BRT Apartments Corp. Q3 FY2022 earnings call

• BRT had a strong quarter across its portfolio with consistent growth through acquisitions of joint venture partners’ interests.
• Wholly-owned portfolio stands at 21 properties with 5,420 units; unconsolidated entities have 8 communities with 2,781 units.
• Average occupancy was 96.2%, average monthly rents up 13% from 2021; same-store revenue, expenses, and NOI showed strong growth.
• Sold unconsolidated joint venture property Waters Edge at Harbison and completed partner buyouts; proactively managing portfolio and recycling capital.
• Total assets at September 30, 2022, were $744 million, total debt $463 million, total stockholder equity $257 million; available liquidity and amended credit facility enhance financial flexibility.
• Paid quarterly dividend of $0.25 per share, annualized yield 4.7% based on stock price as of November 4, 2022.

BRT Apartments Corporation had a strong third quarter 2022. Its wholly-owned portfolio consists of 21 multifamily communities with 5,420 units. It also owns interests in 8 unconsolidated communities with 2,781 units. Average occupancy for the portfolio was 96.2% for the quarter. Average monthly rents in the third quarter 2022 were $1,301 per month, up 13% compared to the 2021 quarter. For leases signed in the third quarter of 2022, favorable spreads on new leases were 16.1%, renewal spreads 10.8%, and overall spreads 13.5%. The same-store pool for the portfolio (4,389 units) saw same-store revenue grow 11.4%, same-store expenses increase by 3.6%, and same-store NOI grow 18.3% from the 2021 quarter. In the third quarter, BRT sold the unconsolidated joint venture owning Waters Edge at Harbison for $32.4 million, and completed partner buyouts at five properties, with total partner buyouts in 2022 totaling 11 properties at an aggregate purchase price of $105.9 million consisting of 2,844 units.

• Watching markets carefully as interest rates rise and pricing evolves, remaining disciplined in identifying properties meeting quality and underwriting standards.
• Believes current economic dislocation and uncertainty will lead to opportunities to be taken advantage of when they arise.

• Macroeconomic environment has grown more uncertain with rising interest rates and widening bid-ask spreads, resulting in decreased industry transaction volumes and less insight into cap rates.

Q: Provide color on the transaction market, cap rates as interest rates have gone up.

A: Transactions have slowed considerably; bid-ask spreads and sellers understanding of cap rates after interest rate changes will take time; cap rates have risen at least 125 basis points from seen deals but sellers need time to understand current pricing.

Q: On operation side, any weakness in pushing rents?

A: Able to continue pushing rents but velocity has slowed a bit; still positive with asking rents, but not at same extent as last six to nine months; occupancies and turnover drop a bit at this time of year but asking rents still positive.

Q: Expect to continue renovations next year if rent growth has slowed?

A: Still plan on actively renovating individual units; may tick up as partners were bought out, with opportunity to increase rents significantly and good return on investment for renovated units.

Q: Attribute to same-store NOI expense increase?

A: Generally seeing increases in expenses; expense side was a bit light due to favorable tax shares on properties, but utilities, payroll, insurance, etc., are seeing increases.

Q: Sense of renters coming to properties, trading down?

A: Tracking migration from higher end properties; not specifically noticed huge migration from A quality to theirs, but affordability factor may creep in; may see more A quality migrating down to workforce housing in future