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EX-32.3 - EXHIBIT 32.3 - BRT Apartments Corp.exhibit323q217.htm
EX-32.2 - EXHIBIT 32.2 - BRT Apartments Corp.exhibit322q217.htm
EX-32.1 - EXHIBIT 32.1 - BRT Apartments Corp.exhibit321q217.htm
EX-31.3 - EXHIBIT 31.3 - BRT Apartments Corp.exhibit313q217.htm
EX-31.2 - EXHIBIT 31.2 - BRT Apartments Corp.exhibit312q217.htm
EX-31.1 - EXHIBIT 31.1 - BRT Apartments Corp.exhibit311q217.htm

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC  20549
 
FORM 10-Q
 
ý      Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 
For the quarterly period ended March 31, 2017
 
OR
 
o         Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 
Commission File Number 001-07172
 
BRT APARTMENTS CORP.
(Exact name of Registrant as specified in its charter)
Maryland
 
13-2755856
(State or other jurisdiction of
 
(I.R.S. Employer
incorporation or organization)
 
Identification No.)
60 Cutter Mill Road, Great Neck, NY
 
11021
(Address of principal executive offices)
 
(Zip Code)
516-466-3100
(Registrant’s telephone number, including area code)
 
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý   No o   
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Date File required to be submitted and posted pursuant to Rule 405 of Regulations S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). 
Yes ý   No o 
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See definition of “large accelerated filer,” “accelerated filer” and “small reporting company” in Rule 12b-2 of the Exchange Act.  (Check one):
Large accelerated filer o
 
Accelerated filer ý
Non-accelerated filer o
 
Smaller reporting company o
(Do not check if a smaller reporting company)
 
 
 
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405) of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

o Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o  No ý
 
Indicate the number of shares outstanding of each of the issuer’s classes of stock, as of the latest practicable date.
 
14,040,560 Shares of Common Stock,
par value $0.01 per share, outstanding on May 5, 2017



BRT APARTMENTS CORP. AND SUBSIDIARIES
Table of Contents



Page No.
Item 1.
 
 
 
 
 
 
 
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
 
Item 2.
 
 
 
Item 6.


1



Part I ‑ FINANCIAL INFORMATION
Item 1. Financial Statements
BRT APARTMENTS CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share data)
 
 
 
 
 
March 31,
2017
(Unaudited)
 
September 30,
2016
ASSETS
 
 
 
Real estate properties, net of accumulated depreciation
and amortization of $53,143 and $41,995
$
781,114

 
$
759,576

Real estate loan
5,900

 
19,500

Cash and cash equivalents
43,147

 
27,399

Restricted cash
6,619

 
7,383

Deposits and escrows
13,101

 
18,972

Investments in unconsolidated joint ventures
14,557

 
298

Other assets
6,082

 
7,775

Real estate properties held for sale

 
33,996

Total Assets
$
870,520

 
$
874,899

LIABILITIES AND EQUITY
 
 
 
Liabilities:
 
 
 
Mortgages payable, net of deferred costs of $5,296 and $5,873
$
603,133

 
$
588,457

Junior subordinated notes, net of deferred costs of $392 and $402
37,008

 
36,998

Accounts payable and accrued liabilities
13,467

 
20,716

Mortgage payable held for sale

 
27,052

Total Liabilities
653,608

 
673,223

 
 
 
 
Commitments and contingencies

 

Equity:
 
 
 
BRT Apartments Corp. stockholders' equity:
 
 
 
Preferred shares, $.01 par and $1 par value:

 

Authorized 20,000 and 10,000 shares, none issued

 

Common stock, $.01 par value, 300,000 shares authorized;
 
 
 
13,352 shares issued at March 31, 2017
134

 

Shares of Beneficial Interest, $3 par value, number of shares authorized,
 
 
 
unlimited; 13,232 issued at September 30, 2016

 
39,696

Additional paid-in capital
201,546

 
161,321

Accumulated other comprehensive income (loss)
1,518

 
(1,602
)
Accumulated deficit
(36,584
)
 
(48,125
)
Total BRT Apartments Corp. stockholders’ equity
166,614

 
151,290

Non-controlling interests
50,298

 
50,386

Total Equity
216,912

 
201,676

Total Liabilities and Equity
$
870,520

 
$
874,899


See accompanying notes to consolidated financial statements.

2



BRT APARTMENTS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)(Dollars in thousands, except share data)
 
Three Months Ended
March 31,
 
Six Months Ended
March 31,
 
 
 
2017
 
2016
 
2017
 
2016
Revenues:
 
 
 
 
 
 
 
Rental and other revenues from real estate properties
$
24,702

 
$
23,993

 
$
49,731

 
$
46,312

Other income
181

 
2,026

 
792

 
2,033

Total revenues
24,883

 
26,019

 
50,523

 
48,345

Expenses:
 
 
 
 
 
 
 
Real estate operating expenses - including $641 and $372 to related parties for the three months ended and $1,252 and $804 for the six months ended
11,909

 
12,097

 
24,355

 
23,191

Interest expense - including $0 and $62 to related party for the three months ended and $0 and $86 for the six months ended
6,402

 
6,049

 
13,089

 
11,580

Advisor’s fees, related party

 

 

 
693

Property acquisition costs - including $0 and $439 to related parties for the three and six months ended

 
953

 

 
1,010

General and administrative - including $103 and $60 to related parties for the three months ended and $182 and $87 for the six months ended
2,390

 
2,280

 
4,987

 
4,029

Depreciation
7,772

 
5,632

 
14,069

 
10,616

Total expenses
28,473

 
27,011

 
56,500

 
51,119

Total revenue less total expenses
(3,590
)
 
(992
)
 
(5,977
)
 
(2,774
)
Gain on sale of real estate

 
24,226

 
35,838

 
24,835

Loss on extinguishment of debt

 
(2,668
)
 
(799
)
 
(2,668
)
(Loss) income from continuing operations
(3,590
)
 
20,566

 
29,062

 
19,393

Provision for taxes
1,108

 

 
1,458

 

(Loss) income from continuing operations, net of taxes
(4,698
)
 
20,566

 
27,604

 
19,393

Discontinued operations:
 
 
 
 
 
 
 
Loss from discontinued operations

 
(1,188
)
 

 
(2,788
)
Gain on sale of partnership interest

 
15,467

 

 
15,467

Income from discontinued operations

 
14,279

 

 
12,679

Net (loss) income
(4,698
)
 
34,845

 
27,604

 
32,072

Net loss (income) attributable to non-controlling interests
469

 
(9,909
)
 
(16,063
)
 
(9,170
)
Net (loss) income attributable to common stockholders
$
(4,229
)
 
$
24,936

 
$
11,541

 
$
22,902

Basic and diluted per share amounts attributable to common stockholders:
 
 
 
 
 
 
 
(Loss) income from continuing operations
$
(0.30
)
 
$
0.75

 
$
0.83

 
$
0.72

Income from discontinued operations

 
1.01

 

 
0.90

Basic and diluted (loss) earnings per share
$
(0.30
)
 
$
1.76

 
$
0.83

 
$
1.62

Amounts attributable to BRT Apartments Corp.:
 
 
 
 
 
 
 
(Loss) income from continuing operations
$
(4,229
)
 
$
9,957

 
$
11,541

 
$
8,564

Income from discontinued operations

 
14,979

 

 
14,338

Net (loss) income
$
(4,229
)
 
$
24,936

 
$
11,541

 
$
22,902


 
 
 
 
 
 
 
Weighted average number of common shares outstanding:
 
 
 
 
 
 
 
Basic and diluted
14,018,099

 
14,132,235

 
13,957,706

 
14,116,560

See accompanying notes to consolidated financial statements.

3



BRT APARTMENTS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
(Unaudited)
(Dollars in thousands)

 
Three Months Ended
March 31,
 
Six Months Ended
March 31,
 
 
 
2017
 
2016
 
2017
 
2016
Net (loss) income
$
(4,698
)
 
$
34,845

 
$
27,604

 
$
32,072

Other comprehensive income (loss):
 
 
 
 
 
 
 
Unrealized gain (loss) on derivative instruments
135

 
(34
)
 
3,403

 
(14
)
Other comprehensive income (loss)
135

 
(34
)
 
3,403

 
(14
)
Comprehensive (loss) income
(4,563
)
 
34,811

 
31,007

 
32,058

Comprehensive (loss) income attributable to non-controlling interests
(144
)
 
9,904

 
17,387

 
9,168

Comprehensive (loss) income attributable to common stockholders
$
(4,419
)
 
$
24,907

 
$
13,620

 
$
22,890


See accompanying notes to consolidated financial statements.


4



BRT APARTMENTS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF EQUITY
Six Months Ended March 31, 2017
(Unaudited)
(Dollars in thousands, except share data)

 
Shares of Beneficial Interest
 
Common Stock
 
Additional
Paid-In Capital
 
Accumulated
Other Comprehensive (Loss) Income
 
Accumulated Deficit
 

Non- Controlling Interest
 
Total
Balances, September 30, 2016
$
39,696

 
$

 
$
161,321

 
$
(1,602
)
 
$
(48,125
)
 
$
50,386

 
$
201,676

Restricted stock vesting
375

 

 
(375
)
 

 

 

 

Compensation expense - restricted stock and restricted stock units

 

 
710

 

 

 

 
710

Contributions from non-controlling interests

 

 

 

 

 
6,398

 
6,398

Distributions to non-controlling interests

 

 

 

 

 
(22,832
)
 
(22,832
)
Shares repurchased - 5,775 shares
(17
)
 

 
(30
)
 

 

 

 
(47
)
Conversion to a Maryland corporation at $.01 par value
(40,054
)
 
134


39,920

 

 

 

 

Net income

 

 

 

 
11,541

 
16,063

 
27,604

Other comprehensive income

 

 

 
3,120

 

 
283

 
3,403


Comprehensive income

 

 

 

 

 

 
31,007

Balances, March 31, 2017
$

 
$
134

 
$
201,546

 
$
1,518

 
$
(36,584
)
 
$
50,298

 
$
216,912

 
See accompanying notes to consolidated financial statements.

5



BRT APARTMENTS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in Thousands)
 
Six Months Ended March 31,
 
2017
 
2016
Cash flows from operating activities:
 
 
 
 Net income
$
27,604

 
$
32,072

 Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
  Depreciation and amortization
14,604

 
12,943

  Amortization of restricted stock and restricted stock units
710

 
418

  Gain on sale of real estate
(35,838
)
 
(24,835
)
  Gain on sale of partnership interest

 
(15,467
)
  Loss on extinguishment of debt
799

 
2,668

Effect of deconsolidation of non-controlling interest

 
(1,687
)
 Increases and decreases from changes in other assets and liabilities:
 
 
 
  Increase in straight-line rent
(36
)
 

  Decrease (increase) in interest receivable
2,324

 
(2,040
)
  Decrease in deposits and escrows
5,871

 
3,035

  Decrease in other assets
1,190

 
2,480

  Decrease in accounts payable and accrued liabilities
(5,662
)
 
(89
)
Net cash provided by operating activities
11,566

 
9,498

 
 
 
 
Cash flows from investing activities:
 
 
 
  Collections from real estate loans
13,600

 

  Additions to real estate properties
(60,580
)
 
(100,148
)
  Net costs capitalized to real estate properties
(5,430
)
 
(25,244
)
  Net change in restricted cash - Newark

 
(1,952
)
   Net change in restricted cash - Multi Family
764

 
(470
)
  Proceeds from the sale of real estate properties
128,647

 
94,602

  Distributions from unconsolidated joint ventures
166

 
0

  Contributions to unconsolidated joint ventures
(14,394
)
 

Proceeds from the sale of interest in joint venture

 
16,870

Net cash provided by (used in) investing activities
62,773

 
(16,342
)
 
 
 
 
Cash flows from financing activities:
 
 
 
    Proceeds from mortgages payable
40,363

 
96,527

    Increase in other borrowed funds

 
6,001

    Mortgage payoffs
(79,215
)
 
(63,220
)
    Mortgage principal payments
(2,539
)
 
(2,591
)
    Increase in deferred financing costs
(719
)
 
(1,750
)
    Capital contributions from non-controlling interests
6,398

 
10,964

    Capital distribution to non-controlling interests
(22,832
)
 
(21,013
)
    Proceeds from sale of New Market Tax Credits

 
2,746

    Repurchase of shares of beneficial interest/common stock
(47
)
 
(1,584
)
Net cash (used in) provided by financing activities
(58,591
)
 
26,080

 
 
 
 
    Net increase in cash and cash equivalents
15,748

 
19,236

    Cash and cash equivalents at beginning of period
27,399

 
15,556

    Cash and cash equivalents at end of period
$
43,147

 
$
34,792

 
 
 
 
Supplemental disclosure of cash flow information:
 
 
 
    Cash paid during the period for interest, net of capitalized interest of $185 and
$248 respectively
$
12,536

 
$
14,181

    Taxes paid
$
1,778

 
$
536

   Acquisition of real estate through assumption of debt
$
27,638

 
$
16,051

Real estate properties reclassified to assets held for sale
$

 
$
32,219

See accompanying notes to consolidated financial statements.

6



BRT APARTMENTS CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 2017

Note 1 – Organization and Background

BRT Apartments Corp. (the "Company"), a Maryland corporation, is the successor to BRT Realty Trust, a Massachusetts business trust, pursuant to the conversion of BRT Realty Trust into BRT Apartments Corp. on March 18, 2017.
The Company owns, operates and develops multi‑family properties and owns and operates other assets, including real estate and a real estate loan. BRT conducts its operations to qualify as a real estate investment trust, or REIT, for federal income tax purposes.
Generally, the multi‑family properties are acquired with venture partners in transactions in which the Company contributes 80% of the equity. At March 31, 2017, the Company owns: (a) 32 multi-family properties with 8,805 units located in 11 states (including 271 units at a property in the lease up stage) with a net book value of $770,555,000; and (b) interests in two unconsolidated joint ventures with a net book value of $14,257,000.
The Company also owns and operates various other real estate assets. At March 31, 2017, the net book value of these other real estate assets was $16,459,000, including a real estate loan of $5,900,000.

Note 2 – Basis of Preparation

The accompanying interim unaudited consolidated financial statements as of March 31, 2017, and for the three and six months ended March 31, 2017 and 2016, reflect all normal recurring adjustments which, in the opinion of management, are necessary for a fair presentation of the results for such interim periods. The results of operations for the three and six months ended March 31, 2017 and 2016, are not necessarily indicative of the results for the full year. The consolidated balance sheet as of September 30, 2016, has been derived from the audited financial statements at that date but does not include all the information and footnotes required by accounting principles generally accepted in the United States ("GAAP") for complete financial statements.
The consolidated financial statements include the accounts and operations of the Company, its wholly owned subsidiaries, and its majority owned or controlled real estate entities and its interests in variable interest entities ("VIEs") in which the Company is determined to be the primary beneficiary. Material inter-company balances and transactions have been eliminated.
The Company’s consolidated joint ventures that own multi‑family properties were determined to be VIEs because the voting rights of some equity investors in the applicable joint venture entity are not proportional to their obligations to absorb the expected losses of the entity and their right to receive the expected residual returns. In addition, substantially all of the entity’s activities either involve or are conducted on behalf of an investor that has disproportionately fewer voting rights. It was determined that the Company is the primary beneficiary of these joint ventures because it has a controlling interest in that it has the power to direct the activities of the VIE that most significantly impact the entity's economic performance and it has the obligation to absorb losses of the entity and the right to receive benefits that could potentially be significant to the VIE.
The joint venture that owns a property in Dallas, TX was determined not to be a VIE but is consolidated because the Company has substantive participating rights in the entity owning the property.
With respect to its unconsolidated joint ventures, as (i) the Company is primarily the managing member but does not exercise substantial operating control over these entities or the Company is not the managing member and (ii) such entities are not VIEs, the Company has determined that such joint ventures should be accounted for under the equity method of accounting for financial statement purposes.

The distributions to each joint venture partner are determined pursuant to the applicable operating agreement and may not be pro-rata to the percentage equity interest each partner has in the applicable venture.     

7



For the three and six months ended March 31, 2016, the Company reclassified approximately $1,162,000 and $2,083,000 of tenant utility reimbursements from real estate operating expenses to rental and other revenues from real estate properties to conform with the current period presentation. This reclassification increased total revenues and expenses by $1,162,000 and $2,083,000 respectively, and had no effect on the Company's financial position, results of operations or cash flows.
The preparation of the financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements. Actual results could differ from those estimates.

Note 3 ‑ Equity

Common Stock Dividend Distribution

During the three and six months ended March 31, 2017 and 2016, the Company did not declare a dividend on its shares.

Stock Based Compensation

The Company's Amended and Restated 2016 Incentive Plan (the "Plan") permits the Company to grant: (i) stock options, restricted stock, restricted stock units, performance share awards and any one or more of the foregoing, up to a maximum of 600,000 shares; and (ii) cash settled dividend equivalent rights in tandem with the grant of restricted stock units and certain performance based awards.
Restricted Stock Units
Pursuant to the Plan, in June 2016, the Company issued restricted stock units (the "Units") to acquire up to 450,000 common shares (the "Pay for Performance Program") . In March 2021, recipients of the Units are entitled to receive (i) the underlying shares if certain performance metrics are satisfied at the vesting date, and (ii) cash dividends paid with respect to the common shares underlying the Units if, when, and to the extent, the related Units vest. Because the Units are not participating securities, for accounting purposes, the shares underlying the Units are excluded in the outstanding shares reflected on the consolidated balance sheet and from the calculation of basic earnings per share. The shares are contingently issuable shares but have not been included in the diluted earnings per share as the performance and market criteria have not been met.
Expense is recognized over the five year vesting period on the Units which the Company expects to vest. The Company recorded $110,000 and $220,000, respectively of compensation expense related to the amortization of unearned compensation with respect to the Units in the three and six months ended March 31, 2017. At March 31, 2017 and September 30, 2016, $1,752,000 and $1,972,000, respectively, has been deferred and will be charged to expense over the vesting period.
Restricted Stock
In January 2017, the Company granted 147,500 shares of restricted stock pursuant to the Plan.
As of March 31, 2017, an aggregate of 689,375 shares of unvested restricted stock are outstanding pursuant to the 2012 Incentive Plan and the 2009 Incentive Plan (collectively the "Prior Plans"). No additional awards may be granted under the Prior Plans. All shares of restricted stock vest five years from the date of grant and under specified circumstances, including a change in control, may vest earlier. For accounting purposes, the restricted stock is not included in the outstanding shares shown on the consolidated balance sheets until they vest, but are included in the earnings per share computation.
For the three months ended March 31, 2017 and 2016, the Company recorded $276,000 and $188,000, respectively, of compensation expense related to the amortization of unearned compensation with respect to the stock awards. For the six months ended March 31, 2017 and 2016, the Company recorded $490,000 and $418,000, respectively, of compensation expense related to the amortization of unearned compensation with respect to the restricted

8



stock awards. At March 31, 2017 and September 30, 2016, $2,843,000 and $2,089,000 has been deferred as unearned compensation and will be charged to expense over the remaining vesting periods of these restricted stock awards. The weighted average vesting period of these shares of restricted stock is 2.8 years.
Stock Buyback
On March 11, 2016, the Board of Directors approved a repurchase program authorizing the Company to repurchase up to $5,000,000 of shares of common stock through September 30, 2017. During the six months ended March 31, 2017, the Company purchased 5,775 shares of common stock at an average market price of $8.26 per share for a purchase price, including commissions, of $47,000.
Per Share Data
Basic earnings (loss) per share is determined by dividing net income (loss) applicable to common shareholders for the applicable period by the weighted average number of common shares outstanding during such period. The Units are excluded from the basic earnings per share calculation, as they are not participating securities. Diluted earnings per share reflects the potential dilution that could occur if securities or other contracts to issue common shares were exercised or converted into common shares or resulted in the issuance of common shares that share in the earnings of the Company. Diluted earnings (loss) per share is determined by dividing net income (loss) applicable to common shareholders for the applicable period by the weighted average number of shares of common stock outstanding during such period. For the three and six months ended March 31, 2017, none of the Units are included in the diluted weighted average as they did not meet the applicable performance metrics during such periods.
Basic and diluted shares outstanding for the three months ended March 31, 2017 and 2016, were 14,018,099 and 14,132,235, respectively, and for the six months ended March 31, 2017 and 2016, were 13,957,706 and 14,116,560, respectively.

Note 4 ‑ Real Estate Properties

Real estate properties (including properties held for sale) consist of the following (dollars in thousands):
 
 
March 31, 2017
 
September 30, 2016
Land
 
$
126,344

 
$
128,409

Building
 
678,490

 
684,133

Building improvements
 
29,423

 
25,717

  Real estate properties
 
834,257

 
838,259

Accumulated depreciation
 
(53,143
)
 
(44,687
)
  Total real estate properties, net
 
$
781,114

 
$
793,572


A summary of real estate properties owned (including properties held for sale) follows (dollars in thousands):
      



September 30, 2016
Balance
 



Additions
 

Capitalized Costs and Improvements
 



Depreciation
 
Sales
 

March 31, 2017
Balance
Multi-family
$
783,085

 
$
88,218

 
$
5,305

 
$
(14,014
)
 
$
(92,037
)
 
$
770,557

Land - Daytona, FL
8,021

 

 

 

 

 
8,021

Shopping centers/Retail - Yonkers, NY
2,466

 


 
125

 
(55
)
 

 
2,536

Total real estate properties
$
793,572

 
$
88,218

 
$
5,430

 
$
(14,069
)
 
$
(92,037
)
 
$
781,114

    

9



        

The following table summarizes the preliminary allocations of the purchase price of six properties purchased between August 1, 2016 and March 31, 2017 and the finalized allocation of the purchase price of such properties, as adjusted as of March 31, 2017 (dollars in thousands):
 
 
Preliminary Purchase Price Allocation
 
Adjustments
 
Finalized Purchase Price Allocation
Land
 
$
26,099

 
$
(1,550
)
 
$
24,549

Building and improvements
 
160,405

 
341

 
160,746

Acquisition-related intangible assets
 
1,515

 
1,209

 
2,724

Total consideration
 
$
188,019

 
$

 
$
188,019



Note 5 ‑ Acquisitions and Dispositions

Property Acquisitions

The table below provides information for the six months ended March 31, 2017 regarding the Company's purchases of multi-family properties (dollars in thousands):
Location
 
Purchase Date
 
No. of Units
 
Purchase Price
 
Acquisition Mortgage Debt
 
Initial BRT Equity
 
Ownership Percentage
 
Capitalized Acquisition Costs
(a)
Fredricksburg, VA
 
11/4/2016
 
220

 
$
38,490

 
$
29,940

 
$
8,720

 
80
%
 
$
643

St. Louis, MO
 
2/28/2017
 
53

 
8,000

 
6,200

 
2,002

 
75.5
%
 
134

St. Louis, MO
 
2/28/2017
 
128

 
27,000

 
20,000

 
6,001

 
75.5
%
 
423


 

 
401

 
$
73,490

 
$
56,140

 
$
16,723

 
 
 
$
1,200

_______________________________
(a) See Note 15.

The table below provides information for the six months ended March 31, 2016 regarding the Company's purchases of multi-family properties (dollars in thousands):
Location
 
Purchase Date
 
No. of Units
 
Purchase Price
 
Acquisition Mortgage Debt
 
Initial BRT Equity
 
Ownership Percentage
 
Expensed Acquisition Costs
N. Charleston, SC (a)
 
10/13/2015
 
271

 
$
3,625

 

 
$
6,558

 
65
%
 

La Grange, GA
 
11/18/2015
 
236

 
22,800

 
$
16,051

 
6,824

 
100
%
 
$
57

Katy, TX
 
1/22/2016
 
268

 
40,250

 
30,750

 
8,150

 
75
%
 
382

Macon, GA
 
2/1/2016
 
240

 
14,525

 
11,200

 
3,250

 
80
%
 
158

Southaven, MS
 
2/29/2016
 
392

 
35,000

 
28,000

 
5,856

 
60
%
 
413

 
 
 
 
1,407

 
$
116,200

 
$
86,001

 
$
30,638

 
 
 
$
1,010


(a) This 41.5 acre land parcel was purchased for development. The initial equity includes funds contributed in connection with commencement of construction. Acquisition costs related to this development have been capitalized.

Subsequent to March 31, 2017, the Company purchased the following multi-family property (dollars in thousands):
Location
 
Purchase Date
 
No. of Units
 
Purchase Price
 
Acquisition Mortgage Debt
 
Initial BRT Equity
 
Ownership Percentage
 
Capitalized Acquisition Costs
Creve Coeur, MO
 
4/4/2017
 
174

 
$
39,600

 
$
29,000

 
$
9,408

 
78
%
 
$
567



10




Property Dispositions

The following table is a summary of the real estate properties disposed of by the Company in the six months ended March 31, 2017 (dollars in thousands):
Location
Sale
Date
 
No. of
Units
 
Sales Price
 
Gain on Sale
 
Non-controlling partner portion of gain
Greenville, NC
10/19/2016
 
350

 
$
68,000

 
$
18,483

 
$
9,329

Panama City, FL
10/26/2016
 
160

 
14,720

 
7,393

 
3,478

Atlanta, GA
11/21/2016
 
350

 
36,750

 
8,905

 
4,166

Hixson, TN
11/30/2016
 
156

 
10,775

 
608

 
152

New York, NY
12/21/2016
 
1

 
465

 
449

 

 
 
 
1,017

 
$
130,710

 
$
35,838

 
$
17,125


The following table is a summary of the real estate properties disposed of by the Company in the six months ended March 31, 2016 (dollars in thousands):
Location
Sale
Date
 
No. of
Units
 
Sales Price
 
Gain on Sale
 
Non-controlling partner portion of gain
New York, NY
10/1/2015
 
1

 
$
652

 
$
609

 

Cordova, TN
3/2/2016
 
464

 
31,100

 
6,764

 
$
2,195

Kennesaw, GA
3/15/2016
 
450

 
64,000

 
17,462

 
10,037

 
 
 
915

 
$
95,752

 
$
24,835

 
$
12,232


Note 6 –Real Estate Loan

    As a result of the sale of the Company's interest in the Newark Joint Venture in February 2016, the mortgage loan owed to the Company by the venture (the "NJV Loan Receivable"), which, prior to the sale, was eliminated in consolidation, is reflected as a real estate loan on the consolidated balance sheets. At September 30, 2016, the principal amount of the NJV Loan Receivable was $19,500,000.

In February 2017, the Company received (i) a $13,600,000 principal paydown of the NJV Loan Receivable and (ii) $2,606,000, representing all the interest (i.e., current and deferred) due through the repayment date. In connection with this transaction, the Company released certain properties from the mortgages securing the NJV Loan Receivable. Accordingly, at March 31, 2017, the NJV Loan Receivable principal balance is $5,900,000. This receivable matures in June 2017, bears interest, payable monthly, at a rate of 11% per year, and is secured by several properties in Newark, NJ.

Note 7 - Real Estate Property Held For Sale
    
At September 30, 2016, the Sandtown Vista property in Atlanta, GA and the Spring Valley property in Panama City, FL were held for sale. The Sandtown Vista property, which had a book value of $27,076,000, was sold on November 21, 2016. The Spring Valley property, which had a book value $6,920,000, was sold on October 26, 2016.


11



Note 8 - Restricted Cash
Restricted cash represents funds that are being held for specific purposes and are therefore not generally available for general corporate purposes. As reflected on the consolidated balance sheets, Restricted cash represents funds that are held by or on behalf of the Company specifically for capital improvements at certain multi-family properties.

Note 9 – Investment in Unconsolidated Ventures

During the six months ended March 31, 2017, the Company purchased interests in two unconsolidated joint ventures in Columbia, SC: (i) a $5,670,000 investment for a 32% interest in a venture which owns a 374 unit multi-family property; and (ii) an $8,665,000 investment for a 46% interest in a venture in which the Company contemplates the construction of 339 multi-family units. Construction financing for this development project has been secured.
 

Note 10 – Debt Obligations

Debt obligations consist of the following (dollars in thousands):
 
 
March 31, 2017
 
September 30, 2016
Mortgages payable (a)
 
$
608,429

 
$
621,382

Junior subordinated notes
 
37,400

 
37,400

Deferred mortgage costs
 
(5,688
)
 
(6,275
)
Total debt obligations, net of deferred costs
 
$
640,141

 
$
652,507

_____________________________________
(a) Excludes mortgages payable held for sale of $27,052,000 at September 30, 2016.

Mortgages Payable
    
During the six months ended March 31, 2017, the Company incurred the following fixed rate mortgage debt in connection with the following acquisitions (dollars in thousands):
Location
 
Closing Date
 
Acquisition Mortgage Debt
 
Interest Rate
 
Interest only period
 
Maturity Date
Fredricksburg, VA
 
11/4/16
 
$
27,638

 
3.68
%
 
N/A
 
February 2027
St. Louis, MO
 
2/28/17
 
20,000

 
4.79
%
 
5 years
 
March 2027
St. Louis, MO
 
2/28/17
 
6,197

 
4.84
%
 
5 years
 
March 2027
 
 
 
 
$
53,835

 


 

 
 

During the six months ended March 31, 2017, the Company obtained supplemental fixed rate mortgage financing as set forth in the table below (dollars in thousands):
Location
 
Closing Date
 
Supplemental Mortgage Debt
 
Interest Rate
 
Maturity Date
Fredricksburg, VA
 
11/4/16
 
$
2,261

 
4.84
%
 
February 2027
 
 
 
 


 
 
 
 
    
    

12



During the six months ended March 31, 2017, $11,905,000 was advanced on the construction loan that financed the N. Charleston, SC (Factory at Garco) development. At March 31, 2017, $4,817,000 is available on this facility.

Junior Subordinated Notes

At March 31, 2017 and September 30, 2016, the Company's junior subordinated notes had an outstanding principal balance of $37,400,000, before deferred financing costs of $392,000 and $402,000, respectively. At March 31, 2017, the interest rate on the outstanding balance is three month LIBOR + 2.00% or 3.04%.

The junior subordinated notes require interest only payments through the maturity date of April 30, 2036, at which time repayment of the outstanding principal and unpaid interest become due. Interest expense, including the amortization of deferred costs, for the three months ended March 31, 2017 and 2016, was $287,000 and $463,000, respectively, and for the six months ended March 31, 2017 and 2016, was $561,000 and $926,000, respectively.

Note 11 – Related Party Transactions

Majestic Property Management Corp., a related party, provides management services to the Company for certain properties owned by the Company and joint ventures in which the Company participates. These fees amounted to $8,000 for the three months ended March 31, 2017 and 2016, and $16,000 and $19,000 for the six months ended March 31, 2017 and 2016, respectively.
The allocation of expenses for the shared facilities, personnel and other resources used by the Company is determined in accordance with a shared services agreement by and among the Company and related parties. Amounts paid pursuant to the agreement are included in general and administrative expenses on the consolidated statement of operations. The Company reimbursed Gould Investors L.P., a related party, $103,000 and $160,000, for the three months ended March 31, 2017 and 2016, respectively, and $182,000 and $297,000 for the six months ended March 31, 2017 and 2016, respectively, for services provided under the agreement.
Management of many of the Company's multi-family properties (including two unconsolidated multi-family properties) is performed by the Company's joint venture partners or their affiliates (none of these joint venture partners is Gould Investors L.P. or its affiliates). Management fees to these related parties for the three months ended March 31, 2017 and 2016 were $672,000 and $366,000, respectively, and for the six months ended March 31, 2017 and 2016 were $1,296,000 and $788,000, respectively. In addition, the Company may pay an acquisition fee to a joint venture partner in connection with a property purchased by such joint venture. Acquisition fees to these related parties for the three months ended March 31, 2017 and 2016 were $350,000 and $438,000, respectively, and for the six months ended March 31, 2017 and 2016 were $650,000 and $439,000, respectively.
In the quarter ended December 31, 2015, the Company borrowed $8,000,000 from Gould Investors L.P., a related party. Interest for the three and six months ended March 31, 2016 was $62,000 and $86,000, respectively. This loan was repaid on February 24, 2016.

13




Note 12 - Segment Reporting

Management determined that the Company operates in two reportable segments: a multi-family property segment, which includes the ownership, operation and development of multi-family properties; and an other assets segment, which includes the ownership and operation of the Company's other real estate assets and a real estate loan.

The following tables summarize the Company's segment reporting for the periods indicated (dollars in thousands):
 
 
Three Months Ended March 31, 2017
 
 
Multi-Family
Real Estate
 
Other
Assets
 

Total
Revenues:
 
 
 
 
 
 
Rental and other revenues from real estate properties
 
$
24,318

 
$
384

 
$
24,702

Other income
 
(9
)
 
190

 
181

Total revenues
 
24,309

 
574

 
24,883

Expenses:
 
 
 
 
 
 
Real estate operating expenses
 
11,749

 
160

 
11,909

Interest expense
 
5,870

 
532

 
6,402

General and administrative
 
2,343

 
47

 
2,390

Depreciation
 
7,745

 
27

 
7,772

Total expenses
 
27,707

 
766

 
28,473

Loss from continuing operations
 
(3,398
)
 
(192
)
 
(3,590
)
Provision for taxes
 
1,086

 
22

 
1,108

Loss from continuing operation, net of taxes
 
(4,484
)
 
(214
)
 
(4,698
)
Net loss (income) attributable to non-controlling interests
 
502

 
(33
)
 
469

Net loss attributable to common stockholders
 
$
(3,982
)
 
$
(247
)
 
$
(4,229
)
Segment Assets at March 31, 2017
 
$
853,226

 
$
17,294

 
$
870,520





14



 
 
Three Months Ended March 31, 2016
 
 
Multi-Family
Real Estate
 
Other Assets
 

Total
Revenues:
 
 
 
 
 
 
Rental and other revenues from real estate properties
 
$
23,635

 
$
358

 
$
23,993

Other income
 

 
2,026

 
2,026

Total revenues
 
23,635

 
2,384

 
26,019

Expenses:
 
 
 
 
 
 
Real estate operating expenses
 
11,955

 
142

 
12,097

Interest expense
 
6,028

 
21

 
6,049

Property acquisition costs
 
953

 

 
953

General and administrative
 
2,234

 
46

 
2,280

Depreciation and amortization
 
5,605

 
27

 
5,632

Total expenses
 
26,775

 
236

 
27,011

Total revenues less total expenses
 
(3,140
)
 
2,148

 
(992
)
Gain on sale of real estate assets
 
24,226

 

 
24,226

Loss on extinguishment of debt
 
(2,668
)
 

 
(2,668
)
Income from continuing operations
 
18,418

 
2,148

 
20,566

Net (income) loss attributable to non-controlling interests
 
(10,581
)
 
672

 
(9,909
)
Net income attributable to common stockholders before reconciling adjustment
 
$
7,837

 
$
2,820

 
$
10,657

Reconciling adjustment:
 
 
 
 
 
 
  Discontinued operations, net of non-controlling interest
 
 
 
 
 
14,279

Net income attributable to common stockholders
 
 
 
 
 
$
24,936

Segment Assets at March 31, 2016
 
$
722,338

 
$
30,637

 
$
752,975








15



 
 
Six Months Ended March 31, 2017
 
 
Multi-Family
Real Estate
 
Other
Assets
 

Total
Revenues:
 
 
 
 
 
 
Rental and other revenues from real estate properties
 
$
48,960

 
$
771

 
$
49,731

Other income
 
(9
)
 
801

 
792

Total revenues
 
48,951

 
1,572

 
50,523

Expenses:
 
 
 
 
 
 
Real estate operating expenses
 
24,099

 
256

 
24,355

Interest expense
 
11,962

 
1,127

 
13,089

General and administrative
 
4,887

 
100

 
4,987

Depreciation
 
14,015

 
54

 
14,069

Total expenses
 
54,963

 
1,537

 
56,500

Total revenue less total expenses
 
(6,012
)
 
35

 
(5,977
)
Gain on sale of real estate
 
35,389

 
449

 
35,838

Loss on extinguishment of debt
 
(799
)
 

 
(799
)
Income from continuing operations
 
28,578

 
484

 
29,062

Provision for taxes
 
1,429

 
29

 
1,458

Income from continuing operations, net of taxes
 
27,149

 
455

 
27,604

Net loss attributable to non-controlling interests
 
(15,995
)
 
(68
)
 
(16,063
)
Net income attributable to common stockholders
 
$
11,154

 
$
387

 
$
11,541

Segment Assets at March 31, 2017
 
$
853,226

 
$
17,294

 
$
870,520









16



 
 
Six Months Ended March 31, 2016
 
 
Multi-Family
Real Estate
 
Other Assets
 

Total
Revenues:
 
 
 
 
 
 
Rental and other revenues from real estate properties
 
$
45,639

 
$
673

 
$
46,312

Other income
 

 
2,033

 
2,033

Total revenues
 
45,639

 
2,706

 
48,345

Expenses:
 
 
 
 
 
 
Real estate operating expenses
 
22,899

 
292

 
23,191

Interest expense
 
11,487

 
93

 
11,580

Advisor's fee, related party
 
594

 
99

 
693

Property acquisition costs
 
1,010

 

 
1,010

General and administrative
 
3,895

 
134

 
4,029

Depreciation
 
10,563

 
53

 
10,616

Total expenses
 
50,448

 
671

 
51,119

Total revenue less total expenses
 
(4,809
)
 
2,035

 
(2,774
)
Gain on sale of real estate
 
24,226

 
609

 
24,835

Loss on extinguishment of debt
 
(2,668
)
 

 
(2,668
)
Income from continuing operations
 
16,749

 
2,644

 
19,393

Net (income) loss attributable to non-controlling interests
 
$
(10,780
)
 
$
1,610

 
(9,170
)
Net income attributable to common stockholders before reconciling adjustment
 
$
5,969

 
$
4,254

 
10,223

Reconciling adjustment:
 
 
 
 
 
 
Discontinued operations, net of non-controlling interest
 
 
 
 
 
12,679

Net income attributable to common stockholders
 
 
 
 
 
$
22,902

Segment Assets at March 31, 2016
 
$
722,338

 
$
30,637

 
$
752,975










17



Note 13 – Fair Value of Financial Instruments

Financial Instruments Not Measured at Fair Value

The following methods and assumptions were used to estimate the fair value of each class of financial instruments that are not recorded at fair value on the consolidated balance sheets:

Cash and cash equivalents, restricted cash, accounts receivable (included in other assets), accounts payable and accrued liabilities: The carrying amounts reported in the balance sheets for these instruments approximate their fair value due to the short term nature of these accounts.

Junior subordinated notes: At March 31, 2017 and September 30, 2016 the estimated fair value of the notes is lower than their carrying value by approximately $16,237,000 and $16,549,000 based on a market interest rate of 6.63% and 6.37%, respectively.

Mortgages payable: At March 31, 2017, the estimated fair value of the Company’s mortgages payable is lower than their carrying value by approximately $12,704,000 assuming market interest rates between 3.79% and 4.99% and at September 30, 2016, the estimated fair value of the Company's mortgages payable was greater than their carrying value by approximately $10,629,000 assuming market interest rates between 3.05% and 4.25%. Market interest rates were determined using rates which the Company believes reflects institutional lender yield requirements.

Considerable judgment is necessary to interpret market data and develop estimated fair value. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value assumptions.

Financial Instruments Measured at Fair Value

The Company’s fair value measurements are based on the assumptions that market participants would use in pricing the asset or liability. As a basis for considering market participant assumptions in fair value measurements, there is a fair value hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity and the reporting entity’s own assumptions about market participant assumptions. Level 1 assets/liabilities are valued based on quoted prices for identical instruments in active markets, Level 2 assets/liabilities are valued based on quoted prices in active markets for similar instruments, on quoted prices in less active or inactive markets, or on other “observable” market inputs, and Level 3 assets/liabilities are valued based significantly on “unobservable” market inputs. The Company does not currently own any financial instruments that are classified as Level 3. Set forth below is information regarding the Company’s financial assets and liabilities measured at fair value as of March 31, 2017 (dollars in thousands):



Carrying and Fair Value
 
Fair Value Measurements
Using Fair Value Hierarchy
 
 
Level 1
 
Level 2
Financial Assets:
 
 
 
 
 
Interest rate swaps
$
1,818

 

 
$
1,818

 
 
 
 
 
 
Financial Liabilities:
 
 
 
 
 
Interest rate swap
$
17

 

 
$
17


Derivative financial instruments: Fair values are approximated using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of the derivatives. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves, foreign exchange rates, and implied volatilities. At March 31, 2017, these derivatives are included in other assets and other accounts payable and accrued liabilities on the consolidated balance sheet.

Although the Company has determined that the majority of the inputs used to value its derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with them utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by itself and its counterparties. As of March 31, 2017, the Company assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative position and determined that the credit valuation adjustments are not significant to the overall valuation of its derivatives. As a result, the Company determined that its derivatives valuation is classified in Level 2 of the fair value hierarchy.

18



Note 14 – Derivative Financial Instruments

Cash Flow Hedges of Interest Rate Risk

The Company's objective in using interest rate derivatives is to manage its exposure to interest rate movements. To accomplish this objective, the Company primarily uses interest rate swaps as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount.

The effective portion of changes in the fair value of derivatives, designated and that qualify as cash flow hedges, is recorded in accumulated other comprehensive (income) loss on our consolidated balance sheets and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings.
Amounts reported in accumulated other comprehensive income (loss) related to derivatives will be reclassified to interest expense as interest payments are made on the Company's variable-rate debt.
As of March 31, 2017, the Company had the following outstanding interest rate derivatives that were designated as cash flow hedges of interest rate risk (dollars in thousands):
Interest Rate Derivative
 
Notional Amount
 
Fixed Rate
 
Maturity
Interest rate swap
 
$
1,531

 
5.25
%
 
April 1, 2022
Interest rate swap
 
$
26,400

 
3.61
%
 
May 6, 2023
Interest rate swap
 
$
27,000

 
4.05
%
 
September 19, 2026

The table below presents the fair value of the Company’s derivative financial instruments as well as its classification on the consolidated balance sheets as of the dates indicated (amounts in thousands):
Derivatives as of:
March 31, 2017
 
September 30, 2016
Balance Sheet Location
 
Fair Value
 
Balance Sheet Location
 
Fair Value
Other Assets
 
$
1,818

 
Other Assets
 
$

Accounts payable and accrued liabilities
 
$
17

 
Accounts payable and accrued liabiltities
 
$
1,602


As of March 31, 2017, the Company did not have any derivative instruments that were considered to be ineffective and does not use derivative instruments for trading or speculative purposes.

The following table presents the effect of the Company’s interest rate swaps on the consolidated statements of comprehensive loss for the dates indicated (dollars in thousands):
 
 
Three Months Ended
March 31,
 
Six Months Ended
March 31,
 
 
2017
 
2016
 
2017
 
2016
Amount of gain recognized on derivative in Other Comprehensive Income (loss)
 
$
65

 
$
(41
)
 
$
3,189

 
$
(29
)
Amount of gain (loss) reclassified from Accumulated
Other Comprehensive Income (loss) into Interest Expense
 
$
(70
)
 
$
(7
)
 
$
(214
)
 
$
(15
)


19



No gain or loss was recognized related to hedge ineffectiveness or to amounts excluded from effectiveness testing on the Companys’s cash flow hedges during the three and six months ended March 31, 2017 and March 31, 2016. The Company estimates an additional $197,000 will be reclassified from other comprehensive income (loss) as an increase to interest expense over the next twelve months.

Credit-risk-related Contingent Features

The agreement between the Company and its derivative counterparties provides that if the Company defaults on any of its indebtedness, including default where repayment of the indebtedness has not been accelerated by the lender, the Company could be declared in default on its derivative obligations.

As of March 31, 2017, the fair value of the derivative in a net liability position, which includes accrued interest, but excludes any adjustment for nonperformance risk related to these agreement, was $16,000. As of March 31, 2017, the Company has not posted any collateral related to these agreements. If the Company had been in breach of these agreements at March 31, 2017, it could have been required to settle its obligations thereunder at its termination value of $16,000.


Note 15 – New Accounting Pronouncements

In January 2017, the Financial Accounting Standards Board ("FASB") issued ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business. The ASU clarifies the definition of a business with the objective of adding guidance to assist companies and other reporting organizations with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or business combinations. The ASU is effective for annual periods beginning after December 15, 2017, including interim periods within those periods. Early adoption is permitted. The Company elected early adoption effective for the quarter ended December 31, 2016. The Company's net income was favorably impacted as a result of the capitalization of acquisition costs - in prior periods, property acquisition costs were expensed during the period incurred. During the three and six months ended March 31, 2017, capitalized acquisition costs were $557,000 and $1,200,000, respectively, without giving effect to non-controlling interests.

In March 2016, the FASB issued ASU 2016-09, Improvements to Employee Share-Based Payment Accounting, which requires all excess tax benefits or deficiencies to be recognized as income tax expense or benefit in the income statement. In addition, excess tax benefits should be classified along with other income tax cash flows as an operating activity in the statement of cash flows. Application of the standard is required for the annual and interim periods beginning after December 15, 2016. Early adoption is permitted. The Company is currently evaluating the impact of this new standard on our consolidated financial statements.

In February 2015, the FASB issued ASU 2015-02, Amendments to the Consolidation Analysis, which amends the current consolidation guidance, including introducing a separate consolidation analysis specific to limited partnerships and other similar entities. Under this analysis, limited partnerships and other similar entities will be considered a VIE unless the limited partners hold substantive kick-out rights or participating rights. The guidance is effective for annual periods beginning after December 15, 2015, including interim periods within those periods, with early adoption permitted. The Company adopted this guidance in the quarter December 31, 2016 and its adoption did not have a material effect on its consolidated financial statements.
    
In May 2014, the FASB issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (ASU 2014-09), which supersedes nearly all existing revenue recognition guidance under U.S. GAAP. The core principle of ASU 2014-09 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration to which an entity expects to be entitled for those goods or services. ASU 2014-09 defines a five step process to achieve this core principle and, in doing so, more judgment and estimates may be required within the revenue recognition process than are required under existing U.S. GAAP. The standard is effective for annual periods beginning after December 15, 2017, and interim periods thereafter, using either of the following transition methods: (i) a full retrospective approach reflecting the application of the standard in each prior reporting

20



period with the option to elect certain practical expedients, or (ii) a retrospective approach with the cumulative effect of initially adopting ASU 2014-09 recognized at the date of adoption (which includes additional footnote disclosures). The Company is currently evaluating the impact of our pending adoption of ASU 2014-09 on our consolidated financial statements and have not yet determined the method by which we will adopt the standard in 2018.

 
Note 16 – Subsequent Events

Subsequent events have been evaluated and any significant events, relative to our consolidated financial statements as of March 31, 2017 that warrant additional disclosure, have been included in the notes to the consolidated financial statements.



21



Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements

With the exception of historical information, this report on Form 10-Q contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended. We intend such forward-looking statements to be covered by the safe harbor provision for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995 and include this statement for purposes of complying with these safe harbor provisions. Forward-looking statements, which are based on certain assumptions and describe our future plans, strategies and expectations, are generally identifiable by use of the words "may", "will", "believe", "expect", "intend", "anticipate", "estimate", "project", or similar expressions or variations thereof. Forward-looking statements involve known and unknown risks, uncertainties and other factors which are, in some cases, beyond our control and which could materially affect actual results, performance or achievements. Investors are cautioned not to place undue reliance on any forward-looking statements and are urged to read “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended September 30, 2016.

Overview

We are an internally managed real estate investment trust, also known as a REIT, that is primarily focused on the ownership, operation and development of multi‑family properties. These activities are primarily conducted through joint ventures in which we typically have an 80% interest in the entity owning the property. At March 31, 2017, we own 32 multi‑family properties located in 11 states with an aggregate of 8,805 units (including 271 units at a property in lease up stage). At March 31, 2017, the net book value of the multi-family assets was $770.6 million. During the three months ended March 31, 2017 the average occupancy at our stabilized properties was 93.3%.
We also own and operate various other real estate assets. At March 31, 2017, the net book value of these other real estate assets is $16.5 million, including a real estate loan of $5.9 million.
As used herein, the term "same store properties" refers to properties that were owned for the entirety of the periods being presented and excludes properties that were in development or lease up during such periods or not yet stabilized.
Conversion to a Maryland Corporation

On March 18, 2017, we completed the conversion from a Massachusetts business trust  to a Maryland corporation. The conversion had no impact on the business or management of our company and has been treated as a tax-free exchange under relevant Internal Revenue Service regulations. Shares of beneficial  interest were automatically converted to shares of common stock at the time of the Conversion.

Except as otherwise specified, all references in this Form 10-Q to “BRT,” “we,” “us,” and “our” refer (i) from and after the time of the Conversion, to BRT Apartments Corp. and its subsidiaries and (ii) prior to the Conversion, to our predecessor BRT Realty Trust and its subsidiaries. Except as otherwise specified, all references in this Form 10-Q to “common stock” or “shares” refer (i) from and after the time of the Conversion, to common stock and (ii) prior to the Conversion, shares of beneficial interest.

Acquisitions, Dispositions and Recent Developments

We acquired two multi-family properties, located in Saint Louis, MO, with an aggregate of 181 units for $35.0 million, including mortgage debt of $26.2 million obtained in connection with the acquisition. Commencing April 1, 2017, these properties are expected to generate, on a quarterly basis, $932,000 of rental revenue, $407,000 of real estate operating expense, $316,000 of interest expense and $412,000 of depreciation expense.

In April 2017, we acquired a 220 unit multi-family property located in Creve Coeur, MO for $39.6 million, including $29.0 million of mortgage debt obtained in connection with the acquisition.

22



Results of Operations – Three months ended March 31, 2017 compared to three months ended March 31, 2016.

Revenues

The following table compares our revenues for the periods indicated:
 
 
Three Months Ended
March 31,
 
 
 
 
(Dollars in thousands):
 
2017
 
2016
 
Increase
 
%
Change
Rental and other revenues from real estate properties
 
$
24,702

 
$
23,993

 
$
709

 
3.0

Other income
 
181

 
2,026

 
(1,845
)
 
(91.1
)
Total revenues
 
$
24,883

 
$
26,019

 
$
(1,136
)
 
(4.4
)

Rental and other revenues from real estate properties.

The increase is due primarily to:
$6.5 million from seven properties acquired during the nine months ended December 31, 2016,
$1.0 million from the inclusion, for the entire three months ended March 31, 2017, of three properties that were only owned for a portion of the corresponding period in the prior year,
$590,000 from same store properties due primarily to a net increase in rental rates from several multi-family properties, and
$314,000 from two properties acquired during the three months ended March 31, 2017.

Offsetting this increase was a decrease of $7.7 million of rental revenue from the ten properties sold from January 1, 2016 to December 31, 2016.

Other Income.

The decrease is due primarily to the recognition, in the corresponding period of the prior year, of $1.9 million of interest that had been deferred and not recognized for several years on the $19.5 million loan to the Newark Joint Venture.

Expenses

The following table compares our expenses for the periods indicated:
 
 
Three Months Ended
March 31,
 
 
 
 
(Dollars in thousands)
 
2017
 
2016
 
Increase
(Decrease)
 
% Change
Real estate operating expenses
 
$
11,909

 
$
12,097

 
$
(188
)
 
(1.6
)
Interest expense
 
6,402

 
6,049

 
353

 
5.8

Property acquisition costs
 

 
953

 
(953
)
 
(100.0
)
General and administrative
 
2,390

 
2,280

 
110

 
4.8

Depreciation
 
7,772

 
5,632

 
2,140

 
38.0

Total expenses
 
$
28,473

 
$
27,011

 
$
1,462

 
5.4






23



Real estate operating expenses.

The decrease is due primarily to $4.4 million related to the the ten properties sold from January 1, 2016 to December 31, 2016

Offsetting the decrease is an increase in of:
$3.1 million from seven properties acquired during the nine months ended December 31, 2016,
$567,000 from the inclusion, for the entire three months ended March 31, 2017, of three properties acquired in the corresponding period of the prior year, and
$305,000 from several same store properties due to increased real estate taxes and repair and maintenance expense

Interest expense.

The increase is due primarily to:
$1.8 million from the mortgages on seven properties acquired during the nine months ended December 31, 2016, and
$325,000 due to the inclusion, for the entire three months ended March 31, 2017, of the mortgages on three properties acquired during the corresponding period of the prior year.

Offsetting the increase are decreases of:
$1.7 million relating to the mortgage debt on ten properties sold during the twelve months ended December 31, 2016, and
$175,000 relating to the decrease in the interest rate paid on our junior subordinated debt which changed on April 29, 2016 from a fixed rate of 4.91% to an adjustable rate of three month LIBOR plus 200 basis points. At March 31, 2017, the interest rate on such debt is 3.04%.

Property acquisition costs. Due to a change in accounting guidance that was adopted effective as October 1, 2016, these costs are now capitalized as a part of the basis of the acquired property. During the three months ended March 31, 2017, we capitalized $557,000 of such costs.

General and administrative.

The increase is due primarily to non- cash amortization of restricted stock and restricted stock unit expense and increases in salaries due to higher compensation levels.
Depreciation.
The increase is due primarily to:
$3.2 million from seven properties acquired during the nine months ended December 31, 2016, and
$418,000 from the inclusion, for the entire three months ended March 31, 2017, of three properties acquired during the corresponding period of the prior year.

Offsetting the increase is a decrease of $1.5 million from ten properties sold during the twelve months ended December 31, 2016.


Other Income and Expenses

Gain on sale of real estate. During the three months ended March 31, 2016, we sold two multi-family properties for an aggregate of $94.7 million and recognized an aggregate gain of $24.2 million, of which $12.2 million was allocated to the non-controlling interests. There were no sales in the current three month period.

24



Loss on extinguishment of debt. During the three months ended March 31, 2016, we incurred a $2.7 million mortgage prepayment charge in connection with the sale of a property, of which $1.5 million was allocated to the non- controlling interests. There was no comparable charge in the current three month period.
Provision for taxes. The increase reflects state taxes paid as a result of income recognized at the state level, primarily from gains on property sales. Loss carry- forwards that are available at the federal level differ from and may not be available at the individual state level.

Income from discontinued operations. In February 2016, we sold our interest in the Newark Joint Venture for a gain of $15.4 million and reclassified the operations of the venture to discontinued operations for the quarter ended March 31, 2016.
Net loss (income) attributable to non-controlling interest. This category represents our joint venture partners share of income including gains and early extinguishment of debt. During the three months ended March 31, 2016, we sold two multi-family properties and allocated $12.2 million of the gain and $1.5 million of the loss on extinguishment of mortgage debt to our partner. There were no sales in the current period.

Results of Operations – Six months ended March 31, 2017 compared to six months ended March 31, 2016.

Revenues

The following table compares our revenues for the periods indicated:
 
 
Six Months Ended
March 31,
 
 
 
 
(Dollars in thousands):
 
2017
 
2016
 
Increase
 
%
Change
Rental and other revenues from real estate properties
 
$
49,731

 
$
46,312

 
$
3,419

 
7.4

Other income
 
792

 
2,033

 
(1,241
)
 
(61.0
)
Total revenues
 
$
50,523

 
$
48,345

 
$
2,178

 
4.5


Rental and other revenues from real estate properties.

The increase is due primarily to:
$11.1 million from six properties acquired during the six months ended September 30, 2016,
$3.8 million from the inclusion, for the entire six months ended March 31, 2017, of four properties that were only owned for a portion of the corresponding period in the prior year,
$1.7 million from three properties acquired in the six months ended March 31, 2017, and
$1.4 million from same store properties due primarily to a net increase in rental rates at a several multi-family properties.


Offsetting this increase are decreases of:
$11.0 million of rental revenue from the six properties sold during the twelve months ended September 30, 2016, and
$3.6 million from four properties sold during the six months ended March 31, 2017.
    

25



Other Income.

The decrease is due primarily to the inclusion, in the corresponding period of the prior year, of $1.9 million of interest that had been deferred and not recognized for several years on the $19.5 million loan to the Newark Joint Venture.


Expenses

The following table compares our expenses for the periods indicated:
 
 
Six Months Ended
March 31,
 
 
 
 
(Dollars in thousands)
 
2017
 
2016
 
Increase
(Decrease)
 
% Change
Real estate operating expenses
 
24,355

 
23,191

 
$
1,164

 
5.0

Interest expense
 
13,089

 
11,580

 
1,509

 
13.0

Advisor’s fees, related party
 

 
693

 
(693
)
 
(100.0
)
Property acquisition costs
 

 
1,010

 
(1,010
)
 
(100.0
)
General and administrative
 
4,987

 
4,029

 
958

 
23.8

Depreciation
 
14,069

 
10,616

 
3,453

 
32.5

Total expenses
 
$
56,500

 
$
51,119

 
$
5,381

 
10.5



Real estate operating expenses.

The increase is due primarily to:
$5.7 million from six properties acquired in the six months ended September 30, 2016,
$1.9 million from the inclusion, for the entire six months ended March 31, 2017, of four properties that were only owned for a portion of the corresponding period in the prior year,
$802,000 from several same store properties, including approximately $400,000 due to increased real estate taxes and approximately $276,000 due to increased repair and maintenance expense, and
$536,000 from three properties acquired during the six months ended March 31, 2017.

Offsetting the increase is a net decrease of:
$6.0 million relating to six properties sold during the twelve months ended September 30, 2016, and
$1.8 million from four properties sold during the six months ended March 31, 2017.

Interest expense.

The increase is due primarily to:
$3.1 million due to mortgages on six properties acquired during the six months ended September 30, 2016,
$1.2 million from the inclusion, for the full six months ended March 31, 2017, of the mortgages on four properties that were owned for a portion of the corresponding period in the prior year, and
$605,000 from the mortgages on three properties acquired during the six months ended March 31, 2017.

Offsetting the increase are decreases of:
$2.5 million relating to the mortgage debt on six properties sold during the twelve months ended September 30, 2016,
$611,000 from mortgages on four properties sold during the six months ended March 31, 2017, and
$452,000 due to the decrease in the interest rate paid on our junior subordinated debt.


26



Advisor’s fees, related party. The 2016 period reflects the amounts paid during the three months ended December 31, 2015, at which time the advisory agreement terminated.

Property acquisition costs. Due to a change in accounting guidance that was adopted as of October 1, 2016, these costs are now capitalized as a part of the basis of the acquired property. During the six months ended March 31, 2017, we capitalized $1.2 million of such costs.

General and administrative. Approximately $498,000 of the increase is due of the inclusion of the fees for services previously provided pursuant to the advisory agreement, approximately $302,000 is due to increased compensation expense (including $292,000 related to the non-cash amortization of restricted stock and restricted stock unit expense and $160,000 due to increased salaries) and $190,000 of various other expenses, including expenses related to the conversion.

Depreciation. The increase is due primarily to $4.8 million from six properties acquired during the twelve months ended March 31, 2017, $1.5 million from the inclusion for the full six months of four properties that were owned for a portion of the corresponding period in the prior period and $519,000 from same store sales related to purchase price allocation adjustments. Offsetting the increase are decreases of $1.9 million from six properties sold during the twelve months ended September 30, 2016 and $1.3 million related to four properties sold during the six months ended March 31, 2017.


Other Income and Expenses

Gain on sale of real estate. During the six months ended March 31, 2017, we sold four multi family properties and a cooperative apartment unit for an aggregate of $130.7 million and recognized an aggregate gain of $35.8 million, of which $17.1 million was allocated to the non-controlling interests. The corresponding period of the prior year includes the sale of two multi-family properties and a coop apartment unit which were sold for a gain of $24.8 million, of which $12.0 million was allocated to the non controlling interest.
Loss on extinguishment of debt. During the six months ended March 31, 2017 and 2016, we incurred a $799,000 and $2.7 million of mortgage prepayment charges, respectively, in connection with property sales.
Provision for taxes. This amount reflects (i) $350,000 of Federal alternative minimum tax resulting from the use of our loss carry-forwards to offset 2016 Federal taxable income and (ii) $1.1 million of state taxes from income recognized at the state level, primarily from property sales. Loss carry- forwards that are available at the federal level differ from and may not be available at the individual state level.

Income from discontinued operations. In February 2016, we sold our interest in the Newark Joint Venture and reclassified the operations of the venture to discontinued operations for the six months ended March 31, 2016.
Net (income) loss attributable to non-controlling interest. The amount is primarily due to the allocation to our joint venture partners of their share of the gain on sale of four multi-family properties in the six months ended March 31, 2017 and two multi-family properties in the corresponding period in the prior year.

Liquidity and Capital Resources