Q3 2022 BRT Apartments Corp Earnings Call

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Okay.

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Good day and welcome to the BRT Apartments Corp, third quarter 2022 earnings Conference call.

Today's conference is being recorded.

I'd like to turn the floor over to Mr. Kevin Reid of ICR. Thank you, Sir and you bring it up again.

Okay.

Thank you for joining us today BRT apartment Corp's third quarter 2022 earnings conference call on the call today is Jeffrey Gould President and Chief Executive Officer also available are George Dwyer, Chief Financial Officer, Ryan Baltimore, Chief Operating Officer, and David <unk> Senior Vice President.

I would 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.

Listeners should not place undue reliance on any forward looking statements and are encouraged to review the company's SEC filings, including its Form 10-K and Form 10-Q for a more complete discussion of risks and other factors that could affect these forward looking statements except as required by law.

New York He does not undertake any obligation to publicly update or revise any forward looking statements.

This call also includes a discussion of non-GAAP measures, including U S. S O.

O N O y.

Information regarding our pro rata share of revenues expenses NOI.

And liability with a b our keys on consolidated subsidize.

All of the non-GAAP information discussed today is certain limitations.

Use of caution and in conjunction with GAAP data presented in our supplemental earnings release and in our reported filings with the SEC.

Unless otherwise indicated or the context, otherwise requires references to be archaeas portfolio or its multifamily portfolio and references to revenues expenses NOI assets and liabilities refer to results in accounts of BR keys wholly owned subsidiaries and its pro rata share of unconsolidated.

<unk> subsidiaries.

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

Anticipate that our quarterly report on Form 10-Q will be filed later today.

I'd now like to turn the call over to President and CEO Jeffrey Goldberg.

Please go ahead Jeff.

Thank you and welcome to the call. We are pleased to share that <unk> had another strong quarter across our portfolio.

And deliberate approach we have used over the past year to grow our portfolio through acquisitions of our joint venture partner's interest has resulted in a strong quarterly operational results.

Quality property portfolio is located in a strong and growing markets.

It's priced at a fixed rate mortgage debt with no near term maturities until 2025, providing guarantee with a significant hedge to weather an increasingly uncertain macroeconomic backdrop.

We have been prudent in our planning and judicious in our execution and growing our wholly owned portfolio, which currently stands at 21 properties.

Going forward, we are watching the markets carefully as interest rates rise in pricing evolved as always we will remain disciplined in our process to identify properties that meet our quality and underwriting standards.

We've been through cycles before and we believe that the current dislocation and uncertainty in the broader economy will lead to opportunities in beer tea will be there to take advantage of them when they do.

Turning to our results for the third quarter of 2022.

Net income attributable to common stockholders was seven point over $6 million or <unk> 37 cents per diluted share compared to $28 $1 million or $1.54 per diluted share in the same quarter of 2021.

The change is due primarily to a larger gain on sale and a non consolidated property in the corresponding period in the prior year.

<unk> was $707 million with 38 cents per diluted share compared to $5 six $6 million or 31 cents per diluted share in the third quarter of 2021.

The increase in <unk> per share is due primarily to improved operating margins across our portfolio and the incremental impact of partner buyouts. The increase was offset by increased general and administrative expenses and income tax expense.

Turning to our portfolio.

September 30th 2022, our wholly owned portfolio consist of 21 multifamily communities containing 5420 units.

Also own interests through unconsolidated entities and another eight communities totaling 2000 and 781 years.

Average occupancy for the portfolio was 96, 2% for the quarter ended September 32022 unchanged as compared to the 2021 quarter.

Average monthly rents for the portfolio in the third quarter 2020 to $1301 per month up 13% compared to the 2021 quarter.

For leases signed in the third quarter of 2022, we saw a favorable spreads on new leases at 16, 1% renewal spreads at 10, 8% and overall spreads of 13, 5%.

In the third quarter 2022, our same store pool for the portfolio included 4389 units of which 1608 were consolidated in 2000 and 781 were owned by unconsolidated joint ventures for these properties same store revenue grew 11, 4%.

Store expenses increased by three 6% and same store NOI grew 18, 3% in each case for the 2021 quarter.

Regarding transactions year to date, we have been disciplined in our growth plans and are very pleased with our partner buyouts made earlier in the year, we continued to be selectively opportunistic in the third quarter as the macroeconomic environment has grown more uncertain given the rising interest rates and widening bid ask spreads that have resulted in a decrease of industries.

Transaction volumes and less insight into cap rates. Thanks.

Staying true to our discipline of managing our portfolio and recycling capital in the third quarter, we sold the unconsolidated joint ventures that own water edge at harvest and a 204 unit multifamily community in Columbia, South Carolina, and which BRT held an 80% equity interest for $32 $4 million.

B R. A T share of the gain was approximately $11 5 million and B R. A T shirt with a mortgage prepayment charge was $388000 VRT generated and an approximately 20% IRR from the property over the six years. It was owned and the proceeds from the sale were used to pay down our credit facility.

In the third quarter of 2020 to be our T completed the previously announced partner buyouts at five properties in total for 2022 PRT completed partner Buyouts had 11 properties for an aggregate purchase price of $105 $9 million consisting of 2844 units.

As a result of the completion of these purchases all of these properties are wholly owned by D. R. A T.

Subsequent to quarter end, the mortgage debt on the Savannah Oaks property in the amount of $14 $9 million matured and was paid off by borrowing from our credit facility.

At September 32022, we had total assets of $744 million total debt of $463 million and total PRT stockholder equity of $257 million available liquidity at quarter end included approximately $22 million of cash and cash equivalents.

And up to $51 million available under our recently amended credit facility. In addition, our unconsolidated joint ventures had approximately $15 million of cash and cash equivalents, which is used for the applicable ventures day to day working capital purposes and renovations.

And November four 2022, our available liquidity was approximately $56 million comprised of $15 million of cash and cash equivalents and up to $41 million available under our credit facility.

The aggregate mortgage debt as at September 30th for our wholly owned properties combined with our pro rata share of mortgage debt for our unconsolidated joint ventures totaled $549 $5 million with a weighted average interest rate of 397% and a weighted average remaining term to maturity of seven five years.

We continue to focus on our leverage ratios as we improved our debt to enterprise value as of September 30 of 2022% to 62% down from 66% at September 32021.

In the third quarter, we sold approximately 174000 shares.

Utilizing our ATM sales program at a weighted average price per share of $22.22.

Net proceeds were approximately $3 $9 million.

Also in the quarter, we strengthened and enhanced our financial flexibility by amending our credit facility, which among other things increase the amount we can borrow at a $60 million increase the amount that may be used for working capital and operating expenses to $25 million extended the term of the facility to September 2025.

<unk> and reduce the interest rate to the prime rate with a floor of three 5%.

Finally on October seven 2022, we paid a quarterly dividend of 25 cents per share unchanged from the prior quarterly dividend. The current dividend equates to an annualized yield of 4.7% based on our stock price of $21.43 as of the close of business on November four 2022.

To conclude we are pleased with our progress made to date and contingent continued to position ourselves well to capitalize on opportunities as they present themselves. We have been prudent regarding capital allocation and disciplined with our acquisition strategy, but also have the ability to definitely navigate today's inflationary environment with our <unk>.

<unk> balance sheet, the ongoing population and job growth across many of our markets gives us the comfort and confidence that we will continue to create long term sustainable value for our stockholders as always I want to thank the entire BRT team for their continued hard work and contribution to our successes and on behalf of myself and the team.

I want to thank you for your continued support of BRT apartments.

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

Okay.

Thank you now begin the question and answer session.

Ask me quirky in my Press Star then one on your Touchtone phone.

So the speakerphone, please pick up perhaps up before Brian Mcgee.

Withdraw your question. Please press Star then two.

This time, we'll pause Coleman.

The dog.

First question comes from Gary My Dog E. F. Hutton. Please go ahead Sir.

Yeah. Thanks, good morning.

I was wondering if you could provide some color on the transaction market.

What kind of movement have you seen in cap rates as interest rates have gone up in your markets.

Yes, Hi, Greg.

Yeah, so transactions have slowed considerably the amount of <unk>.

Volume of transactions as well.

Almost come to I wouldn't say, a help but it's way way down from years past.

I think the bid ask and getting sellers to understand the real world of what's happening with cap rates.

Since interest rates have moved so high it's going to take some time for them to digest that and knowledge and I think for the time being it's going to be a period of time, we're getting you know getting the sellers to understand this is gonna be a few months process at minimum we've seen cap rates are.

Right I'd say at least about 125 basis points, if not more from the few deals that we've seen and been on but I think it's going to take some time again for the sellers to understand.

Where pricing is as of now and cap rates are difficult to actually ascertain because of the amount of closed deals that have happened over the last few months.

Okay, maybe on the operation side.

Have you seen any.

Weakness at all in terms of how much you can push rents or are you still able to push rents.

To your tenants.

Yeah, we've been able to continue to push rents I would say that the amount at which were in the velocity at which were been able to increase the rents has slowed a little bit for sure still.

Very positive and still terrific as a matter of fact that lasts longer than I had expected.

Thought that was going to slow down earlier than it did but still seeing very nice increases, but not to the same extent that we were.

Over the last maybe six to nine months.

This time of year Occupancies tends to drop a little bit our turnover seems to drop a little bit as well, but I'm asking rents are still positive, but just not to the same extent as the you know.

Crazy increase youre getting.

Over the last few quarters.

Okay, and maybe lastly on the renovation side.

Do you expect to continue doing renovations in next year.

<unk> has slowed down as compared to six to nine months ago.

Yes, we still plan on actively involving ourselves in our in our renovations of individual units I think that actually may tick up as we bought out some of these.

Partners over the course of the past year.

There's opportunity to increase rents pretty significantly and the return on investment for the renovated units are terrific. So I anticipate that we will probably do.

Continue to do more and hope to do as many as we can because it's a great opportunity.

To increase cash flow.

Okay. Thanks, that's all I had.

Okay. Thanks, Laura.

Yeah.

Yeah.

Thank you again, if you have a question. Please press Star then one.

A question from Craig Kucera B our securities.

Go ahead.

Yeah. Thanks, good morning, guys.

Wanted to start first talking about your same store NOI.

You know clearly here in the third quarter, a pretty strong ability to push rents, but I think in the first half of the year you had a bit more challenges on the operating expense side, but that that clearly clearly changed here in the third quarter. I think your expenses were up maybe 3% or so is there anything in particular that you attribute that to.

Yeah, I would I mean, we are we are seeing generally some increases in expenses and yes, the expense side of things.

The light I would say, primarily because we've had some favorable tax tertiary properties, which I think contributed to that.

We're seeing more specific we're definitely seeing some increases with utilities payroll I insurance et cetera, but the tax tertiary and the benefits of those in and the.

Booking those definitely were favorable why and why the expenses were as low as they were.

Okay. Thanks, Thanks for that.

And just curious as you you know you have people coming in and signing new leases that are you know pretty widespread relative to the prior.

Do you have any sense that the renters coming to your properties or maybe trading down from higher priced rentals.

Maybe they're marginally higher income type renters or any other sort of surveys that you do to try to determine kind of where they're coming from.

Yeah, I don't we have where we're trying to track and we've been when we're doing something now to track.

The migration from either from higher end properties I would tell you that.

We have not specifically noticed that but and it's been a pretty consistent theme what we've noticed.

Over the last few months is.

We're seeing a there was a little bit more.

Let's say an issue, but a little bit more a concern of what people can pay now and the affordability factor may may start to creep in a bit more but fortunately delinquencies have been low et cetera, but we have not necessarily seen ashish.

A huge migration from a quality too to ours, it's been a pretty stable flow of continued beef.

B, b plus or a minus renters.

But I wouldn't be surprised to see some of those eight migrating down to kind of the workforce housing that we can.

Supply with the amenity packages and everything else, we have so we're keeping an eye on it and probably have a better answer for you next quarter, but it wouldn't be surprising if we do see more of that.

Yeah.

Okay. Thanks appreciate it.

Thank you.

This concludes our question and answers after all a good turn the conference back over to Mr. Gould for closing remarks.

I just want to thank you all for your time this morning, and your continued interest in BRT.

I Hope you all have a great day, and we'll speak again soon thank you.

Oh now concluded. Thank you for attending today's presentation you may now disconnect.

Yeah.

Okay.