BRT - NYSE

Good day, and welcome to the BRT Apartments Corp’s Second Quarter 2021 Earnings Conference Call for the. Today's conference is being recorded. At this time, I would like to turn the floor call over to Stephen Swett at ICR. Thank you. You may begin.

Thank you for joining us today for BRT Apartments Corp’s second quarter 2021 earnings conference call. On the call today is Jeffrey Gould, President and Chief Executive Officer. Also available are George

Thank you, and welcome to the call. With the first half of the year completed, we are pleased with our performance thus far in 2021, as our portfolio continued to generate increases in occupancy and rental rates across many of our markets, and we plan to continue our strategic initiatives to invest, grow efficiently, recycle capital, and reduce debt to enhance our financial flexibility. Let me begin with our results for the second quarter of 2021. Net income attributable to common stockholders was $6 million or $0.34 per diluted share, compared to a net loss of $4.2 million or $0.25 per diluted share in the same quarter 2020. FFO grew over 20% on a per-diluted share basis. FFO was $5 million or $0.29 per diluted share compared to $4.2 million or $0.24 per diluted share in the same quarter last year. AFFO grew approximately 15% on a per-diluted share basis. AFFO was $5.5 million or $0.31 per diluted share, compared to $4.7 million or $0.27 per diluted share in the second quarter of 2020. The growth in FFO and AFFO, was primarily due to a portfolio NOI increases of 4.9% year-over-year. Turning into our portfolio, at June 30th, 2021, we owned seven multi-family communities, containing approximately 1,600 units. We also owned interest through unconsolidated entities in another 30 communities containing approximately 8,950 units. In the second quarter, total revenues, including our pro rata share of unconsolidated entities, increased to $28 million, up 5.3% compared to $26.6 million in the 2020 quarter. Portfolio NOI increased to $15 million, up 4.9% compared to $14.3 million for the 2020 quarter. Average occupancy was 95.2% for the quarter ended June 30th, 2021, up 210 basis points compared to the 2020 quarter. Average rents in the second quarter of 2021, were $1,129 per month, up 3.9% compared to the 2020 quarter. For leases signed in the second quarter of 2021, spreads on new leases were 5%, and renewal spreads were 2.4%. In the second quarter of 2021, our same-store pool for the portfolio included 36 properties, with 10,160 units comprised of 1,608 wholly owned units, and 8,552 units in our unconsolidated joint ventures. For the quarter, same-store revenue grew 6.7% compared to the 2020 quarter. Same-store expenses increased 5.9% compared to the 2020 quarter. And same-store NOI increased 7.5% compared to the 2020 quarter. Turning to investments, we did not acquire any new properties in the current quarter. We did, however, acquire an additional 14.7% interest in Civic Center I and Civic Center II in South Haven, Mississippi, for $6 million from our joint venture partner. After giving effect to the purchase, we own 74.7% of the venture that owns these properties. On the value-add front, we repositioned 58 units at an average investment of approximately $6,300 per unit, yielding an estimated annualized return on investment of approximately 34%. 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 portfolio, we have approximately 650 units slated for renovation over the next several years, and believe that our value-add expertise, will remain a factor in our ability to drive NOI growth. During the current quarter, we generated $9.5 million in gains from sale of properties, one wholly owned property, and one property owned by an unconsolidated joint venture. Subsequent to June 30th, we sold two additional properties owned by unconsolidated joint ventures. We anticipate that during the quarter ending September 30th, 2021, we will generate gains of approximately $30 million from such sales. We sold these assets after the completion of our value-add program. We are also under contract to sell our 76% joint venture interest in an underperforming asset at the unconsolidated subsidiaries that own two St. Louis properties, The Tower at Opop, and Lofts at Opop. We plan to sell the interest to our partner for $3 million, along with its assumption of our share of the mortgage financing. We expect the sale will close by the end of the third quarter, and we recognized a $520,000 impairment in the second quarter. Proceeds from the sales are expected to fund future growth via acquisition, the potential buyout of our partner's interest in certain joint ventures, repayment of debt, and for general corporate purposes. Specifically, we intend to use part of proceeds from the sales, to strengthen our capital structure through the anticipated repayment of approximately $50 million to $60 million of secured debt by year-end 2021. In July of 2021, we paid off $17 million of mortgage debt at two of our wholly owned properties. Such mortgage debt was scheduled to mature in the first quarter of 2022, and bore a weighted average interest rate of 4.46%. We also reduced our mortgage debt at our unconsolidated subsidiaries by $107 million in connection with the sales of Parc at 980, and The Avenue Apartments. By focusing on the balance sheet in a competitive acquisition environment, we believe we will be in a better position to support growth over the long-term. Obviously, with the challenging acquisition environment, we are very pleased to continue our focus on our unique ability to buy out our joint venture partners. This strategy continues to prove to be successful, as we were able to understand the true value and potential of an asset prior to owning it outright. Our most recent foray is Bells Bluff in Nashville, Tennessee, where we are acquiring our partner’s interests in a high-end community, in a highly desirable growth market. Furthermore, in connection with this acquisition, we obtained a commitment for 20-year fixed rate financing at 3.48%. Turning to the balance sheet, at June 30th, 2021, we had total assets of $351 million, total debt of $152 million, and total stockholder equity of $180 million. Available liquidity at quarter end included $35 million of cash and cash equivalents, restricted cash of $8 million, and up to $15 million available under our credit facility. In addition, our unconsolidated joint ventures have approximately $15 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, total $632 million, at a weighted interest rate of 4.03%, and a weighted average remaining term to maturity of 6.7 years. Our debt-to-enterprise value as of June 30th, 2021, was 64%. During the quarter ended June 30th, 2021, we sold approximately 410,000 shares, pursuant to our ATM sales program, at an average price of $18.19 per share. Net proceeds after commissions and fees were $7.3 million. On July 9th, we paid our quarterly dividend of $0.22 per share, which is equivalent to an annualized yield of 5.1%, based on our stock price of $17.37, as of the close of business on August 2nd, 2021. Needless to say, it has been a very busy and quite strong start to 2021, and we look to build on our success as we move through the balance of the year and beyond. That completes our call. We will now open up to questions. Operator, please go ahead.

Thank you. [Operator Instructions] Your first question comes from line of Aaron Hecht with JMP Securities. Please proceed with your question. Aaron Hecht, your line is now live. Please proceed with your question.

Hey, guys, how are you doing? Sorry, I was on mute. Quick one for you, Jeff, on the potential buyout of joint venture partners. What do you think the depth of that opportunity looks like, timeframe and differential in pricing, on buying out those partners versus open market transactions?

Yes. Hi, Aaron. So, yes, we think there is some depth to it. We're working on a number of different possibilities. Timing wise, difficult to say. Every partner is slightly different with their approach, but it's obviously the buyout opportunities, knowing that we have some experience with the properties. We save acquisition costs. It's slightly better yields for sure than market pricing. It's a great opportunity for us. So, we're pushing hard to make some of those opportunities a reality.

Yes. And then just on general market conditions, has this Delta variant had any impact on leasing velocity or foot traffic? Are you seeing upticks in activity just on general economic trends? Got any insights around what you're seeing more recently?

Yes. Frankly, we've seen no negative effects. The last few months have been actually pretty amazingly positive, with increasing occupancy and rental trends, renewal trends. It's been very, very positive. So, we've not seen anything to date. It's been surprisingly good. Obviously, we'll have to see what happens in the future, but the last few months have been excellent.

Got you. And then capital structure-wise, little ATM usage is quarter. Do you expect that to continue? Any thoughts around capital structure and growth initiatives?

Yes. So the ATM is available to us if and when we want it. The reality is, we watch it carefully and decide on a daily basis. We’d like to grow, but grow smart, as we've said before. So in that, that includes us buying new property potentially with partners, or gearing up to buy direct with brokers, and start to buy more of on a direct basis, continue this partner buyout scenario, do some more value-add. So, yes, our hope is to grow and grow smart. And if we need equity, that's a potential use and a potential way to come about it. So, we watch it regularly and it may be used, I would say. We'll have to see.

Great. Thanks for the thoughts. Nice quarter.

Ladies and gentlemen, we have reached the end of the question-and-answer session, and I would like to turn the call back to management for closing remarks.

Yes. I just want to thank everybody for your time today, and we look forward to continue to push forward and do well for the company and for our shareholders. So, thank you all for your time.