BRT Apartments Corp. 10-Q

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Cautionary Statement Regarding Forward-Looking Statements This Quarterly Report on Form 10-Q (the "Quarterly Report"), together with other statements and information publicly disseminated by us, contains certain forward looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995 and include this statement for purposes of complying with these safe harbor provisions. Forward-looking statements relate to expectations, beliefs, projections, future plans and strategies, anticipated events or trends concerning matters that are not historical facts. Forward looking statements are generally identifiable by use of words such as "may," "will," "will likely result," "shall," "should," "could," "believe," "expect," "intend," "anticipate," "estimate," "project," "apparent," "experiencing," or similar expressions or variations thereof. Forward-looking statements contained in this Quarterly Report are based on our beliefs, assumptions and expectations of our future performance taking into account the information currently available to us. These beliefs, assumptions and expectations can change as a result of many possible events or factors, not all of which are known to us or within our control, and which could materially affect actual results, performance or achievements. Factors which may cause actual results to vary from our forward-looking statements include, but are not limited to: • inability to generate sufficient cash flows due to unfavorable economic and market conditions ( e.g. , inflation, volatile interest rates and the possibility of a recession), changes in supply and/or demand, competition, uninsured losses, changes in tax and housing laws or other factors; • adverse changes in real estate markets, including, but not limited to, the extent of future demand for multifamily units in our significant markets, barriers of entry into new markets which we may seek to enter in the future, limitations on our ability to increase or collect rental rates, competition, our ability to identify and consummate attractive acquisitions and dispositions on favorable terms, and our ability to reinvest sale proceeds in a manner that generates favorable returns; • general and local real estate conditions, including any changes in the value of our real estate; • decreasing rental rates or increasing vacancy rates; • challenges in acquiring or investing in multi-family properties (including challenges in (i) buying properties directly without the participation of joint venture partners and (ii) making alternative investments in multi-family properties, and the limited number of multi-family property investment/acquisition opportunities available to us), which transactions may not be completed or may not produce the cash flows or income expected; • the competitive environment in which we operate, including competition that could adversely affect our ability to acquire properties and/or limit our ability to lease apartments or increase or maintain rental rates; • exposure to risks inherent in investments in a single industry and sector; • the concentration of our multi-family properties in the Southeastern United States and Texas, which makes us more susceptible to adverse developments in those markets; • increases in expenses over which we have limited control, such as real estate taxes, insurance costs and utilities, due to inflation and other factors; • impairment in the value of real estate we own; • failure of property managers to properly manage properties; • accessibility of debt and equity capital markets; • disagreements with, or misconduct by, joint venture partners; • inability to obtain financing at favorable rates, if at all, or refinance existing debt as it matures due to the level and volatility of interest or capitalization rates or capital market conditions • extreme weather and natural disasters such as hurricanes, tornadoes and floods; • lack of or insufficient amounts of insurance to cover, among other things, losses from catastrophes; • risks associated with acquiring value-add multi-family properties, which involves greater risks than more conservative approaches; • the condition of Fannie Mae or Freddie Mac, which could adversely impact us; • changes in Federal, state and local governmental laws and regulations, including laws and regulations relating to taxes and real estate and related investments; 19 Table of Content • our failure to comply with laws, including those requiring access to our properties by disabled persons, which could result in substantial costs; • board determinations as to timing and payment of dividends, if any, and our ability or willingness to pay future dividends; • our ability to satisfy the complex rules required to maintain our qualification as a REIT for federal income tax purposes; • possible environmental liabilities, including costs, fines or penalties that may be incurred due to necessary remediation of contamination of properties presently owned or previously owned by us or a subsidiary owned by us or acquired by us; • our dependence on information systems, risks associated with breaches of such systems and the impact on us by the use of artificial intelligence by our competitors; • disease outbreaks and other public health events, and measures that are taken by federal, state, and local governmental authorities in response to such outbreaks and events; • impact of climate change on our properties or operations; • risks associated with the stock ownership restrictions of the Internal Revenue Code of 1986, as amended (the "Code") for REITs and the stock ownership limit imposed by our charter; and • the other factors described in our Annual Report on Form 10-K for the year ended December 31, 2024 (the "Annual Report") including those set forth in such report under the captions "Item 1. Business," "Item 1A. Risk Factors," and "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" . We caution you not to place undue reliance on forward-looking statements, which speak only as of the date of this report. Except to the extent otherwise required by applicable law or regulation, we undertake no obligation to update these forward-looking statements to reflect events or circumstances after the filing of this report or to reflect the occurrence of unanticipated events thereafter . Overview We are an internally managed real estate investment trust, also known as a REIT, that owns, operates and, to a lesser extent, holds interests in joint ventures that own and operate multi-family properties. At September 30, 2025, we: (i) wholly-own 21 multi-family properties with an aggregate of 5,420 units and a carrying value of $600.5 million; (ii) have ownership interests, through unconsolidated entities, in ten multi-family properties with 2,891 units and a carrying value of $48.2 million; (iii) have preferred equity interests in two multi-family properties with a carrying value of $17.7 million and (iii) own other assets, through consolidated and unconsolidated subsidiaries, with a carrying value of $1.6 million. The 31 multi-family properties are located in 11 states; most of these properties are located in the Southeast United States and Texas. Acquisitions On July 15, 2025, a joint venture in which we have an 80% interest, acquired 1322 North, a 214-unit multi-family property located in Auburn, AL (the "Auburn Acquisition"). The venture acquired the property for $36.5 million, including a $24.4 million mortgage. The mortgage matures in 2032, bears a 5.38% fixed interest rate, and is interest only through maturity. We contributed $10.7 million to the joint venture for our equity interest and planned improvements. In connection with this transaction, we borrowed $7 million from our credit facility. On September 19, 2025, a joint venture in which we have an 80% interest, acquired Oaks at Victory, a 150-unit multi-family property located in Savannah, GA (the "Savannah Acquisition"; and together with the Auburn Acquisition, the "Acquisitions"). The venture acquired the property for $23 million, including a $15.7 million mortgage assumed as part of the acquisition. The mortgage matures in 2031, bears a 2.71% fixed interest rate, and is interest only through maturity. We contributed $8.4 million to the joint venture for our equity interest and planned improvements. In connection with this transaction, we borrowed $8 million from our credit facility. See Notes 9 and 10 to our consolidated financial statements. Dispositions During the quarter ended September 30, 2025, the Company sold a cooperative apartment unit located in New York, NY for a sales price of $995,000 and, after closing costs, recognized a gain of $755,000 on the sale. Completed and Contemplated Re-financings On September 26, 2025, we refinanced the maturing mortgage of $15.4 million (bearing an interest rate of 4.42%) on our Parkway Grande - San Marcos, TX property with a new mortgage of $15.8 million; such mortgage debt matures on October 1, 20 Table of Content 2032, bears an interest rate of 5.09% and is interest only for five years. During the quarter ending March 31, 2026, we have three maturing mortgages in the aggregate amount of $42.5 million and bearing a weighted average interest rate of 4.36%. We anticipate that we will refinance these maturing mortgages (the "Contemplated Re-financings") by year end by obtaining new mortgage debt in the aggregate amount of approximately $71.4 million. We anticipate that the new debt will have a weighted average remaining term to maturity of approximately nine years and a weighted average interest rate ranging from 4.90% to 5.04%. We will use a portion of the net proceeds from such re-financing to pay off the outstanding balance of the credit facility. We can provide no assurance that these re-financings will be completed or if completed will be on the indicated terms. Our Stono Oaks joint venture also has a construction loan in the amount of $37.2 million, bearing a 6.46% interest rate and maturing in March, 2026. The joint venture is currently contemplating its refinancing options, which include, two one-year extension periods subject to meeting certain conditions as defined in the Loan Agreement. The Contemplated Re-financings are expected to result in $28.9 million increase in mortgage debt and an increase in the respective weighted average interest rate from the current 4.36% to an estimated weighted average interest rate of 5.01%. As a result, our quarterly interest expense is anticipated to increase by approximately $430,000 per quarter. Challenges and Uncertainties We face challenges due to the uncertain national economic environment (e.g., the possibility of inflation, recession and/or stagflation, the potential impact of tariffs and trade wars, and/or volatile interest rates), and the oversupply of multifamily properties in several markets in which we compete (including Atlanta, GA, Huntsville, AL, Dallas, TX, San Antonio, TX, Nashville TN, Pensacola, FL, LaGrange, GA and San Marcos, TX). In addition, we use concessions (and in particular, in markets that are especially competitive) as a means to improve occupancy. The use of concessions reduces our rental income and may add to the variability of our operating results. These challenges and uncertainties have, and we anticipate will continue to adversely impact (i) the rental and occupancy rates at our properties, and (ii) our ability to grow rental income and/or control our real estate operating expenses, some of which, such as real estate taxes, we have a very limited ability to control and frequently increase, with limited notice of the increase. In light of the limited funds available to us to acquire properties (the cash and cash equivalents reflected on our consolidated balance sheet are earmarked for working capital purposes and generally not available for acquisitions or mortgage repayments), 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 these investment / acquisition activities will be profitable. We anticipate that our mortgage interest expense will increase as we refinance the aggregate $196.3 million of principal balances of mortgage debt maturing through 2027 (including $84.0 million of such principal balances at unconsolidated subsidiaries) because current comparable mortgage interest rates are generally higher than the weighted average interest rate on such maturing mortgages ( i.e , the weighted average interest rate on the mortgages on our consolidated and unconsolidated properties maturing through December 31, 2027 is 4.51%). For comparison purposes, the interest rate on the mortgage obtained in connection with the Auburn Acquisition was 5.38%. 21 Results of Operations Three months ended September 30, 2025 compared to three months ended September 30, 2024 . As used herein, the term "same store properties" refers to multi-family properties that were wholly owned for the entirety of the periods presented. For the three months ended September 30, 2025 and 2024, all of our multi-family properties in our consolidated portfolio are same store properties. Revenues The following table compares our revenues for the periods indicated: Three Months Ended September 30, (Dollars in thousands): 2025 2024 Increase (Decrease) % Change Rental and other revenue from real estate properties $ 24,031 $ 24,177 $ (146) (0.6) % Loan interest and other income 403 219 184 84.0 % Total revenues $ 24,434 $ 24,396 $ 38 0.2 % Rental and other revenue from real estate properties The change was due to a $378,000 decrease in rental revenue resulting from straight-line rent adjustments associated with lease concessions, offset by increases in ancillary income ( e.g., cancellation fees and utility reimbursement) and improvements in occupancy and rental rates. Loan interest and other income The increase is due to the interest income of $309,000 earned from the preferred equity investments offset by a $125,000 reduction in interest and other income due to the decrease in funds available for short-term investments. Expenses The following table compares our expenses for the periods indicated: Three Months Ended September 30, (Dollars in thousands) 2025 2024 Increase (Decrease) % Change Real estate operating expenses $ 11,342 $ 11,187 $ 155 1.4 % Interest expense 5,882 5,745 137 2.4 % General and administrative 3,937 3,811 126 3.3 % Depreciation and amortization 6,619 6,499 120 1.8 % Total expenses $ 27,780 $ 27,242 $ 538 2.0 % Real estate operating expenses. The change is due primarily to an aggregate increase of $323,000 from real estate taxes, payroll and utilities, offset by a $247,000 reduction in the premium on our master insurance policy. Interest expense The increase is primarily due to $228,000 of interest from the financing of our Woodland Trails - LaGrange, GA property which occurred in the third quarter of 2024 (the "Woodlands Refinancing"), offset primarily by a $93,000 decrease in interest on our subordinated debt due to a reduction in interest rates. We anticipate that interest expense may increase by approximately $295,000 for the three months ending December 31, 2025 from the three months ended December 31, 2024, as we borrowed an aggregate $17.5 million from our credit facility during the quarter ended September 30, 2025 in connection with the acquisitions and working capital purposes. Further increases in interest expense may occur if the Contemplated Re-financings are completed. 22 Table of Content General and administrative The increase is due primarily to the net non-cash expense associated with the impact of the retirement of our Executive Vice President on his equity awards and equity incentive awards ( i.e., the accelerated vesting of restricted stock and cancellation of restricted stock units). Equity in earnings of unconsolidated joint ventures Equity in earnings decreased $444,000 from $369,000 in the three months ended September 30, 2024 to a loss of $75,000 in the three months ended September 30, 2025. The decrease is primarily the result of $469,000 in amortization of lease intangibles acquired as part of the Auburn Acquisition. We estimate that the amortization of lease intangibles will, with respect to the (i) Auburn Acquisition, be approximately $345,000 and $115,000 for the three months ending December 31, 2025 and March 31, 2026, respectively, and (ii) Savannah Acquisition, be approximately $458,000, $332,000, $209,000 and $92,000, for the three months ending December 31, 2025, March 31, 2026, June 30, 2026, and September 30, 2026, respectively. Gain on sale of real estate In the quarter ended September 30, 2025, the Company sold a cooperative apartment unit located in New York, NY for a sales price of $995,000 and, after closing costs, recognized a gain of $755,000 on the sale. Provision for Federal and state tax Provision for Federal and state tax changed from a $310,000 refund in the quarter ended September 30, 2024, to an expense of $2,000 in the quarter ended September 30, 2025. This change was due primarily to the inclusion, in the three months ended September 30, 2024, of $370,000 refund from Tennessee following the repeal of its property based franchise tax. 23 Table of Content Results of Operations Nine Months Ended September 30, 2025 compared to nine months ended September 30, 2024 . As used herein, the term "same store properties" refers to multi-family properties that were wholly owned for the entirety of the periods presented. For the nine months ended September 30, 2025 and 2024, all of our properties in our consolidated portfolio are same store properties. Revenues The following table compares our revenues for the periods indicated: Nine Months Ended September 30, (Dollars in thousands): 2025 2024 Increase (Decrease) % Change Rental and other revenue from real estate properties $ 71,379 $ 71,253 $ 126 0.2 % Loan interest and other income 1,358 408 950 232.8 % Total revenues $ 72,737 $ 71,661 $ 1,076 1.5 % Rental and other revenue from real estate properties The increase is due to increases in occupancy and rental rates (which includes the effect of straight line rent adjustments related to rent concessions). Loan interest and other income The increase is due primarily to interest income of $903,000 earned from the preferred equity investments. Expenses The following table compares our expenses for the periods indicated: Nine Months Ended September 30, (Dollars in thousands) 2025 2024 Increase (Decrease) % Change Real estate operating expenses $ 33,009 $ 32,612 $ 397 1.2 % Interest expense 17,265 16,768 497 3.0 % General and administrative 11,751 11,776 (25) (0.2) % Depreciation and amortization 19,740 19,400 340 1.8 % Total expenses $ 81,765 $ 80,556 $ 1,209 1.5 % Real estate operating expense The change is due primarily to increases of (i) $297,000 in real estate taxes due primarily to increased assessments; (ii) $267,000 in utilities, primarily water and sewer; (iii) $258,000 in repairs and maintenance, a portion of which was reimbursed from insurance proceeds; and (iv) $242,000, primarily due to leasing expense. The increase was offset by $756,000 reduction in the premium on our master insurance policy. Interest expense The change is due primarily to the additional $1 million related to the Woodlands Financing, offset by decreases of $297,000 due to the decrease on the interest rate on our junior subordinated notes and $205,000 due to amortization of our mortgage debt. General and administrative Contributing to the decrease was (i) $186,000 related to reduced amortization of our restricted stock units primarily as a result of changes in the assessment of the achievability of the performance metrics of such awards, (ii) $125,000 related to reduced amortization associated with restricted stock following the cessation of employment of certain of our executive officers 24 Table of Content in December 2024 and July 2025, and (iii) $124,000 due to a reduction in employee headcount. The decrease was offset primarily by (i) $209,000 reflecting the net non-cash impact of the retirement of our Executive Vice President on his equity awards and equity incentive awards ( i.e. , the accelerated vesting of restricted stock and cancellation of restricted stock units), and (ii) a $184,000 increase in professional fees related to 2025 internal and external audit services. Equity in earnings of unconsolidated joint ventures Equity in earnings from unconsolidated joint ventures decreased to $637,000 for the nine months ended September 30, 2025 from $986,000 for the nine months ended September 30, 2024. The decrease is primarily due to $469,000 in amortization of lease intangibles acquired in the Auburn Acquisition. This decrease is offset by $182,000 increase in occupancy at Stono Oaks. Insurance recovery of casualty loss In the nine months ended September 30, 2025, we received an aggregate of $257,000 insurance reimbursements (net of an aggregate of $200,000 in deductibles) from casualty events that occurred at our Silvana Oaks and Avalon properties. There was no comparable recovery in the nine months ended September 30, 2024. Income tax provision Income tax provision increased to $120,000 for the nine months ended September 30, 2025 from a refund of $297,000 in the nine months ended September 30, 2024. The change is primarily due to the receipt of $370,000 in the nine months ended September 30, 2024, following the repeal of Tennessee's property based franchise tax. Liquidity and Capital Resources 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 and/or income from the preferred equity investments and 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 October 31, 2025, our available liquidity was approximately $37.1 million, including $14.6 million of cash and cash equivalents and $22.5 million available under our credit facility. We anticipate that from October 1, 2025 through December 31, 2027, our operating expenses, $100.9 million of mortgage amortization and interest expense (including $29.7 million from unconsolidated joint ventures), $130.4 million and $65.9 million of balloon payments with respect to mortgages maturing in 2026 and 2027, respectively (including $60.9 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 $42.8 million (assuming (i) the current quarterly dividend rate of $0.25 per share and (ii) 19.0 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 $196.3 million (including $84 million at unconsolidated joint ventures) of balloon payments due through 2027, 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 September 30, 2025, we had mortgage debt of $737.6 million (including $289.5 million of mortgage debt at of our unconsolidated subsidiaries). The mortgage debt at our: (i) consolidated properties had a weighted average interest rate of 4.12% and a weighted average remaining term to maturity of approximately 5.6 years, and (ii) at our unconsolidated subsidiaries had a weighted average interest rate of 4.27% and a remaining term to maturity of approximately 3.6 years. Junior Subordinated Notes As of September 30, 2025, $37.4 million (excluding deferred costs of $222,000) 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 25 Table of Content notes), are redeemable at our option and bear an interest rate, which resets and is payable quarterly, at a rate of three-month term SOFR plus 250 basis points. At September 30, 2025 and 2024, the interest rate on these notes was 6.57% and 7.52%, 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 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%. 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. 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. The interest rate in effect at September 30, 2025 and October 31, 2025, was 6.77% and 6.63% respectively. As of October 31, 2025, there was an outstanding balance of $17.5 million on the credit facility and $22.5 million is 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. At September 30, 2025, we were in compliance in all material respects with the requirements of the facility. Other Financing Sources and Arrangements At September 30, 2025, we are joint venture partners in unconsolidated joint ventures which own ten multi-family properties and the distributions to us from these joint venture properties of $2.9 million during the nine months ended September 30, 2025 contributed to our liquidity and cash flow. Further, we may be required to make significant capital contributions with respect to these properties. At September 30, 2025, our investments in these joint venture properties had a net-equity carrying value of $48.1 million. The underlying properties are subject to mortgage debt, which is not reflected on our consolidated balance sheet, of $289.5 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 9 to our consolidated financial statements. At September 30, 2025, we had preferred equity investments in two multi-family properties and during the quarter ended September 30, 2025, we generated $309,000 of loan interest income from these investments. At September 30, 2025, these investments had a carrying value of $17.7 million, are unsecured and are structurally subordinate to (including the payment of the returns thereon), an aggregate of $51.1 million of mortgage debt (which is not reflected on our consolidated balance sheet) bearing a weighted average interest rate of 4.81% and a weighted average remaining term to maturity of 5.1 years. Although we are not the obligor with respect to such mortgage debt, the loss of any of these investments 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. Cash Distribution Policy We have elected to be treated as a REIT under the Code. To qualify as a REIT, we must meet a number of organizational and operational requirements, including a requirement that we distribute to our stockholders within the time frames prescribed by the Code at least 90% of our ordinary taxable income. Management currently intends to maintain our REIT status. As a REIT, we generally will not be subject to corporate Federal income tax on taxable income we distribute to stockholders in accordance with the Code. If we fail to qualify as a REIT in any taxable year, we will be subject to Federal income taxes at regular corporate rates and may not be able to qualify as a REIT for four subsequent tax years. Even if we qualify for Federal taxation as a REIT, we are subject to certain state and local taxes on our income and to Federal income and excise taxes on 26 Table of Content undistributed taxable income ( i.e ., taxable income not distributed in the amounts and in the time frames prescribed by the Code). On October 6, 2025, 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, 2025. We anticipate that the dividends paid in 2025 will be treated as a return of capital for Federal income tax purposes. We carefully monitor our discretionary spending. Our largest recurring discretionary expenditure has been our quarterly dividend (which was $0.25 per share of common stock, or approximately $4.7 million, with respect to the dividend paid in October 2025). Each quarter, our board of directors evaluates the timing and amount of our dividend based on its assessment of, among other things, our short and long term cash and liquidity requirements, prospects, debt maturities, projections of our REIT taxable income, net income, funds from operations, and adjusted funds from operations. Application of Critical Accounting Estimates A complete discussion of our critical accounting estimates is included in our Annual Report. There have been no changes in such estimates. 27 Table of Contents Funds from Operations, Adjusted Funds from Operations and Net Operating Income We disclose below funds from operations (“FFO”), adjusted funds from operations (“AFFO”) and net operating income ("NOI") because we believe that such metrics are a widely recognized and appropriate measure of the performance of an equity REIT. We compute FFO in accordance with the “White Paper on Funds From Operations” issued by the National Association of Real Estate Investment Trusts (“NAREIT”) and NAREIT’s related guidance. FFO is defined in the White Paper as net income (calculated in accordance with GAAP), excluding depreciation and amortization related to real estate, gains and losses from the sale of certain real estate assets, gains and losses from change in control, impairment write-downs of certain real estate assets and investments in entities where the impairment is directly attributable to decreases in the value of depreciable real estate held by the entity. Adjustments for unconsolidated partnerships and joint ventures are calculated to reflect funds from operations on the same basis. In computing FFO, we do not add back to net income the amortization of costs in connection with our financing activities or depreciation of non-real estate assets. We compute AFFO by adjusting FFO for the loss of extinguishment of debt, our straight-line rent and rental concession accruals, restricted stock and RSU compensation expense, fair value adjustment of mortgage debt, gain on insurance recovery, insurance recovery from casualty loss and deferred mortgage and debt costs (including, in each case as applicable, from our share from our unconsolidated joint ventures). Since the NAREIT White Paper only provides guidelines for computing FFO, the computation of AFFO may vary from one REIT to another. We believe that FFO and AFFO are useful and standard supplemental measures of the operating performance for equity REITs and are used frequently by securities analysts, investors and other interested parties in evaluating equity REITs, many of which present FFO and AFFO when reporting their operating results. FFO and AFFO are intended to exclude GAAP historical cost depreciation and amortization of real estate assets, which assumes that the carrying value of real estate assets diminishes predictably over time. In fact, real estate values have historically risen and fallen with market conditions. As a result, we believe that FFO and AFFO provide a performance measure that when compared year over year, should reflect the impact to operations from trends in occupancy rates, rental rates, operating costs, interest costs and other matters without the inclusion of depreciation and amortization, providing a perspective that may not be necessarily apparent from net income. We also consider FFO and AFFO to be useful to us in evaluating potential property acquisitions. FFO and AFFO do not represent net income or cash flows from operations as defined by GAAP. FFO and AFFO should not be considered to be an alternative to net income as a reliable measure of our operating performance; nor should FFO and AFFO be considered an alternative to cash flows from operating, investing or financing activities (as defined by GAAP) as measures of liquidity. FFO and AFFO do not measure whether cash flow is sufficient to fund all of our cash needs, including principal amortization and capital improvements. FFO and AFFO do not represent cash flows from operating, investing or financing activities as defined by GAAP. Management recognizes that there are limitations in the use of FFO and AFFO. In evaluating our performance, management is careful to examine GAAP measures such as net income and cash flows from operating, investing and financing activities. 28 Table of Contents The tables below provides a reconciliation of net loss determined in accordance with GAAP to FFO and AFFO on a dollar and per share basis for each of the indicated periods (dollars in thousands, except per share amounts): Three Months Ended September 30, Nine Months Ended September 30, 2025 2024 2025 2024 GAAP Net loss attributable to common stockholders $ (2,707) $ (2,205) $ (7,625) $ (7,721) Add: depreciation and amortization of properties 6,619 6,499 19,740 19,400 Add: our share of depreciation in unconsolidated joint venture properties 2,062 1,379 5,031 4,119 Deduct: gain on sale of real estate (755) — (755) — Adjustments for non-controlling interests (4) (4) (12) (12) NAREIT Funds from operations attributable to common stockholders 5,215 5,669 16,379 15,786 Adjustments for: deferred rent concessions and straight line rent (158) (537) (239) (900) Adjustments for: our share of straight-line rent and rent concession accruals from unconsolidated joint venture properties (9) (45) (16) (105) Add: amortization of restricted stock and RSU expense 1,244 1,189 3,521 3,621 Add: amortization of deferred mortgage and debt costs 284 324 851 866 Add: our share of deferred mortgage costs from unconsolidated joint venture properties 37 30 97 90 Add: amortization of fair value adjustment for mortgage debt 124 139 379 421 Adjustments for non-controlling interests — — — (8) Adjusted funds from operations attributable to common stockholders $ 6,737 $ 6,769 $ 20,972 $ 19,771 29 Table of Contents Three Months Ended September 30, Nine Months Ended September 30, 2025 2024 2025 2024 GAAP Net (loss) income attributable to common stockholders $ (0.14) $ (0.12) $ (0.40) $ (0.41) Add: depreciation and amortization of properties 0.35 0.35 1.04 1.04 Add: our share of depreciation in unconsolidated joint venture properties 0.11 0.07 0.27 0.22 Deduct: gain on sale of real estate (0.04) — (0.04) — Adjustment for non-controlling interests — — — — NAREIT Funds from operations per diluted common share 0.28 0.30 0.87 0.85 Adjustments for: deferred rent concessions and straight line rent (0.01) (0.03) (0.01) (0.05) Adjustments for: our share of straight-line rent and rent concession accruals in unconsolidated joint venture properties — — — — Add: amortization of restricted stock and RSU expense 0.07 0.06 0.17 0.19 Add: amortization of deferred mortgage and debt costs 0.01 0.02 0.05 0.05 Add: our share of deferred mortgage and debt costs from unconsolidated joint venture properties — — 0.01 — Add: amortization of fair value adjustment for mortgage debt 0.01 0.01 0.02 0.02 Adjustments for non-controlling interests — — — — Adjusted funds from operations per diluted common share $ 0.36 $ 0.36 $ 1.11 $ 1.06 Diluted shares outstanding for FFO and AFFO 18,951,324 18,758,435 18,921,440 18,679,558 Three Months Ended September 30, 2025 and 2024 FFO for the three months ended September 30, 2025 decreased from the corresponding quarter in the prior year primarily due to (i) a decrease in straight line rent adjustments related to concessions recognized as a component of rental revenue, (ii) increased interest expense, and (iii) increased tax expense. The decrease was offset primarily due to an improvement in operating margins at our consolidated and unconsolidated properties and an increases in loan interest and other income. AFFO for the three months ended September 30, 2025 decreased (on an absolute, but not a per share basis) from the corresponding period in the prior year primarily due to the factors contributing to the changes in FFO, excluding the impact of the straight line rent adjustments. See " Results of Operations - Three Months Ended September 30, 2025 compared to three months ended September 30, 2024 " for a discussion of these changes. Nine Months Ended September 30, 2025 and 2024 FFO for the nine months ended September 30, 2025 increased from the corresponding period in the prior year primarily due to (i) an improvement in operating margins at our consolidated and unconsolidated properties, (ii) an increase in loan interest and other income, (iii) a decrease in general and administrative expense related to the net impact of activity associated with equity awards, and (iv) an increase in insurance proceeds from a casualty event. This increase was offset by (i) an increase in interest expense, (ii) an increase in income tax expense, and (iii) a decrease in straight line rent adjustments related to concessions recognized as a component of rental revenue. AFFO for the nine months ended September 30, 2025 increased from the corresponding period in the prior year due to the factors contributing to the change in FFO, other than the changes in straight line rent adjustments and the expense related to equity awards. See " Results of Operations - Nine Months Ended September 30, 2025 compared to nine months ended September 30, 2024 ", for a discussion of these changes. 30 Table of Contents Net Operating Income, or NOI, is a non-GAAP measure of performance. NOI is used by our management and many investors to evaluate and compare the performance of our properties to other comparable properties, to determine trends at our properties and to determine the estimated fair value of our properties. The usefulness of NOI may be limited in that it does not take into account, among other things, general and administrative expense, interest expense, loss on extinguishment of debt, casualty losses, insurance recoveries and gains or losses as determined by GAAP. NOI is a property specific performance metric and does not measure our performance as a whole. NOI is defined as "Rental and other revenue from real estate properties" less "Real estate operating expenses" in each case as presented on our statements of operations. Real estate operating expenses include real estate taxes, insurance, property management expense, utilities, repairs and maintenance, administrative and marketing. Other REIT’s may use different methodologies for calculating NOI, and accordingly, our NOI may not be comparable to other REIT’s. We believe NOI provides an operating perspective not immediately apparent from GAAP operating income or net income (loss). NOI is one of the measures we use to evaluate our performance because it (i) measures the core operations of property performance by excluding corporate level expenses and other items unrelated to property operating performance and (ii) captures trends in rental housing and property operating expenses. However, NOI should only be used as an alternative measure of our financial performance. The following table provides a reconciliation of net income attributable to common stockholders as computed in accordance with GAAP to NOI of our consolidated properties for the periods presented (dollars in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2025 2024 Variance 2025 2024 Variance GAAP Net loss attributable to common stockholders $ (2,707) $ (2,205) $ (502) $ (7,625) $ (7,721) $ 96 Less: Loan interest and other income (403) (219) (184) (1,358) (408) (950) Add: Interest expense 5,882 5,745 137 17,265 16,768 497 General and administrative 3,937 3,811 126 11,751 11,776 (25) Depreciation and amortization 6,619 6,499 120 19,740 19,400 340 Provision for taxes 2 (310) 312 120 (297) 417 Less: Gain on sale of real estate (755) — (755) (755) — (755) Insurance recovery — — — (257) — (257) Adjust for: Equity in (earnings) loss of unconsolidated joint venture properties 75 (369) 444 (637) (986) 349 Add: Net income attributable to non-controlling interests 39 38 1 126 109 17 Net Operating Income $ 12,689 $ 12,990 $ (301) $ 38,370 $ 38,641 $ (271) Less: Non-same store Net Operating Income 274 271 3 912 792 120 Same store Net Operating Income $ 12,415 $ 12,719 $ (304) $ 37,458 $ 37,849 $ (391) For the three months ended September 30, 2025, NOI decreased from the corresponding period in 2024 primarily due to (i) a $155,000 increase in real estate operating expenses; and (ii) a $146,000 decrease in rental revenue (including the effects of straight-line rent adjustments related to lease concessions). See "Results of Operations - Three Months Ended September 30, 2025 Compared to the Three Months ended September 30, 2024" for a discussion of these changes. For the nine months ended September 30, 2025, NOI decreased from the corresponding period in 2024 primarily due to a $381,000 increase in real estate operating expenses. See " Results of Operations - Nine months Ended September 30, 2025 compared to the Nine Months ended September 30, 2024 " for a discussion of these changes. 31 Table of Contents