BRT Apartments Corp. (MD)

Good day and welcome to the BRT Apartment Corp conference call for the fourth quarter of 2020. Today's conference is being recorded. At this time, I'd like to turn the floor over to Evelyn Inferno of ICR. Please go ahead.

Thank you. Good day, everyone, and welcome to BRT Apartment's conference call. On the call today is Jeffrey Gould, President and Chief Executive Officer. Also available are George Zweier, Chief Financial Officer David Kalish, Senior Vice President, and Ryan Baltimore, Senior Vice President. As a reminder, this call is being webcast through the company's website at www.brtapartments.com. Additionally, the company's supplemental information and earnings release were currently available for your review on the Investor Relations section of BRT's website, and its 10-K will be available on such website on Monday, March 15th. Before we begin, 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. Forward-looking statements can often be identified by words such as believe, expect, estimate, anticipate, intend, and similar expressions and variations or negatives of these words. These forward-looking statements include, but are not limited to, statements regarding BRT's strategy and expectations for the future. They are not guarantees of future results and are subject to risks, uncertainties, and assumptions that could cause actual results to differ materially from those expressed in any forward-looking statement. Listeners should not place undue reliance on any forward-looking statements and are encouraged to review the company's 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 publicly update or revise any forward-looking statements. This conference call also includes a discussion of funds from operations or FFO, adjusted funds from operations or AFFO, net operating income or NOI, and information regarding our pro rata share of revenues, expenses, NOI, assets, and liabilities of BRTs, unconsolidated subsidiaries, all of which are non-GAAP financial measures of performance. These non-GAAP measures should be used as a supplement to and not a substitute for net income computed in accordance with GAAP, unless otherwise indicated or the context otherwise requires, discussions with respect to operating results at the unconsolidated ventures reflects BRT's pro-rata share of such results. For a more complete discussion of our financial results as reported in accordance with GAAP, these non-GAAP measures and these non-GAAP measures see the company's earnings release and supplemental information, which are currently available under the investor relations tab at our website and the 10-K, which will be available at such tab on Monday, March 15th. Unless otherwise indicated or the context otherwise requires references to BRT's portfolio or its multifamily portfolio and references to revenues, expenses, NOI, assets, and liabilities refer to the results and accounts of BRT's wholly owned subsidiaries and its pro rata share of unconsolidated subsidiaries. BRT uses pro rata share to help provide a better understanding of our unconsolidated joint ventures. However, the use of pro rata information has certain limitations and is not representative of the company's operations and accounts as presented in accordance with GAAP. Accordingly, pro rata information should be used with caution and in conjunction with the GAAP data presented in our supplemental and in our reports filed with the FCC. Further, references to the current quarter refer to the quarter ended December 31, 2020, and references to the 2019 quarter refer to the quarter ended December 31, 2019. References to the current year refer to the year ended December 31, 2020, and references to 2019 refer to the year ended December 31, 2019. I would now like to turn the call over to Jeffrey Gould, President and CEO of BRT Apartments. Please go ahead, Jeff.

Thank you, Evelyn. I would like to welcome everyone to BRT's fourth quarter conference call. Let me start off by saying that although 2020 brought about uncertainty in the market, we are pleased with the way our team at BRT and at the properties have stepped up and performed during these times. We were proactive and remained cautious and conservative with our capital deployment, and as a result, had strong performance in 2020. We are confident that we are in a position to resume growth activities when the market is right, as cap rates continue to remain compressed. We remain diligent with regard to safety protocols and continue to put the staff and tenants' health as our top priority. With respect to our portfolio, as of March 1, 2021, we owned or had an interest in 39 multifamily properties consisting of 11,042 units in 11 states, 31 properties owned by unconsolidated joint ventures, and eight properties wholly owned by BRT. BRT's equity interest in these unconsolidated subsidiaries, over which BRT actively oversees the management, generally ranges from 50% to 90%. We did not buy or sell any multifamily properties in the current quarter. Let's turn to our financial performance. BRT generated FFO of approximately $5 million in the current quarter, or 29 cents per diluted share, compared to $3.5 million in the 2019 quarter, or 21 cents per diluted share. For the year, FFO grew to $17 million, or 99 cents per diluted share, compared to $12.01 million, or 74 cents per diluted share in 2019. AFFO increased to $5.6 million for the current quarter, or 33 cents per diluted share, compared to $4.9 million or $0.30 per diluted share in the 2019 quarter. This represents a 10% increase in AFFO on a per diluted share basis. For the year, AFFO increased to $19.2 million or $1.12 per diluted share compared to $16.6 million or $1.03 per diluted share in 2019. Total rental revenues for our portfolio increased to $27.5 million as compared to $26.5 million in the 2019 quarter, and real estate operating expenses for the portfolio increased to $12.6 million as compared to $12.1 million in the 2019 quarter. For the year, total rental revenues for our portfolio increased to $107.9 million as compared to $102.2 million in 2019, and real estate operating expenses for the portfolio increased to $50.7 million as compared to $48.7 million in 2019. NOI for our portfolio rose 3.5% to $14.9 million for the current quarter from $14.4 million for the 2019 quarter. NOI for our portfolio increased 6.9% to $57.2 million for the current year from $53.5 million in 2019. The year-over-year increase was due to increased rental income at our two properties that were in lease-up and increased rental revenue at our same-store properties due to increased rental rates. On the value-add front, for the quarter, 45 units were upgraded at an average cost of approximately $6,700 per unit, yielding an estimated annualized return on investment of approximately 21%. For the year, we completed improvements on 248 units, yielding an estimated return on investment of approximately 18%. As reflected in our supplemental financial information, a portion of the cost may have been incurred in a prior period, but we report the return on investment when the unit is released. We continue to anticipate that in the near term, it will be a continued slowdown in the number of units that we reposition at our properties as the adverse economic impacts of the pandemic continue to unfold. which could impact our ability to achieve rent increases from repositioned units. Although we have slowed our value-added strategy for the time being, we believe the strategy will continue to be a positive factor in our ability to drive same-store rent and NOI growth over the long term. Our same-store pool showed resilience in the current quarter and the year due to higher occupancy, higher tenant retention, and higher rental rates. Our same-store pool in the current quarter is comprised of 36 properties with 10,037 units. Eight of those properties totaling 1,880 units are wholly owned assets. The remaining 28 assets totaling 8,157 units are unconsolidated joint ventures. Same-store revenues for our portfolio grew to $25.1 million in the current quarter, representing a 3.2% increase from $24.3 million in the 2019 quarter. Contributing to this increase was an increase in same-store rental rate over the prior year quarter from $1,082 to $1,091 per unit. Same-store expenses rose to $11.5 million in the current quarter, representing an increase of 3.6% from $11.2 million in the 2019 quarter. Same-store NOI for the portfolio increased to $13.6 million in the current quarter, an increase of 2.9% from $13.2 million in the 2019 quarter. For the year, our same store pool was comprised of 32 properties with 9,005 units. Seven of these properties totaling 1,688 units are wholly owned assets. The remaining 25 assets totaling 7,317 units are unconsolidated joint ventures. Same store revenues grew to $87.7 million in the current year, representing a 3.1% increase from $85.1 million in 2019, driven by strong occupancies, higher lease renewals, and a 2.7% per unit rental rate increase to $1,097 from $1,068 per unit for 2019. Same-store expenses rose to $41.7 million in the current year, representing an increase of 5.2% from $39.6 million in 2019. Same-store NOI for the portfolio increased to $46 million in the current year, an increase of 1.2% from $45.5 million in 2019. In February 2021, we entered into an agreement to sell our 80% interest in Anatole Apartments, Daytona Beach, Florida, to a joint venture partner for approximately $7.4 million. We anticipate the transaction will close in March or April 2021. We estimate that we will recognize a gain on sale of our partnership interest of approximately $2 million from such sale. Also, on March 3, 2021, we entered into an agreement to sell Kendall Manor, Houston, Texas, to an unrelated third party for approximately $24.5 million and anticipate the transaction will close in April or May 2021. We estimate that we will recognize a gain on the sale of this property of approximately $7.5 million. Turning to the balance sheet, at December 31, 2020, we had $19.9 million of cash and cash equivalents, total assets of $366 million, total debt of $167.5 million, and total stockholders' equity of $177.8 million. At March 1, 2021, our available liquidity was approximately $36.1 million, including $17.3 million of cash and cash equivalents, $8.8 million representing restricted cash for property improvements, and up to $10 million available for working capital under our credit facility. In addition, our unconsolidated joint ventures have approximately $17 million of cash and cash equivalents, which is used for day-to-day working capital purposes. At a minimum, we intend to maintain one month of expenses and debt service at each of our properties. The aggregate mortgage debt for our wholly owned properties combined with our pro rata share of mortgage debt for our unconsolidated joint ventures total $659 million, has a weighted average interest rate of approximately 4% and a weighted average remaining term to maturity of seven years. On March 11th, Our board approved our quarterly dividend of 22 cents per share, which is equivalent to an annualized yield of 4.9% based on our stock price of $18.04 as of the close of business on March 10th, 2021. We are optimistic about the year ahead, but are approaching the market in the near term with caution as we continue to actively monitor our portfolio. We remain focused and determined as a company, and I am proud of the team's effort, particularly in these unusual times. We are pleased with our performance to date and will stay diligent as we continue throughout the year. Thank you for joining us today on our conference call. And with that, I'll turn the call over to the operator for your questions. Operator?