BRT Apartments Corp. 10-Q

Item 1. Financial Statements BRT APARTMENTS CORP. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Amounts in thousands, except per share data) September 30, 2023 December 31, 2022 (unaudited) (audited) ASSETS Real estate properties, net of accumulated depreciation and amortization of $ 74,108 and $ 55,195 $ 639,989 $ 651,603 Investments in unconsolidated joint ventures 34,501 42,576 Cash and cash equivalents 28,117 20,281 Restricted cash 769 872 Other assets 17,766 16,786 Total Assets $ 721,142 $ 732,118 LIABILITIES AND EQUITY Liabilities: Mortgages payable, net of deferred costs of $ 4,224 and $ 4,166 $ 422,935 $ 403,792 Junior subordinated notes, net of deferred costs of $ 262 and $ 277 37,138 37,123 Credit facility, net of deferred costs of $ 0 and $ 498 — 18,502 Accounts payable and accrued liabilities 24,272 22,631 Total Liabilities 484,345 482,048 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; 17,689 and 18,006 shares outstanding 177 180 Additional paid-in capital 269,273 273,863 Accumulated deficit ( 32,662 ) ( 23,955 ) Total BRT Apartments Corp. stockholders’ equity 236,788 250,088 Non-controlling interest 9 ( 18 ) Total Equity 236,797 250,070 Total Liabilities and Equity $ 721,142 $ 732,118 See accompanying notes to consolidated financial statements. 2 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 September 30, Nine Months Ended September 30, 2023 2022 2023 2022 Revenues: Rental and other revenue from real estate properties $ 23,510 $ 21,691 $ 69,704 $ 47,804 Other income 342 6 405 12 Total revenues 23,852 21,697 70,109 47,816 Expenses: Real estate operating expenses - including $ 9 and $ 9 to related parties for the three months ended and $ 25 and $ 28 for the nine months ended 10,583 9,195 31,565 20,296 Interest expense 5,581 5,061 16,577 9,994 General and administrative - including $ 141 and $ 183 to related parties for the three months ended and $ 479 and $ 614 for the nine months ended 4,017 3,673 11,920 10,839 Depreciation and amortization 6,544 8,165 22,095 16,781 Total expenses 26,725 26,094 82,157 57,910 Total revenues less total expenses ( 2,873 ) ( 4,397 ) ( 12,048 ) ( 10,094 ) Equity in earnings of unconsolidated joint ventures 426 135 1,705 1,315 Equity in earnings from sale of unconsolidated joint ventures properties — 11,472 14,744 64,531 Gain on sale of real estate 604 — 604 6 Insurance recovery of casualty loss 261 — 476 — Gain on insurance recoveries — 62 240 62 Loss on extinguishment of debt — — — ( 563 ) (Loss) income from continuing operations ( 1,582 ) 7,272 5,721 55,257 Income tax (benefit) provision ( 122 ) 178 5 976 (Loss) income from continuing operations, net of taxes ( 1,460 ) 7,094 5,716 54,281 Net income attributable to non-controlling interest ( 34 ) ( 35 ) ( 106 ) ( 107 ) Net (loss) income attributable to common stockholders $ ( 1,494 ) $ 7,059 $ 5,610 $ 54,174 Weighted average number of shares of common stock outstanding: Basic 17,851,715 17,928,197 18,022,975 17,721,700 Diluted 17,851,715 17,994,457 18,045,767 17,784,362 Per share amounts attributable to common stockholders: Basic $ ( 0.08 ) $ 0.37 $ 0.30 $ 2.91 Diluted $ ( 0.08 ) $ 0.37 $ 0.27 $ 2.89 See accompanying notes to consolidated financial statements. 3 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 Distributions - common stock - $ 0.25 per share — — ( 4,816 ) — ( 4,816 ) Compensation expense - restricted stock and restricted stock units — 1,193 — — 1,193 Distributions to non-controlling interests — — — ( 37 ) ( 37 ) Shares repurchased ( 3 ) ( 5,833 ) — — ( 5,836 ) Shares issues through DRIP — 670 — — 670 Net income — — 11,202 36 11,238 Balances, June 30, 2023 $ 179 $ 272,064 $ ( 26,514 ) $ 17 $ 245,746 Distributions - common stock - $ 0.25 per share — — ( 4,654 ) — ( 4,654 ) Compensation expense - restricted stock and restricted stock units — 1,473 — — 1,473 Distributions to non-controlling interests — — — ( 42 ) ( 42 ) Shares issues through DRIP — 684 — — 684 Shares repurchased ( 2 ) ( 4,948 ) — — ( 4,950 ) Net (loss) income — — ( 1,494 ) 34 ( 1,460 ) Balances, September 30, 2023 $ 177 $ 269,273 $ ( 32,662 ) $ 9 $ 236,797 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, 2021 $ 173 $ 258,161 $ ( 55,378 ) $ ( 5 ) $ 202,951 Distributions - common stock - $ 0.23 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 Distributions - common stock - $ 0.25 per share — — ( 4,723 ) — ( 4,723 ) Compensation expense - restricted stock and restricted stock units — 1,001 — — 1,001 Shares issued through equity offering program, net 2 3,085 — — 3,087 Distributions to non-controlling interests — — — ( 60 ) ( 60 ) Net income — — 35,607 36 35,643 Balances, June 30, 2022 $ 178 $ 266,256 $ ( 17,291 ) $ 7 $ 249,150 Distributions - common stock - $ 0.22 per share — — ( 4,720 ) — ( 4,720 ) Compensation expense - restricted stock and restricted stock units — 1,208 — — 1,208 Contributions from non-controlling interests — — — — — Consolidation of investment in limited partnership — — — — — Distributions to non-controlling interests — — — ( 59 ) ( 59 ) Purchase of non-controlling interest — — — — — Shares issued through equity offering program, net 2 3,818 — — 3,820 Shares issued through DRIP — 622 — — 622 Shares repurchased — — — — — Net income — — 7,059 35 7,094 Other comprehensive income — — — — — Comprehensive income 7,094 Balances, September 30, 2022 $ 180 $ 271,904 $ ( 14,952 ) $ ( 17 ) $ 257,115 See accompanying notes to consolidated financial statements 5 Table of Contents BRT APARTMENTS CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (Dollars in Thousands) Nine Months Ended September 30, 2023 2022 Cash flows from operating activities: Net income $ 5,716 $ 54,281 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 22,095 16,781 Amortization of deferred financing costs 799 399 Amortization of debt fair value adjustment 463 ( 28 ) Amortization of restricted stock and restricted stock units 4,076 3,183 Equity in earnings of unconsolidated joint ventures ( 1,705 ) ( 1,315 ) Equity in earnings from sale of unconsolidated joint venture properties ( 14,744 ) ( 64,531 ) Gain on sale of real estate ( 604 ) ( 6 ) Gain on insurance recovery ( 240 ) ( 62 ) Loss on extinguishment of debt — 563 Increases and decreases from changes in other assets and liabilities: (Increase) decrease in other assets ( 3,823 ) 1,820 Increase (decrease) in accounts payable and accrued liabilities 1,575 ( 2,635 ) Net cash provided by operating activities 13,608 8,450 Cash flows from investing activities: Improvements to real estate properties ( 7,406 ) ( 4,151 ) Purchase of investment in joint ventures — ( 105,262 ) Proceeds from the sale of real estate 711 4,385 Distributions from unconsolidated joint ventures 24,646 89,476 Contributions to unconsolidated joint ventures ( 122 ) ( 3,500 ) Proceeds from insurance recoveries 240 62 Net cash provided by (used in) investing activities 18,069 ( 18,990 ) Cash flows from financing activities: Proceeds from mortgages payable 21,173 18,953 Mortgage payoffs — ( 26,761 ) Mortgage principal payments ( 2,435 ) ( 1,475 ) Proceeds from credit facility — 22,000 Repayment of credit facility ( 19,000 ) ( 15,000 ) Increase in deferred financing costs ( 683 ) ( 672 ) Dividends paid ( 14,251 ) ( 13,136 ) Distributions to non-controlling interests ( 79 ) ( 119 ) Proceeds from the sale of common stock — 9,945 Proceeds from issuance of DRIP shares 2,117 622 Repurchase of shares of common stock ( 10,786 ) — Net cash used in financing activities ( 23,944 ) ( 5,643 ) 6 Table of Contents BRT APARTMENTS CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (Dollars in Thousands) Nine Months Ended September 30, 2023 2022 Net increase in cash, cash equivalents and restricted cash: 7,733 ( 16,184 ) Cash, cash equivalents and restricted cash at beginning of period 21,153 38,921 Cash, cash equivalents and restricted cash at end of period $ 28,886 $ 22,737 Supplemental disclosure of cash flow information: Cash paid during the period for interest $ 15,310 $ 9,169 Cash paid for income taxes $ 710 $ 291 Consolidation on buyout of partnership interests: Increase in real estate assets $ — $ ( 370,513 ) Increase in other assets — ( 17,489 ) Increase in mortgage payable — 231,896 Increase in deferred loan costs — ( 3,892 ) Increase in accounts payable and accrued liabilities — 6,278 Decrease in investment in unconsolidated joint ventures — 48,458 $ — ( 105,262 ) See accompanying notes to consolidated financial statements 7 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. September 30, 2023 2022 Cash and cash equivalents $ 28,117 $ 21,865 Restricted cash 769 872 Total cash, cash equivalents and restricted cash, shown in consolidated statement of cash flows $ 28,886 $ 22,737 8 Table of Contents BRT APARTMENTS CORP. AND SUBSIDIARIES Notes to Consolidated Financial Statements September 30, 2023 Note 1 – Organization and Background BRT Apartments Corp. (the "Company" or "BRT"), a Maryland corporation, owns, operates and, to a lesser extent, holds interests 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 September 30, 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 $ 638,170,000 ; (ii) has interests, through unconsolidated entities, in seven multi-family properties located in four states with an aggregate of 2,287 units with a carrying value of $ 30,878,000 ; and (iii) owns other assets, through consolidated and unconsolidated subsidiaries, with a carrying value of $ 5,441,000 . These 28 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 and nine months ended September 30, 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 Company reviews each real estate asset owned, including those held through investments in unconsolidated joint ventures, for impairment when there is an event or a change in circumstances indicating that the carrying amount may not be recoverable. The Company measures and records impairment charges, and reduces the carrying value of owned properties, when indicators of impairment are present and the expected undiscounted cash flows related to those properties are less than their carrying amounts. For its unconsolidated joint venture investments, the Company measures and records impairment losses, and reduces the carrying value of the equity investment when indicators of impairment are present and the expected discounted cash flows related to the investment is less than the carrying value. When the Company does not expect to recover its carrying value on properties held for use, the Company reduces its carrying value to fair value, and for properties held for sale, the Company reduces its carrying value to the fair value less costs to sell. When the Company does not expect to recover its carrying value on unconsolidated joint ventures that are under contract for sale, the Company, when it is determined that the sale is probable, reduces its carrying value to its fair value. 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 9 Table of Contents 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. Note 3 - Equity Equity Distribution Agreements Effective as of May 12, 2023, the Company (i) terminated the equity distributions agreements dated March 18, 2022, and (ii) 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 and nine months ended September 30, 2023, the Company did not sell any shares. During the three and nine months ended September 30, 2022, the Company sold 174,059 and 447,815 shares, respectively, at an average per share price of $ 22.22 and $ 22.50 , respectively, for an aggregate sales price of $ 3,867,000 and $ 10,076,000 , respectively, before commissions and fees of $ 48,000 and $ 131,000 , respectively. Common Stock Dividend Distribution The Company declared a quarterly cash distribution of $ 0.25 per share, payable on October 11, 2023 to stockholders of record on October 3, 2023. Dividend Reinvestment Plan The Dividend Reinvestment Plan (the “DRP”), which has been in effect since June 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 %. During the three and nine months ended September 30, 2023, we issued 35,470 and 111,322 shares in lieu of cash dividends of $ 684,000 and $ 2,117,000 , respectively. During the nine months ended September 30, 2022, 29,190 shares were issued in lieu of cash dividends of $ 622,000 . 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 September 30, 2023, 408,746 shares are available for issuance pursuant to awards under the 2022 Plan. Awards to acquire 789,345 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 July 2023 and June 2022, the Company issued restricted stock units (the "RSUs") to acquire up to 214,990 and 212,470 shares of common stock pursuant to the 2022 Incentive Plan, respectively. As of September 30, 2023 , an aggregate of 637,835 of unvested restricted stock units are outstanding pursuant to the 2022 Plan and Prior Plans. 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 performance 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 RSUs which the Company expects to vest over the applicable vesting period. For the three months ended September 30, 2023 and 2022, the Company recorded $ 651,000 and $ 457,000 , respectively, and for the nine months ended September 30, 2023 and 2022, the Company recorded $ 1,534,000 and $ 957,000 , 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 September 30, 2023 and December 31, 2022, $ 4,046,000 and $ 4,269,000 of compensation expense, respectively, has been deferred and will be charged to expense over the remaining vesting periods. 10 Table of Contents 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, respectively. As of September 30, 2023 , an aggregate of 953,139 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 September 30, 2023 and 2022, the Company recorded $ 822,000 and $ 751,000 , respectively, and for the nine months ended September 30, 2023 and 2022, the Company recorded $ 2,542,000 and $ 2,226,000 , respectively, of compensation expense related to the amortization of unearned compensation with respect to the restricted stock awards. At September 30, 2023 and December 31, 2022, $ 8,330,000 and $ 7,728,000 , respectively, has been deferred as unearned compensation and will be charged to expense over the remaining vesting periods of these restricted stock awards. The weighted average remaining vesting period of these shares of restricted stock is 2.4 years. Share Repurchase In June 2023, the Board of Directors extended the term of the Company's share repurchase program from December 31, 2023 to December 31, 2025 and increased the existing repurchase authorization from $ 5,000,000 to $ 10,000,000 of shares. In August 2023, the Board of Directors, after giving effect to repurchases of $ 3,250,000 of shares made since the June 2023 share repurchase authorization, increased the Company's share repurchase program by an additional $ 6,750,000 of shares to $ 10,000,000 of shares. During the three and nine months ended September 30, 2023, the Company repurchased 264,165 and 573,318 shares of common stock, respectively, at an average price per share of $ 18.74 and $ 18.81 , respectively, for an aggregate cost of $ 4,950,000 and $ 10,786,000 , respectively. As of September 30, 2023, the Company is authorized to repurchase up to $ 5,966,000 of shares. From October 1, 2023 through October 31, 2023, the Company repurchased 98,014 shares of common stock at an average price per share of $ 17.23 for an aggregate cost of $ 1,689,000 . At October 31, 2023, the Company is authorized to repurchase up to $ 4,278,000 of shares of common stock During the three and nine months ended September 30, 2022, the Company did not repurchase any shares of common stock. Per Share Data Basic 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 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): 11 Table of Contents Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 Numerator for basic and diluted earnings per share: Net income $ ( 1,460 ) $ 7,094 $ 5,716 $ 54,281 Deduct net income attributable to non-controlling interests ( 34 ) ( 35 ) ( 106 ) ( 107 ) Deduct earnings allocated to unvested restricted stock ( 73 ) ( 349 ) 268 ( 2,684 ) Net income available for common stockholders: basic and diluted $ ( 1,567 ) $ 6,710 $ 5,878 $ 51,490 Denominator for basic earnings per share: Weighted average number of common shares outstanding 17,851,715 17,928,197 18,022,975 17,721,700 Effect of dilutive securities: RSUs — 66,260 22,792 62,662 Denominator for diluted earnings per share: Weighted average number of shares 17,851,715 17,994,457 18,045,767 17,784,362 Earnings per common share, basic $ ( 0.08 ) $ 0.37 $ 0.30 $ 2.91 Earnings per common share, diluted $ ( 0.08 ) $ 0.37 $ 0.27 $ 2.89 Note 4 - Leases Lessor Accounting The Company owns a commercial building in Yonkers, NY leased to two retail 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 was set to expire September 30, 2024 and provided for one 21-year renewal option. The renewal option was exercised and the ground lease will expire on June 30, 2045. There are no further renewal options. As of September 30, 2023, the remaining lease term is 21.8 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 September 30, 2023, the remaining lease term, including renewal options deemed exercised, is 13.3 years. As of September 30, 2023, the Company's Right of Use ("ROU") assets and lease liabilities were $ 2,230,000 and $ 2,356,000 , 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. 12 Table of Contents Note 5 ‑ Real Estate Properties Real estate properties, consists of the following (dollars in thousands): September 30, 2023 December 31, 2022 Land $ 74,246 $ 74,246 Building 616,997 617,041 Building improvements 22,854 15,511 Real estate properties 714,097 706,798 Accumulated depreciation ( 74,108 ) ( 55,195 ) Total real estate properties, net $ 639,989 $ 651,603 A summary of real estate properties owned is as follows (dollars in thousands): December 31, 2022 Balance Improvements Depreciation Sale of Property September 30, 2023 Balance Multi-family $ 649,701 $ 7,299 $ ( 18,830 ) $ — $ 638,170 Retail shopping center and other 1,902 107 ( 83 ) ( 107 ) 1,819 Total real estate properties $ 651,603 $ 7,406 $ ( 18,913 ) $ ( 107 ) $ 639,989 Partner Buyouts In the nine months ended September 30, 2022, the Company completed the purchase of its partners' remaining interests in the unconsolidated joint ventures that own the properties identified below. As a result of these purchases, these properties (including the related mortgage debt - see note 8 - "Debt Obligations") are wholly-owned and effective as of the closing of such purchase, are included in the Company's consolidated balance sheet and results of operations (dollars in thousands): Buyout Date Property Name Location Units Remaining Interest Purchased Purchase Price (1) 03/23/2022 Verandas at Alamo San Antonio, TX 288 28.1 % $ 8,721 04/07/2022 Vanguard Heights Creve Coeur, MO 174 21.6 % 4,880 05/11/2022 Jackson Square Tallahassee, FL 242 20 % 7,215 05/24/2022 Brixworth at Bridge Street Huntsville, AL 208 20 % 10,697 05/26/2022 Woodland Apartments Boerne, TX 120 20 % 3,881 06/30/2022 Grove at River Place Macon, GA 240 20 % 7,485 07/12/2022 Civic I Southaven, MS 392 25 % 18,233 07/12/2022 Civic II Southaven, MS 384 25 % 17,942 07/14/2022 Abbotts Run Wilmington, NC 264 20 % 9,010 07/19/2022 Somerset at Trussville Trussville, AL 328 20 % 10,558 08/03/2022 Magnolia Pointe Madison, AL 204 20 % 7,246 2,844 $ 105,868 __________________ (1) The purchase price gives effect to the purchase of the "promote interest" (as more fully described in the Annual Report) of the Company's joint venture partners and does not include closing costs of $ 2,191 and operating cash acquired from the ventures of $ 2,797 . 13 Table of Contents Property Disposition In September 2023, the Company sold a cooperative apartment unit in New York, NY for a sale price of $ 785,000 and recognized a gain on the sale of $ 604,000 . On February 2, 2022 the Company sold a vacant land parcel located in Daytona, Florida for a sales price of $ 4,700,000 , and, after closing costs, recognized a nominal gain. Contract to Acquire a Property On March 8, 2023, the Company entered into an agreement to acquire a 238 -unit multifamily property constructed in 2019 and located in Richmond, VA, for a purchase price of approximately $ 62,500,000 . The purchase price includes the assumption of approximately $ 32,000,000 of U.S. Housing and Urban Development ("HUD") 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 approval by the mortgage lender of the Company's assumption of the mortgage debt. As of September 30, 2023, the Company paid a deposit of $ 1,250,000 on the property which will be forfeited, with certain exceptions, if the transaction is not completed. This amount is recorded in Other Assets in the Consolidated Balance Sheet at September 30, 2023. 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 September 30, 2023 and December 31, 2022, the Company held interests in unconsolidated joint ventures that own seven and eight multi-family properties (the "Unconsolidated Properties"), respectively, and a property-in-development. The condensed balance sheets below present information regarding such properties (dollars in thousands): September 30, 2023 December 31, 2022 ASSETS Real estate properties, net of accumulated depreciation of $ 67,399 and $ 66,945 $ 278,096 $ 318,304 Cash and cash equivalents 8,504 6,591 Other assets 50,789 35,372 Total Assets $ 337,389 $ 360,267 LIABILITIES AND EQUITY Liabilities: Mortgages payable, net of deferred costs of $ 1,185 and $ 1,421 $ 242,763 $ 255,261 Accounts payable and accrued liabilities 11,547 8,222 Total Liabilities 254,310 263,483 Commitments and contingencies Equity: Total unconsolidated joint venture equity 83,079 96,784 Total Liabilities and Equity $ 337,389 $ 360,267 BRT's interest in joint venture equity $ 34,501 $ 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): September 30, 2023 December 31, 2022 Land $ 46,331 $ 59,404 Building 291,473 315,400 Building improvements 7,691 10,445 Real estate properties 345,495 385,249 Accumulated depreciation ( 67,399 ) ( 66,945 ) Total real estate properties, net $ 278,096 $ 318,304 At September 30, 2023 and December 31, 2022, the weighted average interest rate on the mortgages payable is 4.03 % and 3.99 %, respectively, and the weighted average remaining term to maturity is 5.3 years and 6.1 years, respectively. The condensed income statements below present information regarding the Unconsolidated Properties (dollars in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 Revenues: Rental and other revenue $ 10,636 $ 13,502 $ 34,244 $ 60,840 Total revenues 10,636 13,502 34,244 60,840 Expenses: Real estate operating expenses 5,023 6,512 15,835 27,523 Interest expense 2,212 2,843 7,057 13,762 Depreciation 2,568 3,113 7,833 14,957 Total expenses 9,803 12,468 30,725 56,242 Total revenues less total expenses 833 1,034 3,519 4,598 Other equity earnings 3 12 119 89 Gain on insurance recoveries — — 65 567 Gain on sale of real estate — 16,937 38,418 118,270 Loss on extinguishment of debt — ( 573 ) ( 561 ) ( 3,491 ) Net income from joint ventures $ 836 $ 17,410 $ 41,560 $ 120,033 BRT's equity in earnings and equity in earnings from sale of unconsolidated joint venture properties $ 426 $ 11,607 $ 16,449 $ 65,846 Joint Venture Sales On May 12, 2023, the unconsolidated joint venture in which the Company had a 50 % equity interest sold Chatham Court and Reflections, a 494 unit multi family property located in Dallas, TX, for a sales price of $ 73,000,000 . The gain on the sale of this property was $ 38,418,000 and BRT's share of the gain was $ 14,744,000 . In connection with the sale, mortgage debt of $ 25,405,000 with 5.0 years of remaining term to maturity and bearing an interest rate of 4.01 % was repaid and the joint venture incurred $ 561,000 from the loss on the extinguishment of debt, of which the Company's share was $ 212,000 . 15 Table of Contents During the nine months ended September 30, 2022, the unconsolidated joint ventures in which the Company had equity interests, sold the following properties: Property Date of Sale Units Interest Sold Sales Price Gain on Sale BRT Share of Gain Mtge Debt at Sale Date Loss on extinguishment of debt BRT Share of extinguishment of debt The Verandas at Shavano, San Antonio, TX 2/8/2022 288 65 % $ 53,750 $ 23,652 $ 12,961 $ 25,100 $ — $ — Retreat at Cinco Ranch, San Antonio, TX 6/14/2022 268 75 % 68,300 30,595 17,378 30,096 1,257 686 The Vive, Kannapolis, NC 6/30/2022 312 65 % 91,250 47,086 22,720 31,420 1,631 787 Waters Edge, Columbia, SC 8/31/2022 204 80 % $ 32,400 $ 16,937 $ 11,472 $ 12,241 573 388 1,072 $ 245,700 $ 118,270 $ 64,531 $ 98,857 $ 3,461 $ 1,861 Acquisition of Interest in Joint Venture On March 10, 2022, the Company purchased a 17.45 % interest in a planned 240 -unit development property, Stono Oaks, located in Johns Island, SC. The purchase price for the interest was $ 3,500,000 . During the nine months ended September 30, 2023, the Company funded a $ 122,000 capital call for this joint venture. Note 8 – Debt Obligations Debt obligations consist of the following (dollars in thousands): September 30, 2023 December 31, 2022 Mortgages payable $ 427,159 $ 407,958 Junior subordinated notes 37,400 37,400 Credit facility (1) — 19,000 Deferred financing costs ( 4,486 ) ( 4,941 ) Total debt obligations, net of deferred costs $ 460,073 $ 459,417 __________________________________________ (1) Excludes $ 342,000 of deferred financing costs which are reflected in other assets at September 30, 2023. Mortgages Payable At September 30, 2023, the weighted average interest rate on the Company's mortgage payables was 4.02 % and the weighted average remaining term to maturity is 7.3 years. For the three months ended September 30, 2023 and 2022, interest expense, which includes amortization of deferred financing costs, was $ 4,774,000 and $ 4,423,000 , respectively. For the nine months ended September 30, 2023 and 2022, interest expense, which includes amortization of deferred financing costs, was $ 14,063,000 and $ 8,749,000 , respectively. On February 24, 2023, the Company obtained mortgage debt of $ 21,173,000 on its Silvana Oaks - North Charleston, SC multi-family property; such mortgage debt matures in March 2033, bears an interest rate of 4.45 % and is interest only for the term of the mortgage. 16 Table of Contents . 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 and matures in September 2025. On August 28, 2023, the facility was amended to convert the index on which interest on the credit facility 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 %. There is an unused facility fee of 0.25 % per annum on the total amount committed by VNB and unused by the Company. At September 30, 2023, the Company is in compliance in all material respects with its obligations under the facility. At September 30, 2023, there was no outstanding balance on the facility and at December 31, 2022, the outstanding balance was $ 19,000,000 . At September 30, 2023 and December 31, 2022, $ 60,000,000 and $ 41,000,000 , respectively, was available to be borrowed. At November 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 September 30, 2023 and 2022, which includes amortization of deferred financing costs and unused fees, was $ 91,000 and $ 227,000 , respectively. Interest expense for the nine months ended September 30, 2023 and 2022, which includes amortization of deferred financing costs and unused fees, was $ 482,000 and $ 334,000 , respectively. Deferred financing costs of $ 342,000 and $ 498,000 , are recorded on the Consolidated balance sheets at September 30, 2023 and December 31, 2022, respectively. Junior Subordinated Notes At September 30, 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 $ 262,000 and $ 277,000 , respectively. The interest rate on outstanding balance resets quarterly and is equal to three month term SOFR + 2.26 %. The interest rate in effect at September 30, 2023 and 2022 was 7.63 % and 4.78 %, respectively. The interest rate that will be in effect for the three months beginning October 31, 2023 is 7.65 %. The notes mature April 30, 2036. 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 September 30, 2023 and 2022, which includes amortization of deferred financing costs, was $ 716,000 and $ 413,000 , respectively. Interest expense for the nine months ended September 30, 2023 and 2022, which includes amortization of deferred financing costs, was $ 2,032,000 and $ 911,000 , respectively. 17 Table of Contents 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 respect to other business matters, as required. The aggregate fees incurred for these services in each of the three months ended September 30, 2023 and 2022 were $ 385,000 and $ 367,000 , respectively, and $ 1,155,000 and $ 1,101,000 for the nine months ended September 30, 2023 and 2022, 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 $ 17,000 and $ 9,000 for the three months ended September 30, 2023 and 2022, respectively and $ 33,000 and $ 28,000 for the nine months ended September 30, 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 September 30, 2023 and 2022, allocated general and administrative expenses reimbursed by the Company to Gould Investors pursuant to the shared services agreement aggregated $ 141,000 and $ 183,000 , respectively and $ 478,000 and $ 614,000 for the nine months ended September 30, 2023 and 2022, 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. During the nine months ended September 30, 2023, in connection with its stock repurchase program, the Company purchased from Mitchell Gould, an Executive Vice President, 50,000 shares of Company common stock at a total cost of $ 1,008,000 , at the closing price of the common stock on the date the parties agreed to the transaction. 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. 18 Table of Contents Junior subordinated notes: At September 30, 2023 and December 31, 2022, the estimated fair value of the notes is lower than their carrying value by approximately $ 3,668,000 and $ 4,695,000 , respectively, based on a market interest rate of 8.52 % and 7.91 %, respectively. The Company values its junior subordinated notes using a discounted cash flow analysis on the expected cash flows of each instrument. Mortgages payable: At September 30, 2023, the estimated fair value of the Company’s mortgages payable is lower than their carrying value by approximately $ 50,853,000 , assuming market interest rates between 5.59 % and 6.94 %. At December 31, 2022, the estimated fair value of the Company's mortgages payable was lower 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. The Company values its mortgages payable using a discounted cash flow analysis on the expected cash flows of each instrument. 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. The Company and certain other defendants have agreed to settle this lawsuit for approximately $ 325,000 ; the settlement remains subject to, among other things, the execution of certain additional documentation and court approval. This settlement amount will be fully funded by the Company’s insurance carrier. Note 12 – Subsequent Events Subsequent events have been evaluated and any significant events, relative to our consolidated financial statements as of September 30, 2023, that warrant additional disclosure, have been included in the notes to the consolidated financial statements. 19 Table of Content