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 maintain or increase rental or occupancy 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 multifamily properties (including challenges in (i) buying properties directly without the participation of joint venture partners and (ii) making alternative investments in multifamily properties, and the limited number of multifamily 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 multifamily 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 and utilities, due to inflation or other factors such as the ongoing conflicts between (i) Ukraine and Russia and (ii) Israel / the United States of America and Iran; • 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 multifamily 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; 20 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 and our competitors from the use of artificial intelligence; • 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, 2025 (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 own and operate multifamily properties. These properties may be wholly owned by us or by unconsolidated joint ventures in which we contributed a portion of the equity. At June 30, 2026, we: (i) wholly-own 21 multifamily properties with an aggregate of 5,420 units and a carrying value of $585.3 million; (ii) have ownership interests, through unconsolidated entities, in ten multifamily properties with 2,891 units and a carrying value of $43.3 million; (iii) have preferred equity interests in two multifamily properties with a carrying value of $17.8 million; and (iv) own other assets, through consolidated and unconsolidated subsidiaries, with a carrying value of $1.5 million. The 31 multifamily properties are located in 11 states; most of these properties are located in the Southeast United States and Texas. Contemplated Acquisitions On June 2, 2026, we entered into an agreement to acquire Ranch Lake Apartments, a 336-unit multifamily property located in Bradenton, Florida. The purchase price is approximately $80 million (subject to customary closing purchase price adjustments), including the assumption of an approximately $45.7 million mortgage insured by the United States Department of Housing and Urban Development ("HUD"). The mortgage carries an interest rate of 2.91% and matures in 2056. The completion of the transaction, which is anticipated to close in the first quarter of 2027, is subject to, among other things, HUD and lender approval of the mortgage assumption, and other customary closing conditions. Based on information provided by the seller (which information has not been audited or reviewed by our independent auditors), the revenues for this property were approximately $1.8 million and $7.4 million for the three and twelve months ended April 30, 2026, respectively, and the real estate operating expenses were $765,000 and $3.2 million, respectively. See Notes 5 to our consolidated financial statements. We anticipate that in August 2026, we will acquire, through a joint venture in which we anticipate having a 70% interest, a multifamily property located in Houston, Texas for approximately $33 million; the venture anticipates funding the purchase price in part by obtaining an approximate $23.4 million mortgage which will mature in 2033 and will carry a currently estimated annual interest rate of 5.5%. We anticipate contributing approximately $8.8 million of the equity toward the purchase, including $1.9 million of working capital reserves, and incurring an estimated $450,000 of transaction costs and $700,000 in deferred financing costs, which costs will be amortized over time. We can provide no assurance that this transaction will be completed on the terms or time frame indicated or that it will be accretive to earnings. 21 Table of Content Completed and Contemplated Refinancings On June 9, 2026, the Stono Oaks joint venture exercised its right to extend the maturity of its $37.2 million, 5.83% floating interest rate construction loan through June 9, 2027. Such venture is also entitled, subject to the satisfaction of certain conditions, to further extend the loan maturity through June 2028. In July 2026, we refinanced the maturing mortgage of $27.8 million (bearing an interest rate of 3.73%) on our Civic Center 2 - Southaven, MS property with a new mortgage of $47.9 million; such mortgage debt matures in August 2036, bears a fixed interest rate of 5.38% and is interest only through maturity (the "Civic 2 Refinancing"). During the quarter ending September 30, 2026, we have a maturing mortgage principal amount of $23.7 million and bearing an interest rate of 3.97%. We anticipate that (i) we will refinance this mortgage (the "Contemplated Refinancing") by obtaining new mortgage debt of approximately $27.2 million, (ii) the new debt will mature in 2036 and (iii) will carry a fixed interest rate of approximately 5.45%. We can provide no assurance that this refinancing will be completed or if completed will be on the indicated terms. The Civic 2 Refinancing and Contemplated Refinancings are expected to result in a $23.6 million increase in mortgage debt and an increase in the respective weighted average interest rate from the current 4.21% to an estimated weighted average interest rate of 4.35%. As a result, our quarterly interest expense is anticipated to increase by approximately $480,000 per quarter (including $99,000 from unconsolidated joint ventures). 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 may 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. We anticipate that our mortgage interest expense will increase as we refinance the aggregate $51.4 million and $103.1 million of principal balances of mortgage debt maturing in 2026 and 2027, respectively (including $23.7 million and $60.3 million of such principal balances at unconsolidated subsidiaries maturing in 2026 and 2027, respectively) 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 4.40%) and the interest rate on the Civic 2 Refinancing we completed in mid-July was 5.38%. 22 Results of Operations Three months ended June 30, 2026 compared to three months ended June 30, 2025 . Revenues The following table compares our revenues for the periods indicated: Three Months Ended June 30, (Dollars in thousands): 2026 2025 Increase (Decrease) % Change Rental and other revenue from real estate properties $ 24,041 $ 23,729 $ 312 1.3 % Loan interest and other income 433 468 (35) (7.5) % Total revenues $ 24,474 $ 24,197 $ 277 1.1 % Rental and other revenue from real estate properties The increase is due primarily to (i) $177,000 in improvements to rental rates and occupancy rates; and (ii) $159,000 in other revenue ( e.g ., cable and cancellation fees). Expenses The following table compares our expenses for the periods indicated: Three Months Ended June 30, (Dollars in thousands) 2026 2025 Increase (Decrease) % Change Real estate operating expenses $ 11,382 $ 11,117 $ 265 2.4 % Interest expense 5,993 5,707 286 5.0 % General and administrative 3,534 3,744 (210) (5.6) % Depreciation and amortization 6,708 6,580 128 1.9 % Total expenses $ 27,617 $ 27,148 $ 469 1.7 % Real estate operating expenses The change is due primarily to increases of (i) $108,000, primarily in water and sewer, and trash removal charges; (ii) $107,000 in real estate taxes due to higher property value assessments at Crossings of Bellevue and Verandas at Alamo Ranch; (iii) $100,000 advertising and leasing costs; and (iv) $92,000 in payroll costs. The decrease was offset by a $118,000 decrease in insurance expense due lower premiums on our master insurance policy. Interest expense The change is due primarily to the additional $363,000 mortgage interest expense related to the refinancing of the River Place, Boerne and Civic 1 mortgages in December 2025 (collectively, the "December Refinancings") which added $29 million to our debt at a higher interest rate (a weighted average interest rate of 4.95%) than the debt that was paid off. General and administrative Contributing to the decreases were (i) a net $186,000 in non-cash expense related to reduced amortization of equity awards due to the accelerated vesting of restricted stock in prior periods upon the retirements of executives and less favorable assessments as to the achievability of metrics associated with restricted stock units ("RSUs") and (ii) $88,000 in payroll costs due to reductions in headcount and compensation levels. Depreciation and amortization The increase is due primarily to faster rates of depreciation associated with certain property improvements. 23 Table of Content Equity in (loss) earnings of unconsolidated joint ventures Equity in (loss) earnings from unconsolidated joint ventures decreased to a loss of $1,000 for the three months ended June 30, 2026 from earnings of $299,000 for the three months ended June 30, 2025. The decrease is primarily due to our share of losses at properties acquired subsequent to the quarter ended June 30, 2025 ( i.e. , 1322 North and Oaks at Victory, collectively, "North/Oaks") including (i) $445,000 in depreciation of tangible assets, and (ii) $262,000 in amortization of lease intangibles. We anticipate that $121,000 in amortization of these lease intangibles will be incurred for the three months ending September 30, 2026, at which point such intangibles will be fully amortized. The decrease was offset by an improvement in results recognized at our same store unconsolidated properties. Insurance recovery of casualty loss During the three months ended June 30, 2025, we received $189,000 insurance reimbursements from casualty events that occurred at our Silvana Oaks property. There were no reimbursements in the corresponding period in 2026. 24 Table of Content Results of Operations Six Months Ended June 30, 2026 compared to Six Months Ended June 30, 2025 . Revenues The following table compares our revenues for the periods indicated: Six Months Ended June 30, (Dollars in thousands): 2026 2025 Increase (Decrease) % Change Rental and other revenue from real estate properties $ 48,211 $ 47,348 $ 863 1.8 % Loan interest and other income 868 955 (87) (9.1) % Total revenues $ 49,079 $ 48,303 $ 776 1.6 % Rental and other revenue from real estate properties The increase is due to (i) $690,000 increases in occupancy and rental rates and (ii) $226,000 in other revenue. Loan interest and other income The decrease is due primarily to decreased interest and investment income and the inclusion, in the corresponding period of 2025, of a gain associated with an easement sale. Expenses The following table compares our expenses for the periods indicated: Six Months Ended June 30, (Dollars in thousands) 2026 2025 Increase (Decrease) % Change Real estate operating expenses $ 21,871 $ 21,667 $ 204 0.9 % Interest expense 11,953 11,383 570 5.0 % General and administrative 7,401 7,814 (413) (5.3) % Depreciation and amortization 13,391 13,121 270 2.1 % Total expenses $ 54,616 $ 53,985 $ 631 1.2 % Real estate operating expenses The change is due primarily to increases of (i) $166,000 in advertising and leasing costs; (ii) $111,000 in repairs and maintenance; (iii) $110,000 in miscellaneous expenses, and (iv) $84,000 in real estate taxes. The increase was offset primarily by a $227,000 decrease in insurance expenses related to our master insurance policy. Interest expense The change is due primarily to the additional $720,000 mortgage interest expense related to the December Refinancings. The increase was offset primarily by a $121,000 decrease in such expense due to the decrease in the interest rate on our floating rate junior subordinated debt. General and administrative Contributing to the decreases were (i) a net $406,000 decrease in non-cash expense related to reduced amortization associated with equity awards due to the accelerated vesting of restricted stock in prior periods upon the retirements of executives, reversal of expenses associated with restricted stock units forfeited by retired employees, and a less favorable assessment as to the achievability of metrics associated with restricted stock units, (ii) the inclusion, in the corresponding period of 2025, of $110,000 in professional fees associated with out-of-scope audit procedures expensed in the six months ended June 30, 2025, and (iii) $83,000 in reduced payroll costs due to reduced headcount and compensation levels. 25 Table of Content The decrease was offset primarily by a $123,000 increase in allocated expenses related to legal expense associated with increased acquisition and refinancing activity. Depreciation and amortization The increase is due primarily to faster rates of depreciation associated with certain property improvements. Equity in (loss) earnings of unconsolidated joint ventures Equity in (loss)earnings from unconsolidated joint ventures decreased to a loss of $309,000 for the six months ended June 30, 2026 from earnings of $712,000 for the six months ended June 30, 2025. The decrease is primarily due to our $1.2 million share of losses recognized at North/Oaks. Included in the losses are (i) $877,000 in depreciation of tangible assets, and (ii) $819,000 in amortization of lease intangibles. The lease intangibles will be fully amortized by September 30, 2026. The decrease was offset by an improvement in results recognized at our same store unconsolidated properties. Insurance recovery of casualty loss During the six months ended June 30, 2026, we received $136,000 of insurance reimbursements from casualty events that occurred at our Bells Bluff and River Place properties compared to $257,000 of reimbursements received during the six months ended June 30, 2025. 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, pay dividends and to continue to repurchase our common stock. Generally, our primary sources of capital and liquidity are the operations of our multifamily properties (including distributions and/or income from the preferred equity investments and the operations of the unconsolidated multifamily properties), mortgage debt financings and refinancings (including proceeds (in excess of refinanced amounts), from the refinancing of properties that appreciated in value since the original financing), property sales, 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 August 3, 2026, our available liquidity was approximately $53 million, including $13 million of cash and cash equivalents and $40 million available under our credit facility. We anticipate that from July 1, 2026 through December 31, 2028, our operating expenses, $80.6 million of mortgage amortization and interest expense (including $28.0 million from unconsolidated joint ventures), $51.4 million, $103.1 million and $104.6 million of balloon payments with respect to mortgages maturing in 2026, 2027 and 2028, respectively (including $23.7 million, $60.3 million and $66.7 million maturing in 2026, 2027 and 2028, respectively, from unconsolidated joint ventures), interest expense on our junior subordinated notes, estimated cash dividend payments of at least $46.9 million (assuming (i) the current quarterly dividend rate of $0.25 per share and (ii) 18.8 million shares outstanding), will be funded in part from cash generated from operations (including distributions from unconsolidated joint ventures). Our operating cash flow and available cash is insufficient to fully fund the $259.1 million (including $150.7 million at unconsolidated joint ventures) of balloon payments due through 2028, 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 multifamily 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, (iii) obtain proceeds from the sale and/or refinancing of properties that have appreciated in value, and (iv) raise capital from the issuance of our common stock. At June 30, 2026, we had mortgage debt of $760.3 million (including $286.6 million of mortgage debt at of our unconsolidated subsidiaries). Our unconsolidated mortgage debt of $286.6 million is gross of $1.8 million in fair market value adjustments. The mortgage debt at our: (i) consolidated properties had a weighted average interest rate of 4.22% and a weighted average remaining term to maturity of approximately 5.9 years, and (ii) at our unconsolidated subsidiaries had a weighted average interest rate of 4.19% and a remaining term to maturity of approximately 3.1 years. 26 Table of Content Junior Subordinated Notes As of June 30, 2026, $37.4 million (excluding deferred costs of $207,000) 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, 2026 and 2025, the interest rate on these notes was 5.93% and 6.54%, 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, multifamily properties, (ii) to repay mortgage debt secured by multifamily 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 multifamily 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 June 30, 2026 and July 31, 2026, was 6.18% and 6.16% respectively. As of July 31, 2026, there was no outstanding balance on the credit facility and $40 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 June 30, 2026, we were in compliance in all material respects with the requirements of the facility. Other Financing Sources and Arrangements At June 30, 2026, we are joint venture partners in unconsolidated joint ventures which own ten multifamily properties. Our investments in these joint venture properties had a net-equity carrying value of $43.3 million and the distributions to us from these joint venture properties during the three months ended June 30, 2026 contributed $1.3 million to our liquidity and cash flow. We may be required to make significant capital contributions with respect to these properties. The underlying properties are subject to mortgage debt, which is not reflected on our consolidated balance sheet, of $286.6 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 June 30, 2026, we had preferred equity investments in two multifamily properties and during the quarter ended June 30, 2026, we generated $322,000 of loan interest income from these investments. At June 30, 2026, these investments had a carrying value of $17.8 million, are unsecured and are structurally subordinate to (including the payment of the returns thereon), an aggregate of $50.8 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 4.36 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. 27 Table of Content 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 undistributed taxable income ( i.e ., taxable income not distributed in the amounts and in the time frames prescribed by the Code). On July 9, 2026, 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, 2026. 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 July 2026) and repurchases of our common stock. With respect to our dividend payments, our board of directors, on a quarterly basis, 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. With respect to our stock repurchases, management evaluates the appropriateness of such repurchases in light of, among other things, available alternative investments, and our capital and liquidity requirements (near and long term). 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. 28 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. 29 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 June 30, Six Months Ended June 30, 2026 2025 2026 2025 GAAP Net loss attributable to common stockholders $ (3,221) $ (2,566) $ (5,903) $ (4,918) Add: depreciation and amortization of properties 6,708 6,580 13,391 13,121 Add: our share of depreciation in unconsolidated joint venture properties 2,022 1,436 4,268 2,969 Adjustments for non-controlling interests (4) (4) (8) (8) NAREIT Funds from operations attributable to common stockholders 5,505 5,446 11,748 11,164 Adjustments for: deferred rent concessions and straight line rent 23 (179) (166) (81) Adjustments for: our share of straight-line rent and rent concession accruals from unconsolidated joint venture properties (17) 5 (48) (7) Add: amortization of restricted stock and RSU expense 948 1,135 1,870 2,277 Add: amortization of deferred mortgage and debt costs 280 284 559 567 Add: our share of deferred mortgage costs from unconsolidated joint venture properties 41 30 84 60 Add: amortization of fair value adjustment for mortgage debt 69 126 141 255 Adjusted funds from operations attributable to common stockholders $ 6,849 $ 6,847 $ 14,188 $ 14,235 30 Table of Contents Three Months Ended June 30, Six Months Ended June 30, 2026 2025 2026 2025 GAAP Net loss attributable to common stockholders $ (0.17) $ (0.14) $ (0.31) $ (0.26) Add: depreciation and amortization of properties 0.35 0.35 0.70 0.69 Add: our share of depreciation in unconsolidated joint venture properties 0.11 0.08 0.23 0.16 Adjustment for non-controlling interests — — — — NAREIT Funds from operations per diluted common share 0.29 0.29 0.62 0.59 Adjustments for: deferred rent concessions and straight line rent — (0.01) (0.01) — 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 0.06 0.05 0.10 0.12 Add: amortization of deferred mortgage and debt costs 0.01 0.02 0.03 0.03 Add: our share of deferred mortgage and debt costs from unconsolidated joint venture properties — — — — Add: amortization of fair value adjustment for mortgage debt — 0.01 0.01 0.01 Adjusted funds from operations per diluted common share $ 0.36 $ 0.36 $ 0.75 $ 0.75 Diluted shares outstanding for FFO and AFFO 18,825,000 18,909,000 18,896,000 18,906,000 Three Months Ended June 30, 2026 and 2025 FFO for the three months ended June 30, 2026 improved slightly on an absolute dollar basis from the corresponding quarter in the prior year primarily due to (i) an increase in rental revenues, and (ii) a decrease in expenses relating to equity awards. The improvement was offset by, among other things, by (i) an increase in interest expense, (ii) decrease in straight-line rent revenue related to concessions, (iii) a reduction in insurance recovery of casualty loss, and (iv) a decrease in other income. AFFO for the three months ended June 30, 2026 improved nominally on an absolute dollar basis from the corresponding prior year due to the factors contributing to the changes in FFO, excluding the impact of straight-line rent revenue adjustments and expenses relating to equity awards. See " Results of Operations - Three Months Ended June 30, 2026 compared to three months ended June 30, 2025 " for a discussion of these changes. Six Months Ended June 30, 2026 and 2025 FFO for the six months ended June 30, 2026 increased on an absolute dollar basis from the corresponding period in the prior year primarily due to (i) an improvement in operating margins due to an increase in rental revenues, and (ii) a decrease in expenses relating to equity awards. The increase was offset primarily by (i) an increase in interest expense, (ii) a decrease in other income, and (iii) a reduction in insurance recovery of casualty loss. AFFO for the six months ended June 30, 2026 decreased on an absolute dollar basis from the corresponding prior year period due to the factors contributing to the changes in FFO, excluding the impact of straight-line rent revenue adjustments and expenses related to equity awards. See " Results of Operations - Six Months Ended June 30, 2026 compared to six months ended June 30, 2025 " for a discussion of these changes. 31 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 June 30, Six Months Ended June 30, 2026 2025 Variance 2026 2025 Variance GAAP Net loss attributable to common stockholders $ (3,221) $ (2,566) $ (655) $ (5,903) $ (4,918) $ (985) Less: Loan interest and other income (433) (468) 35 (868) (955) 87 Add: Interest expense 5,993 5,707 286 11,953 11,383 570 General and administrative 3,534 3,744 (210) 7,401 7,814 (413) Depreciation and amortization 6,708 6,580 128 13,391 13,121 270 Provision for taxes 37 60 (23) 113 118 (5) Less: Insurance recoveries — (189) 189 (136) (257) 121 Adjust for: Equity in loss (earnings) of unconsolidated joint venture properties 1 (299) 300 309 (712) 1,021 Add: Net income attributable to non-controlling interests 40 43 (3) 80 87 (7) Net Operating Income $ 12,659 $ 12,612 $ 47 $ 26,340 $ 25,681 $ 659 Less: Non-same store Net Operating Income 285 316 (31) 572 638 (66) Same store Net Operating Income $ 12,374 $ 12,296 $ 78 $ 25,768 $ 25,043 $ 725 For the three months ended June 30, 2026, NOI increased from the corresponding period in 2025 primarily due to a $336,000 increase in rental revenue offset by a $258,000 increase in real estate operating expenses. See "Results of Operations - Three Months Ended June 30, 2026 Compared to the Three Months ended June 30, 2025" for a discussion of these changes. For the six months ended June 30, 2026, NOI increased from the corresponding period in 2025 primarily to a $915,000 increase in rental revenue offset by a $190,000 increase in real estate operating expenses. See " Results of Operations - Six months Ended June 30, 2026 compared to the Six Months ended June 30, 2025 " for a discussion of these changes. 32 Table of Contents