BRT Apartments Corp 10-Q for FY2020 Q1
BRT Apartments Corp. (BRT)
10-Q
2020-06-17
For: 2020-03-31
View Original
Added on
April 11, 2026
About this 10-Q
BRT Apartments Corp filed this 10-Q on June 17, 2020, covering the quarter ended March 31, 2020 (FY2020 Q1).
Headline figures
Quarter ended March 31, 2020, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $6.92M
- down 2.9% from $7.13M a year earlier
- Net loss
- $4.83M
- compared with a net loss of $4.25M a year earlier
- Diluted EPS
- -$0.29
- compared with -$0.27 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
For the quarterly period ended March 31, 2020
OR
Commission File Number 001-07172
(Exact name of Registrant as specified in its charter)
| (State or other jurisdiction of | (I.R.S. Employer Identification No.) | |||||||
| incorporation or organization) | ||||||||
| (Address of principal executive offices) | (Zip Code) | |||||||
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Date File required to be submitted pursuant to Rule 405 of Regulations S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definition of “large accelerated filer” “accelerated filer”, “smaller reporting company”and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):
| Large accelerated filer ☐ | ||||||||
| Non-accelerated filer ☐ | Smaller reporting company | |||||||
Emerging growth company | ||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
Indicate the number of shares outstanding of each of the issuer’s classes of stock, as of the latest practicable date.
par value $0.01 per share, outstanding on June 1, 2020
BRT APARTMENTS CORP. AND SUBSIDIARIES
Table of Contents
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1
Explanatory Note
Unless otherwise indicated or the context otherwise requires, all references to (i) “us”, “we”, “BRT” or the “Company” refer to BRT Apartments Corp. and its consolidated and unconsolidated subsidiaries; (ii) all interest rates give effect to the related interest rate derivative, if any; (iii) "acquisitions" include investments in and by unconsolidated joint ventures; (iv) units under rehabilitation for which we have received or accrued rental income from business interruption insurance, while not physically occupied, are treated as leased (i.e., occupied) at rental rates in effect at the time of the casualty, and (v) "same store properties" refer to properties that we owned and operated for the entirety of both periods being compared, except for properties that are under construction, in lease-up, or are undergoing development or redevelopment. We move properties previously excluded from our same store portfolio (because they were under construction, in lease up or are in development or redevelopment) into the same store designation once they have stabilized (as described below) and such status has been reflected fully in all quarters during the applicable periods of comparison. Newly constructed, lease-up, development and redevelopment properties are deemed stabilized upon attainment of at least 90% physical occupancy.
In filing the Quarterly Report at this time, we are relying upon the order (the "Order") issued by the Securities and Exchange Commission (the "SEC") on March 25, 2020 pursuant to Section 36 (Release No. 34-88465) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), extending the time in which certain reports required to be filed pursuant to the Exchange Act are filed, and the Current Report on Form 8-K we filed on May 11, 2020, pursuant to which we reported that we may be unable to file this Quarterly Report on a timely basis because of the impact of COVID-19, which, among other things, due to travel limitations and the requirements of "social distancing," had and would adversely impact the ability of the individuals preparing this report to complete such task on a timely basis. We were unable to file this Quarterly Report on the original May 11, 2020 due date because (i) of the impact of COVID-19 as disclosed above and (ii) management's devoting significant time and attention to assessing and responding to the impact of COVID-19.
See "Explanatory Note", "Risk Factors", "Managements Discussion and Analysis of Financial Condition and Results of Operations - Recent Developments - Non Reliance on Previously Reported Information" and Notes 2 and 16 to the consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2019 (the "Annual Report") for information regarding the restatement (the "Restatement") of prior period financial statements and a material weakness in internal control over financial reporting.
2
Part I ‑ FINANCIAL INFORMATION
Item 1. Financial Statements
BRT APARTMENTS CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except per share data)
| March 31, 2020 (unaudited) | December 31, 2019 (audited) | ||||||||||
| ASSETS | |||||||||||
| Real estate properties, net of accumulated depreciation and amortization of $25,655 and $24,094 | $ | $ | |||||||||
| Investments in unconsolidated joint ventures | |||||||||||
| Real estate loan | |||||||||||
| Cash and cash equivalents | |||||||||||
| Restricted cash | |||||||||||
| Other assets | |||||||||||
| Total Assets | $ | $ | |||||||||
| LIABILITIES AND EQUITY | |||||||||||
| Liabilities: | |||||||||||
| Mortgages payable, net of deferred costs of $758 and $823 | $ | $ | |||||||||
| Junior subordinated notes, net of deferred costs of $332 and $337 | |||||||||||
| Accounts payable and accrued liabilities | |||||||||||
| Total Liabilities (a) | |||||||||||
| Commitments and contingencies | |||||||||||
| Equity: | |||||||||||
| BRT Apartments Corp. stockholders' equity: | |||||||||||
| Preferred shares $.01 par value 2,000 shares authorized, none outstanding | |||||||||||
| Common stock, $.01 par value, 300,000 shares authorized; | |||||||||||
| 16,432 and 15,638 shares outstanding | |||||||||||
| Additional paid-in capital | |||||||||||
| Accumulated other comprehensive loss | ( | ( | |||||||||
| Accumulated deficit | ( | ( | |||||||||
| Total BRT Apartments Corp. stockholders’ equity | |||||||||||
| Non-controlling interests | ( | ( | |||||||||
| Total Equity | |||||||||||
| Total Liabilities and Equity | $ | $ | |||||||||
See accompanying notes to consolidated financial statements.
3
BRT APARTMENTS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(Dollars in thousands)
| Three Months Ended March 31, | |||||||||||||||||||||||||||||
| 2020 | 2019 | ||||||||||||||||||||||||||||
| Revenues: | |||||||||||||||||||||||||||||
| Rental revenue | $ | $ | |||||||||||||||||||||||||||
| Other income | |||||||||||||||||||||||||||||
| Total revenues | |||||||||||||||||||||||||||||
| Expenses: | |||||||||||||||||||||||||||||
| Real estate operating expenses - including $8 and $39 to related parties | |||||||||||||||||||||||||||||
| Interest expense | |||||||||||||||||||||||||||||
| General and administrative - including $226 and $181 to related parties | |||||||||||||||||||||||||||||
| Depreciation | |||||||||||||||||||||||||||||
| Total expenses | |||||||||||||||||||||||||||||
| Total revenues less total expenses | ( | ( | |||||||||||||||||||||||||||
| Equity in loss of unconsolidated joint ventures | ( | ( | |||||||||||||||||||||||||||
| Loss from continuing operations | ( | ( | |||||||||||||||||||||||||||
| Income tax provision | |||||||||||||||||||||||||||||
| Net loss from continuing operations, net of taxes | ( | ( | |||||||||||||||||||||||||||
| Net loss attributable to non-controlling interests | ( | ( | |||||||||||||||||||||||||||
| Net loss attributable to common stockholders | $ | ( | $ | ( | |||||||||||||||||||||||||
| Weighted average number of shares of common stock outstanding: | |||||||||||||||||||||||||||||
| Basic | |||||||||||||||||||||||||||||
| Diluted | |||||||||||||||||||||||||||||
| Per share amounts attributable to common stockholders: | |||||||||||||||||||||||||||||
| Basic | $ | ( | $ | ( | |||||||||||||||||||||||||
| Diluted | $ | ( | $ | ( | |||||||||||||||||||||||||
See accompanying notes to consolidated financial statements.
4
BRT APARTMENTS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited)
(Dollars in thousands)
| Three Months Ended March 31, | |||||||||||||||||||||||||||||
| 2020 | 2019 | ||||||||||||||||||||||||||||
| Net loss | $ | ( | $ | ( | |||||||||||||||||||||||||
| Other comprehensive loss: | |||||||||||||||||||||||||||||
| Unrealized loss on derivative instruments | ( | ( | |||||||||||||||||||||||||||
| Other comprehensive loss | ( | ( | |||||||||||||||||||||||||||
| Comprehensive loss | ( | ( | |||||||||||||||||||||||||||
| Comprehensive income attributable to non-controlling interests | ( | ( | |||||||||||||||||||||||||||
| Comprehensive loss attributable to common stockholders | $ | ( | $ | ( | |||||||||||||||||||||||||
See accompanying notes to consolidated financial statements.
5
BRT APARTMENTS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF EQUITY
(Unaudited)
(Dollars in thousands, except per share data)
| Common Stock | Additional Paid-In Capital | Accumulated Other Comprehensive Income | Accumulated Deficit | Non- Controlling Interest | Total | ||||||||||||||||||||||||||||||
| Balances, December 31, 2019 | $ | $ | $ | ( | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||
| Distributions - common stock - $0.22 per share | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||
| Restricted stock vesting | ( | — | — | — | |||||||||||||||||||||||||||||||
| Compensation expense - restricted stock and restricted stock units | — | — | — | — | |||||||||||||||||||||||||||||||
| Distributions to non-controlling interests | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||
| Shares issued through equity offering program, net | |||||||||||||||||||||||||||||||||||
| Shares repurchased | — | ( | ( | ||||||||||||||||||||||||||||||||
| Net loss | — | — | — | ( | ( | ||||||||||||||||||||||||||||||
| Other comprehensive loss | — | — | ( | — | ( | ( | |||||||||||||||||||||||||||||
| Comprehensive loss | ( | ||||||||||||||||||||||||||||||||||
| Balances, March 31, 2020 | $ | $ | $ | ( | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||
| Common Stock | Additional Paid-In Capital | Accumulated Other Comprehensive Income | Accumulated Deficit | Non- Controlling Interest | Total | ||||||||||||||||||||||||||||||
| Balances, December 31, 2018 | $ | $ | $ | $ | ( | $ | $ | ||||||||||||||||||||||||||||
| Distributions - common stock - $0.20 per share | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||
| Restricted stock vesting | ( | — | — | — | |||||||||||||||||||||||||||||||
| Compensation expense - restricted stock and restricted stock units | — | — | — | — | |||||||||||||||||||||||||||||||
| Distributions to non-controlling interests | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||
| Net income | — | — | — | ( | ( | ||||||||||||||||||||||||||||||
| Other comprehensive income | — | — | ( | — | ( | ( | |||||||||||||||||||||||||||||
| Comprehensive income | ( | ||||||||||||||||||||||||||||||||||
| Balances, March 31, 2019 | $ | $ | $ | $ | ( | $ | $ | ||||||||||||||||||||||||||||
See accompanying notes to consolidated financial statements.
6
BRT APARTMENTS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in Thousands)
| Three Months Ended March 31, | |||||||||||||||||||||||
| 2020 | 2019 | ||||||||||||||||||||||
| Cash flows from operating activities: | |||||||||||||||||||||||
| Net loss | $ | ( | $ | ( | |||||||||||||||||||
| Adjustments to reconcile net loss to net cash provided by operating activities: | |||||||||||||||||||||||
| Depreciation | |||||||||||||||||||||||
| Amortization of deferred financing costs | |||||||||||||||||||||||
| Amortization of restricted stock and restricted stock units | |||||||||||||||||||||||
| Equity in loss of unconsolidated joint ventures | |||||||||||||||||||||||
| Increases and decreases from changes in other assets and liabilities: | |||||||||||||||||||||||
| (Increase) decrease in deposits and escrows | ( | ||||||||||||||||||||||
| Increase in other assets | ( | ( | |||||||||||||||||||||
| Increase in accounts payable and accrued liabilities | |||||||||||||||||||||||
| Net cash provided by operating activities | |||||||||||||||||||||||
| Cash flows from investing activities: | |||||||||||||||||||||||
| Collections from real estate loan | |||||||||||||||||||||||
| Improvements to real estate properties | ( | ( | |||||||||||||||||||||
| Distributions from unconsolidated joint ventures | |||||||||||||||||||||||
| Contributions to unconsolidated joint ventures | ( | ( | |||||||||||||||||||||
| Net cash used in investing activities | ( | ( | |||||||||||||||||||||
| Cash flows from financing activities: | |||||||||||||||||||||||
| Mortgage principal payments | ( | ( | |||||||||||||||||||||
| Dividends paid | ( | ( | |||||||||||||||||||||
| Distributions to non-controlling interests | ( | ( | |||||||||||||||||||||
| Proceeds from the sale of common stock | |||||||||||||||||||||||
| Repurchase of shares of common stock | ( | ||||||||||||||||||||||
| Net cash provided by (used in) financing activities | ( | ||||||||||||||||||||||
| Net (decrease) increase in cash, cash equivalents and restricted cash | ( | ( | |||||||||||||||||||||
| Cash, cash equivalents and restricted cash at beginning of period | |||||||||||||||||||||||
| Cash, cash equivalents and restricted cash at end of period | $ | $ | |||||||||||||||||||||
| Supplemental disclosure of cash flow information: | |||||||||||||||||||||||
| Cash paid during the period for interest | $ | $ | |||||||||||||||||||||
| Taxes paid | $ | $ | |||||||||||||||||||||
See accompanying notes to consolidated financial statements.
7
BRT APARTMENTS CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 2020
Note 1 – Organization and Background
BRT Apartments Corp. (the "Company"), a Maryland corporation, owns and operates multi-family properties. The Company conducts its operations to qualify as a real estate investment trust, or REIT, for federal income tax purposes.
Generally, the multi-family properties are acquired with joint venture partners in transactions in which the Company contributes a significant portion of the equity. At March 31, 2020, the Company: (a) wholly owns eight multi-family properties located in six states with an aggregate of 1,880 units, and a carrying value of $158,224,000 ; and (b) has interests, through unconsolidated entities, in 31 multi-family properties located in nine states with an aggregate of 9,162 units (including 741 units at two properties currently in lease-up) and the carrying value of this net equity investment is $185,863,000 . Most of the Company's properties are located in the Southeast United States and Texas.
The Company also owns and operates various other real estate assets. At March 31, 2020, the carrying value of the other real estate assets was $14,310,000 , including a real estate loan of $4,000,000
Note 2 – Basis of Preparation
The consolidated financial statements include the accounts and operations of the Company, its wholly owned subsidiaries.
The joint venture that owns a property in Yonkers New York, was determined not to be a variable interest entity ("VIE") but is consolidated because the Company has controlling rights in such entity.
With respect to its unconsolidated joint ventures, as (i) the Company is generally the managing member but does not exercise substantial operating control over these entities or the Company is not the managing member and (ii) such entities are not VIEs, the Company has determined that such joint ventures should be accounted for under the equity method of accounting for financial statement purposes.
Certain items on the consolidated financial statements have been reclassified to conform with the current year's presentation.
8
Note 3 - Equity
Equity Distribution Agreements
In November 2019, the Company entered into equity distribution agreements, with three sales agents to sell up to an aggregate of $30,000,000 of its common stock from time-to-time in an at-the-market offering. During the quarter ended March 31, 2020, the Company sold 694,298 shares for an aggregate sales price of $12,293,000 before commissions and fees of $185,000 and offering related expenses of $31,000 . From the commencement of this program through March 31, 2020, the Company sold 806,261 shares for an aggregate sales price of $14,316,000 before commissions and fees of $314,000 and offering related expenses of $56,000 .
Common Stock Dividend Distribution
The Company declared quarterly cash distributions of $0.22
Stock Based Compensation
During the first quarter of 2020 , the Company's board of directors adopted, subject to stockholder approval, the 2020 Incentive Plan-this plan permits the Company to grant: (i) stock options, restricted stock, restricted stock units, performance shares awards and any one or more of the foregoing, up to a maximum of 1,000,000 shares; and (ii) cash settled dividend equivalent rights in tandem with the grant of restricted stock units and certain performance based awards.
The Company's 2018 Incentive Plan (the "2018 Plan") permits the Company to grant: (i) stock options, restricted stock, restricted stock units, performance share awards and any one or more of the foregoing, up to a maximum of 600,000 shares; and (ii) cash settled dividend equivalent rights in tandem with the grant of restricted stock units or certain performance based awards.
Restricted Stock Units
In June 2016, the Company issued restricted stock units (the "Units") to acquire up to 450,000 shares of common stock pursuant to the 2016 Amended and Restated Incentive Plan (the "2016 Incentive Plan"). The Units entitle the recipients, subject to continued service through the March 31, 2021 vesting date, to receive (i) the underlying shares if and to the extent certain performance and/or market conditions are satisfied at the vesting date, and (ii) an amount equal to the cash dividends paid from the grant date through the vesting date with respect to the shares of common stock underlying the Units if, when, and to the extent, the related Units vest. For financial statement purposes, because the Units are not participating securities, the shares underlying the Units are excluded in the outstanding shares reflected on the consolidated balance sheet and from the calculation of basic earnings per share. The shares underlying the Units are contingently issuable shares.
Expense is recognized over the -year vesting period on the Units which the Company expects to vest. For the three months ended March 31, 2020 and 2019, the Company recorded $35,000 and $35,000 , respectively, of compensation expense related to the amortization of unearned compensation with respect to the Units. At March 31, 2020 and December 31, 2019, $142,000 and $177,000 of compensation expense, respectively, had been deferred and will be charged to expense over the remaining vesting period.
Restricted Stock
In January 2020, the Company granted 158,299 shares of restricted stock pursuant to the 2018 Incentive Plan. As of March 31, 2020, an aggregate of 744,145 shares of unvested restricted stock are outstanding pursuant to the 2018 Incentive Plan, the 2016 Incentive Plan and the 2012 Incentive Plan. No five years from the date of grant and under specified circumstances, including a change in control, may vest earlier. For financial statement purposes, the restricted stock is not included in the outstanding shares shown on the consolidated balance sheets until they vest, but are included in the earnings per share computation.
For the three months ended March 31, 2020 and 2019, the Company recorded $403,000 and $330,000 , respectively, of compensation expense related to the amortization of unearned compensation with respect to the restricted stock awards. At March 31, 2020 and December 31, 2019, $5,689,000 and $3,328,000 has been deferred as unearned compensation and will be
9
charged to expense over the remaining vesting periods of these restricted stock awards. The weighted average remaining vesting period of these shares of restricted stock is 2.9 years.
Stock Buyback
On September 12, 2019, the Board of Directors approved a repurchase plan authorizing the Company, effective as of October 1, 2019, to repurchase up to $5,000,000 of shares of common stock through September 30, 2021. During the three months ended March 31, 2020, the Company repurchased 39,093 shares of common stock at an average market price of $15.76 for an aggregate cost of $616,000 . During the three months ended March 31, 2019, the Company did not repurchase any shares.
Per Share Data
Basic earnings (loss) per share is determined by dividing net income (loss) applicable to common stockholders for the applicable period by the weighted average number of shares of common stock outstanding during such period. The Units are excluded from the basic earnings per share calculation, as they are not participating securities. Diluted earnings per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into shares of common stock or resulted in the issuance of shares of common stock that share in the earnings of the Company. Diluted earnings per share is determined by dividing net income applicable to common stockholders for the applicable period by the weighted average number of shares of common stock deemed to be outstanding during such period. In calculating diluted earnings per share, the Company, for the three months ended March 31, 2020 and the three months ended March 31, 2019, did no
The following table sets forth the computation of basic and diluted earnings per share (dollars in thousands, except share amounts):
| Three Months Ended March 31, | |||||||||||||||||||||||||||||
| 2020 | 2019 | ||||||||||||||||||||||||||||
| Numerator for basic and diluted earnings (loss) per share attributable to common stockholders: | |||||||||||||||||||||||||||||
| Net loss attributable to common stockholders | $ | ( | $ | ( | |||||||||||||||||||||||||
| Denominator: | |||||||||||||||||||||||||||||
| Denominator for basic earnings per share—weighted average number of shares | |||||||||||||||||||||||||||||
| Effect of diluted securities | |||||||||||||||||||||||||||||
| Denominator for diluted earnings per share—adjusted weighted average number of shares and assumed conversions | |||||||||||||||||||||||||||||
| Basic loss per share | $ | ( | $ | ( | |||||||||||||||||||||||||
| Diluted loss per share | $ | ( | $ | ( | |||||||||||||||||||||||||
Note 4 ‑ Real Estate Properties
Real estate properties consist of the following (dollars in thousands):
| March 31, 2020 | December 31, 2019 | |||||||||||||
| Land | $ | $ | ||||||||||||
| Building | ||||||||||||||
| Building improvements | ||||||||||||||
| Real estate properties | ||||||||||||||
| Accumulated depreciation | ( | ( | ||||||||||||
| Total real estate properties, net | $ | $ | ||||||||||||
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A summary of real estate properties owned is as follows (dollars in thousands):
| | December 31, 2019 Balance | Additions | Capitalized Costs and Improvements | Depreciation | Sales | March 31, 2020 Balance | ||||||||||||||||||||||||||||||||
| Multi-family | $ | $ | $ | $ | ( | $ | $ | |||||||||||||||||||||||||||||||
| Land - Daytona, FL | ||||||||||||||||||||||||||||||||||||||
| Shopping centers/Retail - Yonkers, NY | ( | |||||||||||||||||||||||||||||||||||||
| Total real estate properties | $ | $ | $ | $ | ( | $ | $ | |||||||||||||||||||||||||||||||
Note 5 - Acquisitions and Dispositions
Property Acquisitions
The table below provides information regarding the Company's acquisition of a multi-family property, through an unconsolidated joint venture, during the three months ended March 31, 2020 (dollars in thousands):
| Location | Purchase Date | No. of Units | Purchase Price | Acquisition Mortgage Debt | Initial BRT Equity | Ownership Percentage | Capitalized Acquisition Costs | |||||||||||||||||||||||||||||||||||||
| Wilmington, North Carolina | 2/20/2020 | $ | $ | $ | % | $ | ||||||||||||||||||||||||||||||||||||||
The table below provides information regarding the Company's acquisition of a multi - family property,through an unconsolidated joint venture, during the three months ended March 31, 2019 (dollars in thousands):
| Location | Purchase Date | No. of Units | Purchase Price | Acquisition Mortgage Debt | Initial BRT Equity | Ownership Percentage | Capitalized Acquisition Costs | |||||||||||||||||||||||||||||||||||||
| Kannapolis, North Carolina | 3/12/2019 | $ | $ | $ | % | $ | ||||||||||||||||||||||||||||||||||||||
Property Dispositions
The Company did not dispose of any real estate properties during the three months ended March 31, 2020 and 2019.
Impairment Charges
The Company reviews each real estate asset owned, including those held through investments in unconsolidated joint ventures, for impairment when there is an event or a change in circumstances indicating that the carrying amount may not be recoverable. The Company measures and records impairment losses, and reduces the carrying value of properties, when indicators of impairment are present and the expected undiscounted cash flows related to those properties are less than their carrying amounts. In cases where the Company does not expect to recover its carrying costs on properties held for use, the Company reduces its carrying costs to fair value, and for properties held for sale, the Company reduces its carrying value to the fair value less costs to sell. During the three months ended March 31, 2020 and 2019, no
Note 6 - Restricted Cash
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Note 7 – Investment in Unconsolidated Ventures
At March 31, 2020 and December 31, 2019, the Company owns interests in unconsolidated joint ventures that own 31 and 30 multi-family properties, respectively (the "Unconsolidated Properties"). The condensed balance sheets below present information regarding such properties (dollars in thousands):
| March 31, 2020 | December 31, 2019 | |||||||||||||
| ASSETS | ||||||||||||||
| Real estate properties, net of accumulated depreciation of $114,358 and $104,001 | $ | $ | ||||||||||||
| Cash and cash equivalents | ||||||||||||||
| Deposits and escrows | ||||||||||||||
| Other assets | ||||||||||||||
| Total Assets | $ | $ | ||||||||||||
| LIABILITIES AND EQUITY | ||||||||||||||
| Liabilities: | ||||||||||||||
| Mortgages payable, net of deferred costs of $5,847 and $5,839 | $ | $ | ||||||||||||
| Accounts payable and accrued liabilities | ||||||||||||||
| Total Liabilities | ||||||||||||||
| Commitments and contingencies | ||||||||||||||
| Equity: | ||||||||||||||
| Total unconsolidated joint venture equity | ||||||||||||||
| Total Liabilities and Equity | $ | $ | ||||||||||||
| Company equity interest of joint venture equity | $ | $ | ||||||||||||
Real estate properties of our unconsolidated joint ventures consist of the following (dollars in thousands):
| March 31, 2020 | December 31, 2019 | ||||||||||
| Land | $ | $ | |||||||||
| Building | |||||||||||
| Building improvements | |||||||||||
| Real estate properties | |||||||||||
| Accumulated depreciation | ( | ( | |||||||||
| Total real estate properties, net | $ | $ | |||||||||
At March 31, 2020, the weighted average interest rate on the mortgages payable is 4.06 % and the weighted average remaining term to maturity is 7.9 years.
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The condensed income statement below presents information regarding the Unconsolidated Properties (dollars in thousands):
| Three Months Ended March 31, | ||||||||||||||||||||
| 2020 | 2019 | |||||||||||||||||||
| Revenues: | ||||||||||||||||||||
| Rental and other revenue | $ | $ | ||||||||||||||||||
| Total revenues | ||||||||||||||||||||
| Expenses: | ||||||||||||||||||||
| Real estate operating expenses | ||||||||||||||||||||
| Interest expense | ||||||||||||||||||||
| Depreciation | ||||||||||||||||||||
| Total expenses | ||||||||||||||||||||
| Total revenues less total expenses | ( | ( | ||||||||||||||||||
| Net income from joint ventures | $ | ( | $ | ( | ||||||||||||||||
| BRT equity in loss from joint ventures | $ | ( | $ | ( | ||||||||||||||||
Note 8 – Debt Obligations
Debt obligations consist of the following (dollars in thousands):
| March 31, 2020 | December 31, 2019 | |||||||||||||
| Mortgages payable | $ | $ | ||||||||||||
| Junior subordinated notes | ||||||||||||||
| Deferred financing costs | ( | ( | ||||||||||||
| Total debt obligations, net of deferred costs | $ | $ | ||||||||||||
Mortgages Payable
The weighted average interest rate on the Company's mortgage debt at March 31, 2020 was 4.15 %. For the three months ended March 31, 2020 and 2019 interest expense, which includes amortization of deferred fees, was $1,475,000 and $1,500,000 , respectively.
Credit Facility
The Company entered into a credit facility dated April 18, 2019, as amended from time-to-time, with an affiliate of Valley National Bank. The facility allows the Company to borrow, subject to compliance with borrowing base requirements and other conditions, up to $10,000,000 to facilitate the acquisition of multi-family properties and for working capital (including dividend payments) and operating expenses. The facility is secured by the cash available in certain cash accounts maintained by the Company at Valley National Bank, matures April 2021 and bears an adjustable interest rate of 50 basis points over the prime rate, with a floor of 5 %. The interest rate in effect as of March 31, 2020 is 5 %. There is an unused facility fee of 0.25 % per annum on the difference between the outstanding loan balance and maximum amount then available under the facility. On May 21, 2020, the Company borrowed $5,000,000 for working capital and operating expense purposes.
At March 31, 2020, there was no outstanding balance on the facility. At June 1, 2020, the outstanding balance on the credit facility was $5,000,000 .
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Junior Subordinated Notes
At March 31, 2020 and December 31, 2019, the Company's junior subordinated notes had an outstanding principal balance of $37,400,000 332,000 and $337,000 , respectively. At March 31, 2020, the interest rate on the outstanding balance is three month LIBOR + 2.00 % or 3.77 %. The interest rate in effect for the next payment period (April 30 - July 30, 2020) is 2.76 %
The junior subordinated notes require interest - only payments through the maturity date of April 30, 2036, at which time repayment of the outstanding principal and unpaid interest become due. Interest expense for the three months ended March 31, 2020 and 2019, which includes amortization of deferred costs, was $370,000 and $449,000 , respectively.
Note 9 – Related Party Transactions
The Company has retained certain of its executive officers and Fredric H. Gould, a director, among other things, to participate in the Company's multi-family property analysis and approval process (which includes service on an investment committee); provide investment advice; and provide long-term planning and consulting with executives and employees with respect to other business matters, as required. The aggregate fees incurred and paid for these services in the three months ended March 31, 2020 and 2019 were $350,000 and $333,000 , respectively.
Management of certain properties owned by the Company and certain joint venture properties is provided by Majestic Property Management Corp. ("Majestic Property"), a company wholly owned by Fredric H. Gould. Certain of the Company's officers and directors are also officers and directors of Majestic Property. Majestic Property may also provide real estate brokerage and construction supervision services to these properties. These fees amounted to $8,000 and $8,000 for the three months ended March 31, 2020 and 2019, respectively.
The Company shares facilities, personnel and other resources with One Liberty Properties, Inc., Majestic Property, and Gould Investors L.P. Certain of the Company's executive officers and/or directors also serve in management positions, and have ownership interests, in One Liberty, Majestic Property and/or Georgetown Partners Inc., the managing general partner of Gould Investors. The allocation of expenses for the facilities, personnel and other resources shared by the Company, One Liberty, Majestic Property and Gould Investors is computed in accordance with a shared services agreement by and among the Company and these entities and is included in general and administrative expense on the consolidated statements of operations. For the three months ended March 31, 2020 and 2019, net allocated general and administrative expenses reimbursed by the Company to Gould Investors pursuant to the shared services agreement aggregated $226,000 and $142,000 , respectively.
Note 10 – Fair Value of Financial Instruments
Financial Instruments Not Carried at Fair Value
The following methods and assumptions were used to estimate the fair value of each class of financial instruments that are not recorded at fair value on the consolidated balance sheets:
Cash and cash equivalents, restricted cash, accounts receivable (included in other assets), accounts payable and accrued liabilities: The carrying amounts reported in the balance sheets for these instruments approximate their fair value due to the short term nature of these accounts.
Junior subordinated notes: At March 31, 2020 and December 31, 2019, the estimated fair value of the notes is lower their carrying value by approximately $9,915,000 and $9,589,000 , respectively, based on a market interest rate of 5.95 % and 6.41 %, respectively.
Credit facility: At March 31, 2020, and December 31, 2019, the estimated fair value of the credit facility is equal to its carrying value.
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Mortgages payable: At March 31, 2020, the estimated fair value of the Company’s mortgages payable is greater than their carrying value by approximately $6,504,000 , assuming market interest rates between 2.70 % and 3.05 % and at December 31, 2019, the estimated fair value of the Company's mortgages payable was lower than their carrying value by approximately $321,000 assuming market interest rates between 3.89 % and 4.33 %. Market interest rates were determined using rates which the Company believes reflects institutional lender yield requirements at the balance sheet dates.
Considerable judgment is necessary to interpret market data and develop estimated fair value. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value assumptions.
| Carrying and Fair Value | Fair Value Measurements Using Fair Value Hierarchy | ||||||||||||||||||||||
| Level 1 | Level 2 | ||||||||||||||||||||||
| Financial Liabilities: | |||||||||||||||||||||||
| Interest rate swap | $ | $ | |||||||||||||||||||||
Derivative financial instruments: Fair values are approximated using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of the derivatives. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves, foreign exchange rates, and implied volatilities. At March 31, 2020, these derivatives are included in other liabilities on the consolidated balance sheet.
Although the Company has determined that the majority of the inputs used to value its derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with them utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by itself and its counterparties. As of March 31, 2020, the Company assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative position and determined that the credit valuation adjustments are not significant to the overall valuation of its derivatives. As a result, the Company determined that its derivatives valuation is classified in Level 2 of the fair value hierarchy.
Note 11 – Derivative Financial Instruments
Cash Flow Hedges of Interest Rate Risk
The Company's objective in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish this objective, the Company primarily uses interest rate swaps as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount.
The changes in the fair value of derivatives designated and that qualify as cash flow hedges is recorded in Accumulated Other Comprehensive Income and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings.
15
As of March 31, 2020, the Company had the following outstanding interest rate derivatives that were designated as cash flow hedges of interest rate risk (dollars in thousands):
| Interest Rate Derivative | Current Notional Amount | Fixed Rate | Maturity | |||||||||||||||||
| Interest rate swap | $ | % | April 1, 2022 | |||||||||||||||||
Non-designated Derivatives
Derivatives not designated as hedges are not speculative and are used to manage the Company's exposure to interest rate movements and other identified risks but do not meet the strict hedge accounting requirements. Changes in the fair value of derivatives not designated in hedging relationships are recorded directly in earnings. At March 31, 2020, the Company did not have any outstanding derivatives that were not designated as hedges in qualifying hedging relationships.
The table below presents the fair value of the Company’s derivative financial instruments as well as its classification on the consolidated balance sheets as of the dates indicated (dollars in thousands):
| Derivatives as of: | ||||||||||||||||||||||||||||||||||||||
| March 31, 2020 | December 31, 2019 | |||||||||||||||||||||||||||||||||||||
| Balance Sheet Location | Fair Value | Balance Sheet Location | Fair Value | |||||||||||||||||||||||||||||||||||
| Other Assets | $ | Other Assets | $ | |||||||||||||||||||||||||||||||||||
| Accounts payable and accrued liabilities | $ | Accounts payable and accrued liabilities | $ | |||||||||||||||||||||||||||||||||||
The following table presents the effect of the Company’s interest rate swaps on the consolidated statements of comprehensive (loss) income for the dates indicated (dollars in thousands):
| Three Months Ended March 31, | ||||||||||||||||||||||||||||||||
| 2020 | 2019 | |||||||||||||||||||||||||||||||
| Amount of (loss) gain recognized on derivative in Other Comprehensive Income | $ | ( | $ | ( | ||||||||||||||||||||||||||||
| Amount of (loss) gain reclassified from Accumulated Other Comprehensive Income into Interest expense | $ | ( | $ | |||||||||||||||||||||||||||||
| Total amount of Interest expense presented in the Consolidated Statement of Operations | $ | $ | ||||||||||||||||||||||||||||||
The Company estimates an additional $19,000 will be reclassified from other comprehensive loss as a decrease to interest expense over the next twelve months.
Credit-risk-related Contingent Features
The agreement between the Company and its derivative counterparties provides that if the Company defaults on any of its indebtedness, including default where repayment of the indebtedness has not been accelerated by the lender, the Company could be declared in default on its derivative obligations.
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Note 12 – New Accounting Pronouncements
In February 2016, the FASB issued ASU 2016-02, Leases. ASU 2016-02 supersedes the current accounting for leases and while retaining two distinct types of leases, finance and operating, and requires lessees to recognize most leases on their balance sheets and makes targeted changes to lessor accounting. Further, in July 2018, the FASB issued ASU 2018-11, Leases (Topic 842): Targeted Improvements. This amendment provides a new practical expedient that allows lessors, by class of underlying asset, to avoid separating lease and associated non-lease components within a contract if the following criteria are met: (i) the timing and pattern of transfer for the non-lease component and the associated lease component are the same, and (ii) the stand-alone lease component would be classified as an operating lease if accounted for separately. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018 and early adoption is permitted. The Company adopted this standard effective January 1, 2019, and its adoption did not have a material effect on the consolidated financial statements. As a lessor, the adoption of ASU 2016-02 (as amended by subsequent ASUs) did not change the timing of revenue recognition of the Company’s rental revenues. As a lessee, the Company is party to a ground lease, and an operating lease with future payment obligations for which the Company recorded right-of-use assets and lease liabilities at the present value of the remaining minimum rental payments upon adoption of this standard.
In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging: Targeted Improvements to Accounting for Hedging Activities. The update better aligns a company’s financial reporting for hedging activities with the economic objectives of those activities. ASU 2017-12 is effective for fiscal years beginning after December 15, 2018, with early adoption, including adoption in an interim period, permitted. The Company adopted this standard effective January 1, 2019. The adoption of this guidance did not have a material effect on the consolidated financial statements.
In June 2018, the FASB issued ASU 2018-07, Compensation—Stock Compensation (Topic 718): Improvements to
Nonemployee Share-Based Payment Accounting. This update provides specific guidance for transactions for acquiring goods
and services from nonemployees and specifies that Topic 718 applies to all share-based payment transactions in which a grantor acquires goods or services to be used or consumed in a grantor’s own operations by issuing share-based payment awards. The amendments also clarify that Topic 718 does not apply to share-based payments used to effectively provide (i) financing to the issuer or (ii) awards granted in conjunction with selling goods or services to customers as part of a contract accounted for under ASC Topic 606, Revenue from Contracts with Customers. The Company adopted this guidance effective January 1, 2020. The adoption of this guidance did not have a material effect on the consolidated financial statements.
In August 2018, the FASB issued ASU 2018-13, Disclosure Framework — Changes to the Disclosure Requirements for Fair Value Measurement, which removes, modifies, and adds certain disclosure requirements related to fair value measurements in ASC Topic 820. This guidance is effective for public companies in fiscal years beginning after December 15, 2019, with early adoption permitted. The Company adopted this guidance effective January 1, 2020. The adoption of this guidance did not have a material effect on the consolidated financial statements.
In October 2018, the FASB issued ASU 2018-16, (Topic 815): Inclusion of the Secured Overnight Financing Rate (SOFR) Overnight Index Swap (OIS) as a Benchmark Interest Rate for Hedging Purposes. The amendments in this update permit the OIS rate based on SOFR as an eligible benchmark interest rate. The amendments in this update are effective for fiscal years beginning after December 15, 2018. The Company adopted this guidance on January 1, 2019. The Company does not believe this guidance will have a material effect on its consolidated financial statements.
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Note 13 – Subsequent Events
Subsequent events have been evaluated and any significant events, relative to our consolidated financial statements as of March 31, 2020, that warrant additional disclosure, have been included in the notes to the consolidated financial statements.
The Company is presented with the risks presented by the novel coronavirus or COVID-19, which has spread and may
continue to spread, to markets in which it operates. The ultimate extent of the impact of the pandemic on the Company’s
business, financial condition, liquidity, results of operations and prospects will depend on future developments, which are
highly uncertain and cannot be predicted with confidence, including the duration, the severity of, and the actions taken to
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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Cautionary Statement Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q (the "Quarterly Report"), together with other statements and information publicly disseminated by us, contains certain forward looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995 and include this statement for purposes of complying with these safe harbor provisions. Forward-looking statements relate to expectations, beliefs, projections, future plans and strategies, anticipated events or trends concerning matters that are not historical facts. Forward looking statements are generally identifiable by use of words such as "may," "will," "will likely result," "shall," "should," "could," "believe," "expect," "intend," "anticipate," "estimate," "project" or similar expressions or variations thereof.
Forward-looking statements contained in this Quarterly Report are based on our beliefs, assumptions and expectations of our future performance taking into account all information currently available to us. These beliefs, assumptions and expectations can change as a result of many possible events or factors, not all of which are known to us or within our control, and which could materially affect actual results, performance or achievements. Factors which may cause actual results to vary from our forward-looking statements include, but are not limited to:
•general economic and business conditions, including those currently affecting our nation’s economy and real estate markets;
•the availability of, and costs associated with, sources of capital and liquidity;
•accessibility of debt and equity capital markets;
•general and local real estate conditions, including any changes in the value of our real estate;
•changes in Federal, state and local governmental laws and regulations, including laws and regulations relating to taxes and real estate and related investments;
•the level and volatility of interest rates;
•our acquisition strategy, which may not produce the cash flows or income expected;
•the competitive environment in which we operate, including competition that could adversely affect our ability to acquire properties and/or limit our ability to lease apartments or increase or maintain rental income;
•a limited number of multi-family property acquisition opportunities acceptable to us;
•our multi-family properties are concentrated in the Southeastern United States and Texas, which makes us more susceptible to adverse developments in those markets;
•risks associated with our strategy of acquiring value-add multi-family properties, which involves greater risks than more conservative strategies;
•the condition of Fannie Mae or Freddie Mac, which could adversely impact us;
•our failure to comply with laws, including those requiring access to our properties by disabled persons, which could result in substantial costs;
•insufficient cash flows, which could limit our ability to make required payments on our debt obligations;
•impairment in the value of real estate we own;
•failure of property managers to properly manage properties;
•disagreements with, or misconduct by, joint venture partners;
•decreased rental rates or increasing vacancy rates;
•our ability to lease units in newly acquired or newly constructed multi-family properties;
•potential defaults on or non-renewal of leases by tenants;
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•creditworthiness of tenants;
•our ability to obtain financing for acquisitions;
•development and acquisition risks, including rising or unanticipated costs and failure of such acquisitions and developments to perform in accordance with projections;
•the timing of acquisitions and dispositions;
•our ability to reinvest the net proceeds of dispositions into more, or as favorable, acquisition opportunities;
•potential natural disasters such as hurricanes, tornadoes and floods;
•board determinations as to timing and payment of dividends, if any, and our ability or willingness to pay future dividends;
•financing risks, including the risks that our cash flows from operations may be insufficient to meet required debt service obligations and we may be unable to refinance our existing debt upon maturity or obtain new financing on attractive terms or at all;
•lack of or insufficient amounts of insurance to cover, among other things, losses from catastrophes;
•our ability to maintain our qualification as a REIT;
•possible environmental liabilities, including costs, fines or penalties that may be incurred due to necessary remediation of contamination of properties presently owned or previously owned by us or a subsidiary owned by us or acquired by us;
•our dependence on information systems;
•risks associated with breaches of our data security;
•risks associated with the stock ownership restrictions of the Code for REITs and the stock ownership limit imposed by our charter;
•increases in real estate taxes at properties we acquire due to such acquisitions or other factors;
•the impact of the COVID-19 pandemic;
•the review, and any required response thereto, if any, arising out of the restatements set forth in, and the material weakness in internal control over financial reporting described in, our Annual Report, of our financial statements, accounting, accounting policies and internal control or financial reporting;
•the discovery of any additional adjustments, in addition to those described in our Annual Report; and
•the other factors described in this Quarterly and our Annual Report, including those set forth, as applicable, under the captions "Risk Factors," "Business," and "Management's Discussion and Analysis of Financial Condition and Results of Operations".
We caution you not to place undue reliance on forward-looking statements, which speak only as of the date of this Quarterly Report. Except to the extent otherwise required by applicable law or regulation, we undertake no obligation to update these forward-looking statements to reflect events or circumstances after the date of the filing of this Quarterly Report or to reflect the occurrence of unanticipated events.
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Overview
General
We are an internally managed real estate investment trust, also known as a REIT, that is focused on the ownership, and operation of multi-family properties. These properties derive revenue from tenant rental payments. Generally, these properties are owned by unconsolidated joint ventures in which we contributed 65% to 80% of the equity. At March 31, 2020, we: (i) wholly own eight multi-family properties located in six states with an aggregate of 1,880 units and a carrying value of $158.2 million; and (ii) have ownership interests, through unconsolidated entities, in 31 multi-family properties located in nine states with 9,162 units (including 741 units at two properties in lease-up) - the carrying value of our net equity investment therein is $185.9 million. Most of our properties are located in the southeast United States and Texas.
As used herein, the term "same store properties" refers to operating properties that were owned for the entirety of the periods being presented. For the three months ended March 31, 2020 and 2019, there were seven same store properties.
Acquisition During the Three Months Ended March 31, 2020
On February 20, 2020, through an unconsolidated joint venture, we acquired an 80% interest in a 264 unit multi-family property located in Wilmington, NC. The purchase price of this property was $38.0 million, including assumed mortgage debt of $23.2 million and $17.1 million of equity. We contributed $13.7 million of the equity.
ATM Activity
In the quarter ended to March 31, 2020, we sold 694,298 shares of common stock for an aggregate sales price $12.3 million before commissions, fees and offering related expenses of $215,000.
Share Buyback
In the quarter ended March 31, 2020, we repurchased 39,093 shares of common stock at a weighted average price of $15.76 per unit or $616,000.
Challenges and Uncertainties Presented by COVID-19
We are facing challenges resulting from the outbreak of the COVID-19 pandemic. While the nation-wide economic hardships resulting from the responses to the pandemic did not have a material impact on our results of operations for the quarter ended March 31, 2020, and for April, May and through June 15, 2020, we collected 98%, 98% and 95% of amounts billed to tenants (which includes rent and certain ancillary charges) at multi-family properties owned by consolidated and unconsolidated joint ventures (though such results are not necessarily indicative of future collections), the pandemic, among other things, may adversely affect the ability of our residents to pay rent (due to furloughs, layoffs and/or the expiration of, or reduction in, unemployment benefits) and as a result, our ability to pay dividends and/or the debt service on our mortgages. Residents at several properties(e.g., Silvana Oaks Apartments-N. Charleston, SC and Crestmont at Thornblade-Greenville, SC., are employed by significant manufacturers(e.g., Boeing and BMW) and residents at other properties(e.g., Parkway Grande-San Marcos, TX and Chatham Court and Reflections-Dallas, TX) are students at nearby colleges or universities. Reductions in employment at these or other employers or changes to the programs offered at these or other educational institutions will make it more difficult for those residents to pay rent. The pandemic may also (i) require us to incur additional real estate operating expenses to maintain our properties and promote the health and safety of our residents, (ii) result in reduced revenues due to rent accommodations offered to current or prospective tenants, (iii) limit our ability to market our properties to prospective tenants, and delay efforts to implement value add programs and acquire or dispose of properties. The governmental response to the pandemic has resulted in further legislation regulating our relationships with our residents, including limitations on our ability to exercise various remedies with respect to residents that do not pay rent or other charges and may result in legislation limiting the rents we can charge or collect. The ultimate extent of the impact of the pandemic on our business, financial condition, liquidity, results of operations and prospects will depend on future developments, which are highly uncertain and cannot be predicted with confidence.
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Results of Operations – Three months ended March 31, 2020 compared to three months ended March 31, 2019.
Revenues
The following table compares our revenues for the periods indicated:
| Three Months Ended March 31, | ||||||||||||||||||||||||||||||||
| (Dollars in thousands): | 2020 | 2019 | Increase (Decrease) | % Change | ||||||||||||||||||||||||||||
| Rental revenue | $ | 6,745 | $ | 6,886 | $ | (141) | (2.0) | |||||||||||||||||||||||||
| Other income | 179 | 244 | (65) | (26.6) | ||||||||||||||||||||||||||||
| Total revenues | $ | 6,924 | $ | 7,130 | $ | (206) | (2.9) | |||||||||||||||||||||||||
Rental revenue
The decrease is due primarily to the inclusion, in the corresponding period of the prior year, of $1.0 million from two properties that were sold in July 2019 (the "Sold Properties").
Offsetting this decrease are increases of:
•$640,000 due to the inclusion of revenues from a multi-family property at which we bought out the interests of our joint venture partner in October 2019 (the "Partner Buyout") and which is now wholly owned by us, and
•$248,000 from same store properties due primarily due to rental rate increases.
Expenses
The following table compares our expenses for the periods indicated:
| Three Months Ended March 31, | ||||||||||||||||||||||||||||||||
| (Dollars in thousands) | 2020 | 2019 | Increase (Decrease) | % Change | ||||||||||||||||||||||||||||
| Real estate operating expenses | $ | 3,058 | $ | 3,176 | $ | (118) | (3.7) | % | ||||||||||||||||||||||||
| Interest expense | 1,860 | 1,946 | (86) | (4.4) | % | |||||||||||||||||||||||||||
| General and administrative | 3,367 | 2,544 | 823 | 32.4 | % | |||||||||||||||||||||||||||
| Depreciation | 1,561 | 1,547 | 14 | 0.9 | % | |||||||||||||||||||||||||||
| Total expenses | $ | 9,846 | $ | 9,213 | $ | 633 | 6.9 | % | ||||||||||||||||||||||||
Real estate operating expenses.
The decrease is due primarily to the inclusion, in the corresponding period of $664,000 from the Sold Properties.
Offsetting this decrease are increases of:
•$324,000 due to the inclusion of operating expenses from the Partner Buyout; and
•$193,000 from same store properties, including increased compensation costs due to increased staffing as we filled vacant positions at several properties, increased insurance rates and increases in various miscellaneous expenses.
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Interest expense.
The decrease is due primarily to:
•the inclusion, in the corresponding period of the prior year, of $205,000 of interest from two properties that were sold in July 2019; and
•$63,000 primarily from a decrease in the interest rate paid on our subordinated debt
Offsetting these decreases is an increase of $196,000 due to the inclusion of interest expense from the Partner Buyout.
General and administrative.
The increase is due primarily to: (i) a $596,000 increase in professional fees and expenses of which $523,000 was incurred in connection with the Restatement, and (ii) increased compensation costs of $129,000, including a $74,000 increase due to the amortization of restricted stock. We estimate that we will incur, in the quarter ending June 30, 2020, $160,000 of professional fees and expenses related to the Restatement.
Equity in (loss) of unconsolidated joint ventures.
The table below reflects our share of the components of the equity in (loss) of unconsolidated joint ventures (dollars in thousands)(see note 7 of our consolidated financial statements):
| Three Months Ended March 31, | ||||||||||||||||||||||||||||||||||||||
| 2020 | 2019 | Increase/Decrease | % change | |||||||||||||||||||||||||||||||||||
| Rental revenues from unconsolidated joint ventures | $ | 19,491 | $ | 17,017 | $ | 2,474 | 14.5 | % | ||||||||||||||||||||||||||||||
| Real estate operating expense from unconsolidated joint ventures | 9,172 | 8,333 | 839 | 10.1 | % | |||||||||||||||||||||||||||||||||
| Interest expense from unconsolidated joint ventures | 5,570 | 5,040 | 530 | 10.5 | % | |||||||||||||||||||||||||||||||||
| Depreciation from unconsolidated joint ventures | 6,572 | 5,781 | 791 | 13.7 | % | |||||||||||||||||||||||||||||||||
| Total expenses from unconsolidated joint ventures | 21,314 | 19,154 | 2,160 | 11.3 | % | |||||||||||||||||||||||||||||||||
| Total revenues less total expenses from unconsolidated joint ventures | (1,823) | (2,137) | 314 | (14.7) | % | |||||||||||||||||||||||||||||||||
| Other equity earnings | 8 | 69 | (61) | (88.4) | % | |||||||||||||||||||||||||||||||||
| Equity in loss of joint ventures | $ | (1,815) | $ | (2,068) | $ | 253 | (12.2) | % | ||||||||||||||||||||||||||||||
Set forth below is an explanation of the most significant changes in the components of the equity in loss of unconsolidated joint ventures. Same store properties at unconsolidated joint ventures represent 25 properties that have been owned for the entirety of both periods being compared and exclude properties in lease up.
Rental revenue from unconsolidated joint ventures
The increase is due primarily to:
• $1.6 million in revenues from three properties acquired during the twelve months ended March 31, 2020, including $278,000 from a property acquired during the current quarter,
•$989,000 from two properties currently in lease up,
•$640,000 from the inclusion, for the entire three months ended March 31, 2020 of a property that was only owned for a portion of the corresponding period in the prior year, and
•$598,000 from unconsolidated same store properties - approximately (i) $433,000 of the increase is due to an increase in rental rates at most properties, and (ii) $115,000 is due to increase in variable lease payments (e.g., utility reimbursements, late fees, etc.).
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Offsetting the increase is the inclusion, in the corresponding period of the prior year, of $799,000 from a property that was sold in November 2019 and $542,000 from a property where we bought out our partner and is now wholly owned and reported on a consolidated basis.
Real estate operating expenses from unconsolidated joint ventures
The increase is due to:
•$646,000 in expenses incurred from three properties acquired during the 12 months ended March 31, 2020, including $83,000 from a property acquired during the current quarter,
•$348,000 from unconsolidated same store properties due to higher increases in real estate taxes and insurance and moderate increases across most other expense categories,
•$272,000 from the inclusion, for the entire three months ended March 31, 2020, of a property that was only owned for a portion of the corresponding period in the prior year, and
•$232,000 from two properties which are currently in lease up.
Offsetting the increase is the inclusion, in the corresponding period of the prior year, of $396,000 from a property that was sold in November 2019 and $262,000 from a property where we bought out our partner and is now wholly owned and reported on a consolidated basis.
Interest expense from unconsolidated joint ventures
The increase is due primarily to:
•$493,000 in expenses incurred at three properties acquired during the 12 months ended March 31, 2020, including $96,000 from a property acquired during the current quarter,
•$297,000 from two properties currently in lease up and at which expense was partially or fully capitalized in the corresponding period in the prior year, and
•$148,000 from the inclusion, for the entire three months ended March 31, 2020, of a property that was only owned for a portion of the corresponding period in the prior year.
Offsetting the increase is the inclusion, in the corresponding period of the prior year of:
•$156,000 from a property where we bought out our partner and is now wholly owned and reported on a consolidated basis,
•$138,000 from a property that was sold in November 2019, and
•$113,000 from unconsolidated same store properties primarily due to the refinancing of a mortgage at a lower principal amount.
Depreciation from unconsolidated joint ventures
The increase is due primarily to:
•$757,000 in expenses from three properties acquired during the twelve months ended March 31, 2020, including $190,000 from a property acquired during the current quarter,
•$466,000 from two properties which are in lease up and were in development, and therefore not depreciated, in the corresponding period in the prior year, and
•$255,000 from the inclusion, for the entire three months ended March 31, 2020, of a property that was only owned for a portion of the corresponding period in the prior year.
Offsetting the increase is:
•$391,000 from unconsolidated same store properties primarily due to a lower level of depreciation as lease intangibles on several properties have been fully depreciated,
•the inclusion, in the corresponding period of the prior year, of $162,000 from a property at which we bought out our partner and is now wholly owned and reported on a consolidated basis, and
•$134,000 from a property that was sold in November 2019.
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Liquidity and Capital Resources
We require funds to pay operating expenses and debt service, acquire properties, make capital improvements and pay dividends. Generally, our primary sources of capital and liquidity are the operations of our multi-family properties (including distributions from the joint ventures that own such properties), mortgage debt financings and refinancings, equity contributions for acquisitions from our joint venture partners, our share of the proceeds from the sale of properties, the sale of shares of our common stock pursuant to our at-the-market equity distribution program, our credit facility and our available cash (including restricted cash). Our available liquidity at June 1, 2020, was $33.4 million, including $18.5 million of cash and cash equivalents, $9.9 million of restricted cash and, subject to borrowing base requirements, up to $5.0 million of remaining availability under our credit facility.
We anticipate that through 2022, our operating expenses, $126.9 million of mortgage amortization and interest expense and $182.9 million of balloon payments (including $106.8 million and $108.2 million, respectively, from unconsolidated joint ventures) due with respect to mortgages maturing from 2020 to 2022, estimated cash dividend payments of at least $ 37.8 million (assuming (i) the current quarterly dividend rate of $0.22 per share and (ii) 17.2 million shares outstanding), will be funded from cash generated from operations (including distributions from unconsolidated joint ventures), mortgage refinancing, sales of properties, our credit facility and the issuance of additional equity. Our operating cash flow and available cash is insufficient to fully fund the $182.9 million of balloon payments, and if we are unable to refinance such debt, we may need to issue additional equity or dispose of properties, in each case on potentially unfavorable terms.
Capital improvements at (i) 20 multi-family properties will be funded by approximately $9.9 million of restricted cash available at June 1, 2020 and the cash flow from operations at such properties and (ii) other properties will be funded from the cash flow from operations of such properties.
Our ability to acquire additional multi-family properties (including our acquisition of our partner's interest in properties owned by joint ventures) is limited by our available cash, and our ability to (i) draw on our credit facility (ii) obtain, on acceptable terms, equity contributions from joint venture partners and mortgage debt from lenders and (iii) raise capital from the sale of our common stock. Further, if and to the extent we generate ordinary taxable income, we will be required to make distributions to stockholders to maintain our REIT status and as a result, will be limited in our ability to use gains, if any, from property sales, as a source of funds for operating expenses, debt service and property acquisitions.
Junior Subordinated Notes
As of March 31, 2020, $37.4 million (excluding deferred costs of $332,000) in principal amount of our junior subordinated notes is outstanding. These notes mature in April 2036, contain limited covenants (including covenants prohibiting us from paying dividends or repurchasing capital stock if there is an event of default (as defined therein) on these notes), are redeemable at our option and bear an interest rate, which resets and is payable quarterly, of three-month LIBOR plus 200 basis points. At March 31, 2020 and 2019, the interest rate on these notes was 3.77% and 4.75%, respectively.
Credit Facility
We entered into a credit facility dated April 18, 2019, as amended from time to time, with VNB New York, LLC, an affiliate of Valley National Bank. The facility allows us to borrow, subject to compliance with borrowing base requirements and other conditions, up to $10 million. The facility is available for the acquisition of, and investment in, multi-family properties, for working capital (including dividend payments) and operating expenses. It is secured by the cash available in certain cash accounts maintained by the Company at VNB, matures April 2021 and bears an annual interest rate of 50 basis points over the prime rate, with a floor of 5%. There is an unused facility fee of 0.25% per annum on the difference between the outstanding loan balance and maximum amount then available under the facility.
The terms of the facility include certain restrictions and covenants which limit, among other things, the incurrence of liens, and which require compliance with financial ratios relating to, among other things, the minimum amount of debt service coverage with respect to the properties (and amounts drawn on the facility) used in calculating the borrowing base, the minimum number of wholly owned properties and the minimum number of properties used in calculating the borrowing base. Net proceeds received from the sale, financing or refinancing of wholly owned properties are generally required to be used to repay amounts outstanding under the facility.
25
Off Balance Sheet Arrangements
Other than an interest rate derivative with a notional amount of $1.1 million, described in note 11 to our consolidated financial statements, and which we do not believe will have a material impact on our liquidity or results of operations, we are not a party to any off-balance sheet arrangements (as such term is defined in Item 303(a)(4) of Regulation S-K). Nevertheless, we present the following information as we believe it could be meaningful to investors. We are joint venture partners in approximately 31 unconsolidated joint ventures which own multi-family properties. The distributions from the properties owned by these joint ventures ($3.0 million in the quarter ended March 31, 2020) are a material source of our liquidity and cash flow. Further, we may be required to make significant capital contributions with respect to these properties. At March 31, 2020, these joint venture properties have a net equity carrying value of $185.9 million and are subject to mortgage debt, which is not reflected on our consolidated balance sheet, of $831.7 million. Although BRT Apartments Corp. is not the obligor with respect to such mortgage debt, the loss of any of these properties due to mortgage foreclosure or similar proceedings would have a material adverse effect on our results of operations and financial condition. These joint venture arrangements have been, and we anticipate that they will continue to be, material to our liquidity and capital resource position. See note 7 to our consolidated financial statements.
Cash Distribution Policy
We have elected to be treated as a REIT under the Internal Revenue Code of 1986, as amended, which we refer to as the “Code.” To qualify as a REIT, accordingly we must meet a number of organizational and operational requirements, including a requirement that we distribute to our stockholders within the time frames prescribed by the Code at least 90% of our ordinary taxable income. Management currently intends to maintain our REIT status. As a REIT, we generally will not be subject to corporate Federal income tax on taxable income we distribute to stockholders in accordance with the Code. If we fail to qualify as a REIT in any taxable year, we will be subject to Federal income taxes at regular corporate rates and may not be able to qualify as a REIT for four subsequent tax years. Even if we qualify for Federal taxation as a REIT, we are subject to certain state and local taxes on our income and to Federal income and excise taxes on undistributed taxable income, (i.e., taxable income not distributed in the amounts and in the time frames prescribed by the Code).
Our net operating loss at December 31, 2019 is approximately $16.8 million; therefore, we are not currently required by Code provisions relating to REITs to pay cash dividends to maintain our status as a REIT. Notwithstanding the foregoing, on April 7, 2020 and July 9, 2020, we paid, or will pay a cash dividend of $0.22 per share.
We are carefully monitoring our discretionary spending, particularly in light of the potential reduction in the base cash rent from tenants due to the economic challenges resulting from the pandemic. Our largest recurring discretionary expenditure has been our quarterly dividend (which was $.22 per share of common stock, or in the approximate amount of $ 3.8 million, for the most recent quarter). Each quarter, our board of directors evaluates the timing and amount of our dividend based on its assessment of, among other things, our short and long- term cash and liquidity requirements, prospects, debt maturities, projections of our REIT taxable income, net income, funds from operations, adjusted funds from operations and the dividend policies of our peers.
26
Funds from Operations; Adjusted Funds from Operations
We disclose below funds from operations (“FFO”) and adjusted funds from operations (“AFFO”) because we believe that such metrics are a widely recognized and appropriate measure of the performance of an equity REIT.
We compute FFO in accordance with the “White Paper on Funds From Operations” issued by the National Association of Real Estate Investment Trusts (“NAREIT”) and NAREIT’s related guidance. FFO is defined in the White Paper as net income (calculated in accordance with GAAP), excluding depreciation and amortization related to real estate, gains and losses from the sale of certain real estate assets, gains and losses from change in control, impairment write-downs of certain real estate assets and investments in entities where the impairment is directly attributable to decreases in the value of depreciable real estate held by the entity. Adjustments for unconsolidated partnerships and joint ventures are calculated to reflect funds from operations on the same basis. In computing FFO, we do not add back to net income the amortization of costs in connection with our financing activities or depreciation of non- real estate assets.We compute AFFO by deducting from FFO our straight-line rent accruals, loss on extinguishment of debt, restricted stock and restricted stock unit expense, deferred mortgage costs and gain on insurance recovery. Since the NAREIT White Paper only provides guidelines for computing FFO, the computation of AFFO may vary from one REIT to another.
We believe that FFO and AFFO are useful and standard supplemental measures of the operating performance for equity REITs and are used frequently by securities analysts, investors and other interested parties in evaluating equity REITs, many of which present FFO and AFFO when reporting their operating results. FFO and AFFO are intended to exclude GAAP historical cost depreciation and amortization of real estate assets, which assumes that the carrying value of real estate assets diminishes predictably over time. In fact, real estate values have historically risen and fallen with market conditions. As a result, we believe that FFO and AFFO provide a performance measure that when compared year over year, should reflect the impact to operations from trends in occupancy rates, rental rates, operating costs, interest costs and other matters without the inclusion of depreciation and amortization, providing a perspective that may not be necessarily apparent from net income. We also consider FFO and AFFO to be useful to us in evaluating potential property acquisitions.
FFO and AFFO do not represent net income or cash flows from operations as defined by GAAP. FFO and AFFO should not be considered to be an alternative to net income as a reliable measure of our operating performance; nor should FFO and AFFO be considered an alternative to cash flows from operating, investing or financing activities (as defined by GAAP) as measures of liquidity. FFO and AFFO do not measure whether cash flow is sufficient to fund all of our cash needs, including principal amortization and capital improvements. FFO and AFFO do not represent cash flows from operating, investing or financing activities as defined by GAAP.
Management recognizes that there are limitations in the use of FFO and AFFO. In evaluating our performance, management is careful to examine GAAP measures such as net income and cash flows from operating, investing and financing activities.
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The tables below provides a reconciliation of net loss determined in accordance with Generally Accepted Accounting Principles ("GAAP") to FFO and AFFO on a dollar and per share basis for each of the indicated periods (amounts in thousands):
| Three Months Ended March 31, | ||||||||||||||||||||||||||||||||
| 2020 | 2019 | |||||||||||||||||||||||||||||||
| GAAP Net loss attributable to common stockholders | $ | (4,831) | $ | (4,247) | ||||||||||||||||||||||||||||
| Add: depreciation of properties | 1,561 | 1,547 | ||||||||||||||||||||||||||||||
| Add: our share of depreciation in unconsolidated joint ventures | 6,572 | 5,785 | ||||||||||||||||||||||||||||||
| Adjustments for non-controlling interests | (4) | (23) | ||||||||||||||||||||||||||||||
| NAREIT Funds from operations attributable to common stockholders | 3,298 | 3,062 | ||||||||||||||||||||||||||||||
| Adjustments for: straight-line rent accruals | (10) | (10) | ||||||||||||||||||||||||||||||
| Add: amortization of restricted stock and restricted stock units | 438 | 365 | ||||||||||||||||||||||||||||||
| Add: amortization of deferred mortgage costs | 80 | 73 | ||||||||||||||||||||||||||||||
| Add: our share of deferred mortgage costs from unconsolidated joint venture properties | 160 | 227 | ||||||||||||||||||||||||||||||
| Adjustments for non-controlling interests | 2 | 1 | ||||||||||||||||||||||||||||||
| Adjusted funds from operations attributable to common stockholders | $ | 3,968 | $ | 3,718 | ||||||||||||||||||||||||||||
| Three Months Ended March 31, | ||||||||||||||||||||||||||||||||
| 2020 | 2019 | |||||||||||||||||||||||||||||||
| GAAP Net loss attributable to common stockholders | $ | (0.29) | $ | (0.27) | ||||||||||||||||||||||||||||
| Add: depreciation of properties | 0.09 | 0.10 | ||||||||||||||||||||||||||||||
| Add: our share of depreciation in unconsolidated joint ventures | 0.39 | 0.36 | ||||||||||||||||||||||||||||||
| NAREIT Funds from operations per diluted common share | 0.19 | 0.19 | ||||||||||||||||||||||||||||||
| Adjustments for: straight line rent accruals | — | — | ||||||||||||||||||||||||||||||
| Add: amortization of restricted stock and restricted stock units | 0.03 | 0.02 | ||||||||||||||||||||||||||||||
| Add: amortization of deferred mortgage costs | — | — | ||||||||||||||||||||||||||||||
| Add: our share of deferred mortgage costs from unconsolidated joint venture properties | 0.01 | 0.02 | ||||||||||||||||||||||||||||||
| Adjustments for non-controlling interests | — | — | ||||||||||||||||||||||||||||||
| Adjusted funds from operations per diluted common share | $ | 0.23 | $ | 0.23 | ||||||||||||||||||||||||||||
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NOI is a non-GAAP measure of performance. NOI is used by our management and many investors to evaluate and compare the performance of our properties to other comparable properties, to determine trends at our properties and to determine the estimated fair value of our properties. The usefulness of NOI may be limited in that it does not take into among other things, general and administrative expense, interest expense, loss on extinguishment of debt, casualty losses, insurance recoveries and gains or losses as determined by GAAP. NOI is a property specific performance metric and does not measure our performance as a whole.
We compute NOI by adjusting net income (loss) to (a) add back (1) depreciation expense, (2) general and administrative expenses, (3) interest expense, (4) loss on extinguishment of debt, (5) equity in loss of unconsolidated joint ventures, (6) provision for taxes, (7) the impact of non-controlling interests, and (b) deduct (1) other income, (2) gain on sale of real estate, and (3) gain on insurance recoveries related to casualty loss. Other REIT’s may use different methodologies for calculating NOI, and accordingly, our NOI may not be comparable to other REIT’s. We believe NOI provides an operating perspective not immediately apparent from GAAP operating income or net income (loss). NOI is one of the measures we use to evaluate our performance because it (i) measures the core operations of property performance by excluding corporate level expenses and other items unrelated to property operating performance and (ii) captures trends in rental housing and property operating expenses. However, NOI should only be used as an alternative measure of our financial performance.
The following table provides a reconciliation of net income attributable to common stockholders as computed in accordance with GAAP to NOI of our consolidated properties for the periods presented (dollars in thousands):
| Three Months Ended March 31, | ||||||||||||||||||||
| 2020 | 2019 | |||||||||||||||||||
| GAAP Net loss attributable to common stockholders | $ | (4,831) | $ | (4,247) | ||||||||||||||||
| Less: Other Income | (179) | (244) | ||||||||||||||||||
| Add: Interest expense | 1,860 | 1,946 | ||||||||||||||||||
| General and administrative | 3,367 | 2,544 | ||||||||||||||||||
| Depreciation | 1,561 | 1,547 | ||||||||||||||||||
| Provision for taxes | 62 | 62 | ||||||||||||||||||
| Less: Gain on sale of real estate | — | — | ||||||||||||||||||
| Add: Loss on extinguishment of debt | — | — | ||||||||||||||||||
| Equity in loss of unconsolidated joint venture properties | 1,815 | 2,068 | ||||||||||||||||||
| Add: Net loss attributable to non-controlling interests | 32 | 34 | ||||||||||||||||||
| Net Operating Income | $ | 3,687 | $ | 3,710 | ||||||||||||||||
| Non-same store Net Operating Income | (560) | (638) | ||||||||||||||||||
| Same store Net Operating Income | $ | 3,127 | $ | 3,072 | ||||||||||||||||
NOI decreased $23,000, primarily due to the sale of two properties in July 2019 which was offset by an increase due to the Partner Buyout and the consolidation of the property and an increase in same store NOI. Same store NOI increased $55,000 primarily due to increased revenues of $248,000 from increased rental rates offset by a $193,000 increase in operating expenses.
29
Item 3. Quantitative and Qualitative Disclosures About Market Risks
All of our mortgage debt is fixed rate, other than one mortgage, which is subject to an interest rate swap agreement that effectively fix the rate at a fixed rate.
As of March 31, 2020, we had one interest rate swap agreement outstanding. The fair value of these derivative instruments is dependent upon existing market interest rates and swap spreads, which change over time. At March 31, 2020, if there had been (i) an increase of 100 basis points in forward interest rates, the fair market value of this derivative instruments and the net unrealized gain thereon would have increased by approximately $19,000 and (ii) if there had been a decrease of 100 basis points in forward interest rates, the fair market value of these derivatives and the net unrealized gain thereon would have decreased by approximately $19,000. These changes would not have any impact on our net income or cash.
Our junior subordinated notes bear interest at the rate of three month LIBOR plus 200 basis points. At March 31, 2020, the interest rate on these notes was 3.77%. A 100 basis point increase in the rate would increase our related interest expense by approximately $374,000 annually and a 100 basis point decrease in the rate would decrease our related interest expense by $374,000 annually.
Item 4. Controls and Procedures
As required under Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, we carried out an evaluation under the supervision and with the participation of our management, including our Chief Executive Officer, Senior Vice President-Finance and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures as of March 31, 2020.
As disclosed in Part II, Item 9A. Controls and Procedures in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019, a material weakness was identified in the internal controls over financial reporting related to the consolidation of properties that should have been accounted for using the equity method of accounting rather than consolidated.
After considering the progress of the remediation plan noted below and considering that the enhanced controls have not been sufficiently tested to concluded they are operating effectively, the Chief Executive Officer, Senior Vice President-Finance, and Chief Financial Officer concluded that as of the end of the period covered by this report, our disclosure controls and procedures were not effective as of such date.
Due to the material weakness, subsequent to March 31, 2020, management implemented a remediation plan to address the control deficiency that led to the material weakness. We made significant changes to the process of evaluating the accounting for investments in property ventures. Specifically, we have implemented procedures to assess each investment in accordance with the applicable accounting guidance and prepare an analysis spreadsheet that highlights the key criteria and decision points leading to the consolidation or equity method determination. Specific multi-level reviews of this enhanced documentation have been implemented to ensure that i) the correct contract terms are included in the analyses and ii) the criteria and decision points are properly assessed. As these controls operate over a subjective area, include management judgment, and require certain technical and operation expertise, we have determined them to be management review controls. Additionally, due to the technical knowledge needed to perform the analysis and review, we have also implemented additional required training on the subject matter (i.e., consolidation accounting). We have implemented the enhanced procedures and documentation standards and our plan is to test the remediation of this material weakness by the end of 2020, subject to there being sufficient opportunities to conclude, through testing, that the enhanced control is operating effectively.
Despite the material weakness in internal control over financial reporting, our management has concluded that, the financial statements fairly present in all material respects, our financial position, results of operations and cash flows as of the dates, and for the periods presented, in conformity with generally accepted accounting principles (“GAAP”).
30
Part II - Other Information
Item 1. Legal Proceedings
A wholly-owned subsidiary of ours that owns a property in Houston, TX is named as a defendant, along with multiple defendants in an action (Takakura et al. v. Houston Pizza Venture, LP, and Papa John’s USA., Inc. et.al., 129th Judicial District, Harris County, Texas, Cause No. 2019-42425), alleging the wrongful death as a result of a homicide of a delivery person at our property. The complaint seeks compensatory damages in an unspecified amount in excess of $1 million and an unspecified amount of exemplary damages. Our primary insurance carrier is defending the claim; we believe we have sufficient primary and umbrella insurance to cover the claim for compensatory damages. Insurance generally does not cover claims for exemplary damages.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
On September 12, 2019, our Board of Directors authorized us to repurchase, effective as of October 1, 2019, up to $5.0 million of shares of our common stock through September 30, 2021. The table below provides information regarding our repurchase of shares of common stock pursuant to such authorization during the periods presented:
| Period | (a) Total Number of Shares Purchased | (b) Average Price Paid per Share | (c) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | (d) Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs | ||||||||||||||||||||||
| January 1 - January 31, 2020 | — | — | — | $ | 5,000,000 | |||||||||||||||||||||
| February 1 - February 29, 2020 | 14,000 | $ | 15.60 | 14,000 | 4,781,580 | |||||||||||||||||||||
| March 1 - March 31, 2020 | 25,093 | 15.85 | 25,093 | 4,383,780 | ||||||||||||||||||||||
| Total | 39,093 | $ | 15.76 | 39,093 | ||||||||||||||||||||||
Item 6. Exhibits
Exhibit No. | Title of Exhibits | |||||||
Certification of President and Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | ||||||||
Certification of Senior Vice President—Finance pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | ||||||||
Certification of Vice President and Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | ||||||||
Certification of President and Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | ||||||||
Certification of Senior Vice President—Finance pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | ||||||||
Certification of Vice President and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | ||||||||
| 101 | The following financial information from the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2020, formatted in Inline XBRL: (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Operations, (iii) Statements of Comprehensive Income (Loss), (iv) Consolidated Statements of Equity, (v) Consolidated Statements of Cash Flows and (vi) Notes to Consolidated Financial Statements. XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. | |||||||
| 104 | Cover Page Interactive Date File (formatted as inline XBRL and contained in Exhibit 101) | |||||||
_______________________________
31
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
BRT APARTMENTS CORP.
| June 17, 2020 | /s/ Jeffrey A. Gould | |||||||
| Jeffrey A. Gould, President and | ||||||||
| Chief Executive Officer | ||||||||
| June 17, 2020 | /s/ George Zweier | |||||||
| George Zweier, Vice President | ||||||||
| and Chief Financial Officer | ||||||||
| (principal financial officer) | ||||||||
32
EXHIBIT 31.1
CERTIFICATION
I, Jeffrey A. Gould, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q for the quarter ended March 31, 2020 of BRT Apartments Corp.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
The foregoing certification is being furnished pursuant to 18 U.S.C. Section 1350. It is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and it is not to be incorporated by reference into any filing of the Company, regardless of any general incorporation language in such filing.
| Date: | June 17, 2020 | /s/ Jeffrey A. Gould | ||||||||||||
| Jeffrey A. Gould | ||||||||||||||
| President and | ||||||||||||||
| Chief Executive Officer | ||||||||||||||
EXHIBIT 31.2
CERTIFICATION
I, David W. Kalish, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q for the quarter ended March 31, 2020 of BRT Apartments Corp.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
The foregoing certification is being furnished pursuant to 18 U.S.C. Section 1350. It is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and it is not to be incorporated by reference into any filing of the Company, regardless of any general incorporation language in such filing.
| Date: | June 17, 2020 | /s/ David W. Kalish | |||||||||||||||
| David W. Kalish | |||||||||||||||||
| Senior Vice President - Finance | |||||||||||||||||
EXHIBIT 31.3
CERTIFICATION
I, George Zweier, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q for the quarter ended March 31, 2020 of BRT Apartments Corp.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
The foregoing certification is being furnished pursuant to 18 U.S.C. Section 1350. It is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and it is not to be incorporated by reference into any filing of the Company, regardless of any general incorporation language in such filing.
| Date: | June 17, 2020 | /s/ George Zweier | ||||||||||||
| George Zweier | ||||||||||||||
| Vice President and | ||||||||||||||
| Chief Financial Officer | ||||||||||||||
EXHIBIT 32.1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350
(SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002)
I, Jeffrey A. Gould, do hereby certify, pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge, based upon a review of the Quarterly Report on Form 10-Q for the quarter ended March 31, 2020 of BRT Apartments Corp. (“the Registrant”), as filed with the Securities and Exchange Commission on the date hereof (the "Report"):
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant.
The foregoing certification is being furnished pursuant to 18 U.S.C. Section 1350. It is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and it is not to be incorporated by reference into any filing of the Company, regardless of any general incorporation language in such filing.
| Date: | June 17, 2020 | /s/ Jeffrey A. Gould | ||||||||||||
| Jeffrey A. Gould | ||||||||||||||
| President and | ||||||||||||||
| Chief Executive Officer | ||||||||||||||
EXHIBIT 32.2
CERTIFICATION OF SENIOR VICE PRESIDENT-FINANCE
PURSUANT TO 18 U.S.C. SECTION 1350
(SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002)
I, David W. Kalish, do hereby certify, pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge, based upon a review of the Quarterly Report on Form 10-Q for the quarter ended March 31, 2020 of BRT Apartments Corp. (“the Registrant”), as filed with the Securities and Exchange Commission on the date hereof (the "Report"):
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant.
The foregoing certification is being furnished pursuant to 18 U.S.C. Section 1350. It is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and it is not to be incorporated by reference into any filing of the Company, regardless of any general incorporation language in such filing.
| Date: | June 17, 2020 | /s/ David W. Kalish | |||||||||||||||
| David W. Kalish | |||||||||||||||||
| Senior Vice President - Finance | |||||||||||||||||
EXHIBIT 32.3
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350
(SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002)
I, George Zweier, do hereby certify, pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge, based upon a review of the Quarterly Report on Form 10-Q for the quarter ended March 31, 2020 of BRT Apartments Corp. (“the Registrant”), as filed with the Securities and Exchange Commission on the date hereof (the "Report"):
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant.
The foregoing certification is being furnished pursuant to 18 U.S.C. Section 1350. It is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and it is not to be incorporated by reference into any filing of the Company, regardless of any general incorporation language in such filing.
| Date: | June 17, 2020 | /s/ George Zweier | ||||||||||||
| George Zweier | ||||||||||||||
| Vice President and | ||||||||||||||
| Chief Financial Officer | ||||||||||||||