BRT Apartments Corp. Q1 FY2023 earnings call

• Overall first quarter results were consistent with the sector; revenues in line with anticipation, leasing positive but down y-o-y, expenses in line with estimates but some unexpected costs.
• Spring leasing season underway, with opportunity to outperform winter months; rental growth target of 5%-6%.
• Transaction front quiet, but Chatham Court property in Dallas expected to sell at sub-5% cap rate, generating net proceeds of $19 million to be redeployed into Richmond acquisition.
• Balance sheet: Debt to enterprise value was 62% as of March 31 (up from 59% y-o-y), available liquidity at quarter end was $75 million, consolidated and unconsolidated mortgage debt had a weighted average interest rate of 4.01% and weighted average remaining term to maturity of 7.3 years.
• Portfolio performance: Completed rehab of 55 units during the quarter with an estimated annualized ROI of 43%.

The first quarter results were consistent with the sector. The multifamily portfolio had an average occupancy of 94.2% (down from 96.4% in 2022 Q1). Average monthly rents for the combined portfolio were up 10.9% compared to Q1 2022. Combined portfolio NOI was up 1% in Q1 compared to Q1 2022, with revenue growing 7.1% (due to increased rental rates) and total expenses increasing 15.2% (primarily due to higher insurance, repairs, and maintenance). Controllable expenses were up 11.8% and non-controllable expenses up 21.5%. Recurring CapEx for the quarter was $1.2 million, with total CapEx (including replacements) totaling approximately $1.8 million or $217 per unit.

• Affirmed previous guidance and accompanying assumptions.
• Anticipate sequential NOI improvement in 2023 as expenses stabilize, with insurance costs expected to stabilize and repairs/maintenance issues not continuing throughout the year.
• The master insurance program implemented is a long-term benefit, and things are expected to stabilize going forward.

• Non-controllable expenses (like insurance early cancellation costs, winter storm repairs, utility leak) impacted portfolio performance.
• Occupancy issues in some properties like San Antonio due to short-term problems such as increased delinquency from partner buyout concerns.
• Transaction market remains slow with sellers and buyers being cautious, and disconnect between buyer and seller expectations on expenses and rental growth.

Q: Good morning. I wonder about NOI in your earnings release, you talked about expectation of sequential NOI improvement in 2023. So is that sequential improvement driven by the expenses growth rate going lower?

A: Jeffrey Gould said expenses will stabilize, with insurance being one factor, and Ryan Baltimore added repairs and maintenance and utility issues won't continue throughout the year.

Q: I wanted to ask you on one particular property in San Antonio. I noticed the occupancy for that property is 85.7%, which is lower than your overall portfolio occupancy. Can you provide some color on what's going on at that property? Why is that occupancy low?

A: Jeffrey Gould said there were short-term problems like increased delinquency stemming from partner buyout issues, but they are rectifying delinquencies and getting viable tenants in place, with occupancy already improving.

Q: Yes. Thanks. Good morning, guys. Ryan, you talked a little bit about some of the move-outs or some of the lack of move-outs during COVID and that maybe having some impact on the comps. Can you just talk about the retention rate that you saw in the quarter, where you think that's going to settle out? And maybe just walk through kind of where the residents – what kind of other options the residents are moving out to in this environment? Is it home purchases? Are they leaving the market? Kind of what's driving that?

A: Ryan Baltimore said retention rate hovers in 50%-55% range, not seeing tremendous home buying impact, with job relocation and alternative options being factors. Jeffrey Gould added focus on renovation of units and renewal rents.

Q: Hey, good morning, guys. Jeff, I appreciated the color on the San Antonio property, but your suburban Dallas JV asset has also seen some occupancy softness over the past several quarters. Is that property also having some bad debt issues? Or is something else going on?

A: Jeffrey Gould said it was due to some supply issues in the market, with new development and job growth in the area leading to absorption of new supply.