BRT - NYSE

Good day and welcome to BRT Apartments Corp Conference Call for the Second Quarter of 2020. Today's conference is being recorded. At this time, I would like to turn the conference over to Evelyn Infurna of ICR. You may begin.

Thank you. Good day, everyone and welcome to the BRT Apartments conference call. On the call today is Jeffrey Gould, President and Chief Executive Officer. Also available are George

Thank you, Evelyn. I would like to welcome everyone to BRTs second quarter conference call. Demand for rental housing in the regions of the country where most of our properties are located, remain stable during the current quarter. We collected 98% for the rent build and our multifamily properties for the current quarter, and collected 98% of rent builds in July 2020. We've also remained current on all our financial obligations. We believe that the multifamily sector remains a strong asset class and is showing its resilience in these uncertain times. At the same time, we anticipate a slowdown in our acquisition activities and the implementation of our value add strategy, as we can remain cautious with respect to additional capital deployments due to the continuing economic uncertainties related to the pandemic. Our primary near-term focus is on occupancy, collections and maintaining a strong cash position while keeping the safety of our staff and residents a top priority. We have also continued to follow closure reopening and social distance guidelines established by the CDC and governmental authorities with respect to all of our properties, including related amenity spaces at the properties, as well as our corporate offices. Moving now to an overview of the portfolio. As of August 1, 2020, we owned or had interest in 39 multifamily properties, consisting of 11,042 units in 11 states, including properties and lease up and properties owned by unconsolidated joint ventures. Eight properties are wholly owned by BRT, the balance our own through unconsolidated joint ventures with BRT generally owning a 65% to 80% equity interest in these properties. We did not buy or sell any multifamily properties during the current quarter. Our net loss attributed to common stockholders was $4.2 million or $0.25 per diluted share in the current quarter, versus a net loss of $4.3 million or $0.27 per diluted share in the 2019 quarter. FFO grew to $4.2 million in the current quarter or $0.24 per diluted share to, compared of $3.5 million in the 2019 quarter or $0.22 per diluted share. AFFO increased to $4.7 million for the current quarter or $0.27 per diluted share, compared to $3.87 million or $0.24 per diluted share in the 2019 quarter. On a per share diluted basis, AFFO was 12.7% higher in the current quarter and then in the 2019 quarter. Total rental revenues for our portfolio increased by 3.9% to $26.6 million as compared to $25.6 million in the 2019 quarter, and real estate operating expenses for the portfolio declined by 1.6% to $12.3 million as compared to $12.5 million in the 2019 quarter. The NOI for our portfolio rose 9.6% to $14.3 million for the current quarter from $13.1 million for the 2019 quarter. Our renewal percentage for our multifamily property portfolio for the current quarter was 58%. Rental rates and renewals increased an average of 2.2% and increases in rental rates on new leases averaged 0.2%. Excluding the value add units, rental rates for new leases remained unchanged. Given the economic pressures associated with the pandemic, when setting rents we are trying to balance the impact on our residents with their obligations to our stockholders. On the value add front for the current quarter, 16 years were repositioned at an average of approximately $7,000 per unit, yielding an estimated annualized return on investment of approximately 14%. As reflected in our supplemental financial information, a portion of the cost may have been incurred in a prior period, but we report the return on investment when the unit is released. We anticipate that in the near-term, there will be a slowdown in the number of units that we repositioned and our properties as the adverse economic impact of the pandemic continues to unfold, which may impact our ability to achieve rent increase from repositioned units. That being said, we estimate that our portfolio has approximately 700 units in the renovation pipeline over the next several years, and at the value add strategy will continue to be a positive factor in our ability to drive same-store rent and NOI growth over the long-term. Our same-store pool in the current quarter is comprised of 33 properties with 9,317 units. Seven of those properties trolling 1,688 units are wholly-owned assets. The remaining 26 assets totaling 7,629 units are unconsolidated joint ventures. Same-store revenues for our portfolio grew to $22.4 million in the current quarter, representing a 2.4% increase from $21.8 million in the 2019 quarter, whereas same-store expenses rose to $10.5 million in the current quarter, representing an increase of only 1.4% from $10.4 million in the 2019 quarter. Same-store NOI for the portfolio increased to $11.9 million in the current quarter, a 3.4% increase from $11.5 million in the 2019 quarter. Same-store rental rates for our multifamily property portfolio grew 3.9% to $1,097 per unit for the current quarter from $1,056 per unit for the 2019 quarter. Turning to the balance sheet. At June 30, 2020, we had $16.9 million of cash and cash equivalence, total assets of $385.6 million, total debt of $168.9 million and total stockholder equity of $195.2 million. At August 1, 2020, our available liquidity was approximately $32.9 million, including $13.3 million of cash and cash equivalents, $9.6 million representing restricted cash for property improvements and up to $10 million available for working capital under our credit facility. In addition, our unconsolidated joint ventures have approximately $14.7 million of cash and cash equivalents, which is used for day-to-day working capital purposes. The aggregate mortgage debt for our wholly-owned properties combined with our share of mortgage debt for our unconsolidated joint ventures totaled $659.5 million has a weighted-average interest rate of 4.04% and a weighted average remaining terms of maturity of 7.2 years. On July 9, we paid our quarterly dividend of $0.22 per share, which is equivalent to an annualized yield of 8.3%, based on our stock price of $10.62 as of the close of business on August 3, 2020. While the nationwide economic hardships resulting from the pandemic did not have a materialist impact on our operational results for the current quarter, we continue to closely monitor each of our properties and markets, in order to be proactive in bringing a resolution to any challenges that may emerge. We remain focused and determined as a company and I am proud of the team's efforts, particularly in these unusual times. Thank you for joining us today on our conference call. With that, I will turn the call over to the operator for your questions. Operator?

Thank you. At this time we'll be conducting a question-and-answer session. [Operator instructions] Our first question comes from the line of Rob Stevenson with Janney. Please proceed with your question.

Jeff, you talked about 2.2% on renewals and 0.2% on new leases. I believe that was a second quarter. Can you talk about what you're seeing so far in July and August similarly on renewals and new leases?

We’re seeing more of the same. We're very focused on occupancy and keeping our occupancy levels 94% to 95% we simply like, and we are sacrificing your time some slight bumps and wrench to keep to keep same. So, I think we'll see continue more of that there is some slight downward pressure and occupancy or rental rates have been more or less flat or only slight increases. We do have a couple of properties that are seen as more generous growth but for the most part, I would say we're sticking with more or less, lower rental rates lower and lower rental increases right now.

Okay, and have you guys had to use any concessions? I mean, you guys don't have really much as in lease off, but I mean, in terms of just on existing stabilized communities as the markets that you're operating in the sub markets had any deterioration to the point where you've actually had to use concessions or just holding rental rate flat was enough to get stuff least?

Yes, generally speaking, holding a flat was enough to get them there with minimum more concessions. Any on current portfolio, you touched on the development aspect and on the lease stuff. Yes, we are doing some concessions on our lease properties. but on the existing asset base, very little if any.

Okay. And then you talked a little bit about slowing some of our renovations given the economically viable portion of it. Are you still going to wind up taking advantage in some of your properties to do some on vacancy while you have an opportunity to do so? Or is it basically even on select properties, it's still not making economic sense and sort of hit the pause button here for a bit?

Yes, fair question. I think it's a mixed bag answer in some of our locations. Every time we get a vacant, we're continuing to do the upgrades and getting the bump. Some properties we're getting very few turnover of leases because the renewal rates are so high. And there's very few forms coming available so that’s mix bag, but generally speaking, where we have the opportunity where we can get a good return on investment, we are doing the renovations and plans to do so going forward and get the rental bumps then as you can see the 14% is now what we were used to we were reporting previous quarters, maybe 20% or so somewhere in that range. So it's a little bit down, but as long as it's rewarding and worthwhile. We would we plan to do a full renovation that we typically do in this case is about $7,000. And we just it's obviously important property by property. So it’s really depends on what the properties we’re talking about what's around a rental bunch.

Okay, so the last one for me. You guys haven't bought anything earlier in the year saw the accounting restatements. How are you guys thinking about the structure of acquisitions going forward? Are you have a significant preference for only buying wholly owned assets still happy to buy assets that have unconsolidated and any differences in your thought on dispositions between wholly-owned and unconsolidated buckets going forward?

Yes. Well, there's two answers to that on. Let me start with the existing base. What we're planning to do with our existing joint venture agreements is we're going to sit down and consult with our JV partners and see what we can do in our existing structures to maybe make some modifications so that we can hopefully consolidate some of the existing portfolio. As far as going forward, yes, we definitely plan to discuss with our accounting firm and others as to what we're going to do by the way of changing agreements and doing what we need to do so we can consolidate. I don't want to get crazy with the idea of having to change our business plan because of it. But we would like to try to modify the agreement so that we can consolidate when we have joint venture partners, and as far as buying direct we do plan our strategy and would like to pursue a more direct strategy in addition to the joint venture strategy. So, no, we don't plan on give up the joint venture strategy at all. But I think we will see potentially more of a direct strategy with brokers and buying direct going forward when we get back into our acquisitions.

Thank you. Our next question comes from the line of Gaurav Mehta with National Securities. Please proceed with your question.

Thanks. Good morning. Jeff, I was hoping if you could comment on how this fiscal changing and have pure tenants to make their end payment and what's going to impact are you expecting to see in the event we don't know anymore stimulus going forward?

Yes, Gaurav. It's a good question. For us, at this point, we have been trying to do our best sort of demographic studies and see within our properties the amount of unemployment. It’s difficult to do on a recurring basis. Obviously, their employment is high when they move into a property, but difficult what -- was there in as far as keeping a good sound idea. But we think it's fairly minimal those that are unemployed as a general rule. We've done a pretty good demographic study as to what type of employment they have, whether in the retail or medical so forth. I would say that, for those that are unemployed and the share of the tendency that we have, the similar sets has been probably very meaningful. And I think that's helped to support such a good positive collection aspects that we've had in 98%. So we're watching it very carefully. And I wouldn't say that there's not some concern. There is some concern as to what's going to happen with Congress as to what they're going to do with stimulus our Trump's plan, et cetera. So we're watching it closely. But, I don't think it will have a dramatic impact on us, but could have some minor impact on us.

Okay. And Jeff, in terms of mark-to-market I was wondering if you could offer some general comments on what you are seeing as far buyer and seller disconnect and the pricing of assets in the markets.

Yes. So what we're seeing, what we're hearing, I should say, because we are speaking with brokers and our partners fairly readily. There’s very few transactions going on, generally speaking. I can't imagine the percentage that down, but it seems like a different world as to how many properties are being bought sold, et cetera. We had a few -- we had a property that we were considering selling, which we pulled from the market, which was sort of in process. Conversation we had that we would probably have to sell it, maybe a 5% discount, something like that. I think generally speaking multi-families or sector is really not being impacted anywhere near obviously the retail commercial office hotel aspects, there's really not a lot of distress. So I would say if you're buying property right now, the discount is minimal, if any, but maybe slight. And there's very few to really have some any good numbers for you, because I haven't seen many properties that have transacted post COVID, some quotes from deals are close, but they were really early and process pre-COVID are early stages. So I would say the impact is pretty minor in the apartment sector.

Thank you. Our next question comes from Barry Oxford with D.A. Davidson. Please proceed with your question.

Just want to build on the joint venture question a little bit. If you guys are going to consolidate maybe a little bit and also by wholly owned apartments going forward, what will you use as for as a source of equity so that you don't run up your debt levels?

If we go through -- I'm sorry, we go direct. Is that your question?

Yes. Right, exactly what you've been using the joint ventures, and that's been a obviously a great source of equity. But if you're going to, rely more on your balance sheet. Where's that equity component going -- coming from? You're under the assumption you don't want to run up the debt levels?

Yes. So, we're very careful and focus on our debt levels. We're providing typically between 65% and 80% of the equity anyway, so the differential is not that significant. But we're we won't buy obviously, unless we have the capital resources where we can buy with fair reasonable debt. We're going to, we're basically when we look at properties to sell, either because we were at the end of the valuation scenario or potentially you own the properties may want to sell or for whatever other reason, as we have tackled, the first focus will be on liquidity. And then we plan to recycle that cash are either through the JV model or direct, but the difference in dollars for us or cash needed, obviously, we'll be focused on and I don't think it'll be a significant hurdle at all to buy direct as opposed to buying with partners, going forward, so I don't see that as a problem.

Thank you. And our next question comes from Craig Kucera with Wunderlich Securities. Please proceed with your question.

I want to follow-up on a couple questions that we went over earlier, just to drill down a bit. I know you've slowed down the redevelopment considerably from last year. I think it was really closer to maybe 200 to even 250 and you did 60 this quarter. Do you have a sensor of how much more you're doing? Are you going to basically maintain it at that level? Are we looking at seeing a further drop in the value of units the rest of the year?

I guess it remains to be seen and part of it again, as I said earlier, it really depends on availability of units, and we're in the markets. We're getting this availability. We're very focused on renewal rates. And that's a big piece of what's happening right now. We'd like to get that up a little bit even more, considering people are not as likely to move. But we plan on continuing to do the strategy. I would say that, if I had to guess I'd say it's probably going to be similar to what we're doing now. As opposed to what you saw, a few quarters back. It was sort of watching carefully. So, if I had to forecast I would say probably better to forecast something similar to what we've done currently. But it sort of remains to be seen as to the properties that we're getting the units back and the upgrades that we plan to do with associated with obviously the rental rates that we can get if we perform those renovations.

Okay. And moving back to your tenant base and then sort of unemployment. As you survey them, do you have a sense of what the overall unemployment is roughly in your portfolio today?

It would be only the guess. And, I would say from some response we've got it, again, this is guess this is not material. I would say, we're probably in the neighborhood of about 10% to 15%, something like that. But again, serving that is very, very difficult. We've done a very good study on other aspects of again what they're doing in the workforce and those types of questions, but hard to get full comprehensive data on Q1 unemployment property-by-property, other than speaking with the managers who are hopefully speaking with each and every tenant and getting some feedback from them.

Okay. Great. I just want to double check on your liquidity. In the press release, I think you said you guys have about $13 million of cash on hand. In the queue, I think it's closer to $10 million, which is correct?

I think one might been updated the June 30, and then there would be an update for August in the reference.

Okay. I think you have both referenced August.

Yes. Just as dates, maybe often the only difference would be probably as dividend payment. We will check and get back to you.

Sure. And I guess, I mean, when you're talking about the transaction market being somewhat frozen, are you looking at any other alternatives to increase your liquidity?

Alternatives, basically alternatives as far as the clarity and focus. We're not doing -- we're not looking at potential sales to increase liquidity. We're doing, if it makes sense for us and there's been a few properties that we've been considering, which will help us, obviously with the sale having for liquidity. Other than that, obviously we have our lines of credit that are fully available to us. But we feel we're in a pretty good, comfortable liquidity position right now. And, would not stress at work really concerned about currently, I wouldn't be surprised going forward with a couple more sales we'll have even more liquidity, and at that point, we're going to get back into the cycle of looking at properties and opportunities going forward.

Thank you. Ladies and gentlemen, that concludes our question-and-answer session. I'll turn the floor back to Mr. Gould for any final comments.

Yes. Well, let me thank you all for your time today. I would suggest that, you refer to our supplemental for a lot of additional detailed information, excellent transparency we believe as far as the portfolio. And if you have further questions, I suggest you reach out to us by going to investors at brtapartments.com. Other than that, I just asked you all to have a good day and stay safe and thank you for your time.