What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2024-03-14 compared with 2023-03-15 · 139 added, 164 removed, 260 unchanged (54% of the section changed)

Management's Discussion and Analysis of Financial Condition and Results of Operations.

We are an internally managed real estate investment trust, also known as a REIT, that is focused on the ownership, operation and, to a lesser extent, development of multi-family properties.

These properties may be wholly owned or owned by unconsolidated joint ventures in which we generally have contributed a significant portion of the equity.

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

At December 31, 2023, we:

(i) wholly-own 21 multi-family properties with an aggregate of 5,420 units and a carrying value of $649.7 million, (ii) have ownership interests, through unconsolidated entities, in eight multi-family properties with an aggregate of 2,781 units, for which the carrying value of our net equity investment therein is $39.1 million and (iii) own other assets, through consolidated and unconsolidated entities, with a carrying value of $5.4 million.

The 29 multi-family properties are located in eleven states;

most of these properties are located in the Southeast United States and Texas.

2022 and Recent Developments.

Partner Buyouts

We purchased the interests of our joint venture partners in ventures that owned 11 multi-family properties for an aggregate purchase price of $105.9 million (the "2022 Partner Buyouts").

As a result, these properties are wholly-owned and the accounts (including mortgage debt of approximately $236.6 million) and results of operations of these properties are included directly in our consolidated financial statements as of the applicable date of purchase.

In 2022, (i) since the applicable Partner Buyout, these properties contributed in the aggregate $23.4 million in rental revenues, $10.2 million in operating expenses, $6.6 million in interest expense and $11.2 million in depreciation, and (ii) prior to the applicable Partner Buyout contributed an aggregate of $1.2 million in income from unconsolidated joint ventures.

In 2023, we anticipate that these 11 properties will generate approximately $41.8 million in rental revenues, $18.0 million of real estate operating expense, $11.9 million in interest expense and $16.6 million in depreciation.

These estimates for 2023 assume that rental income and real estate operating expense will remain at the same level in 2023 as in 2022 (although we anticipate that real estate operating expense will be higher in 2023 due to the master insurance program), and assumes an anticipated increases in 2023 from 2022 in interest expense due to a mortgage refinance that occured in May 2022 and depreciation as a result of the additional investments ( i.e.

, the purchase price paid for the remaining interest) made in such properties .

Since August, 2021, we completed the purchase of the remaining interests of our joint venture partners in 14 joint ventures including three partner buyouts completed in 2021 (the "2021 Partner Buyouts";

and together with the 2022 Partner Buyouts, the "Partner Buyouts").

We recorded an aggregate gain of $64.5 million from the sale by unconsolidated subsidiaries, in four separate transactions, of four multi-family properties, and our share of the related aggregate loss on extinguishment of debt was $1.9 million.

During 2022 (through the applicable sales dates) and 2021, these properties contributed a loss of $1.6 million (including our share of the early extinguishment of debt charge related to these sales) and income of $201,000 respectively, of equity in earnings (loss) of unconsolidated joint ventures.

• entered into the Amendment to our Facility.

Among other things, the Amendment (i) increased the amount we are permitted to borrow from $35 million to an aggregate of $60 million, subject to compliance with borrowing base requirements and other conditions, (ii) increased from $15 million to $25 million the amount that may be used for working capital (including dividend payments) and operating expenses, (iii) extended the term of the facility from November 2024 to September 2025, (iv) reduced the interest rate to the prime rate (subject to a floor of 3.5%) by eliminating the 25 basis point spread over the prime rate, (v) increased the number and value of the unencumbered properties we are required to maintain from two properties with a value of at least $50 million to three properties with a value of at least $75 million and (vi) requires that we maintain a tangible net worth of a least $140 million.

• raised approximately $9.9 million of equity from the sale of 447,815 shares of our common stock pursuant to our at-the-market equity offering program.

• implemented, effective with the dividend declared in June 2022, an 8.7% per share increase in our quarterly cash dividends from the immediately preceding dividend payment, and declared dividends of an aggregate of $0.98 per share.

• implemented a dividend reinvestment plan which allows our stockholders to purchase our common stock at a discount (currently 3.0% to the trading price) and which reduced our cash outlay for dividends paid in 2022 by $1.3 million.

• maintained an average occupancy rate of 95.9% across our portfolio of multi-family properties.

• began participating in a master insurance program which covers 17 wholly-owned properties comprising 4,316 units located in 10 states.

Generally, the coverage limit is $100 million ($50 million for named hurricanes) per occurrence with a deductible of $100,000 for all other perils, and varying deductibles for, among other things, wind, flood, and earthquake damage.

We also obtained, on a per occurrence per property basis, general liability and umbrella coverage of $1 million and $25 million, respectively.

• used our available cash to pay-off $14.5 million of 4.29% mortgage debt of Avalon Apartments - Pensacola, FL, a wholly owned property.

• used our credit facility in October 2022 to pay off $14.9 million of maturing mortgage debt at our Silvana Oaks-North Charleston, SC property.

In February 2023, we obtained mortgage debt of $ 21.2 million on our Silvana Oaks - North Charleston, SC multi-family property;

(i) wholly-own 21 multi-family properties with an aggregate of 5,420 units and a carrying value of $634.0 million, (ii) have ownership interests, through unconsolidated entities, in seven multi-family properties with an aggregate of 2,287 units, with a carrying value of $30.4 million and (iii) own other assets, through consolidated and unconsolidated entities, with a carrying value of $5.6 million.

The 28 multi-family properties are located in 11 states;

primarily in the Southeast United States and Texas.

• The unconsolidated joint venture that owned Chatham Court and Reflections, a 494 unit multi-family property located in Dallas, TX, and in which we had a 50% interest, sold such property.

Our share of the (i) gain from this sale was $14.7 million, (ii) the related early extinguishment of debt charge was $212,000, and (iii) proceeds from the sale were $19.4 million.

In 2023 and 2022, this property accounted for $54,000 and $753,000, respectively, of equity in earnings from unconsolidated joint ventures.

• We paid off our credit facility debt of $19.0 million - we accomplished this by using the proceeds of new mortgage debt of $21.2 million placed on our 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.

We used the net proceeds of such mortgage debt to fully pay down our credit facility.

On March 13, 2023, the unconsolidated joint venture that owns Chatham Court and Reflections, a 494 unit multi-family property located in Dallas, TX, and in which we have a 50% interest, entered into a contract to sell such property.

We estimate that our share of the gain from this sale will be approximately $14.3 million and that our share of the related early extinguishment of debt charge will be $167,000.

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

We anticipate that the closing of this transaction, which is subject to customary closing conditions, will be completed in the quarter ending June 30,2023, although we can provide no assurance that this transaction will be completed.

In March 2023, the Company entered into an agreement to acquire a 238-unit multifamily property constructed in 2019 and located in Richmond, VA, for a purchase price of approximately $62.5 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 completion, to BRT’s satisfaction, of its due diligence investigation, as well as the approval by the mortgage lender of the Company’s assumption of the mortgage debt.

BRT anticipates that this transaction will be completed in the fourth quarter of 2023, although we can provide no assurance that this transaction will be completed.

UPREIT Structure

We are evaluating whether to establish an UPREIT structure to enhance our ability to acquire multi-family properties.

There is no timetable for the completion of such evaluation or implementation of such structure and we can provide no assurance that we will implement an UPREIT structure and that if implemented, that it will be beneficial to us and our stockholders.

• We repurchased 779,423 shares of our common stock for an aggregate purchase price of approximately $14.4 million ( i.e ., an average price per share of $18.47).

• Entered into an amendment (the "Amendment") to our amended and restated credit facility (the "Facility") with VNB New York, LLC, an affiliate of Valley National Bank (“VNB”), which converted the Facility's interest rate to one-month term SOFR plus 250 basis points, and increased the interest rate floor to 6%.

Immediately prior to the amendment, the interest rate on the facility was 8.5%;

immediately thereafter, the interest rate was 7.82%

From January 1, 2024 through March 1, 2024, we purchased 123,061 shares of our common stock for an aggregate purchase price of approximately $2.3 million ( i.e., an average price of $18.43per share).

Challenges and Uncertainties as a Result of the Volatile Economic Environment;

Impact of Development Property

During the past two years, there has been a significant economic uncertainty due, among other things, to volatile interest rates and the challenges presented by an inflationary/potential recessionary environment.

Due to this uncertainty and our belief that pricing for acquisition opportunities did not appropriately reflect market conditions, we were especially cautious in pursuing acquisition opportunities in 2023 and may continue to be cautious in pursuing such opportunities in the near future.

Further, the competitive environment in several of our markets as well as anticipated expense increases create uncertainty as to our ability to improve income from continuing operations.

We have a 17.45% interest in a 240-unit development property located in Johns Island, SC.

As of December 31, 2023, this project is substantially complete and lease-up has begun.

We estimate that for 2024, we will record approximately $350,000 to $500,000 of equity in loss from unconsolidated ventures related to this property because the venture will begin recognizing revenue and expenses (and in particular depreciation and interest which had been capitalized during the development phase).

Results of Operations

Comparison of Years Ended December 31, 2023 and 2022

The term "same store properties" refers to seven multi-family properties with an aggregate of 1,608 units that were owned for all of 2022 and 2021.

The term "unconsolidated same store properties" with an aggregate of 2,781 units refers to eight properties that were owned for all of 2022 and 2021.

The term "same store properties" refers to ten multi-family properties with an aggregate of 2,576 units that were owned for all of 2023 and 2022.

The term "unconsolidated same store properties" with an aggregate of 2,287 units refers to seven properties that were owned for all of 2023 and 2022.

As used in the comparison of the year ended December 31, 2023 and 2022, the term "Partner Buyouts" refers to our purchase in 2022 of the interests of our joint venture partners at 11 properties.

The following table compares our revenues for the years indicated:

(Dollars in thousands):

2022 2021 Increase

(Decrease) % Change

2023 2022 Change % Change

Rental and other revenue from real estate properties $ 93,069 $ 70,515 $ 22,554 32.0 %

Other income 12 16 (4) (25.0) %

Other income 548 12 536 N/M

Total revenues $ 93,617 $ 70,527 $ 23,090 32.7 %

1 unchanged sentence

The components of the increase include:

• $37.1 million due to the revenues from the Partner Buyouts, including $13.7 million from the inclusion, for all of 2022, of the revenues from the 2021 Partner Buyouts;

• $2.6 million from same store properties, substantially all of which is due to higher rental rates.

Offsetting the increase is a $1.2 million decrease due to the sale of the Kendall Manor Property - Houston, TX (the "Kendall Sale") in 2021 and a $191,000 decrease due to lower occupancy at same store properties.

• $20.8 million from the Partner Buyouts;

• $2.6 million from same store properties, substantially all of which is due to higher average rental rates.

Offsetting the increase is a $1.0 million decrease due to a decline in occupancy from 96.4% to 93.6% at same store properties, including $343,000 at Bells Bluff-West Nashville, TN, which experienced a decline in occupancy due to increased supply in the market and change in demand for certain unit types.

The increase is due primarily to increased earnings on our cash balances due to higher interest rates.

The following table compares our expenses for the periods indicated:

(Dollars in thousands) 2022 2021 Increase (Decrease) % Change

(Dollars in thousands) 2023 2022 Change % Change

Real estate operating expenses $ 41,821 $ 30,558 $ 11,263 36.9 %

1 unchanged sentence

General and administrative 15,433 14,654 779 5.3 %

Impairment charge — 520 (520) (100.0) %

Depreciation 24,812 8,025 16,787 209.2 %

Depreciation and amortization 28,484 24,812 3,672 14.8 %

Total expenses $ 107,899 $ 85,538 $ 22,361 26.1 %

1 unchanged sentence

The components of the increase include:

• $16.2 million from the Partner Buyouts, of which $6.0 million is from the inclusion, for all of 2022, of the expenses from the properties included in the 2021 Partner Buyouts;

• $1.0 million from same store properties, including increases of $440,000 in repairs and maintenance and replacement costs, which includes turnover costs, $160,000 in payroll costs, $132,000 in insurance costs and $106,000 in utility expense.

The increase was offset by a $828,000 decrease due to the Kendall Sale.

We anticipate that these expenses will increase in 2023 because of our implementation of the Insurance Program, industry-wide increases in the cost of property insurance coverage and the impact of inflation.

• $9.4 million from the Partner Buyouts;

• $1.8 million from same store properties, including:

– $880,000 due to the master insurance program implemented in December 2022 and increases in insurance costs overall.;

– $295,000 in real estate taxes due to increases primarily at four properties;

– general cost increases, including $228,000 in property level payroll costs, $201,000 in utilities costs and $211,000 across other expense categories.

Interest expense

The change is due to a:

• $9.6 million increase due to the Partner Buyouts, including $2.9 million from the inclusion, for all of 2022, of such expense from the properties included in the 2021 Partner Buyouts;

• $612,000 increase in interest expense on our credit facility, due to a $7.9 million increase in the average outstanding balance during 2022;

• $592,000 due to the increase in the interest rate on our floating rate junior subordinated notes.

The increase was offset by a (i) $1.8 million decrease due to the payoff of $61.3 million of mortgage debt since August 2021 ($31.9 million in 2021 and $29.5 million in 2022) and (ii) $271,000 decrease due to the Kendall Sale.

The components of the increase include:

• $5.2 million due to the Partner Buyouts;

• $1.3 million due to the increase in the interest rate on our floating rate junior subordinated notes;

• $372,000 of interest expense on the Silvana Oaks mortgage which was obtained in February 2023.

The increase was offset by a $139,000 decrease in interest expense on our credit facility primarily due to the payoff of the facility in February 2023 in connection with the receipt of proceeds from the Silvana Oaks mortgage.

General and administrative.

The increase is due to a $1.5 million increase in non-cash compensation expense, including increases of:

• $890,000 due to increased amortization expense from RSUs, of which increases of (i) $510,000 reflects amortization expense related to RSU's granted in June 2022 and (ii) $380,000 reflects net amortization expense primarily related to the RSUs granted in 2021;

The components of the increase include:

• $379,000 due to the amortization expense 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 restricted stock granted in 2018);

• $254,000 due to the inclusion, for all of 2022, of the amortization expense related to the restricted stock granted in June 2021.

Also contributing to the increase was a $461,000 increase due to higher levels of cash compensation.

The increase was offset by the inclusion, in 2021, of $114,000 of professional fees related primarily to a terminated stock offering.

Impairment charges

In 2021, we recorded an impairment charge of $520,000 representing the excess of the book value of our investment in the Opop Tower and Loft properties, St Louis, MO, over the anticipated selling price of the investment.

There was no comparable charge in 2022.

• $232,000 of cash compensation and related payroll expense due to higher levels of compensation and increased employee headcount.

Depreciation and amortization

The increase is due $16.9 million of such expense from the Partner Buyouts, including $5.7 million from the inclusion, for all of 2022, of such expense from the properties included in the 2021 Partner Buyouts.

The increase is due $5.8 million from the Partner Buyouts, offset by a $2.1 million decrease due to reduced depreciation related to lease intangibles resulting from such buyouts.

Equity in earnings (loss) of unconsolidated joint ventures and equity in earnings from sale of unconsolidated joint venture properties .

Please see a detailed explanation of these categories in the next section entitled "Unconsolidated Joint Ventures - Results of Operations".

Casualty loss

During the year ended December 31, 2023, we settled the Takakura Lawsuit for $323,000.

During the year ended December 31, 2022, we settled a personal injury lawsuit for $850,000

Insurance recovery of casualty loss

During 2023, we received insurance proceeds of (i) $323,000 in connection with the settlement of the Takakura Lawsuit and (ii) $470,000 as reimbursement for expenses incurred related to a winter storm in December 2022.

During 2022, we received $850,000 in insurance proceeds upon the settlement of a personal injury lawsuit.

Gain on Sale of Real Estate

In 2022, we recognized a gain of $6,000 on the sale of a vacant parcel of land in South Daytona Beach, FL.

In 2021, we recognized a $7.3 million gain on the Kendall Sale and a $414,000 gain from the sale of a cooperative apartment unit in New York, NY.

Casualty loss / Insurance recovery of casualty loss

In 2022, we settled a personal injury lawsuit for $850,000.

Our insurance carrier reimbursed us for this loss.

Gain on sale of partnership interest

In 2021, we sold our interest in a joint venture that owned Anatole Apartments - Daytona, Beach, FL and OPOP Towers and Lofts - St.

Louis, MO (collectively, the Anatole/OPOP Sale) and recognized an aggregate gain of $2.6 million.

There was no comparable gain in 2022.

In 2023, we sold a cooperative apartment in New York for a sales price of $785,000 and recognized a gain of $604,000.

Loss on extinguishment of debt

In 2022, we incurred $563,000 of loss on extinguishment of debt related to the mortgage refinancing that took place with the buyout of our joint venture partner's interest in Brixworth at Bridge Street - Huntsville, AL.

In 2021, we incurred $1.6 million of prepayment charges and deferred loan fee write-offs on the payoff of three first mortgage loans and three supplemental loans with an aggregate outstanding principal balance of $31.9 million and the refinance of a mortgage loan in connection with the purchase of the interests of our joint venture partners in Crestmont at Thornblade - Greenville, SC.

In 2022, we incurred $563,000 of loss on extinguishment of debt related to the mortgage refinancing affected in connection with the buyout of our joint venture partner's interest in Brixworth at Bridge Street - Huntsville, AL.

Income tax provision

In 2022, income tax provision increased to $821,000 from $206,000 in 2021 due to an increase in state level taxes accrued.

The increase is the result of income generated by property sales in 2022 and the unavailability of net operating loss carryforwards available in certain states to offset such income.

Income tax provision in the year ended December 31, 2023, decreased $767,000 (i.e.

, from $821,000 in 2022 to $54,000 in 2023).

The decrease reflects the inclusion, in 2022 of increased tax provision related to gains from the sale of properties by several joint ventures and the reversal, in 2023, of approximately $200,000 due to the over-accrual of taxes.

Unconsolidated Joint Ventures - Results of Operations.

15 unchanged sentences

Gain on insurance proceeds from unconsolidated joint ventures 65 567 (502) (88.5) %

Gain on sale of real estate from unconsolidated joint ventures 118,270 83,984 34,286 N/A

Loss on extinguishment of debt from unconsolidated joint ventures (3,491) (9,401) 5,910 N/A

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 $ 42,585 $ 121,187 $ (78,602) (64.9) %

Equity in earnings (loss) and gain on sale of real estate of unconsolidated joint ventures $ 17,037 $ 66,426

Set forth below is on 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 revenue from unconsolidated joint ventures

The decrease is due to:

• $31.0 million from the Partner Buyouts, including $11.0 million from the 2021 Partner Buyouts;

• $10.3 million from the sale, in 2021, of The Avenue Apartments-Ocoee, FL and Parc at 980-Lawrenceville, GA (collectively, the "Avenue/Parc Sale");

• $9.3 million from the sale, in 2022, of Verandas at Shavano-San Antonio, TX, Cinco Ranch-Katy, TX, Vive at Kellswater-Kannapolis, NC and Water's Edge-Columbia, SC (collectively, the "Shavano/Cinco/Vive /Waters Edge sales");

• $3.2 million from the Anatole/OPOP Sale.

The decrease was offset by a $4.9 million increase in rental revenue from unconsolidated same store properties, primarily from an increase in rental rates.

• $18.4 million from the Partner Buyouts;

• $7.5 million primarily from the sale, in 2022, of Verandas at Shavano-San Antonio, TX, Cinco Ranch-Katy, TX, Vive at Kellswater-Kannapolis, NC and Water's Edge-Columbia, SC (collectively, the "2022 Sales");

• $4.4 million from the Chatham Sale.

The decrease was offset by a $2.7 million increase in rental revenue from unconsolidated same store properties, primarily due an increase in rental rates offset by a $729,000 decrease due to reduced occupancy.

Real estate operating expenses from unconsolidated joint ventures

The components of the decrease include:

• $14.0 million from the Partner Buyouts, including $5.2 million from the 2021 Partner Buyouts;

• $4.6 million due to the Avenue/Parc Sale;

• $4.4 million from the Shavano/Cinco/Vive/Waters Edge sales;

• $2.0 million from the Anatole/OPOP Sales.

The decrease was offset by a $1.5 million increase from unconsolidated same store properties, including increases of $417,000 in real estate taxes, $403,000 in utility costs, $258,000 in repairs, maintenance and replacement costs and $224,000 in payroll and leasing commissions.

• $7.8 million from the Partner Buyouts;

• $4.2 million from the 2022 Sales;

• $1.8 million from the Chatham Sale.

The decrease was offset by an aggregate $1.2 million increase in such expenses including increases of $279,000 in utility costs, $260,000 in insurance costs, $245,000 in payroll and leasing commissions, and $191,000 in real estate taxes.

Interest expense from unconsolidated joint ventures.

The components of the decrease are:

• $8.5 million due to the Partner Buyouts, including $2.7 million from the 2021 Partner Buyouts;

• $2.5 million due to the Avenue/Parc Sale;

• $2.3 million from the Shavono/Cinco/Vive/Waters Edge sales;

• $1.3 million from the Anatole/OPOP Sales.

• $4.5 million due to the Partner Buyouts;

• $1.8 million from the 2022 Sales;

• $631,000 from the Chatham Sale.

Depreciation from unconsolidated joint ventures .

The components of the decrease are:

• $10.3 million due to the Partner Buyouts, including $3.9 million from the 2021 Partner Buyouts ;

• $3.5 million from the Shavano/Cinco/Vive/Waters Edge sales;

• $2.4 million due to to the Avenue/Parc Sale;

• $1.3 million from the Anatole/OPOP Sales.

• $5.1 million due to the Partner Buyouts;

• $1.2 million from the 2022 Sales;

• $878,000 from the Chatham Sale.

Impairment of assets from unconsolidated joint ventures.

During 2022, we recognized $8.6 million of impairment charges related to a fire at Stono Oaks, a development project located in Johns Island, SC.

During 2021, we recognized $2.8 million of impairment charges related to the February 2021 Texas winter storm (the "Texas Storm").

During 2022, the venture recognized $8.6 million of impairment charges related to a fire at Stono Oaks, a development project located in Johns Island, SC.

Insurance recoveries from unconsolidated joint ventures.

During 2022, we recognized $8.6 million of insurance recoveries related to the Stono Oaks fire.

During 2021, we recognized $2.8 million of insurance recoveries related to the Texas Storm.

During 2022, the venture recognized $8.6 million of insurance recoveries related to the Stono Oaks fire.

Gain on insurance recoveries from unconsolidated joint ventures

During 2022, we recognized $567,000 in gains from insurance recoveries at Vernadas at Alamo-San Antonio, TX and Woodlands-Boerne, TX.

In 2021, we recognized $1.9 million in gains from insurance recoveries at two properties ( i.e., Verandas at Shavano and Verandas at Alamo, both located in San Antonio, TX), that were damaged by the Texas Storm, and $325,000 from an insurance claim on Magnolia Pointe - Madison, AL, that sustained fire damage in a prior year.

In each year, the gain represents the amounts received on insurance recoveries in excess of the assets previously written-off.

During 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.

Gain on sale of real estate from unconsolidated joint ventures

In 2022, we recognized an aggregate gain of $118.2 million from the Shavano/Cinco/Vive/Waters Edge sales and in 2021, we recognized an aggregate gain of $84.0 million from the Avenue/Parc Sales.

Loss on early extinguishment of debt from unconsolidated joint ventures

The loss in 2022 is due to prepayment charges from the Shavano/Cinco/Vive/Waters Edge sales.

The loss in 2021 is due to prepayment charges in connection with the payoff of the mortgages related to the Avenue/Parc Sale.

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

During 2022, we recognized gains on the sale of real estate of $118.3 million from the 2022 Sales.

Loss on extinguishment of debt from unconsolidated joint ventures

During 2023 and 2022, we recognized loss on the early extinguishment of debt in connection with the Chatham Sale and the 2022 Sales, respectively.

Comparison of Years Ended December 31, 2022 and 2021

27 unchanged sentences

our share of depreciation in unconsolidated joint venture properties 5,292 10,677

impairment charge — 520

our share of impairment charge in unconsolidated joint venture properties — 1,493

16 unchanged sentences

gain on insurance recovery (240) (62)

our share of gain on insurance proceeds from unconsolidated joint venture

properties (432) (1,528)

our share of gain on insurance proceeds from unconsolidated joint venture properties (30) (432)

Adjustment for non-controlling interests (15) (4)

4 unchanged sentences

our share of depreciation from unconsolidated joint venture properties 0.28 0.57

impairment charge — 0.03

our share of impairment charge in unconsolidated joint ventures — 0.08

20 unchanged sentences

Diluted shares outstanding for FFO and AFFO 18,931,026 18,782,695

FFO for 2022 increased $5.8 million, or 33%, to $23.2 million from $17.4 million in 2021.

Contributing to the improvement were:

• an $8.2 million increase in our incremental share of the operating income due to the Partner Buyouts (the "Incremental Impact"), including $3.4 million from the inclusion, for all of 2022, of the Incremented Impact from the 2021 Partner Buyouts;

• a $3.7 million decrease in loss on extinguishment of debt;

• a $3.1 million increase due to improved operating margins across our portfolio;

• a $1.7 million decrease in interest expense;

• an $850,000 increase in an insurance recovery from a casualty loss.

The increase was offset by:

• a $7.6 million decrease from the sale of properties (including interests in properties), in 2022 and 2021;

• a $2.0 million increase in General and administrative expense (including $1.5 million of non-cash compensation expense);

• a $701,000 decrease in insurance recoveries and gains from insurance proceeds;

• an $615,000 increase in income tax provision.

AFFO increased $4.5 million, or 19%, to $28.4 million in 2022 from $23.8 million in 2021, due to factors contributing to the improvement in FFO, excluding the $3.7 million loss on extinguishment of debt, $1.5 million in non-cash compensation expense, and a net $701,000 relating to insurance recoveries and gains.

FFO for 2023 decreased $626,000, or 2.7%, to $22.6 million from $23.2 million in 2022.

Contributing to the change was a:

• $1.5 million decrease in insurance recovery from a casualty loss at an unconsolidated joint venture;

• $1.2 million increase in interest expense (including $465,000 of amortization of mortgage fair value costs);

• $499,000 increase in general and administrative expense (excluding non cash-amortization of restricted stock

and RSU expense);

• $402,000 decrease in gains from insurance proceeds.

The decrease was offset by a:

• $2.2 million decrease in early extinguishment of debt;

• $767,000 decrease in income tax expense;

• $536,000 increase in other income.

AFFO increased $514,000 or 1.8%, to $28.9 million in 2023 from $28.4 million in 2022.

Contributing to this increase was a:

• $767,000 decrease in income tax expense;

• $536,000 increase in other income;

• $470,000 of insurance recoveries

The increase was offset by a:

• $725,000 increase in interest expense;

• $499,000 increase in general and administrative expense .

See “—Comparison of Years Ended December 31, 2023 and 2022” for further information regarding these changes.

Diluted per share FFO and AFFO were impacted in the year ended December 31, 2022 by an $846,000 increase in the weighted averages shares of common stock outstanding primarily due to stock issuances pursuant to our at-the-market offering and equity incentive programs.

NOI is a non-GAAP measure of performance.

15 unchanged sentences

Depreciation 28,484 24,812

Impairment charge — 520

Provision for taxes 54 821

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

Gain on the sale of partnership interests — (2,632)

Loss on extinguishment of debt — 563

10 unchanged sentences

Operating Expenses 20,140 10,692

$ 25,555 $ 14,219

Same Store Net Operating Income $ 25,693 $ 25,738

4 unchanged sentences

The increase was offset by a $9.4 million increase, primarily due to the Partner Buyouts, in real estate operating expenses.

Same store NOI increased in 2022 by $1.6 million from 2021 due to a $2.6 million increase in rental revenues (and in particular, the increase in average rental rates) offset by a $1.0 million increase in real estate operating expenses.

Same store NOI remained flat in 2023 from 2022 due to a $1.8 million increase in rental revenues (and in particular, the increase in average rental rates) offset by a $1.8 million increase in real estate operating expenses.

See "-Results of Operations - Year Ended December 31, 2023 Compared to the Year Ended December 31, 2022" for a discussion of these changes.

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 and pay dividends.

Generally, in 2022, our primary sources of capital and liquidity were the operations of our multi-family properties (including distributions of $10.9 million from the operations of our unconsolidated joint ventures and $80.2 million of distributions from sale transactions), $4.4 million from property sales owned by consolidated entities, net mortgage proceeds of $19.0 million from the refinancing of mortgage debt in connection with the 2022 Partner Buyouts, $9.9 million from the sale of our common stock through our at-the-market equity offering program, and our available cash.

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 shares of our common stock.

Generally, in 2023, our primary sources of capital and liquidity were the operations of our multi-family properties (including distributions of $6.3 million from the operations of our unconsolidated joint ventures), our $19.4 million share of the net proceeds from the Chatham Sale, and our available cash.

Excluding funds held at our unconsolidated subsidiaries, at December 31, 2023 and March 1, 2024, our available liquidity was approximately $83.5 million and $81.2 million, respectively, including $23.5 million and $21.2 million, respectively, of cash and cash equivalents, and subject to compliance with borrowing base and other requirements, up to $60 million and $60 million, respectively, available under our credit facility.

We anticipate that for the four years beginning January 1, 2023, our operating expenses, $133.9 million of mortgage amortization and interest expense (including $55.4 million from unconsolidated joint ventures) and $118.4 million of balloon payments due with respect to mortgages maturing through 2026, estimated capital expenditures ( for 2023 only) of $11.1

million (including an estimated $3.6 million for our value add program), estimated cash dividend payments of at least $76.4 million (assuming (i) the current quarterly dividend rate of $0.25 per share and (ii) 19.1 million shares outstanding) will be funded from cash generated from operations (including distributions from unconsolidated joint ventures), mortgage financings and re-financings, sales of properties, the issuance of additional equity and, if available as noted below, our $60 million credit facility.

A significant amount of our cash and cash equivalents is maintained at our properties for general working capital purposes.

We anticipate that for the four years beginning January 1, 2024, our operating expenses, $127.8 million of mortgage amortization and interest expense (including $50.4 million from unconsolidated joint ventures) and $204.4 million of balloon payments due with respect to mortgages maturing through 2027 (including $76.7 million from unconsolidated joint ventures), anticipated capital expenditures (for 2024 only) of $10.1 million for both consolidated and unconsolidated properties (including an estimated $2.7 million for our value add program), estimated cash dividend payments of at least $74.0 million (assuming (i) the current quarterly dividend rate of $0.25 per share and (ii) 18.5 million shares outstanding) will be funded from cash generated from operations (including distributions from unconsolidated joint ventures), mortgage financings and re-financings, sales of properties, the issuance of additional equity and, if available, our $60 million credit facility.

Our operating cash flow and available cash is insufficient to fully fund the $204.4 million of balloon payments, and if we are unable to refinance such debt on acceptable terms, we may need to issue additional equity or dispose of properties, in each case on potentially unfavorable terms.

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.

Our ability to acquire 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 and (iii) raise capital from the sale of our common stock.

Further, if and to the extent we generate ordinary taxable income, we will be required to make distributions to stockholders to maintain our REIT status and as a result, will be limited in our ability to use gains, if any, from property sales, as a source of funds for operating expenses, debt service and property acquisitions.

6 unchanged sentences

Long-Term Debt Obligations (1)

$ 37,669 $ 211,328 $ 222,229 $ 435,591 $ 906,817

Operating Lease Obligations 242 507 528 2,977 4,254

Purchase Obligations (2)(3)

6,595 13,190 13,190 — 32,975

Total $ 44,506 $ 225,025 $ 235,947 $ 438,568 $ 944,046

3 unchanged sentences

See the following table for information regarding same.

Assumes that the interest rate on the junior subordinated notes will be 6.41% per annum and the interest rate on the credit facility will be 7.50% per annun, which were the rates in effect at December 31, 2022.

(2) Assumes that $1.0 million will be paid annually for the next five years pursuant to the shared services agreement and $ 1.5 million will be paid annually through December 31, 2027 for the Services.

Assumes that the interest rate on the junior subordinated notes will be 7.65% per annum , which was the rate in effect at December 31, 2023.

(2) Assumes that $966,000 will be paid annually for the next five years pursuant to the shared services agreement and $1.6 million will be paid annually through December 31, 2027 for the Services.

Business—Our Structure."

16 unchanged sentences

(1) Includes payments of principal (including amortization payments), and interest and excludes deferred financing costs.

(2) Assumes that the interest rate on the junior subordinated notes will be 6.41% per annum and includes $19 million on our credit facility which was paid off in February 2023.

(2) Assumes that the interest rate on the junior subordinated notes will be 7.65% per annum.

Corporate Level Financing Arrangements

1 unchanged sentence

As of December 31, 2023, $37.4 million (excluding deferred costs of $257,000) in principal amount of our junior subordinated notes is outstanding.

notes), are redeemable at our option and bear an interest rate, which resets and is payable quarterly, of three-month LIBOR plus 200 basis points.

Although these notes provide for an alternate method of calculating interest when LIBOR becomes unavailable in June 2023, such alternative rate may not be available in which case we may have to negotiate a secondary alternative rate with the counterparties to such debt.

If we and the counterparties to this debt are unable to agree to a satisfactory secondary alternate rate, our cash flow and operating results may be adversely affected.

These notes mature in April 2036, contain limited covenants (including covenants prohibiting us from paying dividends or repurchasing capital stock if there is an event of default (as defined therein) on these notes), are redeemable at our option and bear an interest rate, which resets and is payable quarterly, of three-month term SOFR plus 226 basis points.

At December 31, 2023 and 2022, the interest rate on these notes was 7.65% and 6.41%, respectively.

3 unchanged sentences

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 daily, equal to the prime rate, with a floor of 3.50%.

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 three unencumbered multi-family properties used in calculating the borrowing base.

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

The interest rate at December 31, 2023 and March 1, 2024, was 7.85% and 7.82% respectively.

6 unchanged sentences

Other Financing Sources and Arrangements

At December 31, 2022, we are joint venture partners in unconsolidated joint ventures which own eight multi-family properties.

The distributions from the properties owned by these ventures, $6.5 million in 2022 are a meaningful source of our liquidity and cash flow.

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

At December 31, 2023, we are joint venture partners in unconsolidated joint ventures which own seven multi-family properties which distributed $5.2 million to us in 2023.

We may be required to make capital contributions with respect to these properties.

At December 31, 2023, our investment in these joint venture properties have a net equity carrying value of $30.4 million and are subject to mortgage debt, which is not reflected on our consolidated balance sheet, of $247.0 million.

1 unchanged sentence

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.

Prior to the 2022 Partner Buyouts, these joint venture arrangements were material to our liquidity and capital resource position.

After giving affect to the 2022 Partner Buyouts, these arrangements will have a meaningful impact on our liquidity and capital resources.

See note 6 to our consolidated financial statements.

3 unchanged sentences

During 2023, we experienced inflationary pressures that drove higher operating expenses, primarily in personnel, repairs and maintenance, insurance and real estate taxes;

such increases may continue in 2023 and thereafter, which will adversely affect our operating results.

such increases may continue in 2024 and thereafter, which would adversely affect our operating results.

Inflation affects the overall cost of our debt.

We mitigate the risks presented by inflation through the use of long-term fixed interest rate debt and interest rate hedges and by paying down, when we deem appropriate, our credit facility debt.

However, increasing interest rates, which generally correlates to increasing inflation, may make it less attractive to obtain mortgage debt or use our credit facility in connection with acquisition, refinancing and value add activities.

However, increasing interest rates, which generally correlates to increasing inflation, increases the interest expense on our junior subordinated notes and may make it less attractive to obtain mortgage debt or use our credit facility in connection with acquisition, refinancing and value add activities.

Cash Distribution Policy

We have elected to be taxed as a REIT under the Internal Revenue Code of 1986, as amended.

Accordingly, to qualify as a REIT, we must, among other things, meet a number of organizational and operational requirements, including a requirement that we distribute currently at least 90% of our ordinary taxable income to our stockholders.

Accordingly, we must, among other things, meet a number of organizational and operational requirements, including a requirement that we distribute currently at least 90% of our ordinary taxable income to our stockholders.

It is our current intention to comply with these requirements and maintain our REIT status.

5 unchanged sentences

It will continue to be our policy to make sufficient distributions to stockholders in order for us to maintain our REIT status under the Internal Revenue Code.

We anticipate that if we do not sell any multi-family properties this year, that a significant amount of the dividends we will pay in 2024 will be treated for federal income tax purposes as a return of capital.

Our board of directors will continue to evaluate, on a quarterly basis, the amount of dividend payments based on its assessment of, among other things, our short and long-term cash and liquidity requirements, prospects, debt maturities, net income, funds from operations, and adjusted funds from operations.

Critical Accounting Estimates

Our significant accounting policies are more fully described in note 1 to our consolidated financial statements.

The preparation of financial statements and related disclosure in conformity with accounting principles generally accepted in the United States requires management to make certain judgments and estimates that affect the amounts reported in the consolidated financial statements and accompanying notes.

Certain of our accounting policies are particularly important to understand our financial position and results of operations and require the application of significant judgments and estimates by our management;

as a result they are subject to a degree of uncertainty.

These significant accounting policies include the following:

Our discussion and analysis of financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”).

The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting periods.

On an ongoing basis, we reconsider and evaluate our estimates and assumptions.

We base our estimates on historical experience, current trends and various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.

Actual results could materially differ from any of our estimates under different assumptions or conditions.

Our significant accounting policies are discussed in Note 1 of our consolidated financial statements in this report.

We believe the accounting estimates listed below are the most critical to aid in fully understanding and evaluating our reported financial results, and they require our most difficult, subjective or complex judgments, resulting from the need to make estimates about the effect of matters that are inherently uncertain.

Equity method investments

We report our investments in unconsolidated entities, over whose operating and financial policies we have the ability to exercise significant influence but not control, under the equity method of accounting.

We report our investments in unconsolidated entities, over whose operating and financial policies we do not control, under the equity method of accounting.

Under this method of accounting, our pro rata share of the applicable entity's earnings or losses is included in our consolidated statements of operations.

4 unchanged sentences

Our estimates consider available evidence including the present value of the expected future cash flows discounted at market rates, general economic conditions and other relevant factors.

In 2021, we recorded an impairment related to our equity investment in the OPOP Properties.

We sold our interests in these properties in November 2021.

Carrying Value of Real Estate Portfolio

8 unchanged sentences

We also consider information obtained about each property as a result of its pre-acquisition due diligence, marketing and leasing activities in estimating the fair value of the tangible and intangible assets acquired.

Equity-Based Compensation

We grant shares of restricted stock and restricted stock units ("RSUs") to eligible plan participants, subject to the recipient's continued service over a specified period and, with respect to the RSUs, the satisfaction of specified conditions over a specified period.

A portion of the RSUs vest based upon satisfaction of specified metrics with respect to (i) total stockholder return(“TSR Awards”) and (ii) adjusted funds from operations(“AFFO Awards”), in each case as calculated pursuant to the applicable award agreement.

We account for the restricted stock awards and RSUs in accordance with ASC 718, Compensation - Stock Compensation, which requires that such compensation be recognized in the financial statements based on its estimated grant-date fair value.

The value of such awards is recognized as compensation expense in general and administrative expenses in the accompanying consolidated statements of operations over the applicable service periods.

Grant date fair value is determined with respect to the (i) the restricted stock awards, by the closing stock price on the date of grant, (ii) TSR Awards, by using a Monte Carlo simulation relying upon various assumptions and (iii) AFFO Awards, by using the closing stock price on the grant date, subject to quarterly adjustment based upon management’s projection as to the achievability of the specified metrics related to the AFFO Awards.

See Note 9 to our consolidated financial statements.

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

What changed 10-K

Item 7. Management’s Discussion and Analysis