BRT Apartments Corp. 10-K

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. Overview 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, 2024, we: (i) wholly-own 21 multi-family properties with an aggregate of 5,420 units and a carrying value of $614.2 million, (ii) have ownership interests, through unconsolidated entities, in eight multi-family properties with an aggregate of 2,527 units, with a carrying value of $31.3 million; (iii) have preferred equity investments in two multi-family properties with a carrying value of $17.7 million and (iv) own other assets, through consolidated and unconsolidated entities, with a carrying value of $1.7 million. The 29 multi-family properties are located in 11 states; primarily in the Southeast United States and Texas. During 2024: • We invested, in two separate and unrelated transactions, an aggregate of $18.3 million (with a carrying value of $17.7 million at December 31, 2024, after giving effect to deferred loan fees and allowance for credit loss) in joint ventures that purchased a 204-unit multi-family property in Wilmington, North Carolina and a 184-unit multi-family property in Kennesaw, Georgia. These investments are unsecured and are subordinate, including the payment of the returns thereon, to an aggregate of $51.3 million of mortgage debt on these properties. We estimate that in 2025, we will generate approximately $1.2 million of interest income on these investments. For financial statement reporting purposes, these investments are treated as loans and are included in "Loan receivables, net of deferred loan fees and allowance for credit loss"on our consolidated balance sheet at December 31, 2024. See "Item 1 Business - Preferred Equity Investments" and Notes 1 and 5 to our consolidated financial statements. • We obtained a $27.4 million mortgage on our Woodland Trails-LaGrange, GA property (the "Woodlands Financing"). The debt matures in September 2031, bears interest at a fixed rate of interest of 5.22% and is interest only until maturity. • 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 maturity from September 2025 to September 2027 and revise certain financial and other covenents. VNB required these changes as a condition to our obtaining the Woodlands Financing. • We sold a cooperative apartment unit in New York, NY for a sales price of approximately $1.1 million and recognized a gain of $806,000. • We repurchased 193,529 shares of our common stock for an aggregate purchase price of approximately $3.50 million ( i.e ., an average price of $18.07 per share). From January 1, 2025 through February 28, 2025, we purchased 65,018 shares of our common stock for an aggregate purchase price of approximately $1.1 million ( i.e., an average price of $17.49 per share). In March 2025, our board of directors increased the value of the shares that we can repurchase to up to $10 million and extended the repurchase program through December 31, 2026. Challenges and Uncertainties as a Result of the Uncertain Economic Environment; Pursuit of Joint Venture Acquisition and Alternative Investment Opportunities As more fully described below, we face challenges ( e.g ., inflation, volatile interest rates, over-supply in certain markets, rental rates decreases, mispriced ( i.e. ,cap rates that do not, in our belief, correlate appropriately to interest rates and other market factors), and limited acquisition opportunities) due to the uncertain economic environment, which limits our ability or willingness to (i) acquire properties, (ii) grow rental income or (iii) control our real estate operating expenses, some of which, such as real estate taxes and insurance expense, we have a very limited ability to control. In addition, several properties, (in particular, Bells Bluff and Crossings), 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 loan 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. 27 Table of Contents Nashville/West Nashville, TN Properties - Bells Bluff and Crossings These properties (“Bells Bluff” and "Crossings") have experienced, and continue to experience, competitive pressure due to the completion of construction of similar or higher-quality multi-family properties in Nashville and West Nashville, TN. 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 and Crossing's operating results have been and will continue to be, adversely impacted. 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. 28 Table of Contents Results of Operations Comparison of Years Ended December 31, 2024 and 2023 The term "same store properties" refers to 21 multi-family properties with an aggregate of 5,420 units that were owned for all of 2024 and 2023. Revenues The following table compares our revenues for the years indicated: (Dollars in thousands): 2024 2023 Change % Change Rental and other revenue from real estate properties $ 94,773 $ 93,069 $ 1,704 1.8 % Loan interest and other income 857 548 309 56.4 % Total revenues $ 95,630 $ 93,617 $ 2,013 2.2 % Rental and other revenue from real estate properties. The components of the increase include: • a $1.0 million increase due to a 1.3% increase in average rental rates year-over-year in the portfolio, • an $855,000 increase in straight line of rent concessions,net of amortization, with approximately 50% of such concessions from Bells Bluff and Crossings; and • a $112,000 increase at our commercial property in Yonkers due to a lease extension. The increase was offset by a $344,000 decrease in average occupancy year-over-year at the multi-family portfolio from 94.2% to 93.7%. Loan interest and other income The increase is due primarily to interest income of $197,000 received from the preferred equity investments which were originated in the fourth quarter of 2024. We estimate that these investments will generate an aggregate of $1.2 million of interest income in 2025. Expenses The following table compares our expenses for the periods indicated: (Dollars in thousands) 2024 2023 Change % Change Real estate operating expenses $ 43,555 $ 41,821 $ 1,734 4.1 % Interest expense 22,596 22,161 435 2.0 % General and administrative 15,595 15,433 162 1.0 % Provision for credit loss 270 — 270 N/A Depreciation and amortization 25,926 28,484 (2,558) (9.0) % Total expenses $ 107,942 $ 107,899 $ 43 — % Real estate operating expenses. The components of the increase include: • $669,000 in real estate taxes, including $413,000 at our Newbridge Commons-Columbus, OH property due to a reassessment, and smaller increases at several other properties; • $641,000 in insurance costs, including $380,000 due to increases in our insurance premiums under our master policy and $260,000 from two properties that are not part of our master policy; • $293,000 in utility costs (primarily water/sewer charges) at many properties; and • $189,000 primarily related to increased replacement costs at several properties. 29 Table of Contents We estimate that in 2025, assuming no material changes to our current multi-family portfolio, that our insurance expense will decrease by approximately $750,000 to $1.0 million due primarily to more favorable premiums. Interest expense The increase is due primarily to the additional $566,000 of interest expense related to the Woodlands Financing which took place in 2024, $155,000 from the Silvana Oaks financing which took place in 2023 and $91,000 due to an increased interest rate on our junior subordinated notes. The increase was offset by a $208,000 decrease in credit facility interest expense as we did not use the facility in 2024 and a $169,000 decrease due to reduced mortgage balances from amortization. General and administrative. The components of the increase include: • $319,000 increase in non-cash restricted stock amortization, including $171,000 due to the higher price of the restricted stock awarded in 2024 in comparison to awards granted in prior years, and $147,000 due to the accelerated vesting of restricted stock awards of Ryan Baltimore, our former chief operating officer, who resigned in December 2024 to pursue another employment opportunity; and • $223,000 in cash compensation costs due to higher levels of compensation. The increase was offset by a: • $169,000 due to reduced amortization associated with RSUs that vest upon satisfaction of performance metrics based on adjusted funds from operations, as we do not currently anticipate achieving the minimum level required for the vesting of such awards; • $120,000 related to the reversal of a non-cash amortization expense on restricted stock awards forfeited by Mr. Baltimore; • $120,000 decrease due to a reduction in our investor relations activities; and • $127,000 decrease due primarily to the inclusion, in 2023, of the write off of a deposit related to a terminated transaction. Provision for credit loss In 2024, we recorded a non-cash provision of $270,000 related to the preferred equity investments. There was no comparable expense in 2023. Depreciation and amortization 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 $649,000 to $1.6 million in the year ended December 31, 2024 from $2.3 million for the 2023. The components of the decline include: • $712,000, 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. Accordingly, interest and certain other expenses (which prior to 2024 were capitalized) and depreciation, are now being expensed; and • the inclusion, in 2023, of our $399,000 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 2023, of our $212,000 proportionate share of an early extinguishment of debt charge related to the Chatham Sale; and • $170,000 primarily due to improved rental rates. 30 Table of Contents Equity in earnings from sale of unconsolidated joint venture properties In 2023, we recognized a gain of $14.7 million from the Chatham Sale. There was no corresponding gain in 2024. Casualty loss ; Insurance recovery of casualty loss In 2023, we settled a wrongful death action (the "Lawsuit") for $323,000. As noted in the paragraph immediately below, we were reimbursed for all of such expense by our insurance carriers. During 2023, we received insurance proceeds (i) $470,000 as reimbursement for expenses incurred related to a winter storm in December 2022 and (ii) $323,000 in connection with the settlement of the Lawsuit. Gain on sale of real estate In 2024, we sold a cooperative apartment in NY for a sales price of approximately $1.1 million and a gain of $806,000. In 2023, we sold a cooperative apartment in New York for a sales price of $785,000 and a gain of $604,000. (Benefit) provision for taxes Income tax (benefit) provision for 2024 was ($226,000), a decrease from the $54,000 provision recorded in 2023. The benefit recorded in 2024 is the result of a $534,000 refund of Tennessee franchise tax received as a result of a change in Tennessee law offset by the 2024 estimated state tax expense of $318,000. The 2023 tax expense of $54,000 includes a reversal of a prior year over-accrual. Comparison of Years Ended December 31, 2023 and 2022 As we are a smaller reporting company, this comparison is omitted in accordance with Instruction 1 to Item 303(a) of Regulation S-K. 31 Table of Contents Funds from Operations; Adjusted Funds from Operations; Net Operating Income. In view of our multi-family property activities, we disclose funds from operations ("FFO") ,adjusted funds from operations ("AFFO") and net operating income ("NOI") because we believe that such metrics are a widely recognized and appropriate measure of the performance of a multi-family REIT. We compute FFO in accordance with the "White Paper on Funds From Operations" issued by the National Association of Real Estate Investment Trusts ("NAREIT") and NAREITs related guidance. FFO is defined in the White Paper as net income (calculated in accordance with GAAP), excluding depreciation and amortization related to real estate, gains and losses from the sale of certain real estate assets, gains and losses from change in control, impairment write-downs of certain real estate assets and investments in entities where the impairment is directly attributable to decreases in the value of depreciable real estate held by the entity. Adjustments for unconsolidated partnerships and joint ventures are calculated to reflect funds from operations on the same basis. In computing FFO, we do not add back to net income the amortization of costs in connection with our financing activities or depreciation of non-real estate assets. We compute AFFO by adjusting FFO for loss on extinguishment of debt, our straight-line rent accruals, restricted stock and RSU compensation expense, fair value adjustment of mortgage debt, gain on insurance recovery, insurance recovery from casualty loss and deferred mortgage and debt costs (including, in each case as applicable, from our share from our unconsolidated joint ventures). Since the NAREIT White Paper does not provide guidelines for computing AFFO, the computation of AFFO may vary from one REIT to another. We believe that FFO and AFFO are useful and standard supplemental measures of the operating performance for equity REITs and are used frequently by securities analysts, investors and other interested parties in evaluating equity REITs, many of which present FFO and AFFO when reporting their operating results. FFO and AFFO are intended to exclude GAAP historical cost depreciation and amortization of real estate assets, which assures that the value of real estate assets diminish predictability over time. In fact, real estate values have historically risen and fallen with market conditions. As a result, we believe that FFO and AFFO provide a performance measure that, when compared year-over-year, should reflect the impact to operations from trends in occupancy rates, rental rates, operating costs, interest costs and other matters without the inclusion of depreciation and amortization, providing a perspective that may not be necessarily apparent from net income. We also consider FFO and AFFO to be useful to us in evaluating potential property acquisitions. FFO and AFFO do not represent net income or cash flows from operations as defined by GAAP. FFO and AFFO should not be considered to be an alternative to net income as a reliable measure of our operating performance; nor should FFO and AFFO be considered an alternative to cash flows from operating, investing or financing activities (as defined by GAAP) as measures of liquidity. FFO and AFFO do not measure whether cash flow is sufficient to fund all of our cash needs, including principal amortization and capital improvements. FFO and AFFO do not represent cash flows from operating, investing or financing activities as defined by GAAP. Management recognizes that there are limitations in the use of FFO and AFFO. In evaluating our performance, management is careful to examine GAAP measures such as net income (loss) and cash flows from operating, investing and financing activities. Management also reviews the reconciliation of net income (loss) to FFO and AFFO. 32 Table of Contents The table below provides a reconciliation of net income determined in accordance with GAAP to FFO and AFFO for each of the indicated years (amounts in thousands): 2024 2023 GAAP Net income attributable to common stockholders $ (9,791) $ 3,873 Add: depreciation of properties 25,926 28,484 Add: our share of depreciation in unconsolidated joint venture properties 5,545 5,292 Add: provision for credit loss 270 — Add: casualty loss — 323 Deduct: gain on sales of real estate (806) (604) Deduct: our share of earnings in earnings from sale of unconsolidated joint venture properties (209) (14,744) Adjustment for non-controlling interests (16) (16) Funds from operations 20,919 22,608 Adjust for: straight line rent concession, net of amortization (801) 93 Adjust for: our share of straight-line rent concessionn, net of amortization from unconsolidated joint ventures (147) — Add: our share of loss on extinguishment of debt from unconsolidated joint venture properties — 212 Add: amortization of restricted stock and RSU expense 4,877 4,768 Add: amortization of deferred mortgage and debt costs 1,150 1,072 Add: our share of deferred mortgage costs from unconsolidated joint venture properties 120 106 Add: amortization of fair value adjustment for mortgage debt 558 613 Less: insurance recovery of casualty loss — (323) Less: gain on insurance recovery — (240) Less: our share of gain on insurance proceeds from unconsolidated joint venture properties — (30) Adjustment for non-controlling interests (8) (15) Adjusted funds from operations $ 26,668 $ 28,864 33 Table of Contents The table below provides a reconciliation of net income per common share (on a diluted basis) determined in accordance with GAAP to FFO and AFFO. 2024 2023 Net (loss) income attributable to common stockholders $ (0.52) $ 0.20 Add: depreciation of properties 1.38 1.50 Add: our share of depreciation from unconsolidated joint venture properties 0.30 0.28 Add: provision for credit loss 0.01 — Add: casualty loss — 0.02 Deduct: gain on sales of real estate (0.04) (0.03) Deduct: our share of earnings from sale of unconsolidated joint venture properties (0.01) (0.78) Adjustment for non-controlling interests — — Funds from operations 1.12 1.19 Adjust for: straight line rent concessions, net of amortization (0.04) — Adjust for: our share of straight-line rent concessionn, net of amortization from unconsolidated joint ventures — — Add: our share of loss on extinguishment of debt from unconsolidated joint ventures — 0.01 Add: amortization of restricted stock and RSU expense 0.25 0.25 Add: amortization of deferred mortgage and debt costs 0.06 0.06 Add: our share of amortization of deferred mortgage and debt costs from unconsolidated ventures 0.01 0.01 Add: amortization of fair value adjustment for mortgage debt 0.03 0.03 Less: insurance recovery of casualty loss — (0.02) Deduct: gain on insurance recovery — (0.01) Deduct: our share of gain on insurance proceeds from unconsolidated joint ventures — — Adjustment for non-controlling interests — — Adjusted funds from operations $ 1.43 $ 1.52 Diluted shares outstanding for FFO and AFFO 18,710,615 18,931,026 FFO for 2024 decreased $1.7 million, or 7%, to $20.9 million in 2024 from $22.6 million in 2023. Contributing to the decline was a: • $1.7 million decrease in operating margins ( i.e., revenues less real estate operating expenses) across our portfolio ( i.e. consolidated and unconsolidated multi-family properties); • $793,000 decrease due to the inclusion, in 2023, of an insurance recovery from a casualty loss at an unconsolidated joint venture; • $586,000 increase in interest expense; and • $240,000 decrease due to the inclusion, in 2023, of a gain on insurance proceeds The decrease was offset by a: • $1.0 million increase in straight line rent concessions, net of amortization; • $309,000 increase in other income; • $280,000 decline in income tax expense; and • $212,000 decline due to the inclusion, in 2023, of early extinguishment of debt charges. AFFO decreased $2.2 million or 7.6%, to $26.7 million in 2024 from $28.9 million in 2023. The decrease is primarily due to the factors impacting the changes in FFO other than the changes to: gain on insurance proceeds, net deferred concessions and early extinguishment of debt. 34 Table of Contents See “—Comparison of Years Ended December 31, 2024 and 2023” for further information regarding these changes. NOI is a non-GAAP measure of performance. NOI is used by our management and many investors to evaluate and compare the performance of our properties to other comparable properties, to determine trends at our properties and to determine the estimated fair value of our properties. The usefulness of NOI may be limited in that it does not take into account, among other things, general and administrative expense, interest expense, loss on extinguishment of debt, casualty losses, insurance recoveries and gains or losses as determined by GAAP. NOI is a property specific performance metric and does not measure our performance as a whole. Same store NOI reflects the operations of seven of our ten wholly-owned properties. We compute NOI by adjusting net income (loss) to (a) add back (1) interest expense, (2) general and administrative expenses, (3) depreciation expense, (4) provision for credit loss, (5) provision for taxes, (6) loss on extinguishment of debt, (7) equity in earning (loss) of unconsolidated joint ventures, (8) casualty loss and (9) the impact of non-controlling interests, and (b) deduct (1) other income, (2) gain on sale of real estate, (3) equity in earnings from sale of consolidated joint venture properties, (4) insurance recovery of casualty loss and (5) gain on insurance recoveries. Other REITs may use different methodologies for calculating NOI, and accordingly, our NOI may not be comparable to other REITs. We believe NOI provides an operating perspective not immediately apparent from GAAP operating income or net income (loss). NOI is one of the measures we use to evaluate our performance because it (i) measures the core operations of property performance by excluding corporate level expenses and other items unrelated to property operating performance and (ii) captures trends in rental housing and property operating expenses. However, NOI should only be used as an alternative measure of our financial performance. The following table provides a reconciliation of net income attributable to common stockholders as computed in accordance with GAAP to NOI for the periods presented (dollars in thousands): For the year ended December 31, 2024 2023 GAAP Net (loss) income attributable to common stockholders $ (9,791) $ 3,873 Less: Loan interest and other income (857) (548) Add: Interest expense 22,596 22,161 General and administrative 15,595 15,433 Depreciation 25,926 28,484 Provision for credit loss 270 — (Benefit) provision for taxes (226) 54 Less: Gain on sale of real estate (806) (604) Casualty loss — 323 Adjust for: Equity in earnings loss of unconsolidated joint venture properties (1,644) (2,293) Less: Equity in earnings from sale of unconsolidated joint venture properties — (14,744) Insurance recovery of casualty loss — (793) Gain on insurance recovery — (240) Add: Net income attributable to non-controlling interests 155 142 Net Operating Income $ 51,218 $ 51,248 Less: Non same store and non multi family (1) Revenues 1,594 1,480 Operating Expenses 460 479 Non-same store NOI 1,134 $ 1,001 Same Store Net Operating Income $ 50,084 $ 50,247 _____________________________________ (1) Prior year amounts have been adjusted to reflect the current year composition to reflect only those properties that were same store for both the current and the prior year. In 2024, NOI decreased by $30,000 from 2023 primarily due to a $1.8 million increase in operating expenses and a $344,000 decrease due to reduced occupancy. This was offset by a $1.1 million increase in rental revenues (including a $112,000 increase due to the Yonkers' lease extension) and an $855,000 increase in deferred rent concessions. Same store NOI decreased $163,000 in 2024 from 2023 due to the factors impacting NOI, other than the Yonkers' lease extension. See "-Results 35 Table of Contents of Operations -Year Ended December 31, 2024 Compared to the Year Ended December 31, 2023" 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, pay dividends and repurchase shares of our common stock. Generally, in 2024, our primary sources of capital and liquidity were the operations of our multi-family properties (including distributions of $4.7 million from the operations of our unconsolidated joint ventures), $27.4 million from the Woodland Trails Financing, and our available cash. Excluding funds held at our unconsolidated subsidiaries, at December 31, 2024 and February 28, 2025, our available liquidity was approximately $67.9 million and $62.7 million, respectively, including $27.9 million and $22.7 million, respectively, of cash and cash equivalents, and subject to compliance with borrowing base and other requirements, up to $40 million available under our 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, 2025, our operating expenses, $118.2 million of mortgage amortization and interest expense (including $42.4 million from unconsolidated joint ventures) and $317.2 million of balloon payments due with respect to mortgages maturing through 2028 (including $151.6 million from unconsolidated joint ventures), anticipated capital expenditures (for 2025 only) of an aggregate of $11.1 million for consolidated and unconsolidated properties, estimated cash dividend payments of at least $75.1 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), mortgage financings and re-financings, sales of properties, the issuance of additional equity and, if available, our $40 million credit facility. Our operating cash flow and available cash is insufficient to fully fund the $317.2 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 multi-family properties (including making alternative investments such as preferred equity investments), 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. Disclosure of Known Material Contractual Obligations The following table sets forth as of December 31, 2024 our known material contractual obligations: Payment Due by Period (Dollars in thousands) Less than 1 Year 1 - 3 Years 3 - 5 Years More than 5 Years Total Long-Term Debt Obligations (1) $ 55,313 $ 261,459 $ 202,473 $ 391,009 $ 910,254 Operating Lease Obligations 251 517 540 2,703 4,011 Purchase Obligations (2)(3) 6,615 13,230 13,230 — 33,075 Total $ 62,179 $ 275,206 $ 216,243 $ 393,712 $ 947,340 ____________________________ (1) Reflects payments of principal (including amortization payments) and interest and excludes deferred costs. Includes all of the debt of unconsolidated joint ventures. See the following table for information regarding same. Assumes that the interest rate on the junior subordinated notes will be 6.85% per annum, which was the rate in effect at December 31, 2024. (2) Assumes that $948,000 and $1.7 million will be paid annually through December 31, 2029 pursuant to the shared services agreement and for the Services, respectively. See "Item 1. Business—Our Structure." (3) Assumes that approximately $4.0 million of property management fees will be paid annually to the property managers of our multi-family properties, including $1.4 million related to unconsolidated joint ventures. Such sum reflects the amount we anticipate paying in 2025 on the multi-family properties we own at December 31, 2024. These fees are typically charges based on a percentage of rental revenues from a property. No amount has been reflected as payable pursuant thereto after five years as such amount is not determinable. 36 Table of Contents The following table sets forth as of December 31, 2024 information regarding the components of our long-term debt obligations: Payment due by Period (Dollars in thousands) Less than 1 Year 1 - 3 Years 3 - 5 Years More than 5 Years Total Mortgages on consolidated properties (1) $ 38,309 $ 150,323 $ 119,315 $ 246,372 $ 554,319 Mortgages on unconsolidated properties (1) 14,442 106,012 78,034 91,020 289,508 Junior subordinated notes and credit facility(2) 2,562 5,124 5,124 53,617 66,427 Total $ 55,313 $ 261,459 $ 202,473 $ 391,009 $ 910,254 ___________________________ (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 6.85% per annum and that no amounts are outstanding under the credit facility. Corporate Level Financing Arrangements Junior Subordinated Notes As of December 31, 2024, $37.4 million (excluding deferred costs of $237,000) in principal amount of our junior subordinated notes is outstanding. These notes mature in April 2036, contain limited covenants (including covenants prohibiting us from paying dividends or repurchasing capital stock if there is an event of default (as defined therein) on these notes), are redeemable at our option and bear an interest rate, which resets and is payable quarterly, of three-month term SOFR plus 226 basis points. At December 31, 2024 and 2023, the interest rate on these notes was 6.85% and 7.65%, respectively. Credit Facility Our credit facility with VNB New York, LLC, an affiliate of Valley National Bank (collectively, "VNB"), allows us to borrow, subject to compliance with borrowing base requirements and other conditions, up to $40 million, (i) for the acquisition of, and investment in, multi-family properties, (ii) to repay mortgage debt secured by multi-family properties and (iii) for Operating Expenses ( i.e. , working capital (including dividend payments) and operating expenses); provided, that not more than $25 million may be used for Operating Expenses. The credit facility is secured by cash accounts maintained by us at VNB (and we are required to maintain substantially all of our bank accounts at VNB), and the pledge of our interests in the entities that own 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, 2024 and February 28, 2025, was 6.96% and 6.83% respectively. There is an annual fee of 0.25% on the total amount committed by VNB and unused by us. The credit facility matures in September 2027. As of February 28, 2025, there was no balance outstanding and up to $40 million was available to be borrowed thereunder. 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 coverage with respect to the properties (and amounts drawn on the credit facility) used in calculating the borrowing base. Net proceeds received from the sale, financing or refinancing of wholly-owned properties are generally required to be used to repay amounts outstanding under the credit facility. As of December 31, 2024, we were in compliance in all material respects with the requirements of the facility. Other Financing Sources and Arrangements At December 31, 2024, we are joint venture partners in unconsolidated joint ventures which own eight multi-family properties which distributed $4.4 million to us in 2024. We may be required to make capital contributions with respect to these properties. At December 31, 2024, our investment in these joint venture properties have a net equity carrying value of $31.3 million and are subject to mortgage debt, which is not reflected on our consolidated balance sheet, of $251.9 million. Although BRT Apartments Corp. is not the obligor with respect to such mortgage debt, the loss of any of these properties due to mortgage foreclosure or similar proceedings would have a material adverse effect on our results of operations and financial condition. See note 6 to our consolidated financial statements. At December 31, 2024, we had preferred equity investments in joint ventures that own multi-family properties. These joint ventures paid us $196,000 in 2024 and we anticipate that, subject to the underlying property generating sufficient cash flow, 37 Table of Contents that such joint ventures will pay us of $1.2 million in 2025. At December 31, 2024, the carrying value of these investments was $17.7 million and these investments are subordinate to mortgage debt of $51.3 million, which debt is not reflected on our consolidated balance sheet. See " Item 1. Business-Mortgage Debt " for information regarding our mortgage debt at consolidated and unconsolidated subsidiaries. Inflation Substantially all of our multi-family property leases are for periods of one-year or less. The short-term nature of these leases generally serves to reduce our risk to adverse effects of inflation on our revenue. During 2024, we continued to experience inflationary pressures that drove higher operating expenses, primarily in personnel, repairs and maintenance, insurance and real estate taxes; such increases may continue in 2025 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, increases the interest expense on our junior subordinated notes and makes it less attractive to obtain mortgage debt (including the refinancing of an aggregate of $130.4 million of mortgage debt (including $60.8 million of mortgage debt at unconsolidated joint ventures, that matures in 2026) or use our credit facility in connection with acquisition 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, 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. As a REIT, we generally will not be subject to corporate federal, state or local income taxes on taxable income we distribute currently (in accordance with the Internal Revenue Code and applicable regulations) to our stockholders. If we fail to qualify as a REIT in any taxable year, we will be subject to federal, state and local income taxes at regular corporate rates and may not be able to qualify as a REIT for four subsequent tax years. Even if we qualify for federal taxation as a REIT, we may be subject to certain state and local taxes on our income and to federal income taxes on our undistributed taxable income ( i.e. , taxable income not distributed in the amounts and in the time frames prescribed by the Internal Revenue Code and applicable regulations thereunder) and are subject to Federal excise taxes on our undistributed taxable income. It is our intention to pay to our stockholders within the time periods prescribed by the Internal Revenue Code no less than 90%, and, if possible, 100% of our annual taxable income, including taxable gains from the sale of real estate. 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 2025 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 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 38 Table of Contents 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 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. We initially record our investments based on either the carrying value for properties contributed or the cash invested. We evaluate our equity-method investments for impairment whenever events or changes in circumstances indicate that the carrying value of our investments may exceed the fair value. If it is determined that a decline in the fair value of our investments is not temporary, and if such reduced fair value is below its carrying value, an impairment is recorded. Determining fair value involves significant judgment. 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. Carrying Value of Real Estate Portfolio We conduct a quarterly review of each real estate asset owned by us and through our joint ventures. This review is conducted in order to determine if indicators of impairment are present on the real estate. In reviewing the value of the real estate assets owned, if there is an indicator of impairment and the carrying value of the real estate asset is determined to be unrecoverable, we seek to arrive at the fair value of each real estate asset by using one or more valuation techniques, such as comparable sales, discounted cash flow analysis or replacement cost analysis. A real estate asset is considered to be unrecoverable when an analysis suggests that the undiscounted cash flows to be generated by the property will be insufficient to recover our investment. Any impairment taken with respect to our real estate assets reduces our net income, assets and stockholders' equity to the extent of the amount of the allowance, but it will not affect our cash flow until such time as the property is sold. Allowance for credit losses We estimate the allowance for credit losses in accordance with the Current Expected Credit Loss (CECL) model under Accounting Standards Codification ("ASC") Topic 326. This model requires us to estimate expected lifetime credit losses for our loan portfolio ( i.e., our preferred equity investments) by considering historical loss experience, current economic conditions, and reasonable and supportable forecasts of future economic trends. The estimate is highly subjective and involves significant judgment in the following areas: • Historical Loss Data: We segment our loan portfolio based on risk characteristics such as borrower type, loan term, and collateral. We will use historical loss experience when available, as a basis for expected credit losses. • Macroeconomic Forecasts: We incorporate forward-looking macroeconomic indicators, such as GDP growth, unemployment rates, and interest rate trends, to adjust historical loss trends. • Qualitative Adjustments: We apply management judgments to adjust the allowance for factors that may not be fully captured in the quantitative model, including changes in emerging risks such as regulatory, geopolitical, or credit risks. • The estimate of expected credit losses is inherently uncertain and sensitive to changes in economic conditions. For example, a 100-basis-point increase in unemployment rates or a prolonged downturn in the real estate market could result in a higher allowance for credit losses, negatively impacting our financial results. Conversely, improvements in economic conditions could result in a lower allowance. • We continually evaluate the adequacy of our allowance for credit losses and adjust it as necessary. However, actual losses may differ from our estimates due to unforeseen changes in economic conditions or borrower behavior. Purchase Price Allocations We allocate the purchase price of properties, including acquisition costs and assumed debt, when appropriate, to the tangible and identified intangible assets and liabilities acquired based on their relative fair values. In making estimates of fair values for purposes of allocating purchase price, we use a number of sources, including independent appraisals that may be obtained in connection with the acquisition or financing of the respective property, our own analysis of recently acquired and existing comparable properties in our portfolio and other market data. We also consider information obtained about each 39 Table of Contents 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 subjective projections as to the achievability of the specified metrics related to the AFFO Awards; changes in the projections related to the AFFO awards may have a significant impact on the expense we recognize on such awards. See Note 11 to our consolidated financial statements.