BRT Apartments Corp. 10-Q

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Cautionary Statement Regarding Forward-Looking Statements This Quarterly Report on Form 10-Q (the "Quarterly Report"), together with other statements and information publicly disseminated by us, contains certain forward looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995 and include this statement for purposes of complying with these safe harbor provisions. Forward-looking statements relate to expectations, beliefs, projections, future plans and strategies, anticipated events or trends concerning matters that are not historical facts. Forward looking statements are generally identifiable by use of words such as "may," "will," "will likely result," "shall," "should," "could," "believe," "expect," "intend," "anticipate," "estimate," "project," "apparent," "experiencing," or similar expressions or variations thereof. Forward-looking statements contained in this Quarterly Report are based on our beliefs, assumptions and expectations of our future performance taking into account the information currently available to us. These beliefs, assumptions and expectations can change as a result of many possible events or factors, not all of which are known to us or within our control, and which could materially affect actual results, performance or achievements. 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. , inflation, volatile interest rates and the possibility of a recession), changes in supply and/or demand, competition, uninsured losses, changes in tax and housing laws or other factors; • adverse changes in real estate markets, including, but not limited to, the extent of future demand for multifamily units in our significant markets, barriers of entry into new markets which we may seek to enter in the future, limitations on our ability to increase or collect rental rates, competition, our ability to identify and consummate attractive acquisitions and dispositions on favorable terms, and our ability to reinvest sale proceeds in a manner that generates favorable returns; • general and local real estate conditions, including any changes in the value of our real estate; • decreasing rental rates or increasing vacancy rates; • challenges in acquiring properties (including challenges in buying properties directly without the participation of joint venture partners and the limited number of multi-family property acquisition opportunities available to us), which acquisitions may not be completed or may not produce the cash flows or income expected; • the competitive environment in which we operate, including competition that could adversely affect our ability to acquire properties and/or limit our ability to lease apartments or increase or maintain rental rates; • exposure to risks inherent in investments in a single industry and sector; • the concentration of our multi-family properties in the Southeastern United States and Texas, which makes us more susceptible to adverse developments in those markets; • increases in expenses over which we have limited control, such as real estate taxes, insurance costs and utilities, due to inflation and other factors; • impairment in the value of real estate we own; • failure of property managers to properly manage properties; • accessibility of debt and equity capital markets; • disagreements with, or misconduct by, joint venture partners; • inability to obtain financing at favorable rates, if at all, or refinance existing debt as it matures; • level and volatility of interest or capitalization rates or capital market conditions; 20 Table of Content • 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; • risks associated with acquiring value-add multi-family properties, which involves greater risks than more conservative approaches; • the condition of Fannie Mae or Freddie Mac, which could adversely impact us; • changes in Federal, state and local governmental laws and regulations, including laws and regulations relating to taxes and real estate and related investments; • our failure to comply with laws, including those requiring access to our properties by disabled persons, which could result in substantial costs; • board determinations as to timing and payment of dividends, if any, and our ability or willingness to pay future dividends; • our ability to satisfy the complex rules required to maintain our qualification as a REIT for federal income tax purposes; • possible environmental liabilities, including costs, fines or penalties that may be incurred due to necessary remediation of contamination of properties presently owned or previously owned by us or a subsidiary owned by us or acquired by us; • our dependence on information systems and risks associated with breaches of such systems; • disease outbreaks and other public health events, and measures that are taken by federal, state, and local governmental authorities in response to such outbreaks and events; • impact of climate change on our properties or operations; • risks associated with the stock ownership restrictions of the Internal Revenue Code of 1986, as amended (the "Code") for REITs and the stock ownership limit imposed by our charter; and • the other factors described in our Annual Report on Form 10-K for the year ended December 31, 2022 (the "Annual Report") including those set forth in such report under the captions "Item 1. Business," "Item 1A. Risk Factors," and "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" . We caution you not to place undue reliance on forward-looking statements, which speak only as of the date of this report. Except to the extent otherwise required by applicable law or regulation, we undertake no obligation to update these forward-looking statements to reflect events or circumstances after the filing of this report or to reflect the occurrence of unanticipated events thereafter. Overview 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 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 $30.9 million; and (iii) own other assets, through consolidated and unconsolidated subsidiaries, with a carrying value of $5.4 million. The 28 properties are located in 11 states; most of the properties are located in the Southeast United States and Texas. 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, some of which, such as real estate tax and insurance expense, we have a very limited ability to control. 21 Table of Content Proposed Purchase of Richmond, VA Property On March 8, 2023, we entered into an agreement to acquire a 238-unit multifamily property constructed in 2019 and located in Richmond, VA, for a purchase price of approximately $62.5 million. The purchase price includes the assumption of approximately $32 million of mortgage debt bearing an interest rate of 3.34% and maturing in 2061. The purchase is subject to the satisfaction of various conditions, including the approval by the mortgage lender of our assumption of the mortgage debt. 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 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. 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. 22 Results of Operations 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 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. Revenues The following table compares our revenues for the periods indicated: Three Months Ended September 30, (Dollars in thousands): 2023 2022 Increase (Decrease) % Change Rental and other revenue from real estate properties $ 23,510 $ 21,691 $ 1,819 8.4 % Other income 342 6 336 N/M Total revenues $ 23,852 $ 21,697 $ 2,155 9.9 % Rental and other revenue from real estate properties The increase was due to: • $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 $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). Other Income 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. Expenses The following table compares our expenses for the periods indicated: Three Months Ended September 30, (Dollars in thousands) 2023 2022 Increase (Decrease) % Change Real estate operating expenses $ 10,583 $ 9,195 $ 1,388 15.1 % Interest expense 5,581 5,061 520 10.3 % General and administrative 4,017 3,673 344 9.4 % Depreciation and amortization 6,544 8,165 (1,621) (19.9) % Total expenses $ 26,725 $ 26,094 $ 631 2.4 % 23 Table of Content Real estate operating expense. The change is due to the following increases: • $878,000 from same store properties, including: – $447,000 due to the master insurance program implemented in December 2022; – $238,000 due to general cost increases across various expense categories and properties; and – $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: • $303,000 due to a 318 basis point increase on the interest rate on our junior subordinated debt; and • $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: • $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; and • $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 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 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 (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. 24 Table of Content Unconsolidated Joint Ventures - Results of Operations 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 September 30, 2023 2022 Increase (Decrease) % change Rental and other revenues from unconsolidated joint ventures $ 10,636 $ 13,502 $ (2,866) (21.2) % Real estate operating expense from unconsolidated joint ventures 5,023 6,512 (1,489) (22.9) % Interest expense from unconsolidated joint ventures 2,212 2,843 (631) (22.2) % Depreciation from unconsolidated joint ventures 2,568 3,113 (545) (17.5) % Total expenses from unconsolidated joint ventures 9,803 12,468 (2,665) (21.4) % Total revenues less total expenses from unconsolidated joint ventures 833 1,034 (201) (19.4) % Other equity earnings 3 12 (9) (75.0) % Gain on sale of real estate from unconsolidated joint ventures — 16,937 (16,937) (100.0) % Loss on extinguishment of debt from unconsolidated joint ventures — (573) 573 (100.0) % Net income from unconsolidated joint ventures $ 836 $ 17,410 $ (16,574) (95.2) % Equity in earnings of unconsolidated joint ventures and equity in earnings from sale of unconsolidated joint venture properties $ 426 $ 11,607 $ (11,181) (96.3) % 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 seven properties that were owned for the entirety of the periods being compared. Rental and other revenues from unconsolidated joint ventures The components of the decrease include: • $1.9 million from the sale of the Chatham Court and Reflections property - Dallas, TX ("Chatham Sale") in 2023; • $963,000 from Partner Buyouts; and • $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. Real estate operating expenses from unconsolidated joint ventures The components of the decrease are: • $954,000 from the Chatham Sale. • $621,000 primarily from the Waters Edge Sale; and • $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. 25 Table of Content 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: • $269,000 from the Chatham Sale; • $232,000 from the Partner Buyouts; and • $92,000 from the Waters Edge Sale. Depreciation from unconsolidated joint ventures The components of the decrease include: • $272,000 from the Partner Buyouts; • $262,000 from the Chatham Sale; and • $272,000 from the Waters Edge Sale. Loss on extinguishment of debt from unconsolidated joint ventures 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 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. 26 Table of Content Results of Operations 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 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. Revenues The following table compares our revenues for the periods indicated: Nine Months Ended September 30, (Dollars in thousands): 2023 2022 Increase (Decrease) % Change Rental and other revenue from real estate properties $ 69,704 $ 47,804 $ 21,900 45.8 % Other income 405 12 393 3,275.0 % Total revenues $ 70,109 $ 47,816 $ 22,293 46.6 % Rental and other revenue from real estate properties The increase was due to: • $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. Other Income The increase in the three months ended September 2023, is primarily due to the impact of rising interest rates on our cash balances. Expenses The following table compares our expenses for the periods indicated: Nine Months Ended September 30, (Dollars in thousands) 2023 2022 Increase (Decrease) % Change Real estate operating expenses $ 31,565 $ 20,296 $ 11,269 55.5 % Interest expense 16,577 9,994 6,583 65.9 % General and administrative 11,920 10,839 1,081 10.0 % Depreciation and amortization 22,095 16,781 5,314 31.7 % Total expenses $ 82,157 $ 57,910 $ 24,247 41.9 % Real estate operating expense. The change is due to the following increases: • $9.6 million from the Partner Buyouts, and • $1.6 million from same store properties, including an approximate: 27 Table of Content – $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); – $393,000 of various miscellaneous expenses across the portfolio; and – $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: • $5.3 million from the Partner Buyouts; • $1.1 million due to an increase on the interest rate on our junior subordinated debt; and • $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 $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; and • $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 $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 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 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 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. 28 Table of Content Unconsolidated Joint Ventures - Results of Operations 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): Nine Months Ended June 30, 2023 2022 Increase (Decrease) % change Rental and other revenues from unconsolidated joint ventures $ 34,244 $ 60,840 $ (26,596) (43.7) % Real estate operating expense from unconsolidated joint ventures 15,835 27,523 (11,688) (42.5) % Interest expense from unconsolidated joint ventures 7,057 13,762 (6,705) (48.7) % Depreciation from unconsolidated joint ventures 7,833 14,957 (7,124) (47.6) % Total expenses from unconsolidated joint ventures 30,725 56,242 (25,517) (45.4) % Total revenues less total expenses from unconsolidated joint ventures 3,519 4,598 (1,079) (23.5) % Other equity earnings 119 89 30 33.7 % Gain on insurance recoveries from unconsolidated joint ventures 65 567 (502) (88.5) % Gain on sale of real estate from unconsolidated joint ventures 38,418 118,270 (79,852) (67.5) % Loss on extinguishment of debt from unconsolidated joint ventures (561) (3,491) 2,930 (83.9) % Net income from unconsolidated joint ventures $ 41,560 $ 120,033 $ (78,473) (65.4) % Equity in earnings of unconsolidated joint ventures and equity in earnings from sale of unconsolidated joint venture properties $ 16,449 $ 65,846 $ (49,397) (75.0) % 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 seven properties that were owned for the entirety of the periods being compared. Rental and other revenues from unconsolidated joint ventures The components of the decrease include: • $18.4 million from the Partner Buyouts; • $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"); and • $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. Real estate operating expenses from unconsolidated joint ventures The components of the decrease are: • $7.8 million from the Partner Buyouts; • $4.1 million from the 2022 Sales; and 29 Table of Content • $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. The decrease is due to the decrease in mortgage debt due to property sales and the Partner Buyouts-in particular: • $4.5 million from the Partner Buyouts; • $1.8 million from the 2022 Sales; and • $364,000 from the Chatham Sale. Depreciation from unconsolidated joint ventures The components of the decrease include: • $5.1 million from the Partner Buyouts; • $1.2 million from the 2022 Sales properties; and • $615,000 from the Chatham Sale. Gain on insurance recoveries from unconsolidated joint ventures 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 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 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. 30 Table of Content Liquidity and Capital Resources We require funds to pay operating expenses and debt service obligations, acquire properties, make capital and other improvements, fund capital contributions, 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/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 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 $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 September 30, 2023, $37.4 million (excluding deferred costs of $262,000) 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, at a rate of three-month term SOFR plus 250 basis points. 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 Our credit facility with VNB New York, LLC, an affiliate of Valley National Bank (collectively, "VNB"), allows us to borrow, subject to compliance with borrowing base requirements and other conditions, up to $60 million, (i) for the acquisition of, and investment in, multi-family properties, (ii) to repay mortgage debt secured by multi-family properties and (iii) for Operating Expenses ( i.e. , working capital (including dividend payments) and operating expenses); provided, that not more than $25 million may be used for Operating Expenses. The 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 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. The credit facility matures in September 2025. 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 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% 31 Table of Content The terms of the credit facility include certain restrictions and covenants which, among other things, limit the incurrence of liens, require that we maintain and include in the collateral securing the facility at least three unencumbered properties with an aggregate value(as calculated pursuant to the facility) of at least $75 million, and require compliance with financial ratios relating to, among other things, maintaining a minimum tangible net worth of $140 million, the minimum amount of debt service coverage with respect to the properties (and amounts drawn on the credit facility) used in calculating the borrowing base. Net proceeds received from the sale, financing or refinancing of wholly-owned properties are generally required to be used to repay amounts outstanding under the credit facility. At September 30, 2023, we were in compliance in all material respects with the requirements of the facility. Other Financing Sources and Arrangements 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 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. is not the obligor with respect to such mortgage debt, the loss of any of these properties due to mortgage foreclosure or similar proceedings would have a material adverse effect on our results of operations and financial condition. See note 7 to our consolidated financial statements. Cash Distribution Policy We have elected to be treated as a REIT under the Internal Revenue Code of 1986, as amended, which we refer to as the “Code.” To qualify as a REIT, we must meet a number of organizational and operational requirements, including a requirement that we distribute to our stockholders within the time frames prescribed by the Code at least 90% of our ordinary taxable income. Management currently intends to maintain our REIT status. As a REIT, we generally will not be subject to corporate Federal income tax on taxable income we distribute to stockholders in accordance with the Code. If we fail to qualify as a REIT in any taxable year, we will be subject to Federal income taxes at regular corporate rates and may not be able to qualify as a REIT for four subsequent tax years. 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 October 11, 2023, we paid a quarterly cash dividend of $0.25 per share. We carefully monitor our discretionary spending. Our largest recurring discretionary expenditure has been our quarterly dividend (which was $0.25 per share of common stock, or in the approximate amount of $4.7 million, for the most recent quarter). Each quarter, our board of directors evaluates the timing and amount of our dividend based on its assessment of, among other things, our short and long- term cash and liquidity requirements, prospects, debt maturities, projections of our REIT taxable income, net income, funds from operations, and adjusted funds from operations. Application of Critical Accounting Estimates A complete discussion of our critical accounting estimates is included in our Annual Report. There have been no changes in such estimates. 32 Table of Contents Funds from Operations, Adjusted Funds from Operations and Net Operating Income We disclose below funds from operations (“FFO”), adjusted funds from operations (“AFFO”) and net operating income ("NOI") because we believe that such metrics are a widely recognized and appropriate measure of the performance of an equity REIT. We compute FFO in accordance with the “White Paper on Funds From Operations” issued by the National Association of Real Estate Investment Trusts (“NAREIT”) and NAREIT’s related guidance. FFO is defined in the White Paper as net income (calculated in accordance with GAAP), excluding depreciation and amortization related to real estate, gains and losses from the sale of certain real estate assets, gains and losses from change in control, impairment write-downs of certain real estate assets and investments in entities where the impairment is directly attributable to decreases in the value of depreciable real estate held by the entity. Adjustments for unconsolidated partnerships and joint ventures are calculated to reflect funds from operations on the same basis. In computing FFO, we do not add back to net income the amortization of costs in connection with our financing activities or depreciation of non-real estate assets. We compute AFFO by adjusting FFO for the loss of extinguishment of debt, our straight-line rent accruals, restricted stock and RSU compensation expense, fair value adjustment of mortgage debt, gain on insurance recovery, insurance recovery from casualty loss and deferred mortgage and debt costs ( including, in each case as applicable, from our share from our unconsolidated joint ventures). Since the NAREIT White Paper only provides guidelines for computing FFO, the computation of AFFO may vary from one REIT to another. We believe that FFO and AFFO are useful and standard supplemental measures of the operating performance for equity REITs and are used frequently by securities analysts, investors and other interested parties in evaluating equity REITs, many of which present FFO and AFFO when reporting their operating results. FFO and AFFO are intended to exclude GAAP historical cost depreciation and amortization of real estate assets, which assumes that the carrying value of real estate assets diminishes predictably over time. In fact, real estate values have historically risen and fallen with market conditions. As a result, we believe that FFO and AFFO provide a performance measure that when compared year over year, should reflect the impact to operations from trends in occupancy rates, rental rates, operating costs, interest costs and other matters without the inclusion of depreciation and amortization, providing a perspective that may not be necessarily apparent from net income. We also consider FFO and AFFO to be useful to us in evaluating potential property acquisitions. FFO and AFFO do not represent net income or cash flows from operations as defined by GAAP. FFO and AFFO should not be considered to be an alternative to net income as a reliable measure of our operating performance; nor should FFO and AFFO be considered an alternative to cash flows from operating, investing or financing activities (as defined by GAAP) as measures of liquidity. FFO and AFFO do not measure whether cash flow is sufficient to fund all of our cash needs, including principal amortization and capital improvements. FFO and AFFO do not represent cash flows from operating, investing or financing activities as defined by GAAP. Management recognizes that there are limitations in the use of FFO and AFFO. In evaluating our performance, management is careful to examine GAAP measures such as net income and cash flows from operating, investing and financing activities. 33 Table of Contents 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 September 30, Nine Months Ended September 30, 2023 2022 2023 2022 GAAP Net (loss) income attributable to common stockholders $ (1,494) $ 7,059 $ 5,610 $ 54,174 Add: depreciation and amortization of properties 6,544 8,165 22,095 16,781 Add: our share of depreciation in unconsolidated joint venture properties 1,307 1,657 3,985 9,234 Deduct: our share of equity in earnings from sale of unconsolidated joint venture properties — (11,472) (14,744) (64,531) Deduct: gain on sale of real estate (604) — (604) (6) Adjustments for non-controlling interests (4) (4) (12) (12) NAREIT Funds from operations attributable to common stockholders 5,749 5,405 16,330 15,640 Adjustments for: straight-line rent accruals 24 6 68 18 Add: loss on extinguishment of debt — — — 563 Add: our share of loss on extinguishment of debt from unconsolidated joint venture properties — 388 212 1,880 Add: amortization of restricted stock and RSU expense 1,473 1,208 4,076 3,183 Add: amortization of deferred mortgage and debt costs 272 191 799 370 Add: our share of deferred mortgage costs from unconsolidated joint venture properties 26 33 80 199 Add: amortization of fair value adjustment for mortgage debt 152 — 463 — Less: gain on insurance recoveries — (62) (240) (62) Less: 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 34 Table of Contents Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 Net (loss) income attributable to common stockholders $ (0.08) $ 0.37 $ 0.28 $ 2.91 Add: depreciation and amortization of properties 0.35 0.44 1.17 0.90 Add: our share of depreciation in unconsolidated joint venture properties 0.07 0.09 0.21 0.50 Deduct: our share of equity in earnings from sale of unconsolidated joint venture properties (0.03) (0.61) (0.77) (3.47) Deduct: gain on sale of real estate — — (0.03) — Adjustment for non-controlling interests — — — — NAREIT Funds from operations per diluted common share 0.31 0.29 0.86 0.84 Adjustments for: straight line rent accruals — — — — Add: loss on extinguishment of debt — — — 0.03 Add: our share of loss on extinguishment of debt from unconsolidated joint venture properties — 0.02 0.01 0.10 Add: amortization of restricted stock and RSU expense 0.08 0.06 0.22 0.16 Add: amortization of deferred mortgage and debt costs 0.01 0.01 0.04 0.02 Add: our share of deferred mortgage and debt costs from unconsolidated joint venture properties — — — 0.01 Add: amortization of fair value adjustment for mortgage debt 0.01 — 0.02 — Less: gain on insurance recoveries — — (0.01) — Less: our share of gain on insurance recoveries from unconsolidated joint venture properties — — — (0.02) Adjustments for non-controlling interests — — — — Adjusted funds from operations per diluted common share $ 0.41 $ 0.38 $ 1.14 $ 1.14 Diluted shares outstanding for FFO and AFFO 18,804,874 18,928,648 19,016,032 18,712,740 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; and • 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; and • 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. 35 Table of Contents 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; and • 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; and • 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. NOI is used by our management and many investors to evaluate and compare the performance of our properties to other comparable properties, to determine trends at our properties and to determine the estimated fair value of our properties. The usefulness of NOI may be limited in that it does not take into account, among other things, general and administrative expense, interest expense, loss on extinguishment of debt, casualty losses, insurance recoveries and gains or losses as determined by GAAP. 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 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. We believe NOI provides an operating perspective not immediately apparent from GAAP operating income or net income (loss). NOI is one of the measures we use to evaluate our performance because it (i) measures the core operations of property performance by excluding corporate level expenses and other items unrelated to property operating performance and (ii) captures trends in rental housing and property operating expenses. However, NOI should only be used as an alternative measure of our financial performance. 36 Table of Contents 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 September 30, Nine Months Ended September 30, 2023 2022 Variance 2023 2022 Variance GAAP Net (loss) income attributable to common stockholders $ (1,494) $ 7,059 $ (8,553) $ 5,610 $ 54,174 $ (48,564) Less: Other Income (342) (6) (336) (405) (12) (393) Add: Interest expense 5,581 5,061 520 16,577 9,994 6,583 General and administrative 4,017 3,673 344 11,920 10,839 1,081 Depreciation and amortization 6,544 8,165 (1,621) 22,095 16,781 5,314 Provision for taxes (122) 178 (300) 5 976 (971) Less: Gain on sale of real estate (604) — (604) (604) (6) (598) 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) Gain on insurance recoveries — (62) 62 (240) (62) (178) Add: Loss on extinguishment of debt — — — — 563 (563) Adjust for: Equity in (earnings) loss of unconsolidated joint venture properties (426) (135) (291) (1,705) (1,315) (390) Add: Net income attributable to non-controlling interests 34 35 (1) 106 107 (1) Net Operating Income $ 12,927 $ 12,496 $ 431 $ 38,139 $ 27,508 $ 10,631 Less: Non-same store Net Operating Income 4,089 3,253 836 18,696 8,029 10,667 Same store Net Operating Income $ 8,838 $ 9,243 $ (405) $ 19,443 $ 19,479 $ (36) 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. 37 Table of Contents