Total Liabilities 263,483 601,543 Commitments and contingencies Equity: Total unconsolidated joint venture equity 96,784 171,980 Total Liabilities and Equity $ 360,267 $ 773,523 Company equity interest in all joint venture equity $ 42,576 $ 112,347 F-20 Table of Contents Index BRT APARTMENTS CORP. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2022 NOTE 6—INVESTMENT IN UNCONSOLIDATED VENTURES (continued) The condensed income statements below presents information regarding the Unconsolidated Properties (dollars in thousands): Year Ended December 31, 2022 2021 Revenues: Rental and other revenue $ 72,873 $ 121,906 Total revenues 72,873 121,906 Expenses: Real estate operating expenses 33,086 56,507 Interest expense 16,269 30,964 Depreciation 17,798 35,636 Total expenses 67,153 123,107 Total revenues less total expenses 5,720 ( 1,201 ) Other equity earnings 121 54 Impairment of assets ( 8,553 ) ( 2,813 ) Insurance recoveries 8,553 2,813 Gain on insurance recoveries 567 2,179 Gain on sale of real estate properties 118,270 83,984 Loss on extinguishment of debt ( 3,491 ) ( 9,401 ) Net income from joint ventures $ 121,187 $ 75,615 BRT equity in earnings and equity in earnings from sale of unconsolidated joint venture properties $ 66,426 $ 30,774 Acquisitions On March 10, 2022, the Company acquired for $ 3,500,000 , a 17.45 % interest in a planned 240 -unit development property located in Johns Island, SC. In December 2022, the venture recorded an impairment charge of $ 8,553,000 due to a fire at the development. This loss is covered by insurance and accordingly, the venture recorded an insurance recovery of $ 8,553,000 . The Company recorded its proportionate share of the impairment charge and the insurance recovery. Dispositions of Properties The table below provides information regarding the disposition of real estate properties by unconsolidated joint ventures in the year ended December 31, 2022 (dollars in thousands): Location Sale Date Number of Units Sale Price Gain on Sale BRT Gain on Sale BRT Share of Loss of Extinguishment of Debt Verandas at Shavano - San Antonio, TX 2/8/2022 288 $ 53,750 $ 23,652 $ 12,961 $ — Reatreat at Cinco Ranch - Katy, TX 6/14/2022 268 68,300 30,595 17,378 686 The Vive - Kannapolis, NC 6/30/2022 312 91,250 47,086 22,720 787 Waters Edge - Columbia, SC 8/31/2022 204 32,400 16,937 11,472 388 1,072 $ 245,700 $ 118,270 $ 64,531 $ 1,861 F-21 Table of Contents Index BRT APARTMENTS CORP. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2022 NOTE 6—INVESTMENT IN UNCONSOLIDATED VENTURES (continued) The table below provides information regarding the disposition of real estate properties by unconsolidated joint ventures in the year ended December 31, 2021 (dollars in thousands): Location Sale Date No. of Units Sales Price Gain on Sale BRT Gain on Sale BRT Share of Loss of Extinguishment of Debt Avenue Apts,Ocoee, FL 7/20/2021 522 $ 107,661 $ 39,668 $ 19,518 $ 4,474 Parc at 980, Lawrenceville, GA 7/28/2021 586 118,250 44,316 15,464 107 1,108 $ 225,911 $ 83,984 $ 34,982 $ 4,581 On March 13, 2023 , the unconsolidated joint venture that owns Chatham Court and Reflections, a 494 unit multi-family property located in Dallas and in which we have a 50 % interest entered into a contract to sell the property. The contract sale price is $ 73,000,000 and we estimate our share of the gain will be approximately $ 14,300,000 and our share of the early extinguishment of debt charge will be approximately $ 167,000 . Dispositions of Joint Venture Interests There were no sales of joint venture interests in 2022. The table below provides information regarding the sale of venture interests to our joint venture partners in the year ended December 31, 2021: Location Sale Date No. of Units Sales Price BRT's Share of Gain on Sale Anatole, Daytona Beach, FL 4/20/2021 208 $ 7,540 $ 2,244 OPOP Tower and Lofts, St. Louis, MO 11/4/2021 181 3,000 388 389 $ 10,540 $ 2,632 Joint Venture Buyouts In 2022 and 2021, the Company purchased its venture partners' remaining interests in joint ventures that owned 11 and three multi-family properties, respectively. The operations and accounts of these joint ventures which, as a result of such purchases, are wholly-owned by the Company are consolidated into the operations and accounts of the Company as of their respective acquisition dates. See Note 3 for information regarding these buyouts. NOTE 7— REAL ESTATE PROPERTY HELD FOR SALE In September 2020, the Company entered into a contract to sell a vacant parcel of land located in South Daytona Beach, FL for $ 4,700,000 with a net book value of $ 4,379,000 . At December 31, 2021, the Company reclassified the net book value of the land as Real estate property held-for-sale in the accompanying balance sheet. The property was sold on February 2, 2022. ( See Note 3) . F-22 Table of Contents Index BRT APARTMENTS CORP. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2022 NOTE 8— DEBT OBLIGATIONS Debt obligations consist of the following (dollars in thousands): December 31, 2022 2021 Mortgages payable $ 407,958 $ 200,857 Junior subordinated notes 37,400 37,400 Credit Facility 19,000 — Deferred loan costs ( 4,941 ) ( 1,277 ) Total debt obligations $ 459,417 $ 236,980 A summary of activity in property debt for the year ended December 31, 2022 is as follows (dollars in thousands): Balance at December 31, 2021 $ 199,877 Acquisitions 236,615 Increase due to refinancing/payoff of acquisition debt 6,749 Fair value adjustment upon consolidation ( 4,719 ) Amortization of fair value adjustment 137 Debt Payoff ( 29,462 ) Principal Amortization ( 2,219 ) Changes in Deferred Fees ( 3,186 ) Balance at December 31, 2022 $ 403,792 At December 31, 2022, $ 407,958,000 of mortgage debt with a weighted average interest rate of 4.00 % and a weighted average remaining term to maturity of 7.9 years is outstanding on 17 of the Company's multi-family properties. Scheduled principal repayments for the periods indicated are as follows (dollars in thousands): Year Ending December 31, Scheduled Principal Payments 2023 $ 2,712 2024 3,667 2025 20,188 2026 74,652 2027 46,220 Thereafter 260,519 $ 407,958 F-23 Table of Contents Index BRT APARTMENTS CORP. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2022 NOTE 8—DEBT OBLIGATIONS (continued) The following table summarizes the information regarding the mortgages relating to the properties in which BRT purchased the remaining interests of its joint venture partners during the twelve months ended December 31, 2022 and 2021 (dollars in thousands): Property Name Location Debt at Purchase Date (a) Interest Rate Maturity Date Interest only through 2022 Verandas at Alamo San Antonio, TX $ 27,000 3.64 % Oct 2029 Oct 2024 Vanguard Heights Creve Coeur, MO 29,700 4.41 % July 2031 June 2025 Jackson Square Tallahassee, FL 21,524 4.19 % Sept 2027 Sept 2022 Brixworth at Bridge Street (b) Huntsville, AL 11,147 4.25 % June 2032 Maturity The Woodland Apartments Boerne, TX 7,914 4.74 % Feb 2026 N/A Grove at River Place (c) Macon, GA 11,426 4.39 % Feb 2026 N/A Civic I Southaven, MS 27,389 4.24 % March 2026 N/A Civic II Southaven, MS 30,105 3.73 % Sept 2026 N/A Abbotts Wilmington, NC 23,160 4.71 % July 2030 July 2025 Somerset at Trussville Trussville, AL 32,250 4.19 % June 2029 May 2025 Magnolia Pointe Madison, AL 15,000 4.08 % Jan 2028 Dec 2022 $ 236,615 2021 Bells Bluff Nashville, TN $ 52,000 3.48 % Aug 2041 N/A Crestmont at Thornblade Greenville, SC 26,425 4.69 % Nov 2028 N/A Crossings of Bellevue Nashville, TN 37,680 3.11 % Dec 2031 N/A $ 116,105 ________________________________ (a) Excludes fair value adjustments of $ 4,719 determined as part of the purchase price allocation. (b) The original mortgage debt of $ 11,147 was refinanced with new ten-year mortgage debt of $ 18,952 immediately following the buyout. The interest rate, maturity date and interest - only terms reflect the new mortgage. (c) Includes a supplemental mortgage of $ 1,056 which was paid off immediately following the buyout. The unamortized balance of acquisition related mortgage intangibles, which is included in mortgages payable in the consolidated balance sheet, was $ 2,000,000 at December 31, 2022 and will be amortized as follows (dollars in thousands): Year Ending December 31, Amount 2023 $ 613 2024 556 2025 501 2026 215 2027 ( 29 ) Thereafter 144 Total $ 2,000 F-24 Table of Contents Index BRT APARTMENTS CORP. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2022 NOTE 8—DEBT OBLIGATIONS (continued) The Company paid off the following debt in the years ended December 31, 2022 and 2021 (dollars in thousands): Property Name Location Mortgage Payoff Interest Rate Payoff Date Maturity Date Prepayment Charges 2022 Avalon Pensacola, FL $ 14,558 4.29 % 1/26/2022 3/1/2022 $ — Silvana Oaks N. Charleston, SC 14,904 3.79 % 10/28/2022 11/1/2022 — Total $ 29,462 $ — 2021 Avalon - supplemental Pensacola, FL 2,903 4.92 % 7/29/2021 3/1/2022 29 Avondale Station Decatur, GA 7,140 3.74 % 8/30/2021 12/1/2022 376 Avondale Station - supplemental Decatur, GA 6,866 5.53 % 8/31/2021 12/1/2022 277 Woodland Trails LaGrange, GA 14,025 4.36 % 7/30/2021 2/1/2022 140 Ripco (a) Yonkers, NY 945 5.25 % 8/18/2021 4/1/2022 — Total $ 31,879 $ 822 ________________________________ (a) In connection with the payoff of this debt, the Company terminated the related interest rate swap. Credit Facility On September 15, 2022, the Company's credit facility with an affiliate of Valley National Bank ("VNB"),was amended to, among other things, increase the amount the Company can borrow, subject to compliance with borrowing base requirements and other conditions, up to $ 60,000,000 , extend the facility's maturity date to September 2025, reduce the adjustable interest rate to the prime rate, with a floor of 3.50 % and revise certain financing covenants. The facility can be used to facilitate the acquisition of multi-family properties, repay mortgage debt secured by multi family properties and for operating expense ( i.e., working capital (including dividend payments)); provided that no more than $ 25,000,000 may be used for operating expenses. The facility is secured by the cash available in certain cash accounts maintained by the Company at VNB and the Company's pledge of its interests in the entities that own the unencumbered properties used in calculating the borrowing base. The interest rate in effect as of December 31, 2022 and March 1, 2023 is 7.50 % and 7.75 %, respectively. There is an unused facility fee of 0.25 % per annum on the total amount committed by VNB and unused by the Company. At December 31, 2022, the Company is in compliance in all material respects with its obligations under the facility. At December 31, 2022, there was an outstanding balance on the facility of $ 19,000,000 and $ 41,000,000 was available to be borrowed. At December 31, 2021, there was no outstanding balance on the facility. The average balance outstanding on the facility for 2022 and 2021 was $ 7,907,000 and $ — . At March 1, 2023, there is no balance outstanding on the facility. Interest expense for the years ended December 31, 2022 and 2021, which includes amortization of deferred financing costs and unused fees, was $ 713,000 and $ 101,000 , respectively. Deferred costs of $ 498,000 and $ 270,000 are recorded on the consolidated balance sheets at December 31, 2022 and 2021, respectively. Junior Subordinated Notes At December 31, 2022 and 2021, the outstanding principal balance of the Company's junior subordinated notes was $ 37,400,000 , before deferred financing costs of $ 277,000 and $ 297,000 , respectively. The interest rate on the outstanding balance resets quarterly and is based on three month LIBOR + 2.00 %. The rate in effect at December 31, 2022 and 2021 was 6.41 % and 2.13 % respectively. The notes mature April 30, 2036. F-25 Table of Contents Index BRT APARTMENTS CORP. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2022 NOTE 8—DEBT OBLIGATIONS (continued) The notes require interest only payments through the maturity date, at which time repayment of all outstanding principal and unpaid interest is due. Interest expense for the years ended December 31, 2022 and 2021, which includes amortization of deferred costs, was $ 1,478,000 and $ 845,000 , respectively. NOTE 9— INCOME TAXES The Company elected to be taxed as a REIT pursuant to the Code. As a REIT, the Company is generally not subject to Federal income taxes at the corporate level if it distributes 100% of its REIT taxable income, as defined, to its stockholders. To maintain its REIT status, the Company must distribute at least 90% of its ordinary taxable income; however, if it does not distribute 100% of its taxable income, it will be taxed on undistributed income. There are a number of organizational and operational requirements the Company must meet to remain a REIT. If the Company fails to qualify as a REIT in any taxable year, its taxable income will be subject to Federal income tax at regular corporate tax rates and it may not be able to qualify as a REIT for four subsequent tax years. Even if it is qualified as a REIT, the Company is subject to certain state and local income taxes and to Federal income and excise taxes on undistributed taxable income. For income tax purposes, the Company reports on a calendar year basis. As of December 31, 2022, tax returns for the calendar years 2019 through 2021 remain subject to examination by the Internal Revenue Service and various state and local tax jurisdictions. During the years ended December 31, 2022 and 2021, the Company recorded $ 821,000 and $ 206,000 , respectively, of state franchise tax expense, net of refunds, relating to the 2022 and 2021 calendar years. Earnings and profits, which determine the taxability of dividends to stockholders, differs from net income reported for financial statement purposes due to various items, including timing differences related to impairment charges, depreciation methods and carrying values. For the 2022 tax year, the Company expects to use its remaining available net operating loss carryforwards and at December 31, 2022, the Company does not have any net operating loss carryforwards available. The Company's net operating losses had previously been available to reduce taxable income. NOTE 10— STOCKHOLDERS' EQUITY Common Stock Dividend Distribution During the years ended December 31, 2022 and 2021, the Company declared an aggregate of $ 0.98 and $ 0.90 per share in cash dividends, respectively. Stock Based Compensation In 2022, the Company's board of directors adopted and the stockholders' approved the 2022 Incentive Plan (the "2022 Plan"). This plan permits the Company to grant: (i) stock options, restricted stock, restricted stock units, performance shares awards and any one or more of the foregoing, up to a maximum of 1,000,000 shares; and (ii) cash settled dividend equivalent rights in tandem with the grant of restricted stock units and certain performance based awards. Each of the Company's 2020 Incentive Plan (the "2020 Plan") and the Amended and Restated 2018 Incentive Plan (the "2018 Plan") authorized the Company to grant up to 1,000,000 shares of common stock pursuant to the same type of awards available under the 2022 Plan. No further awards may be granted pursuant to the 2020 Plan or the 2018 Plan, which are referred to collectively as the "Prior Plans." Restricted Stock Units In each of March 2021 (pursuant to the 2020 Plan) and June 2022 (pursuant to the 2022 Plan), the Company issued restricted stock units (the "RSUs") to acquire up to 210,375 and 212,470 shares of common stock respectively. The RSUs granted in each of 2021 and 2022 entitle the recipients, subject to continued service during the applicable performance period to F-26 Table of Contents Index BRT APARTMENTS CORP. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2022 NOTE 10—STOCKHOLDERS' EQUITY (continued) (i) up to 93,500 and 94,431 and shares of common stock, respectively, (the "TSR Award"), based on achieving, during the three-year performance period, specified levels in compounded annual growth rate ("CAGR") in total stockholder return (“TSR”), and (ii) up to 93,500 and 94,431 shares of common stock based, respectively, on achieving, during the measurement period, specified levels in CAGR in adjusted funds from operations (the "AFFO Award"), in each case as determined pursuant to the award agreement. In addition, with respect to each of the RSUs granted in 2021 and 2022, up to 23,375 and 23,608 shares, respectively, (the "Peer Group Adjustment") may be added to or subtracted from the TSR Award, based on attaining or failing to attain, as the case may be, during the applicable performance period, of CAGR in TSR for the REITs that comprise, with specified exceptions, the FTSE NAREIT Equity Apartment Index. The RSU recipients also received dividend equivalent rights entitling them to receive cash dividends with respect to the shares of common stock underlying their RSUs as if the underlying shares were outstanding during the applicable performance period, if, when, and to the extent, the related RSUs vest. The shares underlying the RSU's are not participating securities but are contingently issuable shares. For the TSR Awards, a third party appraiser prepared a Monte Carlo simulation pricing model to assist management in determining fair value. The Monte Carlo valuation consisted of computing the grant date fair value of the awards using the Company's simulated stock price. For these TSR awards, the per unit of share fair value was estimated using the following assumptions: Award Year Expected Life ( yrs) Dividend Rate Risk-Free Interest Rate Expected Price Volatility 2022 3 4.57 % 2.23 % to 3.11 % 35.60 % to 47.40 % 2021 3 4.93 % 0.02 % to 0.34 % 47.19 % to 59.01 % For the AFFO Awards granted in 2022 and 2021, fair value is based on the market value on the date of grant. Expense is not recognized on RSUs which the Company does not expect to vest because the performance conditions are not expected to be satisfied. Performance assumptions are re-evaluated quarterly. The total amount recorded at the grant date as deferred compensation with respect to the RSUs granted in 2022 and 2021 was $ 2,068,000 and $ 1,995,000 respectively. In June 2016, the Company issued RSUs to acquire up to 450,000 shares of common stock, pursuant to the 2016 Plan. In 2021, it was determined that the market conditions with respect to 250,000 shares underlying RSU's issued under the 2016 Plan had been satisfied; such shares with an aggregate market value of $ 4,200,000 as of the measurement date, were issued and an aggregate of $ 775,000 of RSU dividend equivalents were paid. It was also determined that the performance conditions with respect to 200,000 shares underlying RSU's under the 2016 Plan had not been satisfied and accordingly, the 200,000 RSU's did not vest. The Company recorded $ 1,508,000 and $ 620,000 of compensation expense related to the amortization of unearned compensation with respect to the RSUs in the year ended December 31, 2022 and 2021 respectively. At December 31, 2022 and 2021, $ 4,269,000 and $ 2,248,000 had been deferred as unearned compensation and is to be charged to expense over the balance of the applicable performance period. Restricted Stock In January 2022, June 2021 and January 2021, the Company granted 158,973 , 160,000 and 156,774 shares, respectively, of restricted stock pursuant to the 2020 Plan. As of December 31, 2022, an aggregate of 934,092 shares of unvested restricted stock are outstanding pursuant to the Prior Plans. The shares of restricted stock vest five years from the date of grant and under specified circumstances, including a change in control, may vest earlier. For financial statement purposes, the restricted stock is not included in the outstanding shares shown on the consolidated balance sheets until they vest, but are included in the basic and diluted earnings per share computation. During the years ended December 31, 2022 and 2021, the Company recorded $ 2,978,000 and $ 2,321,000 , respectively, of compensation expense related to the amortization of unearned compensation with respect to the restricted stock awards. At December 31, 2022 and 2021, $ 7,728,000 and $ 7,332,000 , respectively, has been deferred as unearned compensation and will be charged to expense over the remaining vesting periods of these restricted stock awards. The weighted average vesting period of the 934,092 restricted shares is 2.3 years. Subsequent to F-27 Table of Contents Index BRT APARTMENTS CORP. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2022 NOTE 10—STOCKHOLDERS' EQUITY (continued) December 31, 2022, the Company granted 163,974 shares of restricted stock pursuant to the 2022 Plan. Changes in the number of restricted shares outstanding under the Company's equity incentive plans are shown below: Year Ended December 31, 2022 2021 Outstanding at beginning of the year 922,619 744,145 Issued 158,973 316,774 Cancelled ( 250 ) ( 950 ) Vested ( 147,250 ) ( 137,350 ) Outstanding at the end of the year 934,092 922,619 The following table reflects the compensation expense recorded for all incentive plans (dollars in thousands): Year Ended December 31, 2022 2021 Restricted stock grants $ 2,978 $ 2,321 Restricted stock units 1,508 620 Total compensation $ 4,486 $ 2,941 Earnings Per Share The following table sets forth the computation of basic and diluted earnings per share (dollars in thousands): Year Ended December 31, 2022 2021 Numerator for basic and diluted earnings per share: Net income $ 50,099 $ 29,250 Deduct (earnings) attributable to non-controlling interests ( 144 ) ( 136 ) Deduct (earnings) allocated to unvested restricted stock ( 2,472 ) ( 1,412 ) Net income available for common stockholders: basic and diluted $ 47,483 $ 27,702 Denominator for basic earnings per share: Weighted average number of common shares outstanding 17,793,035 17,017,690 Effect of dilutive securities: RSUs 59,916 66,952 Denominator for diluted earnings per share: Weighted average number of shares 17,852,951 17,084,642 Earnings per common share, basic $ 2.67 $ 1.63 Earnings per common share, diluted $ 2.66 $ 1.62 F-28 Table of Contents Index BRT APARTMENTS CORP. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2022 NOTE 10—STOCKHOLDERS' EQUITY (continued) Equity Distribution Agreements The following table reflects the sale of shares pursuant to the equity distribution agreements entered into on March 18, 2022, with three sales agents in an at-the-market offering (dollars in thousands): Number of Shares Sold Average Price Gross Proceeds Commissions and Fees Net Proceeds Dollar Value of Shares Sold Aggregate amount available under agreements $ 40,000 2022 (a) 347,815 $ 22.62 $ 7,870 $ 98 $ 7,772 ( 7,870 ) 347,815 $ 7,870 $ 98 $ 7,772 Remaining amount available under agreements: $ 32,130 ____________________________ (a) Subsequent to March 17, 2022. The following table reflects the sale of shares pursuant to the equity distribution agreements entered into on November 26, 2019, as amended, with three sales agents in an at-the-market offering (dollars in thousands): Number of Shares Sold Average Price Gross Proceeds Commissions and Fees Net Proceeds Dollar Value of Shares Sold Aggregate amount available under agreements $ 30,000 2019 111,963 $ 18.06 $ 2,022 $ 31 $ 1,991 ( 2,022 ) 2020 694,298 17.71 12,293 185 $ 12,108 ( 12,293 ) 2021 529,126 18.47 9,771 147 $ 9,624 ( 9,771 ) 2022 (a) 100,000 22.06 2,206 33 $ 2,173 ( 2,206 ) 1,435,387 $ 26,292 $ 396 $ 25,896 Remaining amount not available under agreements (b): $ 3,708 ____________________________ (a) Through March 17, 2022. (b) The amount remaining was no longer available after March 17, 2022. Stock Buyback On September 13, 2021, the Board of Directors approved a stock purchase plan authorizing the Company, effective as of October 1, 2021, to repurchase up to $ 5,000,000 of shares of common stock through December 31, 2023. During the years ended December 31, 2022 and 2021, the Company did no t repurchase any shares of common stock. Dividend Reinvestment Plan The Dividend Reinvestment Plan (the “DRP”), among other things, provides stockholders with the opportunity to reinvest all or a portion of their cash dividends paid on the Company’s common stock in additional shares of its common stock, at a discount, determined in the Company’s sole discretion, of up to 5 % from the market price for the common stock (as such price is calculated pursuant to the DRP). The discount from the market price is currently 3 %. The DRP is effective with the dividend paid on July 8, 2022. In the year ended December 31, 2022, the Company issued 62,360 shares in lieu of cash dividends of $ 1,279,000 . F-29 Table of Contents Index BRT APARTMENTS CORP. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2022 NOTE 11— RELATED PARTY TRANSACTIONS The Company has retained certain of its part time executive officers and Fredric H. Gould, a director, to provide, among other things, the following services: participating in the Company's multi-family property analysis and approval process ( which includes service on an investment committee), providing investment advice, long term planning and consulting with executives and employees with respect to other business matters, as required. The aggregate fees paid in 2022 and 2021 for these services were $ 1,468,000 and $ 1,398,000 , respectively. Management of certain properties owned by the Company and certain joint venture properties is provided by Majestic Property Management Corp. ("Majestic Property"), a company wholly owned by Fredric H. Gould, under renewable year-to-year agreements. Certain of the Company's officers and directors are also officers and directors of Majestic Property. Majestic Property provides real property management, real estate brokerage and construction supervision services to these properties. For the years ended December 31, 2022 and 2021, fees for these services were $ 36,000 and $ 31,000 , respectively. Pursuant to a shared services agreement between the Company and several affiliated entities, including Gould Investors L.P., the owner and operator of a diversified portfolio of real estate and other assets and One Liberty Properties, Inc., a NYSE listed equity REIT ("One Liberty"), the (i) services of the part time personnel that perform certain executive, administrative, legal, accounting and clerical functions and (ii) certain facilities and other resources, are provided to the Company. The allocation of expenses for the facilities, personnel and other resources shared by, among others, the Company and Gould Investors, is computed in accordance with such agreement and is included in general and administrative expense on the consolidated statements of operations. During the years ended December 31, 2022 and 2021, allocated general and administrative expenses reimbursed by the Company to Gould Investors pursuant to the shared services agreement aggregated $ 739,000 and $ 641,000 , respectively. As of December 31, 2022 and 2021, $ 126,000 and $ 118,000 , res pectively, remains unpaid and is included in accounts payable and accrued liabilities on the consolidated balance sheets. At December 31, 2022, Gould Investors owned approximately 17.2 % of BRT’s outstanding common stock. Certain of the Company's officers and directors are also officers and directors of One Liberty and Georgetown Partners, LLC, the managing general partner of Gould Investors. The Company obtains certain insurance in conjunction with Gould Investors and reimburses Gould Investors for the Company's share of the insurance cost. Insurance reimbursements to Gould Investors for the years ended December 31, 2022 and 2021 were $ 67,000 and $ 61,000 , respectively. NOTE 12— FAIR VALUE OF FINANCIAL INSTRUMENTS The Company estimates the fair value of financial assets and liabilities based on the framework established in fair value accounting guidance. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (an exit price). The hierarchy described below prioritizes inputs to the valuation techniques used in measuring the fair value of assets and liabilities. This hierarchy maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring the most observable inputs to be used when available. The hierarchy is broken down into three levels based on the reliability of inputs as follows: • Level 1 – inputs to the valuation methodology are quoted prices (unadjusted) for identical assets and liabilities in active markets • Level 2— inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument. • Level 3— inputs to the valuation methodology are unobservable and significant to fair value. The following methods and assumptions were used to estimate the fair value of each class of financial instruments that are not reported at fair value on the consolidated balance sheets: Cash and cash equivalents, restricted cash, accounts receivable (included in other assets), accounts payable and accrued liabilities: The carrying amounts reported on the balance sheets for these instruments approximate their fair value due to the short term nature of these accounts. F-30 Table of Contents Index BRT APARTMENTS CORP. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2022 NOTE 12—FAIR VALUE OF FINANCIAL INSTRUMENTS (continued) Junior subordinated notes: At December 31, 2022, and 2021, the estimated fair value of the Company's junior subordinated notes is less than their carrying value by approximately $ 4,695,000 and $ 8,296,000 , respectively, based on market interest rates of 7.91 % and 4.21 %, respectively. Mortgages payable: At December 31, 2022, the estimated fair value of the Company's mortgages payable is less than their carrying value by approximately $ 37,500,000 , assuming market interest rates between 5.18 % and 6.23 %. At December 31, 2021, the estimated fair value was greater than the carrying value by $ 511,000 , assuming market interest rates between 3.12 % and 3.87 %. Market interest rates were determined using current financing transaction information provided by third party institutions. Considerable judgment is necessary to interpret market data and develop estimated fair value. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value assumptions. The fair values of debt obligations are considered to be Level 2 valuations within the fair value hierarchy. Financial Instruments Measured at Fair Value The Company's fair value measurements are based on the assumptions that market participants would use in pricing the asset or liability. As a basis for considering market participant assumptions in fair value measurements, there is a fair value hierarchy that distinguishes between markets participant assumptions based on market data obtained from sources independent of the reporting entity and the reporting entity's own assumptions about market participant assumptions. Level 1 assets/liabilities are valued based on quoted prices for identical instruments in active markets, Level 2 assets/liabilities are valued based on quoted prices in active markets for similar instruments, on quoted prices in less active or inactive markets, or on other "observable" market inputs and Level 3 assets/liabilities are valued based significantly on "unobservable" market inputs. The Company does not currently own any financial instruments that are classified as Level 3. At December 31, 2022 and 2021, the Company had no financial assets or liabilities measured at fair value. Long-lived assets The Company reviews its investments in real estate when events or circumstances change indicating the carry value of the investment may not be recoverable. In the evaluation of an investment for impairment, many factors are considered, including estimated current and expected cash flows from the asset during the projected hold period, costs necessary to extend the life of the asset, expected capitalization rates, and projected stabilized net operating income and the ability to hold or dispose of the asset in the ordinary course of business. The Company measures its real estate investments at fair value on a nonrecurring basis. In the quarter ended June 30, 2021, the fair value of the real estate investment was determined based on the expected sale price per the contract using the following input levels (dollars in thousands): Carrying and Fair Value Fair Value Measurements Using Fair Value Hierarchy Level 1 Level 2 Level 3 Non-Financial Assets: Long-lived assets - Opop Tower and Lofts, St Louis, MO $ 3,000 $ — $ 3,000 $ — NOTE 13— COMMITMENT AND CONTINGENCIES From time to time, the Company and/or its subsidiaries are parties to legal proceedings that arise in the ordinary course of business, and in particular, personal injury claims involving the operations of the Company's properties. Although management believes that the primary and umbrella insurance coverage maintained with respect to such properties is sufficient to cover claims for compensatory damages, many of these personal injury claims also assert claims for exemplary ( i.e punitive) damages. Generally, insurance does not cover claims for punitive or exemplary damages. F-31 Table of Contents Index BRT APARTMENTS CORP. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2022 NOTE 13—COMMITMENT AND CONTINGENCIES (continued) The Company is one of several defendants in a wrongful death lawsuit seeking an unspecified amount in excess of $ 1,000,000 and an unspecified amount of exemplary damages. The Company’s primary insurance carrier is defending the claim. Although management is not able to determine the probability and/or magnitude of any potential loss, if any, management believes the Company has sufficient primary and umbrella insurance to cover the claim for compensatory damages. In December 2022, a personal injury lawsuit in which the Company and others were defendants settled - the Company’s insurance carrier paid the plaintiff $ 850,000 . The Company maintains a non-contributory defined contribution pension plan covering eligible employees and officers. Contributions by the Company are made through a money purchase plan, based upon a percent of qualified employees' total salary as defined therein. Pension expense approximated $ 424,000 and $ 423,000 during the years ended December 31, 2022 and 2021, respectively. At December 31, 2022 and 2021, $ 125,000 and $ 23,000 , respectively, remains unpaid and is included in accounts payable and accrued liabilities on the consolidated balance sheets. At December 31, 2022, the Company is the carve-out guarantor with respect to mortgage debt in principal amount of $ 401,225,000 at seventeen multi-family properties. NOTE 14— DERIVATIVE FINANCIAL INSTRUMENTS Cash Flow Hedges of Interest Rate Risk The Company's objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish this objective, the Company primarily uses interest rate swaps as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. The changes in the fair value of derivatives designated and that qualify as cash flow hedges is recorded in Accumulated Other Comprehensive Income and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. As of December 31, 2022 and 2021, the Company did not have any outstanding interest rate derivatives that were designated as cash flow hedges of interest rate risk. The following table presents the effect of the Company's derivative financial instrument on the consolidated statements of comprehensive income (loss) for the year ended December 31, 2021 (dollars in thousands): Year ended December 31, 2021 Amount of loss recognized on derivative in Other Comprehensive Income $ ( 1 ) Amount of gain reclassified from Accumulated Other Comprehensive (loss) income into Interest Expense $ ( 12 ) Total amount of Interest expense presented in the Consolidated Statement of Operations $ 6,757 During the year ended December 31, 2021, the Company accelerated the reclassification of losses of $ 12,000 from other comprehensive income to earnings as a result of the hedged forecasted transaction becoming probable not to occur. F-32 Table of Contents Index BRT APARTMENTS CORP. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2022 NOTE 15— QUARTERLY FINANCIAL DATA (Unaudited) 2022 1st Quarter Jan - March 2nd Quarter April - June 3rd Quarter July - September 4th Quarter Oct - Dec Total For Year Revenues: Rental and other revenue $ 11,430 $ 14,683 $ 21,691 $ 22,711 $ 70,515 Other income 4 2 6 — 12 Total revenues 11,434 14,685 21,697 22,711 70,527 Expenses: Real estate operating expenses 4,753 6,348 9,195 10,262 30,558 Interest expense 2,021 2,912 5,061 5,520 15,514 General and administrative 3,633 3,533 3,673 3,815 14,654 Depreciation 3,606 5,010 8,165 8,031 24,812 Total expenses 14,013 17,803 26,094 27,628 85,538 Total revenues less total expenses ( 2,579 ) ( 3,118 ) ( 4,397 ) ( 4,917 ) ( 15,011 ) Equity in earnings (loss) of unconsolidated joint ventures 1,230 ( 50 ) 135 580 1,895 Equity in earnings from sale of unconsolidated joint venture properties 12,961 40,098 11,472 — 64,531 Gain on sale of real estate 6 — — — 6 Casualty loss — — — ( 850 ) ( 850 ) Insurance recovery of casualty loss — — — 850 850 Gain on sale of partnership interest — — — — Gain on insurance recoveries — 62 — 62 Loss on extinguishment of debt — ( 563 ) — — ( 563 ) Income (loss) from continuing operations 11,618 36,367 7,272 ( 4,337 ) 50,920 Provision for taxes 74 724 178 ( 155 ) 821 Net income (loss) from continuing operations, net of taxes 11,544 35,643 7,094 ( 4,182 ) 50,099 (Income) attributable to non-controlling interests ( 36 ) ( 36 ) ( 35 ) ( 37 ) ( 144 ) Net income (loss) attributable to common stockholders $ 11,508 $ 35,607 $ 7,059 $ ( 4,219 ) 49,955 Basic and diluted and per share amounts attributable to common stockholders Basic income (loss) per share $ 0.62 $ 1.91 $ 0.37 $ ( 0.22 ) $ 2.67 Diluted income (loss) per share $ 0.62 $ 1.91 $ 0.37 $ ( 0.22 ) $ 2.66 F-33 Table of Contents Index BRT APARTMENTS CORP. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2022 NOTE 15—QUARTERLY FINANCIAL DATA (Unaudited) (Continued) 2021 1st Quarter Jan - March 2nd Quarter April - June 3rd Quarter July - September 4th Quarter Oct - Dec Total For Year Revenues: Rental and other revenue $ 7,095 $ 6,958 $ 7,709 $ 10,279 $ 32,041 Other income 4 3 5 4 16 Total revenues 7,099 6,961 7,714 10,283 32,057 Expenses: Real estate operating expenses 3,117 3,166 3,404 4,515 14,202 Interest expense 1,660 1,609 1,535 1,953 6,757 General and administrative 3,114 3,154 3,114 3,239 12,621 Impairment charge — 520 — — 520 Depreciation 1,537 1,416 1,787 3,285 8,025 Total expenses 9,428 9,865 9,840 12,992 42,125 Total revenues less total expenses ( 2,329 ) ( 2,904 ) ( 2,126 ) ( 2,709 ) ( 10,068 ) Equity in (loss) earnings of unconsolidated joint ventures ( 1,345 ) ( 492 ) ( 4,196 ) 1,825 ( 4,208 ) Equity in earnings from sale of unconsolidated joint venture properties — — 34,982 — 34,982 Gain on sale of real estate — 7,279 414 — 7,693 Gain on sale of partnership interest — 2,244 — 388 2,632 Loss on extinguishment of debt — — ( 902 ) ( 673 ) ( 1,575 ) (Loss) income from continuing operations ( 3,674 ) 6,127 28,172 ( 1,169 ) 29,456 Provision for taxes 57 67 31 51 206 (Loss) income from continuing operations, net of taxes ( 3,731 ) 6,060 28,141 ( 1,220 ) 29,250 (Income) attributable to non-controlling interests ( 34 ) ( 33 ) ( 35 ) ( 34 ) ( 136 ) Net (loss) income attributable to common stockholders $ ( 3,765 ) $ 6,027 $ 28,106 $ ( 1,254 ) 29,114 Basic and per share amounts attributable to common stockholders Basic (loss) income per share $ ( 0.22 ) $ 0.34 $ 1.55 $ ( 0.08 ) $ 1.63 Diluted (loss) income per share $ ( 0.22 ) $ 0.34 $ 1.54 $ ( 0.08 ) $ 1.62 F-34 Table of Contents Index BRT APARTMENTS CORP. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2022 NOTE 16— SUBSEQUENT EVENTS Subsequent events have been evaluated and any significant events, relative to our consolidated financial statements as of December 31, 2022 that warrant additional disclosure have been included in the notes to the consolidated financial statements. F-35 Table of Contents Index BRT APARTMENTS CORP. AND SUBSIDIARIES SCHEDULE III—REAL ESTATE PROPERTIES AND ACCUMULATED DEPRECIATION DECEMBER 31, 2022 (Dollars in thousands) Initial Cost to Company Costs Capitalized Subsequent to Acquisition Gross Amount At Which Carried at December 31, 2022 Depreciation Life Description Encumbrances Land Buildings and Improvements Land Improvements Carrying Costs Land Buildings and Improvements Total (a) Accumulated Depreciation Date of Construction Date Acquired Commercial Yonkers, NY. $ — — $ 4,000 — $ 320 — — $ 4,320 $ 4,320 $ 2,419 (b) Aug-2000 39 years Multi-Family Residential North Charleston, SC — 2,435 18,970 — 1,658 — 2,435 20,628 23,063 7,473 2010 Oct-2012 30 years Decatur, GA — 1,698 8,676 — 2,425 — 1,698 11,101 12,799 4,198 1954 Nov-2012 30 years Columbus, OH 8,733 1,372 12,678 — 827 — 1,372 13,505 14,877 4,476 1999 Nov-2013 30 years Pensacola, FL — 2,758 25,192 — 1,686 — 2,758 26,878 29,636 7,625 2008 Dec-2014 30 years San Marcos, TX 16,262 2,303 17,605 — 170 — 2,303 17,775 20,078 2,472 2014 Oct-2019 30 years LaGrange, GA — 832 21,969 — 924 — 832 22,893 23,725 5,844 2009 Nov-2015 30 years Fredericksburg, VA 26,184 7,540 33,196 — 1,135 — 7,540 34,331 41,871 6,211 2005 Jul-2018 30 years Nashville, TN 52,000 6,172 77,532 — 695 — 6,172 78,227 84,399 4,067 2017 Sept -2021 30 years Greenville, SC 26,425 4,033 34,052 — 484 — 4,033 34,536 38,569 1,653 1998 Oct-2021 30 years Nashville, TN 37,680 9,679 29,114 — 1,462 — 9,679 30,576 40,255 1,255 1985 Dec-2021 30 years San Antonio, TX 27,000 3,336 33,437 — 18 — 3,336 33,455 36,791 1,053 2018 March-2022 30 years Creve Coeur, MO 29,700 5,466 30,826 — 118 — 5,466 30,944 36,410 915 2019 April-2022 30 years Tallahassee, FL 21,436 3,398 27,167 — 171 — 3,398 27,338 30,736 732 1997 May-2022 30 years Huntsville, AL 18,952 1,959 20,079 — 404 — 1,959 20,483 22,442 487 1992 May-2022 30 years Boerne, TX 7,842 1,289 12,852 — 174 — 1,289 13,026 14,315 301 2008 May-2022 30 years Macon, GA 10,265 2,866 16,423 — 65 — 2,866 16,488 19,354 322 1989 June-2022 30 years Southaven, MS 27,194 3,646 45,554 — 477 — 3,646 46,031 49,677 930 2003 July-2022 30 years Southaven, MS 29,875 3,847 46,452 — 584 — 3,847 47,036 50,883 956 2006 July-2022 30 years Wilmington, NC 23,160 3,468 37,311 — 222 — 3,468 37,533 41,001 759 2003 July-2022 30 years Trussville, AL 32,250 4,095 42,943 — 242 — 4,095 43,185 47,280 683 2007 July-2022 30 years Madison, AL 15,000 2,054 22,023 — 240 — 2,054 22,263 24,317 364 1992 Aug-2022 30 years Total $ 409,958 $ 74,246 $ 618,051 $ — $ 14,501 $ — $ 74,246 $ 632,552 $ 706,798 $ 55,195 F-36 Table of Contents Index BRT REALTY TRUST AND SUBSIDIARIES SCHEDULE III—REAL ESTATE PROPERTIES AND ACCUMULATED DEPRECIATION DECEMBER 31, 2022 (Dollars in thousands) Notes to the schedule: (a) Total real estate properties $ 706,798 Less: Accumulated depreciation ( 55,195 ) Net real estate properties $ 651,603 (b) Information not readily obtainable. A reconciliation of real estate properties is as follows: 2022 2021 Balance at beginning of year $ 297,929 $ 160,192 Additions: Acquisitions 370,513 160,583 Capital improvements 6,295 1,308 Capitalized development expenses and carrying costs — — 376,808 161,891 Deductions: Sales 4,379 16,927 Depreciation 18,755 7,227 Impairment Charge — — Reconciliation of partnership interest — — 23,134 24,154 Balance at end of year $ 651,603 $ 297,929 F-37