BRT Apartments Corp.
Q4 2020 Earnings Call Transcript

Published: 12 Mar 2021

[Operator:]

Good day, and welcome to the BRT Apartments Corp Conference Call for the Fourth Quarter of 2020. Today's conference is being recorded. At this time, I would like to turn the floor over to Evelyn Infurna of ICR. Please go ahead.

[Evelyn Infurna:]

Thank you. Good day, everyone, and welcome to BRT Apartments' conference call. On the call today is Jeffrey Gould, President and Chief Executive Officer. Also available are George Zweier, Chief Financial Officer; David Kalish, Senior Vice President; and Ryan Baltimore, Senior Vice President. As a reminder, this call is being webcast through the company's website at www.brtapartments.com. Additionally, the company's supplemental information and earnings release were currently available for your review on the Investor Relations section of BRT's website, and its 10-K will be available on such website on Monday, March 15.

[Jeffrey Gould:]

Thank you, Evelyn. I would like to welcome everyone to BRT's fourth quarter conference call. Let me start off by saying that, although 2020 brought about uncertainty in the market, we are pleased with the way our team at BRT and the properties have stepped up and performed during these times. We were proactive and remain cautious and conservative with our capital deployment, and as a result, had strong performance in 2020. We are confident that we are in a position to resume growth activities when the market is right as cap rates continue to remain compressed. We remain diligent with regard to safety protocols and continue to put the staff and tenants' health as our top priority. With respect to our portfolio, as of March 1, 2021, we owned or had interest in 39 multifamily properties; consisting of 11,042 units in 11 states. 31 properties owned by unconsolidated joint ventures; and 8 properties wholly owned by BRT. BRT's equity interest in these unconsolidated subsidiaries, over which BRT actively oversees the management, generally ranges from 50% to 90%. We did not buy or sell any multifamily properties in the current quarter. Let's turn to our financial performance. BRT generated FFO of approximately $5 million in the current quarter or $0.29 per diluted share compared to $3.5 million in the 2019 quarter or $0.21 per diluted share. For the year, FFO grew to $17 million or $0.99 per diluted share compared to $12.01 million or $0.74 per diluted share in 2019. AFFO increased to $5.6 million for the current quarter or $0.33 per diluted share compared to $4.9 million or $0.30 per diluted share in the 2019 quarter. This represents a 10% increase in AFFO on a per diluted share basis. For the year, AFFO increased to $19.2 million or $1.12 per diluted share compared to $16.6 million or $1.03 per diluted share in 2019. Total rental revenues for our portfolio increased to $27.5 million as compared to $26.5 million in the 2019 quarter, and real estate operating expenses for the portfolio increased to $12.6 million as compared to $12.1 million in the 2019 quarter. For the year, total rental revenues for our portfolio increased to $107.9 million as compared to $102.2 million in 2019, and real estate operating expenses for the portfolio increased to $50.7 million as compared to $48.7 million in 2019. NOI for our portfolio rose 3.5% to $14.9 million for the current quarter from $14.4 million for the 2019 quarter. NOI for our portfolio increased 6.9% to $57.2 million for the current year from $53.5 million in 2019. The year-over-year increase was due to increased rental income at our 2 properties that were in lease-up and increased rental revenue at our same-store properties due to increased rental rates.

[Operator:]

Our first question comes from the line of over Gaurav Mehta with National Securities. Please proceed with your question.

[Gaurav Mehta:]

First question on the dispositions. I was hoping if you could provide some more color on the drivers for selling those 2 properties and maybe touch upon the kind of pricing you received?

[Jeffrey Gould:]

Gaurav, yes, sure. So basically, there are times that we've obviously considered sales. In this particular case, these were both properties that we consider to be sort of at the end our investment life in that. We were seeing -- having margin concerns as to operating expenses going up, somewhat older properties in need of capital improvements. And as far as our concerns, value-add possibilities were limited. So in these 2 particular cases, we move forward to sell these assets. Our partner believes in more of a positive growth opportunity, and one we're showing to the partner and the other we're selling to third parties. And we're happy with both outcomes. Cap rates, as you know, are as low as I've seen them, even pre-COVID. So the cap rates and the returns that we've got on our NOI and anticipated NOI were in the low 4s. So we were very pleased with that.

[Gaurav Mehta:]

Second question, I was hoping if you could comment on the new and renewal rates that you're getting in your market, maybe post-fourth quarter?

[Jeffrey Gould:]

Gaurav, I'm sorry, I didn't hear your question.

[Gaurav Mehta:]

The new and renewal rates that you're getting in your markets for your portfolio?

[Jeffrey Gould:]

The renewal rates -- it's a really property-specific response. Some were getting, frankly, minimal. So we're in a typical 45% to 50%, and some, I would say, are higher. Ryan -- I think, Ryan better specific?

[Ryan Baltimore:]

Yes. Gaurav, so also just in terms of new leases and renewals in terms of the actual rent increase, we've seen about 2% to 3% year-over-year. As Jeff mentioned, it is property-specific in properties where we feel there might be more occupancy pressure, we've kept rents relatively flat. And then other properties were occupancy strong, we've been able to push rents. So we're very pleased with the 2% to 3%. In fact, we were expecting it to be a little bit less. We were pleased with the performance of the portfolio for the year. So we were in the 2% to 3% on both the renewals and new leases on a blended basis.

[Jeffrey Gould:]

Yes. And as far as renewal percentage, I mean, with COVID and all, people have been less likely for sure to move. So we've had a higher percentage generally than we had recovered.

[Operator:]

Our next question comes from the line of Jim Sullivan with BTIG. Please proceed with your question.

[Jim Sullivan:]

Jeff, you ended your prepared comments with the general comment on the outlook, saying that you were optimistic for the coming year. And I wonder if you could just tell us what kind of, well, maybe the 2 or 3 things that gave you that optimism about 2021.

[Jeffrey Gould:]

Yes. Well, I think what we're doing now at this point, it's -- as I said, it's a difficult environment to buy. Hopefully, that will change over the -- maybe 3 to 6 months from now. But right now, spreads, where cap rates are, make it difficult to acquire property. With that being said, we are considering a few more sales and taking advantage of opportunities we have with these cap rates being where they are. With potential proceeds from these sales, I think we will look into acquisitions. And if they're timely and makes sense, we're going to do it. We're going to look at possible partner buyouts, which could be a real interesting opportunity for us. And we're considering using some of the proceeds to -- as a deleverage scenario, which we believe on a long-term basis, will be beneficial to the company. Taking some embedded unrealized gains, I think at this point, is a worthwhile endeavor, where we think that either the value-add component of the deal has been completed. We have a few jobs that we've really done a great job completing the value-added strategy. And those may be opportunities for potential sale. But we believe that there will be rental regrowth. We believe in the economy coming back with vaccines, and we're pretty excited about the year ahead, 2021. I will say that we probably will have -- and we anticipate, on the negative side, some tax and insurance increases for which will affect AFFO. And we had some favorable tax outcomes this past year, and we continue to fight taxes in insurance, but those are one areas where I'm not thrilled about, but it's the way it is. But obviously, everyone should know that we do anticipate that as a possibility. But we think though, the road ahead, in the coming months, we -- again, with vaccine, the economy coming back is a very -- is a great opportunity, and we're excited about what's ahead.

[Jim Sullivan:]

Jeff, kind of in that vein, when you talk about selling assets and buying assets, I wonder if you could kind of give us your sense for which markets you are the most optimistic about in the next 1 or 2 years in terms of internal growth? And conversely, which markets where you currently have exposure, you might be looking to lighten up?

[Jeffrey Gould:]

Yes, good question. We like our footprint a lot. We are -- we're obviously dedicated and really focused on the Southeast, which is the place to be as far as we're concerned, and people, I think, are starting to recognize that more and more. The flight of money going into the Southeast is quite incredible. So I think we're going to stay in our general footprint, an area that we like where this population growth where there's employment growth. So the areas that you see in our supplemental and you see, we've basically gone from Texas through the Southeast up through the Mid-Atlantic. We are considering 1 or 2 new markets. But I think we're pretty much, for the most part, are going to stay in our foothold where we believe and we know how to operate and have positive tailwinds. As far as, I guess, markets that we don't want to be in, everyone has read about core markets, and that's never something we've been involved in. I will say that downtown St. Louis is 1 property in our portfolio that we're not pleased with. It's just -- it's the typical story of what's going on in core markets. Where people aren't living and working downtown. And that particular property has suffered a little bit. Fortunately, that's one of the only or few that we're concerned about. I think it will bounce back again as the vaccines come back. But I would say probably St. Louis is a market that we're not particularly as thrilled with right now. But as to come, that's we're going to basically stay where we are for the most part, I think we may...

[Jim Sullivan:]

Sure. Just kind of follow-up on that. Obviously, you mentioned the strength of the Sunbelt. You do have a presence in Ohio. Are you content with that market and likely to continue to hold that and/or expand your position in Ohio?

[Jeffrey Gould:]

Yes. Ohio is an interesting, and obviously, you're right. It's an outlier for us. We love the asset, how we got there as through a partner. But long story, sure, we now own the asset. It's got long-term -- very long-term HUD financing. The property performed exceptionally well. We had a very low rate for a long period of time in a good -- in a very good market. So no, I don't plan on -- as a matter of fact, we've gotten lots of inquiries about selling that asset as well as others, and we have no interest in selling it right now. We think it's a great long-term hold. So that is one that's going to kind of stick out as outside of the southeast market, but one that we like a lot.

[Operator:]

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

[Jeffrey Gould:]

Yes. I just want to thank you all for joining us today and for your continued support, ask that you all stay safe, and have a good day. Thank you.

[Operator:]

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