Q4 2023 BRT Apartments Corp Earnings Call
Operator: Good day, and welcome to BRT Apartments Corp.'s fourth quarter and year-end earnings conference call. Today's conference is being recorded. If you require operator assistance, please press star then zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then 1 on your telephone keypad.
Good day, and welcome to BRT apartments Corp, 's fourth quarter and yearend earnings Conference call. Today's conference is being recorded if you require operator assistance. Please press Star then zero after today's presentation.
<unk>, there will be an opportunity to ask questions.
To ask a question you May press Star then one on your telephone keypad to withdraw your question. Please press Star then two.
Operator: To withdraw your question, please press star, then 2. At this time, I would like to turn the floor over to Tripp Sullivan of Investor Relations. Thank you. You may begin. Thank you for joining us today. On the call are Jeffrey Gould, President and Chief Executive Officer, George Zweier, 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, listeners should not place undue reliance on any forward-looking statement and are encouraged to review the company's SEC filings, including its Form 10-K, for more complete discussion of risk and other factors that 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.
At this time I would like to turn the floor over to Tripp Sullivan of Investor Relations. Thank you you may begin.
Thank you for joining us today on the call are Jeffrey Gould, President and Chief Executive Officer, George Dwyer, Chief Financial Officer, Ryan Baltimore, Chief operating officer, as well as 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 for a more complete discussion of risks and other factors that could affect these forward looking statements.
Except as required by law BRT does not undertake any obligation to public out publicly update or revise any forward looking statements.
Operator: This call also includes a discussion of non-GAAP measures, including FFO, AFFO, NOI, Combined Portfolio NOI, and information regarding our pro-rata shared revenues, expenses, NOI, assets, and liabilities of BRT's unconsolidated subsidiaries. All 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 Release and in our reports filed with Please see these reports and filings for the definitions of each non-GAAP measure.
This call also includes a discussion of non-GAAP measures, including F S. Though.
F F O N O Y combined portfolio NOI and information regarding our pro rata share of revenues expenses, NOI assets and liabilities of the guarantees and consolidated figures.
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 release and in our reports filed with the SEC. Please.
Please see these reports and filings from the definitions of each non-GAAP measure.
Tripp Sullivan: 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.brtapartments.com. I'd now like to turn the call over to President and CEO Jeffrey Gould. Please go ahead, Jeff.
As a reminder, the company's supplemental information and earnings release have been posted on the Investor Relations section at <unk> website at Www Dot BRT apartments Dot com and now I'd like to turn the call over to President and CEO Jeffrey Goldberg. Please go ahead Jeff.
Jeffrey Alan Gould: Good morning. We're approaching the end of the Q4 earnings cycle, and the commentary we've all heard this quarter is focused on rental rates, transaction activity, expenses, and the impact of new supply in the Sunbelt. We'll be very brief with our commentary today so we can drill down into those topics in Q&A. To quickly summarize 2023, I want to highlight the ongoing simplification of the business that we started in 2021 by taking full ownership of a majority of our properties, the improvement in our balance sheet, and the disciplined approach to our capital allocation. We do not have any significant mortgage debt maturities until early 2026, and pulling back on acquisitions the past year and investing disposition proceeds to repurchase $16.7 million of shares during the year and to date in 2024 were the right decisions. We made it a priority to focus on property operations and look to maximize portfolio performance where possible. It made for a relatively quiet year but an important one nonetheless.
Good morning.
We're approaching the end of the Q4 earnings cycle and the commentary. We've all heard this quarter is focused on rental rates transaction activity expenses and the impact of new supply in the sunbelt will be very brief with our commentary today. So we can drill down into those topics in Q&A.
To quickly summarize 2023, I want to highlight the ongoing simplification of the business that we started in 2021 by taking full ownership of the majority of our properties the improvement in our balance sheet and then just some blended approach to our capital allocation.
We do not have any significant mortgage debt maturities until early 2026 and pulling back on acquisitions in the past year and investing disposition proceeds to repurchase $16.7 million of shares during the year and to date in 2024 were the right decisions. We've made it a priority to focus on property operations.
Patients and look to maximize portfolio of performance where possible. It made for a relatively quiet year, but an important one nonetheless.
Jeffrey Alan Gould: While we're not providing specific earning targets, the 2024 outlook we provided in our earnings release last night outlines our views on portfolio operations, transactions, and other moving parts of the P&L. The big takeaways are that the operational environment we're anticipating this year is much like other operators. New supply is expected to impact the ability to grow rents, there will be continued pressure on occupancy, and the ongoing inflationary headwinds are expected to impact operating margins. We intend to prioritize stabilizing occupancy this year with a view to being more constructive on potential transaction activity later in the year. Long-term, we're in the right region in the Sunbelt.
While we're not providing specific earnings targets. The 2024 outlook, we provided in our earnings release last night outlines our views on portfolio operations transactions and other moving parts of the P&L. The big takeaways are that operational environment. We're anticipating this year is much like other operators new supply is expected to impact the.
Ability to grow rents there'll be continued pressure on occupancy and the ongoing inflationary headwinds are expected to impact operating margins, we intend to prioritize stabilizing occupancy this year with a view to be more constructive on potential transaction action activity later in the year.
Long term, we're in the right region in the Sun belt, we will be aggressive in how we manage the portfolio to earn what we anticipate will be a challenging 2024, but we will remain very patient on asset growth. We believe this strikes the right balance to position us for better growth in 2025 and 26.
Operator: We will be aggressive in how we manage the portfolio during what we anticipate will be a challenging 2024, but we will remain very patient on asset growth. We believe this strikes the right balance to position us for better growth in 2025 and 2026. Operator, will you please open the call to questions? We will now begin the question and answer session. To ask a question, you may press star, then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the key.
Operator will you please open the call to questions.
We will now begin the question and answer session to ask a question you May Press Star then one.
On your telephone keypad.
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Operator: If at any time your question has been addressed and you would like to withdraw your question, please press star then 2. Again, it is better to ask a question than one. At this time, we will pause momentarily to assemble our roster. The first question comes from Michael Gorman with BTIG. Please go ahead. Yeah, thanks. Good morning.
If at any time. Your question has been addressed and you would like to withdraw your question. Please press Star then two.
Again it is star then one to ask a question.
At this time, we will pause momentarily to assemble our roster.
The first question comes from Michael Gorman with B T I G.
Please go ahead.
Jeffrey Alan Gould: Jeff, I was wondering if you could just drill down a little bit in terms of, obviously, you spoke about the operating environment in those markets. And we certainly have heard a lot about that. Can you talk about what that's leading to on the investment side, on the transaction side, what you're seeing there, and specifically kind of how you're thinking about balancing additional share repurchases versus the kind of opportunities that may or may not be in the market today? Yeah, sure. Good morning.
Yeah. Thanks, Good morning, Jeff I was wondering if you could just drill down a little bit in terms of obviously you spoke about the operating environment in those markets and we certainly have heard a lot about that.
Can you talk about what that's leading to on the investment side on the transaction side, what you're seeing there in and specifically kind of how you're thinking about balancing additional share repurchases versus the kind of opportunities that may or may not be in the market today.
Yeah sure good morning, so as far as the transactional environment things or access before but things are very very quiet. The reality is that continually with cap rates being you know somewhere in the mid fives call. It in interest rates.
Jeffrey Alan Gould: So as far as the transactional environment is concerned, things are, as I've said before, very, very quiet. The reality is that continually with cap rates being, you know, somewhere in the mid fives, call it interest rates, higher than that, and the negative leverage, it is very difficult for people to get too excited about purchases. Even transactional volume, just deals that we're seeing are extremely, extremely slow.
Higher than that and the negative leverage it is very difficult for people to get too excited about purchases.
Do you even transactional volumes of deals that we're seeing are extremely extremely slow it is.
Jeffrey Alan Gould: It's really just basically a hold market right now. I think sellers are looking to hopefully have interest rates drop, so cap rates will drop, and they can sell at a better time. There's not a lot of pressure and a lot of... issues with defaults right now in multifamily, as in other sectors, so volume-wise, it's pretty quiet.
Really just basically hold market right now I think sellers are looking to hopefully have interest rates dropped so cap rates will drop and they can sell it.
Better time, there's not a lot of pressure and a lot of it.
Issues with defaults right now in multifamily as in other sectors. So what so volume wise, it's pretty quiet on the share repurchase side.
Jeffrey Alan Gould: On the share repurchase side, we were pretty active. We always have to check our cash balances and see where we are in our borrowing base and see if it makes sense at the right time based on the right price and our cost of capital to see if we want to buy back shares, but we were pleased that we did and were able to do that, even though the stock dropped a little bit since then. We're very comfortable with those purchases.
You know we were pretty active we always have to check our cash balances and see where we are in our borrowing base and see if it makes sense at the right time based on the right price and our cost of capital is to see if we want to buy.
Buy shares back, but we were pleased that we did we're able to do that even though the stock dropped a little bit. Since then you know we're very comfortable with those purchases.
Jeffrey Alan Gould: But generally, what's happening in the market is very simple. There's some overbuilding in some of our markets, fortunately, not many of our markets, but some of our markets, leading to a fight for occupancy and a push on rents. So the conversation that we've seen about 2024 being a rough year for growth, I think, is accurate. I think once these units get absorbed, I think 2025-2026 are much brighter days because there are very few in the permitting process. And it's going to be a sticky 2024 and a difficult 2024, but we have our heads down, and we're working hard to keep occupancy and keep our rents, both through new leases and renewal. That's helpful.
But generally what's happening in the market. It's it's a it's very simple there's a there's some overbuilding in some some of our markets. Fortunately not many of our markets for some of our markets leading to a fight for occupancy and push on rents. So you know the conversations that we've seen about 2020 for being our kind of a rough you're on.
Growth I think is accurate.
Once these units get absorbed I think 'twenty five 'twenty six and much brighter days, because there's very little on the permanent process and it's gonna be a sticky 24 in a difficult 24, but we have our heads down and we're working hard to keep occupancy and keep our ranch Oh three wishes.
The leases and renewals.
That's helpful. Thanks, and just on.
Jeffrey Alan Gould: Thanks. And just on the share repurchases, as you think about it, you obviously touched on a couple of issues there. Do you give any consideration to the liquidity in the stock and how do you think about that in terms of the shareholder base when you think about share repurchases and the scale of share repurchases over time?
On the share repurchases as you think about it obviously you touched on a couple of issues there.
Do you give any consideration to the liquidity in the stock and how do you think about that in terms of of the shareholder base. When you. When you think about share repurchases and the scale of share repurchases over time.
Jeffrey Alan Gould: Yeah, it's a fair question. I mean, we're already so, We have a significant percentage owned by what you call insiders, and also, the reality is that the float, whether we buy or not, is pretty minimal. So you know, most investors are in this for the longer haul with us. And obviously, management has their money where their mouth is, and we have quite a large interest in this stock. So we don't think it makes a tremendous difference to liquidity one way or the other. I mean, we're not talking about, you know, a huge amount of share repurchase.
Yeah. It's a fair question I mean, we're already so.
You know we have a significant percentage owned by.
Insiders and also the reality is the float.
We buy or not is pretty minimal.
Most investors are in this for the longer haul with us.
And obviously management has their money where their mouth is and we have quite a large interest in the stock. So we don't think it makes a tremendous difference on liquidity, one way or the other I mean, we're not talking about it.
A huge amount of share repurchase but at the same time, you know I, we understand that doesn't help us, but we still think the investment is probably the best investment we.
Jeffrey Alan Gould: At the same time, you know, we understand it doesn't help it, but we still think the investment is probably the best investment we can make as compared to other alternatives and, long-term, we think it's something that's going to be smart for us just based on our evaluations and where we see the future of the company. That's great. And then just last one for me on Stono Oaks.
Can make us compared to other.
Alternatives are in long term, we think it's it's something that's.
Smart for us.
Just based on our valuations and then where we see the future of the company.
That's great and then just last one for me on on Stone Oaks and can you, maybe just give a little bit of color there on the lease up and how you see that trending and maybe.
Jeffrey Alan Gould: Can you maybe just get a little bit of color there on the lease up, how you see that trending, and maybe, you know, how that maybe varies from where you initially underwrote it? Obviously, long term, probably still a great asset, but just just a little bit more color on how that kind of plays out over 24 and 25. Yeah, it's working, and going well, as a general answer, you know, a partner that we've done many development transactions with before. We had a slight hiccup with one of the buildings, actually, there was an arsonist in one of the buildings, but basically that was resolved, and it slowed us down on one building for about three or four months. But units are online now, renting has already started, it's on time, on budget, as we expected, and it's a great market still, so there is some supply there but not a huge oversupply, and I think we'll do well with the rent increase and the lease increase, and I think it'll be a good long-term project for us. Great, thanks for your time. Sure, thanks. The next question comes from Barry Oxford with Colliers. Please go ahead.
You know how that maybe varies from where you initially underwrote. It obviously long term probably still a great asset, but just just a little bit more color on how that kind of plays out over 24 and 'twenty five.
Yeah, working are going well as a general answer.
Part of that we've done many development transactions worth before we had a slight hiccup that one of the buildings was actually there was an arson one of the buildings.
But basically that was resolved and they slowed us down on one building for about three or four months, but property units are online now renting has already started it's on time on budget as we expected and it's a great market still so.
There is some supply there, but not a huge oversupply.
And I think we'll be we'll do well with the rent up and the lease up and I think that'd be a good long term project for us.
Great. Thanks for your time.
Sure. Thanks, Mike.
The next question comes from Barry, Oxford with Colliers. Please go ahead.
Barry Paul Oxford: Great. Thanks. Thanks, guys. Just to kind of build on the acquisition question, Jeff, given your cost of capital, where would cap rates sort of need to kind of level out to kind of get you interested in coming back into the market? Obviously, at 5.5, you could arguably say sellers probably are a little unrealistic at that level.
Great. Thanks, Thanks, guys.
Just to kind of build on the acquisition question Jeff It.
Giving our cost of capital, where we cap rate sort of need the kind of level out to kind of get you interested to come back into the market. Obviously, if my five you you could arguably say sellers probably are a little unrealistic at that level, but at what level would you say, okay bear at this level.
Jeffrey Alan Gould: But at what level would you say, okay, Barry, at this level, I feel good about coming back into the market where the cap rate is? Well, Barry, it's sort of twofold, you know, it's the cap rates, but it's also the interest rates. So where we're seeing neutral, let's call it neutral leverage, I think that's about where we play the game.
I feel good about coming back into the market where cap rates.
Well Barry is sort of twofold.
The cap rates, but it's also the interest rates, so right where we are.
Where we're seeing neutral, let let's call it neutral leverage I think that's about where we play the game. So if you're talking about an interest rate market, a five and a half in cap rates of five and a half that might be something more interesting to us and we've been very patient in the last couple of years, it's been frustrating.
Jeffrey Alan Gould: So if you're talking about an interest rate market of five and a half and cap rates of five and a half, that might be something more interesting to us. We've been very patient in the last couple of years, it's been frustrating, and, you know, we think it's been prudent and smart to be patient, and looking back, I'm glad we didn't buy anything over the last year or two. A lot of investors were targeting and projecting some pretty substantial rent growth, and it's not there at all. As a matter of fact, it's not even close to what they anticipated.
You know, what we think it's been prudent and smart to be patient and looking back I'm glad we didn't buy anything over the last year or two a lot of investors were.
We are targeting are projecting some pretty substantial rent growth and it's not there at all it's a matter of fact, it's not even close to what they anticipated, but I think realistically I think when it gets to about a neutral and when things calmed down in the spring. It did 10 years not jumping all over the place as it is week to week now I think we'll be in a much better place to consider act.
Jeffrey Alan Gould: But realistically, I think when it gets to about neutral, and when things calm down, and the 10-year is not jumping all over the place, as it is week to week now, I think we'll be in a much better place to consider acquisitions, you know, for value-added properties as well as in an even more stabilized situation. Now, that makes sense. And then on the unconsolidated partners, are there any partners that are looking to monetize their position that could buy them out? No, not not right now. Nobody's really thrown their hand.
Positions for value add properties as well as you know even more stabilized situations.
No that makes sense and then on the unconsolidated partners.
Are there any partners that are looking to monetize their position they could buy them out or.
No not right now not nobody's really thrown their hands up.
Jeffrey Alan Gould: Yeah, things have been pretty quiet. As we said to you guys, maybe to everyone about a year or two ago, we took care of the ones that were sort of the lower hanging fruit, if you will. And the partners that we have now, I think there'll be an event when the maturities take place, and the maturities on those partnership deals are typically happening between like 27 and 29, somewhere in that range. It may happen sooner, but I think the maturity event will cause a discussion and an outcome, whether it's we buy them, we sell them, they buy us. I'm not sure what the outcome will be, but it's probably more targeted towards the maturities, and you have that information.
Yeah things have been pretty quiet as we said you guys had maybe a separate one about a year or two ago. We took care of the ones that were sort of the lower hanging fruit, if you will right and right and the park and the partners that we have now I think there'll be an event when the maturities take place and the maturities on those partnership deals or it's typically happening between like 27 to 29 somewhere.
In that range. It may happen sooner, but I think the maturity event will cause a discussion and an outcome whether it's we buy them. We sell are they buy us I'm not sure what the outcome will be but it's probably more targeted towards the maturities and I and you'll have that information.
Jeffrey Alan Gould: So I expect it'll be quiet for the next year or two, and then things will ramp up on most of the rest of the partnership deals. So there will be an event that will take place at that time. Great. Thanks.
So I expect it will be quiet for next year or two and then things will ramp up on the most of the rest of the partnership deals. So there will be a you know an event that will take place at that time.
Great. Thanks, Thanks for the color on that that last question. You know you indicated there is definitely some supply coming on is there demand for that supply what I'm driving at is you know is there you know brisk net absorption to say hey look as we get towards the end of 'twenty four.
Jeffrey Alan Gould: The last question, you know, you indicated there's definitely some supply coming on. But is there demand for that supply? What I'm driving at is, you know, brisk net absorption to say, hey, look, as we get towards the end of 24, most of the supply should be leased up. Or, Jeff, are you of the mind that, Barry, this could be more of a, you know, longer process in lease up that could bleed into 25. Accommodation answer. We went into some markets that, you know, in your wildest dreams, you probably wouldn't have imagined an oversupply, and now we're seeing it. For example, Huntsville, Alabama, and Pensacola, Florida.
Most of the supply should be leased up or.
Jeff are you of the mind that library.
This could be more kind of you know.
More more longer process in lease up that could bleed into 'twenty five.
Commendation answer we went into some markets that you know in in your Wildest Dreams, you probably want to imagine to have over supply and now we're seeing in Huntsville, Alabama example, Pensacola, Florida.
Jeffrey Alan Gould: I mean, the typical markets, Nashville, Dallas, you might have expected it. We're comfortable in all these markets. And again, unfortunately, a larger part of our portfolio does not have oversupply issues. But where we do, we're comfortable that the in-migration and the absorption will be good. I do think it may go on past 24. And I think it may take longer than just, you know, the calendar year 25 into 25. But I do think there's net absorption, and these will get filled up. And I think we'll see much better days, you know, early in 25. I'm not sure right away, but early towards the first or second quarter of 25.
The typical markets Nashville, Dallas, you might have expected it right. We're comfortable we're comfortable in all these markets and again unfortunately, not a larger part of our portfolio does not have some oversupply as yours, but where we do we're comfortable at the in migration and the absorption will be good I do think it may go on past 'twenty, four and I think I'm going to take them.
Longer than just you know the calendar 'twenty five and into 'twenty, five, but I do think theres net absorption and these will get filled up and I think we'll see much better days are early and twenty-five not sure right away, but really towards the first and second quarter of 'twenty five.
Jeffrey Alan Gould: Great. Thanks. Thanks a lot, Jeff. Sure.
Great. Thanks, Thanks, a lot yeah.
Sure.
Jeffrey Alan Gould: This concludes our question and answer session. I would like to turn the conference back over to Jeff Gould for any closing remarks. Well, thank you all for your continued confidence in BRT. And have a good day. If you have any questions that you need to talk with us about, please feel free to call Ryan Baltimore or myself. Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect. BF-WATCH TV 2021, www.brantford.ca
This concludes our question and answer session I would like to turn the conference back over to Jeff Gould for any closing remarks.
Well. Thank you all for your continued confidence in B R. A T.
Have a good day, if you have any questions that you need to talk with US about please feel free to Colorado, Baltimore and myself. Thank you.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Okay.
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