BRT Apartments Corp. (MD)

Thank you for standing by. This is the conference operator. Welcome to the BRT Apartments Corp second quarter 2022 earnings conference call. As a reminder, all participants are in listen-only mode and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. To join the question queue, you may press star then 1 on your telephone keypad. Should you need assistance during the conference call, you may signal an operator by pressing star, then zero. At this time, I would like to turn the floor over to Stephen Sweat, Investor Relations. Thank you. You may begin.

Thank you for joining us today for BRT Apartments Corp's second quarter 2022 earnings conference call. On the call today is Jeff Gould, President and Chief Executive Officer. Also available are George Zweier, Chief Financial Officer, Ryan Baltimore, Chief Operating Officer, and David Kalis, Senior Vice President. I'd 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're 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 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, 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 BRT's 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 reflect BRT's prerogative share of such results. For a more complete discussion of our financial results as reported in accordance with GAAP, see the company's earnings release, supplemental information, and 10-Q, which are currently filed and available under the Investor Relations tab on our website. All amounts are approximate and, among other things, reflect rounding, unless otherwise indicated or context otherwise requires references to BRT's portfolio or its multifamily portfolio, and references to revenues, expenses, NOI, assets, and liabilities refer to results and accounts of BRT's wholly owned subsidiaries and its pro rata share of unconsolidated subsidiaries. BR 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 our operations and accounts as presented in accordance with GAAP. Accordingly, pro rata information should be used with caution and in conjunction with GAAP data presented in our supplemental and in our reports filed with the SEC. Further, references to the current quarter refer to the quarter ended June 30th, 2022, and references to the 2021 quarter refer to the quarter ended June 30th, 2021. 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 Chief Executive Officer Jeffrey Gould. Please go ahead, Jeff.

Thank you, and welcome to the call. The second quarter was another strong quarter of performance across our portfolio as we continue to benefit from strong fundamentals in most of our markets today. driven by ongoing population and job growth, as well as the significant shortage of quality housing in many of these areas. Additionally, we have made significant progress on our efforts to grow our wholly owned portfolio and simplify our capital structure through acquisitions of our partners' interests. These transactions allow us to capture value by adding additional income as well as incremental assets to the balance sheet. We have now completed all of our previously announced buyouts, as well as most of the announced sales, which have produced strong gains for the company. As a result, our wholly owned portfolio today, considering all the transactions completed over the last nine months, now includes 21 properties consisting of 5,420 units, increased by approximately 3,800 units from this time last year. Turning to our results for the second quarter of 2022, net income attributable to common shareholders was $35.6 million or $1.91 per diluted share compared to $6 million or $0.34 per diluted share in the same quarter 2021. The improvement was due primarily to our $40.1 million share of the gains from the sale of two properties owned by unconsolidated subsidiaries. AFFO was $6.9 million or $0.37 per diluted share compared to $5.5 million or $0.31 per diluted share in the second quarter of 2021. Contributing to the 19% increase in AFFO per share were improved operating margins and our share of reduced interest expense at our unconsolidated subsidiaries, offset by the increase in state income tax. In addition, AFFO per share amounts were also affected by the issuance of shares on our ATM and equity incentive programs. Turning to our portfolio, at June 30, 2022, our wholly owned portfolio consisted of 16 multifamily communities containing 3,848 units. We also owned interest through unconsolidated entities in another 14 communities containing 4,557 units. Average occupancy for the portfolio was 96.1% for the quarter, ended June 30, 2022. up 80 basis points compared to the 2021 quarter. Average rents for the portfolio in the second quarter of 2022 were $1,252 per month, up 10.9% compared to the 2021 quarter. For leases signed in the second quarter of 2022, we saw favorable spreads on new leases at 15.1%, renewal spreads of 10.7%, and overall spreads of 12.6%. In the second quarter of 2022, our same-store pool for the portfolio including 6,165 units, of which 1,608 units were consolidated, and 4,557 units were owned by unconsolidated joint ventures. For these properties, same-store revenue grew 10%, same-store expenses increased by 10.7%, and same-store NOI grew 9.4%. in each case from the 2021 quarter. Regarding transactions year to date, we have been very active both during the second quarter and subsequent to the quarter end in buying out the interest of our joint venture partners. Let me highlight our recent buyout activity. During the second quarter, we completed the purchase of the remaining interest in joint ventures that own five multifamily properties with an aggregate of 984 units for an aggregate purchase price of $34.2 million. Subsequent to quarter end, we completed the purchase of the remaining interest in the joint ventures that own five multifamily properties with an aggregate of 1,572 units for an aggregate purchase price of $63 million. We now have completed all 11 of the buyout transactions previously announced for an aggregate purchase price of $105.9 million. we believe there is upside in these acquisitions through value-add opportunities, management efficiencies, and market growth. After giving effect to the purchases, including those completed subsequent to the second quarter, we estimate that our consolidated balance sheet will reflect real estate assets of approximately $668 million and approximately $426 million of mortgage debt. Turning to capital recycling, in June of 2022, We sold Retreat at Cinco Rants, a 268-unit property in Katy, Texas, for $68.3 million. We retired $30.1 million of mortgage debt, and BRT's share of the gain on sale was approximately $17.4 million, excluding our share of debt prepayment fees of $686,000. And this transaction provided us with an IRR of over 20% over the six and a half years it was owned. Also in June, we sold the Vive, a 312 unit multifamily property in Kannapolis, North Carolina for $91.3 million. We retired $31.4 million of mortgage debt and BRT share of the gain on sale was approximately $22.7 million, excluding our share of debt prepayment fees of $787,000. And this transaction provided us with IRR of over 40% over the three plus years it was owned. Also during the second quarter, we agreed to sell Water's Edge at Harbison, a 204 unit multifamily community in Columbia, South Carolina, in which BRRT holds an 80% equity interest for $32.4 million. We will be retiring $12.3 million of debt with this disposition. We anticipate that this transaction will be completed late August or early September, subject to customary closing conditions. We expect that our share of the gain will be approximately $11.5 million, excluding our share of debt prepayment fees of $263,000, and we estimate our RRR will be approximately 20% over the six years it was owned. We plan to use the sale proceeds to pay down our credit facility. On the value-add front, we repositioned 107 units and an average investment of approximately $7,000 per unit, yielding an estimated annualized return on investment of approximately 46%. As reflected in our supplemental financial information, a portion of the cost may have been incurred in the prior period, but we report the return on investment when the unit is released. Across our entire portfolio, we have approximately 800 units available for renovation over the next couple of years. Turning to the balance sheet, at June 30th, 2022, we had total assets of $605 million, total debt of $334 million, and total BRP stockholder equity of $249 million. Available liquidity at quarter end included $57 million of cash and cash equivalents, restricted cash of $4.8 million, primarily for capital improvements, and up to $35 million available under our credit facility. In addition, our unconsolidated joint ventures had approximately $11 million of cash and cash equivalents, which is used for the operable ventures day-to-day working capital purposes and renovations. At August 5th, 2022, our available liquidity was approximately $31.4 million, comprised of $13.9 million of cash and cash equivalents, $4.5 million of restricted cash, and subject to compliance with borrowing base and other requirements, up to $13 million available under our credit facility. The aggregate mortgage debt at June 30th for our wholly owned properties combined with our pro-rata share of mortgage debt for our unconsolidated joint ventures totals $536.6 million with a weighted average interest rate of 3.95% and a weighted average remaining term to maturity of 7.8 years. We continue to keep a focus on our leverage ratios and we have brought our debt to enterprise value as of June 30th, 2022 to 63%, down from 64% at June 30th, 2021. In the second quarter, we sold approximately 137,000 shares pursuant to our ATM sales program at a weighted average price per share of $22.75. Net proceeds were approximately $3.1 million. Finally, on July 8, 2022, we paid a quarterly dividend of $0.25 per share, an increase of 8.7% from the prior quarterly dividend. This current dividend equates to an annualized yield of 4.53% based on our stock price of $22.07 as of the close of business on August 5, 2022. In conclusion, the second quarter was another strong quarter for BRT, during which we continued to make considerable progress. We efficiently recycled capital through targeted dispositions where we believe we have maximized value and reinvested proceeds into the acquisition of our partners' interests and properties with which we are very familiar and at which we believe there is upside potential. As we look ahead to the second half of 2022 and beyond, we are very pleased with the growth in our wholly owned portfolio and the ongoing strength of our markets. We are hopeful that there will be further chance to grow as the current disruption and uncertainty in the economy may lead to opportunity. I want to thank the entire BRT team for their hard work and contribution to our successes. That completes our call. We will now open the call to your questions. Operator?