BRT Apartments Corp. Q2 FY2022 earnings call

• The second quarter was a strong quarter with performance driven by population and job growth and housing shortage. • Completed buyout of joint venture partners for 11 transactions with an aggregate purchase price of $105.9 million, increasing the wholly-owned portfolio to 21 properties with 5,420 units. • Sold properties such as Retreat at Cinco Ranch, The Vive, and planned to sell Waters Edge at Harbison, with sale proceeds to be used to pay down the credit facility. • Repositioned 107 units with an estimated annualized return on investment of approximately 46%. • As of June 30, 2022, total assets were $605 million, total debt was $334 million, and total BRT stockholder equity was $249 million; available liquidity included $57 million of cash and cash equivalents, $4.8 million of restricted cash, and up to $35 million available under the credit facility.

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 of 2021. 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. At June 30, 2022, the wholly-owned portfolio consisted of 16 multifamily communities with 3,848 units, and the company owned interests through unconsolidated entities in another 14 communities with 4,557 units. The average occupancy for the portfolio was 96.1% for the quarter ended June 30, 2022, up 80 basis points from the 2021 quarter. Average rents for the portfolio in the second quarter of 2022 were $1,252 per month, a 10.9% increase compared to the 2021 quarter. For leases signed in the second quarter of 2022, favorable spreads on new leases were at 15.1%, renewal spreads at 10.7%, and overall spreads at 12.6%. The same-store pool including 6,165 units saw same-store revenue grow 10%, same-store expenses increase by 10.7%, and same-store NOI grow 9.4% from the 2021 quarter.

• Jeffrey Gould stated that pricing is expected to be better in a few months and that the fall is likely to be busier with more transactional volume. • The company believes there will be opportunities to see transactional volume of interest in the future.

• Interest rate changes have led to a slowdown in transaction volume and uncertainty in pricing. • Market disruption and changes in economic conditions may impact future transactions and valuations.

Q: Gaurav Mehta asked about the remaining opportunity for buyout of JV partners and dispositions.

A: Jeffrey Gould responded that low-hanging fruit easier deals have been completed, but there are still some potential opportunities, though not all remaining partners will be bought out soon; regarding sales, Waters Edge is the last contemplated sale, and there are no other specific targeted sales at present.

Q: Gaurav Mehta asked about the transaction market valuations and cap rates.

A: Jeffrey Gould said volume slowed since May-June due to interest rate changes, pricing will be better in a few months, the fall will be busier, and cap rates are very varied currently but higher than they were six months ago.

Q: Craig Kucera asked about the balance sheet appetite for acquisitions.

A: Jeffrey Gould replied that the company has a credit facility, proceeds from sales earmarked, and a desire to grow smartly, and will go out to acquire assets when pricing and spreads are favorable.

Q: Craig Kucera asked about rent growth and operating expenses.

A: Jeffrey Gould mentioned rent growth is good, and Ryan Baltimore explained that payroll costs and unit turns due to inflation and increased occupancy were the main drivers of increased expenses.

Q: Michael Gorman asked about conversations with partners.

A: Jeffrey Gould said remaining partners believe in the upside of the assets, making it hard to buy them out as they agree on the potential, and deals may play out at loan maturity.

Q: Michael Gorman asked about the financial health of residents.

A: Jeffrey Gould stated that tenants with good payment history are solid, and collections on renewed tenants have been strong