BRT Apartments Corp. 10-Q

Item 1. Financial Statements BRT APARTMENTS CORP. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Amounts in thousands, except per share data) March 31, 2023 December 31, 2022 (unaudited) (audited) ASSETS Real estate properties, net of accumulated depreciation and amortization of $ 61,480 and $ 55,195 $ 647,476 $ 651,603 Investments in unconsolidated joint ventures 41,163 42,576 Cash and cash equivalents 15,252 20,281 Restricted cash 830 872 Other assets 14,980 16,786 Total Assets $ 719,701 $ 732,118 LIABILITIES AND EQUITY Liabilities: Mortgages payable, net of deferred costs of $ 4,655 and $ 4,166 $ 423,820 $ 403,792 Junior subordinated notes, net of deferred costs of $ 272 and $ 277 37,128 37,123 Credit facility, net of deferred costs of $ — and $ 498 — 18,502 Accounts payable and accrued liabilities 15,419 22,631 Total Liabilities 476,367 482,048 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; 18,191 and 18,006 shares outstanding 182 180 Additional paid-in capital 276,034 273,863 Accumulated deficit ( 32,900 ) ( 23,955 ) Total BRT Apartments Corp. stockholders’ equity 243,316 250,088 Non-controlling interest 18 ( 18 ) Total Equity 243,334 250,070 Total Liabilities and Equity $ 719,701 $ 732,118 See accompanying notes to consolidated financial statements. 3 Table of Contents BRT APARTMENTS CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (Amounts in thousands, except shares and per share data) Three Months Ended March 31, 2023 2022 Revenues: Rental and other revenue from real estate properties $ 22,939 $ 11,430 Other income — 4 Total revenues 22,939 11,434 Expenses: Real estate operating expenses - including $ 6 and $ 11 to related parties 10,434 4,753 Interest expense 5,483 2,021 General and administrative - including $ 173 and $ 246 to related parties 4,055 3,633 Depreciation and amortization 8,008 3,606 Total expenses 27,980 14,013 Total revenues less total expenses ( 5,041 ) ( 2,579 ) Equity in earnings of unconsolidated joint ventures 815 1,230 Equity in earnings from sale of unconsolidated joint ventures properties — 12,961 Gain on sale of real estate — 6 Gain on insurance recoveries 240 — (Loss) income from continuing operations ( 3,986 ) 11,618 Income tax provision 76 74 (Loss) income from continuing operations, net of taxes ( 4,062 ) 11,544 Net income attributable to non-controlling interest ( 36 ) ( 36 ) Net (loss) income attributable to common stockholders $ ( 4,098 ) $ 11,508 Weighted average number of shares of common stock outstanding: Basic 18,064,301 17,561,802 Diluted 18,064,301 17,654,349 Per share amounts attributable to common stockholders: Basic and diluted $ ( 0.21 ) $ 0.62 See accompanying notes to consolidated financial statements. 4 Table of Contents BRT APARTMENTS CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EQUITY (Unaudited) (Dollars in thousands, except per share data) Common Stock Additional Paid-In Capital Accumulated Deficit Non- Controlling Interest Total Balances, December 31, 2022 $ 180 $ 273,863 $ ( 23,955 ) $ ( 18 ) $ 250,070 Distributions - common stock - $ 0.25 per share — — ( 4,847 ) — ( 4,847 ) Restricted stock and restricted stock units vesting 2 ( 2 ) — — — Compensation expense - restricted stock and restricted stock units — 1,410 — — 1,410 Shares issued through DRIP — 763 — — 763 Net (loss) income — — ( 4,098 ) 36 ( 4,062 ) Balances, March 31, 2023 $ 182 $ 276,034 $ ( 32,900 ) $ 18 $ 243,334 5 Table of Contents BRT APARTMENTS CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EQUITY (Unaudited) (Dollars in thousands, except per share data) Common Stock Additional Paid-In Capital Accumulated Deficit Non- Controlling Interest Total Balances, December 31, 2021 $ 173 $ 258,161 $ ( 55,378 ) $ ( 5 ) $ 202,951 Distributions - common stock - $ 0.22 per share — — ( 4,305 ) — ( 4,305 ) Restricted stock vesting 2 ( 2 ) — — — Compensation expense - restricted stock and restricted stock units — 974 — — 974 Shares issued through equity offering program, net 1 3,037 — — 3,038 Net income — — 11,508 36 11,544 Balances, March 31, 2022 $ 176 $ 262,170 $ ( 48,175 ) $ 31 $ 214,202 See accompanying notes to consolidated financial statements 6 Table of Contents BRT APARTMENTS CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (Dollars in Thousands) Three Months Ended March 31, 2023 2022 Cash flows from operating activities: Net (loss) income $ ( 4,062 ) $ 11,544 Adjustments to reconcile net (loss) income to net cash provided by operating activities: Depreciation and amortization 8,008 3,606 Amortization of deferred financing costs 252 52 Amortization of debt fair value adjustment 157 ( 89 ) Amortization of restricted stock and restricted stock units 1,410 974 Equity in earnings of unconsolidated joint ventures ( 815 ) ( 1,230 ) Equity in earnings from sale of real estate of unconsolidated joint venture properties — ( 12,961 ) Gain on sale of real estate — ( 6 ) Increases and decreases from changes in other assets and liabilities: Decrease in other assets ( 2,538 ) ( 1,071 ) Decrease (increase) in accounts payable and accrued liabilities 528 ( 350 ) Net cash provided by operating activities 2,940 469 Cash flows from investing activities: Improvements to real estate properties ( 2,158 ) ( 802 ) Purchase of investment in joint ventures — ( 8,288 ) Proceeds from the sale of real estate — 4,385 Distributions from unconsolidated joint ventures 2,228 19,796 Contributions to unconsolidated joint ventures — ( 2,122 ) Net cash provided by investing activities 70 12,969 Cash flows from financing activities: Proceeds from mortgages payable 21,173 — Mortgage payoffs — ( 14,558 ) Mortgage principal payments ( 813 ) ( 410 ) Repayment of credit facility ( 19,000 ) — Increase in deferred financing costs ( 683 ) — Dividends paid ( 9,521 ) ( 4,198 ) Proceeds from the sale of common stock — 3,038 Proceeds from issuance of DRP shares 763 — Net cash used in financing activities ( 8,081 ) ( 16,128 ) 7 Table of Contents BRT APARTMENTS CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (Dollars in Thousands) Three Months Ended March 31, 2023 2022 Net decrease in cash, cash equivalents and restricted cash: ( 5,071 ) ( 2,690 ) Cash, cash equivalents and restricted cash at beginning of period 21,153 38,921 Cash, cash equivalents and restricted cash at end of period $ 16,082 $ 36,231 Supplemental disclosure of cash flow information: Cash paid during the period for interest $ 5,094 $ 2,021 Cash paid for income taxes $ 8 $ 1 Consolidation on buyout of partnership interests: Increase in real estate assets $ — $ ( 36,802 ) Increase in other assets — ( 1,784 ) Increase in mortgage payable — 27,062 Increase in deferred loan costs — ( 364 ) Increase in accounts payable and accrued liabilities — 761 Decrease in investment in unconsolidated joint ventures — 2,839 $ — ( 8,288 ) See accompanying notes to consolidated financial statements 8 Table of Contents BRT APARTMENTS CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (Dollars in Thousands) The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the consolidated balance sheets that sum to the total of the same such amounts shown in the consolidated statements of cash flows. March 31, 2023 2022 Cash and cash equivalents $ 15,252 $ 29,688 Restricted cash 830 6,543 Total cash, cash equivalents and restricted cash, shown in consolidated statement of cash flows $ 16,082 $ 36,231 9 Table of Contents BRT APARTMENTS CORP. AND SUBSIDIARIES Notes to Consolidated Financial Statements March 31, 2023 Note 1 – Organization and Background BRT Apartments Corp. (the "Company" or "BRT"), a Maryland corporation, owns, operates and, to a lesser extent, holds interest in joint ventures that own multi-family properties. The Company conducts its operations to qualify as a real estate investment trust, or REIT, for federal income tax purposes. These multi-family properties may be wholly owned by the Company (including its consolidated subsidiaries) or by unconsolidated joint ventures in which the Company generally contributes a significant portion of the equity. At March 31, 2023, the Company: (i) wholly owns 21 multi-family properties located in eleven states with an aggregate of 5,420 units and a carrying value of $ 645,564,000 ; (ii) has interests, through unconsolidated entities, in eight multi-family properties located in four states with an aggregate of 2,781 units with a carrying value of $ 37,660,000 ; and (iii) own other assets, through consolidated and unconsolidated subsidiaries, with a carrying value of $ 5,415,000 . These 29 multi-family properties are located in 11 states; most of the properties are located in the Southeast United States and Texas. Note 2 – Basis of Preparation The accompanying interim unaudited consolidated financial statements, reflect all normal recurring adjustments which, in the opinion of management, are necessary for a fair presentation of the results for such interim periods. The results of operations for the three months ended March 31, 2023 and 2022, are not necessarily indicative of the results for the full year. The consolidated audited balance sheet as of December 31, 2022, has been derived from the audited financial statements at that date but does not include all the information and footnotes required by accounting principles generally accepted in the United States ("GAAP"). Accordingly, these unaudited statements should be read in conjunction with the Company's audited financial statements included in its Annual Report on Form 10-K for the year ended December 31, 2022 (the "Annual Report") filed with the Securities and Exchange Commission ("SEC"). The consolidated financial statements include the accounts and operations of the Company and its wholly-owned subsidiaries. The Company accounts for its investments in unconsolidated joint ventures under the equity method of accounting. For each venture, the Company evaluated the rights provided to each party in the venture to assess the consolidation of the venture. All investments in unconsolidated joint ventures have sufficient equity at risk to permit the entity to finance its activities without additional subordinated financial support and, as a group, the holders of the equity at risk have power through voting rights to direct the activities of these ventures. As a result, none of these joint ventures are variable interest entities ("VIEs"). Additionally, as determined in accordance with GAAP, the Company does not exercise substantial operating control over these entities, and therefore the entities are not consolidated. These investments are recorded initially at cost, as investments in unconsolidated joint ventures, and subsequently adjusted for their share of equity in earnings, cash contributions and distributions. The distributions to each joint venture partner are determined pursuant to the applicable operating agreement and may not be pro-rata to the percentage equity interest each partner has in the applicable venture. The joint venture that owns a property in Yonkers, New York, was determined not to be a VIE but is consolidated because the Company has controlling rights in such entity. The preparation of the financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements. Actual results could differ from those estimates. Substantially all of the Company's assets are comprised of multi- family real estate assets generally leased to tenants on a one-year basis. Therefore, the Company aggregates real estate assets for reporting purposes and operates in one reportable segment. 10 Table of Contents Note 3 - Equity Equity Distribution Agreements Effective as of March 18, 2022, the Company entered into equity distribution agreements with three sales agents to sell up to $ 40,000,000 of its common stock from time-to-time in an at-the-market offering. During the three months ended March 31, 2023, the Company did not sell any shares. During the three months ended March 31, 2022, the Company sold 136,279 shares (at an average per share price of $ 22.61 ), for an aggregate sales price of $ 3,082,000 , before commissions and fees of $ 44,000 . Common Stock Dividend Distribution The Company declared a quarterly cash distribution of $ 0.25 per share, payable on April 4, 2023 to stockholders of record on March 27, 2023. Dividend Reinvestment Plan The Dividend Reinvestment Plan (the “DRP”) which has been in effect since July, 2022, 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 %. In the three months ended March 31, 2023, we issued 40,218 shares in lieu of cash dividends of $ 763,000 . Stock Based Compensation In 2022, the Company's board of directors adopted, and the stockholders' approved, the 2022 Incentive Plan (the "2022 Plan"). This plan permits the Company to grant: (i) stock options, restricted stock, restricted stock units, performance shares awards and any one or more of the foregoing, for up to a maximum of 1,000,000 shares; and (ii) cash settled dividend equivalent rights in tandem with the grant of restricted stock units and certain performance based awards. As of March 31, 2023, 623,617 shares are available for issuance pursuant to awards under the 2022 Plan. Awards to acquire 789,595 shares of common stock are outstanding under the 2020 Incentive Plan and the 2018 Incentive Plan (collectively the "Prior Plans") and no further awards may be made pursuant to the Prior Plans. Restricted Stock Units In June 2022 and 2021, the Company issued restricted stock units (the "RSUs") to acquire up to 212,469 and 210,375 shares of common stock pursuant to the 2022 Plan and the 2020 Incentive Plan, respectively. Generally, the RSUs entitle the recipients, subject to continued service through the three-year vesting period to receive (i) the underlying shares if and to the extent certain performance and/or market conditions are satisfied at the vesting date, and (ii) an amount equal to the cash dividends that would have been paid during the three-year vesting period with respect to the shares of common stock underlying the RSUs if, when, and to the extent, the related RSUs vest. The shares underlying the RSUs are not participating securities but are contingently issuable shares. Expense is recognized on the RSU's which the Company expects to vest over the applicable vesting period. For the three months ended March 31, 2023 and 2022, the Company recorded $ 514,000 and $ 250,000 , respectively, of compensation expense related to the amortization of unearned compensation with respect to the RSUs issued under the 2020 and 2022 Incentive Plans. At March 31, 2023 and December 31, 2022, $ 3,111,000 and $ 4,269,000 of compensation expense, respectively, has been deferred and will be charged to expense over the remaining vesting periods. Restricted Stock In January 2023 and 2022, the Company granted 163,914 and 158,973 shares, respectively, of restricted stock pursuant to the 2022 and 2020 Plan. As of March 31, 2023 , an aggregate of 953,509 shares of unvested restricted stock are outstanding pursuant to the 2022 Plan and Prior Plans. The shares of restricted stock vest five years from the date of grant and under specified circumstances, including a change in control, may vest earlier. For financial statement purposes, the restricted stock is not included in the outstanding shares shown on the consolidated balance sheets until they vest, but is included in the earnings per share computation. For the three months ended March 31, 2023 and 2022, the Company recorded $ 896,000 and $ 724,000 , respectively, of compensation expense related to the amortization of unearned compensation with respect to the restricted stock awards. At March 31, 2023 and December 31, 2022, $ 9,976,000 and $ 7,728,000 , respectively, has been deferred as unearned compensation 11 Table of Contents and will be charged to expense over the remaining vesting periods of these restricted stock awards. The weighted average remaining vesting period of these shares of restricted stock is 3.0 years. Stock Buyback On September 13, 2021, the Board of Directors approved a stock repurchase plan authorizing the Company, effective as of October 1, 2021, to repurchase up to $ 5,000,000 of shares of common stock through December 31, 2023. During the three months ended March 31, 2023 and 2022, the Company did not repurchase any shares of common stock. Per Share Data Basic earnings (loss) per share is determined by dividing net income (loss) applicable to common stockholders for the applicable period by the weighted average number of shares of common stock outstanding during such period. Net income is also allocated to the unvested restricted stock outstanding during each period, as the restricted stock is entitled to receive dividends and is therefore considered a participating security. The RSUs are excluded from the basic earnings per share calculation as they are not participating securities. Diluted earnings per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into shares of common stock or resulted in the issuance of shares of common stock that share in the earnings of the Company. Diluted earnings per share is determined by dividing net income applicable to common stockholders for the applicable period by the weighted average number of shares of common stock deemed to be outstanding during such period. In calculating diluted earnings per share, the Company includes only those shares underlying the RSUs that it anticipates will vest based on management's estimates as of the end of the most recent quarter. The Company excludes any shares underlying the RSUs from such calculation if their effect would have been anti-dilutive. The following table provides a reconciliation of the numerator and denominator of earnings per share calculations (amounts in thousands, except per share amounts): Three Months Ended March 31, 2023 2022 Numerator for basic and diluted earnings per share: Net (loss) income $ ( 4,062 ) $ 11,544 Deduct net income attributable to non-controlling interests ( 36 ) ( 36 ) Deduct (loss) earnings allocated to unvested restricted stock 260 ( 574 ) Net (loss) income available for common stockholders: basic and diluted $ ( 3,838 ) $ 10,934 Denominator for basic earnings per share: Weighted average number of common shares outstanding 18,064,301 17,561,802 Effect of dilutive securities: RSUs (1) — 92,547 Denominator for diluted earnings per share: Weighted average number of shares 18,064,301 17,654,349 (Loss) earnings per common share, basic $ ( 0.21 ) $ 0.62 (Loss) earnings per common share, diluted $ ( 0.21 ) $ 0.62 (1) At March 31, 2023, excludes 35,206 shares subject to RSU's as their effect would have been anti-dilutive. 12 Table of Contents Note 4 - Leases Lessor Accounting The Company owns a commercial building leased to two tenants under operating leases expiring from 2028 to 2035, with tenant options to extend the leases. Revenues from such leases are reported as rental income, net, and are comprised of (i) lease components, which includes fixed lease payments and (ii) non-lease components, which includes reimbursements of property level operating expenses. The Company does not separate non-lease components from the related lease components, as the timing and pattern of transfer are the same, and accounts for the combined component in accordance with ASC 842. Lessee Accounting The Company is a lessee under a ground lease in Yonkers, NY which is classified as an operating lease. The ground lease expires September 30, 2024 and provides for one 21-year renewal option. As of March 31, 2023, the remaining lease term, including the renewal option deemed exercised, is 22.5 years. The Company is a lessee under a corporate office lease in Great Neck, New York, which is classified as an operating lease. The lease expires on December 31, 2031 and provides a five-year renewal option. As of March 31, 2023, the remaining lease term, including renewal options deemed exercised, is 13.8 years. As of March 31, 2023, the Company's Right of Use ("ROU") assets and lease liabilities were $ 2,324,000 and $ 2,433,000 , respectively. As of December 31, 2022, the Company's ROU assets and lease liabilities were $ 2,371,000 and $ 2,472,000 , respectively. The discount rate applied to measure each ROU asset and lease liability is based on the Company’s incremental borrowing rate (“IBR”). The Company considers the general economic environment and its historical borrowing rate activity and factors in various financing and asset specific adjustments to ensure the IBR is appropriate to the intended use of the underlying lease. As the Company did not elect to apply the hindsight practical expedient, lease term assumptions determined under ASC 840 were carried forward and applied in calculating the lease liabilities recorded under ASC 842. The Company’s ground lease offers a renewal option which it assesses against relevant economic factors to determine whether it is reasonably certain of exercising or not exercising the option. Lease payments associated with renewal periods that the Company is reasonably certain will be exercised, if any, are included in the measurement of the corresponding lease liability and ROU asset. Note 5 ‑ Real Estate Properties Real estate properties, consists of the following (dollars in thousands): March 31, 2023 December 31, 2022 Land $ 74,246 $ 74,246 Building 617,041 617,041 Building improvements 17,669 15,511 Real estate properties 708,956 706,798 Accumulated depreciation ( 61,480 ) ( 55,195 ) Total real estate properties, net $ 647,476 $ 651,603 A summary of real estate properties owned is as follows (dollars in thousands): December 31, 2022 Balance Improvements Depreciation March 31, 2023 Balance Multi-family $ 649,701 $ 2,120 $ ( 6,257 ) $ 645,564 Retail shopping center and other 1,902 38 ( 28 ) 1,912 Total real estate properties $ 651,603 $ 2,158 $ ( 6,285 ) $ 647,476 13 Table of Contents Contract to Acquire a Property On March 8, 2023, we 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 our satisfaction, of its due diligence investigation, as well as the approval by the mortgage lender of our assumption of the mortgage debt. We anticipate that this transaction will be completed by year end 2023, although we can provide no assurance that this transaction will be completed. Property Acquisition - Prior Year On March 23, 2022, the Company completed the purchase of its partners' remaining 28.1 % interest in Verandas at Alamo, San Antonio, TX, for a purchase price of $ 8,721,000 , with a mortgage debt in principal amount of $ 27,000,000 with a fixed rate of 3.64 % and interest only until October 2024 and a maturity of December 2029. As a result of this purchase, this property is wholly-owned and is included in the Company's consolidated balance sheet. Note 6 - Restricted Cash Restricted cash represents funds held for specific purposes and are therefore not available for general corporate purposes. The restricted cash reflected on the consolidated balance sheets represents funds that are held by the Company specifically for capital improvements at certain multi-family properties owned by unconsolidated joint ventures. Note 7 – Investment in Unconsolidated Ventures At March 31, 2023 and December 31, 2022, the Company held interests in unconsolidated joint ventures that own eight multi-family properties (the "Unconsolidated Properties") and a property in development. The condensed balance sheets below present information regarding such properties (dollars in thousands): March 31, 2023 December 31, 2022 ASSETS Real estate properties, net of accumulated depreciation of $ 62,273 and $ 66,945 $ 282,329 $ 318,304 Cash and cash equivalents 6,909 6,591 Other assets 37,563 35,372 Real estate property held for sale 33,970 — Total Assets $ 360,771 $ 360,267 LIABILITIES AND EQUITY Liabilities: Mortgages payable, net of deferred costs of $ 1,367 and $ 1,421 $ 259,482 $ 255,261 Accounts payable and accrued liabilities 5,684 8,222 Total Liabilities 265,166 263,483 Commitments and contingencies Equity: Total unconsolidated joint venture equity 95,605 96,784 Total Liabilities and Equity $ 360,771 $ 360,267 BRT's interest in joint venture equity $ 41,163 $ 42,576 14 Table of Contents At the indicated dates, real estate properties of the unconsolidated joint ventures consist of the following (dollars in thousands): March 31, 2023 December 31, 2022 Land $ 46,331 $ 59,404 Building 291,473 315,400 Building improvements 6,798 10,445 Real estate properties 344,602 385,249 Accumulated depreciation ( 62,273 ) ( 66,945 ) Total real estate properties, net $ 282,329 $ 318,304 At March 31, 2023 and December 31, 2022, the weighted average interest rate on the mortgages payable is 4.07 % and 3.99 %, respectively, and the weighted average remaining term to maturity is 5.8 years and 6.1 years, respectively. The condensed income statements below present information regarding the Unconsolidated Properties (dollars in thousands): Three Months Ended March 31, 2023 2022 Revenues: Rental and other revenue $ 12,132 $ 25,231 Total revenues 12,132 25,231 Expenses: Real estate operating expenses 5,675 11,169 Interest expense 2,455 6,026 Depreciation 2,707 6,636 Total expenses 10,837 23,831 Total revenues less total expenses 1,295 1,400 Other equity earnings 113 55 Gain on insurance recoveries 65 515 Gain on sale of real estate — 23,652 Loss on extinguishment of debt — ( 30 ) Net income from joint ventures $ 1,473 $ 25,592 BRT's equity in earnings and equity in earnings from sale of unconsolidated joint venture properties $ 815 $ 14,191 Contract to sell property 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 the Company has a 50 % interest entered into a contract to sell the property. The contract sales price is $ 73,000,000 and the Company estimates that its share of the (i) gain will be approximately $ 14,600,000 and (ii) early extinguishment of debt charge will be approximately $ 167,000 . This property is reflected as held for sale at March 31, 2023. The Company anticipates that this sale will be completed in the quarter ending June 30, 2023. 15 Table of Contents Note 8 – Debt Obligations Debt obligations consist of the following (dollars in thousands): March 31, 2023 December 31, 2022 Mortgages payable $ 428,475 $ 407,958 Junior subordinated notes 37,400 37,400 Credit facility — 19,000 Deferred financing costs ( 4,927 ) ( 4,941 ) Total debt obligations, net of deferred costs $ 460,948 $ 459,417 Mortgages Payable At March 31, 2023, the weighted average interest rate on the Company's mortgages payable was 4.02 % and the weighted average remaining term to maturity is 7.8 years. For the three months ended March 31, 2023 and 2022, interest expense, which includes amortization of deferred financing costs, was $ 4,546,000 and $ 1,763,000 , respectively. On February 24, 2023, we obtained mortgage debt of $ 21,173,000 on our Silvana Oaks- North Charleston, SC multi-family property, such mortgage debt matures in March 2033, bears an interest rate of 4.55 % and is interest only for the term of the mortgage. Credit Facility The Company's amended credit facility with an affiliate of Valley National Bank ("VNB"), allows the Company to borrow, subject to compliance with borrowing base requirements and other conditions, up to $ 60,000,000 . The facility can be used to facilitate the acquisition of multi-family properties, repay mortgage debt secured by multi-family properties and for operating expenses (i.e.,working capital (including dividend payments)); provided that no more than $ 25,000,000 may be used for operating expenses. The facility is secured by the cash available at VNB and the Company's pledge of the interests in the entities that own the properties. The interest rate in effect as of March 31, 2023 is 8.00 %. There is an unused facility fee of 0.25 % per annum. At March 31, 2023, the Company is in compliance in all material respects with its obligations under the facility. At March 31, 2023, there was no outstanding balance on the facility and at December 31, 2022 the outstanding balance was $ 19,000,000 . At March 31, 2023 and December 31, 2022, $ 60,000,000 and $ 41,000,000 , respectively, was available to be borrowed. At May 1, 2023, there was no outstanding balance on the facility and $ 60,000,000 available to be borrowed. Interest expense for the three months ended March 31, 2023 and 2022, which includes amortization of deferred financing costs and unused fees, was $ 300,000 and $ 45,000 , respectively. Deferred financing costs of $ 445,000 and $ 498,000 , are recorded in on the Consolidated balance sheets at March 31, 2023 and December 31, 2022, respectively. Junior Subordinated Notes At March 31, 2023 and December 31, 2022, the outstanding principal balance of the Company's junior subordinated notes was $ 37,400,000 , before deferred financing costs of $ 272,000 and $ 277,000 , respectively. The interest rate on the outstanding balance resets quarterly and is based on three months LIBOR + 2.00 %. The rate in effect at March 31, 2023 and 2022 was 6.80 % and 2.30 %, respectively. The notes mature April 30, 2036. The interest rate that will be in effect for the three months ending July 31, 2023 is 7.30 %. The junior subordinated notes require interest only payments through the maturity date of April 30, 2036, at which time repayment of the outstanding principal and unpaid interest become due. Interest expense for the three months ended March 31, 2023 and 2022, which includes amortization of deferred financing costs, was $ 637,000 and $ 212,000 , respectively. Note 9 – Related Party Transactions The Company has retained certain of its executive officers and Fredric H. Gould, a director, among other things, to participate in the Company's multi-family property analysis and approval process (which includes service on an investment committee), provide investment advice, and provide long-term planning and consulting with executives and employees with 16 Table of Contents respect to other business matters, as required. The aggregate fees incurred for these services in each of the three months ended March 31, 2023 and 2022 were $ 385,000 and $ 367,000 , 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. Certain of the Company's officers and directors are also officers and directors of Majestic Property. Majestic Property may also provide real estate brokerage and construction supervision services to these properties. These fees amounted to $ 6,000 and $ 11,000 for the three months ended March 31, 2023 and 2022, respectively. Pursuant to a shared services agreement between the Company and several affiliated entities, including Gould Investors L.P. ("Gould Investors"), the owner and operator of a diversified portfolio of real estate and other assets, and One Liberty Properties, Inc., a NYSE listed equity REIT, (i) the services of the part- time personnel that perform certain executive, administrative, legal, accounting and clerical functions and (ii) certain facilities and other resources, are provided to the Company. The allocation of expenses for the facilities, personnel and other resources shared by, among others, the Company and Gould Investors, is computed in accordance with such agreement and is included in general and administrative expense on the consolidated statements of operations. During the three months ended March 31, 2023 and 2022, allocated general and administrative expenses reimbursed by the Company to Gould Investors pursuant to the shared services agreement aggregated $ 172,000 and $ 246,000 , respectively. Jeffrey A. Gould and Matthew J. Gould, executive officers and directors of the Company are executive officers of Georgetown Partners, LLC, the managing general partner of Gould Investors. Note 10 – Fair Value Measurements 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. Financial Instruments Not Carried at Fair Value The following methods and assumptions were used to estimate the fair value of each class of financial instruments that are not recorded at fair value on the consolidated balance sheets: Cash and cash equivalents, restricted cash, accounts receivable (included in other assets), accounts payable and accrued liabilities: The carrying amounts reported in the balance sheets for these instruments approximate their fair value due to the short term nature of these accounts. Junior subordinated notes: At March 31, 2023 and December 31, 2022, the estimated fair value of the notes is lower than their carrying value by approximately $ 4,487,000 and $ 4,695,000 , respectively, based on a market interest rate of 8.53 % and 7.91 %, respectively. Mortgages payable: At March 31, 2023, the estimated fair value of the Company’s mortgages payable is lower than their carrying value by approximately $ 28,532,000 , assuming market interest rates between 4.48 % and 5.83 %. At December 31, 2022, the estimated fair value of the Company's mortgages payable was greater than their carrying value by approximately $ 37,500,000 , assuming market interest rates between 5.18 % and 6.23 %. Market interest rates were determined using rates which the Company believes reflects institutional lender yield requirements at the balance sheet dates. 17 Table of Contents 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. The fair value of debt obligations are considered to be Level 2 valuations within the fair value hierarchy. Note 11 – Commitments and Contingencies From time to time, the Company and/or its subsidiaries are parties to legal proceedings that arise in the ordinary course of business, and in particular, personal injury claims involving the operations of the Company's properties. Although management believes that the primary and umbrella insurance coverage maintained with respect to such properties is sufficient to cover claims for compensatory damages, many of these personal injury claims also assert claims for exemplary ( i.e punitive) damages. Generally, insurance does not cover claims for exemplary damages. The Company is one of several defendants in a wrongful death lawsuit seeking an unspecified amount in excess of $ 1,000,000 and an unspecified amount of exemplary damages. The Company’s primary insurance carrier is defending the claim. Although management is not able to determine the probability and/or magnitude of any potential loss, if any, management believes the Company has sufficient primary and umbrella insurance to cover the claim for compensatory damages. Note 12 – Subsequent Events Subsequent events have been evaluated and any significant events, relative to our consolidated financial statements as of March 31, 2023, that warrant additional disclosure, have been included in the notes to the consolidated financial statements. 18 Table of Contents