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Item 2. Management’s Discussion and Analysis

2024-11-07 compared with 2024-08-09 · 132 added, 121 removed, 220 unchanged (53% of the section changed)

44 unchanged sentences

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

At June 30, 2024, we:

At September 30, 2024, we:

(i) wholly-own 21 multi-family properties with an aggregate of 5,420 units and a carrying value of $619.5 million;

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and (iii) own other assets, through consolidated and unconsolidated subsidiaries, with a carrying value of $1.9 million.

The 29 properties are located in 11 states;

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

The 29 multi-family properties are located in 11 states;

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

See "- Recent Transactions ".

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As more fully described (i) in 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, volatile interest rates and rental rates decreases) due to the uncertain economic environment, which may limit our ability or willingness (i) to acquire 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.

In light of the challenging acquisition environment and the limited funds available to us to acquire properties, we are pursuing (i) alternative investments in the multi-family property arena, such as rescue capital, which includes preferred equity investments ( e.g., an investment entitling us to a fixed rate of return prior to distributions to more junior investors) or bridge loans ( e.g.

In addition, several properties, (in particular, Bells Bluff and Avondale Station), face increasing competition due to additional supply in such markets which have and may continue to adversely impact rental rates and occupancy rates.

In light of the challenging acquisition environment and the limited funds available to us to acquire properties, we are pursuing (i) alternative investments in the multi-family property arena, including preferred equity investments ( e.g., an investment entitling us to a fixed rate of return prior to distributions to more junior investors) or bridge loans ( e.g.

, a loan secured by a first mortgage on the subject property) and/or (ii) the acquisition of multi-family properties through joint ventures.

We do not anticipate that in the near term, these type of investments (other than joint ventures already included in our portfolio), will constitute a significant part of our portfolio, and can provide no assurance that such investments will be profitable for us.

See "- Recent Transactions ".

Credit facility

On July 9, 2024, we and an affiliate of Valley National Bank ("VNB"), amended our credit facility to, among other things, reduce the borrowing capacity from $60 million to $40 million, extend the facility's maturity from September 2025 to September 2027 and revise certain financial and other covenants.

We reduced the amount available under the facility in connection with obtaining approximately $28 million of seven-year mortgage debt (the “Financing”) on our Woodland Trails – LaGrange, Georgia property.

We anticipate that the Financing will be completed in August 2024, will bear a fixed interest rate of 5.22%, will be interest only until maturity in 2031 and that as a result of the Financing, we will incur additional interest expense of approximately $1.5 million per year.

We anticipate using the proceeds from the Financing to invest in multi-family properties (including the alternative investments described above) and for general corporate purposes (which may include repurchases of our common stock).

Such proceeds will be invested initially in short-term US Treasury securities until they are applied.

In connection with this amendment, we paid the lender aggregate fees of approximately $375,000.

Share repurchases

During the quarter ended June 30, 2024, we repurchased 53,619 shares of common stock at an average price of $17.34 for an aggregate of $930,000.

After giving effect to these purchases, we are authorized to repurchase up to $6.4 million of additional shares of our common stock,

In connection with this amendment we paid the lender aggregate fees of $323,000.

Mortgage Financing

On August 22, 2024, we obtained a $27.4 million mortgage on our Woodland Trails - LA Grange, GA property (the"Woodland Financing").

The debt matures in September 2031, bears a fixed rate of interest of 5.22% and is interest only until maturity.

As a result of the Woodland Financing, we will incur additional interest expense of approximately $1.5 million per year.

Subsequent to September 30, 2024, we used approximately $18.3 million of the proceeds from the Woodland Financing to complete a transaction described under "-Recent Transaction" and anticipate using the balance of such proceeds for future transactions and general corporate purposes (which may include repurchases of our common stock).

Bells Bluff-West Nashville, Tennessee

This property (“Bells Bluff”) has experienced, and continues to experience, competitive pressure due to the completion of construction of similar or higher-quality multi-family properties in Nashville.

To maintain occupancy levels, we have offered, and will continue to offer, short-term rent concessions and/or reduced rental rates.

To maintain occupancy levels, we have offered, and anticipate that we will continue to offer, short-term rent concessions and/or reduced rental rates.

As a result, Bells Bluff's operating results have been adversely impacted.

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We believe that due, among other things, to its vibrant economy, that over-time, the Nashville market will absorb the excess rental capacity, although we can provide no assurance in this regard.

Recent Transactions

Subsequent to the quarter ended September 30, 2024 we :

• sold a cooperative apartment unit in New York, NY for a sale price of approximately $1.1 million and we anticipate that we will recognize a gain of approximately $806,000 in the quarter ending December 31, 2024;

• provided an aggregate of $18.3 million to joint ventures that purchased a 204-unit multi-family property in Wilmington, North Carolina and a 184-unit multi family property in Kennesaw, Georgia - generally the transaction documents provide for (1) an annual return to us of 13.0% compounded monthly (of which 6.0% to 6.5% is payable monthly to the extent of available cash-flow and with the balance of 6.5% to 7.0% also to be paid monthly from any remaining cash flow after sponsor's receipt of a specified return) and (2) the total amount provided, including all accrued return, in any event to be payable to us from 2029 to 2031.

Results of Operations

Three months ended June 30, 2024 compared to three months ended June 30, 2023 .

Three months ended September 30, 2024 compared to three months ended September 30, 2023 .

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

For the three months ended June 30, 2024 and 2023, all of the properties in our consolidated portfolio are same store properties.

For the three months ended September 30, 2024 and 2023, all of the properties in our consolidated portfolio are same store properties.

The following table compares our revenues for the periods indicated:

Three Months Ended June 30,

Three Months Ended September 30,

(Dollars in thousands):

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Rental and other revenue from real estate properties $ 24,177 $ 23,510 $ 667 2.8 %

Interest and other income 84 63 21 N/M

Interest and other income 219 342 (123) (36.0) %

Total revenues $ 24,396 $ 23,852 $ 544 2.3 %

Rental and other revenue from real estate properties

The change was primarily due to the following increases:

• $413,000 due to an increase in amortization of deferred rent concessions;

• $343,000 due to an increase in rental rates across most of the portfolio;

• $117,000 from ancillary income ( i.e ., utilities reimbursement, late fees, cancellation fees, etc.

("Ancillary Income")).

The increase was offset by a $276,000 decrease in rental income at Bells Bluff.

The change was primarily due to:

• $539,000 in the net deferral of rent concessions, primarily at Bells Bluff;

• $159,000 net increase in rental rates across several properties in the portfolio.

Interest and other income

Interest and other income decreased primarily due to the receipt, in the corresponding period of 2023, of the Employee Retention Tax Credit, and reduced interest income on invested balances.

The following table compares our expenses for the periods indicated:

Three Months Ended June 30,

Three Months Ended September 30,

(Dollars in thousands) 2024 2023 Increase

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Real estate operating expense.

The change is due primarily to an increase of (i) $319,000 in insurance premiums at two properties and (ii) $115,000 due to increased real estate tax accruals - we anticipate that through the balance of 2024, these accruals will be similarly higher than such accruals in 2023.

The increase was offset by a $124,000 decrease in repairs and maintenance.

Depreciation and amortization

The decrease is due primarily to a decline in depreciation related to lease intangibles from properties where we purchased our partners' interests in 2022.

The change is due primarily to increases of (i) $216,000 due to increased real estate tax accruals (including a $121,000 increase at Newbridge Commons - Columbus, OH) - we anticipate that through the balance of 2024, these accruals will be similarly higher than such accruals in 2023, (ii) $155,000 in insurance premiums at two properties which were not covered by our master insurance policy, (iii) $145,000 primarily to replace and upgrade HVAC units at Crestmont at Thornblade - Greenville, SC and Kilburn Crossings - Fredricksburg, VA, and (iv) $123,000 in utility expenses across several of our properties.

Interest expense

Interest expense increased primarily due to the Woodland Financing.

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Equity in earnings of unconsolidated joint ventures

Equity in earnings from unconsolidated joint ventures decreased $75,000 to $389,000 for the three months ended June 30, 2024, from $464,000 for the three months ended June 30, 2023.

The decrease is due primarily to:

• $189,000 in charges from Stono Oaks - Johns Island, SC ("Stono Oaks") which was previously in development, but which was placed in service in 2024 and as of June 30, 2024, is approximately 37% leased.

Accordingly, interest and certain other expenses (which previously had been capitalized) and depreciation, are now being expensed.

• the loss of $159,000 of income from Chatham Court and Reflections which was sold in May 2023 (the Chatham Sale").

The decrease was offset primarily by the inclusion, in the corresponding period in 2023, of a $212,000 early extinguishment of debt charge related to the Chatham Sale.

Equity in earnings from sale of unconsolidated joint venture properties

In the three months ended June 30, 2023, we recognized a gain of $14.7 million from the Chatham Sale.

There was no similar gain in 2024.

General and administrative

The change is due primarily to a $347,000 reduction in amortization associated with restricted stock units ("RSUs") that vest upon the achievement of specified levels of adjusted funds from operations - we do not currently anticipate achieving the minimum performance level that would result in the vesting of such RSUs.

Insurance recovery of casualty loss

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

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

There was no similar recovery in the corresponding period in 2024.

Gain on sale of real estate

During the quarter ended September 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.

There was no similar gain in the corresponding period in 2024.

Income tax (benefit) provision

Income tax (benefit) provision in the three months ended ended June 30, 2024, decreased $116,000 from the three months ended June 30, 2023 due to our recognition, in the current three months, of a $164,000 franchise tax refund from a property due to a change in Tennessee law.

In July 2024, we received $374,000 related to another property in Tennessee, and will recognize such sum in the quarter ending September 30, 2024.

Income tax (benefit) provision for the three months ended ended September 30, 2024, decreased $188,000 from the three months ended September 30, 2023 due to our recognition, in the current three months, of a $374,000 franchise tax refund from a property due to a change in Tennessee law.

The three months ended September 30, 2023 includes a $169,000 reversal of an over-accrual of tax expense.

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Results of Operations

Six Months Ended June 30, 2024 compared to six months ended June 30, 2023 .

Nine Months Ended September 30, 2024 compared to nine months ended September 30, 2023 .

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

For the six months ended June 30, 2024 and 2023, all of our properties in our consolidated portfolio are same store properties.

For the nine months ended September 30, 2024 and 2023, all of our properties in our consolidated portfolio are same store properties.

The following table compares our revenues for the periods indicated:

Six Months Ended June 30,

Nine Months Ended September 30,

(Dollars in thousands):

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Rental and other revenue from real estate properties

The change was due to the following increases:

• $876,000 due to an increase in rental rates across most of the portfolio,

• $413,000 due to an increase in amortization of deferred rent concessions;

• $136,000 in Ancillary Income.

The increase was offset by:

• a $277,000 decrease due to a decline in occupancy across most of the portfolio, and

• a $256,000 decrease in rental income at Bells Bluff.

The increase is due primarily to the impact of rising interest rates on our cash balances.

The change was due to :

• a $952,000 net increase in the deferrals of rent concessions, primarily at Bells Bluff and,

• a $780,000 increase in rental rates at a majority of the properties in the portfolio.

The increase was offset by a $268,000 decrease due to a decline in average occupancy at several properties.

The following table compares our expenses for the periods indicated:

Six Months Ended June 30,

Nine Months Ended September 30,

(Dollars in thousands) 2024 2023 Increase

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Real estate operating expense

The increase is due to (i) $378,000 in increased insurance premiums primarily at two properties;

and (ii) $287,000 due to increased real estate tax accruals- we anticipate that these accruals through the balance of 2024, will be similarly higher than such accruals in 2023.

The change is due primarily to increases of (i) $533,000 in insurance premiums at two properties which are not covered by our master insurance policy;

(ii) $502,000 in real estate tax accruals, primarily at Newbridge Commons;

(iii) $194,000 primarily to replace HVAC units at Kilburn Crossing - Fredricksburg, VA;

and (iv) $167,000 in utility expenses at several properties.

The increase was offset by $276,000 decrease in repairs and maintenance across several properties and the inclusion, in the corresponding 2023 period, of $116,000 of expense related to the December 2022 blizzard.

Interest expense

The change is due primarily to the additional $210,000 related to the Woodlands Financing and $147,000 due to the increase on the interest rate on our junior subordinated notes.

The increase was offset by a $166,000 decrease in interest expense on our credit facility as no amounts have been outstanding in 2024.

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The increase was offset by $322,000 decrease in repairs and maintenance and the inclusion, in the corresponding 2023 period, of $116,000 of expense related to the December 2022 blizzard.

General and administrative

The change is due primarily to a $527,000 decrease related to reduced amortization associated with RSUs that vest upon the achievement of specified levels of adjusted funds from operations as we do not currently anticipate achieving the minimum performance level that would result in the vesting of such RSUs.

The decrease was offset by a $201,000 increase primarily due to higher cash compensation levels.

Depreciation and amortization

The increase is due primarily to the decline in depreciation related to lease intangibles from properties where we purchased our partners' interests in 2022.

The change is due primarily to the decrease in depreciation related to lease intangibles from properties where we purchased our partners' interests in 2022.

Equity in earnings of unconsolidated joint ventures

Equity in earnings from unconsolidated joint ventures declined to $617,000 for the six months ended June 30, 2024 from $1.3 million for the six months ended June 30, 2023.

Equity in earnings from unconsolidated joint ventures declined to $986,000 for the nine months ended September 30, 2024 from $1.7 million for the nine months ended September 30, 2023.

The decline is due to:

• $420,000 in charges from Stono Oaks;

• the loss of income of $397,000 from the Chatham Sale.

The decrease was offset primarily by the inclusion, in the corresponding period in 2023, of a $212,000 early extinguishment of debt charge that resulted from the Chatham Sale.

• $534,000 representing our proportionate share of the net loss from Stono Oaks - Johns Island, SC ("Stono Oaks") which was in development through 2023, but which was placed in service in 2024 - as of September 30, 2024, it is approximately 57% leased.

Accordingly, interest and certain other expenses (which prior to 2024 were capitalized) and depreciation, are now being expensed;

• the inclusion, in the corresponding period in 2023, of $399,000 of income, representing our proportionate share of the net income, from Chatham Court and Reflections which was sold in May 2023 (the "Chatham Sale").

The decrease was offset primarily by the inclusion, in the corresponding period in 2023, of $212,000 early extinguishment of debt charge, which represented our proportionate share of such change, related to the Chatham Sale.

Equity in earnings from sale of unconsolidated joint venture properties

In the six months ended June 30, 2023, we recognized a gain of $14.7 million from the Chatham Sale.

In the nine months ended September 30, 2023, we recognized a gain of $14.7 million from the Chatham Sale.

There was no comparable gain in the corresponding period in 2024.

Gain on sale of real estate

In the nine months ended September 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.

There was no similar gain in the corresponding period in 2024.

Insurance recovery of casualty loss

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

There was no similar recovery in the corresponding period in 2024.

During the nine months ended September 30, 2023, we received $476,000 in insurance proceeds as reimbursement for expenses incurred related to a winter storm in December 2022.

Gain on insurance recoveries

During the six months ended June 30, 2024, we received a $240,000 payment, representing the final payment made by the insurance carrier with respect to damage we sustained at The Woodland Apartments - Boerne, TX in 2021.

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

Income tax (benefit) provision

Income tax (benefit) provision in the six months ended ended June 30, 2024, decreased $114,000 from the six months ended June 30, 2023 due to our recognition, in the current six month period, of a $164,000 franchise tax refund due to a change in Tennessee law.

In July 2024, we received $374,000 related to another property in Tennessee and will recognize such sum in the quarter ending September 30, 2024.

Income tax (benefit) provision in the nine months ended ended September 30, 2024, decreased $302,000 from the nine months ended September 30, 2023 due to our recognition, in the current nine month period, of a $534,000 franchise tax refund due to a change in Tennessee law and $169,000 is due primarily to the reversal of the over-accrual of taxes in the prior year.

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We require funds to pay operating expenses and debt service obligations, acquire and/or invest in properties (including alternative investments), make capital and other improvements, fund capital contributions, and pay dividends.

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

At August 1, 2024, our available liquidity was $54.7 million, including $14.7 million of cash and cash equivalents and $40 million available under our credit facility.

We anticipate that from July 1, 2024 through December 31, 2027, our operating expenses, $111.1 million of mortgage amortization and interest expense (including $44.0 million from unconsolidated joint ventures and excluding the approximate $1.5 million of additional annual interest expense associated with the Financing), $15.4 million and $128.3 million of balloon payments with respect to mortgages maturing in 2025 and 2026, respectively (including $58.7 million maturing in 2026 from unconsolidated joint ventures), estimated capital expenditures (for the remainder of 2024 only) of $2.9 million, interest expense on our junior subordinated notes, estimated cash dividend payments of at least $65.5 million (assuming (i) the current quarterly dividend rate of $0.25 per share and (ii) 18.7 million shares outstanding), will be funded from cash generated from operations (including distributions from unconsolidated joint ventures), property sales, the Financing, obtaining mortgage debt on two unencumbered properties ( i.e ., Avondale Station - Decatur GA and Avalon - Pensacola, FL) and, to the extent available, our credit facility.

Our operating cash flow and available cash is insufficient to fully fund the $143.7 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.

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

At November 6, 2024, our available liquidity was $67.5 million, including $27.5 million of cash and cash equivalents and $40 million available under our credit facility.

We anticipate that from October 1, 2024 through December 31, 2027, our operating expenses, $107.1 million of mortgage amortization and interest expense (including $40.5 million from unconsolidated joint ventures), $15.4 million, $130.3 million and $65.9 million of balloon payments with respect to mortgages maturing in 2025, 2026 and 2027, respectively (including $60.8 and $23.1 million maturing in 2026 and 2027, respectively, from unconsolidated joint ventures), interest expense on our junior subordinated notes, estimated cash dividend payments of at least $61.0 million (assuming (i) the current quarterly dividend rate of $0.25 per share and (ii) 18.8 million shares outstanding), will be funded from cash generated from operations (including distributions from unconsolidated joint ventures), Our operating cash flow and available cash is insufficient to fully fund the $145.7 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 or invest in additional multi-family property opportunities 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.

At June 30, 2024, we had mortgage debt of $677.5 million (including $251.6 million of mortgage debt at of our unconsolidated subsidiaries).

At September 30, 2024, we had mortgage debt of $705.2 million (including $252.8 million of mortgage debt at of our unconsolidated subsidiaries).

The mortgage debt at our:

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Junior Subordinated Notes

As of June 30, 2024, $37.4 million (excluding deferred costs of $247,000) in principal amount of our junior subordinated notes is outstanding.

As of September 30, 2024, $37.4 million (excluding deferred costs of $242,000) 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 June 30, 2024 and 2023, the interest rate on these notes was 7.59% and 7.30%, respectively.

The interest rate that will be in effect for the three months ending October 30, 2024 is 7.52%.

At September 30, 2024 and 2023, the interest rate on these notes was 7.52% and 7.63%, respectively.

Credit Facility

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

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

The credit facility bears an annual interest rate, which resets month4ly, equal to one-month term SOFR plus 250 basis points, with a floor of 6.00%.

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

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

As of August 1, 2024, there was no outstanding balance on the credit facility and $40 million is available to be borrowed thereunder.

The interest rate in effect at August 1, 2024 is 7.85%

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 two unencumbered properties with an aggregate value(as calculated pursuant to the facility) of at least $50 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

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coverage with respect to the properties (and amounts drawn on the credit facility) used in calculating the borrowing base.

As of November 1, 2024, there was no outstanding balance on the credit facility and $40 million is available to be borrowed thereunder.

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

At June 30, 2024, we were in compliance in all material respects with the requirements of the facility.

At September 30, 2024, we were in compliance in all material respects with the requirements of the facility.

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Other Financing Sources and Arrangements

At June 30, 2024, we are joint venture partners in unconsolidated joint ventures which own eight multi-family properties and the distributions to us from these joint venture properties of $1.3 million in the quarter ended June 30, 2024 contributed to our liquidity and cash flow.

At September 30, 2024, we are joint venture partners in unconsolidated joint ventures which own eight multi-family properties and the distributions to us from these joint venture properties of $971,000 during the quarter ended September 30, 2024 contributed to our liquidity and cash flow.

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

At June 30, 2024, these joint venture properties have a net-equity carrying value of $32.2 million and are subject to mortgage debt, which is not reflected on our consolidated balance sheet, of $251.6 million.

At September 30, 2024, our investments in these joint venture properties had a net-equity carrying value of $31.6 million.

The underlying properties are subject to mortgage debt, which is not reflected on our consolidated balance sheet, of $252.8 million.

Although BRT Apartments Corp.

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

On July 9, 2024, we paid a quarterly cash dividend of $0.25 per share to holders of record of our common stock as of the close of business on June 25, 2024.

On October 2, 2024, we paid a quarterly cash dividend of $0.25 per share to holders of record of our common stock as of the close of business on September 24, 2024.

We anticipate that the dividends declared in 2024 will be treated as a return of capital for Federal income tax purposes.

We carefully monitor our discretionary spending.

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

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

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

2024 2023 2024 2023

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our share of depreciation in unconsolidated joint venture properties 1,379 1,307 4,119 3,985

our share of equity in earnings from sale of unconsolidated joint venture properties — (14,744) — (14,744)

our share of equity in earnings from sale of unconsolidated joint

venture properties — — — (14,744)

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

Adjustments for non-controlling interests (4) (4) (12) (12)

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Adjustments for:

straight-line rent and rent concession accruals (388) 25 (363) 44

deferred rent concessions and straight line rent (537) 24 (900) 68

Adjustments for:

our share of straight-line rent and rent concession accruals from unconsolidated joint venture properties (60) — (60) —

our share of loss on extinguishment of debt from unconsolidated joint venture properties — 212 — 212

our share of straight-line rent and rent concession

accruals from unconsolidated joint venture properties (45) — (105) —

our share of loss on extinguishment of debt from unconsolidated

joint venture properties — — — 212

amortization of restricted stock and RSU expense 1,189 1,473 3,621 4,076

amortization of deferred mortgage and debt costs 324 272 866 799

our share of deferred mortgage costs from unconsolidated joint venture properties 30 27 60 54

our share of deferred mortgage costs from unconsolidated joint

venture properties 30 26 90 80

amortization of fair value adjustment for mortgage debt 139 152 421 463

gain on insurance recoveries — — — (240)

our share of gain on insurance recoveries from unconsolidated joint venture properties — — — (30)

our share of gain on insurance recoveries from unconsolidated

joint venture properties — — — (30)

Adjustments for non-controlling interests — (4) (8) (11)

Adjusted funds from operations attributable to common stockholders $ 6,769 $ 7,692 $ 19,771 $ 21,747

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

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

2024 2023 2024 2023

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our share of depreciation in unconsolidated joint venture properties 0.07 0.07 0.22 0.21

our share of equity in earnings from sale of unconsolidated joint venture properties — (0.77) — (0.77)

our share of equity in earnings from sale of unconsolidated joint

venture properties — — — (0.77)

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

Adjustment for non-controlling interests — — — —

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Adjustments for:

straight line rent and rent concession accruals (0.02) — (0.02) —

deferred rent concessions and straight line rent (0.03) — (0.05) —

Adjustments for:

our share of straight-line rent and rent concession accruals in unconsolidated joint venture properties

loss on extinguishment of debt — — — —

our share of straight-line rent and rent concession

accruals in unconsolidated joint venture properties — — — —

our share of loss on extinguishment of debt from

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amortization of deferred mortgage and debt costs 0.02 0.01 0.05 0.04

our share of deferred mortgage and debt costs from unconsolidated joint venture properties — — — —

our share of deferred mortgage and debt costs from unconsolidated

joint venture properties — — — —

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

gain on insurance recoveries — — — (0.01)

our share of gain on insurance recoveries from unconsolidated joint venture properties — — — —

our share of gain on insurance recoveries from unconsolidated

joint venture properties — — — —

Adjustments for non-controlling interests — — — —

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Diluted shares outstanding for FFO and AFFO 18,758,435 18,804,874 18,679,558 19,016,032

Three Months Ended June 30, 2024 and 2023

FFO for the three months ended June 30, 2024, increased from the corresponding quarter in the prior year primarily due to (i) an increase in amortization of deferred rent concessions, (ii) the inclusion, in the corresponding 2023 period, of the early extinguishment of debt charge and (iii) the Tennessee franchise tax refund in 2024.

This increase was offset primarily due to the Chatham Sale, the increase in real estate operating expenses and the inclusion, in the three months ended June 30, 2023, of an insurance recovery from a casualty loss.

AFFO for the three months ended June 30, 2024 decreased from the corresponding period in the prior year primarily due to the factors contributing to the decrease in FFO other than the early extinguishment of debt charge and the amortization of deferred rent concessions.

Diluted per share FFO and AFFO were favorably impacted in the three months ended June 30, 2024 by a 475,000 net 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 June 30, 2024 compared to three months ended June 30, 2023 ", for a discussion of these changes.

Six Months Ended June 30, 2024 and 2023

FFO for the six months ended June 30, 2024 decreased from the corresponding period in the prior year primarily due to the Chatham Sale, the increase in real estate operating expenses, an increase in cash compensation expense due to higher salary levels and the inclusion, in the six months ended June 30, 2023, of an insurance recovery of casualty loss.

The decrease was offset by an increase, in 2024, in amortization of deferred rent concessions, by the inclusion, in the corresponding period of 2023, of the early extinguishment of debt charge and, in 2024, a decrease in charges associated with restricted stock units (RSUs) as certain performance metrics were not achieved, a decrease in income tax expense, and an increase in other income.

AFFO for the six months ended June 30, 2024 decreased from the corresponding period in the prior year primarily due to the factors contributing to the decrease in FFO, other than the early extinguishment of debt charge, the charges associated with the RSUs, the 2023 insurance recovery of casualty loss and amortization of deferred rent concessions.

Diluted per share FFO and AFFO were favorably impacted in the six months ended June 30, 2024 by a 531,000 net 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 - Six Months Ended June 30, 2024 compared to six months ended June 30, 2023 ", for a discussion of these changes.

Three Months Ended September 30, 2024 and 2023

FFO for the three months ended September 30, 2024 decreased from the corresponding quarter in the prior year primarily due to (i) an increase in real estate operating expenses, (ii) a decrease in insurance recovery of casualty loss and (iii) an increase in interest expense.

This decrease was offset primarily due to (i) the increase in deferred rent concessions adjustments and (ii) a decrease in RSU expense.

AFFO for the three months ended September 30, 2024 decreased from the corresponding period in the prior year due to the factors contributing to the decrease in FFO other than the increase in deferred rent concession adjustments and the decrease in RSU expense.

See "- Results of Operations - Three Months Ended September 30, 2024 compared to three months ended September 30, 2023 ", for a discussion of these changes.

Nine Months Ended September 30, 2024 and 2023

FFO for the nine months ended September 30, 2024 decreased from the corresponding period in the prior year primarily due to (i) an increase in real estate operating expenses, (ii) a decline in rental revenue primarily due to the Chatham Sale, (iii) a decrease in insurance recovery of casualty loss and (iv) an increase in cash compensation expense.

This decrease was offset primarily due to (i) an increase in deferred rent concessions and straight line rent adjustments,(ii) a decrease in RSU expense and (iii) a decrease in income tax expense.

AFFO for the nine months ended September 30, 2024 decreased from the corresponding period in the prior year due to the factors contributing to the decrease in FFO other than the increase in deferred rent concessions and straight line rent adjustments and the decrease in RSU expense.

Diluted per share FFO and AFFO were favorably impacted by a 336,000 net decrease in the nine months ended September 30, 2024 from the corresponding period in the prior year in the weighted average shares of common stock outstanding, primarily due to stock buybacks.

See "- Results of Operations - Nine Months Ended September 30, 2024 compared to nine months ended September 30, 2023 ", for a discussion of these changes.

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

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

We compute NOI, by adjusting net income (loss) to (a) add back (1) depreciation expense, (2) general and administrative expenses, (3) interest expense, (4) loss on extinguishment of debt, (5) equity in 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.

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

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

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

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

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

2024 2023 Variance 2024 2023 Variance

GAAP Net ( loss) income attributable to common stockholders $ (2,205) $ (1,494) $ (711) $ (7,721) $ 5,610 $ (13,331)

Other Income (84) (63) (21) (189) (63) (126)

Interest and other Income (219) (342) 123 (408) (405) (3)

Interest expense 5,745 5,581 164 16,768 16,577 191

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Provision for taxes (310) (122) (188) (297) 5 (302)

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

Equity in earnings from sale of

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Net Operating Income $ 12,990 $ 12,927 $ 63 $ 38,641 $ 38,139 $ 502

Non-same store Net Operating Income 251 255 (4) 521 522 (1)

Non-same store Net Operating

Income 271 221 50 792 743 49

Same store Net Operating Income $ 12,719 $ 12,706 $ 13 $ 37,849 $ 37,396 $ 453

For the three months ended June 30, 2024, NOI increased $225,000 from the corresponding period in 2023 primarily due to

a $413,000 increase in amortization of deferred rent concessions and a net $343,000 increase in rental revenue in the overall portfolio.

The increase was offset by a $276,000 decrease in rental income at Bells Bluff and a $297,000 increase in real estate operating expenses.

See "-Results of Operations - Three Months Ended June 30, 2024 Compared to the Three Months ended June 30, 2023 " for a discussion of these changes.

For the six months ended June 30, 2024, NOI increased $439,000 from the corresponding period in 2023 primarily due to a $845,000 increase in rental revenue at most of our properties, a $413,000 increase in amortization of deferred rent concessions offset by a $443,000 increase in real estate operating expenses and a $376,000 decrease in rental income at Bells Bluff.

See "-Results of Operations - Six Months Ended June 30, 2024 Compared to the Six Months ended June 30, 2023 " for a discussion of these changes.

For the three months ended September 30, 2024, NOI increased from the corresponding period in 2023 primarily due to a $667,000 increase in rental revenue, (including $539,000 of net deferred rent concessions), offset by a $604,000 increase in real estate operating expenses.

See "-Results of Operations - Three Months Ended September 30, 2024 Compared to the Three Months ended June 30, 2023 " for a discussion of these changes.

For the nine months ended September 30, 2024, NOI increased from the corresponding period in 2023 primarily due to a $1.5 million increase in rental revenue(including $952,000 of net deferred rent concession), offset by a $1.0 million increase in real estate operating expenses.

See "-Results of Operations - Nine Months Ended September 30, 2024 Compared to the Nine Months ended September 30, 2023 " for a discussion of these changes.

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis