Good day, and welcome to the BRT Apartments Corp. Conference Call for the First Quarter of 2021. Today's call is being recorded. At this time, I'd like to turn the conference call over to Evelyn Infurna of ICR. Thank you. You may begin.

Thank you. Good day, everyone, and welcome to 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 supplemental information and earnings release are available for your review on the Investor Relations section of BRT's website. The company plans to file the 10-Q later today. Before we begin, I'd 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 and 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 risk factors 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 the 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 the 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 currently available under the Investor Relations tab at our website and the 10-Q, which BRT plans to file later today. All amounts are approximate and among other things, reflect rounding. 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 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, 2021 and references to the 2020 quarter refer to the quarter ended March 31, 2020. I'd 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 first quarter conference call. We are pleased to share that we continue to see pockets of strength, allowing us to selectively raise rental rates. We continue to focus on our capital structure, and have recently increased our credit facility availability. We remain confident about the year ahead as there is strong demand in many of our markets. With respect to our portfolio, as of May 1, 2021, we owned or had interest in 38 multifamily properties, consisting of 10,834 units in 11 states, including 30 properties owned by unconsolidated joint ventures and 8 properties wholly owned by BRT. BRT's equity interest in these unconsolidated subsidiaries, over which BRT actively oversees management, ranges from 32% to 90%. We did not buy or sell any multifamily properties during the current quarter. Net loss attributed to common stockholders was $3.8 million or $0.22 per diluted share in the current quarter versus a net loss of $4.8 million or $0.29 per diluted share in the 2020 quarter. FFO grew to $6 million in the current quarter or $0.35 per diluted share compared to $3.3 million in the 2020 quarter or $0.19 per diluted share. The increase is primarily due to BRT's share of insurance recoveries on 3 joint venture properties impacted by the ice storms that took place in Texas in February, and to a lesser extent, improved operating margins and reduced interest expense at our portfolio. AFFO increased to $5.1 million for the current quarter or $0.30 per diluted share compared to $4 million or $0.23 per diluted share in the 2020 quarter. AFFO increased 30% on a per diluted share basis. Total rent full revenues for our portfolio increased by 6.1% to $27.8 million as compared to $26.2 million in the 2020 quarter, and real estate operating expenses for the portfolio increased by 7.4% to $13.1 million as compared to $12.2 million in the 2020 quarter. NOI for our portfolio rose 5% to $14.7 million for the current quarter from $14 million for the 2020 quarter. The renewal percentages for our portfolio for the current quarter was approximately 50%. Rental rates on renewals increased an average of approximately 3% to 4%, and increases in rental rates on new leases averaged approximately 1%. Rental rates on the portfolio increased approximately 2% for the current quarter. On the value-add front, for the current quarter, 38 units were repositioned at an average of approximately $6,100 per unit, yielding an estimated annualized return on investment of approximately 26%. 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. We continue to anticipate that in the near term, there will be a slowdown in the number of units that we reposition at our properties. We estimate that our portfolio has approximately 600 units in the renovation pipeline scheduled to be completed over the next couple of years and note that over the long term, the value-add approach will continue to be a positive factor in our ability to drive same-store rent and NOI growth. Our same-store pool in the current quarter is comprised of 36 properties, with 10,037 units. 8 of those properties totaling 1,880 units are wholly owned assets. The remaining 28 assets totaling 8,157 units are unconsolidated joint ventures. Same-store revenue for our portfolio grew to $25.3 million in the current quarter, representing a 4% increase from $24.4 million in the 2020 quarter, whereas same-store expenses rose to $11.9 million in the current quarter, representing an increase of 4.9% from $11.4 million in the 2020 quarter. Same-store NOI for the portfolio was $13.4 million in the current quarter, an increase of 3.3% from $13 million in the 2020 quarter. The change in NOI was primarily due to an increase in rental revenues and occupancy, offset slightly by an increase in noncontrollable expenses, mainly taxes and insurance. We continue to appeal taxes when we feel that we can obtain a positive result. Same-store rental rate for our multifamily property portfolio grew 1.4% to $1,100 per unit for the current quarter from $1,085 per unit for the 2020 quarter. In March 2021, we entered into a contract to sell Kendall Manor, our wholly owned property located in Houston, Texas for $24.5 million. We estimate that we will recognize a gain on sale of approximately $7.4 million in the second quarter of 2021. In April 2021, we completed the sale of an 80% interest in Anatole Apartments in Daytona Beach, Florida to our joint venture partner for approximately $7.5 million. It is anticipated that in the quarter ending June 30, 2021, we will recognize a $2.2 million gain related to this transaction. On May 4, 2021, we purchased an additional 15% interest in Civic Center I and Civic Center II, both located in South Haven, Mississippi from our joint venture partner for $6 million, which increases our ownership in these properties to 75%. Turning to the balance sheet. At March 31, 2021, we had $19.4 million of cash and cash equivalents, total assets of $358 million, total debt of $166.8 million, and total stockholder equity of $170.5 million. At May 1, 2021, our available liquidity was approximately $45.5 million, including $22 million of cash and cash equivalents, $8.5 million, representing restricted cash for property improvements and up to $15 million available for working capital under our credit facility. In addition, our unconsolidated joint ventures have approximately $14.9 million of cash and cash equivalents, which is used for day-to-day working capital purposes. At a minimum, we intend to maintain 1 month of expenses and debt service at each of our properties. The aggregate mortgage debt for our wholly owned properties, combined with our share of mortgage debt for our unconsolidated joint ventures, totaled $658.7 million, has a weighted average interest rate of 4.03%, and a weighted average remaining term to maturity of 6.7 years. On April 7, we paid our quarterly dividend of $0.22 per share, which is equivalent to an annualized yield of 4.7% based on our stock price of $18.83 as of the close of business on May 1, 2021. Thank you for joining us today in our conference call. With that, I will turn the call over to the operator for your questions.

Our first question comes from Gaurav Mehta with National Securities.

First question regarding the acquisition of JV interest in Civic Center. Can you provide some insights on why you chose to acquire additional interest in that property?

Yes. You're speaking of Civic Center? Yes, it's been a property that's been performing terrific for us over the years. We're very comfortable with our partner there, and it was just a great opportunity. We thought we were buying that interest at an effective and smart price, and we went ahead and moved forward with the purchase. So it's just been a great asset for us, and we wanted to own more of it. Simple as that.

Okay. Second question on the dispositions. Have you guys provided what kind of CapEx you're getting for the assets that you're selling this quarter?

No, we didn't provide for it. I can shed some light on that. We're selling things basically on our effective numbers at or around very low 4% caps, somewhere in that range. That goes for both the Daytona and the Houston sale.

Okay. Maybe on the acquisition market. Can you provide some color on what you guys are seeing generally? And what your expectations are going forward for acquisitions?

Yes, sure. It's obviously a difficult time to buy. Very competitive landscape. Lots of people are focusing and excited about the Southeast for lots of reasons, population growth, employment growth, etc. We have liquidity. We're sitting on cash. We have an ATM available to us. The credit line is fully available. So we'd like to find opportunities, but at the same time, it is difficult. I think that the buyout of partners is an interesting platform for us, but we'll have to see what allows, but it's not an easy time to buy, to answer your question.

Our next question comes from the line of Craig Kucera with Wunderlich Securities.

I just would like to circle back to the assets that you sold and bought. Was it a relatively flat cap rate spread between the two? Or was there any delta between that?

Yes, we believe there was some difference. Regarding sales, as I mentioned to Gaurav, we are essentially selling in the low 4s for the Daytona sale and Houston. When it comes to purchases, one of our advantages is that we tend to perform better on that side for various reasons, such as knowing the asset well and having partners looking to exit. Overall, while I cannot specify an exact differential, I can say that the overall split has been very favorable for us.

Okay. Great. And with the upcoming sale of Kendall Manor, I think, just given your commentary, how difficult it is to buy, you were thinking that you might actually pay down debt versus recycling capital, but things were kind of sort of TBD. What are your current thoughts now on the use of proceeds from selling that asset?

Yes. Good question. Yes, we recognize that this is appropriate and a smart time to take some embedded gains in the portfolio. We've been talking about how we have these embedded gains, and it just made a lot of sense. These particular assets, and we've said before, there are reasons why we sell properties. In this particular case, we had difficult margins on Daytona. I thought it was an appropriate time to sell, because the operating expenses were high as well as Houston. And yes, the use of the money and the sales will lead to, obviously, our dollars in-house, which we plan to go towards a deleverage of the portfolio. We've been cognizant of the portfolio, their percentage of LTB and all, and we want to bring that down to some extent. And yes, some of the sales proceeds will be used for that purpose.

Got it. And just one more for me. Kind of as you think about the back half of '21, clearly, it sounds like you're seeing really strong pricing on asset sales. Have you soft circled any other assets for sale in the back half of '21?

We're always looking at the portfolio. At this point, Daytona and Houston are the only ones that we have to date. And if there's rationale and reasons for it, then potentially, but those are the ones that we have sold to date. And when we look at the portfolio, we do it all the time and consider different alternatives and sometimes partners give us the opportunity to buy them; it's all to be determined.

Got it. And I guess as you think about purchases in the future, are there more opportunities to take down more JV interest? And is that more attractive to you at this point versus maybe bringing in new assets as you think about recycling capital?

Yes, I can confidently say that when we have the chance to buy out partners, we are doing much better at that compared to acquiring new assets in the market. The cap rates and performance from those purchases indicate that they offer higher cap rates and better deals for us. We definitely intend to pursue more of these opportunities in the future.

Thank you. Our next question comes from the line of Rob Stevenson with Janney.

This is Steve Dumanski speaking for Rob Stevenson. I'm interested in understanding the future underwriting standards, specifically regarding the pricing environment, the management of CapEx reserves, and the soft costs associated with redeveloping units. I'd like to get your insights on how future underwriting and pricing will evolve.

I'm not sure I understand your question about value-add. Yes, we have reduced the number of units we operate on a quarterly basis significantly. If we don't believe we can achieve at least an 18% return on investment for upgrades, we typically refrain from proceeding. During COVID, we were very successful with our collections and overall performance, but it wasn't the best time for extensive value-add activities. Earlier, we mentioned completing about 38 units at approximately $6,100 each, achieving strong returns of over 25%. Looking ahead to the next quarter or two, we will be cautious and do not expect to undertake much value-add until we see how the market evolves. We hope to reengage and proceed with more projects later.

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

Yes. I just want to simply say thank you all for attending. We're excited about our future. We appreciate your interest and wishing you all a nice day, and thank you. Speak with you all soon.

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