BRT Apartments Corp. (NYSE:BRT) Q1 2022 Earnings Conference Call May 10, 2022 8:30 AM ET
Stephen Swett - Investor Relations
Jeffrey Gould - President & CEO
George Zweier - CFO
Ryan Baltimore - COO
David Kalish - SVP
Conference Call Participants
Craig Kucera - B. Riley FBR
Good day and welcome to the BRT Apartments Corp, First Quarter 2022 Conference Call. Today's conference is being recorded.
And at this time, I would like to turn the floor over to Mr. Stephen Swett, Investor Relations. Sir, you may begin.
Thank you for joining us today for BRT Apartment Corporation's first quarter 2022 earnings conference call. On the call today is Jeffrey Gould, President and Chief Executive Officer. Also available are George Zweier, Chief Financial Officer; Ryan Baltimore, Chief Operating Officer; and 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. 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. These 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, reflect 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 available, which are currently available under the Investor Relations tab at our website and the 10-Q which BRT intends to file later today.
All amounts are approximate and, among other things, reflect rounding. Unless otherwise indicated, or 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 March 31, 2022, and references to the 2021 quarter refer to the quarter ended March 31, 2021. 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.
I'd now like to turn the call over to President and Chief Executive Officer, Jeffrey Gould. Please, go ahead, Jeff.
Thank you and welcome to the call. We began 2022 with another strong quarter of performance across our portfolio as we continue to benefit from what we believe to be good fundamentals across most of our markets, driven by ongoing population and job growth, as well as the significant shortage of quality housing in many of these areas. Additionally, we have made significant progress on our strategic program to grow our portfolio to acquisitions of our partners’ interests. We believe this is a unique opportunity for BRT in today's investment environment where competition for quality assets is aggressive, and cap rates are at historic lows. As a result, we are executing on multiple opportunities to buy our partners interests, which will also have the significant ancillary benefits of a simplified structure, greater transparency and enhanced flexibility for BRT to drive long term growth for our stockholders.
Let me begin with our results for the quarter of 2022. Net income attributable to common stockholders was $11.5 million, or $0.62 per diluted share, compared to a net loss of $3.8 million, or $0.22 per diluted share in the same quarter 2021. The improvement was due primarily to our $13 million share of a gain from the sale of a property owned by an unconsolidated subsidiary. AFFO was $7.2 million, or $0.39 per diluted share, compared to $5.1 million, or $0.30 per diluted share in the first quarter of 2021. Contributing to the 30% increase in AFFO per share, we improved operating margins that same story properties, the effect of our acquisition of our partners interest in several joint ventures and lower interest expense offset by property sales. AFFO was also affected by the issuance of shares on our ATM and equity incentive programs.
Turning to our portfolio, on March 31, 2022, our wholly owned portfolio consists of 11 multifamily communities containing 2864 units. We also own interest to unconsolidated entities, and another 22 communities containing 6121 units. Average occupancy for the portfolio was 96.4% for the quarter ended March 31, 2022 up 2.8% compared to the 2021 quarter. Average rents for the portfolio in the first quarter of 2022 $1,215 per month up 9.2% compared to the 2021 quarter.
For leases signed in the first quarter of 2022 we saw favorable spreads on new leases at 12.6%, renewal spreads of 9.7% and overall spreads of 10.9%. In the first quarter of 2022 our same store pool for the portfolio included 7729 units. For these properties same store revenue grew 10.6%, same store expenses increased by 4.3% and same store NOI grew 15.9% in each case from the 2021 quarter. Regarding transactions year-to-date, we have been very active both during the first quarter and subsequent to quarter end in buying out the interests of our joint venture partners.
Let me highlight our activity so far in 2022. In March, we purchased for $8.7 million our partners remaining 28.1% interest in the venture that owns Veranda at Shavano, a 288 unit multifamily property in San Antonio, Texas. In April we purchased for $4.8 million. Our partners remaining 21.6% interest in the venture that owns Vanguard Heights 174 unit multifamily property, located in Creve Coeur, Missouri. In addition, we enter into separate agreements to acquire the remaining venture partners’ interest and nine multifamily properties to the 2,382 units.
The aggregate purchase price for these nine interests is approximately $89 million and we expect to include on our consolidated balance sheet, approximate $187.7 million of non-recourse mortgage debt already on these properties, with a weighted average remaining term to maturity of 6.7 years, and a weighted average interest rate of 4.68%. After giving effect to the 10 purchases, including Vanguard Heights, we estimate that our consolidated balance sheet will reflect approximately $786 million of real estate assets, and approximately $429 million of mortgage debt. We are excited about completing these transactions and expect all to be completed by August 1.
Turning to the capital recycling, during the first quarter of 2022 we sold a 288 unit property in San Antonio, Texas. We retired $25.1 million of mortgage debt, and our share of the gain on sale was approximately $13 million. This transaction provided us with an IRR of over 18%. In addition subsequent to quarter end in April, 2022 we agreed to sell retreat, to sell the Retreat at Cinco Ranch a 268 unit multifamily community in Katy, Texas, in which BRT holds a 70% equity interest for $68.5 million. We will be retiring $30.2 million of debt with this disposition. We anticipate this transaction will be completed in May, 2022 subject to customary closing conditions.
We expect that our share of the gain net of prepayment charges will be approximately $16.4 million and we estimate our IRR will be approximately 20.4%. Also in May 2022, we agreed to sell The Vive, a 312 unit multifamily property in Kannapolis, North Carolina, in which the company holds a 65% equity interest for $92 million. We will be retiring $31.6 million of debt with this disposition. We expect that our share of the gain net of prepayment charges will be approximately $21.5 million and we estimate our IRR will be approximately 41%.
We anticipate that the sales of the retreat at Cinco Ranch and The Vive will be completed by June, 30. I would add that because these two sales may be completed before all the partner buyouts described below are completed, and BRT sales Veranda at Shavano in February 2022, there may be a slight decline in operating results in the second quarter of 2022 from the corresponding 2021 quarter. After all the announced sales and biases are completed these transactions are not expected to have a material impact on short term bottom line operating results.
On the value add front, we repositioned 83 units at an average investment of approximately $5,300 per unit, yielding an estimated annualized return on an investment of approximately 49%. As reflected in our supplemental financial information, a portion of the costs 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 800 units available for renovation over the next several years.
Turning to the balance sheet, on March 31, 2022, we had total assets of $483 million, total debt of $249 million and total BRT stockholder equity of $214 million. Available liquidity at quarter end included $29.7 million of cash and cash equivalents, restricted cash of $6.5 million primarily for capital improvements, and up to $35 million available under our credit facility. In addition, our unconsolidated joint ventures had approximately $11.6 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 all consolidated joint ventures totaled $558.2 million with a weighted average interest rate of 3.94% and a weighted average remain term to maturity of 8.5 years. We continue to keep a focus on our leverage ratios. And we have brought our debt to enterprise value as of March 31, 2022, to 59%, down from 72% at March 31, 2021 and May 2, 2022 our available liquidity was approximately $62.7 million comprised of $21.5 million of cash and cash equivalents $6.2 million of restricted cash and subject to compliance with borrowing base and other requirements, up to $35 million available under our credit facility. In the first quarter, we sold approximately 136,000 shares pursuant to our ATM sales program, at a weighted average price per share of $22.61. Net proceeds were approximately $3 million. Finally, on March 9, 2022, we declared our quarterly dividend of $0.23 per share. The current dividends equates to an annualized yield of 4.5%, based on our stock price of $20.53, as of the close of business May 6, 2022.
In conclusion, the first quarter was a great start for the year for BRT, during which we continue to make progress. We're recycling capital effectively through targeted dispositions where we believe we have maximized value and growing the company by acquiring our partners’ interests and properties that we are very familiar with. As we look ahead to the balance of 2022 and beyond I am excited about the opportunities in front of us and I want to thank the entire BRT team for their hard work and contribution to our successes.
That completes our call. We will now open the call to your questions. Operator?
Ladies and gentlemen, at this time we'll begin the question and answer session. [Operator Instructions] And our first question this morning comes from Craig Kucera from B. Riley FBR. Please go ahead with your question.
Yes. Thank you. Good morning guys. Looks pretty good prices negotiated here on the next round of of asset sales. But can you tell us what the cap rates are on those dispositions that were negotiated here on those two sales?
Yes. Actually I'm going to turn it over to Ryan Baltimore to give you the specifics of the cap rates, we are very pleased with the numbers. Do you have that specific?
Yes, we don't we don't actually provide the specific cap rate, but they were definitely in line with the current market environment prior to large rate hike as we were very pleased with where those transactions took out.
Yes. I got it. That makes sense. They look pretty low to me on the back of the envelope. With the 68 million, it looks like roughly, you're going to have about 68 million of net proceeds after paying down the debt and given your equity ownership and those those sales, I guess, outside of the consolidation of your joint venture interests that you've announced. Can you give us a sense of what the dollar amount is of incremental acquisitions you might do outside of the JV interest? Or are you going to or does that basically just take care of that equity piece?
Yes. We're focusing specific to the JVs and we have the appropriate cash and liquidity to handle all the acquisitions that we plan to deal with. And there's a bit of plentiful as I indicated. As far as new investments, it's a very competitive landscape right now, very difficult. We are in the market, both direct, and with JV partners, but the reality of it is, the direct acquisition market is tough, and we spend a lot of time and we don't have any specific projections on new buyouts at this point.
Got it. And I guess I'd be curious to hear what you're seeing as far as either the buyer pool shifting or maybe pricing and cap rates on sort of some of those acquisitions out there that you mentioned are fairly tough right now.
Yes. So it's an interesting time. We've not seen any major change in cap rates. But we have seen a change in the buyer pool. So what we're seeing now is anybody who was typically a bidder and there were many that needed financing, those bidder seem to not be nearly as productive. What we're seeing is those funds and buyers who have all cash opportunities, who don't need to go out for financing right now and I think for the next period of time, that's going to be the case where funds who are buying all cash will probably be the buyers. And then we expect or perceived that after that period of time, we think we might see a slight incremental in cap rates.
Got it. And I'd be curious to hear you rental growth was pretty strong across the board in the first quarter. But given the changing inflation environment, are you seeing any markets maybe where you did see maybe some deceleration in the ability to push rent, particularly in March or maybe some of those leases rolling over perhaps in April?
We've seen the continued strong market. I mean, across the board, I don't want to get into each specific by location. But generally speaking, it's been very positive. We haven't seen a significant decrease. But obviously mark-to-market dependent, but it's been pretty solid. I don't anticipate or expect this to continue at this rate. But it's been pretty strong to this period of time.
Okay, great. Just one more for me. I saw you bought an interest in Johns Island development. Can you talk how are you thinking about just development risk at this point in the cycle? And is that something that you're going to likely dabble in or would we expect to see maybe more of that?
Well, we made a relatively small investment with our only strategic development partner that we've done a number of deals within the past years ago. We're very confident with them. Obviously they've taken into account and we've taken into account increase in construction costs. And yes, there is, with the interest rate increases on the permanent financing, then there's something to be wary of and think about. So we do have that anticipated. And when we do our underwriting, we assumed a higher interest rate on the permanent debt. So it was accounted for.
We have a lot of confidence with these guys, and working with them. I think we may possibly do more with them. But it's not going to be a significant part of the business now. It'll be a on a more modest scale versus the whole. I mean, basically our thesis behind it is if you can build with cap rates at the end of the term and stabilization that are far better than you can buy existing properties that have brand new quality assets. It's a win, but obviously it all depends on construction costs, like you said and financing alternatives. So we're watching it carefully. And I think we may do some but it will be on a limited basis.
[Operator Instructions] And ladies and gentlemen at this time I am showing no additional questions. I would like to turn the floor back over to the management team for any closing remarks.
Just want to say thank you all for joining us. Your continued interest in BRT and wish you all happy and have a nice day. Thank you.
And ladies and gentlemen, with that we'll end today's conference call and presentation. We thank you for joining. You may not disconnect your line.