BRT Apartments Corp. (MD)

Good day and welcome to the BRT Apartments Corp fourth quarter 2022 earnings call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on a touch-tone phone. To withdraw your question, please press star, then two. Please note this event is being recorded. I would now like to turn the conference over to Tripp Sullivan of Investor Relations. Please go ahead.

Thank you for joining us today for BRT Apartments' fourth quarter 2022 earnings conference call. On the call today are Jeffrey Gould, President and Chief Executive Officer, George Zweier, Chief Financial Officer, and 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 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 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. This call also includes a discussion of non-GAAP measures, including FFO, AFFO, NOI, combined portfolio NOI, and information regarding our pro rata share of 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 the SEC. Please see these reports and filings for 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.brtapartments.com. I'd now like to turn the call over to President and CEO Jeffrey Gould. Please go ahead, Jeff.

Thank you, and welcome to the call. I'll have a few comments on our overall performance, the state of the company, and some insight on the market environment. Then I'll turn it over to George for some additional color around our results. I'll ask Ryan to come out on at the end to discuss our 2023 guidance. I'm very pleased with what we've accomplished at BRT this year. We made significant progress on strategic goals such as growing the wholly owned portfolio, improving the balance sheet with most of our mortgage debt at fixed interest rates, driving NOI growth, and creating value. The scale and importance of the transactions we completed in 2022 can't be emphasized enough. I'd like to thank our entire team for their contributions to our success. We remain in front of a number of long-term secular trends at BRT, with our portfolio positioned in markets that are experiencing population and job growth. Some concerns have been expressed this quarter within our industry about the impact of inflation on the cost of living, new supply in several markets, and the timing and ultimate scale of a recession among others. These are real challenges for us and for the industry. But I've said this before and it's worth repeating. BRT's management has been through many economic cycles and is ready to take advantage of appropriate opportunities. Patience has been a virtue the last several quarters. Any transactions we contemplate must still meet our stringent underwriting standards so you can expect we will remain deliberate in our growth plans. The same applies to any potential asset recycling we might pursue. Until recently, price discovery has been the best term to describe what has been transpiring the past several months. We are beginning to see some light at the end of the tunnel. The recent agreement by one of our joint ventures to sell Chatham Court in Dallas is a great example. When completed in the second quarter, that disposition should generate an IRR of 22% over a seven-year hold for us and net proceeds of approximately $19 million that we can redeploy later this year. In March, we entered into agreement to acquire a 238 unit multifamily property built in 2019 in Richmond, Virginia for a purchase price of $62.5 million. The purchase price includes the assumption of approximately $32 million of mortgage debt with an attractive rate of 3.34% and a maturity of 2061. We expect the transaction will be completed in the fourth quarter as we must seek lender approval of the mortgage debt assumption. In terms of capital allocation, our largest transaction in 2022 were related to the partner buyouts at 11 properties for approximately $106 million and the sale of our interest in four unconsolidated properties for net gains totaling approximately $65 million. We realized IRR is between 19% and 41% on these properties. While the increase in our wholly owned portfolio provides more scale, it also allows us to fully control these properties and execute on our business plan for this portfolio, such as, if appropriate, opportunistic value-add investments. During 2022, we also allocated capital to providing a dividend increase of 8.7% to our stockholders to $0.25 per share and instituted a dividend reinvestment plan, allowing purchase of shares at a 3% discount. As you've seen from our 2023 guidance, that increase still leaves our dividend to be well covered with a payout ratio as a percentage of AFFO in the range of 62 to 67%. We were very prudent and disciplined during the year with the execution of our ATM. We raised $9.9 million in total during 2022. Given where the stock traded most of the quarter and with no transactions, we did not utilize the ATM in the fourth quarter. Turning to the performance of our multifamily portfolio in the quarter, average occupancy for the portfolio was 94.7% for the fourth quarter, which is down from 96.4% in the 2021 quarter, primarily due to the lack of movement among our tenants in the 2021 quarter. Average monthly rents for the combined portfolio in the fourth quarter of 2022 were up 9.2% compared to the 2021 quarter. For leases signed in the fourth quarter of 2022, We saw estimated spreads on new leases at 9.5%, renewal spreads of 9%, and overall spreads of 9%. Through January and February this year, we have seen estimated spreads on new leases of 3.4%, renewal spreads of 8%, and overall spreads of 6%. Also, I would like to note that we believe we have minimal stress in affordability as our rent-to-income ratio for all new leases signed in the fourth quarter is 24%, which compares favorably with our peers. To conclude, the best way I can frame the outlook for 2023 is to say that our activities in 2022 and to date in 2023 have materially improved our ability to create long-term value for our stockholders. We have more of our portfolio under our direct control than ever before. Almost all of our mortgage debt is a fixed rate with no debt maturities until 2025. Our patience and diligence have allowed us to be very selective on new opportunities, and we have an easier and more compelling value creation message to share with potential new investors. George, please take it from here.