Q1 2022 BRT Apartments Corp Earnings Call

Good morning, everyone and welcome to the BRT Apartments Corp, first quarter 2022 earnings conference call.

Today's conference is being recorded.

And at this time I'd like to turn the floor over to Steven Swett Investor Relations. Sir you may begin.

Thank you for joining us today for BRT apartment Corp's first quarter 2022 earnings conference call.

On the call today is Jeffrey Gould, President and Chief Executive Officer.

Also available are George why our Chief Financial Officer, Ryan Baltimore, Chief Operating Officer, and David <unk> Senior Vice President.

I'd like to remind everyone that this conference call contains forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995 that are based on management's current expectations assumptions and beliefs.

Forward looking statements can often be identified by words, such as believe expect estimate anticipate intend and similar expressions and variations or negatives of these words. These forward looking statements include but are not limited to statements regarding brt's strategy and expectations for the future. They are not guarantees of future results.

Subject to risks uncertainties and assumptions that could cause actual results to differ materially from those expressed in any forward looking statements.

Listeners should not place undue reliance on any forward looking statements.

And I encourage you to review the company's SEC filings, including its Form 10-K Form 10-Q for a more complete discussion of risks and other factors it could affect these forward looking statements.

Except as required by law BRT does not undertake any obligation to publicly update or revise any forward looking statements.

This conference call also includes a discussion of funds from operations or <unk> adjusted funds from operations or <unk>.

Net operating income or NOI and information regarding our pro rata share of revenues expenses NOI assets and liabilities.

Ah Brt's unconsolidated subsidiaries, all of which are non-GAAP financial measures of performance.

These non-GAAP measures should be used as a supplement to and not a substitute for net income computed in accordance with GAAP.

Unless otherwise indicated or the context, otherwise requires discussions with respect to operating results at the unconsolidated ventures reflect brt's pro rata share of such results.

For a more complete discussion of our financial results as reported in accordance with GAAP see the company's earnings release and supplemental information, which are currently available under the Investor Relations tab at our website and the 10-Q, which BRT anticipates filing later today.

All amounts are approximate and among other things reflect rounding.

Unless otherwise indicated or context, otherwise requires references to brt's portfolio, where it's multifamily portfolio and references to revenues expenses NOI assets and liabilities.

Refer to results and accounts of PRT as wholly owned subsidiaries and its pro rata share of unconsolidated subsidiaries.

Or to use its pro rata share to help provide a better understanding of our own consolidated joint ventures.

However, the use of pro rata information has certain limitations and is not representative of our operations and accounts as presented in accordance with GAAP.

Accordingly pro rata information should be used with caution and in conjunction with the GAAP data presented in our supplemental and in our reports filed with the SEC.

References to the current quarter referred to the quarter ended March 31, 2022, and references to the 2021 quarter refer to the quarter ended March 31 2021.

As a reminder, the company's supplemental information and earnings release has been posted on the Investor Relations section of Brt's website at Www Dot BRT apartments Dot com.

I'd now like to turn the call over to President and Chief Executive Officer Jeffrey Gould. Please go ahead Jeff.

Thank you and welcome to the call.

We began 2022 with another strong quarter of performance across our portfolio as we continue to benefit that we believe to be good fundamentals across most of our markets driven by ongoing population and job growth as well as a significant shortage of quality housing in many of these areas.

Additionally, we have made significant progress on our strategic program to grow our portfolio through acquisitions about partners interests. We believe this is a unique opportunity for PRT in today's investment environment, where competition for quality assets is aggressive and cap rates are at historic lows. As a result, we are executing on multiple Apis.

They used to buy our partners' interests Mr.

You'll also have the significant ancillary benefits of a simplified structure greater transparency and enhanced flexibility for BRG to drive long term growth for our stockholders.

Let me begin with our results for the quarter of 2022.

Net income attributable to common stockholders was $11 $5 million or 62 cents per diluted share compared to a net loss of $3 $8 million or 22 cents per diluted share in the same quarter of 2021.

The improvement was due primarily to our 13 million dollar share of a gain from the sale of a property owned by an unconsolidated subsidiary.

<unk> was $7 $2 million or 39 cents per diluted share compared to $5 $1 million or <unk> 30 cents per diluted share in the first quarter of 2021.

Contributing to a 30% increase in <unk> per share were improved operating margins at same store properties.

Our acquisition of our partner's interest in several joint ventures, and lower interest expense offset by property sales.

<unk> was also affected by the issuance of shares on our ATM and equity incentive programs.

Turning to our portfolio at March 31, 2022, our wholly owned portfolio consists of 11 multifamily communities.

<unk> 2864 units, we also own interest through unconsolidated entities and another 22 communities containing 6121 units.

Average occupancy for the portfolio was 96, 4% for the quarter ended March 31, 2022 up two 8% compared to the 2021 quarter.

Average rents for the portfolio in the first quarter of 2022 $1215 per month up nine 2% compared to the 2021 quarter.

For leases signed in the first quarter of 2022, we saw favorable spreads on new leases at 12, 6% renewal spreads of nine 7% and overall spreads of 10, 9%.

In the first quarter 2022, our same store pool for the portfolio included 7000 and 729 units.

These properties same store revenue grew 10, 6% same store expenses increased by four 3% and same store NOI grew 15, 9% in each case from the 2021 quarter.

Regarding transactions year to date, we've been very active during the first quarter and subsequent to quarter end and buying out the interest of our joint venture partners let.

Let me highlight our activities so far in 2022.

In March we purchased for $8 $7 million, a partner's remaining 28, 1% interest in the venture that owns verandas at Alamo, a 288 unit multifamily property in San Antonio Texas.

In April we purchased for $4 $8 million, our partner's remaining 21, 6% interest in the venture that owns Vanguard Heights way 174 unit multifamily property located increased corn, Missouri.

In addition, we entered into separate agreements to acquire the remaining venture partners' interest at nine multifamily properties with an aggregate of 2000 and 382 units.

The aggregate purchase price for these non interest is approximately $89 million and we expect to include on our consolidated balance sheet.

So the $187 $7 million of nonrecourse mortgage debt already on these properties with a weighted average remaining chairman to maturity of six seven years and a weighted average interest rate of 468%.

After giving effect to the 10 purchases, including Vanguard Heights, we estimate that our consolidated balance sheet reflects approximately $786 million of real estate assets and approximately $429 million of mortgage debt. We are excited about completing these transactions and expect all to be completed by August 1st.

Turning to the capital recycling.

During the first quarter of 2022, we sold the 288 unit property in San Antonio, Texas, We retired $25 $1 million of mortgage debt and our share of the gain on sale was approximately $13 million. This transaction provided us with an IRR of over 18%.

In addition, subsequent to quarter end in April 2022.

Agreed to sell a retreat of Cinco Ranch H 268 unit multifamily community in Katy, Texas, and which BRT holds a 70% equity interest for $68 $5 million.

We will be retiring $32 million of debt with this disposition.

We anticipate this transaction will be completed in May 2022, subject to customary closing conditions.

Expect that our share of the gain net of prepayment charges will be approximately $16 $4 million and we estimate our IRR will be approximately 24%.

Also in May 2022, we agreed to sell devices.

On June 12 unit multifamily property in Kannapolis, North Carolina in which the company holds a 65% equity interest for $92 million, we will be retiring $31 $6 million of debt with this disposition.

We expect that our share of the gain net of prepayment charges will be approximately $21 $5 million and we estimate our IRR will be approximately 41%.

We anticipate that the sales of the retreat and Cinco ranch and the vibe will be completed by June 30.

I would add.

Of course these two sales may be completed before all of the partner Buyouts described below are completed and BRT or sell their brand is a shallow now in February 2022, there may be a slight decline in operating results in the second quarter of 2022.

The corresponding to 2021 quarter.

After all the announced sales and virus are completed these transactions are not expected to have a material impact on short term bottom line operating results.

On the value add front, we repositioned 83 units at an average investment of approximately 5300 jobs per unit, yielding an estimated annualized return on investment of approximately 49%.

As reflected in our supplemental financial information a portion of the cost may have been incurred in the prior period, but we report the return on investment when the unit is released.

Cross our entire portfolio, we have approximately 800 units available for renovation over the next several years.

Turning to the balance sheet.

March 31 for 2022, we had total assets of $483 million total debt of $249 million and total BRT stockholder equity of $214 million.

Available liquidity at quarter end included $29 $7 million of cash and cash equivalents restricted cash of $6 $5 million, primarily for capital improvements and up to $35 million available under our credit facility.

In addition, our unconsolidated joint ventures had approximately $11 $6 million of cash and cash equivalents, which is used for the applicable adventures day to day working capital purposes and renovations.

Yeah, I agree with mortgage debt for our wholly owned properties combined with our pro rata share of mortgage debt for our unconsolidated joint ventures totaled $558 $2 million with a weighted average interest rate of 394% and a weighted average remaining term to maturity of eight five years.

We continue to keep a focus on our leverage ratios and we have brought our debt to enterprise value as of March 31, 2022% to 59% down from 72% at March 31 2021.

And made second 2022, our available liquidity was approximately $62 $7 million comprised of $21 $5 million of cash and cash equivalents $6 $2 million of restricted cash and subject to compliance with borrowing base and other requirements up to $35 million available.

Under our credit facility.

In the first quarter, we sold approximately 136000 shares pursuant to our ATM sales program at a weighted average price per share of $22 61.

Net proceeds were approximately $3 million.

Finally on March 19, 2022, we declared our quarterly dividend of <unk> 23 per share the current dividend equates to an annualized yield of four 5% based on our stock price of $20 53.

As of the close of business May six 2022.

In conclusion, the first quarter was a great start for the year for BRT during which we continued to make progress we're recycling capital effectively through targeted dispositions, where we believe we have maximized value and growing the company by acquiring our partner's interest in properties that we are very familiar with.

As we look ahead to the balance of 2022 and beyond.

I'm excited about the opportunities in front of us.

Want to thank the entire BRT team for their hard work and contribution to our successes.

That completes our call we will now open the call to your questions operator.

Ladies and gentlemen at this time, we'll begin the question and answer session to ask a question you May Press Star and then one using a touchtone telephone.

All your questions you May press star two.

If you are using a speaker phone we do ask you. Please pick up the handset before pressing the numbers to ensure the best sound quality.

Once again that is star and then one to ask a question.

We'll pause momentarily to assemble the roster.

And our first question. This morning comes from Craig Kucera from B Riley FBR. Please go ahead with your question.

Yeah, Hey, good morning, guys.

Pretty good prices negotiated here on the next round of asset sales, but can you tell us what that what the cap rates are on those dispositions that were negotiated here.

And those two sales.

Yeah, actually I'm going to turn it over to Ryan Baltimore to give you the specifics of the cap rates.

But we were very pleased with what the numbers are right do you have that specific.

Yeah, well, we don't we don't actually provide the specific cap rate, but they were definitely in line with the current market environment.

Prior to the large interest rate hike. So we were very pleased with where those transactions to shut down.

Yeah got it that makes sense that they look they look pretty low to me on the back of the envelope.

With the 68 million it looks like roughly you're going to have about 68 million of net proceeds after paying down the debt and given your equity ownership in those those sales.

I guess outside of the consolidation of your joint venture interests that you've announced.

Can you give us a sense of what the dollar amount is of incremental acquisitions, you might do outside of the JV interests or are you going to or is that basically just take care of that equity piece yeah. Yeah.

Yes, correct, what we're focusing specific for the JV and we have the appropriate caching and liquidity to handle all the acquisitions that we plan to deal with.

Got a point people as I indicated.

As far as new investments, it's a very competitive landscape right now very difficult. We are in the market, both direct and with JV partners, but the reality of it is the direct acquisition market is tough and we're spending a lot of time with it and when we don't have any specific projections on omni.

Buyouts at this point.

Got it and I guess I'd be curious to hear what you're seeing as far as.

Either the buyer pool shifting or maybe pricing and cap rates on some of those acquisitions out there that you mentioned are fairly tough right now.

Yeah. So it's an interesting time, where we've we've not seen any major change in cap rates, but we haven't seen a change in the buyer pool. So what we're saying now is anybody who was typically a bidder and there are many that needed financing.

Those bidders seem to not be nearly as productive well.

What we're seeing is those funds and buyers who have all cash opportunities, we don't need to go out for financing right now and.

I think for the next period of time, that's going to be the case, where funds core barnwell cash will probably be the buyers and then we expect well pursue that after that period of time, we think we might see.

Incremental in cap rates and more buying opportunities.

Got it and and I'd be curious to hear.

Rental growth looks pretty strong across the board in the first quarter, but.

Given the changing inflation environment are you seeing any markets may be where you did see maybe some deceleration in the ability to push rent, particularly in March or maybe some of those leases rolling over perhaps in April .

We've seen the continued strong market.

Across the board.

I don't want get into each specific a beach location, but generally speaking it's been very positive we haven't seen a significant decrease.

But obviously mark to market dependent.

But it's been pretty solid I don't anticipate or expect us to continue at this rate.

But it's been pretty strong.

Through this period of time.

Okay, Great and just one more for me I saw you bought an interest in John's Island development could.

Can you talk how are you thinking about just development risk at this point in the cycle and is that something that you're going to likely dabble in or would we expect to see maybe more of that.

Well, we made a relatively small investment with a with our only strategic development partner that we've done a number of deals with in the past years ago, we're very confident with them obviously they've.

We've taken into account and we've taken into account increase in construction costs and yes. There is with the interest rate increases on the permanent financing that there's something to be wary of and think about so we do have the anticipated and when we when we do our underwriting we assumed a higher interest rate on the permanent debt. So it was accounted for we have a.

A lot of confidence that these guys and working with them I think we may possibly do more with them.

But it's not going to be a significant part of the business now it'll be a on a more modest scale pushes the whole I mean.

Basically.

Our thesis behind it is if you can build with cap rates at the end of the term on stabilization that are far better than what you can buy existing properties.

And have brand new quality assets, it's a win but obviously it all depends on construction costs like you said and financing alternatives. So we're watching it carefully and I think we may do some but it would be on a limited basis.

Okay, great. Thanks, I appreciate it.

Once again, we'd like to ask a question. Please press star and then one.

Draw your questions you May press star two.

Well pause once again to assemble the roster.

And ladies and gentlemen at this time in showing no additional questions I would like to turn the floor back over to the management team for any closing remarks.

I just wanted to say thank you to all for joining US all of your continued interest in PRT and wish you all happy and have a nice day. Thank you.

And ladies and gentlemen, with that we'll end today's conference call and presentation. We thank you for joining you may now disconnect your lines.