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 Zweier, Chief Financial Officer; David Kalish, Senior Vice President; and Ryan Baltimore, Senior Vice President. As a reminder, this call is being webcast through the company’s website at www.brtapartments.com. Additionally, the company's 10-Q supplemental information and earnings release are available for your review on the Investor Relations section of the BRT’s website. Before we begin, 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 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; and net operating income, or NOI, and information regarding our pro rata share of the revenues, expenses, NOI, assets and liabilities of BRT's un-consolidated 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 the operating results at the un-consolidated ventures reflect BRT's pro rata share of results. For a more complete discussion of these non-GAAP measures, see the company’s earnings release, supplemental and 10-Q. 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 the results and accounts of BRT's wholly-owned subsidiaries and its pro rata share of un-consolidated subsidiaries. BRT's pro rata share helps to provide a better understanding of un-consolidated joint ventures; however, the use of pro rata information has 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 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 June 30, 2020, and references to the 2019 quarter refer to the quarter ended June 30, 2019. I would now like to turn the call over to Jeffrey Gould, President and CEO of BRT Apartments Corp. Please go ahead, Jeff.

Thank you, Evelyn. I would like to welcome everyone to BRT's second quarter conference call. Demand for rental housing in the regions of the country where most of our properties are located remains stable during the current quarter. We collected 98% of the rent billed from our multifamily properties for the current quarter, and we collected 98% of rent billed 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 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 distancing 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 in lease-up and properties owned by unconsolidated joint ventures. Eight properties are wholly owned by BRT; the balance is owned 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, compared to 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, compared to $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 than in the 2019 quarter. Total rental revenues for our portfolio increased by 3.9% to $26.6 million, 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, 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 units 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 costs 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 reposition in our properties as the adverse economic impact of the pandemic continues to unfold, which may impact our ability to achieve rent increases 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 our 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 totaling 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 equivalents, total assets of $385.6 million, total debt of $168.9 million and total stockholders' 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 term 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 material 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.

Thank you. We will now begin the question-and-answer session. Our first question comes from Rob Stevenson with Janney. Please go ahead 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 at 94% to 95%. We are sacrificing some slight bumps in rent to keep occupancy. I think we'll see more of that. There is some slight downward pressure on occupancy, and rental rates have been more or less flat or only slightly increased. We do have a couple of properties that are seeing more generous growth, but for the most part, I would say we're sticking with lower rental rates 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 ups, but I mean, in terms of just on existing stabilized communities as the markets that you're operating in, have the submarkets had any deterioration to the point where you've actually had to use concessions or was just holding rental rates flat enough to get stuff leased?

Yes, generally speaking, holding flat was enough to get them leased with minimal concessions. On our current portfolio, you touched on the development aspect and on the lease-ups. 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 take advantage in some of your properties to do some renovations when you have an opportunity to do so? Or is it basically, even on select properties, not making economic sense and hitting 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 vacancy, we're continuing to do the upgrades and receive the rent bump. However, some properties are experiencing very few turnover of leases because the renewal rates are so high, and there are very few units coming available. So it's a mixed bag, but generally speaking, where we have the opportunity and can get a good return on investment, we are doing the renovations and plan to continue doing so. The rental bump is not what we were used to in previous quarters, maybe 20% or so; it’s down a bit, but as long as it is rewarding and worthwhile, we plan to do full renovations. This case averages about $7,000, and it depends on the specific properties we’re discussing.

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

Yes, well, there's two answers to that. Let me start with the existing base. What we're planning to do with our existing joint venture agreements is to sit down and consult with our JV partners and see what we can do in our existing structures to make some modifications so 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 how we can change agreements to facilitate consolidation. 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 agreements so we can consolidate when we have joint venture partners. As for buying direct, we plan on pursuing a more direct strategy in addition to the joint venture strategy. So, no, we don't plan to give up the joint venture strategy at all, but we will potentially pursue more direct strategies with brokers for acquisitions going forward.

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 your tenants are making their rent payments and what impact are you expecting to see in the event we don't see any more 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 the level of unemployment within our properties. It’s difficult to do on a recurring basis. Obviously, employment is high when they move into a property, but it is difficult to keep a good, sound idea of their financial situation. However, we think the percentage of those unemployed is fairly minimal as a general rule. We've conducted a pretty good demographic study regarding the type of employment our tenants have, whether in retail, medical, and so forth. I would say that the unemployment level among our tenants has been fairly meaningful, which has supported a good collection rate of 98%. So we are monitoring this closely. While there is concern regarding Congress's approach to stimulus, I don't anticipate a dramatic impact on our operations, just perhaps minor effects.

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

Yes. So what we're observing—what we're hearing, I should say, as we are regularly speaking with brokers and our partners—is that there are very few transactions occurring, generally speaking. I can't specify the percentage, but it seems like it is a different world in terms of how many properties are being bought or sold. We had a property we were considering selling, but we decided to pull it from the market. Conversations suggest that we would probably have to sell it at maybe a 5% discount, something like that. I think generally speaking, the multifamily sector is really not being impacted anywhere near as much as retail, commercial, office or hotel sectors. So there’s really not a lot of distress in the multifamily sector. I would say if you're buying property right now, the discount is minimal, if any, but maybe slight. And there are very few properties that I can provide concrete numbers for, because I haven’t seen many transactions post-COVID. Some quotations from deals are in progress, but they were mainly initiated before COVID or are in early stages. Thus, from what I've seen, the impact on the apartment sector is pretty minor.

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

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

If we move forward with acquisitions—I'm sorry, we go direct—is that your question?

Yes, exactly. You've been using joint ventures, which have been a great source of equity. But if you're going to rely more on your balance sheet, where is that equity component going to come from? You're under the assumption you don't want to run up the debt levels?

Yes. So, we're very careful and focused on our debt levels. We're typically providing between 65% and 80% of the equity anyway, so the differential is not that significant. We won't buy unless we have the capital resources to acquire properties with reasonable debt. When we look at properties to sell, it will be due to either reaching the end of their valuation or for whatever other reason. Our first focus will be on liquidity, and we plan to recycle that cash either through the JV model or direct acquisitions. The difference in dollars or cash needed will be a consideration, but I don't think it will be a significant hurdle to buy directly compared 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 of 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 closer to maybe 200 to 250 and you did 60 this quarter. Do you have a sense of how much more you're doing? Are you planning to maintain it at that level? Or do you foresee a further drop in the value of units for the rest of the year?

It remains to be seen, and part of it, again, as I said earlier, depends on the availability of units and our locations. We are focused on renewal rates, which is a big piece of what’s happening right now. We'd like to improve our renewal rates, considering that people are not as likely to move. We plan to continue with our strategy. If I had to guess, I would say it will likely be similar to what we're currently doing, as opposed to what we experienced a few quarters back. We are watching this carefully, so if I had to forecast, I'd say it's better to anticipate something similar to what we've done currently, but it's still contingent on the properties that are coming online and the upgrades we plan to undertake associated with the rental rates we can achieve following 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 only be a guess. Based on some responses we've obtained, I would say we're probably in the neighborhood of about 10% to 15% unemployment. However, serving that information is very difficult. We've done a thorough study on other aspects and have gathered feedback from our managers, but getting comprehensive data on Q1 unemployment property-by-property is quite challenging.

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

I think one might have been updated in 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 the only difference would be probably the 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?

As far as alternatives, basically we're not looking at potential sales to increase liquidity. We're only considering it if it makes sense for us, and there have been a few properties we've considered, which would help us with liquidity. Beyond that, we have our lines of credit fully available. We feel we're in a comfortable liquidity position currently, and I wouldn't be surprised if a couple more sales increase our liquidity. At that point, we're going to get back into the cycle of looking at properties and opportunities moving 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, as we believe we offer excellent transparency regarding our portfolio. If you have further questions, I suggest you reach out to us by emailing investors at brtapartments.com. Other than that, I just ask you all to have a good day, stay safe, and thank you for your time.

Thank you. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.