Q2 2023 BRT Apartments Corp Earnings Call
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Good day and welcome to the BRT apart.
<unk> Corp, second quarter 2023 earnings call.
All participants will be in you said only mode.
So do you think the system piece, she got a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. Just a quick question. You May Press Star then one on a touchtone phone to withdraw your question. Please press Star then two please.
Please note. This event is being recorded I would now like to turn the conference over to Tripp Sullivan.
Investor Relations. Please go ahead.
Thank you for joining us today on the call.
Jeffrey Gould, President and Chief Executive Officer, George Wire, Chief Financial Officer, Ryan Baltimore, Chief operating officer, as well as David English Senior Vice President.
I would like to remind everyone. This conference call contains forward looking statements within the meaning of the private Securities Litigation Reform Act.
Any time, you are based on management's current expectations assumptions and beliefs.
Listeners should not place undue reliance on any forward looking statements.
To review the company's SEC filings, including its Form 10-Q for a more complete discussion of risks and other factors that could affect these forward looking statements.
Sept as required by law BRT 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 at Pepco.
That though in Hawaii combined portfolio in Hawaii.
Information regarding our pro rata share of revenues expenses, NOI assets and liabilities of Brg's consolidated subsidiaries.
All of the non-GAAP information discussed today, certain limitations and should be used with caution.
And with the gap data presented in our supplemental.
Earnings for the.
Our reports filed with the SEC.
You see these reports and filings with the definitions of each non-GAAP measure.
As a reminder, the company's supplemental information and earnings release have been posted on the Investor Relations section of Brt's website at Www Dot BRT apartments Dot Com I would now like to turn the call over to President and CEO Jeffrey Goldberg. Please go ahead Jeff.
Thank you and welcome to the call.
Start with some brief comments on our overall performance and the transaction environment and I'll turn the call over to George and Ryan for some additional color around our results.
Operationally, we continue to perform well across our portfolio and were able to show a solid rent growth during the spring leasing season.
Clearly the elevated rent increases and occupancy from a year ago that were influenced by the pandemic are moderating, but the fundamentals in our markets are still strong and our tenants continue to be in good financial position, while we had a couple of properties hold back. The overall performance we are within the range of expectations, we outlined for the year.
New supply is something we track very closely.
Point of concern for the industry. So far this year as we look across the portfolio, we've seen primarily in Huntsville, Nashville and to a lesser extent in Pensacola.
Of course, we have a presence in Dallas, but that market.
<unk> nicely Nashville is really the only market that is.
And in fact beyond that we've expected and I would say that's more related to the particular dynamics in Nashville that could take some time to work through as Ryan will note. Later, we believe we've positioned that property to be back on track later in the year.
The transaction market is as quiet as ive ever to recall, we continue to review a number of potential opportunities, whether they be acquisitions or working with developers that need capital activity is minimal in this space to the cap rates as well as the fact that buyers need to underwrite higher insurance costs combined combined with higher interest rates.
We were pleased to complete the sale by our joint venture of the Chatham core property in Dallas during the second quarter at a sub 5% cap rate, which generated an IRR of 22% over a seven year old. We also generated net proceeds of $19 $4 million after giving effect to repaying our pro rata share of <unk> 12.
$7 million in secured debt on the property.
As we disclosed in mid May we elected to allocate some of the proceeds from the disposition to repurchase common stock given where our stock has been trading in the opportunity to reallocate capital on an accretive basis. The board elected to increase our repurchase authorization for up to $10 million during the second quarter and to date in <unk>.
Third quarter, we purchased approximately 355000 shares at a weighted average of $19.03 based on that repurchase activity, we have a little over $3 million remaining in our current repurchase authorization.
We are fortunate to have the liquidity to deploy capital to accretive opportunities when they arise and we will remain very disciplined in how we allocate that capital the lack of debt maturities until 2025, and a strong portfolio allows us to be very patient in this market and I think that patients may be rewarded later in the year.
Into 2020 for George.
George Please take it from here.
Thank you Jeff.
The second quarter results continue to reflect the positive impact on a year over year basis for the partner buyouts and improved operating margins across the portfolio.
However, we were not able to see the full benefit of the improvement in our portfolio due to some disappointing results at two of our properties.
Ryan will get into our operational plans for these properties in a moment.
Overall net income attributable to common stockholders was <unk> 58 per diluted share compared with net income of $1 91 per diluted share a year ago.
Primary reason for the year over year decline was at $2 26 per share gain in the prior year period from the sale of two properties owned by unconsolidated subsidiaries.
<unk> was 28 cents per diluted share compared to 20 per diluted share a year ago, primarily due to a reduction in early extinguishment of debt and a decline in the income tax provision. This was offset somewhat by an increase in interest expense.
<unk> was 37 cents per diluted share compared to 37 cents per diluted share a year ago, primarily due to the decrease in the income tax provision and the increase in insurance recovery, we disclosed last quarter.
Offset by the increase in interest expense.
For the combined portfolio recurring Capex was 1.4 dollars 7 million for the quarter.
When you add the $719000 in replacements that flows through the real estate operating expenses on our P&L that totals approximately $2 2 million or $284 per unit.
There continues to be below the $300 per unit up replacements, we had been assuming in our expense growth included in the combined portfolio NOI guidance.
We completed the rehab Ah 65 units during the quarter for an investment of $477000 and an estimated annualized ROI of 45%.
Non recurring Capex, which represents revenue enhancing and major upgrades to properties totaled $1 $45 million during the quarter.
Turning to the balance sheet debt to enterprise value as of June 30th was flat at 63% compared with a year ago, primarily due to the lower market capitalization. This period at a higher debt a year ago.
Available liquidity at quarter end was $91 million, which is comprised of cash and availability under our credit facility.
At August 1st liquidity was $87 million.
As of June 30th our consolidated and unconsolidated mortgage debt at a weighted average interest rate of four point of 1% and a weighted average remaining term to maturity of seven one years.
Now I'll turn the call over to Ryan.
Good morning.
Like to start with the performance of our multifamily portfolio in the quarter.
Consistent with our expectations, we held average occupancy for the portfolio was steady at 94, 3%, which compares with 94, 2% for the first quarter and 96, 2% a year ago, although that's lower than in the past Q2s, we were focused on pushing rents this quarter.
Average monthly rent for the combined portfolio in the second quarter were up seven 3% compared to the 2022 quarter.
For leases signed in the second quarter of 2023, we saw estimated spreads on new leases at four 3% renewal spreads of five 4% and overall spreads of 5%.
For July we have seen estimated spreads on new leases of three 2% renewal spreads of five 3% in overall spreads of four 3%.
Our rent to income ratio for all new leases signed in the second quarter was 24%, indicating tenants have are having minimal financial stress and the properties are in the range of affordability that we've targeted.
Combined portfolio NOI was up one 4% in the second quarter compared with the second quarter of 2022.
Primary components of our revenue grew five 9% primarily due to increased rental rates across the portfolio total expenses increased by 11, 8%, primarily due to higher insurance replacements and repairs and maintenance of this amount controllable expenses were up 10, 4%, while non controllable expenses were up 14, 4%.
It's worth noting given our past comments on this line item that insurance was up 45% year over year, that's more in line with what we have been anticipating for a full year impact.
The underperformance of Alamo Ranch in San Antonio Adults Bluff in Nashville cost us approximately 320 basis points in combined portfolio and NOI growth this quarter absent that underperformance, we would've experienced a four 6% increase.
It's unfortunate that two properties can have such an impact on our overall combined portfolio NOI growth, but that was the case this quarter.
Alamo Ranch is a property we highlighted last quarter is underperforming.
This has been primarily related to working through some tenant issues that have taken some time to clean up we are confident we will see an improvement during the second half of the year.
At Bell, but this is more related to that sub market in Nashville, where there has been a lot of new supply as of late as Jeff noted earlier, we have seen very little impact of new supply in our markets. Nashville is one of the markets. We're in order to maintain occupancy at those Bluff. We took the approach of offering more concessions in Q2 than we had anticipated that plan has worked so far in Q.
Three but that improvement is likely to come later in the year.
Based on the Q2 results the outlook for improvement at these two properties. The completion of the disposition of chat important Dallas and deployment of some of those proceeds to share repurchases. We affirmed our previously issued guidance for 2023.
That completes our prepared remarks, operator would you. Please open the call to questions.
Yeah.
We will now begin the question and answer session. Just a quick question you May Press Star then one on your Touchtone phone.
Youre using a speakerphone please pick up your handset before pressing the key.
It's a tiny tiny question has been addressing you would like to withdraw your question. Please press Star then two.
We'll now take our first question from Barry Oxford of call Yours. Please go ahead.
Great guys. Thanks for taking my question Oh, some of it was wasn't answered, but if I could get a little more clarification.
And it looked like I'm in the same store revenue, both Virginia, and Texas, you touched on Texas.
You know about those numbers were negative numbers.
And yet you held guidance.
Kind of walk me through.
Yeah, So hi, Barry its Jeff.
Yeah Yeah.
Yes, so and Alamo I mean, basically part really the focus and the issue was we had we have tenants that were put in place prior to our buyout that were a little suspect on credit.
And when we bought this out our standards were increased which left us with more vacancy in the older tenants Hudson delinquency issues. So we're cleaning this up and as you. It takes a long time to clean it up but as you clean up delinquency issues and stabilize occupancy. Obviously then you can you can look and focus on Rex and pushing rents. So you know where.
Seeing positive results already it's moving in the right direction and we expect the next couple of quarters to be back online and stabilized as far as well. So yeah. There were some tax concessions as Ryan I think mentioned in his remarks, there have been some new builds in western Nashville, again, it's an improving situation there they're being leased up.
We loved the property long term, we love the location and again the same same comment I'll make is you know you have to absorb some of the new development, but in the next couple of quarters, we think it'll it'll definitely improve Vasily. So those are the two specific ones that caused some issue with our numbers.
Yes.
Right right and or are you seeing decent foot traffic is that's what's kind of giving you the confidence to say hey look we think we can re lease these properties.
Really quickly.
Yes, and Alamo for sure in Texas, There's no doubt that were seeing better foot traffic.
Those I would say, it's still continues to be a little slower just because of the new builds and the time, it's needed to absorb the new units coming on to that market, but we do see it and it is improving but I think doesn't that western national market may take a little longer to see.
Ziv side, just because of the new builds that are in the market, but but again that'll be absorbed and we're very confident that we have a terrific property there that will stabilize over the next few quarters.
Okay, great turning to acquisitions two questions. One are there any opportunities that you see over the next couple of quarters are in the joint venture.
Our properties.
Bring them in Oh, you know on a wholly owned basis or look my guys are staying Pat right now.
Yeah, No my guys generally understand Pat right now I think there's a I mean, it's only a percent.
Attach all of that and we're looking at assets that we may consider our partners and I are considered potentially selling but as far as acquiring other partnership interest right. Now are we don't have any specific plans to do so.
Yeah.
Second question, Jeff If you look at the inventory in your marketplaces things to buy or that are on the market and you look at it now today are you seeing more or less the same.
It is very quiet eye, we alert out. This earlier this is really the in my entire career here 37 years I've never seen the acquisition as a transactional market and multifamily so quiet.
It's just you know with cap rates, where they are versus interest rates. It is very hard to make any deal makes much sense and at the same time I think sellers are still living with an old school mentality that insurance costs have not gone up cap rates have not gone up et cetera, and I'd ask the leading to you know very little of anything happening that goes.
With for us directly to buy or with our JV partners looking to buy.
The market is very very quiet.
Do you think it could pick up.
Let's say going into 'twenty for that you could start to see some distress, maybe because that starts to roll over and now and now the person and now you've got to deal with that higher interest rate or maybe you can't get it then the mortgage amount that you were hoping to get.
Yeah. That's a good question, where we're seeing that already it started.
There's definitely we're seeing opportunity and by way of partnerships, you're looking to sell because they don't want to do capital calls because their taxes, either there are lots of expired or on interest rates or other reasons for them needing to sell we're starting to see more of that I think there'll be a bit more distress and I think there'll be them.
More opportunities in 'twenty four for sure as opposed to 'twenty through 'twenty three it's just been a very strange quiet year, and I would expect our velocity and transactional velocity velocity to increase pretty substantially in 'twenty four.
Yeah.
Okay, great guys. Thanks for the color.
Okay.
Yeah.
Again, if you have a question. Please press Star then one.
Okay.
There are no further questions at this time I would like now to turn the conference back over to BRT apartments Corp.
Excuse me, we have a follow up from Barry Oxford.
Oh God, Yes. Please go ahead.
Hey, Jonathan it's a long long time, the only one asking questions. One last one from me when you look at what's a Friday and Freddie Mac are dealing as far as underwriting.
Are they get when they also I know banks are getting tighter, but do they also.
Getting tighter and and and and more tough to deal with or not necessarily.
Yeah, Let me turn it over to Brian answer that.
Barry.
It's not that they're necessarily getting tighter I just think the numbers are not you know the debt coverage ratios that they require just getting harder to meet so I think that's why you're seeing proceeds come in a little bit lower than the 65% range that that kind of was the standard in the past you're seeing probably more in the 55% to 60%.
The value range I don't think it's necessarily that I'm getting tighter I think it's just the nature of where the properties are at and where the valuations are at.
Okay that makes sense. Thanks.
Thanks, guys.
Thanks Barry.
Yeah.
The next question comes from the line of Aaron Hecht with JMP Securities. Please go ahead.
Hey, guys. Thanks for taking my questions, Jeff you guys.
The disposition proceeds to buy back stock this quarter I think the authorization.
Pretty low now what are your thoughts on re upping that authorization and just bigger picture.
Capital structure plans going forward any insights you can give us there.
Yeah I wish.
So we're going to solve the board at our next meeting are considered.
We think it's a it's a good opportunity and that's why we took advantage of buying stock at certain levels over the last quarter and I think that will likely continue.
But it will have to speak to the board about it and.
Make a judgment after our next board meeting.
Yeah.
I appreciate it that's all I got.
Yes.
Okay, well in that case, I guess I don't see there's any more questions.
So I just want to thank you all for your continued interest in B R. T and we appreciate the confidence in us.
Have a great day, if we need to chat with us.
I get that please feel free to pick up the phone and give us right now.
Have a good day. Thank you.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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