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EX-32.3 - EXHIBIT 32.3 - BRT Apartments Corp.exhibit32393017.htm
EX-32.2 - EXHIBIT 32.2 - BRT Apartments Corp.exhibit32293017.htm
EX-32.1 - EXHIBIT 32.1 - BRT Apartments Corp.exhibit32193017.htm
EX-31.3 - EXHIBIT 31.3 - BRT Apartments Corp.exhibit31393017.htm
EX-31.2 - EXHIBIT 31.2 - BRT Apartments Corp.exhibit31293017.htm
EX-31.1 - EXHIBIT 31.1 - BRT Apartments Corp.exhibit31193017.htm
EX-23.1 - EXHIBIT 23.1 - BRT Apartments Corp.exhibit23193017.htm
EX-21.1 - EXHIBIT 21.1 - BRT Apartments Corp.exhibit21193017.htm
EX-10.5 - EXHIBIT 10.5 - BRT Apartments Corp.exhibit10593017.htm

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
ý
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 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
(State or other jurisdiction of
incorporation or organization)
 
13-2755856
(I.R.S. employer
identification no.)
60 Cutter Mill Road, Great Neck, New York
(Address of principal executive offices)
 
11021
(Zip Code)
516-466-3100
Registrant's telephone number, including area code
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Name of each exchange on which registered
Shares of common stock, par value $.01 per share
 
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
NONE
(Title of Class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o    No ý
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes o    No ý
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 Data File required to be submitted and posted pursuant to Rule 405 of Regulation 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (Section 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K 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 or an emerging growth company. See definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer o
Accelerated filer ý
Non-accelerated filer o
(Do not check if a smaller reporting company)
Smaller reporting company o
Emerging growth company o

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 standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether registrant is a shell company (as defined in Exchange Act Rule 12b-2). Yes o    No ý
The aggregate market value of voting and non-voting common equity held by non-affiliates of the registrant was approximately $64.6 million based on the last sale price of the common equity on March 31, 2017, which is the last business day of the registrant's most recently completed second quarter.
As of December 1, 2017, the registrant had 14,022,438 shares of common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the proxy statement for the annual meeting of stockholders of BRT Apartments Corp. to be filed not later than January 29, 2018 are incorporated by reference into Part III of this Form 10-K.



TABLE OF CONTENTS
Form 10-K
 
 
 
Item No.
 
Page(s)
PART I
 
1
1A.
1B.
2
3
4
PART II
 
5
6
7
7A.
8
9
9A.
9B.
PART III
 
10
11
12
13
14
PART IV
 
15
16



Forward-Looking Statements
This Annual Report on Form 10-K, together with other statements and information publicly disseminated by us, contains certain forward looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995 and include this statement for purposes of complying with these safe harbor provisions. Forward-looking statements relate to expectations, beliefs, projections, future plans and strategies, anticipated events or trends concerning matters that are not historical facts. Forward looking statements are generally identifiable by use of words such as "may," "will," "will likely result," "shall," "should," "could," "believe," "expect," "intend," "anticipate," "estimate," "project" or similar expressions or variations thereof.
Forward-looking statements contained in this Annual Report on Form 10- K are based on our beliefs, assumptions and expectations of our future performance taking into account all information currently available to us. These beliefs, assumptions and expectations can change as a result of many possible events or factors, not all of which are known to us or within our control, and which could materially affect actual results, performance or achievements. Factors which may cause actual results to vary from our forward-looking statements include, but are not limited to:
general economic and business conditions, including those currently affecting our nation’s economy and real estate markets;
the availability of, and costs associated with, sources of capital and liquidity;
accessibility of debt and equity capital markets;
general and local real estate conditions, including any changes in the value of our real estate;
changes in Federal, state and local governmental laws and regulations, including laws and regulations relating to taxes and real estate and related investments;
the level and volatility of interest rates;
our acquisition strategy, which may not produce the cash flows or income expected;
the competitive environment in which we operate, including competition that could adversely affect our ability to acquire properties and/or limit our ability to lease apartments or increase or maintain rental income;
a limited number of multi-family property acquisition opportunities acceptable to us;
the condition of Fannie Mae or Freddie Mac, which could adversely impact us;
our failure to comply with laws, including those requiring access to our properties by disabled persons, which could result in substantial costs;
insufficient cash flows, which could limit our ability to make required payments on our debt obligations;
impairment in the value of real estate we own;
failure of property managers to properly manage properties;
disagreements with, or misconduct by, joint venture partners;
decreased rental rates or increasing vacancy rates;
our ability to lease units in newly acquired or newly constructed multi-family properties;
potential defaults on or non-renewal of leases by tenants;
creditworthiness of tenants;
our ability to obtain financing for acquisitions;
development and acquisition risks, including rising or unanticipated costs and failure of such acquisitions and developments to perform in accordance with projections;
the timing of acquisitions and dispositions;
our ability to reinvest the net proceeds of dispositions into more, or as favorable, acquisition opportunities;
potential natural disasters such as hurricanes, tornadoes and floods;

1


board determinations as to timing and payment of dividends, if any, and our ability or willingness to pay future dividends;
financing risks, including the risks that our cash flows from operations may be  insufficient to meet required debt service obligations and we may be unable to refinance our existing debt upon maturity or obtain new financing on attractive terms or at all;
lack of or insufficient amounts of insurance to cover, among other things, losses from catastrophes;
our ability to maintain our qualification as a REIT;
possible environmental liabilities, including costs, fines or penalties that may be incurred due to necessary remediation of contamination of properties presently owned or previously owned by us or a subsidiary owned by us or acquired by us.
increases in real estate taxes at properties we acquire due to such acquisitions or other factors; and
the other factors described in this Annual Report on Form 10-K, including those set forth under the captions "Risk Factors" and "Business".
We caution you not to place undue reliance on forward-looking statements, which speak only as of the date of this Annual Report on Form 10-K. Except to the extent otherwise required by applicable law or regulation, we undertake no obligation to update these forward-looking statements to reflect events or circumstances after the date of the filing of this Annual Report on Form 10-K or to reflect the occurrence of unanticipated events.

2


PART I
Item l.    Business.
General
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. Most of our multi-family properties are owned by consolidated joint ventures in which we have a substantial ownership position. At September 30, 2017, we: (i) own 33 multi-family properties located in eleven states with an aggregate of 9,568 units (including 402 units at a development property) and a net book value of $900.7 million; and (ii) have ownership interests, through unconsolidated entities, in three multi-family properties with a net book value of $21.3 million. Most of our properties are located in the Southeast United States and Texas. We commenced our multi-family activities in January 2012.
We are also engaged, to a limited extent, in the ownership, operation and development of commercial, mixed use and other real estate assets. Through February 2016, these other real estate assets primarily consisted of our interest in a consolidated joint venture, which we refer to as the Newark Joint Venture, which owned several properties in Newark, New Jersey. At September 30, 2015, the net book value of our other real estate assets, including $141.4 million in net book value attributed to the Newark Joint Venture's assets, was $152.0 million. On February 23, 2016, we sold all of our interest in the Newark Joint Venture for $16.9 million, and in the quarter ended March 31, 2016, recognized a $15.5 million gain on this sale. At September 30, 2017, the net book value of our other real estate assets is $16.0 million, including a real estate loan to the Newark Joint Venture of $5.5 million. See notes 1, 5 and 6 to our consolidated financial statements.
From our inception on June 16, 1972 through November 1, 2014, we were engaged in real estate lending. These activities involved originating and holding for investment short-term mortgage loans secured by commercial or multi-family real estate property in the United States.
Information regarding our multi-family property and other real estate assets segments is included in note 14 to our consolidated financial statements and is incorporated herein by this reference. The financial information included herein has been reclassified as described in note 1 to our consolidated financial statements.
BRT Apartments Corp. is the successor to BRT Realty Trust (“BRT Trust”) pursuant to the conversion, which we refer to as the "conversion", of BRT Trust from a Massachusetts business trust to a Maryland corporation on March 18, 2017. BRT Trust was formed on June 16, 1972. Our address is 60 Cutter Mill Road, Suite 303, Great Neck, New York 11021, telephone number 516-466-3100. Our website can be accessed at www.brtapartments.com, where copies of our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and other filings with the Securities and Exchange Commission, or SEC, can be obtained free of charge. These SEC filings are added to our website as soon as reasonably practicable.
Unless otherwise indicated or the context otherwise requires, all references to (i) “us”, “we”, “BRT” or the “Company” refer (i)(a) from and after the conversion, to BRT Apartments Corp. and its consolidated subsidiaries and (b) prior to the conversion, to the predecessor BRT Trust and its consolidated subsidiaries, (ii)“common stock” or “shares” refer (a) from and after the conversion, to common stock and (b) prior to the conversion, shares of beneficial interests, (iii) a year (e.g., 2017) refers to the applicable fiscal year ended September 30th, (iii) the sale of properties includes the sale of our partnership interest in a venture that owned Village Green, a Little Rock, AK multi-family property, (iv) information regarding properties owned by unconsolidated joint ventures is separately described and is not included with information regarding our consolidated joint ventures; (v) all interest rates give effect to the related interest rate derivative, if any, and (vi) "same store properties" refer to properties that we owned and operated for the entirety of both periods being compared, except for properties that are under construction, in lease-up, or are are undergoing development or redevelopment. We move properties previously excluded from our same store portfolio (because they were under construction, in lease up or are in development or redevelopment) into the same store designation once they have stabilized (as described below) and such status has been reflected fully in all quarters during the applicable periods of comparison. Newly constructed, lease-up, development and redevelopment properties are deemed stabilized upon attainment of at least 90% physical occupancy.  Our multi-family property Retreat at Cinco Ranch-Katy, Texas is not included as a stabilized property because of the damage it suffered in Hurricane Harvey.


3


Our Multi-Family Property Activities
Generally, our multifamily properties are garden apartment, mid-rise or town home style properties that provide residents with amenities, such as a clubhouse, swimming pool, laundry facilities and cable television access. Residential leases are typically for a one year term and may require security deposits equal to one month's rent. Substantially all of the units at these properties are leased at market rates. Set forth below is selected information regarding the multi-family properties owned by us as of September 30, 2017:
 
 
 
 
 
 
 
 
Our Percentage
 
 
Average Monthly Rental Rate Per
Occupied Unit (3)($)
 
 
 Average Physical Occupancy in:
(%)
Property Name and Location
 
Number
of Units
 
Age (1)
 
Acquisition
Date
 
Ownership (%) (2)
 
 
2017
 
2016
 
2015
 
2014
 
 
2017
 
2016
 
2015
 
2014
 
The Fountains Apartments—Palm Beach Gardens, FL
 
542
 
45
 
3/22/2012
 
80
 
 
1,327

 
1,239
 
1,169
 
1,050
 
 
95.2
 
96.0
 
96.3
 
96.6
 
Waverly Place Apartments—Melbourne, FL (4)
 
208
 
30
 
3/30/2012
 
80
 
 
956

 
866
 
798
 
722
 
 
96.3
 
97.9
 
94.0
 
95.9
 
Silvana Oaks Apartments—N. Charleston, SC
 
208
 
7
 
10/4/2012
 
100
 
 
1,126

 
1,077
 
998
 
970
 
 
94.5
 
93.3
 
93.6
 
93.4
 
Avondale Station—Decatur, GA
 
212
 
63
 
11/19/2012
 
100
 
 
979

 
920
 
852
 
776
 
 
97.6
 
94.6
 
97.1
 
96.8
 
Stonecrossing Apartments—Houston, TX
 
240
 
39
 
4/19/2013
 
91
 
 
891

 
906
 
884
 
856
 
 
90.8
 
92.1
 
93.5
 
94.3
 
Stonecrossing East (Pathways)—Houston, TX 
 
144
 
38
 
6/7/2013
 
91
 
 
918

 
909
 
886
 
823
 
 
87.8
 
89.8
 
92.6
 
93.7
 
Brixworth at Bridge Street—Huntsville, AL
 
208
 
32
 
10/18/2013
 
80
 
 
690

 
688
 
655
 
650
 
 
95.9
 
96.8
 
93.7
 
93.3
 
Newbridge Commons—Columbus, OH
 
264
 
18
 
11/21/2013
 
100
 
 
801

 
762
 
729
 
691
 
 
96.8
 
96.9
 
95.4
 
90.5
 
Waterside at Castleton—Indianapolis, IN
 
400
 
34
 
1/21/2014
 
80
 
 
652

 
642
 
621
 
609
 
 
92.0
 
94.1
 
92.1
 
90.7
 
Crossings of Bellevue—Nashville, TN
 
300
 
32
 
4/2/2014
 
80
 
 
1,066

 
1,032
 
955
 
907
 
 
97.3
 
97.8
 
97.1
 
97.9
 
 Kendall Manor—Houston, TX
 
272
 
36
 
7/8/2014
 
80
 
 
840

 
833
 
796
 
769
 
 
92.1
 
93.9
 
94.4
 
91.2
 
Avalon Apartments—Pensacola, FL
 
276
 
9
 
12/22/2014
 
98
 
 
969

 
970
 
912
 
 
 
90.9
 
91.9
 
90.9
 
 
The Apartments at Venue—Valley, AL
 
618
 
9
 
7/27/2015
 
61
 
 
743

 
724
 
715
 
 
 
94.6
 
95.4
 
93.4
 
 
Parkway Grande—San Marcos, TX
 
192
 
3
 
9/10/2015
 
80
 
 
1,044

 
998
 
852
 
 
 
95.0
 
93.6
 
95.3
 
 
Cedar Lakes - Lake St. Louis, MO
 
420
 
31
 
9/25/2015
 
80
 
 
789

 
788
 
715
 
 
 
92.9
 
91.9
 
93.4
 
 
Factory at GARCO Park—N. Charleston, SC (5)
 
271
 
1
 
10/13/2015
 
65
 
 
889

 
N/A
 
N/A
 
 
 
33.8
 
N/A
 
N/A
 
 
Woodland Trails—LaGrange, GA
 
236
 
8
 
11/18/2015
 
100
 
 
873

 
832
 
849
 
 
 
95.7
 
94.6
 
96.2
 
 
Retreat at Cinco Ranch— Katy, TX (6)
 
268
 
9
 
1/22/2016
 
75
 
 
1,098

 
1,177
 
 
 
 
89.5
 
90.5
 
 
 
Grove at River Place — Macon, GA
 
240
 
29
 
2/1/2016
 
80
 
 
662

 
622
 
 
 
 
95.2
 
97.2
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Our Percentage
 
 
Average Monthly Rental Rate Per
Occupied Unit (2)($)
 
 
 Average Physical Occupancy in:
(%)

4


Property Name and Location
 
Number
of Units
 
Age (1)
 
Acquisition
Date
 
Ownership (%)
 
 
2017
 
2016
 
2015
 
2014
 
 
2017
 
2016
 
2015
 
2014
 
Civic Center I—Southaven, MS
 
392
 
15
 
2/29/2016
 
60
 
 
834
 
825
 
 
 
 
96.4
 
97.7
 
 
 
The Veranda as Shavano — San Antonio, TX
 
288
 
4
 
5/6/2016
 
65
 
 
982
 
953
 
 
 
 
92.0
 
83.4
 
 
 
Chatham Court and Reflections — Dallas, TX
 
494
 
31
 
5/11/2016
 
50
 
 
876
 
813
 
 
 
 
93.4
 
93.4
 
 
 
Waters Edge at Harbison— Columbia, SC
 
204
 
21
 
5/31/2016
 
80
 
 
878
 
821
 
 
 
 
93.7
 
94.2
 
 
 
The Pointe at Lenox Park— Atlanta, GA
 
271
 
28
 
8/15/2016
 
74
 
 
1,176
 
1,190
 
 
 
 
91.1
 
94.0
 
 
 
Civic Center II — Southaven, MS
 
384
 
12
 
9/1/2016
 
60
 
 
883
 
879
 
 
 
 
96.7
 
97.4
 
 
 
Verandas at Alamo Ranch—San Antonio, TX
 
288
 
2
 
9/19/2016
 
72
 
 
972
 
974
 
 
 
 
89.0
 
85.8
 
 
 
Kilburn Crossing — Fredricksburg, VA
 
220
 
12
 
11/4/2016
 
80
 
 
1,246
 
 
 
 
 
95.0
 
 
 
 
Tower at OPOP — St. Louis, MO
 
128
 
3
 
2/28/2017
 
76
 
 
1,189
 
 
 
 
 
93.5
 
 
 
 
Lofts at OPOP — St. Louis, MO
 
53
 
3
 
2/28/2017
 
76
 
 
1,211
 
 
 
 
 
95.0
 
 
 
 
Vanguard Heights — Creve Coeur, MO (7)
 
174
 
1
 
4/4/2017
 
78
 
 
1,652
 
 
 
 
 
74.7
 
 
 
 
Bells Bluff — West Nashville, TN (8)
 
402
 
N/A
 
6/2/2017
 
58
 
 
 
 
 
 
 
N/A
 
 
 
 
Mercer Crossing — Farmers Branch, TX
 
509
 
1
 
6/29/2017
 
50
 
 
1,272
 
 
 
 
 
91.4
 
 
 
 
Jackson Square — Tallahassee, FL
 
242
 
21
 
8/30/2017
 
80
 
 
1,062
 
 
 
 
 
94.2
 
 
 
 
Total
 
9,568
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
________________________
(1)    Reflects the approximate age of the property based on the year original construction was completed, other than Lofts at OPOP which was rehabbed in 2014.
(2) Distributions to, and profit sharing between, joint venture partners is determined pursuant to the applicable agreement governing the relationship between the parties and may not
be pro rata to the ownership interest each joint venture partner has in the applicable joint venture.
(3)    Monthly rental rate per unit reflects our period of ownership.
(4)    This property was sold on October 25, 2017.
(5)    This property was under development in 2015 and 2016 and is currently in lease up.
(6)
Results impacted by Hurricane Harvey. See "Item 7" Management's Discussion and Analysis of Financial Condition and Results of Operations - Hurricane Harvey".
(7)
This property is in lease up.
(8) A development property.
    

5


The following table set forth certain information, presented by state, related to our properties as of September 30, 2017 (dollars in thousands):
State
 
Number of
Properties
 
Number of
Units
 
Estimated
2018 Revenues (1)
 
Percent of 2018
Estimated
Revenues
Texas
 
9

 
2,695

 
$
33,112

(2)
30.5
%
Florida
 
4

 
1,268

 
15,661

(3)
14.4
%
Georgia
 
4

 
959

 
11,251

 
10.4
%
Mississippi
 
2

 
776

 
8,310

 
7.7
%
Alabama
 
2

 
826

 
7,849

 
7.2
%
South Carolina
 
3

 
683

 
8,048

(4)
7.4
%
Tennessee
 
2

 
702

 
3,991

(5)
3.7
%
Missouri
 
4

 
775

 
10,706

(4)
9.9
%
Indiana
 
1

 
400

 
3,417

 
3.2
%
Ohio
 
1

 
264

 
2,671

 
2.5
%
Virginia
 
1

 
220

 
3,448

 
3.1
%
Total
 
33

 
9,568

 
$
108,464

 
100.0
%
___________________________
(1)
Reflects our estimate of the rental and other revenues to be generated in 2018 by our multi-family properties located in such state and generally
assumes the same rental and occupancy rates as in effect in 2017.
(2)
Assumes revenues are reduced by an estimated $117 relating to anticipated rent concessions to be offered through January 2018 as a result of the damage sustained at Retreat at Cinco Ranch-Katy, Texas from Hurricane Harvey. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations-Hurricane Harvey".
(3)
Includes $214 representing one month of revenues for Waverly Place Apartments, Melbourne, FL which was sold in October 2017.
(4)
Assumes additional revenues of $848 and $215 will be generated in South Carolina and Missouri, respectively, by an increase in occupancy at properties in lease up to stabilized levels.
(5)
Assumes no revenues are generated from a 402 unit development property.

Multi-family Properties Owned Through Unconsolidated Joint Ventures     

In 2017, we purchased ownership interests in three unconsolidated joint ventures that own multi-family properties. Information regarding these properties is shown below (dollars in thousands):
Location
 
Number of Units
 
BRT's Initial Investment
 
Total Purchase Price
 
Total Acquisition Debt
 
Percent Ownership
Columbia, SC
 
374

 
$
5,670

 
$
58,300

 
$
41,000

 
32
%
Columbia, SC (1)
 
339

 
8,665

 
5,915

 

 
46
%
Forney, TX
 
313

 
7,500

 
39,000

 
25,350

 
50
%
 
 
1,026

 
$
21,835

 
$
103,215

 
$
66,350

 
 
_________________
(1)
Reflects land purchased for a development project at which the construction of a 339 unit multi-family property is planned. See note 9 of the consolidated financial statements.

Our Acquisition Process and Underwriting Criteria
We identify multi-family property acquisition opportunities primarily through relationships developed over time by our officers with former borrowers, current joint venture partners, real estate investors and brokers. We are interested in acquiring the following types of multi-family properties:
Class B or better properties with strong and stable cash flows in markets where we believe there exists opportunity for rental growth and further value creation;

Class B or better properties that offer significant potential for capital appreciation through repositioning or rehabilitating the asset to drive rental growth;

properties available at opportunistic prices providing an opportunity for a significant appreciation in value; and


6


development of Class A properties in markets where we believe we can generate significant returns from the operation and if appropriate, sale of the development. 

Our current business plan is to acquire properties with cap rates ranging from 5% to 6.25% that will provide stable risk adjusted total returns (i.e., operating income plus capital appreciation). In identifying opportunities that will achieve these goals, we seek acquisitions that will achieve an approximate 7% to 9% annual return on invested cash and an internal rate of return of approximately 10% to 20%. We have also focused, but have not limited ourselves, to acquiring properties located in the Southeast United States and Texas. Subject to the foregoing, we are opportunistic in pursuing multi-family property acquisitions and do not mandate any specific acquisition criteria, though we take the following into account in evaluating an acquisition opportunity: location, demographics, size of the target market, property quality, availability and terms and conditions of long term fixed rate mortgage debt, potential for capital appreciation or recurring income, extent and nature of contemplated capital improvements and property age. We generally acquire properties with a joint venture partner with knowledge and experience in owning and operating multi-family properties in the target market as this enhances our understanding of such market and assists us in managing our risk with respect to a particular acquisition.
Approvals of the acquisition of a multi-family property are based on a review of property information as well as other due diligence activities undertaken by us and, as applicable, our venture partner. Those activities include a consideration of economic, demographic and other factors with respect to the target market and sub-market (including the stability of its population and the potential for population growth, the economic and employment base, presence of and barriers to entry of alternative housing stock, rental rates for comparable properties, the competitive positioning of the proposed acquisition and the regulatory environment (i.e. applicable rent regulation)), a review of an independent third party property condition report, a Phase I environmental report with respect to the property, a review of recent and projected results of operations for the property prepared by the seller, us or our joint venture partner, an assessment of our joint venture partner's knowledge and expertise with respect to the acquisition and operation of multi-family properties and the relevant market and sub-market, a site visit to the property and the surrounding area, an inspection of a sample of units at the property, the potential for rent increases and the possibility of enhancing the property and the costs thereof. To the extent a property to be acquired requires renovations or improvements, or if we and our joint venture partner believe that improving a property will generate greater rent, funds are generally set aside by us and our joint venture partner at the time of acquisition to provide the capital needed for such renovation and improvements. At September 30, 2017, an aggregate of $6.2 million has been allocated to fund improvements at 15 multi-family properties.
A key consideration in our acquisition process is the availability of mortgage debt to finance the acquisition (or the ability to assume the mortgage debt on the property) and the terms and conditions (e.g., interest rate, amortization and maturity) of such debt. Typically, approximately 25% to 35% of the purchase price is paid in cash and the balance is financed with mortgage debt. We believe that the use of leverage of up to 75% allows us the ability to earn a greater return on our investment than we would otherwise earn. Generally, the mortgage debt obtained in connection with an acquisition matures five to ten years thereafter, is interest only for one to three years after the acquisition, and provides for a fixed interest rate and for the amortization of the principal of such debt over 30 years.
Potential acquisitions are reviewed and approved by our investment committee. Approval requires the assent of not less than five of the eight members of this committee, all of whom are our executive officers. Board of director approval is required for any single multi-family property acquisition in which our equity investment exceeds $15 million.
We are partners in two multi-family development opportunities with the same joint venture partner or its affiliates, including an unconsolidated joint venture. We pursue these opportunities when we believe the potential higher returns justify the additional risks. The factors considered in pursuing these opportunities generally include the factors considered in evaluating a standard acquisition opportunity, and we place additional emphasis on our joint venture partner's ability to execute a development project. Though we may from time-to-time pursue other development activities, we do not anticipate development properties will constitute a significant part of our portfolio.

7


Property Acquisitions
Set forth below is information regarding the properties we acquired during 2017 (dollars in thousands):
Location
 
Purchase
Date
 
No. of
Units
 

Purchase
Price
 
Acquisition
Mortgage
Debt
 
Initial BRT
Equity
 
Ownership Percentage
 
Capitalized Property
Acquisition
Costs
Fredricksburg, VA
 
11/4/2016
 
220

 
$
38,490

 
$
29,900

 
$
8,720

 
80
%
 
$
643

St. Louis, MO
 
2/28/2017
 
128

 
27,000

 
20,000

 
6,001

 
76
%
 
423

St. Louis, MO
 
2/28/2017
 
53

 
8,000

 
6,200

 
2,002

 
76
%
 
134

Creve Coeur, MO
 
4/4/2017
 
174

 
39,600

 
29,000

 
9,408

 
78
%
 
569

West Nashville, TN (1)
 
6/2/2017
 
402

 
5,228

 

 
4,800

 
58
%
 

Farmers Branch, TX
 
6/29/2017
 
509

 
85,698

 
55,200

 
16,200

 
50
%
 
992

Tallahassee, FL
 
8/30/2017
 
242

 
27,588

 
21,524

 
7,015

 
80
%
 
377

 
 
 
 
1,728

 
$
231,604

 
$
161,824

 
$
54,146

 
 
 
$
3,138

    _____________________
(1)
This is a development project at which we expect construction to be completed by December 2018.

The following table summarizes information regarding a property purchased during the period October 1, 2017 to December 8, 2017 (dollars in thousands):
Location
 
Purchase
Date
 
No. of
Units
 

Purchase
Price
 
Acquisition
Mortgage
Debt
 
Initial BRT
Equity
 
Ownership Percentage
 
Capitalized Property
Acquisition
Costs
Madison, AL
 
12/7/2017
 
204

 
$
18,400

 
$
15,000

 
$
4,456

 
80
%
 
$
174


Property Sales
We monitor our portfolio to identify properties that should be sold. Factors considered in deciding whether to sell a property generally include our evaluation of the current market price of such property compared to its projected economics and changes in the factors considered by us in acquiring such property. We also believe it is important for us to maintain strong relationships with our joint venture partners. Accordingly, we also take into account our partners' desires with respect to property sales. If our partners deem it in their own economic interest to dispose of a property at an earlier date than we would otherwise dispose of a property, we may accommodate such request.
Set forth below is information regarding the properties we sold during 2017 (dollars in thousands):
Property Name and Location
 
Sale
Date
 
No. of
Units
 
Sales Price
 
Gain on Sale
 
Non-Controlling Partner's Share of Gain
Church and University — Greenville, NC
 
10/19/2016
 
350

 
$
68,000

 
$
18,483

 
9,329

Spring Valley — Panama City, FL
 
10/26/2016
 
160

 
14,720

 
7,393

 
$
3,478

Sandtown Vista — Atlanta, GA
 
11/21/2016
 
350

 
36,750

 
8,905

 
4,166

Autumn Brook — Hixson, TN
 
11/30/2016
 
156

 
10,775

 
608

 
152

Fort Washington — New York, NY (1)
 
12/21/2016
 
1

 
465

 
449

 

Meadowbrook Apartments — Humble, TX
 
7/11/2017
 
260

 
18,000

 
7,707

 
3,143

Parkside Apartments — Humble, TX
 
7/11/2017
 
160

 
11,300

 
4,767

 
1,943

Ashwood Apartments — Pasadena, TX
 
7/27/2017
 
144

 
9,750

 
4,289

 
2,629

 
 
 
 
1,581

 
$
169,760

 
$
52,601

 
$
24,840

    ________________________
(1)Reflects the sale of a cooperative apartment unit included in our other real estate segment.

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The following table summarizes information regarding a property sold during the period from October 1, 2017 through December 8, 2017:
Property Name and Location
 
 Sale Date
 
No. of
Units
 
Sales Price
 
Estimated Gain on Sale
 
Non-Controlling Partner's Share of Estimated Gain
Waverly Place Apartments — Melbourne, FL (a)
 
10/25/2017
 
208
 
$
22,250

 
$
12,700

 
$
2,800

__________________________
(1)
Property classified as held for sale at September 30, 2017.
Joint Venture Arrangements
The arrangements with our multi-family property joint venture partners are deal specific and vary from transaction to transaction. Generally, these arrangements provide for us and our partner to receive net cash flow available for distribution in the following order of priority (in certain cases, we are entitled to these distributions on a senior or preferential basis):
a preferred return of 9% to 10% on each party's unreturned capital contributions, until such preferred return has been paid in full,
the return in full of each party's capital contribution, and
the remaining net cash flow is distributed based upon satisfaction of performance hurdles which vary by transaction.
Though, as noted above, each joint venture operating agreement contains different terms, such agreements generally provide for a buy-sell procedure under specified circumstances, including, (i) if the partners are unable to agree on major decisions or (ii) upon a change in control of our subsidiary owning the interest in the joint venture. Further, these arrangements may also allow us, and in some cases, our joint venture partner, to force the sale of the property after it has been owned by the joint venture for a specified period (e.g., four to five years after the acquisition).
Property Management
The day-to-day management of our multi-family properties is overseen by property management companies operating in the market in which the property is located. Many of these management companies are owned by our joint venture partners or their affiliates. Generally, we can terminate these management companies upon specified notice or for cause, subject to the approval of the mortgage lender and, in some cases, our joint venture partner. We believe satisfactory replacements for property managers are available, if required.
Mortgage Debt
The following table sets forth scheduled principal (including amortization) mortgage payments due for all our properties as of September 30, 2017 (dollars in thousands):
YEAR
 
 
Principal Payments Due
2018 (1)
 
 
$
35,016

2019 (1)
 
 
59,858

2020
 
 
61,875

2021
 
 
22,279

2022
 
 
40,428

Thereafter
 
 
484,715

Total
 
 
$
704,171

____________________
(1)
Includes $185 and $8,847 for 2018 and 2019, respectively, related to the Waverly Place Apartments' mortgage. This property was sold in October 2017.
As of September 30, 2017, the weighted average annual interest rate of the mortgage debt on our 33 multi-family properties is 4.03% and the weighted average remaining term to maturity of such debt is approximately 6.9 years. The mortgage debt associated with our multi-family properties is generally non-recourse to (i) the joint venture that owns the property, subject to standard carve-outs and (ii) to us and our subsidiary acquiring the equity interest in such joint venture. We, at the parent entity level (i.e., BRT Apartments Corp.), are the standard carve-out guarantor with respect to the Avalon, Silvana Oaks,Woodland Trails, Stonecrossing, Stonecrossing East and Avondale properties. (The term "standard carve-outs" refers to

9


recourse items to an otherwise non-recourse mortgage and are customary to mortgage financing. While carve-outs vary from lender to lender and transaction to transaction, the carve-outs may include, among other things, a voluntary bankruptcy filing, environmental liabilities, the sale, financing or encumbrance of the property in violation of loan documents, damage to property as a result of intentional misconduct or gross negligence, failure to pay valid taxes and other claims which could create a lien on a property and the conversion of security deposits, insurance proceeds or condemnation awards). At September 30, 2017, the principal amount of mortgage debt outstanding with respect to the properties at which we are the carve-out guarantor is approximately $86.6 million.
Insurance
The multi-family properties are covered by all risk property insurance covering 100% of the replacement cost for each building and business interruption and rental loss insurance (covering up to twelve months of loss). On a case-by-case basis, based on an assessment of the likelihood of the risk, availability of insurance, cost of insurance and in accordance with standard market practice, we obtain earthquake, windstorm, flood, terrorism and boiler and machinery insurance. We carry comprehensive liability insurance and umbrella policies for each of our properties which provide no less than $5 million of coverage per incident. We request certain extension of coverage, valuation clauses, and deductibles in accordance with standard market practice and availability.
Although we may carry insurance for potential losses associated with our multi-family properties, we may still incur losses due to uninsured risks, deductibles, co-payments or losses in excess of applicable insurance coverage and those losses may be material. In addition, a substantial amount of our insurance coverage is provided through blanket policies obtained by our joint venture partners or the property managers for such property. A consequence of obtaining insurance coverage in this manner is that losses on properties in which we have no ownership interest could reduce significantly or eliminate the coverage available on one or more properties in which we have an interest.
Changes in our Multi-Family Portfolio
Set forth below is a summary of our multi-family property acquisition activities from October 1, 2012 through November 30, 2017:
 Year
 
Number of Multi-Family Properties Acquired
 
Number of Units Acquired
2012
 
5
 
1,451
2013
 
9
 
2,334
2014
 
13
 
4,174
2015
 
4
 
1,506
2016
 
11
 
3,336
2017 (1)
 
7
 
1,728
Total
 
49
 
14,529
______________________
(1) Includes the purchase of land in West Nashville, TN on which we are developing a 402 unit multi-family complex.
Set forth below is a summary of our multi-family dispositions from October 1, 2015 through September 30, 2017. There were no sales prior to 2015:    
Year
 
Number of Multi-Family Properties Sold
 
Number of Units Sold
2015
 
3
 
1,175
2016
 
6
 
2,206
2017
 
7
 
1,580
Total
 
16
 
4,961
Our Other Real Estate Assets and Activities
We also own other real estate assets with an aggregate net book value of $16.0 million at September 30, 2017, including a $5.5 million loan receivable from the Newark Joint Venture, undeveloped land, cooperative apartment units and a leasehold position at a commercial property. See notes 6 and 14 to our consolidated financial statements.

10


Corporate Level Financing Arrangement
As of September 30, 2017, $37.4 million (excluding deferred costs of $382,000) 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 from August 1, 2012 through April 30, 2016 bore an interest rate of 4.9%. From May 1, 2016 through maturity, these notes bear an interest rate, which resets and is payable quarterly, of three month LIBOR plus 200 basis points. At September 30, 2017, the interest rate on these notes is 3.31%.
Competition
We compete to acquire real estate assets and in particular, multi-family properties, with other owners and operators of such properties including other multi-family REITs, pension and investment funds, real estate developers and private real estate investors. Competition to acquire such properties is based on price and ability to secure financing on a timely basis and complete an acquisition. To the extent that a potential joint venture partner introduces us to a multi-family acquisition opportunity, we compete with other sources of equity capital to participate in such joint venture based on the financial returns we are willing to offer such potential partner and the other terms and conditions of the joint venture arrangement. We also compete for tenants at our multi-family properties—such competition depends upon various factors, including alternative housing options available in the applicable sub-market, rent, amenities provided and proximity to employment and quality of life venues.
Many of our competitors possess greater financial and other resources than we possess.
Environmental Regulation
We are subject to regulation at the federal, state and municipal levels and are exposed to potential liability should our properties or actions result in damage to the environment or to other persons or properties. These conditions include the presence or growth of mold, potential leakage of underground storage tanks, breakage or leaks from sewer lines and risks pertaining to waste handling. The potential costs of compliance, property damage restoration and other costs for which we could be liable or which could occur without regard to our fault or knowledge, are unknown and could potentially be material.
In the course of acquiring and owning multi family properties, an independent environmental consulting firm is engaged to perform a level 1 environmental assessment (and if appropriate, a level 2 assessment) as part of the due diligence process. We believe these assessment reports provide a reasonable basis for discovery of potential hazardous conditions prior to acquisition. Should any potential environmental risks or conditions be discovered during our due diligence process, the potential costs of remediation will be assessed carefully and factored into the cost of acquisition, assuming the identified risks and factors are deemed to be manageable and within reason. Some risks or conditions may be identified that are significant enough to cause us to abandon the possibility of acquiring a given property. As of the date of this report, we have no knowledge of any material claims made or pending against us with regard to environmental damage for which we may be found liable, nor are we aware of any potential hazards to the environment related to any of our properties which could reasonably be expected to result in a material loss.
Our Structure
We share facilities, personnel and other resources with several affiliated entities including, among others, Gould Investors L.P., a master limited partnership involved primarily in the ownership and operation of a diversified portfolio of real estate assets, and One Liberty Properties, Inc., an NYSE listed equity REIT. Eight individuals (including Jeffrey A. Gould, Chief Executive Officer and President, Mitchell Gould, Executive Vice President and George Zweier, Chief Financial Officer), devote substantially all of their business time to our activities, while our other personnel (including several officers) share their services on a part-time basis with us and other affiliated entities that share our executive offices. (Including our full and part-time personnel, we estimate that we have the equivalent of 12 full time employees). The allocation of expenses for the shared facilities, personnel and other resources is computed in accordance with a Shared Services Agreement by and among us and the affiliated entities. The allocation is based on the estimated time devoted by executive, administrative and clerical personnel to the affairs of each entity that is a party to this agreement.
In addition, through December 31, 2015, we were party to an Advisory Agreement, as amended, between us and REIT Management Corp., our former advisor. REIT Management is wholly owned by Fredric H. Gould, a member of our Board of Trustees and the former chairman of such board, and he and certain of our executive officers, including our Chairman of the Board and Chief Executive Officer, received compensation from REIT Management. Pursuant to this agreement, REIT Management furnished advisory and administrative services with respect to our business, including, without limitation, developing and maintaining banking and financing relationships, participating in the analysis and approvals of multi-family

11


property acquisitions and dispositions and providing investment advice. We paid fees pursuant to this agreement of $693,000 and $2.4 million in 2016 and 2015, respectively.
Effective as of December 31, 2015, the Advisory Agreement terminated. In lieu thereof, we retained related parties to provide the services previously provided pursuant to such agreement (the "Services"). The aggregate fees paid for the Services in 2017 and 2016 was $1.2 million and $862,000, respectively.

Item 1A.    Risk Factors.
       Set forth below is a discussion of certain risks affecting our business. 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.
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 residents and 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 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. 

Our acquisition, development and property improvement 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 and our ability to obtain, on acceptable terms, equity contributions from joint

12


venture partners and mortgage debt from lenders. At September 30, 2017, we had approximately $12.4 million of cash and cash equivalents and approximately $6.2 million designated as restricted cash for improvements at 15 multi-family properties. Our multi-family acquisition and improvement activities are constrained by funds available to us which will limit growth in our revenues and operating results.
If interest rates increase or credit markets tighten, it may be more difficult for us to refinance our mortgage debt at favorable rates as it matures or to secure financing for acquisitions.

The following table sets forth, as of September 30, 2017, scheduled principal (excluding amortization) mortgage payments due at maturity on the mortgages on the properties we own and the weighted average interest rate thereon (dollars in thousands):
Year
 
Principal
Payments
Due at Maturity
 
Weighted
Average Interest
Rate
2018
 
$
29,000

 
3.73
%
2019 (1)
 
53,426

 
3.86

2020
 
55,071

 
3.22

2021
 
14,001

 
4.29

2022
 
32,072

 
4.40

2023 and thereafter
 
446,134

 
4.19

 
 
$
629,704

 
4.07
%
_______________________

(1)
Includes $8,750 related to the Waverly Place Apartments' mortgage. This property was sold in October 2017.

Increases in interest rates, or reduced access to credit markets due, among other things, to more stringent lending requirements or our high level of leverage, may make it difficult for us to refinance our mortgage debt as it matures or limit the availability of mortgage debt, thereby limiting our acquisition and/or refinancing activities. Even in the event that we are able to secure mortgage debt on, or otherwise refinance our mortgage debt, due to increased costs associated with securing financing and other factors beyond our control, we may be unable to refinance the entire mortgage debt as it matures or be subject to unfavorable terms (such as higher loan fees, interest rates and periodic payments) if we do refinance the mortgage debt. Either of these results could reduce operating cash flow and earnings, which may adversely affect the investment goals of our stockholders.

Though interest rates have been at historically low levels the past several years, they have been increasing recently and may continue to increase.  If we are required to refinance mortgage debt that matures over the next several years at higher interest rates than such mortgage debt currently bears, our operating cash flow may be significantly reduced. 
We are not currently required to pay any dividends to maintain our status as a REIT.
We are required to distribute annually at least 90% of our ordinary taxable income to qualify as a REIT under the Internal Revenue Code of 1986, as amended, and the rules and regulations promulgated thereunder, which we refer to as the Code. Because current tax laws allow us to offset our net operating loss carryforwards, or NOLs ($15.8 million at December 31, 2016 and, after giving effect to our operations and properly sales effected from January 1, 2017 through November 30, 2017, an estimated $7 million to $11 million at November 30, 2017), against our Federal taxable income until the NOLs are used or expire, we are not currently required (and have not been required since 2010) to pay a dividend to maintain our REIT status. See note 11 to our consolidated financial statements. Though we were not required to do so to qualify as a REIT, on each of September 12, 2017 and December 5, 2017, we declared dividends of $0.18 per share. 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 may decline.
We may not be able to compete with competitors, many of which have greater financial and other resources than we possess.
We compete with many third parties engaged in the ownership and operation of multi-family properties, including other REITs, specialty finance companies, public and private investors, investment and pension funds and other entities. 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

13


favorable acquisition opportunities. Larger multi-family property operators have the ability and capacity to acquire a greater number of higher quality properties at more favorable locations and on more favorable terms and conditions.
We may incur impairment charges in 2018.
We evaluate on a quarterly basis our real estate portfolios 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 are required to take impairment charges, our results of operations will be adversely impacted.
We may need to make significant capital improvements and incur deferred maintenance costs with respect to our multi-family properties and may not have sufficient funds for such purposes.
Our multi-family properties face competition from newer, and updated properties. At September 30, 2017 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. At September 30, 2017, $6.2 million, which is reflected as restricted cash on our consolidated balance sheet, has been earmarked for improvements at specific properties and may not be used for other properties. The cost of future improvements and deferred maintenance is unknown 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.
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. These transactions raise the possibility that we may not receive terms as favorable as those that we would receive if the transactions were entered into with unaffiliated entities.
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 limited amount 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, a vice president and our chief financial officer, devote all or substantially all of their business time to us. Many of our executives (i) provide Services (see Item 1 "Business-Our Structure") to us and/or (ii) share their services on a part-time basis with entities affiliated with us and located in the same executive offices pursuant to a shared services agreement. We rely on part-time executive officers to provide certain services to us, including legal and certain accounting services, since we do not employ full-time executive officers to handle 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.
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 many of our acquisitions of multi-family properties. There has been ongoing discussion by the government 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

14


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.
Most of our multi-family properties are located in a limited number of markets, which makes us susceptible to adverse developments in such markets.
In addition to general, national and regional conditions, the operating performance of our multi-family residential properties is impacted by the economic conditions, including economic conditions of the specific markets in which our properties are concentrated. At September 30, 2017, approximately 31%, 14%, 10% and 10% of our estimated 2018 revenues from multi-family properties are attributable to properties located in Texas, Florida, Georgia and Missouri, respectively. Accordingly, adverse developments in such markets, including economic developments or natural or man-made disasters, could adversely impact the operations of these properties and therefore our operating results and cash flow. The concentration of our properties in a limited number of markets exposes us to risks of adverse developments which are greater than the risks of owning properties with a more geographically diverse portfolio.
Our revenues 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 predominately on multi-family properties, and we expect that going forward we will continue to focus predominately on the acquisition, 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.

We are subject to certain limitations associated with selling multi-family properties, which could limit our operational and financial flexibility.

Our ability to sell properties and the terms (including sales price and the timing of the sale) at which such properties may be sold may be limited by various factors and conditions, including factors and conditions over which we have limited or no control. These factors and conditions include:

the agreement of our joint venture partner to sell a property;

adverse market conditions, including the limited availability of mortgage debt required by a buyer to acquire a property or increased interest rates;

the need to expend funds to correct defects or to make improvements before a property can be sold; and

federal tax laws that may limit our ability to profit on the sale of properties that we have owned for less than two years.

The foregoing factors and conditions may limit our ability to dispose of properties, which may have a material adverse effect on our financial condition and the market value of our securities.
The failure of third party property management companies to properly manage our properties or obtain sufficient insurance coverage could adversely impact our results of operations.
We and our joint venture partners rely on third party 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, maintaining the property and obtaining insurance coverage for the properties they manage. If these property management companies do not perform their duties properly or we 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 September 30, 2017, one property manager and its affiliates manage eight properties, a second property manager and its affiliates manage seven properties and 13 other property managers manage five or fewer properties. The loss of our property managers, and in particular, the managers that manage multiple properties, could result in a decrease in occupancy

15


rates, rental rates or both or an increase in expenses. Further, property managers are also 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. Finally, some of the management companies are owned by our joint venture partners or their affiliates. The termination of a management company 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.
Increased competition and increased affordability of residential homes could limit our ability to retain our tenants or increase or maintain rents.
Our multi-family properties compete with numerous housing alternatives, including other multi-family and single-family rental homes, as well as owner occupied single and multi-family homes. Our ability to retain tenants and increase or maintain rents or occupancy levels could be adversely affected by the alternative housing in a particular area and, due to declining housing prices, mortgage interest rates and government programs to promote home ownership, the increasing affordability of owner occupied single and multi-family homes.
Development, redevelopment and construction risks could affect our operating results.

We intend to continue to develop and redevelop multi-family properties. These activities may be exposed to the following risks:

we may abandon opportunities that we have already begun to explore for a number of reasons, including changes in local market conditions or increases in construction or financing costs, and, as a result, we may fail to recover expenses already incurred in exploring those opportunities;

occupancy rates and rents at development properties may fail to meet our original expectations for a number of reasons, including changes in market and economic conditions beyond our control and the development by competitors of competing properties;

we may be unable to obtain, or experience delays in obtaining, necessary zoning, occupancy, or other required governmental or third party permits and authorizations, which could result in increased costs or the delay or abandonment of development opportunities;

we may incur costs that exceed our original estimates due to increased material, labor or other costs;

we may be unable to complete construction and lease-up of a development project on schedule, resulting in increased construction and financing costs and a decrease in expected rental revenues;

we may be unable to obtain financing with favorable terms, or at all, for the proposed development of a property, which may cause us to delay or abandon a development opportunity; and

we may be unable to refinance with favorable terms, or at all, any construction or other financing obtained for a development property, which may cause us to sell the property on less favorable terms or surrender the property to the lender.

If we are unable to address effectively these and other risks associated with development projects, our financial condition and results of operations may be adversely effected.
Risks involved in conducting real estate activity through joint ventures.
We have in the past and intend in the future to continue to acquire properties through joint ventures with other persons or entities when we believe that circumstances warrant the use of such structure. Joint venture investments involve risks not otherwise present when acquiring real estate directly, including the possibility that:
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;

16


our joint venture partner may not perform its property oversight responsibilities;
our joint venture partner may have economic or business interests or goals which are or become inconsistent with our business interests or goals, including inconsistent goals relating to the sale or refinancing of properties held in the joint venture or the timing of the termination or liquidation of the joint venture;
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 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 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;
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;
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; and
our joint venture partners may have other competing real estate interests in the markets in which our properties are located that could influence the partners to take actions favoring their properties to the detriment of the jointly owned properties.
Seven of our multi-family property joint ventures are owned with one joint venture partner or its affiliates, four of our multi-family property joint ventures are owned with a second joint venture partner or its affiliates and four of our multi-family property joint ventures are owned with a third partner. We may be adversely effected if we are unable to maintain a satisfactory working relationship with either of these joint venture partners or if either partner becomes financially distressed.
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.
Because real estate investments are illiquid, we may not be able to dispose of properties needed.
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.


17



We could be adversely affected if we or any of our subsidiaries are required to register as an investment company under the Investment Company Act of 1940 as amended (the “1940 Act”).

We conduct our operations so that neither we, nor any of our subsidiaries is required to register as investment companies under the 1940 Act.  If we or any of our subsidiaries is required to register as an investment company but fail to do so, the unregistered entity would be prohibited from engaging in certain business, and criminal and civil actions could be brought against such entity.  In addition, the contracts of such entity would be unenforceable unless a court required enforcement, and a court could appoint a receiver to take control of the entity and liquidate its business.

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, all our business operations through our subsidiaries. Accordingly, our only source of cash to fund our operations and pay our obligations is distributions from our subsidiaries of their net earnings and cash flows. 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, may 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.
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.
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 any 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, 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.

18



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.

Changes to the U.S. federal income tax laws, including the enactment of certain proposed tax reform measures, could have an adverse impact on our business and financial results.

Changes to the U.S. federal income tax laws are proposed regularly. One proposal that is currently being considered by the U.S. Congress is the recently announced Tax Cuts and Jobs Act of 2017.  The Tax Cuts and Jobs Act of 2017, as well as other proposals, if enacted, may result in a significant reform of the Code and include many changes, including significant changes to the taxation of business entities and the deductibility of certain expenses. Moreover, legislative and regulatory changes may be more likely in the 115th Congress because the Presidency and Congress are controlled by the same political party and significant reform of the Code has been described publicly as a legislative priority. Additionally, the REIT rules are constantly under review by persons involved in the legislative process and by the IRS and the U.S. Treasury Department, which may result in revisions to regulations and interpretations in addition to statutory changes. If enacted, certain such changes could have an adverse impact on our business and financial results. For example, certain proposals set forth in the Trump administration and House Republican tax plans could reduce the relative competitive advantage of operating as a REIT as compared with operating as a regular C-corporation. These proposals, among others, include: the lowering of income tax rates on individuals and corporations, which could ease the burden of double taxation on corporate dividends and make the single level of taxation on REIT distributions relatively less attractive; allowing the expensing of capital expenditures, which could have a similar impact and also could result in the bunching of taxable income and required distributions for REITs; and further limiting or eliminating the deductibility of interest expense, which could disrupt the real estate market and could (due to higher taxable income amounts) result in corresponding increases of required cash distributions by REITs, which could cause REITs in certain circumstances to have insufficient funds for operations or expansion. In addition, the repeal of the favorable tax treatment of like-kind exchanges under Section 1031 of the Code, which are routinely used by many REITS, might be included as a component of any such tax reform.

We cannot predict whether, when or to what extent new U.S. federal tax laws, regulations, interpretations or rulings will be issued, nor is the long-term impact of proposed tax reforms on the real estate investment industry or REITs clear. Prospective investors are urged to consult their tax advisors regarding the effect of potential changes to the U.S. federal tax laws on an investment in our common stock.

Compliance or failure to comply with the Americans with Disabilities Act of 1990 or other safety regulations and requirements could result in substantial costs.

The Americans with Disabilities Act generally requires that public buildings, including our properties, be made accessible to disabled persons. Non-compliance could result in the imposition of fines by the federal government 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 Americans with Disabilities Act. If, under the Americans with Disabilities Act, we are required to make substantial alterations and capital expenditures in one or more of our properties, including the removal of access barriers, 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.

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 on information technology systems certain 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. 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.


19


Item 1B.    Unresolved Staff Comments.
None.
Item 2.    Properties.
Our executive office is located at 60 Cutter Mill Road, Suite 303, Great Neck, New York. We believe that such facilities are satisfactory for our current and projected needs.
The information set forth under "Item 1—Business" is incorporated herein by this reference to the extent responsive to the information called for by this item.
Item 3.    Legal Proceedings.
None.
Item 4.    Mine Safety Disclosures.
Not applicable.

20


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." The following table shows for the periods indicated, the high and low sales prices of the shares of common stock as reported in the consolidated transaction reporting system.
 
 
Fiscal 2017
 
Fiscal 2016
Fiscal Quarters
 
High
 
Low
 
High
 
Low
First Quarter
 
$
8.25

 
$
7.57

 
$
7.48

 
$
6.02

Second Quarter
 
8.70

 
8.01

 
7.15

 
5.41

Third Quarter
 
8.44

 
7.59

 
7.28

 
6.93

Fourth Quarter
 
11.01

 
7.36

 
8.25

 
7.01

On November 30, 2017, the high and low sales prices of a share of our common stock was $11.07 and $10.00, respectively.
As of November 30, 2017, there were approximately 874 holders of record of our common stock.
Dividends
We are taxed as a REIT under the Code. To qualify as a REIT, we must meet a number of organizational and operational requirements, including a requirement that we distribute to our stockholders within the time frames prescribed by the Code at least 90% of our ordinary taxable income. Management currently intends to maintain our REIT status. As a REIT, we generally will not be subject to corporate Federal income tax on taxable income we distribute to stockholders in accordance with the Code. If we fail to qualify as a REIT in any taxable year, we will be subject to Federal income taxes at regular corporate rates and may not be able to qualify as a REIT for four subsequent tax years. Even if we qualify for Federal taxation as a REIT, we are subject to certain state and local taxes on our income and to Federal income and excise taxes on undistributed taxable income, (i.e., taxable income not distributed in the amounts and in the time frames prescribed by the Code).
At December 31, 2016, we had NOLs of $15.8 million and we estimate that after giving effect to our share of the gains from properties sold, and our operations during the period from, January 1, 2017 through November 30, 2017, that our NOLs at November 30, 2017 range from $7 million to $11 million; therefore, we are not currently required by Code provisions relating to REITs to pay cash dividends to maintain our status as a REIT. Notwithstanding the foregoing, on October 5, 2017, we paid a cash dividend of $.18 per share and on January 5, 2018, we will pay a cash dividend of $.18 per share. For Federal income tax purposes, these dividends will be included in 2017 income and is anticipated that they will be treated as long-term capital gains. Though we intend to continue to pay cash dividends on a quarterly basis, we cannot provide any assurance that we will do so.
See "Item 1. Business - Corporate Level Financing Arrangements" for information regarding limitations on our ability to pay dividends if there is an event of default under our junior subordinated notes.

21


Stock Performance Graph
This graph compares, for the five years ended September 30, 2017, the cumulative return of our shares of common stock with the Standard & Poor's 500 Stock Index and an index consisting of apartment REITs (i.e., FTSE NAREIT Equity Apartments). The graph assumes $100 invested on September 30, 2012 and assumes the reinvestment of dividends.

COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
brtrealty10_chart-13203a01.jpg
 
 
9/12
 
9/13
 
9/14
 
9/15
 
9/16
 
9/17
BRT Apartments Corp.
 
$
100.00

 
$
110.31

 
$
115.38

 
$
109.08

 
$
123.08

 
$
167.83

S&P 500
 
100.00

 
119.34

 
142.89

 
142.02

 
163.93

 
194.44

FTSE NAREIT Equity Apartments
 
100.00

 
98.24

 
114.73

 
143.18

 
156.79

 
167.92

_______________________________________________________________________________
* $100 invested on 9/30/12 in stock or index, including reinvestment of dividends. Fiscal year ending September 30.
    


22


Issuer Purchases of Equity Securities
On March 11, 2016, our Board of Directors authorized us to repurchase up to $5.0 million of our shares of common stock through September 30, 2017. The table below provides information regarding our repurchase of shares of common stock pursuant to such authorization during the periods presented.
Period

 

  (a)


Total Number of Shares Purchased
 

(b)



Average Price Paid per Share
 

 (c)

Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs
 

 (d)

Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs
July 1 - July 31, 2017
 
 
 
 
$4,296,264
August 1 - August 31, 2017
 
2,593
 
$7.92
 
2,593
 
4,275,729
September 1- September 30, 2017
 
 
 
 
$4,275,729
Total
 
2,593
 
 
 
2,593
 
 

On September 12, 2017, our Board of Directors authorized us to repurchase, effective as of October 1, 2017, up to $5.0 million of shares of our common stock through September 30, 2019. No shares have been purchased pursuant to this share repurchase plan.

23


Item 6.    Selected Financial Data.
The following table, not covered by the report of the independent registered public accounting firm, sets forth selected historical financial data for each of the years indicated. This table should be read in conjunction with the detailed information and consolidated financial statements appearing elsewhere herein, including note 1 to our consolidated financial statements which delineates the manner in which the financial information set forth below and elsewhere herein has been reclassified.
(Dollars in thousands, except per share amounts)
 
2017
 
2016
 
2015
 
2014
 
2013
Operating statement data:
 
 
 
 
 
 
 
 
 
 
Total revenues (1)
 
$
105,771

 
$
98,521

 
$
81,098

 
$
61,813

 
$
28,984

Total expenses (1)
 
119,337

 
107,658

 
91,379

 
74,030

 
38,330

Gain on sale of real estate
 
52,601

 
46,477

 
15,005

 

 

Income (loss) from continuing operations
 
37,188

 
33,179

 
4,724

 
(12,217
)
 
(3,335
)
Income (loss) from discontinued operations (2)
 

 
12,679

 
(6,329
)
 
(3,949
)
 
5,424

(Income) loss attributable to non-controlling interests
 
(22,028
)
 
(13,869
)
 
(783
)
 
6,712

 
2,924

Net income (loss) attributable to common stockholders
 
13,600

 
31,289

 
(2,388
)
 
(9,454
)
 
5,013

Earnings (loss) per share of common stock:
 
 
 
 

 
 

 
 

 
 
Income (loss) from continuing operations
 
$
0.97

 
$
1.21

 
$
(0.02
)
 
$
(0.81
)
 
$
(0.21
)
Income (loss) from discontinued operations
 

 
1.02

 
(0.15
)
 
0.15

 
0.56

Basic and diluted earnings (loss) per share
 
$
0.97

 
$
2.23

 
$
(0.17
)
 
$
(0.66
)
 
$
0.35

Balance sheet data:
 
 

 
 

 
 

 
 

 
 
Total assets
 
$
993,897

 
$
874,899

 
$
820,869

 
$
734,620

 
$
549,491

Real estate properties, net (3)
 
902,281

 
759,576

 
591,727

 
522,591

 
310,541

Cash and cash equivalents
 
12,383

 
27,399

 
15,556

 
22,639

 
55,782

Assets related to discontinued operations (4)
 

 

 
173,228

 
134,188

 
142,607

Mortgages payable, net of deferred fees (5)
 
697,826

 
588,457

 
451,159

 
382,690

 
230,570

Junior subordinated notes, net of deferred fees
 
37,018

 
36,998

 
36,978

 
36,958

 
36,938

Total BRT Apartments Corp. stockholders' equity
 
165,996

 
151,290

 
122,655

 
130,140

 
138,791

____________________________________________
(1)
The increases from 2013 through 2017 are due primarily to the increases in the number of multi-family properties owned.
(2)Primarily reflects the operations of the Newark Joint Venture from 2014 through its sale in 2016 and our real estate lending activities in 2013.
See note 5 to our consolidated financial statements.
(3)
The increases from 2013 through 2017 are due to our multi-family property acquisitions.
(4)
Primarily reflects the assets of the Newark Joint Venture. See note 4 to our consolidated financial statements.
(5)
The increase from 2013 to 2017 is due to the mortgage debt incurred in the acquisition of multi-family properties.

24


Funds from Operations; Adjusted Funds from Operations.
In view of our multi-family property activities, we disclose funds from operations ("FFO") and adjusted funds from operations ("AFFO") because we believe that such metrics are a widely recognized and appropriate measure of the performance of an equity REIT.
We compute FFO in accordance with the "White Paper on Funds From Operations" issued by the National Association of Real Estate Investment Trusts ("NAREIT") and NAREIT's related guidance. FFO is defined in the White Paper as net income (loss), computed in accordance with generally accepted accounting principles, excluding gains (or losses) from sales of property, plus depreciation and amortization, plus impairment write-downs of depreciable real estate and after adjustments for unconsolidated partnerships and joint ventures. 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 expense, restricted stock unit ("RSU") expense, and deferred mortgage costs (including our share of 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.

25


The table below provides a reconciliation of net income (loss) determined in accordance with GAAP to FFO and AFFO for each of the indicated years (amounts in thousands):
 
 
2017
 
2016
 
2015
 
2014
 
2013
Net income (loss) attributable to common stockholders
 
$
13,600

 
$
31,289

 
$
(2,388
)
 
$
(9,454
)
 
$
5,013

Add: depreciation of properties
 
30,491

 
24,329

 
20,681

 
15,562

 
7,076

Add: our share of depreciation in unconsolidated joint ventures
 
737

 
20

 
20

 
20

 
34

Add: amortization of deferred leasing costs
 

 
15

 
71

 
62

 
64

Deduct: gain on sales of real estate and partnership interests
 
(52,601
)
 
(62,330
)
 
(15,005
)
 

 
(6,250
)
Adjustment for non-controlling interests
 
17,122

 
13,320

 
221

 
(4,012
)
 
(1,549
)
Funds from operations
 
9,349

 
6,643

 
3,600

 
2,178

 
4,388

Adjust for: straight-line rent accruals
 
(56
)
 
(200
)
 
(411
)
 
(542
)
 
(263
)
Add: loss on extinguishment of debt
 
1,463

 
4,547

 

 

 

Add: amortization of restricted stock and RSU expense
 
1,218

 
1,005

 
906

 
805

 
691

Add: amortization of deferred mortgage costs
 
1,244

 
1,645

 
2,242

 
1,825

 
1,371

Adjustment for non-controlling interest
 
(920
)
 
(2,729
)
 
(703
)
 
(424
)
 
(463
)
   Adjusted funds from operations
 
$
12,298

 
$
10,911

 
$
5,634

 
$
3,842

 
$
5,724

The table below provides a reconciliation of net income (loss) per common share (on a diluted basis) determined in accordance with GAAP to FFO and AFFO.
 
 
2017
 
2016
 
2015
 
2014
 
2013
Net income (loss) attributable to common stockholders
 
$
0.97

 
$
2.23

 
$
(0.17
)
 
$
(0.66
)
 
$
0.35

Add: depreciation of properties
 
2.18

 
1.74

 
1.46

 
1.10

 
0.51

Add: our share of depreciation in unconsolidated joint ventures
 
0.05

 

 

 

 

Add: amortization of deferred leasing costs
 

 

 

 

 

Deduct: gain on sales of real estate and partnership interests
 
(3.75
)
 
(4.45
)
 
(1.07
)
 

 
(0.44
)
Adjustment for non-controlling interests
 
1.22

 
0.95

 
0.02

 
(0.28
)
 
(0.11
)
Funds from operations
 
0.67

 
0.47

 
0.24

 
0.16

 
0.31

Adjustment for: straight-line rent accruals
 

 
(0.01
)
 
(0.04
)
 
(0.04
)
 
(0.02
)
Add: loss on extinguishment of debt
 
0.10

 
0.32

 

 

 

Add: amortization of restricted stock and RSU expense
 
0.09

 
0.07

 
0.07

 
0.06

 
0.05

Add: amortization of deferred mortgage costs
 
0.09

 
0.12

 
0.16

 
0.13

 
0.1

Adjustment for non-controlling interests
 
(0.07
)
 
(0.19
)
 
(0.07
)
 
(0.03
)
 
(0.03
)
Adjusted funds from operations
 
$
0.88

 
$
0.78

 
$
0.36

 
$
0.28

 
$
0.41



26


Item 7.    Management's Discussion and Analysis of Financial Condition and Results of Operations.
Overview
We are a REIT that is focused primarily on the ownership, operation and development of multi-family properties. These properties derive revenue primarily from tenant rental payments. Generally, these properties are owned by consolidated joint ventures in which we contributed 70% to 80% of the equity, with the remaining equity contributed by our joint venture partner. At September 30, 2017, we own 33 multi-family properties located in eleven states with an aggregate of 9,568 units (including 402 units at a development property). At September 30, 2017, the net carrying value of these multi-family assets was $900.7 million. We also have ownership interests, through unconsolidated entities, in three multi-family properties with a net book value, at September 30, 2017, of $21.3 million.
We also own and operate other real estate assets. At September 30, 2017, the carrying value of these other real estate assets is $16.0 million, including a real estate loan of $5.5 million.
See notes 1, 5 and 14 to our consolidated financial statements for information about discontinued operations, operating segments and the reclassification of financial information presented herein.
Highlights of 2017
During 2017, we:
declared a cash dividend of $.18 per share payable on October 4, 2017 to stockholders of record on September 25, 2017;
acquired seven multi-family properties with 1,728 units (including a development property at which the construction of 402 units is in progress), for a purchase price of $231.6 million, including mortgage debt of $161.8 million and $54.1 million of our equity - we refer to these seven properties as the "2017 Acquisitions";

acquired interests in three unconsolidated joint ventures that own multi-family properties with an aggregate of 1,026 units, including 339 units under development, for an equity investment of $21.8 million;

sold seven multi-family properties with an aggregate of 1,580 units, which we refer to as the 2017 Sold Properties, and one cooperative apartment unit, for a sales price of $169.8 million and a gain of $52.6 million - $24.8 million of this gain was allocated to our joint venture partners; and

obtained the repayment of $13.6 million in principal amount outstanding on the loan to the Newark Joint Venture and as a result, at September 30, 2017, $5.5 million in principal amount of this loan is outstanding.

Hurricane Harvey

In August 2017, Hurricane Harvey caused significant damage to our 268 unit Retreat at Cinco Ranch - Katy, Texas property. Among other things, 96 of our ground floor units are currently uninhabitable and as a result of the extensive damage to the common areas of the property (i.e., pool and clubhouse), we have offered, and may continue to offer, rent concessions and other accommodations to induce current and prospective tenants for the second and third floor units to continue to reside or to reside at the property. We reduced the net book value of this property by $3.6 million and, because we believe it is probable that we will recover such sum from our insurance coverage, less a $100,000 deductible, we recognized $3.5 million in insurance recoveries. Though this insurance claim with respect to this $3.6 million claim damage has not been resolved, as of December 12, 2017, $1.1 million of insurance proceeds has been received.

We believe that our business interruption insurance will cover our losses in rental income with respect to the ground floor units until such units are repaired and accordingly, have not reduced our estimate of revenues to be generated from such units. We are also seeking to recover from our insurance carriers the cost of any rent concessions and other accommodations we offer tenants and prospective tenants, and estimate that through January 2018, such concessions will be approximately $117,000. We may be required to continue to offer rent concessions after January 2018 and can provide no assurance that we will be reimbursed for any rent concessions provided. We anticipate that this property will be substantially repaired by September 2018.



27


Recent Developments
    On December 5, 2017, we declared a cash dividend of $0.18 per share payable on January 5, 2018 to stockholders of record on December 22, 2017.

On October 25, 2017, we sold Waverly Place Apartments, Melbourne, Florida, for a sales price of $22.3 million. We anticipate that during the quarter ended December 31, 2017, we will recognize a $12.7 million gain on the sale and that non-controlling partner's share of the gain will be approximately $2.8 million. In 2017, this property contributed $2.6 million of revenues and $2.4 million of operating expenses, interest expense and depreciation.

On December 7, 2017, we acquired Magnolia Pointe at Madison, a 204 unit multi-family property located in Madison, Alabama, for $18.4 million, including $15 million of mortgage debt obtained in connection with the acquisition. The mortgage debt bears interest at 4.08% per year, is interest only until 2022 and matures in December 2027.

Years Ended September 30, 2017 and 2016
Revenues
The following table compares our revenues for the years indicated:
(Dollars in thousands):
 
2017
 
2016
 
Increase
(Decrease)
 
% Change
Rental and other revenue from real estate properties
 
$
104,477

 
$
95,202

 
$
9,275

 
9.7
 %
Other income
 
1,294

 
3,319

 
$
(2,025
)
 
(61.0
)%
Total revenues
 
$
105,771

 
$
98,521

 
$
7,250

 
7.4
 %
Rental and other revenue from real estate properties.    The components of the increase are as follows:
$21.9 million from the inclusion, for a full year, of the operations of ten properties that were acquired in 2016 (the "2016 Acquisitions"); and
$8.7 million from the operations of the 2017 Acquisitions;
$2.1 million due primarily to rental rate increases from the operations of same store properties. Two properties, The Fountains Apartments and The Apartments at Venue, accounted for 50% of the increase at same store properties. Average rents at same store properties increased to $918 per occupied unit in 2017 from $888 per occupied unit in 2016.
These increases were offset by the loss of rental and other revenue of $10.7 million from the sale of the 2017 Sold Properties. The results for 2016 include $13.6 million of rental revenue from six multi-family properties sold in 2016 (the "2016 Sold Properties").

Other income.

The decrease is due to the inclusion in 2016 of $2.5 million of deferred interest on the loan to the Newark Joint Venture that had not been recognized for several years prior thereto due to recoverability concerns. See notes 5 and 6 to our consolidated financial statements.

28


Expenses
The following table compares our expenses for the periods indicated:
(Dollars in thousands)
 
2017
 
2016
 
Increase (Decrease)
 
% Change
Real estate operating expenses
 
$
51,279

 
$
47,519

 
$
3,760

 
7.9
 %
Interest expense
 
28,171

 
23,878

 
4,293

 
18.0
 %
Advisor's fees, related party
 

 
693

 
(693
)
 
(100.0
)%
Property acquisition costs
 

 
3,852

 
(3,852
)
 
(100.0
)%
General and administrative
 
9,396

 
8,536

 
860

 
10.1
 %
Depreciation
 
30,491

 
23,180

 
7,311

 
31.5
 %
Total expenses
 
$
119,337

 
$
107,658

 
11,679

 
10.8
 %

Real estate operating expenses.   The components of the increase are as follows:
$11.1 million from the inclusion, for a full year, of the operations of the 2016 Acquisitions;
$3.6 million from the operations of the 2017 Acquisitions;
$1.2 million from operations of the same store properties due to an increase (i) of approximately $701,000 from real estate taxes at five properties primarily as a result of real property tax reassessments and (ii) in repair and maintenance expense at several properties; and
$606,000 from the operations of a property engaged in lease up activities.
The increase was offset by:
A decline in operating expenses of $5.0 million from the sale of the 2017 Sold Properties.
A decline in operating expenses of $8.0 million from the 2016 Sold Properties.
Interest expense.   The components of the increase are as follows:
$6.1 million due to the inclusion, for a full year, of the interest expense associated with the mortgage debt incurred in the 2016 Acquisitions;
$3.3 million from the mortgage debt incurred in the 2017 Acquisitions;
$358,000 from the cessation of the capitalization of interest from a development property in connection with the commencement of lease up activities.
The increase was offset by decreases of:
$2.1 million from the sale of the 2017 Sold Properties.
$3.0 million from the 2016 Sold Properties.
$422,000 on our junior subordinated notes due to the reduction in the interest rate thereon. From August 1, 2012 through April 29, 2016, these notes carried an interest rate of 4.9% and commencing May 1, 2016, these notes bear an interest rate of three months LIBOR and 200 basis points. At September 30, 2017 and 2016, the interest rate on these notes was 3.31% and 2.76%, respectively.
Advisor's fee, related party. The decrease is due to the termination of the advisory agreement effective December 31, 2015.
Property acquisition costs. Due to a change in an accounting standard effective October 1, 2016, these costs are generally capitalized as part of the basis of an asset acquisition. During 2017, we capitalized $3.1 million of such costs.


29


General and administrative expense. These costs increased primarily as a result of a $331,000 increase in fees paid in connection with the Services, a $ 237,000 increase in compensation paid to our employees, including $125,000 increase in compensation paid to our chief executive officer, and a $213,000 increase primarily related to amortization of restricted stock units granted in 2016. In 2017, 2016 and 2015, general and administrative expense is allocated between our two segments in proportion to the estimated time spent by our full time personnel on such segments.
Depreciation.   The components of the increase are as follows:
$4.3 million from the operations of the 2017 Acquisitions;
$8.2  million from the inclusion, for a full year, of the operations of the 2016 Acquisitions; and
$728,000 from the operations of a property in connection with the commencement of lease up activities.
The increase was offset by decreases in depreciation of:
$2.8 million from the sales of the 2017 Sold Properties.
$2.4 million from the 2016 Sold Properties.
Other revenue and expense items
Equity in loss of unconsolidated joint ventures. The results for 2017 reflects a $384,000 loss associated with investments in two unconsolidated joint ventures, including the loss of $293,000 attributable to depreciation expense associated with our ownership interest in Canalside Lofts.
Gain on sale of real estate. The results for 2017 reflect the $52.6 million gain from the sale of 2017 Sold Properties, of which $24.8 million was allocated to non-controlling interests. The results for 2016 reflect the $46.5 million gain from the sale of the 2016 Sold Properties and two cooperative apartment units, of which $18.8 million was allocated to non-controlling interests.

Gain on sale of partnership interest. In 2016, we sold our interest in a joint venture that owned Village Green, Little Rock, AK multi-family property and recognized a $386,000 gain on the sale. There was no corresponding gain in 2017.

Loss on extinguishment of debt. In 2017, we incurred $1.5 million of mortgage prepayment charges in connection with the sale of four properties. In 2016 we incurred $4.5 million of mortgage prepayment charges in connection with the sale of two properties.
Provision for taxes. For 2017 and 2016, these amounts reflect the federal alternative minimum tax we are required to pay as a result of the use of our loss carry forwards to offset taxable income; 2017 also includes the payment of $1.2 million of state taxes due to the unavailability of loss carryforwards at the state level.         
Discontinued operations
In 2016, we sold our interest in the Newark Joint Venture and reclassified the operations of the venture to discontinued operations for all comparative periods. The $12.7 million of income from discontinued operations reflects the $15.5 million gain on the sale of our interest in the venture, net of the venture's operating losses of $2.8 million incurred during 2016.

Years Ended September 30, 2016 and 2015
Revenues
The following table compares our revenues for the years indicated:
(Dollars in thousands):
 
2016
 
2015
 
Increase (Decrease)
 
% Change
Rental and other revenue from real estate properties
 
$
95,202

 
$
81,026

 
$
14,176

 
17.5
%
Other income
 
3,319

 
72

 
3,247

 
N/A

Total revenues
 
$
98,521

 
$
81,098

 
$
17,423

 
21.5
%



30


Rental and other revenue from real estate properties.    The components of the increase are as follows:
$13.3 million from the operations of the 2016 Acquisitions;
$11.6 million due to the inclusion, for a full year, of the operations of four properties that were acquired in 2015 (the "2015 Acquisitions");
$2.8 million from operations of our Southridge-Greenville, South Carolina property, which prior to its sale in October 2016, was engaged in lease up activities; and
$2.7 million due primarily to rental rate increases from the operations of same store properties. Seven properties accounted for 78% of the increase at same store properties. Average rents at same store properties increased to $892 per occupied unit in 2016 from $841 per occupied unit in the prior year.
These increases were offset by the loss of rental and other revenue of $8.8 million from the sale of the 2016 Sold Properties. The results for 2015 include $7.5 million of rental revenue from three multi-family properties sold in 2015 (the  “2015 Sold Properties”).

Other income.

The increase is due to the inclusion of interest on the loan receivable from the Newark Joint Venture. At September 30, 2016, the loan receivable was in principal amount of $19.5 million. Through December 31, 2015, the interest income on this receivable was eliminated in consolidation. As a result of the February 2016 sale of our interest in the Newark Joint Venture, this interest income is reflected on our consolidated statement of operations. See notes 5 and 6 to our consolidated financial statements.

Expenses
The following table compares our expenses for the periods indicated:
(Dollars in thousands)
 
2016
 
2015
 
Increase
(Decrease)
 
% Change
Real estate operating expenses
 
$
47,519

 
$
42,612

 
$
4,907

 
11.5
%
Interest expense
 
23,878

 
19,297

 
4,581

 
23.7
%
Advisor's fees, related party
 
693

 
2,448