BRT Apartments Corp. Q2 FY2023 earnings call

• Operationally, the portfolio performed well with solid rent growth during spring leasing season, though rent increases and occupancy moderation from pandemic-influenced levels were seen. - New supply in Huntsville, Nashville, and Pensacola was a concern, with Nashville having more impact due to West Nashville dynamics. - Completed sale of Chatham Court property in Dallas at sub-5% cap rate, generating net proceeds used for stock repurchases. - Second quarter results affected by disappointing performance at two properties; Alamo Ranch had tenant credit and delinquency issues being cleaned up, Bells Bluff had concessions due to West Nashville new supply. - Rehabbed 65 units with $477,000 investment and 45% annualized ROI.

For the combined portfolio, recurring CapEx was $1.47 million for the quarter. Adding $719,000 in replacements, totaled approximately $2.2 million or $284 per unit. FFO was $0.28 per diluted share compared to $0.20 per diluted share a year ago. AFFO was $0.37 per diluted share compared to $0.37 per diluted share a year ago. Net income attributable to common stockholders was $0.58 per diluted share compared with net income of $1.91 per diluted share a year ago. The rehab of 65 units during the quarter had an estimated annualized ROI of 45%.

• Affirmed previously issued guidance for 2023 based on Q2 results, outlook for underperforming properties, disposition of Chatham Court, and stock repurchases.

• New supply in markets like Huntsville, Nashville, and Pensacola, particularly West Nashville affecting Bells Bluff. - Tenant issues at Alamo Ranch causing underperformance. - Transaction market quiet due to high cap rates, higher insurance costs, and interest rates.

Q: Some of it was answered, but if I could get a little more clarification. It looked like in the same-store revenue, both Virginia and Texas, you touched on Texas as both those numbers were negative numbers and yet you held guidance. Kind of walk me through why those numbers are going to be better in 3Q?

A: Jeff explained that at Alamo Ranch, tenants put in place prior to buyout had credit issues, standards increased leaving vacancy and delinquency, but cleaning up is underway and moving in right direction. At Bells Bluff, concessions due to new builds in West Nashville, improving but may take time.

Q: Turning to acquisitions, are there any opportunities that you see over the next couple of quarters in the joint venture kind of bring them in on a wholly owned basis? Or look, my guys are staying packed right now?

A: Jeff said no specific plans to acquire other partnerships right now, but looking at assets partners may consider selling.

Q: Do you think it could pick up, let's say, going into '24 that you could start to see some distress maybe because that starts to roll over and now you've got to deal with that higher interest rate? Or maybe you can't get the mortgage amount that you were hoping to get?

A: Jeff said they're already seeing opportunity with partnerships looking to sell due to caps or interest rates, expects more distress and opportunities in '24.

Q: When you look at what Freddie May and Freddie Mac are doing as far as underwriting, are they also -- I know banks are getting tighter, but are they also getting tighter and tough to deal with or not necessarily?

A: Ryan responded that it's not that they're getting tighter, but debt coverage ratios required are harder to meet, leading to proceeds in lower loan-to-value ranges.

Q: Jeff, you guys use the disposition proceeds to buy back stock this quarter. I think the authorization is pretty low now. What are your thoughts on re-upping that authorization? And just bigger picture, capital structure plans going forward, any insights you can give us there?

A: Jeff said they'll consult the Board at next meeting to consider re-upping the authorization, thinking it's a good opportunity and likely to continue.