What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-11-06 compared with 2023-08-07 · 184 added, 170 removed, 303 unchanged (54% of the section changed)

8 unchanged sentences

Factors which may cause actual results to vary from our forward-looking statements include, but are not limited to:

• the forfeiture of BRT's deposit with respect to the purchase of a multi-family property in Richmond, VA;

• inability to generate sufficient cash flows due to unfavorable economic and market conditions ( e.g.

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• level and volatility of interest or capitalization rates or capital market conditions;

• extreme weather and natural disasters such as hurricanes, tornadoes and floods;

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• extreme weather and natural disasters such as hurricanes, tornadoes and floods;

• lack of or insufficient amounts of insurance to cover, among other things, losses from catastrophes;

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We are an internally managed real estate investment trust, also known as a REIT, that owns, operates and, to a lesser extent, holds interests in joint ventures that own and operate multi-family properties.

At June 30, 2023, we:

At September 30, 2023, we:

(i) wholly-own 21 multi-family properties with an aggregate of 5,420 units and a carrying value of $638.2 million;

(ii) have ownership interests, through unconsolidated entities, in seven multi-family properties with 2,287 units and a carrying value of our net equity investment $31.9 million;

(ii) have ownership interests, through unconsolidated entities, in seven multi-family properties with 2,287 units and a carrying value of $30.9 million;

and (iii) own other assets, through consolidated and unconsolidated subsidiaries, with a carrying value of $5.4 million.

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Challenges and Uncertainties as a Result of the Uncertain Economic Environment

As more fully described in (i) our Annual Report, and in particular, the sections thereof entitled " Risk Factors " and " Management's Discussion and Analysis of Financial Condition and Results of Operations" and (ii) below, we face challenges ( e.g ., inflation, rising interest rates and decelerating increases in rental rates) due to the uncertain economic environment which may limit our ability or willingness (i) to acquire (or complete the acquisition of previously contracted for) properties, (ii) grow rental income or (iii) control our real estate operating expenses.

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The purchase is subject to the satisfaction of various conditions, including the approval by the mortgage lender of our assumption of the mortgage debt.

As of June 30, 2023, there is a $1.3 million deposit on this property, which we will forfeit if we do not, with certain exceptions, complete this acquisition.

To complete this purchase' we anticipate that we will have to draw on our credit facility which, at August 1, 2023, bears an interest rate of 8.50%.

We can provide no assurance that this transaction will be completed.

As of September 30, 2023, there is a $1.3 million deposit on this property, which we will forfeit if we do not, with certain exceptions, complete this acquisition.

To complete this purchase, we anticipate that we will have to draw on our credit facility which, at November 1, 2023, bears an interest rate of approximately 7.82% or obtain mortgage financing from our unencumbered properties.

There is uncertainty as to whether this transaction will be completed.

Share repurchases

During the quarter ended June 30, 2023, we repurchased 309,153 shares of common stock at an average price of $18.87 for an aggregate cost of $5.8 million.

From July 1 through July 31, 2023, we repurchased 45,612 shares of our common stock at an average price of $20.10 for an aggregate cost of $917,000.

In August 2023, the Board of Directors increased the Company's share repurchase program by an additional approximate $6.7 million of shares to $10 million of shares of common stock.

During the quarter ended September 30, 2023, we repurchased 264,165 shares of common stock at an average price of $18.74 for an aggregate cost of $4.9 million.

From October 1 through October 31, 2023, we repurchased 98,014 shares of our common stock at an average price of $17.23 per share for an aggregate cost of $1.7 million.

After giving effect to these repurchases, we are authorized to repurchase up to $4.3 million of additional shares of our common stock.

Activities During the Three Months Ended June 30, 2023

Joint Venture - Sale of property

On May 12, 2023, the unconsolidated joint venture that owns Chatham Court and Reflections, a 494 - unit multi-family property located in Dallas, TX, and in which we have a 50% interest, sold such property (the "Chatham Sale").

Our share of the gain from this sale is $14.7 million and our share of the related early extinguishment of debt charge is $212,000.

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

Insurance Recoveries

In April 2023, we received, and recorded as "Insurance recovery on casualty loss", $215,000 (net of applicable deductibles) related to an approximate $614,000 of repair and maintenance expense incurred in prior periods ($514,000 in the quarter ended December 31, 2022 and $100,000 in the quarter ended March 31, 2023), at properties that incurred damage as a result of a late December 2022 storm.

We anticipate receiving an additional $255,000 of insurance recoveries during the quarter ending September 30, 2023.

Equity Incentive Program Activity

On June 22, 2023, we awarded an aggregate of 214,988 shares subject to restricted stock units (“RSUs”), and related dividend equivalent rights, to 17 individuals.

Generally, the awards vest in 2026 subject to satisfaction of, among other things, market and performance conditions similar to the conditions applicable to the RSUs granted in 2022.

We anticipate that due to the uncertain acquisition environment, and the current price of our common stock, that, in the near term, we may continue to repurchase our common stock.

Activities During the Three Months Ended September 30, 2023

On August 28, 2023, our credit facility was amended to convert the index on which interest is calculated from the prime rate to SOFR and to adjust the interest rate floor.

After giving effect to the amendment, the interest rate on the credit facility, which adjusts monthly and is subject to a floor of 6.0%, equals one-month term SOFR plus 250 basis points.

The interest rate in effect as of September 30, 2023 is 7.81% and at such date we were in compliance in all material respects with our obligations under the facility.

Results of Operations

Three months ended June 30, 2023 compared to three months ended June 30, 2022 .

Three months ended September 30, 2023 compared to three months ended September 30, 2022 .

As used herein, the term "same store properties" refers to operating properties that were wholly owned for the entirety of the periods presented.

For the three months ended June 30, 2023 and 2022, there were ten same store properties in our consolidated portfolio.

As used in the comparison of the three months ended June 30, 2023 and 2022, the term "Partner Buyouts" refers to our purchase in 2022 of the interests of our joint venture partners at ten properties.

For the three months ended September 30, 2023 and 2022, there were 11 same store properties in our consolidated portfolio.

As used in the comparison of the three months ended September 30, 2023 and 2022, the term "Partner Buyouts" refers to our purchase in 2022 of the interests of our joint venture partners at five properties during the three months ended September 30, 2022.

See note 5 - Real Estate Properties - to our consolidated financial statements.

The following table compares our revenues for the periods indicated:

Three Months Ended June 30,

Three Months Ended September 30,

(Dollars in thousands):

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Rental and other revenue from real estate properties $ 23,510 $ 21,691 $ 1,819 8.4 %

Other income 63 2 61 3,050.0 %

Other income 342 6 336 N/M

Total revenues $ 23,852 $ 21,697 $ 2,155 9.9 %

1 unchanged sentence

The increase was due to:

• $8.3 million from the Partner Buyouts (including $6.2 million from the purchases completed during the six months ended December 31, 2022), and

• $1.4 million from the Partner Buyouts, and

• $723,000 from same store properties primarily due to an increase in rental rates across most of the portfolio.

The increase was offset by a $324,000 decrease due to a decline in occupancy rates, including an aggregate of $92,000 at Verandas at Alamo Ranch - San Antonio, TX ("Alamo Ranch") which has experienced a higher decline in occupancy than our portfolio in general due primarily to a tightening of the tenant screening process at this property.

The increase was offset by a $291,000 decrease due to a decline in occupancy rates across most of the portfolio (including an aggregate of $144,000 at Verandas at Alamo Ranch - San Antonio, TX ("Alamo Ranch") and at Bells Bluff - West Nashville, TN ("Bells Bluff), due primarily, with respect to the former, to a tightening of the tenant screening process, and with respect to the latter, to increased supply in its market and a change in market demand for certain apartment types).

The increase in the current three month period ended September 2023, is primarily due to the impact of rising interest rates on our cash balances.

The following table compares our expenses for the periods indicated:

Three Months Ended June 30,

Three Months Ended September 30,

(Dollars in thousands) 2023 2022 Increase

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Total expenses $ 26,725 $ 26,094 $ 631 2.4 %

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Real estate operating expense.

The change is due to the following increases:

• $3.6 million from the Partner Buyouts (including $2.4 million from the purchases completed during the six months ended December 31, 2022), and

• $878,000 from same store properties, including:

– $285,000 due to general cost increases across various expense categories and properties;

– $135,000 due to repairs and maintenance due to general cost increases and increased unit turns;

– $447,000 due to the master insurance program implemented in December 2022;

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– $102,000 in replacements due to an increase in unit turnovers.

– $238,000 due to general cost increases across various expense categories and properties;

– $193,000 due to repairs and maintenance and replacements due to general cost increases and increased unit turns.

• $476,000 from the Partner Buyouts.

Interest expense.

The increase is due to:

• $2.1 million from the Partner Buyouts, which includes $221,000 of amortization of mortgage fair value adjustments (including $1.6 million from the purchases completed during the six months ended December 31, 2022);

• $395,000 due to an increase on the interest rate on our junior subordinated debt which was based on three month LIBOR.

• $303,000 due to a 318 basis point increase on the interest rate on our junior subordinated debt;

• $265,000 from the Partner Buyouts.

The increase was offset by a $134,000 decline in interest expense due to a reduction in the balance outstanding on our credit facility.

General and administrative

The increase is due primarily to a $320,000 increase in compensation expense - specifically, increases of:

• $152,000 in salaries and other components of cash compensation, due to higher levels of compensation and to a lesser extent, an increase in the number of employees;

• $119,000 due to the inclusion, for the entire three months ended June 30, 2023, of the amortization expense related to the performance and market based restricted stock units (the "RSUs") granted in June 2022;

• $73,000 due to the amortization expense related to restricted stock, granted in January 2023 as a result of the higher fair value of the shares granted in 2023 in comparison to the value of the restricted stock granted in 2018.

• $180,000 due to the inclusion, for the entire three months ended September 30, 2023, of the amortization expense related to the performance and market based restricted stock units (the "RSUs") granted in June 2023;

• $123,000 of other components of compensation expense, including $70,000 related to the amortization of restricted stock granted in January 2023.

Depreciation and amortization

The increase is due primarily to $3.5 million from the Partner Buyouts (including $[ ] from the purchases completed during the six months ended December 31, 2022), offset by a $937,000 decline due to reduced depreciation related to lease intangibles.

The decrease is due primarily to a $1.6 million decline due to reduced depreciation related to lease intangibles from properties that were subject to the Partner Buyouts in 2022.

Gain on Sale of Real Estate

In the three months ended September 30, 2023, we sold a cooperative apartment in New York for a sales price of $785,000 and recognized a gain of $604,000 on the sale.

Insurance recovery of casualty loss

During the quarter ended June 30, 2023, we received $215,000 in insurance proceeds as reimbursement for expenses incurred related to a winter storm in December 2022.

During the quarter ended September 30, 2023, we received $261,000 in insurance proceeds (in addition to $215,000 previously received) as reimbursement for expenses incurred related to a winter storm in December 2022.

There was no similar recovery in the corresponding 2022 period.

Income tax provision

Income tax provision in the quarter ended June 30, 2023, decreased $673,000 to $51,000 from $724,000 in the corresponding quarter in the prior year.

The decline is primarily the result of increased state tax provision recorded in the 2022 period, the result of higher gains that were reported from the sale of properties by unconsolidated joint ventures.

Income tax provision (benefit)

Income tax provision (benefit) in the quarter ended September 30, 2023, decreased $300,000 to a benefit of $122,000 from an expense of $178,000 in the corresponding quarter in the prior year.

The change is primarily the result of the reversal of previously accrued expense and the anticipated receipt of refunds from the 2022 tax year.

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Unconsolidated Joint Ventures - Results of Operations

Equity in earnings (loss) of unconsolidated joint ventures.

Equity in earnings of unconsolidated joint ventures.

The table below reflects the condensed income statements of our Unconsolidated Properties.

In accordance with US generally accepted accounting principles, each of the line items in the chart below (other than equity in income (loss) of unconsolidated joint ventures and equity in earnings from sale of unconsolidated joint ventures) is presented as if these properties are wholly owned by us although our equity interests in these properties ranges from 32% to 80% (see note 7 of our consolidated financial statements) (dollars in thousands):

Three Months Ended June 30,

Three Months Ended September 30,

2023 2022 Increase

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Other equity earnings 3 12 (9) (75.0) %

Gain on insurance recoveries from unconsolidated joint ventures — 52 (52) (100.0) %

Gain on sale of real estate from unconsolidated joint ventures — 16,937 (16,937) (100.0) %

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The components of the decrease include:

• $7.4 million from the Partner Buyouts;

• $3.2 million from the sale, during the nine months ended December 31, 2022, of three properties owned by unconsolidated joint ventures (the "2022 Sales");

• $761,000 from the Chatham Sale.

• $1.9 million from the sale of the Chatham Court and Reflections property - Dallas, TX ("Chatham Sale") in 2023;

• $963,000 from Partner Buyouts;

• $532,000 primarily from the sale of the Waters Edge property-Columbia, SC.

("Waters Edge Sale") 2022.

Offsetting the decrease was a $499,000 increase from same store properties due to increased rental rates, net of the impact of a decrease in occupancy rates.

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The components of the decrease are:

• $3.1 million from the Partner Buyouts;

• $1.6 million from the 2022 Sales;

• $954,000 from the Chatham Sale.

• $621,000 primarily from the Waters Edge Sale;

• $431,000 from the Partner Buyouts.

Offsetting this decrease was a $517,000 increase in such expenses at same store properties due primarily to increased real estate taxes, including the inclusion, in the corresponding period of the prior year, of the receipt of a $152,000 tax refund and, to a lesser extent, increases in personnel costs, utilities and insurance expense.

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Offsetting this decrease was a $315,000 increase in such expenses at same store properties, with expenses generally increasing across most expense categories.

Interest expense from unconsolidated joint ventures.

The decrease is due to the decrease in mortgage debt due to property sales and the Partner Buyouts-in particular:

• $1.7 million from the Partner Buyouts;

• $648,000 from the 2022 Sales.

• $269,000 from the Chatham Sale;

• $232,000 from the Partner Buyouts;

• $92,000 from the Waters Edge Sale.

Depreciation from unconsolidated joint ventures

The components of the decrease include:

• $2.0 million from the Partner Buyouts;

• $283,000 from the sales in 2022 of Waters Edge at Harbison - Columbia, SC and The Vive - Kannapolis, NC;

• $272,000 from the Partner Buyouts;

• $262,000 from the Chatham Sale;

• $272,000 from the Waters Edge Sale.

Loss on extinguishment of debt from unconsolidated joint ventures

In the three months ended June 30, 2023, we recognized a loss on the early extinguishment of debt of $561,000 in connection with the Chatham Sale.

In the three months ended June 30, 2022, we recognized a loss on early extinguishment of debt of $2.9 million in connection with the Cinco and Vive Sales.

In the three months ended September 30, 2022, we recognized a loss on the early extinguishment of debt of $573,000 in connection with the Waters Edge sale.

There was no similar loss in the 2023 corresponding period.

Gain on sale of real estate from unconsolidated joint ventures

In three months ended June 30, 2023, we recognized a gain on the sale of real estate of $38.4 million from the Chatham Sale.

In the three months ended June 30, 2022, we recognized a gain on the sale of real estate of $77.7 million from the sale of Cinco and Vive.

In three months ended September 30, 2022, we recognized a gain on the sale of real estate of $16.9 million from the Waters Edge sale.

There was no similar gain in the 2023 corresponding period.

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Results of Operations

Six months ended June 30, 2023 compared to six months ended June 30, 2022 .

Nine months ended September 30, 2023 compared to nine months ended September 30, 2022 .

As used herein, the term "same store properties" refers to operating properties that were wholly owned for the entirety of the periods presented.

For the six months ended June 30, 2023 and 2022, there were ten same store properties in our consolidated portfolio.

As used in the comparison of the six months ended June 30, 2023 and 2022, the term "Partner Buyouts" refers to our purchase in 2022 of the interests of our joint venture partners at 11 properties.

For the nine months ended September 30, 2023 and 2022, there were ten same store properties in our consolidated portfolio.

As used in the comparison of the nine months ended September 30, 2023 and 2022, the term "Partner Buyouts" refers to our purchase in 2022 of the interests of our joint venture partners at 11 properties.

The following table compares our revenues for the periods indicated:

Six Months Ended June 30,

Nine Months Ended September 30,

(Dollars in thousands):

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The increase was due to:

• $18.8 million from the Partner Buyouts (including $12.3 million from the purchases completed during the six months ended December 31, 2022), and

• $1.8 million at same store properties primarily due to an increase in average rental rates.

The increase was offset by a $585,000 decrease due to a decline in occupancy rates at same store properties, including $181,000 at Bells Bluff - West Nashville, TN ("Bells Bluff") which experienced a decline in occupancy due to increased supply in the market and a change in market demand for certain unit types.

• $20.3 million from the Partner Buyouts, and

• $2.3 million at same store properties due to an increase in average rental rates.

The increase was offset by a $799,000 decrease due to a decline in occupancy rates at same store properties, including $262,000 at Bells Bluff which experienced a decline in occupancy due to increased supply in the market and a change in market demand for certain unit types.

The increase in the three months ended September 2023, is primarily due to the impact of rising interest rates on our cash balances.

The following table compares our expenses for the periods indicated:

Six Months Ended June 30,

Nine Months Ended September 30,

(Dollars in thousands) 2023 2022 Increase

7 unchanged sentences

The change is due to the following increases:

• $8.6 million from the Partner Buyouts (including $4.9 million from the purchases completed during the six months ended December 31, 2022), and

• $9.6 million from the Partner Buyouts, and

• $1.6 million from same store properties, including an approximate:

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– $633,000 in insurance expense due to the implementation, in December 2022, of the master insurance program;

– $399,000 of repair, maintenance and replacements (including $116,000 related to expenses related to the December 2022 blizzard);

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– $216,000 increase in utility expense, including approximately $102,000 at Bells Bluff, primarily due to a water leak;

– $393,000 of various miscellaneous expenses across the portfolio;

– $213,000 increase in utility expense, including approximately $102,000 at Bells Bluff, primarily due to a water leak.

Interest expense.

The change is due to increases of:

• $5.0 million from the Partner Buyouts (including $3.3 million from the purchases completed during the six months ended December 31, 2022);

• $818,000 due to an increase on the interest rate on our junior subordinated debt;

• $284,000 primarily due to the increase in the average outstanding balance on the credit facility from $861,000 during the six months ended June 30, 2022 to $5.7 million during the six months ended June 30, 2023.

As of June 30, 2023, there is no outstanding balance on the facility.

• $5.3 million from the Partner Buyouts;

• $1.1 million due to an increase on the interest rate on our junior subordinated debt;

• $150,000 primarily due to increases in unused credit facility fees and deferred fee amortization related to our credit facility.

General and administrative

The increase is due primarily to a $627,000 increase in compensation expense - specifically, increases of:

• $383,000 due to the inclusion, for the entire six months ended June 30, 2023, of the amortization expense related to the RSUs granted in June 2022;

The increase is due primarily to a $1.1 million increase in compensation expense - specifically, increases of:

• $396,000 due to the inclusion, for the entire nine months ended September 30, 2023, of the amortization expense related to the RSUs granted in June 2022;

• $314,000 due to the amortization expense related to restricted stock, including an increase of $287,000 related to the restricted stock granted in January 2023 as a result of the higher fair value of the shares granted in 2023 in comparison to the value of the restricted stock granted in 2018;

• $219,000 in salaries and other components of cash compensation, due to higher levels of compensation and, to a lesser extent, an increase in the number of employees;

• $181,000 due to the inclusion of amortization expense related to the RSU's granted in June 2023.

Depreciation and amortization

The increase is due primarily to $8.4 million from the Partner Buyouts (including $ 6.0 million from the purchases completed during the six months ended December 31, 2022), offset by a $1.5 million decline due to reduced depreciation related to lease intangibles.

The increase is due primarily to $7.4 million from the Partner Buyouts, offset by a $2.1 million decline due to reduced depreciation related to lease intangibles.

Insurance recovery of casualty loss

During the six months ended June 30, 2023, we received $215,000 in insurance proceeds as reimbursement for expenses incurred related to a winter storm in December 2022.

During the nine months ended September 30, 2023, we received $604,000 in insurance proceeds as reimbursement for expenses incurred related to a winter storm in December 2022.

There was no similar recovery in the corresponding 2022 period.

Gain on insurance recoveries

During the six months ended June 30, 2023, we received a $240,000 payment representing the final payment made by the insurance carrier with respect to damage we sustained at The Woodland Apartments - Boerne, TX in 2021.

During the nine months ended September 30, 2023, we received a $240,000 payment, representing the final payment made by the insurance carrier with respect to damage we sustained at The Woodland Apartments - Boerne, TX in 2021.

Income tax provision

Income tax provision for the six months ended June 30, 2023, decreased $671,000 to $127,000 from $798,000 in the corresponding period of the prior year.

The decline is primarily the result of increased state tax provision recorded in the six months ended June 30, 2022, the result of higher gains that were reported from the sale of properties by unconsolidated joint ventures.

Income tax provision for the nine months ended September 30, 2023, decreased $971,000 to $5,000 from $976,000 in the corresponding period of the prior year.

The decline is primarily the result of increased state tax provision recorded in the nine months ended September 30, 2022, the result of higher gains that were reported from the sale of properties by unconsolidated joint ventures.

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Unconsolidated Joint Ventures - Results of Operations

Equity in earnings (loss) of unconsolidated joint ventures.

Equity in earnings of unconsolidated joint ventures.

The table below reflects the condensed income statements of our Unconsolidated Properties.

Six Months Ended June 30,

Nine Months Ended June 30,

2023 2022 Increase

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Set forth below is an explanation of the most significant changes in the components of the equity in earnings of unconsolidated joint ventures and equity in earnings from sale of unconsolidated joint venture properties.

Same store properties at Unconsolidated Properties represent eight properties that were owned for the entirety of the periods being compared.

Same store properties at Unconsolidated Properties represent seven properties that were owned for the entirety of the periods being compared.

Rental and other revenues from unconsolidated joint ventures

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• $18.4 million from the Partner Buyouts;

• $7.1 million from the sale in 2022 of four properties ;

• $567,000 from the Chatham Sale.

• $7.6 million from the sale in 2022 of four properties ( i.e.

, Verandas at Shavano - San Antonio, TX , Retreat at Cinco Ranch Katy, TX ,The Vive - Kannapolis, NC , and Waters Edge at Harbison - Columbia, SC ;

collectively (the "2022 Sales");

• $2.4 million from the Chatham Sale.

Offsetting the decrease was a $1.9 million increase from same store properties due to increased rental rates, net of the impact of a decrease in occupancy rates.

2 unchanged sentences

• $7.8 million from the Partner Buyouts;

• $4.1 million from the 2022 Sales;

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• $3.5 million from the sale in 2022 of four properties;

• $259,000 from the Chatham Sale.

Offsetting this decrease was a $855,000 increase in such expenses at same store properties, with expenses generally increasing across most expense categories including real estate taxes, utilities, insurance and payroll.

• $1.2 million from the Chatham Sale.

Offsetting this decrease was a $1.4 million increase in such expenses at same store properties, particularly with respect to real estate taxes, utilities, insurance and payroll.

Interest expense from unconsolidated joint ventures.

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• $4.5 million from the Partner Buyouts;

• $1.7 million from the sale in 2022 of three properties.

• $1.8 million from the 2022 Sales;

• $364,000 from the Chatham Sale.

Depreciation from unconsolidated joint ventures

1 unchanged sentence

• $5.1 million from the Partner Buyouts;

• $1.2 million from the sale in 2022 of three properties;

• $1.2 million from the 2022 Sales properties;

• $615,000 from the Chatham Sale.

Gain on insurance recoveries from unconsolidated joint ventures

During the six months ended June 30, 2022, we recognized $567,000 in gains primarily due to our receipt of insurance recoveries from claims on two properties located in Texas that were damaged in a February 2021 ice storm, which receipts exceeded the assets previously written off.

During the nine months ended September 30, 2022, we recognized $567,000 in gains primarily due to our receipt of insurance recoveries from claims on two properties located in Texas that were damaged in a February 2021 ice storm, which receipts exceeded the assets previously written off.

During the nine months ended September 30, 2023, we recognized a small gain from insurance recoveries related to a claim at a property.

Gain on sale of real estate from unconsolidated joint ventures

During the six months ended June 30, 2023, we recognized a gain on the sale of real estate of $38.4 million from the Chatham Sale.

During the six months ended June 30, 2022, we recognized gain on the sale of real estate of $101.3 million from the sale of three properties.

During the nine months ended September 30, 2023, we recognized a gain on the sale of real estate of $38.4 million from the Chatham Sale.

During the nine months ended September 30, 2022, we recognized gain on the sale of real estate of $118.3 million from the sale of four properties.

Loss on extinguishment of debt from unconsolidated joint ventures

During the six months ended June 30, 2023, we recognized a loss on the early extinguishment of debt of $561,000 in connection with the Chatham Sale.

During the three months ended June 30, 2022, we recognized a loss on early extinguishment of debt of $2.9 million in connection with the sale of two properties.

During the nine months ended September 30, 2023, we recognized a loss on the early extinguishment of debt of $561,000 in connection with the Chatham Sale.

During the nine months ended September 30, 2022, we recognized a loss on early extinguishment of debt of $3.5 million in connection with the sale of four properties.

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

Generally, our primary sources of capital and liquidity are the operations of our multi-family properties (including distributions from the operations of our multi-family joint ventures), mortgage debt financings and re-financings, the sale of shares of our common stock pursuant to our at-the-market equity distribution program, borrowings from our credit facility and our available cash.

At August 1, 2023, our available liquidity was $86.7 million, including $26.7 million of cash and cash equivalents and $60 million available under our credit facility.

At August 1, 2023, the interest rate on the credit facility was 8.50%.

We anticipate that from July 1, 2023 through December 31, 2026, our operating expenses, $116.0 million of mortgage amortization and interest expense (including $44.1 million from unconsolidated joint ventures), $123.4 million of balloon payments with respect to mortgages maturing in 2025 and 2026, estimated capital expenditures (for 2023 only) of $5.4 million (including an estimated $2.0 million for our value add program), interest expense on our junior subordinated notes, estimated cash dividend payments of at least $66.0 million (assuming (i) the current quarterly dividend rate of $0.25 per share and (ii) 18.9 million shares outstanding), will be funded from cash generated from operations (including distributions from unconsolidated joint ventures), property sales and, to the extent available, our credit facility.

Our operating cash flow and available cash is insufficient to fully fund the $123.4 million of balloon payments, and if we are unable to refinance such debt on acceptable terms, we may need to issue additional equity or dispose of properties, in each case on potentially unfavorable terms.

Generally, our primary sources of capital and liquidity are the operations of our multi-family properties (including distributions from the operations of our multi-family joint ventures), mortgage debt financings and re-financings, the sale/issuance of shares of our common stock pursuant to our at-the-market equity distribution and dividend reinvestment program, borrowings from our credit facility and our available cash.

At November 1, 2023, our available liquidity was $81.7 million, including $21.7 million of cash and cash equivalents and $60 million available under our credit facility.

We anticipate that from October 1, 2023 through December 31, 2026, our operating expenses, $105.3 million of mortgage amortization and interest expense (including $38.4 million from unconsolidated joint ventures), $15.4 million and $118.1 million of balloon payments with respect to mortgages maturing in 2025 and 2026, respectively (including $48.6 million maturing in 2026 from unconsolidated joint ventures), estimated capital expenditures (for 2023 only) of $2.7 million (including an estimated $785,000 for our value add program), interest expense on our junior subordinated notes, estimated cash dividend payments of at least $65.2 million (assuming (i) the current quarterly dividend rate of $0.25 per share and (ii) 18.6 million shares outstanding), will be funded from cash generated from operations (including distributions from unconsolidated joint ventures), property sales, obtaining mortgage debt financing on unencumbered properties and, to the extent available, our credit facility.

Our operating cash flow and available cash is insufficient to fully fund the $133.5 million of balloon payments due through 2026, and if we are unable to refinance such debt on acceptable terms, we may need to issue additional equity or dispose of properties, in each case on potentially unfavorable terms.

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

See - " Proposed Purchase of Richmond Property ".

At June 30, 2023, we had mortgage debt of $664.2 million (including $234.7 million of mortgage principal debt of our unconsolidated subsidiaries).

At September 30, 2023, we had mortgage debt of $672.6 million (including $243.9 million of mortgage principal debt of our unconsolidated subsidiaries).

The mortgage debt at our:

(i) consolidated subsidiaries had a weighted average interest rate of 4.02% and a weighted average remaining term to maturity of approximately 7.3 years, and (ii) at our unconsolidated subsidiaries had a weighted average interest rate of 4.25% and a remaining term to maturity of approximately 5.3 years.

Capital improvements at (i) two unconsolidated multi-family properties will be funded by approximately $830,000 of restricted cash available at June 30, 2023 and the cash flow from operations at such properties and (ii) other properties will be funded from the cash flow from operations of such properties.

Capital improvements at (i) two unconsolidated multi-family properties will be funded by approximately $769,000 of restricted cash available at September 30, 2023 and the cash flow from operations at such properties and (ii) other properties will be funded from the cash flow from operations of such properties.

Junior Subordinated Notes

As of June 30, 2023, $37.4 million (excluding deferred costs of $267,000) in principal amount of our junior subordinated notes is outstanding.

These notes mature in April 2036, contain limited covenants (including covenants prohibiting us from paying dividends or repurchasing capital stock if there is an event of default (as defined therein) on these notes), are redeemable at our option and bear an interest rate, which resets and is payable quarterly, of three-month LIBOR plus 200 basis points.

At June 30, 2023 and 2022, the interest rate on these notes was 7.30% and 3.29%, respectively.

The interest rate converted to 3 month Term SOFR + 2.26% effective with the payment due October 2023.

The interest rate that will be in effect for the three months ending October 31, 2023 is 7.63%.

As of September 30, 2023, $37.4 million (excluding deferred costs of $262,000) in principal amount of our junior subordinated notes is outstanding.

At September 30, 2023 and 2022, the interest rate on these notes was 7.63% and 4.78%, respectively.

The interest rate that will be in effect for the three months ending January 31, 2024 is 7.65%%.

Credit Facility

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

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

The interest rate in effect as of June 30, 2023 was 8.25%.

The credit facility bears an annual interest rate, which resets monthly, equal to the one-month term SOFR plus 250 basis points, with a floor of 6.00%.

The interest rate in effect as of September 30, 2023 was 7.81%.

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

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Net proceeds received from the sale, financing or refinancing of our properties are generally required to be used to repay amounts outstanding on the facility.

As of August 1, 2023, there was no outstanding balance on the credit facility and $60 million is available to be borrowed thereunder.

The interest rate in effect at August 1, 2023 is 8.50%

As of November 1, 2023, there was no outstanding balance on the credit facility and $60 million is available to be borrowed thereunder.

The interest rate in effect at November 1, 2023 is 7.82%

Table of Content

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

At June 30, 2023, we were in compliance in all material respects with the requirements of the facility.

At September 30, 2023, we were in compliance in all material respects with the requirements of the facility.

Other Financing Sources and Arrangements

At June 30, 2023, we are joint venture partners in unconsolidated joint ventures which own seven multi-family properties and a development project, and the distributions to us from these joint venture properties of $1.6 million in the quarter ended June 30, 2023 contributed to our liquidity and cash flow.

At September 30, 2023, we are joint venture partners in unconsolidated joint ventures which own seven multi-family properties and a development project, and the distributions to us from these joint venture properties of $1.4 million in the quarter ended September 30, 2023 contributed to our liquidity and cash flow.

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

At June 30, 2023, these joint venture properties have a net equity carrying value of $35.5 million and are subject to mortgage debt, which is not reflected on our consolidated balance sheet, of $234.7 million.

At September 30, 2023, these joint venture properties have a net-equity carrying value of $30.9 million and are subject to mortgage debt, which is not reflected on our consolidated balance sheet, of $242.8 million.

Although BRT Apartments Corp.

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Even if we qualify for Federal taxation as a REIT, we are subject to certain state and local taxes on our income and to Federal income and excise taxes on undistributed taxable income ( i.e ., taxable income not distributed in the amounts and in the time frames prescribed by the Code).

On July 6, 2023, we paid a quarterly cash dividend of $0.25 per share.

On October 11, 2023, we paid a quarterly cash dividend of $0.25 per share.

We carefully monitor our discretionary spending.

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A complete discussion of our critical accounting estimates is included in our Annual Report.

There have been no significant changes in such estimates since December 31, 2022.

There have been no changes in such estimates.

Funds from Operations, Adjusted Funds from Operations and Net Operating Income

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The tables below provides a reconciliation of net loss determined in accordance with GAAP to FFO and AFFO on a dollar and per share basis for each of the indicated periods (dollars in thousands, except per share amounts):

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2023 2022 2023 2022

GAAP Net income attributable to common stockholders $ 11,202 $ 35,607 $ 7,104 $ 47,115

GAAP Net (loss) income attributable to common stockholders $ (1,494) $ 7,059 $ 5,610 $ 54,174

depreciation and amortization of properties 6,544 8,165 22,095 16,781

our share of depreciation in unconsolidated joint venture properties 1,302 3,259 2,678 7,577

our share of equity in earnings from sale of unconsolidated joint

venture properties (14,744) (40,098) (14,744) (53,059)

our share of depreciation in unconsolidated joint venture

properties 1,307 1,657 3,985 9,234

our share of equity in earnings from sale of unconsolidated

joint venture properties — (11,472) (14,744) (64,531)

gain on sale of real estate (604) — (604) (6)

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loss on extinguishment of debt — — — 563

our share of loss on extinguishment of debt from unconsolidated joint

venture properties 212 1,473 212 1,492

our share of loss on extinguishment of debt from unconsolidated

joint venture properties — 388 212 1,880

amortization of restricted stock and RSU expense 1,473 1,208 4,076 3,183

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amortization of fair value adjustment for mortgage debt 152 — 463 —

gain on insurance proceeds — — (240) —

our share of gain on insurance proceeds from unconsolidated joint

venture properties — (46) (30) (432)

gain on insurance recoveries — (62) (240) (62)

our share of gain on insurance recoveries from unconsolidated

joint venture properties — — (30) (432)

Adjustments for non-controlling interests (4) (1) (11) (3)

Adjusted funds from operations attributable to common stockholders $ 7,692 $ 7,168 $ 21,747 $ 21,356

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2023 2022 2023 2022

Net income attributable to common stockholders $ 0.58 $ 1.91 $ 0.36 $ 2.53

Net (loss) income attributable to common stockholders $ (0.08) $ 0.37 $ 0.28 $ 2.91

depreciation and amortization of properties 0.35 0.44 1.17 0.90

our share of depreciation in unconsolidated joint venture properties 0.07 0.17 0.14 0.41

our share of equity in earnings from sale of unconsolidated joint

venture properties (0.77) (2.14) (0.77) (2.85)

our share of depreciation in unconsolidated joint venture

properties 0.07 0.09 0.21 0.50

our share of equity in earnings from sale of unconsolidated

joint venture properties (0.03) (0.61) (0.77) (3.47)

gain on sale of real estate — — (0.03) —

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loss on extinguishment of debt — — — 0.03

our share of loss on extinguishment of debt from unconsolidated joint

venture properties 0.01 0.08 0.01 0.08

our share of loss on extinguishment of debt from unconsolidated

joint venture properties — 0.02 0.01 0.10

amortization of restricted stock and RSU expense 0.08 0.06 0.22 0.16

amortization of deferred mortgage and debt costs 0.01 0.01 0.04 0.02

our share of deferred mortgage and debt costs from unconsolidated

joint venture properties — — — 0.01

our share of deferred mortgage and debt costs from

unconsolidated joint venture properties — — — 0.01

amortization of fair value adjustment for mortgage debt 0.01 — 0.02 —

gain on insurance proceeds — — (0.01) —

our share of gain on insurance proceeds from unconsolidated joint

venture properties — — — (0.02)

gain on insurance recoveries — — (0.01) —

our share of gain on insurance recoveries from unconsolidated

joint venture properties — — — (0.02)

Adjustments for non-controlling interests — — — —

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Diluted shares outstanding for FFO and AFFO 18,804,874 18,928,648 19,016,032 18,712,740

Three Months Ended June 30, 2023 and 2022

FFO for the three months ended June 30, 2023 increased from the corresponding quarter in the prior year primarily due to the decrease in the (i) early extinguishment of debt and (ii) the income tax provision.

The increase was offset primarily by increases in (i) interest expense (the result of the increased interest rate on our subordinated debt);

(ii) general and administrative expenses (primarily non-cash compensation expense related to the amortization of restricted stock and RSUs);

and (iii) amortization of mortgage fair value adjustments related to Partner Buyouts.

AFFO for the three months ended June 30, 2023 increased from the corresponding period in the prior year, primarily due to the decrease in the income tax provision and the increase in insurance recovery.

The increase was offset by the increase in interest expense and a decrease in operating margins.

Diluted per share FFO and AFFO were impacted in the three months ended June 30, 2023 by a 487,000 increase in the weighted average shares of common stock outstanding, primarily due to stock issuances pursuant to our at-the market offering, equity incentive program and dividend reinvestment plan, net of stock repurchases.

See "- Results of Operations - Three Months Ended June 30, 2023 compared to three months ended June 30, 2022 ", for a discussion of these changes.

Six Months Ended June 30, 2023 and 2022

FFO for the six months ended June 30, 2023 increased from the corresponding period in the prior year primarily due to the declines in (i) early extinguishment of debt and (ii) income tax provision.

The increase was offset primarily by increases in (i) interest expense (due to the increased rate on our subordinated debt), (ii) increased restricted stock expense, (iii) an increase in the amortization of fair value mortgage adjustments and (iv) a decline in gain on insurance proceeds.

AFFO for the six months ended June 30, 2023 decreased from the corresponding period in the prior year primarily due to the increase in interest expense, the result of increased interest rates on our subordinated debt, offset by a decline in income tax provision.

Diluted per share FFO and AFFO were impacted in the six months ended June 30, 2023 by a 567,000 increase in the weighted average shares of common stock outstanding, primarily due to stock issuances pursuant to our at-the market offering, equity incentive program and dividend reinvestment plan, net of stock repurchases.

See " Results of Operations - Six Months Ended June 30, 2023 compared to six months ended June 30, 2022 ", for a discussion of these changes.

Three Months Ended September 30, 2023 and 2022

FFO for the three months ended September 30, 2023 increased from the corresponding quarter in the prior year primarily due to:

• a decrease in the early extinguishment of debt;

• an increase in other income.

The increase was offset primarily by:

• a decrease in operating margins from the 2022 Sales;

• amortization of mortgage fair value adjustments related to Partner Buyouts;

• a decrease in the income tax provision;

• an increase in non-cash compensation expense related to the amortization of restricted stock and RSUs.

AFFO for the three months ended September 30, 2023 increased from the corresponding period in the prior year, primarily due to the decrease in the income tax provision, the increase in insurance recovery and the increase in other income.

The increase was offset by the decrease in operating margins and an increase in interest expense.

Diluted per share FFO and AFFO were favorably impacted in the three months ended September 30, 2023 by a 124,000 decrease in the current quarter from the corresponding quarter in the prior year in the weighted average shares of common stock outstanding, primarily due to stock buybacks.

See "- Results of Operations - Three Months Ended September 30, 2023 compared to three months ended September 30, 2022 ", for a discussion of these changes.

Nine Months Ended September 30, 2023 and 2022

FFO for the nine months ended September 30, 2023 increased from the corresponding period in the prior year primarily due to:

• a decrease in early extinguishment of debt;

• a decrease in income tax provision;

• an increase in insurance recovery from casualty loss;

• an increase in other income.

The increase was offset primarily by:

• an increase in interest expense;

• an increase in non-cash compensation expense related to the amortization of restricted stock and RSUs;

• an increase in the amortization of fair value mortgage adjustments;

• a decrease in operating margins;

• a decrease in gain on insurance proceeds.

AFFO for the nine months ended September 30, 2023 increased from the corresponding period in the prior year primarily due to the decrease in income tax expense and the increases in insurance recovery and other income, offset by the increase in interest expense and the decline in operating margins.

Diluted per share FFO and AFFO were negatively impacted in the nine months ended September 30, 2023 by a 303,000 increase in the weighted average shares of common stock outstanding, primarily due to stock issuances pursuant to our at-the market offering, equity incentive program and dividend reinvestment plan, net of stock repurchases.

See " Results of Operations - Nine Months Ended June 30, 2023 compared to nine months ended September\30, 2022 ", for a discussion of these changes.

Net Operating Income, or NOI, is a non-GAAP measure of performance.

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NOI is a property specific performance metric and does not measure our performance as a whole.

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

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

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

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The following table provides a reconciliation of net income attributable to common stockholders as computed in accordance with GAAP to NOI of our consolidated properties for the periods presented (dollars in thousands):

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2023 2022 Variance 2023 2022 Variance

GAAP Net income attributable to common stockholders $ 11,202 $ 35,607 $ (24,405) $ 7,104 $ 47,115 $ (40,011)

GAAP Net (loss) income attributable to common stockholders $ (1,494) $ 7,059 $ (8,553) $ 5,610 $ 54,174 $ (48,564)

Other Income (342) (6) (336) (405) (12) (393)

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General and administrative 4,017 3,673 344 11,920 10,839 1,081

Impairment charge — — — — — —

Depreciation and amortization 6,544 8,165 (1,621) 22,095 16,781 5,314

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Gain on sale of real estate (604) — (604) (604) (6) (598)

Gain on sale of partnership interest — — — — — —

Equity in earnings from sale of unconsolidated joint venture

properties (14,744) (40,098) 25,354 (14,744) (53,059) 38,315

Equity in earnings from sale of

unconsolidated joint venture properties — (11,472) 11,472 (14,744) (64,531) 49,787

Insurance recovery (261) — (261) (476) — — (476)

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Same store Net Operating Income $ 8,838 $ 9,243 $ (405) $ 19,443 $ 19,479 $ (36)

For the three months ended June 30, 2023, NOI increased $4.4 million from the corresponding period in 2022 primarily due to a $8.6 million increase in rental revenues offset by a $4.2 million increase in real estate operating expenses.

The increase in rental revenue and real estate operating expenses were primarily due to the Partner Buyouts.

Same store NOI in the three months ended June 30, 2023 decreased by $376,000 from the corresponding period in 2022, due to a $653,000 increase in real estate operating expenses offset by a $277,000 increase in rental revenues.

See "-Results of Operations - Three Months Ended June 30, 2023 Compared to the three Months ended June 30, 2022 " for a discussion of these changes.

For the six months ended June 30, 2023, NOI increased $10.2 million from the corresponding period in 2022 primarily due to a $2.0 million increase in rental revenues offset by a $9.9 million increase in real estate operating expenses.

The increase in rental revenue and real estate operating expenses were primarily due to the Partner Buyouts.

Same store NOI in the six months ended June 30, 2023 decreased by $20,000 from the corresponding period in 2022, due to a $1.3 million increase in rental revenues (and in particular, the increase in average rental rates) offset by a $1.3 million increase in real estate operating expenses.

See "-Results of Operations - Six Months Ended June 30, 2023 Compared to the six Months ended June 30, 2022 " for a discussion of these changes.

For the three months ended September 30, 2023, NOI increased $431,000 from the corresponding period in 2022 primarily due to a $1.8 million increase in rental revenues offset by a $1.4 million increase in real estate operating expenses.

The increases in rental revenue and real estate operating expenses were primarily due to the Partner Buyouts.

Same store NOI in the three months ended September 30, 2023 decreased by $405,000 from the corresponding period in 2022, due to a $878,000 increase in real estate operating expenses offset by a $473,000 increase in rental revenues.

See "-Results of Operations - Three Months Ended September 30, 2023 Compared to the Three Months ended September 30, 2022 " for a discussion of these changes.

For the nine months ended September 30, 2023, NOI increased $10.6 million from the corresponding period in 2022 primarily due to a $21.9 million increase in rental revenues offset by a $11.3 million increase in real estate operating expenses.

The increases in rental revenue and real estate operating expenses were primarily due to the Partner Buyouts.

See "-Results of Operations - Nine Months Ended September 30, 2023 Compared to the Nine Months ended September 30, 2022 " for a discussion of these changes.

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis