BRT Apartments Corp. (MD)

Good morning and welcome to the BRT Apartment Corps Third Quarter Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the floor over to Trish Sullivan of SCR Partners. Thank you. You may now begin.

Thank you for joining us today. On the call are Jeffrey Gould, President and Chief Executive Officer, George Weir, 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 statements and are encouraged to review the company's SEC filings, including its Form 10-Q, for more complete discussion of risk and other factors that could affect these forward-looking statements. Except as required by law, DRT 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 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 filing for the definitions of each non-GAAP measure. As a reminder, the company 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. 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. We are still seeing rent growth on a blended basis, with occupancy in a tight band around 94 percent. 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 above what we've been anticipating. 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 new leases. We will be taking this into consideration during our 2024 budgeting process. 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 inflation is certainly having an impact in most expense categories. Along with real estate taxes, that inflationary headwind is not something we can control. We are also incurring the year-over-year increase in insurance costs that we are experiencing this year due to rolling up individual policies into our master policy, but we believe that should moderate in 2024 and is the right long-term decision for us. I noted last quarter that the transaction market is as quiet as I can ever recall. That's still the case. What we have seen transact has been where sellers had to sell and or buyers have capital allocated to space that needed to be put to work, mainly with all cash. There aren't really any read-throughs on cap rates in those kind of transactions. Plus, there have been a lot of retrades. 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 in a not too distant future. These owners are facing CapEx issues, expiring interest rate swaps, debt maturities, and insurance issues. All of these trends argue for even more patience in the near term. 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. 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 disposition proceeds 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. We have weighted all other capital allocations alternatives over the last several months, and we believe share repurchases will yield the highest return. Real estate cycles come and go, and as a management team, 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 valuations. By taking a longer-term view, we focused on consolidating ownership and control of our properties and selling properties that weren't long-term holds, as well as cleaning up our balance sheet. As this environment put 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. George, please take it from here.