Item 1A. Risk Factors.
Set forth below is a discussion of certain risks affecting our business. The categorization of risks set forth below is meant to help you better understand the risks facing our business and is not intended to limit your consideration of the possible effects of these risks to the listed categories.Any adverse effects arising from the realization of any of the risks discussed, including our financial condition and results of operation, may, and likely will, adversely affect many aspects of our business.
Risks Related to Real Estate Investments and Our Operations
Unfavorable market and economic conditions could adversely affect rental revenues, occupancy levels and the value of our properties.
General economic conditions in the U.S. have fluctuated significantly in recent quarters. Unfavorable market and economic conditions may significantly affect our occupancy levels, our rental rates and collections, the value of our properties and our ability to acquire or dispose of multifamily properties on economically favorable terms. Our ability to lease units at our multifamily properties at favorable rates is adversely affected by the increase in supply in the multifamily and other rental markets and other housing alternatives, and is dependent upon the overall level in the economy, which may continue to be adversely affected by, among other things, inflationary conditions, job losses and unemployment levels, personal debt levels, a downturn in the housing market, stock market volatility, and uncertainty about the future. Some of our major expenses generally do not decline when related rents decline. We would expect that declines in our occupancy levels, rental revenues and/or the values of our multi-family properties would cause us to have less cash available to make payments on our debt and to pay dividends, which could adversely affect our financial condition or the market value of our securities.
We may be unable to compete to acquire, finance or dispose of our properties or to lease rental units.
We compete with many third parties including other REITs, specialty finance companies, public and private investors, investment and pension funds, in acquiring, obtaining financing for, and disposing of multi-family properties. Many of these competitors have substantially greater financial and other resources than we do. Larger and more established competitors enjoy significant competitive advantages that result from, among other things, enhanced operating efficiencies and more extensive networks providing greater and more favorable access to capital, financing and tax credit allocations and more favorable acquisition opportunities.
In attracting and retaining residents to occupy our multi-family properties, we compete with numerous other housing providers. Our multi-family properties compete directly with other rental apartments, as well as condominiums and single-family homes that are available for rent or purchase in the markets in which our properties are located. Principal factors of competition include rent or price charged, attractiveness of the location of multi-family properties, and the quality and breadth of services. The number of competitive properties relative to demand in a particular area has a material effect on our ability to lease our properties and on the rents we charge.
Increasing real estate taxes, utilities and insurance premiums may negatively impact operating results
The cost of real estate taxes, utilities and insurance is a significant component of real estate operating expense. These expenses are subject to significant increases and fluctuations, including the impact of inflation, which we may be unable to control. For example, our real estate taxes have increased and will continue to increase as our properties are reassessed by taxing authorities and as property tax rates increase. Further, our real estate taxes have fluctuated and may not be comparable year-over-year because of, among other things, (i) the timing difference as to when we accrue real estate taxes and the results of any tax appeals with respect to such accrued taxes and (ii) determinations, over which we have no control, by governmental authorities to increase tax rates, assessments or procedures. In addition, our share of the insurance premiums at joint venture properties is determined by our joint venture partner at such properties. If the costs associated with real estate taxes, utilities and insurance premiums should rise, without being offset by a corresponding increase in revenues, our results of operations could be negatively impacted, and our ability to make payments on our debt and to make distributions could be adversely affected.
Most of our multi-family properties are located in the Southeast and Texas which makes us susceptible to adverse developments in such markets.
The operating performance and value of our multi-family properties is impacted by the economic environment and other conditions of the specific markets in which our properties are concentrated. As of December 31, 2024: (i) our wholly-owned properties generated approximately 75% and 10% of our 2024 revenues from properties located in the Southeast and Texas, respectively, and (ii) the properties owned by unconsolidated joint ventures at December 31, 2024, generated 54% and 46% of our 2024 JV Rental and Other Revenues at properties located in the Southeast and Texas, respectively. Accordingly, adverse developments in such markets, including economic developments, pandemics, or natural or man-made disasters, could adversely impact the cash flow and value of these properties. The concentration of our properties in the Southeast United States
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and Texas exposes us to risks of adverse developments which are greater than the risks of owning properties with a more geographically diverse portfolio.
The failure of property management companies to properly manage our properties could adversely impact our results of operations.
We rely on property management companies to manage our properties. These management companies are responsible for, among other things, leasing and marketing rental units, selecting tenants (including an evaluation of the creditworthiness of tenants), collecting rent, paying operating expenses and maintaining our properties . If these property management companies do not perform their duties properly, or, in the case of unconsolidated properties, we and/or our joint venture partners do not effectively supervise the activities of these managers, the occupancy rates and rental rates at the properties managed by such property managers may decline and the expenses at such properties may increase. At December 31, 2024, one property manager manages 11 properties, a second property manager manages eight properties, and four other property managers manage three or fewer properties. Three properties are managed by a management company owned by or affiliated with a joint venture partner. The loss of our property managers, and in particular, the managers that manage multiple properties, could result in a decrease in occupancy rates, rental rates or both or an increase in expenses. Further, except for our multi-family properties covered by our master insurance program, property managers are also generally responsible for obtaining insurance coverage with respect to the properties they manage, which coverage is often obtained pursuant to blanket policies covering many properties in which we have no interest. Losses at properties managed by our property managers but in which we have no interest could reduce significantly the insurance coverage available at our properties managed by these property managers. It may be difficult to terminate a non-performing management company, particularly a management company owned or affiliated with a joint venture, because such termination may require the approval of the mortgagee, our joint venture partner or both. If we are unable to terminate an underperforming property manager on a timely basis, our occupancy and rental rates may decrease and our expenses may increase.
Our efforts to buy properties directly may involve greater risks than buying properties with joint venture partners.
Although historically we have acquired properties with joint venture partners with knowledge of the local markets in which we were acquiring properties, we are working to buy properties directly without joint venture partners. In buying properties directly, we do not have the benefit of a partner’s understanding of the target markets nor the equity they would have contributed to the acquisition. We cannot provide any assurance that we will properly evaluate the acquisition opportunities we pursue in buying properties directly.
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Risks involved in conducting real estate activity through joint ventures.
Eight of our multi-family properties are owned through joint ventures with other persons or entities. Joint venture investments involve risks not otherwise present when acquiring real estate directly, including the following:
•our joint venture partners may have economic or business interests or objectives which are or become inconsistent with our business interests or objectives, including differing objectives relating to the sale or refinancing of properties held by the joint venture or the timing of the termination or liquidation of the joint venture;
•the more successful a joint venture project, the more likely that profits or distributions generated above a negotiated threshold will be allocated disproportionately in favor of our joint venture partner at a rate greater than that implied by our partner's equity interest in the venture;
•several of our joint venture partners have other competing real estate interests in the markets in which our properties are located that could influence such partners to take actions favoring their properties to the detriment of the jointly owned properties;
•our joint venture partners obtain blanket property casualty and business interruption insurance insuring properties we own jointly and other properties in which we have no ownership interest and as a result, claims or losses with respect to properties owned by our joint venture partners but in which we have no interest could significantly reduce or eliminate the insurance available to properties in which we have an interest;
•our joint venture partner might become bankrupt, insolvent or otherwise refuse or be unable to meet their obligations to us or the venture (including their obligation to make capital contributions or property distributions when due);
•we may incur liabilities as a result of action taken by our joint venture partner;
•our joint venture partner may not perform its property oversight responsibilities;
•our joint venture partner may be in a position to take action or withhold consent contrary to our instructions or requests, including actions that may make it more difficult to maintain our qualification as a REIT;
•our joint venture partner might engage in unlawful or fraudulent conduct with respect to our jointly owned properties or other properties in which they have an ownership interest;
•changes in personnel managing our joint venture partners have resulted in greater difficulty in working with the new personnel;
•our joint venture partner may trigger a buy-sell arrangement, which could cause us to sell our interest, or acquire our partner's interest, at a time when we otherwise would not have initiated such a transaction;
•disputes between us and our joint venture partners may result in litigation or arbitration that would increase our expenses and divert management's attention from operating our business; and
•disagreements with our joint venture partners with respect to property management (including with respect to whether a property should be sold, refinanced, or improved) could result in an impasse resulting in the inability to operate the property effectively.
Joint venture partners have acted without our authorization (e.g., a partner modified a mortgage term without our consent). We also have had, and expect to continue to have, disagreements with joint venture partners over various issues including, among others, as to whether, and the extent to which, value add programs should be implemented at a property, whether a mortgage debt on a property should be refinanced and the terms and conditions of such refinancing, and, because our joint venture structure may incentivize our joint venture partner to sell the property sooner than we would otherwise desire, the timing and terms and conditions of property sales.
Our operating results are significantly influenced by demand for multi-family properties generally, and a decrease in such demand will likely have a greater adverse effect on our revenues than if we owned a more diversified real estate portfolio.
Our current portfolio is focused on multi-family properties, and we expect that going forward we will continue to focus on the acquisition (including alternative investments such as bridge loans and preferred equity), disposition and operation of such properties. As a result, we are subject to risks inherent in investments in a single industry, and a decrease in the demand for multi-family properties would likely have a greater adverse effect on our rental revenues than if we owned a more diversified real estate portfolio.
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Our operating results and assets may be negatively affected if our insurance coverage is insufficient to compensate us for casualty events occurring at our properties.
Our multi-family properties, including the properties owned by the joint ventures in which we are members, carry all risk property insurance covering the property and improvements thereto for the cost of replacement in the event of a casualty. Though we maintain insurance coverage, such coverage may be insufficient to compensate us for losses sustained as a result of a casualty because, among other things:
•the amount of insurance coverage maintained for a property may be insufficient to pay the full replacement cost following a casualty event;
• the rent loss coverage under a policy may not extend for the full period of time that a tenant or tenants may be entitled to a rent abatement that is a result of, or that may be required to complete restoration following, a casualty event;
•certain types of losses, such as those arising from earthquakes, floods, hurricanes and terrorist attacks, and losses arising out of claims for exemplary or punitive damages, may be uninsurable or may not be economically feasible to insure;
•changes in zoning, building codes and ordinances, environmental considerations and other factors may make it impossible or impracticable, to use insurance proceeds to replace damaged or destroyed improvements at a property;
•insurance coverage is part of blanket insurance policies in which losses on properties in which we have no ownership interest could reduce significantly or eliminate the coverage available on our properties; and
•the deductibles applicable to one or more buildings at a property may be greater than the losses sustained at such buildings.
If our insurance coverage is insufficient to cover losses sustained as a result of one or more casualty events, our operating results and the value of our portfolio will be adversely affected.
We may be adversely effected if we are unable to maintain a satisfactory working relationship with any one or more of our joint venture partners.
Two of our joint venture partners or their affiliates own an aggregate of six of the eight properties we own through unconsolidated joint ventures. This concentration of ownership of properties with a limited number of joint venture partners exposes us to risks of adverse developments, and in particular, disputes or disagreements with such joint venture partners, which are greater than the risks of owning properties with a more diverse group of joint venture partners.
Short-term leases expose us to the effects of declining market rents and we may be unable to renew leases or relet units as leases expire.
Our multi-family leases are generally for a term of one year or less. The short-term nature of these leases generally serves to reduce our risk to adverse effects of inflation as our leases allow for adjustments in the rental rate at the time of renewal, which may enable us to seek rent increases. However, since our leases typically permit the residents to leave at the end of the lease term without penalty, our revenues are impacted by declines in market rents more quickly than if our leases were for longer terms. If we are unable to promptly renew the leases or relet the units, or if the rental rates upon renewal or reletting are significantly lower than expected rates, then our financial condition and results of operations may be adversely affected.
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Risks Related to Our Financing Activities, Indebtedness and Capital Resources
If we are unable to refinance our mortgage debt at maturity on acceptable terms, we may be forced to sell properties on disadvantageous terms.
The following table sets forth, as of December 31,2024, the principal balance of the mortgage payments due at maturity on our wholly owned and unconsolidated joint venture properties and the weighted average interest rate thereon (dollars in thousands):
Consolidated Properties Unconsolidated Properties
_____________
(1) Includes our joint venture partner's "share" of such debt.
We have a significant amount of mortgage debt maturing over the next several years. Our operating cash flow and funds available under our credit facility will be insufficient to discharge all of this debt when due. Accordingly, we will seek to refinance this debt prior to its maturity. Because current interest rates are significantly higher than the interest rates on the maturing mortgage debt (or if our access to credit markets is reduced due, among other things, to more stringent lending requirements due to our level of leverage), we may be unable to refinance this mortgage debt on acceptable terms or at all. If we are unsuccessful in refinancing such debt, or if the terms of the refinanced debt are less favorable than the current debt, we may be forced to (i) refinance such mortgage debt on unfavorable terms or (ii) dispose of properties on unfavorable terms or convey properties secured by such mortgages to the mortgagees, which would, in each case, reduce our income and impair the value of our portfolio.
Our acquisition, development and value-add activities are limited by the funds available to us.
Our ability to acquire additional multi-family properties, develop new properties and improve the properties in our portfolio is limited by the funds available to us (including funds available pursuant to our credit facility) and our ability to obtain, on acceptable terms, mortgage debt. At February 28, 2025, we had approximately $62.7 million of cash and cash equivalents (of which a significant portion is at the property level for day-to-day operating expenses) and up to $40 million available to us under our credit facility. Our multi-family acquisition and value-add activities are constrained by funds available to us which will limit growth in our revenues and operating results.
Our failure to comply with our obligations under our debt instruments may reduce our stockholders’ equity, and adversely affect our net income and ability to pay dividends.
Several of our debt instruments include covenants that require us to maintain certain financial ratios, including various coverage ratios, and comply with other requirements. Failure to meet interest and other payment obligations under our debt instruments or a breach by us of the covenants to comply with certain financial ratios would place us in non-compliance under such instruments. If the lender called a default and required us to repay the full amount outstanding under such instrument, we might be required to rapidly dispose of our properties, including properties securing such debt instruments, which could have an adverse impact on the amounts we receive on such disposition. From time to time we have failed to comply with certain debt covenants. If we are unable to satisfy the covenants of our debt obligations, the lender could exercise remedies available to it under the applicable debt instrument and as otherwise provided by law, including the possible appointment of a receiver to manage the property, application of deposits or reserves maintained under the debt instrument for payment of the debt, or foreclose and/or cause the forced sale of the property or asset securing such debt. A foreclosure or other forced disposition of our assets could result in the disposition of same at below the carrying value of such asset. The disposition of our properties or assets at below our carrying value may adversely affect our net income, reduce our stockholders’ equity and adversely affect our ability to pay dividends.
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We may not have sufficient funds to make required or desired capital improvements.
Our multi-family properties face competition from newer and updated properties. At December 31, 2024 the weighted average age (based on the number of units) of our multi-family properties is approximately 20 years. To remain competitive and increase occupancy at these properties and/or make them attractive to potential tenants or purchasers, we may have to make significant capital improvements and/or incur deferred maintenance costs with respect to these properties. The cost of future improvements and deferred maintenance is uncertain and the amounts earmarked for specific properties may be insufficient to effectuate needed improvements. Our results of operations and financial conditions may be adversely affected if we are required to expend significant funds (other than funds earmarked for such purposes) to repair or improve our properties.
If we are required to make payments under any “bad boy” carve out guarantees that we have provided in connection with certain mortgages and related loans, our business and financial results could be materially adversely affected.
In obtaining certain non-recourse loans, we have provided our lenders with standard carve out guarantees. These guarantees are only applicable if and when the borrower directly, or indirectly through an agreement with an affiliate, joint venture partner or other third party, voluntarily files a bankruptcy or similar liquidation or reorganization action or takes other actions that are fraudulent or improper (commonly referred to as “bad boy” guarantees). Although we believe that “bad boy” carve out guarantees are not guarantees of payment in the event of foreclosure or other actions of the foreclosing lender that are beyond the borrower’s control, some lenders in the real estate industry have recently sought to make claims for payment under such guarantees. In the event such a claim were made against us under a “bad boy” carve out guarantee, following foreclosure on mortgages or related loans, and such claim were successful, our business and financial results could be materially adversely affected.
We could be negatively impacted by changes in our relationship with Fannie Mae or Freddie Mac, changes in the condition of Fannie Mae or Freddie Mac and by changes in government support for multi-family housing.
Fannie Mae and Freddie Mac have been a major source of financing for multi-family real estate in the United States and we have used loan programs sponsored by these agencies to finance most of our acquisitions of multi-family properties. There have been ongoing discussion by the government and other interested parties with regard to the long term structure and viability of Fannie Mae and Freddie Mac, which could result in adjustments to guidelines for their loan products. Should these agencies have their mandates changed or reduced, lose key personnel, be disbanded or reorganized by the government or otherwise discontinue providing liquidity for the multi-family sector, our ability to obtain financing through loan programs sponsored by the agencies could be negatively impacted. In addition, changes in our relationships with Fannie Mae and Freddie Mac, and the lenders that participate in these loan programs, with respect to our existing mortgage financing could impact our ability to obtain comparable financing for new acquisitions or refinancing for our existing multi-family real estate investments. Should our access to financing provided through Fannie Mae and Freddie Mac loan programs be reduced or impaired, it would significantly reduce our access to debt capital and/or increase borrowing costs and could significantly limit our ability to acquire properties on acceptable terms and reduce the values to be realized upon property sales.
We depend on our subsidiaries for cash flow and will be adversely impacted if these subsidiaries are prohibited from distributing cash to us.
We conduct, and intend to conduct, substantially all of our business operations through our subsidiaries, including our unconsolidated subsidiaries. Accordingly, our only source of cash to fund our operations and pay our obligations are distributions from our subsidiaries. We cannot assure you that our subsidiaries will be able to, or be permitted to, make distributions to us that will enable us to fund our operations. Each of our subsidiaries is or will be a distinct legal entity and, under certain circumstances, legal and contractual restrictions(e.g., restrictions imposed pursuant to mortgage debt on a property), limit our ability to obtain cash from such entities. In addition, because we operate through our subsidiaries, your claims as stockholders will be structurally subordinated to all existing and future liabilities and obligations of our subsidiaries. Therefore, in the event of our bankruptcy, liquidation or reorganization, our assets and those of our subsidiaries will be able to satisfy your claims as stockholders only after all our and our subsidiaries' liabilities and obligations have been paid in full.
Regulatory and Tax Risks
Changes to the U.S. federal income tax laws could have an adverse impact on our business and financial results.
At any time, the U.S. federal income tax laws governing REITs or the administrative interpretations of those laws may be amended. We cannot predict when or if any new U.S. federal income tax law, regulation or administrative interpretation, or any amendment to any existing U.S. federal income tax law, regulation or administrative interpretation, will be adopted, promulgated or become effective and any such law, regulation, or interpretation may take effect retroactively. We and our
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stockholders could be adversely affected by any such change in the U.S. federal income tax laws, regulations or administrative interpretations.
Liabilities relating to environmental matters may impact the value of our properties.
We may be subject to environmental liabilities arising from the ownership of properties. Under various federal, state and local laws, an owner or operator of real property may become liable for the costs of removal of certain hazardous substances released on its property. These laws often impose liability without regard to whether the owner or operator knew of, or was responsible for, the release of such hazardous substances.
The presence of hazardous substances on our properties may adversely affect our ability to finance or sell the property and we may incur substantial remediation costs. The discovery of material environmental liabilities attached to such properties could have a material adverse effect on our results of operations and financial condition.
Compliance or failure to comply with the ADA or other safety regulations and requirements could result in substantial costs.
The ADA generally requires that public buildings, including the public areas at our properties, be made accessible to disabled persons. Non-compliance could result in the imposition of fines by governmental authorities or the award of damages to private litigants. From time-to-time claims may be asserted against us with respect to some of our properties under the ADA. If, under the ADA, we are required to make substantial alterations and capital expenditures in one or more of our properties, it could adversely affect our financial condition and results of operations.
Our properties are subject to various federal, state and local regulatory requirements, such as state and local fire and life safety requirements. If we fail to comply with these requirements, we could incur fines or private damage awards. We do not know whether existing requirements will change or whether compliance with future requirements will require significant unanticipated expenditures that will affect our cash flow and results of operations.
Provisions for credit losses are difficult to estimate
Our provision for credit losses is evaluated on a quarterly basis in accordance with current accounting guidance which uses the Current Expected Credit Loss model, or CECL. Under CECL, we are required to present certain financial assets such as loans held for investment, at the net amount expected to be collected. The determination of our provision for credit losses requires us to make highly subjective estimates and judgments. Our estimates and judgments are based on a number of factors, including projected cash flow from the collateral securing our loans, debt structure, including the availability of reserves and recourse guarantees, likelihood of repayment in full at the maturity of a loan, potential for refinancing and expected market discount rates for varying property types, and other macro economic data, all of which are uncertain and highly subjective. If our estimates and judgments are incorrect, our results of operations and financial condition could be materially and adversely impacted.
The adoption of CECL affects how we determine our allowance for loan losses and requires us to recognize provisions for credit losses earlier in the lending cycle, including at the time we enter into the transaction. Moreover, CECL may create more volatility in the level of our allowance for credit losses. If we are required to materially increase our level of allowance for credit losses for any reason, such increase could adversely affect our business, financial condition and results of operations.
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Risks Associated with the Real Estate Industry and REITs.
We face numerous risks associated with the real estate industry that could adversely affect our results of operations through decreased revenues or increased costs.
As a real estate company, we are subject to various changes in real estate conditions, and any negative trends in such real estate conditions may adversely affect our results of operations through decreased revenues or increased costs. These conditions include:
•changes in national, regional and local economic conditions, which may be negatively impacted by concerns about inflation, deflation, government deficits, unemployment rates and decreased consumer confidence particularly in markets in which we have a high concentration of properties;
•increases in interest rates, which could adversely affect our ability to obtain financing or to buy or sell properties on favorable terms or at all;
•the inability of tenants to pay rent;
•the existence and quality of the competition, such as the attractiveness of our properties as compared to our competitors' properties based on considerations such as convenience of location, rental rates, amenities and safety record;
•increased operating costs, including increased real property taxes, maintenance, insurance and utility costs (including increased prices for fossil fuels);
•weather conditions that may increase or decrease energy costs and other weather-related expenses;
•oversupply of apartments or single-family housing or a reduction in demand for real estate in the markets in which our properties are located;
•a favorable interest rate environment that may result in a significant number of residents or potential residents of our multi-family properties deciding to purchase homes instead of renting;
•changes in, or increased costs of compliance with, laws and/or governmental regulations, including those governing usage, zoning, the environment and taxes; and
•rent control or stabilization laws, or other laws regulating rental housing, which could prevent us from raising rents to offset increases in operating costs.
Moreover, other factors may adversely affect our results of operations, including potential liability under environmental and other laws and other unforeseen events, many of which are discussed elsewhere in the following risk factors. Any or all of these factors could materially adversely affect our results of operations through decreased revenues or increased costs.
Compliance with REIT requirements may hinder our ability to maximize profits.
We must continually satisfy tests concerning, among other things, our sources of income, the amounts we distribute to our stockholders and the ownership of our common stock, to qualify as a REIT for Federal income tax purposes. We may also be required to make distributions to stockholders at disadvantageous times or when we do not have funds readily available for distribution. Accordingly, compliance with REIT requirements may hinder our ability to operate solely on the basis of maximizing profits.
To qualify as a REIT, we must also ensure that at the end of each calendar quarter at least 75% of the value of our assets consists of cash, cash items, government securities and qualified REIT real estate assets. The remainder of our investment in securities cannot include more than 10% of the outstanding voting securities of any one issuer or more than 10% of the total value of the outstanding securities of such issuer. In addition, no more than 5% of the value of our assets can consist of the securities of any one issuer, other than a qualified REIT security. If we fail to comply with these requirements, we must dispose of the portion of our assets in excess of such amounts within 30 days after the end of the calendar quarter in order to avoid losing our REIT status and suffering adverse tax consequences. This requirement could cause us to dispose of assets for consideration of less than their true value and could lead to a material adverse impact on our results of operations and financial condition.
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Because real estate investments are illiquid, we may not be able to reconfigure our portfolio on a timely basis.
Real estate investments generally cannot be sold quickly. We may not be able to reconfigure our portfolio promptly in response to economic or other conditions. Further, even if we are able to sell properties, we may be unable to reinvest the proceeds of such sales in opportunities that are as favorable as the properties sold. Our inability to reconfigure our portfolio to profitably reinvest the proceeds of property sales promptly could adversely affect our financial condition and results of operations.
We may incur impairment charges in 2025.
We evaluate on a quarterly basis our real estate portfolio for indicators of impairment. Impairment charges reflect management's judgment of the probability and severity of the decline in the value of real estate assets we own. These charges and provisions may be required in the future as a result of factors beyond our control, including, among other things, changes in the economic environment and market conditions affecting the value of real property assets or natural or man-made disasters.
If we do not continue to pay cash dividends, the price of our common stock may decline.
REITs are generally required to distribute annually at least 90% of their ordinary taxable income to maintain our REIT status under the Internal Revenue Code of 1986, as amended, and the rules and regulations promulgated thereunder, which we refer to as the Code. Because we continue to generate operating losses primarily due to the impact of depreciation, we are not currently required, and may not be required in the future, to pay dividends to maintain our REIT status. Accordingly, we cannot assure you that we will pay dividends in the future. If we do not continue to pay cash dividends, the price of our common stock will decline.
Our business and operations are subject to physical and transition risks related to climate change.
Several of our multi-family properties are located along or near coastal areas that have historically been subject to the risk of extreme weather events. To the extent climate change causes changes in weather patterns, areas where many of our properties are located could experience more frequent and intense extreme weather events and rising sea levels, which may cause significant damage to our properties, disrupt our operations and adversely impact our residents. Over time, such conditions could result in reduced demand for housing in areas where our properties are located and increased costs related to further developing our properties to mitigate the effects of climate change or repairing damage related to the effects of climate change that may or may not be fully covered by insurance. Likewise, such conditions also may negatively impact the types and pricing of insurance we are able to procure.
Changes in federal, state and local laws and regulations on climate change could result in increased operating costs and/or capital expenditures to improve the energy efficiency of our existing properties without a corresponding increase in rental revenues. The imposition of such requirements could increase the costs of maintaining or improving our existing properties (for example by requiring retrofits of existing multi-family properties to improve their energy efficiency and/or resistance to inclement weather) without creating corresponding increases in rental revenues, which would have an adverse impact on our operating results.
Risks Related to BRT's Organization, Structure and Ownership of its Stock
Our transactions with affiliated entities involve conflicts of interest
Entities affiliated with us and with certain of our executive officers provide services to us and on our behalf. Among other things, we retain certain executive officers and others to provide the Services. The aggregate fees to be paid for the Services in 2025, and paid in 2024 and 2023, are $1.7 million, $1.62 million and $1.54 million, respectively. We obtain certain executive, administrative, legal, accounting and clerical personnel and the use of certain facilities pursuant to the shared services agreement. During 2024 and 2023, we reimbursed Gould Investors $698,000 and $642,000, respectively, for the personnel and facilities provided pursuant to the shared services agreement. We also obtain certain insurance in conjunction with Gould Investors and reimbursed Gould Investors $28,000 and $22,000, in 2024 and 2023, respectively, for our share of the insurance cost. These transactions may not be on terms as favorable as those that we would receive if the transactions were entered into with unaffiliated entities and persons.
Gould Investors from time-to time buys multi-family properties, including properties located in the Southeast United States. Although the properties purchased by Gould Investors are much smaller than the properties in which we are interested, a conflict of interest could arise should Gould Investors or we decide to pursue the acquisition of similar sized properties in such regions. See "Item 1 - Business - Our Acquisition Approach"
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Senior management and other key personnel are critical to our business and our future success may depend on our ability to retain them.
We depend on the services of Jeffrey A. Gould, our president and chief executive officer, and other members of senior management to carry out our business and investment strategies. Although Jeffrey A.Gould devotes substantially all of his business time to our affairs, he devotes a portion of his business time to entities affiliated with us. In addition to Jeffrey A. Gould, only two other executive officers, Mitchell Gould, our executive vice president, and George Zweier, vice president and chief financial officer, devote all or substantially all of their business time to us. Beginning January 2025, Mitchell Gould is working for us four days per week and George Zweier has advised that he intends to relocate to North Carolina by June 2026 and resign. Many of our executives (i) also provide the Services (see "Item 1. Business-Human Capital Resources") and (ii) provide their services on a part-time basis pursuant to the shared services agreement. We rely on part-time executive officers to provide certain services to us, including legal and certain financial reporting services, since we do not employ full-time executive officers to handle all of these services. If the shared services agreement is terminated or the executives performing Services are unwilling to continue to do so, we will have to obtain such services from other sources or hire employees to perform them. We may not be able to replace these services or hire such employees in a timely manner or on terms, including cost and level of expertise, that are equivalent to or better than those we receive pursuant to the Services and the shared services agreement.
In addition, in the future we may need to attract and retain qualified senior management and other key personnel, both on a full-time and part-time basis. The loss of the services of any of our senior management or other key personnel or our inability to recruit and retain qualified personnel in the future, could impair our ability to carry out our business and our investment strategies.
We do not carry key man life insurance on members of our senior management.
Certain provisions of our Articles of Incorporation, our Bylaws and Maryland law may inhibit a change in control that stockholders consider favorable and could also limit the market price of our common stock
Certain provisions of our Articles of Incorporation (the "Charter"), our Bylaws and Maryland law may impede, or prevent, a third party from acquiring control of us without the approval of our board of directors. These provisions:
•provide for a staggered board of directors consisting of three classes, with one class of directors being elected each year and each class being elected for three-year terms and until their successors are duly elected and qualify;
•impose restrictions on ownership and transfer of our stock (such provisions being intended to, among other purposes, facilitate our compliance with certain requirements under the Internal Revenue Code of 1986, as amended (the "Code"), relating to our qualification as a REIT under the Code);
•prevent our stockholders from amending the Bylaws;
•limit who may call special meetings of stockholders;
•establish advance notice and informational requirements and time limitations on any director nomination or proposal that a stockholder wishes to make at a meeting of stockholders;
•provide that directors may be removed only for cause and only by the vote of at least two-thirds of all votes generally entitled to be cast in the election of directors;
•do not permit cumulative voting in the election of our board of directors, which would otherwise permit holders of less than a majority of outstanding shares to elect one or more directors; and
•authorize our board of directors, without stockholder approval, to amend the Charter to increase or decrease the aggregate number of shares of our stock or the number of shares of stock of any class or series that we have authority to issue and classify or reclassify any unissued shares of common or preferred stock and set the preferences, rights and other terms of the classified or reclassified shares.
Certain provisions of the Maryland General Corporation Law (the “MGCL”) may impede a third party from making a proposal to acquire us or inhibit a change of control under circumstances that otherwise could be in the best interest of holders of shares of our common stock, including:
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•“business combination” provisions that, subject to certain exceptions and limitations, prohibit certain business combinations between us and an “interested stockholder” (defined generally as any person who beneficially owns 10% or more of the voting power of our outstanding voting stock or an affiliate or associate of BRT who, at any time within the two-year period immediately prior to the date in question, was the beneficial owner of 10% or more of the voting power of our then outstanding voting stock) or an affiliate thereof for five years after the most recent date on which the stockholder becomes an interested stockholder, and thereafter impose two super-majority stockholder voting requirements on these combinations;
•“control share” provisions that provide that, subject to certain exceptions, holders of “control shares” of BRT (defined as voting shares which, when aggregated with other shares controlled by the stockholder, entitle the holder to exercise voting power in the election of directors within one of three increasing ranges) acquired in a “control share acquisition” (defined as the direct or indirect acquisition of ownership or control of issued and outstanding “control shares,” subject to certain exceptions) have no voting rights with respect to the control shares except to the extent approved by our stockholders by the affirmative vote of at least two-thirds of all the votes entitled to be cast on the matter, excluding all interested shares; and
•additionally, Title 3, Subtitle 8 of the MGCL permits our board of directors, without stockholder approval and regardless of what is currently provided in the Charter or the Bylaws, to implement certain corporate governance provisions.
We have (1) exempted all business combinations between us and any other person, provided that each such business combination is first approved by our board of directors (including a majority of directors who are not affiliates or associates of such other person), from the Maryland Business Combination Act and (2) opted out of the Maryland Control Share Acquisition Act.
Ownership of less than 6.0% of our outstanding shares or less than 6.0% of the aggregate outstanding shares of all classes and series of our stock could violate the restrictions on ownership and transfer in our Charter, which would result in the transfer of the shares owned or acquired in violation of such restrictions to a trust for the benefit of a charitable beneficiary and loss of the right to receive dividends and other distributions on, and the economic benefit of any appreciation of, such shares, and you may not have sufficient information to determine at any particular time whether an acquisition ofour shares will result in the loss of the economic benefit of such shares.
In order for us to qualify as a real estate investment trust under the Code, no more than 50% of the value of the outstanding shares of our stock may be owned, directly or indirectly or through application of certain attribution rules, by five or fewer “individuals” (as defined in the Code) at any time during the last half of a taxable year. To facilitate our qualification as a REIT under the Code, among other purposes, the Charter generally prohibits any person from actually or constructively owning more than 6.0%, in value or number of shares, whichever is more restrictive, of our outstanding shares of common stock, or more than 6.0% in value of the aggregate outstanding shares of all classes and series of our stock, which we refer to as the “ownership limits,” unless our board of directors exempts the person from such ownership limit. In addition, the Charter prohibits any person from beneficially or constructively owning shares of our stock that would result in more than 50% of the value of the outstanding shares of our stock to be beneficially owned by five or fewer individuals, regardless of whether such ownership is during the last half of any taxable year, which we refer to as the “Five or Fewer Limit.” Shares owned or acquired in violation of either of these restrictions will be transferred automatically to a trust for the benefit of a charitable beneficiary selected by us. The person that owned or acquired our stock in violation of the restrictions in the Charter will not be entitled to any dividends or distributions paid after the date of the transfer to the trust and, upon a sale of such shares by the trust, will generally be entitled to receive only the lesser of the market value on the date of the event that resulted in the transfer to the trust or the net proceeds of the sale by the trust to a person who could own the shares without violating the ownership limits.
Our board of directors has exempted Gould Investors, Fredric H. Gould, Matthew J. Gould and Jeffrey A. Gould from the ownership limits and has not established a limitation on ownership for such persons. Based on information supplied to us, as of December 31, 2024, Gould Investors owns approximately 20.5% of the outstanding shares of common stock and, by virtue of the applicable attribution rules under the Code, these individuals beneficially own approximately 24.9% of outstanding shares of common stock. As a result, the acquisition by each of four other individuals of 6.0% of our outstanding common stock, when combined with the ownership of our common stock of Gould Investors, Fredric H. Gould, Matthew J. Gould and Jeffrey A. Gould, generally would not result in a violation of the Five or Fewer Limit. However, there is no limitation on Gould Investors,
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Fredric H. Gould, Matthew J. Gould or Jeffrey A. Gould acquiring additional shares of our common stock or otherwise increasing their percentage of ownership of our common stock, meaning that the amount of our stock that other persons or entities may acquire without violating the Five or Fewer Limit could be reduced in the future and without notice. To the extent that Gould Investors, Fredric H. Gould, Matthew J. Gould and Jeffrey A. Gould, or their affiliates, acquire additional shares or our stock, or any other event occurs (including a repurchase of shares of our stock), that results in an individual beneficially or constructively owning 26.0% or more of the outstanding shares of our stock within the meaning of the Charter, the acquisition by four other individuals of 6.0% or less of our outstanding stock would violate the Five or Fewer Limit and, therefore, could cause the stock acquired by one or more of these other individuals to be transferred to the charitable trust, despite their compliance with the 6.0% ownership limits. If any of the foregoing occurs, compliance with the 6.0% ownership limit will not ensure that your ownership of our stock does not cause a violation of the Five or Fewer Limit or that your shares of our stock are not transferred to the charitable trust.
Gould Investors, Fredric H. Gould, Matthew J. Gould and Jeffrey A. Gould will be required by the Exchange Act and regulations promulgated thereunder to report, with certain exceptions, their acquisition of additional shares of our stock within two days of such acquisitions, and all holders of our stock will be required to file reports of their acquisition of beneficial ownership (as defined in the Exchange Act) of more than 5% of our outstanding stock. However, beneficial ownership for purposes of the reporting requirements under the Exchange Act is calculated differently than beneficial ownership for purposes of determining compliance with the Five or Fewer Limit. Further, to the extent that any one or more of Gould Investors, Fredric H. Gould, Matthew J. Gould or Jeffrey A. Gould acquires 30% or more of our outstanding stock, ownership of five percent or less of our outstanding stock could still result in a violation of the Five or Fewer Limit and, therefore, cause newly-acquired stock in our company to be transferred to the charitable trust. As a result, you may not have enough information currently available to you at any time to determine the percentage of ownership of our stock that you can acquire without violating the Five or Fewer Limit and losing the economic benefit of the ownership of such newly-acquired shares.
The stock market is volatile, and fluctuations in our operating results, removal from various indices and other factors could cause our stock price to decline.
The stock market has experienced, and may continue to experience, fluctuations that significantly impact the market prices of securities issued by many companies. Market fluctuations could adversely affect our stock price. These fluctuations have often been unrelated or disproportionate to the operating performance of particular companies. These broad market fluctuations, as well as general economic, systemic, political and market conditions, such as pandemics, recessions, loss of investor confidence, interest rate changes, government shutdowns, or trade wars, may negatively affect the market price of our common stock. Moreover, our operating results may fluctuate and vary from period to period due to the risk factors set forth herein.
Although our common stock is quoted on the New York Stock Exchange, the volume of trades on any given day has been limited historically, as a result of which stockholders might not have been able to sell or purchase our common stock at the volume, price or time desired. Our common stock is a component of the Russell 3000® Index. If our common stock is removed from the Russell 3000® Index because it does not meet the criteria for continued inclusion in such index, index funds, institutional investors, or other holders attempting to track the composition of that index may be required to sell our common stock, which would adversely impact the price and frequency at which it trades.
General Business Risks
Breaches of information technology systems could materially harm our business and reputation.
We, our joint venture partners and the property managers managing our properties, collect and retain, through information technology systems, financial, personal and other sensitive information provided by third parties, including tenants, vendors and employees. Such persons also rely on information technology systems for the collection and distribution of funds. Our information technology systems have been breached though, to our knowledge, none of our properties nor tenants have suffered any material damages therefrom. There can be no assurance that we, our joint venture partners or property managers will be able to prevent unauthorized access to sensitive information or the unauthorized distribution of funds. Any loss of this information or unauthorized distribution of funds as a result of a breach of information technology systems may result in loss of funds to which we are entitled, legal liability and costs (including damages and penalties), as well as damage to our reputation, that could materially and adversely affect our business and financial performance.
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Item 1B. Unresolved Staff Comments.
Not applicable.
Item 1C. Cybersecurity
Our information technology, communication networks, enterprise applications, accounting and financial reporting platforms and related systems are integral to our operations. We use these systems, among others, for internal communications, for accounting and record-keeping functions, and for many other key aspects of our business. Our operations rely on securing, collecting, storing, transmitting, and processing of proprietary and confidential data.
We have deployed various safeguards designed to protect our information technology (“IT”) systems from cybersecurity threats, including firewalls, intrusion prevention and detection systems, anti-malware functionality and access controls. At the management level, these cybersecurity defense systems are overseen by our network administrator who performs services for us on a part-time basis pursuant to the shared services agreement.Our network administrator has more than 20 years of experience with IT systems and holds various IT certifications. Our network administrator reports to, and is in regular contact with, our Senior Vice President-Finance and Senior Vice President. These officers do not have IT or cybersecurity training.In the event of a cybersecurity incident, among other things, the network administrator and these officers would consult with one another and, as needed or appropriate, other members of management to determine the appropriate course of action (including whether such incident should be reported to other members of management and/or the audit committee and whether public disclosure should, or is, required to be made).
Our internal auditor perform certain procedures to test the integrity and functionality of our IT systems (which includes a high-level review of our cybersecurity defenses). In addition, we have retained a third-party cybersecurity consulting firm that (i) advises us as to cybersecurity matters (including prevailing cybersecurity threats), (ii) performs, on a periodic basis, assessments of our cybersecurity defenses and (iii) on a continuous basis, monitors our IT systems for cybersecurity threats and intrusions.
We are not aware of any risks from cybersecurity threats that have materially affected or are reasonably likely to materially affect us. See “Item 1A. Risk Factors” in this Annual Report for additional discussion about cybersecurity-related risks.
To operate our business, we use certain third-party service providers to perform a variety of functions. We seek to engage reliable, reputable service providers that maintain cybersecurity programs and we rely on such providers to maintain appropriate internal and external cybersecurity practices.
At the Board level, our cybersecurity practices are overseen by the audit committee as part of its oversight of our risk management activities. The committee meets periodically with, among others, our internal auditor and network administrator to review and discuss cybersecurity matters.
Item 2. Properties.
Our principal executive office is located at 60 Cutter Mill Road, Suite 303, Great Neck, NY. We believe that this facility is satisfactory for our current and projected needs.
See "Item 1—Business" for additional information regarding our properties.
Item 3. Legal Proceedings.
From time to time, we are party to legal proceedings that arise in the ordinary course of our business, and in particular, personal injury claims involving the operations of our properties. Although we believe that the primary and umbrella insurance coverage maintained with respect to our properties is sufficient to cover claims for compensatory damages, many of these personal injury claims also assert exemplary(i.e; punitive) damages. Generally, insurance does not cover claims for exemplary damages and we may be adversely affected if claims for exemplary damages are asserted successfully. See Note 14 of our Consolidated Financial Statements.
Item 4. Mine Safety Disclosures.
Not applicable.
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PART II
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Market Information; Holders
Our shares of common stock are listed on the New York Stock Exchange, or the NYSE, under the symbol "BRT." As of February 28, 2025, there were approximately 704 holders of record of our common stock.
Issuer Purchases of Equity Securities
From January 1, 2025 through February 28, 2025 we purchased, pursuant to our publicly announced repurchase program, 65,018 shares at a weighted average price of $17.49 per share. As of March 11, 2025, after giving effect to an increase in, and extension of, our share repurchase authorization, we are authorized to repurchase up to $10.0 million of shares through December 31, 2026.
Item 6. [Reserved]
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Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Overview
We are an internally managed real estate investment trust, also known as a REIT, that owns, operates and to a lesser extent holds interest in joint ventures that own and operate multi family properties. At December 31, 2024, we: (i) wholly-own 21 multi-family properties with an aggregate of 5,420 units and a carrying value of $614.2 million, (ii) have ownership interests, through unconsolidated entities, in eight multi-family properties with an aggregate of 2,527 units, with a carrying value of $31.3 million; (iii) have preferred equity investments in two multi-family properties with a carrying value of $17.7 million and (iv) own other assets, through consolidated and unconsolidated entities, with a carrying value of $1.7 million. The 29 multi-family properties are located in 11 states; primarily in the Southeast United States and Texas.
During 2024:
•We invested, in two separate and unrelated transactions, an aggregate of $18.3 million (with a carrying value of $17.7 million at December 31, 2024, after giving effect to deferred loan fees and allowance for credit loss) in joint ventures that purchased a 204-unit multi-family property in Wilmington, North Carolina and a 184-unit multi-family property in Kennesaw, Georgia. These investments are unsecured and are subordinate, including the payment of the returns thereon, to an aggregate of $51.3 million of mortgage debt on these properties. We estimate that in 2025, we will generate approximately $1.2 million of interest income on these investments. For financial statement reporting purposes, these investments are treated as loans and are included in "Loan receivables, net of deferred loan fees and allowance for credit loss"on our consolidated balance sheet at December 31, 2024. See "Item 1 Business - Preferred Equity Investments" and Notes 1 and 5 to our consolidated financial statements.
•We obtained a $27.4 million mortgage on our Woodland Trails-LaGrange, GA property (the "Woodlands Financing"). The debt matures in September 2031, bears interest at a fixed rate of interest of 5.22% and is interest only until maturity.
•We and an affiliate of Valley National Bank ("VNB") amended our credit facility to, among other things, reduce the borrowing capacity from $60 million to $40 million, extend the maturity from September 2025 to September 2027 and revise certain financial and other covenents. VNB required these changes as a condition to our obtaining the Woodlands Financing.
•We sold a cooperative apartment unit in New York, NY for a sales price of approximately $1.1 million and recognized a gain of $806,000.
•We repurchased 193,529 shares of our common stock for an aggregate purchase price of approximately $3.50 million (i.e., an average price of $18.07 per share).
From January 1, 2025 through February 28, 2025, we purchased 65,018 shares of our common stock for an aggregate purchase price of approximately $1.1 million (i.e., an average price of $17.49 per share). In March 2025, our board of directors increased the value of the shares that we can repurchase to up to $10 million and extended the repurchase program through December 31, 2026.
Challenges and Uncertainties as a Result of the Uncertain Economic Environment; Pursuit of Joint Venture Acquisition and Alternative Investment Opportunities
As more fully described below, we face challenges (e.g., inflation, volatile interest rates, over-supply in certain markets, rental rates decreases, mispriced (i.e.,cap rates that do not, in our belief, correlate appropriately to interest rates and other market factors), and limited acquisition opportunities) due to the uncertain economic environment, which limits our ability or willingness to (i) acquire properties, (ii) grow rental income or (iii) control our real estate operating expenses, some of which, such as real estate taxes and insurance expense, we have a very limited ability to control. In addition, several properties, (in particular, Bells Bluff and Crossings), face increasing competition due to additional supply in such markets which have and may continue to adversely impact rental rates and occupancy rates.
In light of the challenging acquisition environment and the limited funds available to us to acquire properties, we are pursuing (i) alternative investments in the multi-family property arena, including preferred loan investments (e.g., an investment entitling us to a fixed rate of return prior to distributions to more junior investors) or bridge loans (e.g., a loan secured by a first mortgage on the subject property) and/or (ii) the acquisition of multi-family properties through joint ventures. We do not anticipate that in the near term, these type of investments (other than joint ventures already included in our portfolio), will constitute a significant part of our portfolio, and can provide no assurance that such investments will be profitable.
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Nashville/West Nashville, TN Properties - Bells Bluff and Crossings
These properties (“Bells Bluff” and "Crossings") have experienced, and continue to experience, competitive pressure due to the completion of construction of similar or higher-quality multi-family properties in Nashville and West Nashville, TN. To maintain occupancy levels, we have offered, and anticipate that we will continue to offer, short-term rent concessions and/or reduced rental rates. As a result, Bells Bluff's and Crossing's operating results have been and will continue to be, adversely impacted. We believe that due, among other things, to its vibrant economy, that over-time, the Nashville market will absorb the excess rental capacity, although we can provide no assurance in this regard.
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Results of Operations
Comparison of Years Ended December 31, 2024 and 2023
The term "same store properties" refers to 21 multi-family properties with an aggregate of 5,420 units that were owned for all of 2024 and 2023.
Revenues
The following table compares our revenues for the years indicated:
(Dollars in thousands): 2024 2023 Change % Change
Rental and other revenue from real estate properties. The components of the increase include:
•a $1.0 million increase due to a 1.3% increase in average rental rates year-over-year in the
portfolio,
•an $855,000 increase in straight line of rent concessions,net of amortization, with approximately 50% of such concessions from Bells Bluff and Crossings; and
•a $112,000 increase at our commercial property in Yonkers due to a lease extension.
The increase was offset by a $344,000 decrease in average occupancy year-over-year at the multi-family portfolio from 94.2% to 93.7%.
Loan interest and other income
The increase is due primarily to interest income of $197,000 received from the preferred equity investments which were originated in the fourth quarter of 2024. We estimate that these investments will generate an aggregate of $1.2 million of interest income in 2025.
Expenses
The following table compares our expenses for the periods indicated:
(Dollars in thousands) 2024 2023 Change % Change
Provision for credit loss 270 — 270 N/A
Real estate operating expenses.
The components of the increase include:
•$669,000 in real estate taxes, including $413,000 at our Newbridge Commons-Columbus, OH property due to a reassessment, and smaller increases at several other properties;
•$641,000 in insurance costs, including $380,000 due to increases in our insurance premiums under our master policy and $260,000 from two properties that are not part of our master policy;
•$293,000 in utility costs (primarily water/sewer charges) at many properties; and
•$189,000 primarily related to increased replacement costs at several properties.
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We estimate that in 2025, assuming no material changes to our current multi-family portfolio, that our insurance expense will decrease by approximately $750,000 to $1.0 million due primarily to more favorable premiums.
Interest expense
The increase is due primarily to the additional $566,000 of interest expense related to the Woodlands Financing which took place in 2024, $155,000 from the Silvana Oaks financing which took place in 2023 and $91,000 due to an increased interest rate on our junior subordinated notes. The increase was offset by a $208,000 decrease in credit facility interest expense as we did not use the facility in 2024 and a $169,000 decrease due to reduced mortgage balances from amortization.
General and administrative. The components of the increase include:
•$319,000 increase in non-cash restricted stock amortization, including $171,000 due to the higher price of the restricted stock awarded in 2024 in comparison to awards granted in prior years, and $147,000 due to the accelerated vesting of restricted stock awards of Ryan Baltimore, our former chief operating officer, who resigned in December 2024 to pursue another employment opportunity; and
• $223,000 in cash compensation costs due to higher levels of compensation.
The increase was offset by a:
•$169,000 due to reduced amortization associated with RSUs that vest upon satisfaction of performance metrics based on adjusted funds from operations, as we do not currently anticipate achieving the minimum level required for the vesting of such awards;
•$120,000 related to the reversal of a non-cash amortization expense on restricted stock awards forfeited by Mr. Baltimore;
•$120,000 decrease due to a reduction in our investor relations activities; and
•$127,000 decrease due primarily to the inclusion, in 2023, of the write off of a deposit related to a terminated transaction.
Provision for credit loss
In 2024, we recorded a non-cash provision of $270,000 related to the preferred equity investments. There was no comparable expense in 2023.
Depreciation and amortization
The change is due primarily to the decrease in depreciation related to lease intangibles from properties where we purchased our partners' interests in 2022.
Equity in earnings of unconsolidated joint ventures
Equity in earnings from unconsolidated joint ventures declined $649,000 to $1.6 million in the year ended December 31, 2024 from $2.3 million for the 2023. The components of the decline include:
•$712,000, representing our proportionate share of the net loss from Stono Oaks - Johns Island, SC ("Stono Oaks") which was in development through 2023, but which was placed in service in 2024. Accordingly, interest and certain other expenses (which prior to 2024 were capitalized) and depreciation, are now being expensed; and
•the inclusion, in 2023, of our $399,000 proportionate share of the net income from Chatham Court and Reflections, which was sold in May 2023 (the "Chatham Sale").
The decrease was offset primarily by:
• the inclusion, in 2023, of our $212,000 proportionate share of an early extinguishment of debt charge related to the Chatham Sale; and
•$170,000 primarily due to improved rental rates.
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Equity in earnings from sale of unconsolidated joint venture properties
In 2023, we recognized a gain of $14.7 million from the Chatham Sale. There was no corresponding gain in 2024.
Casualty loss ; Insurance recovery of casualty loss
In 2023, we settled a wrongful death action (the "Lawsuit") for $323,000. As noted in the paragraph immediately below, we were reimbursed for all of such expense by our insurance carriers.
During 2023, we received insurance proceeds (i) $470,000 as reimbursement for expenses incurred related to a winter storm in December 2022 and (ii) $323,000 in connection with the settlement of the Lawsuit.
Gain on sale of real estate
In 2024, we sold a cooperative apartment in NY for a sales price of approximately $1.1 million and a gain of $806,000.In 2023, we sold a cooperative apartment in New York for a sales price of $785,000 and a gain of $604,000.
(Benefit) provision for taxes
Income tax (benefit) provision for 2024 was ($226,000), a decrease from the $54,000 provision recorded in 2023. The benefit recorded in 2024 is the result of a $534,000 refund of Tennessee franchise tax received as a result of a change in Tennessee law offset by the 2024 estimated state tax expense of $318,000. The 2023 tax expense of $54,000 includes a reversal of a prior year over-accrual.
Comparison of Years Ended December 31, 2023 and 2022
As we are a smaller reporting company, this comparison is omitted in accordance with Instruction 1 to Item 303(a) of Regulation S-K.
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Funds from Operations; Adjusted Funds from Operations; Net Operating Income.
In view of our multi-family property activities, we disclose 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 a multi-family 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 NAREITs 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 loss on 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 does not provide guidelines for computing AFFO, 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 assures that the value of real estate assets diminish predictability 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 (loss) and cash flows from operating, investing and financing activities. Management also reviews the reconciliation of net income (loss) to FFO and AFFO.
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The table below provides a reconciliation of net income determined in accordance with GAAP to FFO and AFFO for each of the indicated years (amounts in thousands):
GAAP Net income attributable to common stockholders $ (9,791) $ 3,873
Add: provision for credit loss 270 —
Add: casualty loss — 323
Deduct: gain on sales of real estate (806) (604)
Adjustment for non-controlling interests (16) (16)
Adjust for: straight line rent concession, net of amortization (801) 93
Add: amortization of restricted stock and RSU expense 4,877 4,768
Add: amortization of deferred mortgage and debt costs 1,150 1,072
Add: amortization of fair value adjustment for mortgage debt 558 613
Less: insurance recovery of casualty loss — (323)
Less: gain on insurance recovery — (240)
Adjustment for non-controlling interests (8) (15)
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The table below provides a reconciliation of net income per common share (on a diluted basis) determined in accordance with GAAP to FFO and AFFO.
Net (loss) income attributable to common stockholders $ (0.52) $ 0.20
Add: depreciation of properties 1.38 1.50
Add: provision for credit loss 0.01 —
Add: casualty loss — 0.02
Deduct: gain on sales of real estate (0.04) (0.03)
Adjustment for non-controlling interests — —
Funds from operations 1.12 1.19
Adjust for: straight line rent concessions, net of amortization (0.04) —
Add: amortization of restricted stock and RSU expense 0.25 0.25
Add: amortization of deferred mortgage and debt costs 0.06 0.06
Add: amortization of fair value adjustment for mortgage debt 0.03 0.03
Less: insurance recovery of casualty loss — (0.02)
Deduct: gain on insurance recovery — (0.01)
Adjustment for non-controlling interests — —
Adjusted funds from operations $ 1.43 $ 1.52
FFO for 2024 decreased $1.7 million, or 7%, to $20.9 million in 2024 from $22.6 million in 2023. Contributing to the decline was a:
•$1.7 million decrease in operating margins (i.e., revenues less real estate operating expenses) across our portfolio (i.e. consolidated and unconsolidated multi-family properties);
•$793,000 decrease due to the inclusion, in 2023, of an insurance recovery from a casualty loss at an unconsolidated joint venture;
•$586,000 increase in interest expense; and
•$240,000 decrease due to the inclusion, in 2023, of a gain on insurance proceeds
The decrease was offset by a:
•$1.0 million increase in straight line rent concessions, net of amortization;
•$309,000 increase in other income;
•$280,000 decline in income tax expense; and
•$212,000 decline due to the inclusion, in 2023, of early extinguishment of debt charges.
AFFO decreased $2.2 million or 7.6%, to $26.7 million in 2024 from $28.9 million in 2023. The decrease is primarily due to the factors impacting the changes in FFO other than the changes to: gain on insurance proceeds, net deferred concessions and early extinguishment of debt.
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See “—Comparison of Years Ended December 31, 2024 and 2023” for further information regarding these changes.
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. Same store NOI reflects the operations of seven of our ten wholly-owned properties.
We compute NOI by adjusting net income (loss) to (a) add back (1) interest expense, (2) general and administrative expenses, (3) depreciation expense, (4) provision for credit loss, (5) provision for taxes, (6) loss on extinguishment of debt, (7) equity in earning (loss) of unconsolidated joint ventures, (8) casualty loss and (9) the impact of non-controlling interests, and (b) deduct (1) other income, (2) gain on sale of real estate, (3) equity in earnings from sale of consolidated joint venture properties, (4) insurance recovery of casualty loss and (5) gain on insurance recoveries. Other REITs may use different methodologies for calculating NOI, and accordingly, our NOI may not be comparable to other REITs. 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 for the periods presented (dollars in thousands):
For the year ended December 31,
GAAP Net (loss) income attributable to common stockholders $ (9,791) $ 3,873
Less: Loan interest and other income (857) (548)
Provision for credit loss 270 —
(Benefit) provision for taxes (226) 54
Less: Gain on sale of real estate (806) (604)
Casualty loss — 323
Insurance recovery of casualty loss — (793)
Gain on insurance recovery — (240)
Add: Net income attributable to non-controlling interests 155 142
Less: Non same store and non multi family (1)
_____________________________________
(1) Prior year amounts have been adjusted to reflect the current year composition to reflect only those properties that were same store for both the current
and the prior year.
In 2024, NOI decreased by $30,000 from 2023 primarily due to a $1.8 million increase in operating expenses and a $344,000 decrease due to reduced occupancy. This was offset by a $1.1 million increase in rental revenues (including a $112,000 increase due to the Yonkers' lease extension) and an $855,000 increase in deferred rent concessions. Same store NOI decreased $163,000 in 2024 from 2023 due to the factors impacting NOI, other than the Yonkers' lease extension. See "-Results
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of Operations -Year Ended December 31, 2024 Compared to the Year Ended December 31, 2023" for a discussion of these changes.
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, pay dividends and repurchase shares of our common stock. Generally, in 2024, our primary sources of capital and liquidity were the operations of our multi-family properties (including distributions of $4.7 million from the operations of our unconsolidated joint ventures), $27.4 million from the Woodland Trails Financing, and our available cash. Excluding funds held at our unconsolidated subsidiaries, at December 31, 2024 and February 28, 2025, our available liquidity was approximately $67.9 million and $62.7 million, respectively, including $27.9 million and $22.7 million, respectively, of cash and cash equivalents, and subject to compliance with borrowing base and other requirements, up to $40 million available under our credit facility. A significant amount of our cash and cash equivalents is maintained at our properties for general working capital purposes.
We anticipate that for the four years beginning January 1, 2025, our operating expenses, $118.2 million of mortgage amortization and interest expense (including $42.4 million from unconsolidated joint ventures) and $317.2 million of balloon payments due with respect to mortgages maturing through 2028 (including $151.6 million from unconsolidated joint ventures), anticipated capital expenditures (for 2025 only) of an aggregate of $11.1 million for consolidated and unconsolidated properties, estimated cash dividend payments of at least $75.1 million (assuming (i) the current quarterly dividend rate of $0.25 per share and (ii) 18.8 million shares outstanding), will be funded from cash generated from operations (including distributions from unconsolidated joint ventures), mortgage financings and re-financings, sales of properties, the issuance of additional equity and, if available, our $40 million credit facility. Our operating cash flow and available cash is insufficient to fully fund the $317.2 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 multi-family properties (including making alternative investments such as preferred equity investments), 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 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.
Disclosure of Known Material Contractual Obligations
The following table sets forth as of December 31, 2024 our known material contractual obligations:
Payment Due by Period
____________________________
(1) Reflects payments of principal (including amortization payments) and interest and excludes deferred costs. Includes all of the debt of unconsolidated joint ventures. See the following table for information regarding same. Assumes that the interest rate on the junior subordinated notes will be 6.85% per annum, which was the rate in effect at December 31, 2024.
(2) Assumes that $948,000 and $1.7 million will be paid annually through December 31, 2029 pursuant to the shared services agreement and for the Services, respectively. See "Item 1. Business—Our Structure."
(3) Assumes that approximately $4.0 million of property management fees will be paid annually to the property managers of our multi-family properties, including $1.4 million related to unconsolidated joint ventures. Such sum reflects the amount we anticipate paying in 2025 on the multi-family properties we own at December 31, 2024. These fees are typically charges based on a percentage of rental revenues from a property. No amount has been reflected as payable pursuant thereto after five years as such amount is not determinable.
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The following table sets forth as of December 31, 2024 information regarding the components of our long-term debt obligations:
Payment due by Period
___________________________
(1) Includes payments of principal (including amortization payments), and interest, and excludes deferred financing costs.
(2) Assumes that the interest rate on the junior subordinated notes will be 6.85% per annum and that no amounts are outstanding under the credit facility.
Corporate Level Financing Arrangements
Junior Subordinated Notes
As of December 31, 2024, $37.4 million (excluding deferred costs of $237,000) 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 term SOFR plus 226 basis points. At December 31, 2024 and 2023, the interest rate on these notes was 6.85% and 7.65%, respectively.
Credit Facility
Our credit facility with VNB New York, LLC, an affiliate of Valley National Bank (collectively, "VNB"), allows us to borrow, subject to compliance with borrowing base requirements and other conditions, up to $40 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 three unencumbered multi-family properties used in calculating the borrowing base. The credit facility bears an annual interest rate, which resets monthly, equal to one-month term SOFR plus 250 basis points, with a floor of 6.00%. The interest rate at December 31, 2024 and February 28, 2025, was 6.96% and 6.83% respectively. There is an annual fee of 0.25% on the total amount committed by VNB and unused by us. The credit facility matures in September 2027. As of February 28, 2025, there was no balance outstanding and up to $40 million was 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 two unencumbered properties with an aggregate value(as calculated pursuant to the facility) of at least $50 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.
As of December 31, 2024, we were in compliance in all material respects with the requirements of the facility.
Other Financing Sources and Arrangements
At December 31, 2024, we are joint venture partners in unconsolidated joint ventures which own eight multi-family properties which distributed $4.4 million to us in 2024. We may be required to make capital contributions with respect to these properties. At December 31, 2024, our investment in these joint venture properties have a net equity carrying value of $31.3 million and are subject to mortgage debt, which is not reflected on our consolidated balance sheet, of $251.9 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. See note 6 to our consolidated financial statements.
At December 31, 2024, we had preferred equity investments in joint ventures that own multi-family properties. These joint ventures paid us $196,000 in 2024 and we anticipate that, subject to the underlying property generating sufficient cash flow,
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that such joint ventures will pay us of $1.2 million in 2025. At December 31, 2024, the carrying value of these investments was $17.7 million and these investments are subordinate to mortgage debt of $51.3 million, which debt is not reflected on our consolidated balance sheet.
See "Item 1.Business-Mortgage Debt" for information regarding our mortgage debt at consolidated and unconsolidated subsidiaries.
Inflation
Substantially all of our multi-family property leases are for periods of one-year or less. The short-term nature of these leases generally serves to reduce our risk to adverse effects of inflation on our revenue. During 2024, we continued to experience inflationary pressures that drove higher operating expenses, primarily in personnel, repairs and maintenance, insurance and real estate taxes; such increases may continue in 2025 and thereafter, which would adversely affect our operating results.
Inflation affects the overall cost of our debt. We mitigate the risks presented by inflation through the use of long-term fixed interest rate debt and interest rate hedges and by paying down, when we deem appropriate, our credit facility debt. However, increasing interest rates, which generally correlates to increasing inflation, increases the interest expense on our junior subordinated notes and makes it less attractive to obtain mortgage debt (including the refinancing of an aggregate of $130.4 million of mortgage debt (including $60.8 million of mortgage debt at unconsolidated joint ventures, that matures in 2026) or use our credit facility in connection with acquisition and value add activities.
Cash Distribution Policy
We have elected to be taxed as a REIT under the Internal Revenue Code of 1986, as amended. Accordingly, we must, among other things, meet a number of organizational and operational requirements, including a requirement that we distribute currently at least 90% of our ordinary taxable income to our stockholders. It is our current intention to comply with these requirements and maintain our REIT status. As a REIT, we generally will not be subject to corporate federal, state or local income taxes on taxable income we distribute currently (in accordance with the Internal Revenue Code and applicable regulations) to our stockholders. If we fail to qualify as a REIT in any taxable year, we will be subject to federal, state and local 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 may be subject to certain state and local taxes on our income and to federal income taxes on our undistributed taxable income (i.e., taxable income not distributed in the amounts and in the time frames prescribed by the Internal Revenue Code and applicable regulations thereunder) and are subject to Federal excise taxes on our undistributed taxable income.
It is our intention to pay to our stockholders within the time periods prescribed by the Internal Revenue Code no less than 90%, and, if possible, 100% of our annual taxable income, including taxable gains from the sale of real estate. It will continue to be our policy to make sufficient distributions to stockholders in order for us to maintain our REIT status under the Internal Revenue Code.
We anticipate that if we do not sell any multi-family properties this year, that a significant amount of the dividends we will pay in 2025 will be treated for federal income tax purposes as a return of capital.
Our board of directors will continue to evaluate, on a quarterly basis, the amount of dividend payments based on its assessment of, among other things, our short and long-term cash and liquidity requirements, prospects, debt maturities, net income, funds from operations, and adjusted funds from operations.
Critical Accounting Estimates
Our discussion and analysis of financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting periods. On an ongoing basis, we reconsider and evaluate our estimates and assumptions.
We base our estimates on historical experience, current trends and various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could materially differ from any of our estimates under different assumptions or conditions. Our significant accounting policies are discussed in Note 1 of our consolidated financial statements in this report. We believe the accounting estimates listed below are the most critical to aid in
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fully understanding and evaluating our reported financial results, and they require our most difficult, subjective or complex judgments, resulting from the need to make estimates about the effect of matters that are inherently uncertain.
Equity method investments
We report our investments in unconsolidated entities, over whose operating and financial policies we do not control, under the equity method of accounting. Under this method of accounting, our pro rata share of the applicable entity's earnings or losses is included in our consolidated statements of operations. We initially record our investments based on either the carrying value for properties contributed or the cash invested.
We evaluate our equity-method investments for impairment whenever events or changes in circumstances indicate that the carrying value of our investments may exceed the fair value. If it is determined that a decline in the fair value of our investments is not temporary, and if such reduced fair value is below its carrying value, an impairment is recorded. Determining fair value involves significant judgment. Our estimates consider available evidence including the present value of the expected future cash flows discounted at market rates, general economic conditions and other relevant factors.
Carrying Value of Real Estate Portfolio
We conduct a quarterly review of each real estate asset owned by us and through our joint ventures. This review is conducted in order to determine if indicators of impairment are present on the real estate.
In reviewing the value of the real estate assets owned, if there is an indicator of impairment and the carrying value of the real estate asset is determined to be unrecoverable, we seek to arrive at the fair value of each real estate asset by using one or more valuation techniques, such as comparable sales, discounted cash flow analysis or replacement cost analysis. A real estate asset is considered to be unrecoverable when an analysis suggests that the undiscounted cash flows to be generated by the property will be insufficient to recover our investment. Any impairment taken with respect to our real estate assets reduces our net income, assets and stockholders' equity to the extent of the amount of the allowance, but it will not affect our cash flow until such time as the property is sold.
Allowance for credit losses
We estimate the allowance for credit losses in accordance with the Current Expected Credit Loss (CECL) model under Accounting Standards Codification ("ASC") Topic 326. This model requires us to estimate expected lifetime credit losses for our loan portfolio (i.e., our preferred equity investments) by considering historical loss experience, current economic conditions, and reasonable and supportable forecasts of future economic trends. The estimate is highly subjective and involves significant judgment in the following areas:
•Historical Loss Data: We segment our loan portfolio based on risk characteristics such as borrower type, loan term, and collateral. We will use historical loss experience when available, as a basis for expected credit losses.
•Macroeconomic Forecasts: We incorporate forward-looking macroeconomic indicators, such as GDP growth, unemployment rates, and interest rate trends, to adjust historical loss trends.
•Qualitative Adjustments: We apply management judgments to adjust the allowance for factors that may not be fully captured in the quantitative model, including changes in emerging risks such as regulatory, geopolitical, or credit risks.
•The estimate of expected credit losses is inherently uncertain and sensitive to changes in economic conditions. For example, a 100-basis-point increase in unemployment rates or a prolonged downturn in the real estate market could result in a higher allowance for credit losses, negatively impacting our financial results. Conversely, improvements in economic conditions could result in a lower allowance.
•We continually evaluate the adequacy of our allowance for credit losses and adjust it as necessary. However, actual losses may differ from our estimates due to unforeseen changes in economic conditions or borrower behavior.
Purchase Price Allocations
We allocate the purchase price of properties, including acquisition costs and assumed debt, when appropriate, to the tangible and identified intangible assets and liabilities acquired based on their relative fair values. In making estimates of fair values for purposes of allocating purchase price, we use a number of sources, including independent appraisals that may be obtained in connection with the acquisition or financing of the respective property, our own analysis of recently acquired and existing comparable properties in our portfolio and other market data. We also consider information obtained about each
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property as a result of its pre-acquisition due diligence, marketing and leasing activities in estimating the fair value of the tangible and intangible assets acquired.
Equity-Based Compensation
We grant shares of restricted stock and restricted stock units ("RSUs") to eligible plan participants, subject to the recipient's continued service over a specified period and, with respect to the RSUs, the satisfaction of specified conditions over a specified period. A portion of the RSUs vest based upon satisfaction of specified metrics with respect to (i) total stockholder return(“TSR Awards”) and (ii) adjusted funds from operations(“AFFO Awards”), in each case as calculated pursuant to the applicable award agreement. We account for the restricted stock awards and RSUs in accordance with ASC 718, Compensation - Stock Compensation, which requires that such compensation be recognized in the financial statements based on its estimated grant-date fair value. The value of such awards is recognized as compensation expense in general and administrative expenses in the accompanying consolidated statements of operations over the applicable service periods. Grant date fair value is determined with respect to the (i) the restricted stock awards, by the closing stock price on the date of grant, (ii) TSR Awards, by using a Monte Carlo simulation relying upon various assumptions and (iii) AFFO Awards, by using the closing stock price on the grant date, subject to quarterly adjustment based upon management’s subjective projections as to the achievability of the specified metrics related to the AFFO Awards; changes in the projections related to the AFFO awards may have a significant impact on the expense we recognize on such awards. See Note 11 to our consolidated financial statements.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
All of our mortgage debt bears interest at fixed rates. Our credit facility bears interest at 30 day term SOFR plus 250 basis points, with an interest rate floor of 6%. At December 31, 2024, no amounts were drawn on the facility. Our junior subordinated notes bear interest at the rate of three-month term SOFR plus 226 basis points. At December 31, 2024, the interest rate on these notes was 6.85%. A 100 basis point increase or decrease in the rate would result in an increase or decrease, respectively, in interest expense in 2025 of $374,000 (all of which would be due to the change in rate on the junior subordinated notes).
Item 8. Financial Statements and Supplementary Data.
The information required by this item appears in a separate section of this Report following Part IV.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
Not applicable.
Item 9A. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
A review and evaluation was performed by our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act as of the end of the period covered by this Annual Report on Form 10-K. Based on that review and evaluation, our CEO and CFO have concluded that our disclosure controls and procedures, as designed and implemented as of December 31, 2024, were effective.
Management's Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rules 13a-15(f) and 15d-15(f) promulgated under the Exchange Act as a process designed by, or under the supervision of, a company's principal executive and principal financial officers and effected by a company's board, management and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP and includes those policies and procedures that:
•pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of a company;
•provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that receipts and expenditures of a company are being made only in accordance with authorizations of management and the board of directors of a company; and
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•provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of a company's assets that could have a material effect on the financial transactions.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risks that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, assessed the effectiveness of our internal control over financial reporting as of December 31, 2024. In making this assessment, our management used criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control-Integrated Framework (2013).
Based on its assessment, our management concluded that, as of December 31, 2024, our internal control over financial reporting was effective based on these criteria.
Changes in Internal Controls over Financial Reporting
There have been no changes in our internal controls over financial reporting, as defined in in Rules 13a-15(f) and 15d-15(f) promulgated under the Exchange Act, that occurred during the three months ended December 31, 2024 that materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.
Item 9B. Other Information.
None of our officers or directors had any contract, instruction, or written plan for the purchase or sale of our securities that was intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) or any "non-Rule 10b5-1 trading arrangement" in effect at any time during the three months ended December 31, 2024.”
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.
Not applicable
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PART III
Item 10. Directors, Executive Officers and Corporate Governance.
Apart from certain information concerning our executive officers which is set forth in Part I of this report, the other information required by Item 10 will be incorporated herein by reference to the applicable information to be in the proxy statement to be filed by April 30, 2025 for our 2025 Annual Meeting of Stockholders.
Item 11. Executive Compensation.
The information concerning our executive compensation required by Item 11 is incorporated herein by reference to the proxy statement to be filed by April 30, 2025 with respect to our 2025 Annual Meeting of Stockholders.
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Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
Except as set forth below, the information required by Item 12 is incorporated herein by reference to the proxy statement to be filed by April 30, 2025 with respect to our 2025 Annual Meeting of Stockholders.
Equity Compensation Plan Information
The following table provides information as of December 31, 2024 about shares of our common stock that may be issued upon the exercise of options, warrants and rights under our 2018 Amended and Restated Incentive Plan (the “2018 Plan”), our 2020 Amended and Restated Incentive Plan (the “2020 Plan”), the 2022 Incentive Plan (the "2022 Plan"; and together with the 2018 Plan and the 2020 Plan, the “Prior Plans”), and our 2024 Incentive Plan (the “2024 Plan”; and together with the Prior Plans, the “Incentive Plans”).No further awards may be granted under the Prior Plans.
Equity compensation plans approved by security holders 600,837 (1) — 798,175 (2)
Equity compensation plans not approved by security holders — — —
_______________________________________________________________________________
(1) Includes up to 198,761, 200,251 and 201,825 shares of common stock issuable pursuant to restricted stock units (“RSUs”) that vest as of June 30, 2025, June 30, 2026 and June 30, 2027, respectively, if and to the extent specified conditions are satisfied by such vesting dates. RSUs granted pursuant to the 2022 Plan and the 2024 Plan account for 399,012 shares and 201,825 shares, respectively. Excludes 910,929 shares of restricted stock issued pursuant to the Incentive Plans as such shares, although subject to forfeiture, are outstanding. See Note 11 to our consolidated financial statements.
(2) Does not give effect to 165,408 shares of restricted stock granted January 13, 2025 pursuant to the 2024 Plan.
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Item 13. Certain Relationships and Related Transactions, and Director Independence.
The information concerning relationships and certain transactions required by Item 13 is incorporated herein by reference to the proxy statement to be filed by April 30, 2025 with respect to our 2025 Annual Meeting of Stockholders.
Item 14. Principal Accounting Fees and Services.
The information concerning our principal accounting fees required by Item 14 is incorporated herein by reference to the proxy statement to be filed by April 30, 2025 with respect to our 2025 Annual Meeting of Stockholders.
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PART IV
Item 15. Exhibits, Financial Statement Schedules.
(a)
1. All Financial Statements.
The response is submitted in a separate section of this report following Part IV.
2. Financial Statement Schedules.
The response is submitted in a separate section of this report following Part IV.
3. Exhibits:
In reviewing the agreements included as exhibits to this Annual Report on Form10-K, please remember they are included to provide you with information regarding their terms and are not intended to provide any other factual or disclosure information about us or the other parties to the agreements. Certain agreements contain representations and warranties by each of the parties to the applicable agreement. These representations and warranties have been made solely for the benefit of the other parties to the applicable agreement and:
•should not in all instances be treated as categorical statements of fact, but rather as a way of allocating the risk to one of the parties if those statements prove to be inaccurate;
•have been qualified by disclosures that were made to the other party in connection with the negotiation of the applicable agreement, which disclosures are not necessarily reflected in the agreement;
•may apply standards of materiality in a way that is different from what may be viewed as material to you or other investors; and
•were made only as of the date of the applicable agreement or such other date or dates as may be specified in the agreement and are subject to more recent developments. Accordingly, these representations and warranties may not describe the actual state of affairs as of the date they were made or at any other time.
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Exhibit No. Title of Exhibits
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ExhibitNo. Title of Exhibits
19.1 Insider Trading Policy
21.1 Subsidiaries of the Registrant.
23.1 Consent of Ernst & Young, LLP.
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_______________________________________________________________________________
* Indicates management contract or compensatory plan or arrangement.
(b) Exhibits.
See Item 15(a)(3) above. Except as otherwise indicated with respect to a specific exhibit, the file number for all of the exhibits incorporated by reference is: 001-07172.
(c) Financial Statements.
See Item 15(a)(2) above.
Item 16. Form 10-K Summary
Not applicable.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
BRT APARTMENTS CORP.
Date: March 12, 2025 By: /s/ Jeffrey A. Gould
Jeffrey A. Gould Chief Executive Officer and President
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Signature Title Date
/s/ Israel Rosenzweig Chairman of the Board March 12, 2025
Israel Rosenzweig
Jeffrey A. Gould
/s/ Carol Cicero Director March 12, 2025
Carol Cicero
/s/ Alan Ginsburg Director March 12, 2025
Alan Ginsburg
/s/ Fredric H. Gould Director March 12, 2025
Fredric H. Gould
/s/ Matthew J. Gould Director March 12, 2025
Matthew J. Gould
/s/ Louis C. Grassi Director March 12, 2025
Louis C. Grassi
/s/ Gary Hurand Director March 12, 2025
Gary Hurand
/s/ Jeffrey Rubin Director March 12, 2025
Jeffrey Rubin
/s/ Jonathan Simon Director March 12, 2025
Jonathan Simon
/s/ Elie Weiss Director March 12, 2025
Elie Weiss
George E. Zweier
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Index
Item 8, Item 15(a)(1) and (2)
Index to Consolidated Financial Statements and Consolidated Financial Statement Schedules
Page No.
Report of Independent Registered Public Accounting Firm (PCAOB ID: 42) F-2
Consolidated Balance Sheets as of December 31, 2024 and 2023 F-4
Notes to Consolidated Financial Statements F-10
III—Real Estate Properties and Accumulated Depreciation F-31
IV - Mortgage loans F-34
All other schedules are omitted because they are not applicable or the required information is shown in the consolidated financial statements or the notes thereto.
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Index
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of BRT Apartments Corp.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of BRT Apartments Corp. and subsidiaries (the Company) as of December 31, 2024 and 2023, the related consolidated statements of operations, stockholders' equity and cash flows for each of the two years in the period ended December 31, 2024, and the related notes and financial statement schedules listed in the Index at Item 15(a) (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2024 and 2023, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2024, in conformity with U.S. generally accepted accounting principles.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the account or disclosures to which it relates.
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Preferred Equity Investments
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 2020
New York, New York
March 12, 2025
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BRT APARTMENTS CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except per share data)
December 31,
ASSETS
Investment in unconsolidated joint ventures 31,344 34,242
LIABILITIES AND EQUITY
Liabilities:
Credit facility — —
Accounts payable, accrued and other liabilities 24,915 21,948
Commitments and contingencies
Equity:
BRT Apartments Corp. stockholders' equity:
Preferred shares $0.01 par value 2,000 shares authorized, none outstanding — —
Common stock, $0.01 par value, 300,000 shares authorized,
Total BRT Apartments Corp. stockholders' equity 204,969 228,460
Non-controlling interests (55) (15)
See accompanying notes to consolidated financial statements.
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BRT APARTMENTS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share data)
Year Ended December 31,
Revenues:
Rental and other revenue from real estate properties $ 94,773 $ 93,069
Loan interest and other income 857 548
Expenses:
Provision for credit loss 270 —
Total revenues less total expenses (12,312) (14,282)
Equity in earnings from unconsolidated joint ventures 1,644 2,293
Equity in earnings from sale of unconsolidated joint venture properties — 14,744
Gain on sale of real estate 806 604
Casualty loss — (323)