BRT APARTMENTS CORP. 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 (the "Exchange Act"). 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," "apparent," "experiencing," 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 the 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: •inability to generate sufficient cash flows due to unfavorable economic and market conditions (e.g., inflation, volatile interest rates and the possibility of a recession), changes in supply and/or demand, competition, uninsured losses, changes in tax and housing laws or other factors; •adverse changes in real estate markets, including, but not limited to, the extent of future demand for multifamily units in our significant markets, barriers of entry into new markets which we may seek to enter in the future, limitations on our ability to increase or collect rental rates, competition, our ability to identify and consummate attractive acquisitions and dispositions on favorable terms, and our ability to reinvest sale proceeds in a manner that generates favorable returns; •general and local real estate conditions, including any changes in the value of our real estate; •decreasing rental rates or increasing vacancy rates; •challenges in acquiring properties (including challenges in buying properties directly without the participation of joint venture partners and the limited number of multi-family property acquisition opportunities available to us), which acquisitions may not be completed or 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 rates; •exposure to risks inherent in investments in a single industry and sector; •the concentration of our multi-family properties in theSoutheastern United States andTexas , which makes us more susceptible to adverse developments in those markets; •increases in expenses over which we have limited control, such as real estate taxes, insurance costs and utilities, due to inflation and other factors; •impairment in the value of real estate we own; •failure of property managers to properly manage properties; •accessibility of debt and equity capital markets; •disagreements with, or misconduct by, joint venture partners; •inability to obtain financing at favorable rates, if at all, or refinance existing debt as it matures; •level and volatility of interest or capitalization rates or capital market conditions; •extreme weather and natural disasters such as hurricanes, tornadoes and floods; 19 -------------------------------------------------------------------------------- Table of Contents •lack of or insufficient amounts of insurance to cover, among other things, losses from catastrophes; •risks associated with acquiring value-add multi-family properties, which involves greater risks than more conservative approaches; •the condition of Fannie Mae or Freddie Mac, which could adversely impact us; •changes in Federal, state and local governmental laws and regulations, including laws and regulations relating to taxes and real estate and related investments; •our failure to comply with laws, including those requiring access to our properties by disabled persons, which could result in substantial costs; •board determinations as to timing and payment of dividends, if any, and our ability or willingness to pay future dividends; •our ability to satisfy the complex rules required to maintain our qualification as a REIT for federal income tax purposes; •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 and risks associated with breaches of such systems; •disease outbreaks and other public health events, and measures that are taken by federal, state, and local governmental authorities in response to such outbreaks and events; •impact of climate change on our properties or operations; •risks associated with the stock ownership restrictions of the Internal Revenue Code of 1986, as amended (the "Code") for REITs and the stock ownership limit imposed by our charter; and •the other factors described in our Annual Report on Form 10-K for the year endedDecember 31, 2022 ( the "Annual Report")including those set forth in such report under the captions "Item 1. Business," "Item 1A. Risk Factors," and "Item 7. 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 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 filing of this report or to reflect the occurrence of unanticipated events thereafter. 20 -------------------------------------------------------------------------------- Table of Contents Overview We are an internally managed real estate investment trust, also known as a REIT, that owns, operates and, to a lesser extent, holds interests in joint ventures that own and operate multi-family properties. AtMarch 31, 2023 , we: (i) wholly-own 21 multi-family properties with an aggregate of 5,420 units and a carrying value of$645.6 million ; (ii) have ownership interests, through unconsolidated entities, in eight multi-family properties with 2,781 units and a carrying value of our net equity investment$37.7 million ; and (iii) own other assets, through consolidated and unconsolidated subsidiaries, with a carrying value of$5.4 million . The 29 properties are located in 11 states; most of the properties are located in theSoutheast United States andTexas .
Challenges and Uncertainties as a Result of the Volatile Economic Environment
As more fully described in our Annual Report, and in particular, the sections thereof entitled "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations", we face challenges due to the volatile economic environment.
Activities During the Three Months Ended
Mortgage Financing and Credit Line Paydown
OnFebruary 24, 2023 , we obtained mortgage debt of$21.2 million on our Silvana Oaks-North Charleston, SC multi-family property. Such mortgage debt matures inMarch 2033 , bears interest of 4.45% and is interest only for the term of the mortgage. We used the proceeds of this financing to pay off the outstanding$19 million balance on our credit facility.
Joint Venture - Contract to sell a property
OnMarch 13, 2023 , the unconsolidated joint venture that owns Chatham Court and Reflections, a 494 unit multi-family property located inDallas, TX , and in which we have a 50% interest, entered into a contract to sell such property. We estimate that our share of the gain from this sale will be approximately$14.6 million and that our share of the related early extinguishment of debt charge will be$167,000 . In 2022, this property accounted for$753,000 of equity in earnings from unconsolidated joint ventures. We anticipate that the closing of this transaction, which is subject to customary closing conditions, will be completed in the quarter endingJune 30, 2023 , although we can provide no assurance that this transaction will be completed.
Contract to Acquire a Property
OnMarch 8, 2023 , we entered into an agreement to acquire a 238-unit multifamily property constructed in 2019 and located inRichmond, VA , for a purchase price of approximately$62.5 million . The purchase price includes the assumption of approximately$32 million of mortgage debt bearing an interest rate of 3.34% and maturing in 2061. The purchase is subject to the satisfaction of various conditions, including the completion, to our satisfaction, of its due diligence investigation, as well as the approval by the mortgage lender of our assumption of the mortgage debt. We anticipate that this transaction will be completed by year end 2023, although we can provide no assurance that this transaction will be completed. Insurance Recoveries In lateApril 2023 , we received$215,000 , and during the quarter endingJune 30, 2023 , we anticipate receiving, an additional$275,000 of insurance recoveries (net of applicable deductibles) related to an approximate$614,000 of repair and maintenance expense incurred in the six months endedMarch 31, 2023 (including$100,000 in the quarter endedMarch 31, 2023 ), at ten properties that incurred damage as a result of a lateDecember 2022 storm. We anticipate that such amounts will be recorded as insurance recoveries in the quarters endingJune 30, 2023 and/orSeptember 30, 2023 . 21 --------------------------------------------------------------------------------
Results of Operations
Three months ended
As used herein, the term "same store properties" refers to operating properties that were wholly owned for the entirety of the periods presented. For the three months endedMarch 31, 2023 and 2022, there were ten same store properties in our consolidated portfolio. Revenues
The following table compares our revenues for the periods indicated:
Three Months Ended
Increase %
(Dollars in thousands): 2023 2022 (Decrease) Change
Rental and other revenue from real estate
properties $ 22,939 $ 11,430 $ 11,509 100.7 %
Other income - 4 (4) (100.0) %
Total revenues $ 22,939 $ 11,434 $ 11,505 100.6 %
Rental and other revenue from real estate properties
The increase was due to:
•$10.7 million from our purchase in 2022, of the interests of our joint venture partners that owned 11 multi-family properties (the "Partner Buyouts"), and
•$1.1 million at same store properties primarily due to an increase in average rental rates. The increase was offset by a$347,000 decrease due to a decline in occupancy rates. Expenses
The following table compares our expenses for the periods indicated:
Three Months Ended March 31,
Increase
(Dollars in thousands) 2023 2022 (Decrease) % Change
Real estate operating expenses $ 10,434 $ 4,753 $ 5,681 119.5 %
Interest expense 5,483 2,021 3,462 171.3 %
General and administrative 4,055 3,633 422 11.6 %
Depreciation and amortization 8,008 3,606 4,402 122.1 %
Total expenses $ 27,980 $ 14,013 $ 13,967 99.7 %
Real estate operating expense.
The increase is due to the following changes:
•$4.9 million from the Partner Buyouts, and
•$803,000 from same store properties, including an approximate (i)$263,000 increase in insurance expense ( including approximately$70,000 related to cancellation penalties) due to the implementation, inDecember 2022 , of the master insurance program, (ii)$238,000 of repair, maintenance and replacements and (iii)$102,000 increase in utility expense atBells Bluff -West Nashville, TN property, primarily due to a water leak. 22
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Table of Contents Interest expense. The change is due to a: •$2.9 million increase from the Partner Buyouts; •$423,000 increase due to an increase on the interest rate on our junior subordinated debt which is based on three month LIBOR - we estimate that our interest expense on this debt during the quarter endingJune 30, 2023 , will be approximately$680,000 , a$394,000 increase from the quarter endedJune 30, 2022 ; and •$250,000 increase due to the increase in the average outstanding balance on the credit facility to$11.4 million during the three months endedMarch 31, 2023 . As ofMarch 31, 2023 , there is no outstanding balance on the facility. The increase was offset by a decrease of$132,000 due to the payoff of$29.5 million of mortgage debt in 2022. General and administrative The increase is due primarily to a$435,000 increase in non-cash compensation expense - specifically, increases of: •$264,000 due to the inclusion, for the entire three months endedMarch 31, 2023 , of the amortization expense related to the performance and market based restricted stock units (the "RSUs") granted inJune 2022 ; and •$171,000 due to the amortization expense related to restricted stock, including$143,000 related to the restricted stock granted inJanuary 2023 as a result of the higher fair value of the shares granted in 2023 in comparison to the value of the restricted stock granted in 2018.
Depreciation and amortization
The increase is due primarily to
Gain on insurance recoveries
We received a
Equity in earnings (loss) of unconsolidated joint ventures.
The table below reflects the condensed income statements of ourUnconsolidated Properties . In accordance with US generally accepted accounting principles, each of the line items in the chart below (other than equity in income (loss) of unconsolidated joint ventures and equity in earnings from sale of unconsolidated joint ventures) is presented as if these properties are wholly owned by us although our equity interests in these properties ranges from 32 to 80% (see note 7 of our consolidated financial statements) (dollars in thousands): 23
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Three Months Ended March 31,
Increase
2023 2022 (Decrease) % change
Rental and other revenues from unconsolidated
joint ventures $ 12,132 $ 25,231 $ (13,099) (51.9) %
Real estate operating expense from
unconsolidated joint ventures 5,675 11,169 (5,494) (49.2) %
Interest expense from unconsolidated joint
ventures 2,455 6,026 (3,571) (59.3) %
Depreciation from unconsolidated joint
ventures 2,707 6,636 (3,929) (59.2) %
Total expenses from unconsolidated joint
ventures 10,837 23,831 (12,994) (54.5) %
Total revenues less total expenses from
unconsolidated joint ventures 1,295 1,400 (105) (7.5) %
Other equity earnings 113 55 58 105.5 %
Gain on insurance recoveries from
unconsolidated joint ventures 65 515 (450) (87.4) %
Loss on extinguishment of debt from
unconsolidated joint ventures - (30) 30 (100.0) %
Gain on sale of real estate from
unconsolidated joint ventures - 23,652 (23,652) (100.0) %
Net income from unconsolidated joint ventures $ 1,473
$ 25,592 $ (24,119) (94.2) % Equity in earnings of unconsolidated joint ventures and equity in earnings from sale of unconsolidated joint venture properties $ 815$ 14,191 $ (13,376) (94.3) % Set forth below is an explanation of the most significant changes in the components of the equity in earnings of unconsolidated joint ventures and equity in earnings from sale of unconsolidated joint venture properties. Same store properties atUnconsolidated Properties represent eight properties that were owned for the entirety of the periods being compared.
Rental and other revenues from unconsolidated joint ventures
The components of the decrease include:
•$10.1 million from the Partner Buyouts; •$3.9 million from the sale in 2022 of the following properties owned by unconsolidated joint ventures: Verandas at Shavano -San Antonio, TX ("Shavano"), Retreat atCinco Ranch -Katy, TX ("Cinco") ,The Vive - Kanapolis, NC (the "Vive"), and Waters Edge at Harbison -Columbia, SC ("Waters Edge"; collectively with Shavano, Cinco and Vive, the "2022 Sales").
Offsetting the decrease was a
Real estate operating expenses from unconsolidated joint ventures
The components of the decrease are:
•$4.3 million from the Partner Buyouts; and •$1.9 million from the 2022 Sales. Offsetting this decrease was a$678,000 increase in such expenses at same store properties, with expenses generally increasing across most expense categories including real estate taxes and utilities and payroll.
Interest expense from unconsolidated joint ventures.
The decrease is due to the decrease in mortgage debt due to property sales and the Partner Buyouts-in particular:
•$2.5 million from the Partner Buyouts; and
•$1.0 million from the 2022 Sales.
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Depreciation from unconsolidated joint ventures
The components of the decrease include:
•$2.8 million from the Partner Buyouts; •$908,000 from the 2022 Sales (excluding Shavano).
Gain on insurance recoveries from unconsolidated joint ventures
In the three months endedMarch 31, 2023 , we recognized a$65,000 gain on insurance recoveries from a claim filed at a property and in the three months endedMarch 31, 2022 , we recognized$515,000 in gains primarily due to our receipt of insurance recoveries from claims on two properties located inTexas that were damaged in aFebruary 2021 ice storm, which receipts exceeded the assets previously written-off.
Gain on sale of real estate from unconsolidated joint ventures
In the three months endedMarch 31, 2022 , we recognized a gain on the sale of real estate of$23.7 million from the sale of Varandas at Shavano -San Antonio, TX . There was no comparative sale in the quarter endedMarch 31, 2023 .
Liquidity and Capital Resources
We require funds to pay operating expenses and debt service obligations, acquire properties, make capital and other improvements, fund capital contributions and pay dividends. Generally, our primary sources of capital and liquidity are the operations of our multi-family properties (including distributions from the operations of our multi-family joint ventures), mortgage debt financings and re-financings, the sale of shares of our common stock pursuant to our at-the-market equity distribution program, borrowings from our credit facility and our available cash. AtMay 1, 2023 , our available liquidity was$73.4 million , including$13.4 million of cash and cash equivalents and$60 million available under our credit facility. AtMay 1, 2023 , the interest rate on the credit facility was 8%. We anticipate that fromApril 1, 2023 throughDecember 31, 2026 , our operating expenses,$130.5 million of mortgage amortization and interest expense (including$53.2 million from unconsolidated joint ventures),$123.4 million of balloon payments with respect to mortgages maturing in 2025 and 2026, estimated capital expenditures (for 2023 only) of$8.7 million (including an estimated$2.9 million for our value add program), interest expense on our junior subordinated notes, estimated cash dividend payments of at least$71.6 million (assuming (i) the current quarterly dividend rate of$0.25 per share and (ii) 19.1 million shares outstanding), will be funded from cash generated from operations (including distributions from unconsolidated joint ventures), property sales and, to the extent available, our credit facility. Our operating cash flow and available cash is insufficient to fully fund the$123.4 million of balloon payments, and if we are unable to refinance such debt on acceptable terms, we may need to issue additional equity or dispose of properties, in each case on potentially unfavorable terms. Our ability to acquire additional multi-family properties and implement value-add projects is limited by our available cash and our ability to (i) draw on our credit facility, (ii) obtain, on acceptable terms, mortgage debt from lenders, and (iii) raise capital from the sale of our common stock.
At
Capital improvements at (i) two unconsolidated multi-family properties will be funded by approximately$830,000 of restricted cash available atMarch 31, 2023 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.
Junior Subordinated Notes
As ofMarch 31, 2023 ,$37.4 million (excluding deferred costs of$272,000 in principal amount of our junior subordinated notes is outstanding. These notes mature inApril 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. AtMarch 31, 2023 and 2022, the interest rate on these notes was 6.80% and 2.30%, respectively. As noted 25 -------------------------------------------------------------------------------- Table of Contents in our Annual Report, there is uncertainty as to whether the alternative interest rates to LIBOR contemplated by these notes will be available when LIBOR becomes unavailable inJuly 2023 .
Credit Facility
Our credit facility withVNB New York, LLC , an affiliate ofValley National Bank (collectively, "VNB"), allows us to borrow, subject to compliance with borrowing base requirements and other conditions, up to$60 million , (i) for the acquisition of, and investment in, multi-family properties, (ii) to repay mortgage debt secured by multi-family properties and (iii) for Operating Expenses (i.e., working capital (including dividend payments) and operating expenses); provided, that not more than$25 million may be used for Operating Expenses. The credit facility is secured by cash accounts maintained by us at VNB (and we are required to maintain substantially all of our bank accounts at VNB), and the pledge of our interests in the entities that own the unencumbered multi-family properties used in calculating the borrowing base. The credit facility bears an annual interest rate, which resets daily, equal to the prime rate, with a floor of 3.50%. The interest rate in effect as ofMarch 31, 2023 was 8%. There is an annual fee of 0.25% on the total amount committed by VNB and unused by us. The credit facility matures inSeptember 2025 . Net proceeds received from the sale, financing or refinancing of our properties are generally required to be used to repay amounts outstanding on the facility. As ofMay 1, 2023 , there was no outstanding balance on the credit facility and$60 million is available to be borrowed thereunder. The terms of the credit facility include certain restrictions and covenants which, among other things, limit the incurrence of liens, require that we maintain and include in the collateral securing the facility at least three unencumbered properties with an aggregate value(as calculated pursuant to the facility) of at least$75 million , and require compliance with financial ratios relating to, among other things, maintaining a minimum tangible net worth of$140 million , the minimum amount of debt service coverage with respect to the properties (and amounts drawn on the credit facility) 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 credit facility.
At
Other Financing Sources and Arrangements
AtMarch 31, 2023 , we are joint venture partners in unconsolidated joint ventures which own eight multi-family properties and a development project, and the distributions to us from these joint venture properties of$2.2 million in the quarter endedMarch 31, 2023 contributed to our liquidity and cash flow. Further, we may be required to make significant capital contributions with respect to these properties. AtMarch 31, 2023 , these joint venture properties have a net equity carrying value of$41.2 million and are subject to mortgage debt, which is not reflected on our consolidated balance sheet, of$260.8 million . AlthoughBRT 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. 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, 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).
On
We carefully monitor our discretionary spending. Our largest recurring discretionary expenditure has been our quarterly dividend (which was$0.25 per share of common stock, or in the approximate amount of$4.8 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, and adjusted funds from operations. 26 -------------------------------------------------------------------------------- Table of Contents Application of Critical Accounting Estimates A complete discussion of our critical accounting estimates is included in our Annual Report. There have been no significant changes in such estimates sinceDecember 31, 2022 .
Funds from Operations, Adjusted Funds from Operations and Net Operating Income
We disclose below funds from operations ("FFO"), adjusted funds from operations
("AFFO") and net operating income ("NOI") 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 adjusting FFO for the loss of extinguishment of debt,our
straight-line rent accruals, restricted stock and RSU compensation expense, fair
value adjustment of mortgage debt, gain on insurance recovery, insurance
recovery from casualty loss and deferred mortgage and debt costs ( including, in
each case as applicable, from our share from our unconsolidated joint ventures).
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 GAAP to FFO and AFFO on a dollar and per share basis for each of the
indicated periods (dollars in thousands, except per share amounts):
Three Months Ended
2023 2022
GAAP Net (loss) income attributable to common stockholders $ (4,098) $ 11,508
Add: depreciation of properties 8,008 3,606
Add: our share of depreciation in unconsolidated joint venture properties
1,376 4,318
Deduct: our share of equity in earnings from sale of unconsolidated joint venture properties
- (12,961)
Deduct: gain on sale of real estate - (6)
Adjustments for non-controlling interests (4) (4)
NAREIT Funds from operations attributable to common stockholders 5,282 6,461
Adjustments for: straight-line rent accruals 19 6
Add: our share of loss on extinguishment of debt from unconsolidated joint venture properties
- 19
Add: amortization of restricted stock and RSU expense 1,410 974
Add: amortization of deferred mortgage and debt costs 252 77
Add: our share of deferred mortgage costs from unconsolidated joint venture properties
27 93
Add: amortization of fair value adjustment for mortgage debt 157 -
Less: gain on insurance proceeds (240) -
Less: our share of gain on insurance proceeds from unconsolidated joint venture properties
(30) (386)
Adjustments for non-controlling interests (3) (1)
Adjusted funds from operations attributable to common stockholders
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Three Months Ended March 31,
2023 2022
Net (loss) income attributable to common stockholders $ (0.21) $ 0.62
Add: depreciation of properties 0.42 0.20
Add: our share of depreciation in unconsolidated joint venture properties
0.07 0.23
Deduct: our share of equity in earnings from sale of unconsolidated joint venture properties
- (0.70)
Deduct: gain on sale of real estate - -
Adjustment for non-controlling interests - -
NAREIT Funds from operations per diluted common share 0.28 0.35
Adjustments for: straight line rent accruals - -
Add: our share of loss on extinguishment of debt from unconsolidated joint venture properties
- -
Add: amortization of restricted stock and RSU expense 0.07 0.05
Add: amortization of deferred mortgage and debt costs 0.01 -
Add: our share of deferred mortgage and debt costs from unconsolidated joint venture properties
- 0.01
Add: amortization of fair value adjustment for mortgage debt 0.01 -
Less: gain on insurance proceeds (0.01) -
Less: our share of gain on insurance proceeds from unconsolidated joint venture properties
- (0.02)
Adjustments for non-controlling interests - -
Adjusted funds from operations per diluted common share $ 0.36 $ 0.39
Diluted shares outstanding for FFO and AFFO 19,137,577 18,570,639
Three Months Ended
FFO for the three months endedMarch 31, 2023 decreased from the corresponding quarter in the prior year primarily due to the increases in (i) interest expense (the result of increased usage on our credit facility and increased interest rates on our subordinated debt); (ii) general and administrative expenses (primarily non-cash compensation expense related to the amortization of restricted stock and RSU expense); and (iii) amortization of mortgage fair value adjustments related to Partner Buyouts. AFFO for the three months endedMarch 31, 2023 decreased from the corresponding period in the prior year, primarily due to the increase in interest expense, the result of increased usage on our credit facility and increased interest rates on our subordinated debt.
Diluted per share FFO and AFFO were impacted in the three months ended
See "Results of Operations - Three Months Ended
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Net Operating Income, or 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 account, 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
2023 2022 Variance
GAAP Net (loss) income attributable to common
stockholders $ (4,098) $ 11,508 $ (15,606)
Less: Other Income - (4) 4
Add: Interest expense 5,483 2,021 3,462
General and administrative 4,055 3,633 422
Depreciation and amortization 8,008 3,606 4,402
Provision for taxes 76 74 2
Less: Gain on sale of real estate - (6) 6
Equity in earnings from sale of unconsolidated
joint
venture properties - (12,961) 12,961
Gain on insurance recoveries (240) - (240)
Adjust for: Equity in (earnings) of unconsolidated joint venture properties
(815) (1,230) 415
Add: Net income attributable to non-controlling
interests 36 36 -
Net Operating Income $ 12,505 $ 6,677 $ 5,828
Less: Non-same store Net Operating Income 6,127 320 5,807
Same store Net Operating Income $ 6,378 $ 6,357 $ 21
For the three months ended March 31, 2023 , NOI increased $5.8 million from the
corresponding period in 2022 primarily due to a $11.5 million increase in rental
revenues offset by a $5.7 million increase in real estate operating expenses.
The increase in rental revenue and real estate operating expenses were primarily
due to the Partner Buyouts. Same store NOI in the three months ended March 31,
2023 increased by $21,000 from the corresponding period in 2022, due to a
$823,000 increase in rental revenues (and in particular, the increase in average
rental rates) offset by a $802,000 increase in real estate operating expenses.
See "-Results of Operations - Three Months Ended March 31, 2023 Compared to the
three Months ended March 31, 2022 " for a discussion of these changes.
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