BRT Apartments Corp (BRT) 2021 Q2 法說會逐字稿

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

Thank you for joining us today for BRT Apartment Corp.'s Second Quarter 2021 Earnings Conference Call. On the call today is Jeffrey Gould, President and Chief Executive Officer. Also Variable are George Zweier, Chief Financial Officer; and Senior Vice Presidents, David Kalish and Ryan Baltimore.

I would like to remind everyone that this conference call contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that are based on management's current expectations, assumptions and beliefs. Forward-looking statements can often be identified by words such as believe, expect, estimate, anticipate, intend and similar expressions and variations or negatives of these words. These forward-looking statements include, but are not limited to, statements regarding BRT's strategy and expectations for the future. They are not guarantees of future results and are subject to risks, uncertainties and assumptions that could cause actual results to differ materially from those expressed in any forward-looking statements.

Listeners should not place undue reliance on any forward-looking statements and are encouraged to review the company's SEC filings, including its Form 10-K and Form 10-Q for a more complete discussion of risks and other factors that could affect these forward-looking statements. Except as required by law, BRT does not undertake any obligation to publicly update or revise any forward-looking statements.

This conference call also includes a discussion of funds from operations, or FFO; adjusted funds from operations, or AFFO; net operating income, or NOI; and information regarding our pro rata share of revenues, expenses, NOI, assets and liabilities of BRT's unconsolidated subsidiaries, all of which are non-GAAP financial measures of performance.

These non-GAAP measures should be used as a supplement to and not a substitute for net income computed in accordance with GAAP. Unless otherwise indicated or the context otherwise requires, discussions with respect to operating results at the unconsolidated ventures reflect BRT's pro rata share of such results.

For a more complete discussion of our financial results as reported in accordance with GAAP, see the company's earnings release and supplemental information, which are currently available under the Investor Relations tab at our website and the 10-Q, which BRT intends to file shortly.

All amounts are approximate and among other things, reflect rounding. Unless otherwise indicated or the context otherwise requires, references to BRT's portfolio or its multifamily portfolio and references to revenues, expenses, NOI, assets and liabilities refer to results and accounts of BRT's wholly owned subsidiaries and its pro rata share of unconsolidated subsidiaries.

BRT uses pro rata share to help better provide a better understanding of our unconsolidated joint ventures. However, the use of pro rata information has certain limitations and is not representative of our operations and accounts as presented in accordance with GAAP. Accordingly, pro rata information should be used with caution and in conjunction with the GAAP data presented in our supplemental and in our reports filed with the SEC. Further references to the current quarter refer to the quarter ended June 30, 2021, and references to the 2020 quarter refer to the quarter ended June 30, 2020. As a reminder, the company's supplemental information and earnings release have been posted on the Investor Relations section of BRT's website at www.brtapartments.com. The company plans to file its 10-Q shortly.

I'd now like to turn the call over to President and CEO, Jeffrey Gould. Jeff?

Thank you, and welcome to the call. With the first half of the year completed, we are pleased with our performance thus far in 2021 as our portfolio continued to generate increases in occupancy and rental rates across many of our markets. And we plan to continue our strategic initiatives to invest, grow efficiently, recycle capital and reduce debt to enhance our financial flexibility.

Let me begin with our results for the second quarter 2021. Net income attributable to common stockholders was $6 million or $0.34 per diluted share compared to a net loss of $4.2 million or $0.25 per diluted share in the same quarter 2020. FFO grew over 20% on a per diluted share basis. FFO was $5 million or $0.29 per diluted share compared to $4.2 million or $0.24 per diluted share in the same quarter last year.

AFFO grew approximately 15% on a per diluted share basis. AFFO was $5.5 million or $0.31 per diluted share compared to $4.7 million or $0.27 per diluted share in the second quarter of 2020. The growth in FFO and AFFO was primarily due to a portfolio NOI increases of 4.9% year-over-year.

Turning to our portfolio. At June 30, 2021, we owned 7 multifamily communities containing approximately 1,600 units. We also own interest through unconsolidated entities in another 30 communities containing approximately 8,950 units.

In the second quarter, total revenues, including our pro rata share of unconsolidated entities, increased to $28 million, up 5.3% compared to $26.6 million in the 2020 quarter. Portfolio NOI increased to $15 million, up 4.9% compared to $14.3 million for the 2020 quarter. Average occupancy was 95.2% for the quarter ended June 30, 2021, up 210 basis points compared to the 2020 quarter. Average rents in the second quarter of 2021 were $1,129 per month, up 3.9% compared to the 2020 quarter. For leases signed in the second quarter of 2021, spreads on new leases were 5% and renewal spreads were 2.4%.

In the second quarter 2021, our same-store pool for the portfolio included 36 properties with 10,160 units, comprised of 1,608 wholly owned units and 8,552 units in our unconsolidated joint ventures. For the quarter, same-store revenue grew 6.7% compared to the 2020 quarter. Same-store expenses increased 5.9% compared to the 2020 quarter. And same-store NOI increased 7.5% compared to the 2020 quarter.

Turning to investments. We did not acquire any new properties in the current quarter. We did, however, acquire an additional 14.7% interest in Civic Center I and Civic Center II in South Haven, Mississippi for $6 million from our joint venture partner. After giving effect to the purchase, we own 74.7% of the venture that owns these properties.

On the value-add front, we repositioned 58 units at an average investment of approximately $6,300 per unit, yielding an estimated annualized return on investment of approximately 34%. As reflected in our supplemental financial information, a portion of the costs may have been incurred in the prior period, but we report the return on investment when the unit is re-leased. Across our portfolio, we have approximately 650 units slated for renovation over the next several years and believe that our value-add expertise will remain a factor in our ability to drive NOI growth.

During the current quarter, we generated $9.5 million in gains from sale of properties, one wholly owned property and one property owned by an unconsolidated joint venture. Subsequent to June 30, we sold 2 additional properties owned by unconsolidated joint ventures. We anticipate that during the quarter ending September 30, 2021, we will generate gains of approximately $30 million from such sales. We sold these assets after the completion of our value-add program.

We are also under contract to sell our 76% joint venture interest in an underperforming asset at the unconsolidated subsidiaries that own 2 St. Louis properties, The Tower at Opop and Lofts at Opop. We plan to sell the interest to our partner for $3 million, along with its assumption of our share of the mortgage financing. We expect the sale will close by the end of the third quarter, and we recognized a $520,000 impairment in the second quarter.

Proceeds from the sales are expected to fund future growth via acquisition, the potential buyout of our partner's interest in certain joint ventures, repayment of debt and for general corporate purposes. Specifically, we intend to use part of proceeds from the sales to strengthen our capital structure through the anticipated repayment of approximately $50 million to $60 million of secured debt by year-end 2021.

In July of 2021, we paid off $17 million of mortgage debt at 2 of our wholly owned properties. Such mortgage debt was scheduled to mature in the first quarter of 2022 and bore a weighted average interest rate of 4.46%. We also reduced our mortgage debt at our unconsolidated subsidiaries by $107 million in connection with the sales of Parc at 980 and The Avenue Apartments. By focusing on the balance sheet and the competitive acquisition environment, we believe we will be in a better position to support growth over the long term.

Obviously, with the challenging acquisition environment, we are very pleased to continue our focus on our unique ability to buy out our joint venture partners. This strategy continues to prove to be successful as we are able to understand the true value and potential of an asset prior to owning it outright. Our most recent foray is Bells Bluff in Nashville, Tennessee, where we are acquiring our partner's interest in a high-end community, in a highly desirable growth market. Furthermore, in connection with this acquisition, we obtained a commitment for a 20-year fixed rate financing at 3.48%.

Turning to the balance sheet. At June 30, 2021, we had total assets of $351 million, total debt of $152 million and total stockholder equity of $180 million. Available liquidity at quarter end included $35 million of cash and cash equivalents, restricted cash of $8 million and up to $15 million available under our credit facility. In addition, our unconsolidated joint ventures have approximately $15 million of cash and cash equivalents, which is used for day-to-day working capital purposes.

The aggregate mortgage debt for our wholly owned properties, combined with our share of mortgage debt for unconsolidated joint ventures, totaled $632 million at a weighted interest rate of 4.03% and a weighted average remaining term to maturity of 6.7 years. Our debt to enterprise value as of June 30, 2021, was 64%.

During the quarter ended June 30, 2021, we sold approximately 410,000 shares, pursuant to our ATM sales program at an average price of $18.19 per share. Net proceeds after commissions and fees were $7.3 million.

On July 9, we paid our quarterly dividend of $0.22 per share, which is equivalent to an annualized yield of 5.1%, based on our stock price of $17.37 as of the close of business on August 2, 2021. Needless to say, it has been a very busy and quite strong start to 2021, and we look to build on our success as we move through the balance of the year and beyond.

That completes our call. We will now open up to questions. Operator, please go ahead.

(Operator Instructions) Your first question comes from the line of Aaron Hecht with JMP Securities.

Quick one for you, Jeff, on the potential buyout of joint venture partners. What do you think the depths of that opportunity looks like, time frame and differential in pricing on buying out those partners versus open market transactions?

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

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

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

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

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

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

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

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