Q3 2023 BRT Apartments Corp Earnings Call
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Speaker 1: Good morning and welcome to the BRT Apartment Corps' third quarter earnings conference call. Today's conference is being recorded.
Good morning, and welcome to the B R. Teach Parkman Corp's third quarter earnings Conference call Today's conference is being recorded.
Speaker 1: At this time, I would like to turn the floor over to Sullivan of SCR Partners. Thank you. You may now begin.
At this time I would like to turn it over to Sullivan S. C. Our partners. Thank you hear me now thank you.
Speaker 2: Thank you for joining us today. On the call are Jeffrey Gould, President and Chief Executive Officer, George Weyer, Chief Financial Officer, Ryan Baltimore, Chief Operating Officer, as well as David Kalish, 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.
Thank you for joining us today on the call are Jeffrey Gould, President and Chief Executive Officer.
Georgia, Wired Chief Financial Officer, Ryan Baltimore, Chief operating Officer.
As David Taylor Senior Vice President I.
I would like to remind everyone that this conference call contains forward looking statements within the meaning of the private Securities Litigation Reform Act.
1995, and are based on management's current expectations assumptions and beliefs.
Speaker 2: Listeners should not place undue reliance on any forward-looking statements and are encouraged to review the company's SEC filings, including its Form 10Q, for more complete discussion of risk and other factors that could affect these forward-looking statements.
Listeners should not place undue reliance on any forward looking statements.
Are encouraged to review the company's SEC filings.
Excluding its Form 10-Q for a more complete discussion of risks and other factors that could affect these forward looking statements.
Speaker 2: except as required by law. The RT does not undertake any obligation to publicly update or advise any forward-looking statement.
As required by law BRT does not undertake any obligation to publicly update or revise any forward looking statements.
Speaker 2: This call also includes a discussion of non-GAAP measures, including FFO, AFFO, NOI, combined portfolio NOI, and information regarding our prorated share of revenues, expenses, NOI, assets, and liabilities of BRT's unconsolidated subsidiary.
This call also includes a discussion of non-GAAP measure.
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So NOI combined portfolio NOI and information regarding our pro rata share of revenues expenses, NOI asset and liability the BRT unconsolidated subsidiaries.
Speaker 2: All of the non-GAAP information discussed today has certain limitations and should be used with caution and in conjunction with the GAAP data presented in our supplemental earnings relief and in our reports filed with the SEC. Please see these reports and filings for the definitions of each non-GAAP measure.
All of the non-GAAP information discussed today, a certain limitation and should be used with caution and in conjunction with the GAAP data presented in our supplemental earnings release and in our reports filed with the SEC. Please see these reports and filings the definitions of each non-GAAP measure.
Speaker 2: As a reminder, the company's supplemental information and earnings release have been posted on the Invest Relations section of BRT's website at www.BRTapartments.com.
As a reminder, the company's supplemental information and earnings release.
Posted on the Investor Relations section of Brt's website at Www Dot BRT apartments Dot com.
Speaker 2: I'd now like to turn the call over to President and CEO Jeffrey Gould. Please go ahead Jeff.
I would now like to turn the call over to President and CEO Jeffrey Gould. Please go ahead Jeff.
Speaker 3: Thank you and welcome to the call. Before I turn it over to George and Ryan for some color around our results, I want to spend some time on a few topics. The first is the current operating environment. The second is the state of the transaction environment. The third is how we're thinking about capital allocation.
Thank you and welcome to the call.
Before I turn it over to George and Ryan and for some color around our results I want to spend some time on a few topics. The first is the current operating environment. The second is the state of the transaction environment.
Third is how we're thinking about capital allocation there.
Speaker 3: We are still seeing rent growth on a blended basis with occupancy and the tight band around 94%. Fundamentals in our markets are strong and absent national in Dallas, where new suppliers are weighing on absorption and requiring higher concession.
We're still seeing rent growth on a blended basis with occupancy in a tight band around 94% fundamentals in our markets are strong and absent Nashville, and Dallas, where new supply is weighing on absorption and requiring higher concessions new supply isn't having an adverse impact about what we've been anticipating while these rate increases are not what we.
Speaker 3: New supply isn't having an adverse impact above what we've been anticipating.
Speaker 3: While these rent increases are not what we and others in the industry achieved during the pandemic on a blended basis, we are still seeing positive growth, but we're more cautious about where trends are heading on newly launched markets.
And others in the industry has changed during the pandemic on a blended basis, we're still seeing positive growth, but we're more cautious about where trends are heading on new leases will be taken this into consideration during our 2024 budgeting process.
Speaker 3: We will be taking this into consideration during our 2024 budgeting process.
Speaker 3: Unfortunately, the toughest operational challenge we're facing right now is expense growth.
Unfortunately, the toughest operational challenge, we're facing right now is expense growth. We are doing a good job controlling costs, where we can but as inflation is certainly having an impact in most expense categories, along with real estate taxes that inflationary headwind, it's not something that we can control.
Speaker 3: We are doing a good job controlling costs where we can, but inflation is certainly having an impact in most expense categories.
Speaker 3: along with real estate taxes, that inflationary headwind is not something we can control.
Speaker 3: We're also incurring the year-over-year increase in insurance costs that we are experiencing this year to rolling up individual policies into a master policy. But we believe that should moderate in 2024 and is the right long-term decision for us.
We are also incurring a year over year increases in insurance costs, and what you're experiencing this year since you're rolling up individual policies and so our master policy, but we believe that should moderate in 2024 and this is the right long term decision for us.
Speaker 3: I noted last quarter that the transaction market is as quiet as I can ever recall. That's so the case. What we have seen transact has been where sellers had to sell and or buyers had capital allocated to space that needed to be put to work, mainly with all cash.
I noted last quarter that the transaction market is as quiet as I can ever recall, that's still the case, where we have seen transact has been where sellers have yourself and our buyers have capital allocated to space that needed to be put to work mainly with all cash.
Speaker 3: There aren't really any read-throughs on cap rates in those kind of transactions. Plus there have been a lot of retreats.
There aren't really any read throughs on cap rates and those kind of transactions plus there have been a lot of retrace.
Speaker 3: We've been very patient on new investments, but we believe there will be more opportunities coming with private owners and developers looking to sell.
We've been very patient on new investments, but we believe there will be more opportunities coming with private owners and developers looking to sell for preferred equity bridge loans or even rescue capital and not too distant future.
Speaker 3: preferred equity, bridge loans, or even rescue capital, and not to just...
Speaker 3: These owners are facing capex issues, expiring interest rate swaps, debt maturities, and insurance issues.
The owners are facing capex issues. Its final interest rate swaps that matures and insurance issues all of these trends arguably even more patients in the near term.
Speaker 3: All these trends argue for even more patients in the near term.
Speaker 3: In the intermediate term, we expect our available liquidity and balance sheet with no maturities in 2025 will be a real competitive advantage in pursuing these types of opportunities.
In the intermediate term, we expect our available liquidity.
And balance sheet with no maturities until 2025 will be a real competitive advantage in pursuing these types of opportunities.
Speaker 3: Where we have made conscious efforts to be more aggressive on our capital allocation in the near term is with share repurchases. Based on the AFFO yield alone, we're buying back shares on an accretive basis. Since announcing in May that we would allocate this position process to share repurchases, we have purchased 671,000 shares for a total investment of $12.5 million and a weighted average cost per share of $18.58.
Well, we have made conscious efforts to be more aggressive on our capital allocation in the near term horizon with share repurchases.
Based on the youngest yoga alone we're buying back shares on an accretive basis since announcing today that we would allocate disposition proceeds to share repurchases. We have purchased 671000 shares for a total investment of $12 $5 million and a weighted average cost per share of $18.58.
Speaker 3: We avoided all other capital allocations alternatives over the last several months. We believe sharing purchases will yield the best, the highest return.
We avoided all other capital allocation alternatives over the last several months and we've only to share repurchases will yield the best the highest return.
Speaker 3: Real estate cycles come and go and as a management tool we have seen a lot of them. Heavy buying of assets over the past two years would have translated to being underwater on today's valuation.
Real estate cycles come and go and that and as a management team. We are seeing a lot of them have you buy have assets over the past few years would've translated to be underwater on today's valuations like taking a longer term view, we focused on consolidating ownership and control of our properties and selling properties that weren't long term.
Speaker 3: By taking a longer term view, we focused on consolidating ownership and control of our properties and selling properties that we're on long term holds as well as cleaning up our balance.
Halls, as well as cleaning up our balance sheet.
Speaker 3: As this environment puts some operators under stress, and there are fewer new building permits being pulled by developers, we would again take the longer term view that more opportunities are coming in 2024. We believe we'll be ready.
Is this environment some put some operators under distress and there are fewer new building permits being pulled by developers we would again it takes a longer term view and more opportunities are coming in 2024, we believe we will be ready.
George Please take it from here.
Speaker 4: Thank you Jeff. The third quarter results continue to reflect the positive impact on a year-over-year basis from the partner buyouts. However, the inflationary headwinds and the underperformance of two properties are muting our NOI growth.
Thank you Jeff.
Third quarter results continued to reflect the positive impact on a year over year basis from a corner by us However, inflationary headwinds and the underperformance of two properties using our NOI growth.
Speaker 4: Overall, net loss attributable to common stockholders was 8 cents per diluted share compared with net income of 37 cents per diluted share a year ago.
Overall net loss attributable to common stockholders was eight cents per diluted share compared with net income of 37 cents per diluted share a year ago.
Speaker 4: The primary reason for the year over year decline was the 61 cent per share game in the prior year period from the sale of a property owned by an unconciledated subsidiary.
The primary reason for the year over year decline, what's the 61 cent per share gain in the prior year period from the sale of a property owned by an unconsolidated subsidiary.
Speaker 4: FFO was 31 cents per diluted share compared to 29 cents per diluted share a year ago, primarily due to a reduction in early extinguishment of death and an increase in other...
F. F O was 31 cents per diluted share compared to 29 cents per diluted share a year ago.
Primarily due to a reduction in early extinguishment of debt and an increase in other income.
Speaker 4: This was offset by a decline in operating margins from the sale of properties in the prior year period.
This was offset by a decline in operating margins from the sale of properties in the prior year period.
Speaker 4: AFFO was $0.41 per diluted share compared to $0.38 per diluted share a year ago, primarily due to the decrease in the income tax provision and the increase in other income and insurance recovery.
<unk> was 41 cents per diluted share compared to 38 cents per diluted share a year ago, primarily due to the decrease in the income tax provision and the increase in other income and insurance recovery.
Speaker 4: For the combined portfolio, recurring catbacks was $1.4 million for the quarter. When you ran this $682,000 in replacements that flow through the real estate operating expenses on our P&L, that total is approximately $2.1 million or $269 per unit.
For the combined portfolio recurring Capex was $1 $4 million for the quarter. When you add the $682000 in replacements that flow through the real estate operating expenses on our P&L that totals approximately $2 1 million or $269 per unit that.
Speaker 4: that continues to be below the $300 per unit of replacements we have been assuming in our expense growth included in the combined portfolio NUI guidance.
Continues to be below the $300 per unit of replacements, we had been assuming in our expense growth included in the combined portfolio NOI guidance.
Speaker 4: non-recurring CapEx, which represents revenue enhancing and major upgrades to properties totaled $1.4 million during the quarter.
Non recurring Capex, which represents revenue enhancing and major upgrades to properties totaled $1 $4 million during the quarter.
Turning to the balance sheet.
Speaker 4: Debt to enterprise value as of September 30th was 67% compared with 62% a year ago, primarily due to the lower market capitalization this period.
To enterprise value as of September 30 was 67% compared with 62% a year ago, primarily due to the lower market capitalization. This period.
Speaker 4: Available liquidity at quarter end was $88 billion, which is comprised of cash and availability under our credit facility.
Available liquidity at quarter end was $88 million, which was comprised of cash and availability under our credit facility.
Speaker 4: At November 1st, liquidity was $81.7 million.
And November 1st liquidity was $81 $7 million.
Speaker 4: As of September 30th, our consolidated and unconsolidated mortgage debt had a weighted average interest rate of 4.02% and a weighted average remaining term to maturity of 6.8 years.
As of September 30th our consolidated and unconsolidated mortgage debt at a weighted average interest rate of 4.02% at a weighted average remaining term to maturity of six eight years.
Speaker 4: I would also like to note that during the quarter we amended our credit facility to convert the index on the interest rate from the prime rate to 30 day term SOFR plus 250 basis points and adjust to the interest rate floor to 6%.
I would also like to note that during the quarter, we amended our credit facility to convert the index or the interest rate from the prime rate to 30 day terms over plus 250 basis points and adjusted the interest rate 4% to 6%.
Speaker 4: The interest rate in effect as of September 30th was 7.81%, which is down from 8.5% as of June 30th. Now I'd like to...
The interest rate in effect as of September 30th, 781%, which is down from eight 5% as of June 30th.
Now I'd like to turn the call over to Ryan.
Speaker 2: Good morning. I'd like to start with the performance of our multifamily portfolio in the quarter.
Good morning, I'd like to start with the performance of our multifamily portfolio in the quarter.
Speaker 2: In system with our expectations, we held average occupancy for the portfolio steady at 94.4%, which compares with 94.3% for the second quarter and 96.2% a year ago.
System with our expectations, we held average occupancy for the portfolio was steady at 94, 4%, which compares with 94, 3% for the second quarter and 96, 2% a year ago.
Speaker 2: Average monthly rents for the combined portfolio in the third quarter were up 6.8% compared to the 2022 quarter.
Average monthly rents for the combined portfolio in the third quarter were up six 8% compared to the 2022 quarter.
Speaker 2: For leases signed in the third quarter of 2023, we saw a 4.7% increase on renewal leases, a 2% increase on new leases, and a 3.5% increase on a blended basis compared with the priorTHE
For leases signed in the third quarter 2023, we saw a four 7% increase on renewal leases, a 2% increase on new leases and a three 5% increase on a blended basis compared with the prior lease.
Speaker 2: For October , we saw a 5.5% increase in renewal leases, a 0.7% decrease on new leases, and a 2.7% increase on a blended basis compared with the prior lease.
For October we saw a five 5% increase in renewal leases is 0.7% decrease on new leases at a two 7% increase on a blended basis compared with the prior lease.
Speaker 2: Our rent to income ratio for all new lease is signed in the third quarter is 23%. We suggest our tenants are not under financial stress and the properties are in the range of affordability that we've targeted.
Our rent to income ratio for all new leases signed in the third quarter was 23%, which suggests our tenants are not under financial stress and the properties are in the range of affordability that we've targeted.
Combined portfolio NOI decreased <unk>, 4% in the third quarter compared with the third quarter 2022.
Speaker 2: The mine portfolio and the LI decreased 0.4% in the third quarter compared with the third quarter of 2022. The primary components were revenue grew 4.1%, primarily due to increased rental rates across the portfolio. Total expenses increased by 10.1%, primarily due to higher insurance, real estate taxes, and advertising leasing in other expenses.
The primary components, where revenue grew four 1% primarily due to increased rental rates across the portfolio total expenses increased by 10, 1%, primarily due to higher insurance real estate taxes and advertising leasing and other expenses.
Speaker 2: Of this amount, control load expenses were of 5.8%, while non-control load expenses were of 19.1%.
This amount controllable expenses were up five 8%, while non controllable expenses were up 19, 1%.
Speaker 2: Insurance was up 67% year over year due to the increases we've mentioned all year combined with the final cleanup of the cancellations of previous policy.
Insurance was up 67% year over year due to the increases we have mentioned all year combined with the final cleanup of the cancellations of previous policies the.
Speaker 2: The underperformance of Alamo Ranch in San Antonio and Bell's Bluff in Nashville cost us approximately 200 basis points in combined portfolio NOI growth this quarter. Excluding these two properties, we would have experienced a 1.6% increase in the total number of properties in the last quarter.
The underperformance of Alamo Ranch in San Antonio and Dallas, Boston, Nashville cost us approximately 200 basis points and combined portfolio NOI growth. This quarter. Excluding these two properties, we would've experienced a one 6% increase.
Speaker 2: We have talked about taking care of the portfolio and ensuring we make the right decisions to realize better performance. Alamo Ranch and Bell's Bluff are two good examples. Alamo Ranch has seen some stabilization in the tenancy and reduction of bad debt. Now we'll need to drive rents. At Bell's Bluff we needed to provide more concessions to build occupancy and that is taking more time than expected.
We have talked about taking care of the portfolio, ensuring we make the right decisions to realize better performance Alamo Ranch and bells Blas are two good examples I'm a ranch has seen some stabilization in the tenancy and reduction of bad debt now will need to drive rents at those bluff, we needed to provide more concessions to build occupancy and that is taking more time than expected.
Speaker 2: Some of the other decisions we've made in the portfolio are to prioritize our marketing spend to focus on driving traffic with the highest quality leads rather than spreading it out across the market. We are also exploring new technologies to allow potential tenants to do more self-guided in after hours' tours.
Some of the other decisions we've made in the portfolio are to prioritize our marketing spend to focus on driving traffic with the highest quality leads rather than spreading it out across the market. We are also exploring new technologies to allow potential tenants to do more self guided and after hours tours.
Speaker 2: As you've heard on other earnings calls this quarter, the market has softened this past quarter with the supply increases in the Southeast. And over the longer term, we believe that as less shovels are going into the ground today, that provides more optimism for the future.
As you've heard on other earnings calls this quarter. The market is soft in this past quarter with the supply increases in the southeast but over the longer term. We believe that is less shovels are going into the ground today that provides more optimism for the future.
Speaker 2: Turning to guidance based on the year-to-date results and deployment of proceeds to share repurchases, we affirmed our previously issued guidance ranges for 2023. That completes our prepared remarks. Operator, please open the call to questions.
Turning to guidance based on the year to date results and deployment of proceeds to share repurchases. We affirmed our previously issued guidance ranges for 2023.
That completes our prepared remarks, operator would you. Please open the call to questions.
Speaker 5: Thank you. We will now begin the question and answer session. If you have a question, please press the star one. To remove yourself from the question and cue, please press the star two.
Thank you well now begin the question and answer session. If you have the question grass.
Why.
Remove yourself from the question queue. Please press star two.
Please hold.
Speaker 5: Our first question comes from Barry Oxford, all yours.
Our first question comes from Barry, Oxford, All yours.
[laughter].
Speaker 6: Great, thanks guys. When you guys are looking at acquisition opportunities versus your stock, how are you weighing?
Great. Thanks, guys. When you when you guys are looking at acquisition opportunities versus your stock how are you weighing that.
Speaker 3: Hey, Barry. The acquisition market is so difficult right now that we don't think of it as much as comparison. You know, it would interest you to see where there are.
Hey, Barry.
Yep acquisition the acquisition market is so difficult right now that it's we don't think of it as much of a comparison.
With interest rates with interest rates, where they are.
Speaker 3: Realistically, it is really, we're not aggressively in the market. It's not really what we consider to be good by now.
Realistically, there's really we're not aggressively in the market. There is not really what we consider to be good buying opportunities. So that comparison is not really there we happen to think that the buybacks are a great opportunity, but it's not really in relation to.
Speaker 3: So that comparison is not really there. We happen to think that the buybacks are a great opportunity, but it's not really in relation to the activity of acquiring properties because frankly we're not aggressively in the market with where market where.
The activity of up acquiring properties, because frankly, we're not aggressively in the market with with where market, where where interest rates stand today.
Speaker 6: Right. Right now I would imagine that you know buybacks are pretty accretive for you guys down in here.
Right right.
I'd imagine you know buybacks are pretty accretive for you guys down in here.
Yes.
Speaker 6: Yeah. The Nashville market, what are you seeing there? And as you look out over the horizon, what are you seeing as far? I mean, can we get occupancy where it needs to be?
Yeah.
The Nashville market. It what what are you seeing there and if you look out over the horizon. What what are you seeing as you know as far I mean can we can we get it you know.
Occupancy where it needs to be.
Speaker 3: we think we can and we think we will um... it's still a so-so off-the-market with because there's so much new supply and we downtown national, for example, has two or three months
Yeah, We think we can and we think we will its show us if saw a softer market because there's so much new supply downtown Nashville for example, as two or three months <unk>.
Speaker 3: supply issues, but that will be absorbed. This has happened before in Nashville. New housing starts, new permits have slowed a lot, and I think over a short period of time those will be occupied and then we'll see better results. We are still seeing some concession needs on Nashville property, but in time I think that it will improve substantially.
Supply issues, but that will be absorbed this has happened before in Nashville. The new housing starts of new permits has slowed a lot and I think over a short period of time those will be occupied in and then we will see better results, but we are still seeing some concession needs at our Nashville property.
But in time, I think that it will it'll improve substantially.
Speaker 6: Are the Nashville contestants kind of across the board in the market, or is it just seeping into certain subjects?
Oh, the Nashville concessions, just kind of across the board in the market or do you just seeping into certain submarkets.
Speaker 3: No, it's pretty much across the board. There's a general oversupply in Nashville for sure. I remember a few years back, a few years back, there was the same issue maybe four or five years ago, where there was a three month supply in downtown and you saw it across the markets. That sort of happened again today. But like I said, I think a real tailwind in a few years is gonna be the lack of permits that are entering to the market now and they're finishing up construction as opposed to starting.
It's pretty much across the board yeah. It's if there's a general theres a general oversupply in Nashville for sure.
I remember a few years back a few years back there was the same issue, maybe four or five years ago, where there was a three months supply in downtown and saw it across the markets that sort of happened again today, but like I said I think a real.
Tailwind in a few years, it's going to be the lack of permits that are going our entrance in the market now and theyre, finishing up construction as opposed to starting now.
Speaker 6: right. Yeah and look I understand Nashville. I mean it can get you know it can get pretty soft on you but it can also tighten up on you pretty quickly also in the same breath. Great.
Right, Yeah, and look I understand Nashville, Yeah, Yeah, I mean, it can get you know could get pretty soft on you, but he can also tighten up on you pretty quickly also in the same breath.
Great.
Yep Yep.
Hey, guys. Thanks, so much.
Thank you.
Speaker 1: This concludes our question and answer session. I would like to turn a conference back over to Jeff Gold for any closing remarks. Please go ahead.
This concludes our question and answer session I would like to turn the conference back over to Jeff Gould for any closing remarks. Please go ahead.
Speaker 3: Well, thank you all for your time and your continued confidence and interest in BRT. Please call us for any follow-up questions you may have. Thank you and have a good day.
Well. Thank you all for your time and your continued confidence and interest in B R. A T. A please call us with any follow up questions. You may have thank you and have a good day.
Speaker 1: This conference is now concluded. Thank you for attending today's presentation. You may now disconnect.
This conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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