BRT Apartments Corp. (NYSE:BRT) Q3 2021 Earnings Conference Call November 9, 2021 8:30 AM ET
Stephen Swett – Investor Relations-ICR
Jeffrey Gould – President and Chief Executive Officer
Conference Call Participants
Good day, and welcome to the BRT Apartments Corp’s Third Quarter 2021 Earnings Conference Call. Today’s conference is being recorded.
At this time, I would like to turn the floor over to Stephen Swett at ICR. Thank you. You may begin.
Thank you for joining us today for BRT Apartments Corp’s third quarter 2021 earnings conference call. On the call today is Jeffrey Gould, President and Chief Executive Officer. Also available are George Zweier, Chief Financial Officer; and Senior Vice Presidents, David Kalish, and Ryan Baltimore.
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. Forward-looking statements can often be identified by words such as believe, expect, estimate, anticipate, intend, and similar expressions, and variations or negatives of these words. Forward-looking statements include, but are not limited to, statements regarding BRT’s strategy and expectations for the future. They are not guarantees of future results, and are subject to risks, uncertainties, and assumptions that could cause actual results to differ materially from those expressed in any forward-looking statements. 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 risks 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 conference call also includes a discussion of funds from operations, or FFO; adjusted funds from operations, or AFFO; net operating income or NOI; and information regarding our pro rata share of revenues, expenses, NOI, assets and liabilities, of BRT’s unconsolidated subsidiaries, all of which are non-GAAP financial measures of performance. These non-GAAP measures should be used as a supplement to, and not a substitute for, net income computed in accordance with GAAP. Unless otherwise indicated, or the context otherwise requires, discussions with respect to operating results at the unconsolidated ventures, reflects BRT’s pro rata share of such results.
For a more complete discussion of our financial results as reported in accordance with GAAP, see the company’s earnings release and supplemental information, which are currently available under the Investor Relations tab at our website, and the 10-Q, which BRT intends to file shortly. All amounts are approximate and among other things, reflect rounding. Unless otherwise indicated, or the context otherwise requires, references to BRT’s portfolio, or its multifamily portfolio, and references to revenues, expenses, NOI, assets and liabilities, refer to results and accounts of BRT’s wholly owned subsidiaries and its pro rata share of unconsolidated subsidiaries.
BRT uses pro rata share to help provide a better understanding of our unconsolidated joint ventures. However, the use of pro rata information has certain limitations, and is not representative of our operations and accounts as presented in accordance with GAAP. Accordingly, pro rata information should be used with caution and in conjunction with the GAAP data presented in our supplemental and in our reports filed with the SEC. Further references to the current quarter refer to the quarter ended September 30, 2021, and references to the 2020 quarter refer to the quarter ended September 30, 2020. 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. The company plans to file its 10-Q shortly.
I’d now like to now turn the call over to President and CEO, Jeffrey Gould. Please go ahead Jeff?
Thank you, and welcome to the call. We are pleased with our results in the third quarter, as our portfolio continued to perform very well, and we continue to make progress on our initiatives to increase our wholly-owned portfolio, unlock value, reduce leverage, and strengthen our multi-family platform.
Let me begin with our results for the third quarter of 2021. Net income attributable to common stockholders was $28.1 million or $1.54 per diluted share compared to a net loss of $7.5 million or $0.44 per diluted share in the same quarter 2020. FFO was $7,000 or less than a $0.01 per diluted share compared to $4.6 million or $0.27 per diluted share in the same quarter last year.
The decline reflects our $4.6 million share of the loss on extinguishment of debt incurred by an unconsolidated joint venture in connection with two property sales. It also reflects our share of the loss on extinguishment of debt of $902,000 incurred in paying off mortgage debt in the principle amount of $31.9 million at several consolidated properties.
AFFO was $5.7 million or $0.31 per diluted share compared to $4.9 million or $0.28 per diluted share in the third quarter of 2020. This 10.7% increase per share was primarily due to reduced interest expense and improved operating margins, occupancy and rental rates across our portfolio.
Turning to our portfolio, at September 30, 2021, our wholly-owned portfolio consists of eight multi-family communities containing 2010 units. We also owned interest through unconsolidated entities in another 27 communities to containing 7,444 units.
In the third quarter rental revenues, including our pro rata share of unconsolidated entities were $27.3 million versus $27.5 million in the 2020 quarter. This decrease was primarily due to the sale of assets during the current quarter.
Portfolio NOI was $14.4 million up approximately 3% compared to $13.9 million for the 2020 quarter. Average occupancy was 96.2% for the quarter ended September 30, 2021, up 170 basis points compared to the 2020 quarter. Average rents in the third quarter 2021 were $1,152 per month up 6% compared to the 2020 quarter. For leases signed in the third quarter of 2021, we saw favorable spreads on new leases at 10.7% renewal spreads of 6.1%, and overall spreads of 8.4%.
In the third quarter, 2021 our same-store pool for the portfolio included 9,052 units comprised of 1,608 wholly-owned units and 7,444 units in our unconsolidated joint ventures. For the current quarter, same-store revenue grew 7% compared to the 2020 quarter, same-store expenses increased 5.1% compared to the 2020 quarter, and same-store NOI increased 8.9% compared to the 2020 quarter.
Regarding transactions in the quarter, we continued to execute on our unique ability to add to our wholly-owned portfolio by buying our joint venture partners. We believe this approach will be successful as we are well positioned to understand the true value and potential of an asset prior to owning it outright.
As previously announced, we completed the purchase of our partners remaining 41.9% interest in the joint venture that owns Bell’s Bluff a 402 unit multi-family property located in West Nashville, Tennessee. The purchase price for such interest was approximately $27.9 million and the property is now wholly-owned by BRT. In connection with the closing, we obtained a $52 million, 20-year fixed rate mortgage loan bearing an interest rate of 3.48%. Subsequent to the quarter end in October, we purchased for $1.6 million, the remaining 10% interest in the venture that owns Crestmont at Thornblade, a 266-unit multi-family property in Greenville, South Carolina.
Also as previously announced, we completed the sale of Parc at 980, located in Lawrenceville Georgia and The Avenue Apartments located in Ocoee, Florida. We had a 50% interest in the unconsolidated joint venture that owned these properties. As a result of these sales, we recognized a $35 million share of the gain after our $4.6 million share of the loss on the extinguishment of debt.
These properties produce an IRR, of approximately 25% over the three years that we – they were owned. Additionally in November, we completed the sale of our interest in two underperforming properties located in St. Louis for $3 million. In the second quarter of 2021, we had recorded a 520,000 impairment charge with respect to this transaction.
On the value-add front, we repositioned 67 units at an average investment of approximately $6,500 per unit yielding an estimated annualized return on investment of approximately 42%. As reflected in our supplemental financial information a portion of the cost may have been incurred in the prior period, but we report the return on investment when the unit is released. Across our entire portfolio, we have approximately 750 units slated for renovation over the next several years.
Turning to the balance sheet. During the third quarter, we paid off $31.9 million of mortgage debt on our consolidated properties. This mortgage debt was scheduled to mature in the first quarter of 2022 and bore a weighted average interest rate of 4.53%. Also, we reduced our mortgage debt within our unconsolidated subsidiaries by $107 million in connection with the sales of Parc at 980 and The Avenue Apartments. The mortgages on these total properties were scheduled to mature in 2028 and bore a weighted average interest rate of 3.94%.
At September 30, 2021, we had total assets of $398 million, total debt of $171 million in total BRT stockholder equity of $206 million. Available liquidity at quarter end included $29.6 million of cash and cash equivalents, restricted cash of $7.6 million and up to $15 million available under our credit facility. In addition, our unconsolidated joint ventures had approximately $13.3 million of cash and cash equivalents, which is used for the applicable ventures day-to-day working capital purposes and renovations.
The aggregate mortgage debt for our wholly-owned properties combined with our pro rata share of mortgage debt for our unconsolidated joint ventures totals $578.1 million has a weighted average interest rate of 4% and a weighted average remaining term to maturity of 8.2 years. Our debt-to-enterprise value as of September 30, 2021 was 66% down from 80% at September 30, 2020. We hope to continue to bring our leverage down over time.
During the quarter ended September 30, 2021, we sold approximately 59,000 shares pursuant to our ATM sales program, at an average price of $18.23 per share. Net proceeds after commissions and fees were $1.1 million.
Finally, on October 7, we paid our quarterly dividend of $0.23 per share a 4.5% increase from the prior dividend. The current dividend equates to an annualized yield of 4.4% based on our stock price of $20 and $0.92 as of the close of business on November 5, 2021.
In conclusion, our results this year reflect the value we continue to build. Our portfolio is performing very well and we continue our efforts to grow our wholly-owned portfolio and strengthen our balance sheet. Our focus on properties in the Southeastern and Sunbelt has been successful, and I am excited with the opportunity we have as we look to the balance of 2021 and into the next year. I want to thank the entire BRT team for their hard work and dedication.
That completes our call. We will now open the call to your questions. Operator?
Thank you. [Operator Instructions] There are no questions registered at this time. I would like to turn the conference back over to Jeff Gould for any closing remarks.
Yes. I want say thank you all for your time, and we appreciate your continued interest in BRT. Have a good day. And thanks very much.
This concludes today’s conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.