Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC  20549
 
FORM 10-Q

ý☒Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 
For the quarterly period ended March 31, 2018June 30, 2019

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)
Maryland13-2755856
(State or other jurisdiction of(I.R.S. Employer Identification No.)
incorporation or organization)Identification No.)

60 Cutter Mill Road, Great Neck, NY11021
(Address of principal executive offices)(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 classTrading Symbol(s)Name of each exchange on which registered
Common StockBRTNYSE

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý☒ No o☐
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Date File required to be submitted and posted pursuant to Rule 405 of Regulations S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). 
Yes ý☒  No o☐
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company or an emerging growth company.  See definition of “large accelerated filer,”filer” “accelerated filer” and “small, “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
☐
Smaller reporting company o
☒
(Do not check if a smaller reporting company)Emerging growth company ☐

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405) of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

o Emerging growth company

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


Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o☐  No ý☒
 
Indicate the number of shares outstanding of each of the issuer’s classes of stock, as of the latest practicable date.
 
14,343,20115,896,805 Shares of Common Stock,
par value $0.01 per share, outstanding on May 8, 2018August 1, 2019

Table of Contents

BRT APARTMENTS CORP. AND SUBSIDIARIES
Table of Contents





Page No.
Item 1.
2
3
4
5
67
79
Item 2.
1821
Item 3.
2730
Item 4.
2730
Item 6.2.
2831
Item 6.
31




1

Table of Contents

Part I ‑ FINANCIAL INFORMATION
Item 1. Financial Statements
BRT APARTMENTS CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(DollarsAmounts in thousands, except per share data)

   
March 31,
2018
(Unaudited)		 September 30,
2017		June 30, 2019December 31, 2018
ASSETS   ASSETS
Real estate properties, net of accumulated depreciation
and amortization of $67,643 and $64,290		$993,250
 $902,281
Real estate properties, net of accumulated depreciation and amortization of $107,587 and $91,715Real estate properties, net of accumulated depreciation and amortization of $107,587 and $91,715$1,098,932 $1,029,239 
Real estate loan5,200
 5,500
Real estate loan4,450 4,750 
Cash and cash equivalents30,974
 12,383
Cash and cash equivalents17,336 32,428 
Restricted cash7,702
 6,151
Restricted cash9,962 8,180 
Deposits and escrows23,655
 27,839
Deposits and escrows17,103 21,268 
Investments in unconsolidated joint ventures20,845
 21,415
Investments in unconsolidated joint ventures18,474 19,758 
Other assets7,005
 9,359
Other assets8,929 8,084 
Real estate property held for sale—
 8,969
Real estate property held for sale22,722 — 
Total Assets (a)$1,088,631
 $993,897
Total Assets (a)$1,197,908 $1,123,707 
LIABILITIES AND EQUITY   LIABILITIES AND EQUITY
Liabilities:   Liabilities:
Mortgages payable, net of deferred costs of $6,550 and $6,345$743,225
 $697,826
Junior subordinated notes, net of deferred costs of $372 and $38237,028
 37,018
Mortgages payable, net of deferred costs of $6,448 and $6,289Mortgages payable, net of deferred costs of $6,448 and $6,289$846,409 $771,817 
Junior subordinated notes, net of deferred costs of $347 and $357Junior subordinated notes, net of deferred costs of $347 and $35737,053 37,043 
Credit facility, net of deferred costs of $ 77 and $0Credit facility, net of deferred costs of $ 77 and $08,923 — 
Accounts payable and accrued liabilities17,002
 22,348
Accounts payable and accrued liabilities28,738 24,487 
Total Liabilities (a)797,255
 757,192
Total Liabilities (a)921,123 833,347 
   
Commitments and contingencies
 
Commitments and contingencies
Equity:   Equity:
BRT Apartments Corp. stockholders' equity:   BRT Apartments Corp. stockholders' equity:
Preferred shares $.01 par value 2,000 shares authorized, none outstanding—
 —
Preferred shares $.01 par value 2,000 shares authorized, none outstanding— — 
Common stock, $.01 par value, 300,000 shares authorized;    Common stock, $.01 par value, 300,000 shares authorized;
13,575 and 13,333 shares outstanding136
 133
15,172 and 15,038 shares outstanding 15,172 and 15,038 shares outstanding152 150 
Additional paid-in capital203,838
 201,910
Additional paid-in capital217,671 216,981 
Accumulated other comprehensive income2,132
 1,000
Accumulated other comprehensive income143 1,688 
Accumulated deficit(10,967) (37,047)Accumulated deficit(35,049)(20,044)
Total BRT Apartments Corp. stockholders’ equity195,139
 165,996
Total BRT Apartments Corp. stockholders’ equity182,917 198,775 
Non-controlling interests96,237
 70,709
Non-controlling interests93,868 91,585 
Total Equity291,376
 236,705
Total Equity276,785 290,360 
Total Liabilities and Equity$1,088,631
 $993,897
Total Liabilities and Equity$1,197,908 $1,123,707 


(a)The Company's consolidated balance sheets include the assets and liabilities of consolidated variable interest entities (VIEs). See note 6. The consolidated balance sheets include the following amounts related to the Company's VIEs as of March 31, 2018 and September 30, 2017, respectively: $625,714 and $707,546 of real estate properties, $9,228 and $8,626 of cash and cash equivalents, $8,632 and $13,873 of deposits and escrows, $5,765 and $8,148 of other assets, $0 and $8,969 of real estate properties held for sale, $479,093 and $558,568 of mortgages payable and $7,550 and $14,419 of accounts payable and accrued liabilities.


(a) The Company's consolidated balance sheets include the assets and liabilities of consolidated variable interest entities (VIEs). See note 6. The consolidated balance sheets include the following amounts related to the Company's VIEs as of June 30, 2019 and December 31, 2018, respectively: $660,226 and $584,074 of real estate properties; $7,143 and $5,207 of cash and cash equivalents; $9,250 and $11,705 of deposits and escrows; $4,840 and $6,302 of other assets; $22,722 and $0 of real estate property held for sale; $522,707 and $446,779 of mortgages payable, net of deferred costs; and $13,835 and $11,816 of accounts payable and accrued liabilities.

See accompanying notes to consolidated financial statements.

2

Table of Contents

BRT APARTMENTS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(Dollars in thousands, except share data)
thousands)
 Three Months Ended
March 31,		 Six Months Ended
March 31,
 2018 2017 2018 2017
Revenues:       
Rental and other revenues from real estate properties$29,476
 $24,702
 $57,638
 $49,731
Other income175
 181
 362
 792
Total revenues29,651
 24,883
 58,000
 50,523
Expenses:       
Real estate operating expenses - including $836 and $641 to related parties for the three months ended and $1,621 and $1,252 for the six months ended14,198
 11,909
 27,545
 24,355
Interest expense8,657
 6,402
 16,637
 13,089
General and administrative - including $146 and $103 to related parties for the three months ended and $228 and $182 for the six months ended2,453
 2,390
 4,756
 4,987
Depreciation9,240
 7,772
 17,888
 14,069
Total expenses34,548
 28,473
 66,826
 56,500
Total revenue less total expenses(4,897) (3,590) (8,826) (5,977)
   Equity in loss of unconsolidated joint ventures(63) —
 (88) —
   Gain on sale of real estate51,981
 —
 64,500
 35,838
   Gain on insurance recovery3,227
 —
 3,227
 —
    Loss on extinguishment of debt(593) —
 (850) (799)
Income (loss) from continuing operations49,655
 (3,590) 57,963
 29,062
   Income tax (benefit) provision(253) 1,108
 (147) 1,458
Net income (loss) from continuing operations, net of taxes49,908
 (4,698) 58,110
 27,604
Net (income) loss attributable to non-controlling interests(24,686) 469
 (26,537) (16,063)
Net income (loss) attributable to common stockholders$25,222
 $(4,229) $31,573
 $11,541
        
Weighted average number of shares of common stock outstanding:       
Basic14,242,076
 14,018,099
 14,131,050
 13,957,706
Diluted14,442,076
 14,018,099
 14,331,050
 13,957,706
        
Per share amounts attributable to common stockholders:       
Basic$1.77
 $(0.30) $2.23
 $0.83
Diluted$1.75
 $(0.30) $2.20
 $0.83
        


Three Months Ended
June 30,		Six Months Ended
June 30,
2019 20182019 2018 
Revenues:
Rental revenue$32,930 $29,951 $63,632 $59,427 
Other income190 203 434 378 
Total revenues33,120 30,154 64,066 59,805 
Expenses:
Real estate operating expenses - including $990 and $851 to related parties for the three months ended and $1,917 and $1,687 for the six months ended16,100 14,459 30,914 28,657 
Interest expense9,739 8,786 18,508 17,443 
General and administrative - including $155 and $160 to related parties for the three months ended and $297 and $306 for the six months ended2,481 2,452 5,025 4,905 
Depreciation10,347 10,200 19,964 19,440 
Total expenses38,667 35,897 74,411 70,445 
Total revenues less total expenses(5,547)(5,743)(10,345)(10,640)
Equity in loss of unconsolidated joint ventures(161)(127)(384)(190)
Gain on sale of real estate— — — 51,981 
Gain on insurance recoveries517 — 517 3,227 
Loss on extinguishment of debt— — — (593)
(Loss) income from continuing operations(5,191)(5,870)(10,212)43,785 
 Income tax provision (benefit)59 101 121 (152)
Net (loss) income from continuing operations, net of taxes(5,250)(5,971)(10,333)43,937 
Net loss (income) attributable to non-controlling interests933 1,282 1,769 (23,404)
Net (loss) income attributable to common stockholders$(4,317)$(4,689)$(8,564)$20,533 
Weighted average number of shares of common stock outstanding:
Basic15,900,316 14,411,940 15,893,443 14,327,477 
Diluted15,900,316 14,411,940 15,893,443 14,527,477 
Per share amounts attributable to common stockholders:
Basic$(0.27)$(0.33)$(0.54)$1.43 
Diluted$(0.27)$(0.33)$(0.54)$1.41 


See accompanying notes to consolidated financial statements.

3

Table of Contents

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


Three Months Ended
June 30,		Six Months Ended
June 30,
2019 20182019 2018 
Net (loss) income$(5,250)$(5,971)$(10,333)$43,937 
Other comprehensive (loss) income:
Unrealized (loss) gain on derivative instruments(1,353)398 (2,222)1,530 
Other comprehensive (loss) income(1,353)398 (2,222)1,530 
Comprehensive (loss) income(6,603)(5,573)(12,555)45,467 
Comprehensive loss (income) attributable to non-controlling interests1,346 1,160 2,446 (23,872)
Comprehensive (loss) income attributable to common stockholders$(5,257)$(4,413)$(10,109)$21,595 
 Three Months Ended
March 31,		 Six Months Ended
March 31,
  
 2018 2017 2018 2017
Net income (loss)$49,908
 $(4,698) $58,110
 $27,604
Other comprehensive income:       
Unrealized gain on derivative instruments1,132
 135
 1,634
 3,403
Other comprehensive income1,132
 135
 1,634
 3,403
Comprehensive income (loss)51,040
 (4,563) 59,744
 31,007
Comprehensive (income) loss attributable to non-controlling interests(25,032) 144
 (27,039) (17,387)
Comprehensive income (loss) attributable to common stockholders$26,008
 $(4,419) $32,705
 $13,620



See accompanying notes to consolidated financial statements.



4

Table of Contents

BRT APARTMENTS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF EQUITY
Six Months Ended March 31, 2018
(Unaudited)
(Dollars in thousands, except per share data)


Common StockAdditional
Paid-In Capital		Accumulated
Other Comprehensive Income		Accumulated Deficit
Non- Controlling Interest		Total
Balances, December 31, 2017$133 $202,225 $1,346 $(33,292)$72,935 $243,347 
Distributions - common stock - $0.20 per share— — — (2,897)— (2,897)
Restricted stock vesting1 (1)— — — — 
Compensation expense - restricted stock and restricted stock units— 297 — — — 297 
Consolidation of investment in limited partnership— — — — 12,370 12,370 
Contributions from non-controlling interests— — — — 18,088 18,088 
Distributions to non-controlling interests— — — — (32,020)(32,020)
Purchase of non-controlling interest— (82)— — (168)(250)
Shares issued through equity offering program, net2 1,399 — — — 1,401 
Net income— — — 25,222 24,686 49,908 
Other comprehensive income— — 786 — 346 1,132 
Comprehensive income51,040 
Balances, March 31, 2018$136 $203,838 $2,132 $(10,967)$96,237 $291,376 
Distributions - common stock - $0.20 per share— — — (2,970)(2,970)
Compensation expense - restricted stock and restricted stock units— 361 — — — 361 
Contributions from non-controlling interests— — — — 9,930 9,930 
Distributions to non-controlling interests— — — — (2,163)(2,163)
Shares issued through equity offering program, net8 10,517 — — — 10,525 
Net loss— — — (4,689)(1,282)(5,971)
Other comprehensive income— — 276 — 122 398 
Comprehensive loss(5,573)
Balances, June 30, 2018$144 $214,716 $2,408 $(18,626)$102,844 $301,486 

 Common Stock 
Additional
Paid-In Capital
 
Accumulated
Other Comprehensive (Loss) Income
 Accumulated Deficit 

Non- Controlling Interest
 Total
Balances, September 30, 2017$133
 $201,910
 $1,000
 $(37,047) $70,709
 $236,705
Distributions - common stock - $0.38 per share—
 —
 —
 (5,493) —
 (5,493)
Restricted stock vesting1
 (1) —
 —
 —
 —
Compensation expense - restricted stock and restricted stock units—
 612
 —
 —
 —
 612
Contributions from non-controlling interests—
 —
 —
 —
 22,623
 22,623
Consolidation of investment in limited partnership—
 —
 —
 —
 12,370
 12,370
Distributions to non-controlling interests—
 —
 —
 —
 (36,336) (36,336)
Purchase of non-controlling interest—
 (82) —
 —
 (168) (250)
Shares issued through equity offering program, net2
 1,399
 —
 —
 —
 1,401
Net income—
 —
 —
 31,573
 26,537
 58,110
Other comprehensive income—
 —
 1,132
 —
 502
 1,634

Comprehensive income		—
 —
 —
 —
 —
 59,744
Balances, March 31, 2018$136
 $203,838
 $2,132
 $(10,967) $96,237
 $291,376
See accompanying notes to consolidated financial statements.












5

Table of Contents

BRT APARTMENTS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF EQUITY
(Unaudited)
(Dollars in thousands, except per share data)

Common StockAdditional
Paid-In Capital		Accumulated
Other Comprehensive Income		Accumulated Deficit
Non- Controlling Interest		Total
Balances, December 31, 2018$150 $216,981 $1,688 $(20,044)$91,585 $290,360 
Distributions - common stock - $0.20 per share— — — (3,221)— (3,221)
Restricted stock vesting2 (2)— — — — 
Compensation expense - restricted stock and restricted stock units— 365 — — — 365 
Consolidation of investment in limited partnership— — — — 6,047 6,047 
Contributions from non-controlling interests— — — — 264 264 
Distributions to non-controlling interests— — — — (2,345)(2,345)
Net loss— — — (4,247)(836)(5,083)
Other comprehensive loss— — (606)— (263)(869)
Comprehensive loss(5,952)
Balances, March 31, 2019$152 $217,344 $1,082 $(27,512)$94,452 $285,518 
Distributions - common stock - $0.20 per share— — — (3,220)— (3,220)
Compensation expense - restricted stock and restricted stock units— 373 — — — 373 
Contributions from non-controlling interests— — — — 3,027 3,027 
Distributions to non-controlling interests— — — — (2,264)(2,264)
Shares repurchased - 3,590 shares— (46)— — — (46)
Net loss— — — (4,317)(933)(5,250)
Other comprehensive loss— — (939)— (414)(1,353)
Comprehensive loss— — — — — (6,603)
Balances, June 30, 2019$152 $217,671 $143 $(35,049)$93,868 $276,785 

See accompanying notes to consolidated financial statements.
6
BRT APARTMENTS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited) (Dollars
(Dollars in Thousands)

Six Months Ended June 30,
2019 2018
Cash flows from operating activities:
 Net (loss) income$(10,333)$43,937 
 Adjustments to reconcile net (loss) income to net cash provided by operating activities:
  Depreciation19,964 19,440 
  Amortization of deferred financing costs937 766 
  Amortization of restricted stock and restricted stock units738 658 
  Equity in loss of unconsolidated joint ventures384 190 
  Gain on sale of real estate— (51,981)
  Gain on insurance recovery(517)(3,227)
  Loss on extinguishment of debt— 593 
 Increases and decreases from changes in other assets and liabilities:
  Decrease in deposits and escrows4,861 3,926 
  (Increase) decrease in other assets(2,358)5,138 
  Decrease in accounts payable and accrued liabilities1,604 2,007 
Net cash provided by operating activities15,280 21,447 
Cash flows from investing activities:
  Collections from real estate loan300 300 
  Additions to real estate properties(56,840)(140,433)
  Improvements to real estate properties(4,755)(10,019)
  Investment in joint venture(11,231)(12,370)
  Purchase of non-controlling interests— (250)
  Consolidation of investment in joint venture1,458 1,279 
  Net proceeds from the sale of real estate properties— 146,901 
  Distributions from unconsolidated joint ventures898 381 
Net cash used in investing activities(70,170)(14,211)
Cash flows from financing activities:
  Proceeds from mortgages payable82,325 82,524 
  Mortgage payoffs(38,200)(75,436)
  Mortgage principal payments(2,721)(2,424)
    Proceeds from credit facility9,000 — 
  Increase in deferred financing costs(1,098)(943)
  Dividends paid(6,361)(5,788)
  Contributions from non-controlling interests3,291 28,018 
  Distributions to non-controlling interests(4,610)(34,183)
    Proceeds from the sale of common stock— 11,926 
  Repurchase of shares of common stock(46)— 
Net cash provided by financing activities41,580 3,694 
  Net (decrease) increase in cash, cash equivalents and restricted cash(13,310)10,930 
  Cash, cash equivalents and restricted cash at beginning of period40,608 21,761 
  Cash, cash equivalents and restricted cash at end of period$27,298 $32,691 


7
 Six Months Ended March 31,
 2018 2017
Cash flows from operating activities:   
 Net income$58,110
 $27,604
 Adjustments to reconcile net income to net cash provided by operating activities:   
  Depreciation17,888
 14,069
  Amortization of deferred borrowing fees742
 535
  Amortization of restricted stock and restricted stock units613
 710
  Equity in loss of unconsolidated joint ventures88
 —
  Gain on sale of real estate(64,500) (35,838)
  Gain on insurance recovery(3,227) —
  Loss on extinguishment of debt850
 799
 Increases and decreases from changes in other assets and liabilities:   
  Decrease in interest receivable—
 2,324
  Decrease in deposits and escrows7,745
 5,871
  Decrease in other assets7,230
 1,154
  Decrease in accounts payable and accrued liabilities(5,565) (5,662)
Net cash provided by operating activities19,974
 11,566
    
Cash flows from investing activities:   
  Collections from real estate loan300
 13,600
  Additions to real estate properties(125,901) (60,580)
  Net costs capitalized to real estate properties(5,247) (5,430)
  (Increase) decrease in restricted cash(1,551) 764
  Investment in limited partnership(12,370) —
  Purchase of non-controlling interests(250) —
  Consolidation of investment in limited partnership1,279
 —
  Net proceeds from the sale of real estate properties168,691
 128,647
  Distributions from unconsolidated joint ventures482
 166
  Contributions to unconsolidated joint ventures—
 (14,394)
Net cash (used in) provided by investing activities25,433
 62,773
    
Cash flows from financing activities:   
  Proceeds from mortgages payable78,945
 40,363
  Mortgage payoffs(84,727) (79,215)
  Mortgage principal payments(2,525) (2,539)
  Increase in deferred financing costs(817) (719)
  Dividends paid(5,380) —
  Contributions from non-controlling interests22,623
 6,398
  Distributions to non-controlling interests(36,336) (22,832)
Proceeds from the sale of common stock1,401
 —
  Repurchase of shares of beneficial interest/common stock—
 (47)
Net cash provided by (used in) financing activities(26,816) (58,591)
    
  Net increase in cash and cash equivalents18,591
 15,748
  Cash and cash equivalents at beginning of period12,383
 27,399
  Cash and cash equivalents at end of period$30,974
 $43,147






BRT APARTMENTS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
(Unaudited)
(Dollars in Thousands)

Six Months Ended March 31,Six Months Ended June 30,
2018 20172019 2018 
Supplemental disclosure of cash flow information:   Supplemental disclosure of cash flow information:
Cash paid during the period for interest, net of capitalized interest of $0 and $84, respectively$15,859
 $12,536
Cash paid during the period for interest, net of capitalized interest of $695 and $59, respectivelyCash paid during the period for interest, net of capitalized interest of $695 and $59, respectively$18,218 $15,780 
Taxes paid$39
 1,778
 Taxes paid$44 $114 
Acquisition of real estate through assumption of debt$—
 $27,638
 Acquisition of real estate through assumption of debt$— $13,608 
   
Consolidation of investment in limited partnership:   
Real estate properties reclassified to assets held for sale Real estate properties reclassified to assets held for sale$22,722 $— 
Accrued additions of property and equipmentAccrued additions of property and equipment$2,160 $— 
Consolidation of investment in joint venture:Consolidation of investment in joint venture:
Increase in real estate assets$(72,395) $—
Increase in real estate assets$(48,624)$— 
Increase in deposits and escrows(3,561) —
Increase in deposits and escrows(696)— 
Increase in other assets(20) —
Increase in other assets(189)— 
Increase in mortgage payable53,060
 —
Increase in mortgage payable33,347 — 
Increase in deferred financing costs(657) —
Increase in deferred financing costs(65)— 
Increase in accounts payable and accrued liabilities112
 —
Increase in accounts payable and accrued liabilities407 — 
Increase in non controlling interest12,370
 —
Increase in non controlling interest6,047 — 
Decrease in investment in limited partnership12,370
 —
Increase in cash upon consolidation of limited partnership$1,279
 $—
Decrease in investment in joint ventureDecrease in investment in joint venture11,231 — 
Increase in cash upon consolidation of joint venture Increase in cash upon consolidation of joint venture$1,458 $— 





See accompanying notes to consolidated financial statements.statements.

6
8

Table of Contents

BRT APARTMENTS CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 2018June 30, 2019



Note 1 – Organization and Background


BRT Apartments Corp. (the "Company"), a Maryland corporation, owns, operates and develops multi‑familymulti-family properties. The Company conducts its operations to qualify as a real estate investment trust, or REIT, for federal income tax purposes.
Generally, the multi-family properties are acquired with joint venture partners in transactions in which the Company contributes a significant portion of the equity. At March 31, 2018,June 30, 2019, the Company owns: (a) 3437 multi-family properties with 9,63210,336 units (including 445 units at two properties engaged in lease-up activities and 402 units at a property under development)in lease-up), located in 1112 states with a carrying value of $982,801,000;$1,111,344,000; and (b) interests in three unconsolidated multi-family joint ventures with 1,026 units (including 339 units in lease-up) located in two states with a carrying value of $20,637,000.$18,402,000.


Note 2 – Basis of Preparation


The accompanying interim unaudited consolidated financial statements as of March 31, 2018,June 30, 2019, and for the three and sixmonths ended March 31,June 30, 2019 and 2018, and 2017, reflect all normal recurring adjustments which, in the opinion of management, are necessary for a fair presentation of the results for such interim periods. The results of operations for the three and six months ended March 31,June 30, 2019 and 2018, and 2017, are not necessarily indicative of the results for the full year. The consolidated unaudited balance sheet as of September 30, 2017,December 31, 2018, has been derived from the auditedunaudited financial statements at that date but does not include all the information and footnotes required by accounting principles generally accepted in the United States ("GAAP"). Accordingly, these unaudited statements should be read in conjunction with the Company's audited financial statements included in its Annual Report on Form 10-K for the year ended September 30, 2018, filed with the Securities and Exchange Commission ("SEC") on December 10, 2018, for complete financial statements.
The consolidated financial statements include the accounts and operations of the Company, its wholly owned subsidiaries, and its majority owned or controlled real estate entities and its interests in variable interest entities ("VIEs") in which the Company is determined to be the primary beneficiary. Material intercompany balances and transactions have been eliminated.
The Company’s consolidated joint ventures that own multi‑familymulti-family properties, except as set forth in the following paragraph, were determined to be VIEs because the voting rights of some equity investors in the applicable joint venture entity are not proportional to their obligations to absorb the expected losses of the entity and their right to receive the expected residual returns. It was determined that the Company is the primary beneficiary of these joint ventures because it has a controlling interest in that it has the power to direct the activities of the VIE that most significantly impact the entity's economic performance and it has the obligation to absorb losses of the entity and the right to receive benefits that could potentially be significant to the VIE.
The joint ventures that own properties in Ocoee, FL, Lawrenceville, GA, Dallas, TX, Farmers Branch, TX and St. Louis, MOGrand Prairie, TX were determined not to be a VIEs but are consolidated because the Company has controlling rights in such entities.
With respect to its unconsolidated joint ventures, as (i) the Company is primarilygenerally the managing member but does not exercise substantial operating control over these entities or the Company is not the managing member and (ii) such entities are not VIEs, the Company has determined that such joint ventures should be accounted for under the equity method of accounting for financial statement purposes.


The distributions to each joint venture partner are determined pursuant to the applicable operating agreement and may not be pro-rata to the percentage equity interest each partner has in the applicable venture.  
The preparation of the financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements. Actual results could differ from those estimates. Substantially all of the Company's assets are comprised of multi- family real estate assets generally leased to tenants on a one yearone-year basis. Therefore, the Company aggregates real estate assets for reporting purposes and operates in one reportable segment.



9
In February 2019, the Board of Directors of the Company authorized a change in the Company’s fiscal year end from September 30 to December 31. The change is intended to better align the Company’s fiscal year with the fiscal year of other multi-family REITs. As a result of the change in fiscal year, (i) the Company’s 2019 fiscal year began on January 1, 2019 and ends on December 31, 2019 and (ii) the Company filed a Transition Report on Form 10-Q covering the transition period from October 1, 2018 to December 31, 2018.

Note 3 ‑- Equity


Equity Distribution Agreements


OnIn January 11, 2018, the Company entered into equity distribution agreements, which were amended in May 2018, with three sales agents to sell up to an aggregate of $20,000,000$30,000,000 of its common stock from time-to-time in an at-the-market offering. InDuring the quarter ended March 31, 2018,June 30, 2019, the Company did not sell any shares. From the commencement of this program through June 30, 2019, the Company sold 113,5661,590,935 shares for an aggregate sales price of common stock for net proceeds of $1,401,000, after giving effect to commissions of

7

Table of Contents

$30,000 and estimated offering costs (i.e. professional and related fees) of $63,000. From April 1, 2018 through May 8, 2018, the Company sold 62,400 shares of common stock for net proceeds of $734,000, after giving effect to$20,913,000 before commissions of $16,000.$424,000 and offering related expenses of $78,000.


Common Stock Dividend Distribution


The Company declared a quarterly cash distribution of $0.20per share, payable on April 6, 2018,July 9, 2019 to stockholders of record on March 27, 2018.June 25, 2019.


Stock Based Compensation


The Company's Amended and Restated 2018 Incentive Plan (the "2018 Plan") permits the Company to grant: (i) stock options, restricted stock, restricted stock units, performance share awards and any one or more of the foregoing, up to a maximum of 600,000shares; and (ii) cash settled dividend equivalent rights in tandem with the grant of restricted stock units andor certain performance based awards.
Restricted Stock Units
In June 2016, the Company issued restricted stock units (the "Units") to acquire up to 450,000shares of common stock pursuant to the 2016 Amended and Restated Incentive Plan (the "2016 Incentive Plan"). The Units entitle the recipients, subject to continued service through the March 31, 2021 vesting date, to receive (i) the underlying shares if and to the extent certain performance and/or market conditions are satisfied at the vesting date, and (ii) an amount equal to the cash dividends paid from the grant date through the vesting date with respect to the shares of common stock underlying the Units if, when, and to the extent, the related Units vest. For financial statement purposes, because the Units are not participating securities, the shares underlying the Units are excluded in the outstanding shares reflected on the consolidated balance sheet and from the calculation of basic earnings per share. The shares underlying the Units are contingently issuable shares and 200,000 of these shares have been included in the diluted earnings per share as the market conditions with respect to such units had been met at March 31, 2018.shares.
Expense is recognized over the five year-year vesting period on the Units which the Company expects to vest. For the three months ended March 31,June 30, 2019 and 2018, and 2017, the Company recorded $73,000 $36,000and $110,000, $73,000, respectively, and for the six months ended March 31,June 30, 2019 and 2018, and 2017, the Company recorded $146,000$71,000 and $220,000, respectively,$146,000 of compensation expense related to the amortization of unearned compensation with respect to the Units. At MarchJune 30, 2019, and December 31, 2018, $248,000 and September 30, 2017, $870,000 and $1,015,000$319,000 of compensation expense, respectively, had been deferred and will be charged to expense over the remaining vesting period.
Restricted Stock
In March 2018,January 2019, the Company granted 144,797156,399 shares of restricted stock pursuant to the 2018 Incentive Plan. As of March 31, 2018,June 30, 2019, an aggregate of 706,247725,296 shares of unvested restricted stock are outstanding pursuant to the 2018 Incentive Plan, 2016 Incentive Plan and 2012 Incentive Plan. No additional awards may be granted under the 2016 Incentive Plan and the 2012 Incentive Plan. AllThe shares of restricted stock vest five years from the date of grant and under specified circumstances, including a change in control, may vest earlier. For financial statement purposes, the restricted stock is not included in the outstanding shares shown on the consolidated balance sheets until they vest, but are included in the earnings per share computation. 
For the three months ended March 31,June 30, 2019 and 2018, and 2017, the Company recorded $224,000$337,000 and $276,000,$287,000, respectively, and for the six months ended March 31,June 30, 2019 and 2018, and 2017, the Company recorded $467,000$667,000 and $490,000, respectively,$511,000 of compensation expense related to the amortization of unearned compensation with respect to the restricted stock awards. At MarchJune 30, 2019
10
and December 31, 2018, $4,011,000 and September 30, 2017, $3,603,000 and $2,356,000$2,735,000 has been deferred as unearned compensation and will be charged to expense over the remaining vesting periods of these restricted stock awards. The weighted average remaining vesting period of these shares of restricted stock is 3.52.6 years.

Stock Buyback
On September 5, 2017, the Board of Directors approved a repurchase plan authorizing the Company, effective as of October 1, 2017, to repurchase up to $5,000,000 of shares of common stock through September 30, 2019. NoDuring the three and six months ended June 30, 2019, the Company repurchased 3,590 shares have been repurchased pursuant to this plan.



8

Table of Contents


common stock at an average market price of $12.80 for an aggregate cost of $46,000. During the three and six months ended June 30, 2018, there were no repurchases of common stock. As of June 30, 2019, $4,793,000 is remaining under the repurchase plan
Per Share Data
Basic earnings (loss) per share is determined by dividing net income (loss) applicable to common stockholders for the applicable period by the weighted average number of shares of common sharesstock outstanding during such period. The Units are excluded from the basic earnings per share calculation, as they are not participating securities. Diluted earnings per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into shares of common stock or resulted in the issuance of shares of common stock that share in the earnings of the Company. Diluted earnings per share is determined by dividing net income applicable to common stockholders for the applicable period by the weighted average number of shares of common stock outstanding and deemed to be outstanding during such period. ForIn calculating diluted earnings per share, the Company, for the three and six months ended March 31,June 30, 2019 and the three months ended June 30, 2018, did not include any shares underlying the Units as their effect would have been anti-dilutive. For the six months ended June 30, 2018, the Company included 200,000shares of common stock underlying the Units inas the calculation of diluted earning per share as a market criteria with respect to such units, hasthe Units had been met at March 31, 2018.June 30, 2018.
The following table sets forth the computation of basic and diluted earnings per share (dollars in thousands, except share amounts):
Three Months Ended June 30,Six Months Ended June 30,
2019 20182019 2018 
Numerator for basic and diluted earnings (loss) per share attributable to common stockholders:
Net (loss) income attributable to common stockholders$(4,317)$(4,689)(8,564)20,533 
Denominator:
Denominator for basic earnings per share—weighted average number of shares15,900,316 14,411,940 15,893,443 14,327,477 
Effect of diluted securities— — — 200,000 
Denominator for diluted earnings per share—adjusted weighted average number of shares and assumed conversions15,900,316 14,411,940 15,893,443 14,527,477 
Basic (loss) earnings per share$(0.27)$(0.33)$(0.54)$1.43 
Diluted (loss) earnings per share$(0.27)$(0.33)$(0.54)$1.41 


 Three Months Ended March 31, Six Months Ended March 31,
 2018 2017 2018 2017
Numerator for basic and diluted earnings (loss) per share attributable to common stockholders: 
      
Net income (loss) attributable to common stockholders$25,222
 $(4,229) 31,573
 11,541
        
Denominator:       
Denominator for basic earnings (loss) per share—weighted average number of shares14,242,076
 14,018,099
 14,131,050
 13,957,706
Effect of diluted securities200,000
 —
 200,000
 —
Denominator for diluted earnings per share—adjusted weighted average number of shares and assumed conversions14,442,076
 14,018,099
 14,331,050
 13,957,706
        
Basic earnings (loss) per share$1.77
 $(0.30) $2.23
 $0.83
Diluted earnings (loss) per share$1.75
 $(0.30) $2.20
 $0.83

11
Note 4 ‑ Real Estate Properties


Real estate properties, (includingincluding properties held for sale)sale, consist of the following (dollars in thousands):
June 30, 2019December 31, 2018
Land$164,838 $155,573 
Building1,022,194 924,378 
Building improvements46,297 41,003 
  Real estate properties1,233,329 1,120,954 
Accumulated depreciation(111,675)(91,715)
  Total real estate properties, net$1,121,654 $1,029,239 
  March 31, 2018 September 30, 2017
Land $157,105
 $138,094
Building 874,679
 808,366
Building improvements 29,109
 31,411
  Real estate properties 1,060,893
 977,871
Accumulated depreciation (67,643) (66,621)
  Total real estate properties, net $993,250
 $911,250




9

Table of Contents

A summary of real estate properties owned, (includingincluding properties held for sale)sale, is as follows (dollars in thousands):
      


 
September 30, 2017
Balance		 


Additions		 
Capitalized Costs and Improvements		 Depreciation Sales 
March 31, 2018
Balance
Multi-family $890,300
 $185,415
 $5,247
 $(17,833) $(103,655) $959,474
Multi-family development - West Nashville, TN 10,448
 12,881
 —
 —
 —
 23,329
Land - Daytona, FL 8,021
 —
 —
 —
 —
 8,021
Shopping centers/Retail - Yonkers, NY 2,481
 —
 —
 (55) —
 2,426
Total real estate properties $911,250
 $198,296
 $5,247
 $(17,888) $(103,655) $993,250

      

December 31, 2018
Balance		AdditionsCapitalized Costs and ImprovementsDepreciationJune 30, 2019
Balance
Multi-family$964,320 $92,170 $6,837 $(19,682)$1,043,645 
Multi-family lease-up - West Nashville, TN54,555 — 13,372 (227)67,700 
Land - Daytona, FL8,021 — — — 8,021 
Shopping centers/Retail - Yonkers, NY2,343 — — (55)2,288 
Total real estate properties$1,029,239 $92,170 $20,209 $(19,964)$1,121,654 
The following table summarizes the allocation of the purchase price of four with respect to twoproperties purchased during the sixmonths ended March 31, 2018 (dollarsJune 30, 2019(dollars in thousands):
Allocation of Purchase Price
Land$6,101 
Building and improvements84,987 
Acquisition-related intangible assets1,082 
Total consideration$92,170 
  Purchase Price Allocation
Land $37,282
Building and improvements 140,027
Acquisition-related intangible assets 3,992
Total consideration $181,301


As resultThe purchase price of the damage caused by Hurricane Harvey in 2017,properties acquired, inclusive of acquisition costs, was allocated to the Company reducedacquired assets based on their estimated relative fair values on the carrying value of Retreat at Cinco Ranch, located in Katy, TX by $3,471,000 and, because the Company believed it was probable that it would recover such sum from its insurance coverage, recognized such sum in insurance recoveries. Through March 31, 2018, the Company received $7,384,000 in insurance recoveries related to Hurricane Harvey, of which $3,227,000 is recorded as a gain on insurance recovery in the three and six months ended March 31, 2018 and $686,000 has been recognized as rental income (i.e. $98,000 in 2017 and $294,000 and $588,000 in the three and six months ended March 31, 2018, respectively.)acquisition date.


Note 5 ‑ Acquisitions and Dispositions


Property Acquisitions


The table below provides information regarding the Company's purchasespurchase of multi-family properties forduring the sixmonths ended March 31, 2018June 30, 2019 (dollars in thousands):

LocationPurchase DateNo. of UnitsPurchase PriceAcquisition Mortgage DebtInitial BRT EquityOwnership PercentageCapitalized Acquisition Costs
Kannapolis, North Carolina3/12/2019312 $48,065 $33,347 $11,231 65 %$559 
Birmingham, Alabama5/7/2019328 43,000 32,250 11,625 80 %546 
640 $91,065 $65,597 $22,856 $1,105 


12
Location Purchase Date No. of Units Purchase Price Acquisition Mortgage Debt Initial BRT Equity Ownership Percentage Capitalized Acquisition Costs
Madison, AL 12/7/2017 204
 $18,420
 $15,000
 $4,456
 80% $247
Boerne, TX (a) 12/14/2017 120
 12,000
 9,200
 3,780
 80% 244
Ocoee, FL 2/7/2018 522
 71,347
 53,060
 12,370
 50% 1,047
Lawrenceville, GA 2/15/2018 586
 77,229
 54,447
 15,179
 50% 767
    1,432
 $178,996
 $131,707
 $35,785
   $2,305

(a) Includes $500 for the acquisition of a land parcel adjacent to the property.

In the quarter ended March 31, 2018, the Company purchased its partner's 2.5% interest in Avalon Apartments, located in Pensacola, FL., for $250,000.

On April 30, 2018, the Company acquired, through a joint venture in which it has a 80% equity interest, a 208-unit multi-family property located in Daytona, FL, for $20,500,000, including the assumption of $13,608,000 of mortgage debt. The mortgage

10


debt matures in May 2025, bears interest at a fixed rate of 3.94%, is interest only for two years, and thereafter amortizes based on a 30-year schedule. The Company contributed $6,900,000 for its ownership interest.
The table below provides information regarding the Company's purchases of multi-family properties during the six months ended March 31, 2017June 30, 2018 (dollars in thousands):
LocationPurchase DateNo. of UnitsPurchase PriceAcquisition Mortgage DebtInitial BRT EquityOwnership PercentageCapitalized Acquisition Costs
Ocoee, FL2/7/2018522 $71,347 $53,060 $12,370 50.0 %$1,047 
Lawrenceville, GA2/15/2018586 77,229 54,447 15,179 50.0 %767 
Daytona, FL4/30/2018208 20,500 13,608 6,900 80.0 %386 
Grand Prairie, TX5/17/2018281 30,800 18,995 7,300 50.0 %411 
1,597 $199,876 $140,110 $41,749 $2,611 
Location Purchase Date No. of Units Purchase Price Acquisition Mortgage Debt Initial BRT Equity Ownership Percentage Capitalized Acquisition Costs
Fredricksburg, VA 11/4/2016 220
 $38,490
 $29,940
 $8,720
 80% $643
St. Louis, MO 2/28/2017 128
 27,000
 20,000
 6,001
 75.5% 423
St. Louis, MO 2/28/2017 53
 8,000
 6,200
 2,002
 75.5% 134
    401
 $73,490
 $56,140
 $16,723
   $1,200


Property Dispositions


The following table is a summaryCompany did not dispose of any real estate properties disposed of by the Company during the six months ended March 31, 2018 (dollars in thousands):June 30, 2019.
LocationSale
Date		 No. of
Units		 Sales Price Gain on Sale Non-controlling partner portion of gain
Melbourne, FL10/25/2017 208
 $22,250
 $12,519
 $2,504
Palm Beach Gardens, FL2/5/2018 542
 97,200
 41,830
 20,593
Valley, AL2/23/2018 618
 51,000
 9,712
 4,547
Fort Washington1/18/2018 1
 470
 439
 —
   1,369
 $170,920
 $64,500
 $27,644


The following table is a summary of the real estate properties disposed of by the Company during the six months ended March 31, 2017June 30, 2018 (dollars in thousands):
LocationSale
Date		No. of
Units		Sales PriceGain on SaleNon-controlling partner's portion of the gain
Palm Beach Gardens, FL2/5/2018542$97,200 $41,830 $20,593 
Valley, AL2/23/201861851,000 9,712 4,547 
New York, NY1/18/20181470 439 — 
1,161 $148,670 $51,981 $25,140 
LocationSale
Date		 No. of
Units		 Sales Price Gain on Sale Non-controlling partner portion of gain
Greenville, SC10/19/2016 350
 $68,000
 $18,483
 $9,329
Panama City, FL10/26/2016 160
 14,720
 7,393
 3,478
Atlanta, GA11/21/2016 350
 36,750
 8,905
 4,166
Hixson,TN11/30/2016 156
 10,775
 608
 152
New York, NY12/21/2016 1
 465
 449
 —
   1,017
 $130,710
 $35,838
 $17,125


Impairment Charges


The Company reviews each real estate asset owned, including those held through investments in unconsolidated joint ventures, for impairment when there is an event or a change in circumstances indicating that the carrying amount may not be recoverable. The Company measures and records impairment losses, and reduces the carrying value of properties, when indicators of impairment are present and the expected undiscounted cash flows related to those properties are less than their carrying amounts. In cases where the Company does not expect to recover its carrying costs on properties held for use, the Company reduces its carrying costs to fair value, and for properties held for sale, the Company reduces its carrying value to the fair value less costs to sell. During the three and six months ended March 31,June 30, 2019 and 2018, and 2017, no impairment charges were recorded.


Note 6 - Variable Interest Entities


The Company conducts a largesignificant portion of its business with joint venture partners. Many of the Company's consolidated joint ventures that own properties were determined to be variable interest entities ("VIEs")VIEs because the voting rights of some equity partners are not proportional to their obligations to absorb the expected loses of the entity and their rights to receive expected

11


residual returns. It was determined that the Company is the primary beneficiary of these joint ventureventures because it has a controlling financial interest in that it has the power to direct the activities of the VIE that most significantly impacts the entity's economic performance and it has the obligation to absorb losses of the entity and the right to receive benefits from the entity that could potentially be significant to the VIE.



13
The following is a summary of the carrying amounts with respect to the consolidated VIEs and their classification on the Company's consolidated balance sheets (amounts(dollars in thousands):
June 30, 2019
(unaudited)		December 31, 2018
(unaudited)
ASSETS
Real estate properties, net of accumulated depreciation of $65,094 and $53,637$660,298 $584,074 
Cash and cash equivalents7,143 5,207 
Deposits and escrows9,250 11,705 
Other assets4,840 6,302 
Real estate properties held for sale22,722 — 
  Total Assets$704,253 $607,288 
LIABILITIES
Mortgages payable, net of deferred costs of $3,957 and $3,786$522,707 $446,779 
Accounts payable and accrued liabilities13,835 11,816 
   Total Liabilities$536,542 $458,595 


  March 31, 2018 (unaudited) September 30, 2017
ASSETS    
Real estate properties, net of accumulated depreciation of $48,037 and $52,873 $625,714
 $707,546
Cash and cash equivalents 9,228
 8,626
Deposits and escrows 8,632
 13,873
Other assets 5,765
 8,148
Real estate properties held for sale —
 8,969
  Total Assets $649,339
 $747,162
     
LIABILITIES    
Mortgages payable, net of deferred costs of $4,189 and $5,170 $479,093
 $558,568
Accounts payable and accrued liabilities 7,550
 14,419
   Total Liabilities $486,643
 $572,987


Note 7 - Real Estate PropertyProperties Held Forfor Sale

At SeptemberJune 30, 2017, Waverly Place2019, Stonecrossing Apartments Melbourne, FL,and Stonecrossing East Apartments, Houston, TX, with a combined book value of $8,969,000, was$22,722,000 were held for sale. This property was soldThe sale of these properties closed on October 25, 2017. The Company did not have any properties that met the criteria for held-for-sale classification at March 31, 2018.July 10, 2019.


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


Note 9 – Investment in Unconsolidated Ventures


The Company has interests in unconsolidated joint ventures that own multi-family properties. The table below provides information regarding these joint ventures at March 31, 2018 (dollarsJune 30, 2019(dollars in thousands):
Location Number of Units Carrying Value Mortgage Debt Percent Ownership
Columbia, SC 374
 $4,832
 $41,000
 32%
Columbia, SC (a) 339
 8,665
 —
 46%
Forney, TX (b) 313
 7,140
 25,350
 50%
Other investments N/A
 208
 N/A
 N/A
  1,026
 $20,845
 $66,350
  

__________________________
LocationNumber of UnitsCarrying Value of
Investment		Mortgage BalancePercent Ownership
Columbia, SC374 $4,426 $39,847 32 %
Columbia, SC (a)339 7,786 40,679 46 %
Forney, TX (b)313 6,189 25,350 50 %
Other investmentsN/A 73 N/A N/A 
1,026 $18,474 $105,876 
(a)Reflects land purchased for a development project at which construction of 339 units is planned. Construction financing for this project of up to $47,426 has been secured. Such financing bears interest at 4.08% and matures in June 2020. At March 31, 2018, no amounts have been drawn on this financing.
(b)This interest is held through a tenancy-in-common.

________________________
(a) Property is currently in lease-up. Construction financing for this project of up to $42,019 has been secured. Such financing bears interest at 4.95%and matures in June 2020.
(b) This interest is held through a tenancy-in-common.

The net loss from these ventures was $63,000$161,000 and $0 in$127,000 for the three months ended March 31,June 30, 2019 and 2018, and 2017, respectively$384,000 and $190,000 for the six months ended March 31,June 30, 2019 and 2018, and 2017 was $88,000 and $0, respectively.



12
14




Note 10 – Debt Obligations


Debt obligations consist of the following (dollars in thousands):
   June 30, 2019December 31, 2018
Mortgages payable$852,857 $778,106 
Junior subordinated notes37,400 37,400 
Credit facility9,000 — 
Deferred financing costs(6,872)(6,646)
Total debt obligations, net of deferred costs$892,385 $808,860 
  March 31, 2018 September 30, 2017
Mortgages payable $749,775
 $704,171
Junior subordinated notes 37,400
 37,400
Deferred mortgage costs (6,922) (6,727)
Total debt obligations, net of deferred costs $780,253
 $734,844


Mortgages Payable

During the six months ended March 31, 2018,June 30, 2019, the Company obtained the following mortgage debt in connection with the related property acquisitions (dollars in thousands):

Location Closing Date Acquisition Mortgage Debt Interest Rate Interest only period Maturity Date
Madison, AL 12/7/17 $15,000
 4.08% 60 months January 2028
Boerne, TX (a) 12/14/17 9,200
     LIBOR+ 2.39%
 36 months January 2028
Ocoee, FL 2/7/18 53,060
 3.90% 84 months January 2028
Lawrenceville, GA 2/15/18 54,447
 3.97% 120 months March 2028
    $131,707
 

 
  
LocationClosing DateAcquisition Mortgage DebtInterest RateInterest only periodMaturity Date
Kannapolis, NC3/12/19$33,347 3.52 %— 3/1/2052
Birmingham, AL5/7/1932,250 4.19 %72 months6/1/2029
$65,597 
_____________________________
(a) The Company entered into an agreement related to this loan to cap LIBOR at 3.86%. See Note 13.


The Company has twoa construction loansloan financing two separate construction projects.a project with 402 units, of which 164 units are in development and 238 units are in lease-up. Information regarding these loansthis loan at March 31, 2018June 30, 2019 is set forth below (dollars in thousand):
LocationClosing DateMaximum Loan AmountAmount outstandingInterest RateMaturity DateExtension Option
Nashville,TN6/2/2017$47,426 $41,580 30 day LIBOR + 2.85%6/2/2022N/A


In the three months ended June 30, 2019, $528,000 of interest was incurred on this loan, of which $304,000 was capitalized. In the six months ended June 30,2019, $960,000 of interest was incurred on this loan, of which $ $695,000 was capitalized.

On June 13, 2019, the Company refinanced a $29,000,000 adjustable rate mortgage on its East St Louis, MO property with a fixed rate loan in the amount of $29,700,000. The mortgage debt bears interest at a fixed rate of 4.41%, matures in July 2031, is interest only for six years, amortizes thereafter on a 30 year schedule with a balloon payment of the unpaid principal and interest due at maturity.

On February 1, 2019, the Company refinanced a $9,200,000 adjustable rate mortgage on its Boerne, TX property with a fixed rate loan in the amount of $8,067,000. The mortgage debt bears interest at a fixed rate of 4.74%, matures in February 2026, is interest only for three years, amortizes thereafter on a 30 year schedule, with a balloon payment of the unpaid principal and interest due at maturity.


Credit Facility

The Company entered into a credit facility dated April 18, 2019, as subsequently amended, with an affiliate of Valley National Bank. The facility allows the Company to borrow, subject to compliance with borrowing base requirements and other conditions, up to $10,000,000 to facilitate the acquisition of multi-family properties, and is secured by the cash available in certain cash accounts maintained by the Company at Valley National Bank. The facility matures April 2021 and bears an adjustable interest rate of 50 basis points over the prime rate, with a floor 5%. The interest rate in effect as of June 30, 2019, is 6%. There is an unused facility fee of 0.25% per annum on the difference between the outstanding loan balance and maximum amount then available under the facility.

15
Location Closing Date Maximum Loan Amount Amount outstanding Interest Rate Maturity Date Extension Option
N Charleston, SC (a) 10/13/2015 $30,265
 $29,890
 LIBOR + 1.70% 10/13/2019 1 year
Nashville,TN 6/2/2017 47,426
 —
 LIBOR + 2.85% 6/2/2020 N/A
    $77,691
 $29,890
      
On May 2, 2019, the Company borrowed $9,000,000 on the facility in connection with the acquisition of the Trussville, AL property. On July 11, 2019, the Company repaid the outstanding balance. Interest expense for the three and six months ended June 30, 2019, which includes amortization of deferred costs, was $96,000.
_____________________
(a) Currently in lease up.    



Junior Subordinated Notes


At MarchJune 30, 2019 and December 31, 2018, and September 30, 2017, the Company's junior subordinated notes had an outstanding principal balance of $37,400,000, before deferred financing costs of $372,000$347,000 and $382,000,$357,000, respectively. At March 31, 2018,June 30, 2019, the interest rate on the outstanding balance is three month LIBOR + 2.00%, or 3.77%4.58%.


The junior subordinated notes require interest only payments through the maturity date of April 30, 2036, at which time repayment of the outstanding principal and unpaid interest become due. Interest expense for the three months ended March 31,June 30, 2019 and 2018, and 2017, which includes amortization of deferred costs, was $352,000$439,000 and $287,000,$386,000, respectively, and for the six months ended March 31,June 30, 2019 and 2018 was $888,000 and 2017, was $682,000 and $561,000,$738,000, respectively.





Note 11 – Related Party Transactions


13



The Company has retained certain of its executive officers and Fredric H. Gould, a director, to provide, among other things, the following services: participating in the Company's multi-family property analysis and approval process (which includes service on thean investment committee), providing investment advice, long-term planning and consulting with executives and employees with respect to other business matters, as required. The aggregate fees incurred and paid for these services in the three months ended March 31,June 30, 2019 and 2018 were $333,000 and 2017 were $317,000, and $302,000, respectively, and for the six months ended March 31,June 30, 2019 and 2018 were $666,000 and 2017 were $619,000 and $589,000,$634,000, respectively.


Management of certain properties owned by the Company and certain joint venture properties is provided by Majestic Property Management Corp. ("Majestic Property"), a company wholly owned by Fredric H. Gould, under renewable year-to-year agreements.Gould. Certain of the Company's officers and directors are also officers and directors of Majestic Property. Majestic Property may also provide real estate brokerage and construction supervision services to these properties. These fees amounted to $10,000$8,000 and $8,000$6,000 for the three months ended March 31,June 30, 2019 and 2018, and 2017, respectively, and for the six months ended March 31,June 30, 2019 and 2018 and 2017, were $19,000$16,000 and $16,000, respectively.

The Company shares facilities, personnel and other resources with One Liberty Properties, Inc., Majestic Property, and Gould Investors L.P. Certain of ourthe Company's executive officers and/or directors also serve in management positions, and have ownership interests, in One Liberty, Majestic Property and/or Georgetown Partners Inc., the managing general partner of Gould Investors L.P. The allocation of expenses for the facilities, personnel and other resources shared by the Company, One Liberty, Majestic Property and Gould Investors is computed in accordance with a shared services agreement by and among the Company and these entities and is included in general and administrative expense on the consolidated statements of operations. For the three months ended March 31,June 30, 2019 and 2018, and 2017, net allocated general and administrative expenses reimbursed by the Company to Gould Investors L.P. pursuant to the shared services agreement aggregated $147,000$155,000 and $103,000,$160,000, respectively, and for the six months ended March 31,June 30, 2019 and 2018 were $297,000 and 2017 were $228,000 and $182,000,$307,000, respectively.

Management of many of the Company's multi-family properties (including twothree multi-family properties owned by two unconsolidated joint ventures) is performed by the Company's joint venture partners or their affiliates. None of these joint venture partners is Gould Investors L.P., Majestic Property or their affiliates. Management fees to these related partiesjoint venture partners or their affiliates for the three months ended March 31,June 30, 2019 and 2018 were $1,090,000 and 2017 were $908,000$926,000, and $672,000, respectively,$2,113,000 and $1,834,000 for the six months ended March 31,June 30, 2019 and 2018, and 2017 were $1,767,000 and $1,296,000.respectively. In addition, the Company may pay an acquisition fee to a joint venture partner in connection with a property purchased by such joint venture. Capitalized acquisition fees paid to these related parties for the three months ended March 31,June 30, 2019 and 2018 were $430,000 and 2017, were $1,300,000 and $350,000,$513,000, respectively, and for the six months ended March 31,June 30, 2019 and 2018 were $851,000 and 2017, were $1,530,000 and $650,000,$1,813,000, respectively.


Note 12 – Fair Value of Financial Instruments


Financial Instruments Not Carried at Fair Value


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


16
Cash and cash equivalents, restricted cash, accounts receivable (included in other assets), accounts payable and accrued liabilities: The carrying amounts reported in the balance sheets for these instruments approximate their fair value due to the short term nature of these accounts.


Junior subordinated notes: At MarchJune 30, 2019 and December 31, 2018, and September 30, 2017, the estimated fair value of the notes is lower than their carrying value by approximately $12,865,000$10,324,000 and $15,705,000$11,974,000, respectively, based on a market interest rate of 7.18%6.90% and 6.37%7.79%, respectively.


Credit facility: At June 30, 2019, the estimated fair value of the credit facility is equal to its carrying value.

Mortgages payable: At March 31, 2018,June 30, 2019, the estimated fair value of the Company’s mortgages payable is lower than their carrying value by approximately $23,145,000$11,932,000, assuming market interest rates between 3.99%3.25% and 5.66%4.86% and at September 30, 2017,December 31, 2018, the estimated fair value of the Company's mortgages payable was lower than their carrying value by approximately $11,400,000$19,334,000 assuming market interest rates between 3.78%3.94% and 5.02%5.61%. Market interest rates were determined using rates which the Company believes reflects institutional lender yield requirements at the balance sheet dates.


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



14



Financial Instruments Carried at Fair Value


The Company’s fair value measurements are based on the assumptions that market participants would use in pricing the asset or liability. As a basis for considering market participant assumptions in fair value measurements, there is a fair value hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity and the reporting entity’s own assumptions about market participant assumptions. Level 1 assets/liabilities are valued based on quoted prices for identical instruments in active markets, Level 2 assets/liabilities are valued based on quoted prices in active markets for similar instruments, on quoted prices in less active or inactive markets, or on other “observable” market inputs, and Level 3 assets/liabilities are valued based significantly on “unobservable” market inputs. The Company does not currently own any financial instruments that are classified as Level 3. Set forth below is information regarding the Company’s financial assets and liabilities measured at fair value as of March 31, 2018June 30, 2019 (dollars in thousands):
Carrying and Fair Value Fair Value Measurements Using Fair Value Hierarchy 
Level 1Level 2
Financial Assets:
Interest rate swaps$225 — $225 
Interest rate caps— — — 
Total Financial Assets$225 — $225 
Financial Liabilities:
Interest rate swap$13 — $13 



Carrying and Fair Value
 
Fair Value Measurements
Using Fair Value Hierarchy
  Level 1 Level 2
Financial Assets:     
Interest rate swaps$3,070
 —
 $3,070
Interest rate cap9
 —
 9
   Total Financial Assets$3,079
 —
 $3,079
      
Financial Liabilities:     
Interest rate swap$—
 —
 $—



Derivative financial instruments: Fair values are approximated using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of the derivatives. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves, foreign exchange rates, and implied volatilities. At March 31, 2018,June 30, 2019, these derivatives are included in other assets on the consolidated balance sheet.


Although the Company has determined that the majority of the inputs used to value its derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with them utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by itself and its counterparties. As of March 31, 2018,June 30, 2019, the Company assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative position and determined that the credit valuation adjustments are not significant to the overall valuation of its derivatives. As a result, the Company determined that its derivatives valuation is classified in Level 2 of the fair value hierarchy.


17
Note 13 – Derivative Financial Instruments


Cash Flow Hedges of Interest Rate Risk


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


The effective portion of changes in the fair value of derivatives designated and that qualify as cash flow hedges is recorded in Accumulated Other Comprehensive Income on our consolidated balance sheets and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. The ineffective portion of the change in fair value of the derivatives is recognized directly in earnings.

15



As of March 31, 2018,June 30, 2019, the Company had the following outstanding interest rate derivatives that were designated as cash flow hedges of interest rate risk (dollars in thousands):
Interest Rate DerivativeCurrent Notional AmountFixed RateMaturity
Interest rate swap$1,234 5.25 %April 1, 2022
Interest rate swap25,794 3.61 %May 6, 2023
Interest rate swap27,000 4.05 %September 19, 2026
Interest Rate Derivative Notional Amount Fixed Rate Maturity
Interest rate cap on LIBOR $9,200
 3.86% January 1, 2021
Interest rate swap 1,387
 5.25% April 1, 2022
Interest rate swap 26,400
 3.61% May 6, 2023
Interest rate swap 27,000
 4.05% September 19, 2026


Non-designated Derivatives

Derivatives not designated as hedges are not speculative and are used to manage the Company's exposure to interest rate movements and other identified risks but do not meet the hedge accounting requirements. Changes in the fair value of derivatives not designated in hedging relationships are recorded directly in earnings. As a result of two mortgage refinancings of adjustable rate loans to fixed rate loans, at June 30, 2019, the Company had two interest rate caps with a notional value of $38,200,000 that were not designated as hedges in a qualifying hedge relationship. At June 30, 2019, these derivatives had no value.

The table below presents the fair value of the Company’s derivative financial instruments as well as its classification on the consolidated balance sheets as of the dates indicated (amounts(dollars in thousands):
Derivatives as of:
June 30, 2019December 31, 2018
Balance Sheet LocationFair ValueBalance Sheet LocationFair Value
Other Assets$225 Other Assets$3,793 
Accounts payable and accrued liabilities$13 Accounts payable and accrued liabilities$— 
Derivatives as of:
March 31, 2018 September 30, 2017
Balance Sheet Location Fair Value Balance Sheet Location Fair Value
Other Assets $3,079
 Other Assets $1,460
Accounts payable and accrued liabilities $—
 Accounts payable and accrued liabilities $14

As of March 31, 2018, the Company did not have any derivative instruments that were considered to be ineffective and does not use derivative instruments for trading or speculative purposes.

The following table presents the effect of the Company’s interest rate swaps on the consolidated statements of comprehensive (loss) income for the dates indicated (dollars in thousands):
Three Months Ended
June 30,		Six Months Ended
June 30,
2019 2018 2019 2018 
Amount of gain (loss) recognized on derivative in Other Comprehensive Income$(1,234)$444 $(1,978)$1,576 
Amount of gain (loss) reclassified from Accumulated Other Comprehensive Income into Interest expense$108 $46 $226 $46 
Total amount of Interest expense presented in the Consolidated Statement of Operations$9,739 $8,786 $18,508 $17,443 
  Three Months Ended
March 31,		 
Six Months Ended
March 31,
  2018 2017 2018 2017
Amount of gain recognized on derivative in Other Comprehensive Income $1,132
 $65
 $1,590
 $3,189
Amount of loss reclassified from Accumulated
Other Comprehensive Income into Interest expense
 $—
 $70
 $44
 $214


No gain or loss was recognized related to hedge ineffectiveness or to amounts excluded from effectiveness testing on the Company's cash flow hedges during the three and six months ended March 31, 2018 and March 31, 2017. The Company estimates an additional $294,000 $135,000will be reclassified from other comprehensive loss as a decrease to interest expense over the next twelve months.


18


Credit-risk-related Contingent Features


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



Note 14 – New Accounting Pronouncements


In May 2014, the FASB issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (ASU 2014-09), which prescribes a single, common revenue standards whichstandard that supersedes nearly all existing revenue recognition guidance under U.S. GAAP, including most industry-specific requirements. The core principle of ASU 2014-09 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration to which an entity expects to be entitled for those goods or services. ASU 2014-09 outlines a five step model to achieve this core principle and, in doing so, more judgment and estimates may be required within the revenue recognition process than are required under existing U.S. GAAP. The standard is effective for annual periods beginning after December 15, 2017, and interim periods therein,therein. The Company's revenues are primarily derived from rental income, which is scoped out from this standard and is currently accounted for in accordance with ASC Topic 840, Leases. The Company adopted this standard effective October 1, 2018, using either of the following transition methods: (i) a full retrospective approach reflecting the application of the standard in each prior reporting period with the option to elect certain practical expedients, or (ii) a modified retrospective approach, withapplying the cumulative

16


effect of initially adopting ASU 2014-09 recognized at the date of adoption (which includes additional footnote disclosures). Weadoption. Certain revenues, such as tenant reimbursements, tenant fees, and other property income, are currently evaluatingsubject to the impact of our pendingnew guidance. The adoption of ASU 2014-09the new revenue recognition standard did not have a material impact on ourthe consolidated financial statements and have not yet determinedno cumulative effect adjustment was recorded upon adoption as there was no change in the method by which we will adopt the standard during the year ending September 30, 2019.amount or timing of revenue recognized.

In February 2016, the FASB issued ASU No. 2016-02,, Leases.Leases. ASU 2016-02 supersedes the current accounting for leases and while retaining two distinct types of leases, finance and operating, (i)and requires lessees to recordrecognize most leases on their balance sheets and makes targeted changes to lessor accounting. Further, in July 2018, the FASB issued ASU 2018-11, Leases (Topic 842): Targeted Improvements. This amendment provides a rightnew practical expedient that allows lessors, by class of useunderlying asset, to avoid separating lease and associated non-lease components within a related liabilitycontract if the following criteria are met: (i) the timing and pattern of transfer for the rightsnon-lease component and obligationsthe associated with a lease regardless ofcomponent are the same, and (ii) the stand-alone lease classification, and recognizecomponent would be classified as an operating lease expense in a manner similar to current accounting (ii) eliminates most real estate specific lease provisions, and (iii) aligns many of the underlying lessor model principles with those in the new revenue standard.if accounted for separately. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018 and early adoption is permitted. We are required to adopt ASU 2016-02 usingThe Company adopted this standard effective January 1, 2019, and its adoption did not have a material effect on the modified retrospective approach which requires us to record leases existing as of or are entered into afterconsolidated financial statements. As a lessor, the beginning of the earliest comparative period presented in the financial statements under the new lease standard. We are currently evaluating the impact of our pending adoption of ASU No. 2016-02 on our consolidated financial statements. We believe our(as amended by subsequent ASUs) did not change the timing of revenue recognition of the Company’s rental revenues. As a lessee, the Company is party to a ground lease, and an operating lease with future payment obligations for which the Company recorded right-of-use assets and lease liabilities at the present value of the remaining minimum rental payments upon adoption of the new leasing standard will result in an immaterial increase in the assets and liabilities on our consolidated balance sheets, with no material impact to our consolidated statements of income and comprehensive income.this standard.


In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments, (a consensus of the Emerging Issues Task Force), which provides specific guidance on eight cash flow classification issues and how to reduce diversity in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The effective date of the standard will be fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017, and early adoption is permitted.2017. The Company is currently evaluatingadopted this standard effective October 1, 2018, using the new“cumulative earnings approach” whereby distributions received from equity method investments are classified as cash flows from operations to the extent of equity earnings and then as cash flows from investing activities thereafter. The adoption of this guidance to determine the impact, if any,did not have a material effect on the consolidated financial statements.


In November 2016, the FASB issued ASU Update No. 2016-018, Statement of Cash Flows (Topic(Topic 230): Restricted Cash, (a consensus of the Emerging Issues Task Force).
Cash. The new standard requires that the statement of cash flows explain the change during the period in the combined total of
cash, cash equivalents, and amounts generally described as restricted cash equivalents. Entities will also be required to reconcile such total to amounts on the balance sheet and disclose relevant information about the nature of the restrictions on the basis of their individual facts and circumstances. The Company adopted this standard effective dateOctober 1, 2018 using the retrospective approach. The adoption of this update did not have a material effect on the consolidated financial statements.

In February 2017, the FASB issued ASU 2017-05, Other Income—Gains and Losses from the Derecognition of
19
Nonfinancial Assets (Subtopic 610-20): Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets, which amends the guidance on nonfinancial assets in ASC 610-20. The amendments clarify that (i) a financial asset is within the scope of ASC 610-20 if it meets the definition of an in substance nonfinancial asset and may include nonfinancial assets transferred within a legal entity to a counter-party, (ii) an entity should identify each distinct nonfinancial asset or in substance nonfinancial asset promised to a counter-party and de-recognize each asset when a counter-party obtains control of it, and (iii) an entity should allocate consideration to each distinct asset by applying the guidance in ASC 606 on allocating the transaction price to performance obligations. Further, ASU 2017-05 provides guidance on accounting for partial sales of nonfinancial assets. The amendments are effective at the same time as the amendments in ASU 2014-09. The Company adopted this standard will be fiscal years,effective October 1, 2018. The adoption of this guidance did not have a material effect on the consolidated financial statements.

In August 2017, the FASB issued ASU 2017-12, Derivatives and interim periods withinHedging: Targeted Improvements to Accounting for Hedging Activities. The update better aligns a company’s financial reporting for hedging activities with the economic objectives of those activities. ASU 2017-12 is effective for fiscal years beginning after December 15, 2017, and2018, with early adoption, including adoption in an interim period, permitted. The Company adopted this standard effective January 1, 2019. The adoption of this guidance did not have a material effect on the consolidated financial statements.

In June 2018, the FASB issued ASU 2018-07, Compensation—Stock Compensation (Topic 718): Improvements to
Nonemployee Share-Based Payment Accounting. This update provides specific guidance for transactions for acquiring goods
and services from nonemployees and specifies that Topic 718 applies to all share-based payment transactions in which a grantor acquires goods or services to be used or consumed in a grantor’s own operations by issuing share-based payment awards. The amendments also clarify that Topic 718 does not apply to share-based payments used to effectively provide (i) financing to the issuer or (ii) awards granted in conjunction with selling goods or services to customers as part of a contract accounted for under ASC Topic 606, Revenue from Contracts with Customers. This guidance is permitted.effective for fiscal years beginning after December 15, 2019, and interim periods beginning after December 15, 2020. Early adoption is permitted but not earlier than the adoption of ASC Topic 606. The Company does not believe that this guidance will have a material effect on its consolidated financial statements as it has not historically issued share-based payments in exchange for goods or services to be consumed within its operations.


In August 2018, the FASB issued ASU 2018-13, Disclosure Framework — Changes to the Disclosure Requirements for Fair Value Measurement, which removes, modifies, and adds certain disclosure requirements related to fair value measurements in ASC Topic 820. This guidance is effective for public companies in fiscal years beginning after December 15, 2019, with early adoption permitted. The Company is currently evaluating the impact this guidance will have on its consolidated financial statements.

In October 2018, the FASB issued ASU 2018-16, (Topic 815): Inclusion of the Secured Overnight Financing Rate (SOFR) Overnight Index Swap (OIS) as a Benchmark Interest Rate for Hedging Purposes. The amendments in this update permit the OIS rate based on SOFR as an eligible benchmark interest rate. The amendments in this update are effective for fiscal years beginning after December 15, 2018. The Company adopted this guidance on January 1, 2019. The Company does not believe this guidance will have a material effect on its consolidated financial statements.

Note 15 – Subsequent Events


Subsequent events have been evaluated and any significant events, relative to our consolidated financial statements as of March 31, 2018,June 30, 2019, that warrant additional disclosure, have been included in the notes to the consolidated financial statements.





17
20


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


Forward-Looking Statements


With the exception of historical information, this reportQuarterly Report on Form 10-Q contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended. We intend such forward-looking statements to be covered by the safe harbor provision for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995 and include this statement for purposes of complying with these safe harbor provisions. Forward-looking statements, which are based on certain assumptions and describe our future plans, strategies and expectations, are generally identifiable by use of the words "may", "will", "believe", "expect", "intend", "anticipate", "estimate", "project", or similar expressions or variations thereof. Forward-looking statements involve known and unknown risks, uncertainties and other factors which are, in some cases, beyond our control and which could materially affect actual results, performance or achievements. Investors are cautioned not to place undue reliance on any forward-looking statements and are urged to read “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended September 30, 20172018, and in reports we filed with the SEC thereafter.


Overview


General


We are an internally manageda real estate investment trust, also known as a REIT, that is focused on the ownership, operation and development of multi‑familymulti-family properties. These activitiesproperties derive revenue from tenant rental payments. Generally, these properties are conducted primarily throughowned by consolidated joint ventures in which we have a substantial ownership position.contributed 65% to 80% of the equity, with the balance of the equity contributed by our joint venture partner. At March 31, 2018,June 30, 2019, we (i) own 3437 multi-family properties located in 1112 states with an aggregate of 9,63210,336 units (including 445 units at two properties engaged in lease up activities (i.e., Factory at Garco Park and Vanguard Heights) and 402 units at a property under development (i.e., Bells Bluff))Bluff - West Nashville, TN) that commenced leasing activities in the three months ended March 31, 2019) with a carrying value of $982.8 million$1.1 billion and (ii) have ownership interests, through unconsolidated entities, in three multi-family properties located in two states with 1,026 units (including 339 units at a property in lease-up) with a carrying value of $20.6$18.4 million. Most of our properties are located in the southeast United States and Texas.


As used herein, the term "same store properties" refers to operating properties that were owned for the entirety of the periods being presented and excludes properties that were in development or lease uplease-up during such periods. Retreat at Cinco Ranch, Katy, Texas, has been excluded from same store properties due to the damage it sustained from Hurricane Harvey.Harvey in 2017. For the three months ended March 31,June 30, 2019 and 2018, and 2017, there were 2229 same store properties and for the six months ended March 31,June 30, 2019 and 2018 and 2017, there were 2127 same store properties.


Change in Fiscal Year
Hurricane Harvey

In August 2017, Hurricane Harvey caused significant damageFebruary 2019, we changed our fiscal year end from September 30 to December 31. The change is intended to better align our 268-unit Retreat at Cinco Ranch, Katy, Texas property. Amongfiscal year with the fiscal year of other things, 96 of our ground floor units were rendered uninhabitable and as a result of the extensive damage to the common areas of the property (i.e., pool and clubhouse), we offered, rent concessions and other accommodations to induce tenancies for the second and third floor units to reside at the property.multi-family REITs. As a result of this change, our fiscal year began January 1, 2019 and will end December 31, 2019 .

Credit Facility

On April 18, 2019, we entered into a credit facility with an affiliate of Valley National Bank. The facility allows us to borrow, subject to compliance with borrowing base requirements and other conditions , up to $10 million to facilitate the damage caused byacquisition of multi-family properties. The facility matures April 2021 and bears an adjustable rate interest rate of 50 basis points over the hurricane, we reducedprime rate with a floor of 5%.

Status of Bells Bluff Project

Leasing on the carrying valuecompleted units at the 402-unit Bells Bluff, West Nashville, TN, property commenced in the three months ended March 31, 2019. As of June 30, 2019, 180 units are available for lease. We anticipate that the remaining 222 units will be completed in stages during 2019. We capitalized $304,000 and $695,000 of interest expense on the mortgage debt of this property by $3.5 million and, because we believed it was probable that we would recover such sum from our insurance coverage, we recognized $3.5 million in insurance recoveries. Through March 31, 2018, we received approximately $7.4 million (including $686,000 in rental income as described below) in insurance recoveries related to the loss, of which $3.2 million is recorded as a gain on insurance recovery in the three and six months ended March 31, 2018.June 30, 2019, respectively. See Note 10 of our consolidated financial statements.


Our business interruption insurance is covering our losses in rental income with respect to the ground floor units until such units are repaired and accordingly, we continue to accrue revenues to be generated from such units. Through March 31, 2018 we received $686,000 to cover lost rental income, of which $294,000 and $588,000 is recorded as rental income in the three and six months ended March 31, 2018, respectively. We are also seeking to recover from our insurance carriers the cost of rent concessions and other accommodations we previously offered tenants and prospective tenants, which totaled approximately $145,000. As of May 1, 2018, certain common areas have been restored and nine ground floor units have been restored and leased. We anticipate this property will be substantially repaired by September 2018. We continue to negotiate with our insurance carriers to ensure that we are fully compensated for the damages sustained at Retreat at Cinco Ranch as a result of Hurricane Harvey.


18
21



Status of Lease Up Activities and Development Project

At March 31, 2018, the occupancy rate at Factory at Garco Park and Vanguard Heights, which are in engaged in lease up activities, was 85.2% and 88.5%, respectively.

We anticipate that the buildings at our Bells Bluff development property will be completed from time to time from the end of calendar year 2018 through the end of calendar year 2019.

Dividend Declared During the Quarter Ended March 31, 2018
During the quarter ended March 31, 2018, we declared a quarterly dividend on our common stock of $0.20 per share that was paid on April 6, 2018, to stockholders of record on March 27, 2018. This dividend represented an 11.1% increase from the dividend paid in January 2018.

Acquisitions, Dispositions and Other DevelopmentsAcquisition During the Three Months Ended March 31, 2018
Acquisitions

June 30, 2019
On FebruaryMay 7, 2018,2019, we acquired the Avenue Apartments,Somerset at Trussville, a 522-unit328-unit multi-family property located in Ocoee, FL,Trussville, AL, a suburb of Birmingham, for $71.3$43.0 million, including $53.1$32.2 million of mortgage debt obtained in connection with the acquisition. Based on our underwriting, we estimate that on a quarterly basis, this property will generate $1.6$1.0 million of rental revenue, $776,000$424,000 of real estate operating expense, $532,000$328,000 of interest expense and $948,000$581,000 of depreciation expense.


Transactions Subsequent to June 30, 2019

On February 15, 2018,July 10, 2019, we acquired Parc @ 980, a 586-unit multi-family propertysold Stonecrossing Apartments and Stonecrossing East Apartments, located in Lawrenceville, GA,Houston TX, in which we had a 91% joint venture equity interest. These properties, comprised of 384 units, were sold for $77.2a gross sales price of $33.2 million including $54.4and an estimated gain of $9.9 million, of mortgage debt obtained in connection withwhich $894,000 will be allocated to the acquisition. Based on our underwriting, we estimate that onnon-controlling interest. We incurred a quarterly basis this property$1.4 million prepayment charge, of which $125,000 will generate $1.8be allocated to the non-controlling interest. During the three months ended March 31, 2019, these properties contributed $1.0 million ofto rental revenue, $911,000 of$64,000 to real estate operating expense, $541,000 of$205,000 to interest expense and $1.0 million of depreciation expense.$186,000 to depreciation.


Dispositions
On February 5, 2018, we sold The Fountains Apartments, a 542-unit multi-family located in Palm Beach Gardens, FL, for a sales price of $97.2 million, and recognized a gain of $41.8 million, of which $20.6 million was allocated to the non-controlling partner. We also incurred $594,000 of mortgage prepayment costs, of which $289,000 was allocated to the non-controlling partner. During the quarter ended December 31, 2017, this property generated $2.3 million of rental revenues, $1.0 million of operating expenses, $463,000 of interest expense and $480,000 of depreciation expense.

On February 23, 2018, we sold Valley Venue Apartments, a 618-unit multi-family located in Valley, AL, for a sales price of $51.0 million, and recognized a gain of $9.7 million, of which $4.5 million was allocated to the non-controlling partner. In the quarter ended December 31, 2017, this property generated $1.5 million of rental revenues, $782,000 of operating expenses, $332,000 of interest expense and $412,000 of depreciation expense.

Generally, in the event of the sale of a multi-family property owned by a joint venture, as a result of allocation/distribution provisions of the applicable joint venture operating agreement, the allocation and distributions of cash and profits to us (as opposed to our joint venture partner) will be less than that implied by our percentage equity interest in the property

Recent Developments

On April 30, 2018, we acquired, through a consolidated joint venture in which we have a 80% equity interest, a 208-unit multi-family property located in Daytona, FL, for $20.5 million, including the assumption of $13.6 million in mortgage debt. The mortgage matures in May 2025, bears interest at a fixed rate of 3.94%, is interest only for two years, and thereafter amortizes based on a 30 year schedule. Based on our underwriting, we estimate that on a quarterly basis this property will generate $605,000 of rental revenue, $298,000 of real estate operating expenses, $134,000 of interest expense and $545,000 and depreciation expense.


19



Results of Operations – Three months ended March 31, 2018June 30, 2019 compared to three months ended March 31, 2017.June 30, 2018.


Revenues


The following table compares our revenues for the periods indicated:
Three Months Ended
June 30,
(Dollars in thousands):20192018Increase
(Decrease)		%
Change
Rental revenue$32,930 $29,951 $2,979 9.9  
Other income190 203 (13)(6.4) 
Total revenues$33,120 $30,154 $2,966 9.8  
  Three Months Ended
March 31,		    
(Dollars in thousands): 2018 2017 Increase
(Decrease)		 
%
Change
Rental and other revenues from real estate properties $29,476
 $24,702
 $4,774
 19.3
Other income 175
 181
 (6) (3.3)
Total revenues $29,651
 $24,883
 $4,768
 19.2


Rental revenue
Rental and other revenues from real estate properties.


The increase is due primarily to:to increases of:


•$6.92.6 million from seventhree properties acquired during the twelve months ended March 31, 2018,June 30, 2019, including two properties$645,000 from the property acquired induring the current quarter, that contributed $2.7
•$1.5 million of revenues,
$837,000 from Factory at Garco Park that is currently in lease up,
$708,000 from same store properties - approximately (i) $825,000 of the increase is due to a netan increase in rental and occupancy rates - fiveat most of these properties, accounted for 63%(ii) $480,000 of the net increase is due to an increase in variable lease payments (e.g., utility reimbursements, late fees and other rental related fees charged to tenants) and (iii) $240,000 of the increase is due to an increase in occupancy,
•$463,000727,000 from the inclusion, for the entire three months ended March 31, 2018, of two properties that were only owned for a portion of the corresponding period in the prior year.

Offsetting this increase was a decrease of $4.1 million from the six properties sold from January 1, 2017, to March 31, 2018, including $2.1 million from two properties sold in the current quarter.
Expenses

The following table compares our expenses for the periods indicated:
  Three Months Ended
March 31,		    
(Dollars in thousands) 2018 2017 
Increase
(Decrease)
 % Change
Real estate operating expenses $14,198
 $11,909
 $2,289
 19.2
Interest expense 8,657
 6,402
 2,255
 35.2
General and administrative 2,453
 2,390
 63
 2.6
Depreciation 9,240
 7,772
 1,468
 18.9
Total expenses $34,548
 $28,473
 $6,075
 21.3
Real estate operating expenses.

The increase is due primarily to:
$3.1 million from seven properties acquired during the twelve months ended March 31, 2018, including two properties acquired in the current quarter that accounted for $1.2 million of this increase,
$394,000 from Factory at Garco Park which is currently in lease up,
$316,000 from the inclusion, for the entire three months ended March 31, 2018,June 30, 2019, of two properties that were only owned for a portion of the corresponding period in the prior year, and
•$148,000310,000 from several same store properties due primarily to increased payroll expensesour Bells Bluff property ($203,000) which is in lease-up and utilities expense.our Vanguard property ($107,000) which was in lease-up in the corresponding period of the prior year.




Offsetting the increase is $1.6 million of expense related to the the six properties sold from January 1, 2017 to March 31, 2018, including $485,000 from two properties sold in the current quarter.

20



Interest expense.

The increase is due primarily to:
$2.4 million from the mortgage debt on seven properties acquired during the twelve months ended March 31, 2018, including two properties acquired in the current quarter that contributed $875,000 to the increase,
$220,000 of interest expense from Factory at Garco Park - interest of $101,000 on this property was capitalizedinclusion, in the corresponding period of the prior year, andof $2.1 million from the two properties sold from April 1, 2018 to June 30, 2019.


22
Expenses

The following table compares our expenses for the periods indicated:
Three Months Ended
June 30,
(Dollars in thousands)20192018Increase
(Decrease)		% Change
Real estate operating expenses$16,100 $14,459 $1,641 11.3  
Interest expense9,739 8,786 953 10.8  
General and administrative2,481 2,452 29 1.2  
Depreciation10,347 10,200 147 1.4  
Total expenses$38,667 $35,897 $2,770 7.7  


Real estate operating expenses.

The increase is due primarily to increases of:
•$193,0001.2 million from three properties acquired during the twelve months ended June 30, 2019, including $247,000 from a property acquired during the current quarter,
•$800,000 from same store properties - approximately $241,000 of miscellaneous expenses (e.g. management fees, leasing costs and insurance), $240,000 from increased replacements, and repairs and maintenance, due to unit turns at several properties, $200,000 due to increased staffing, as we filled vacant positions at several properties, and $119,000 of real estate taxes primarily due to the inclusion, in the corresponding period of the prior year, of a refund related to a tax appeal,
•$503,000 from the inclusion, for the entire three months ended March 31, 2018,June 30, 2019, of two properties that were only owned for a portion of the mortgagecorresponding period in the prior year, and
•$352,000 from Bells Bluff, which was in development in the corresponding period of the prior year and is currently in lease-up.

Offsetting the increase is the inclusion, in the corresponding period of the prior year, of $1.1 million of expense related to the two properties sold from April 1, 2018 to June 30, 2019.

Interest Expense.

The increase is due primarily to increases of:

•$826,000 from interest on mortgages on three properties acquired during the twelve months ended June 30, 2019, including $214,000 from a property acquired during the current quarter,
•$233,000 related to the Bells Bluff property which is in lease-up - in the corresponding period of the prior year, the entire property was in development and interest of $27,000 was capitalized,
•$290,000 paid in connection with the payoff of a loan at maturity.
•$157,000 from the inclusion, for the entire three months ended June 30, 2019, of interest expense from mortgages on two properties that were only owned for a portion of the corresponding period in the prior year, and
•$141,000 related to the increase in the (i) outstanding balance on our credit facility and (ii) interest rate on our floating rate subordinated debt.

Offsetting the increase is the inclusion, in the corresponding period of the prior year, of $545,000 of interest expense related to mortgages on two properties sold from April 1, 2018 to June 30, 2019


Depreciation.
The increase is due primarily to increases of:
•$1.5 million from three properties acquired during the twelve months ended June 30, 2019, including $302,000 from a property acquired in the current quarter,
23
•$262,000 from the inclusion, for the entire three months ended June 30, 2019, of such expense on two properties that were only owned for a portion of the corresponding period of the prior year.year, and

•$183,000 from our Bells Bluff property which currently is in lease-up but which was in development in the corresponding period of the prior year.

Offsetting the increase is a decrease of $637,000 relating(i) $1.1 million from same store properties due to the mortgage debt on sixreduction of amortization, in the ordinary course of business, of tenant origination costs at several properties and (ii) $740,000 from properties sold from JanuaryApril 1, 20172018 to March 31, 2018, including $315,000June 30, 2019.

Other Income and Expenses

The following table compares our other income and expenses for the periods indicated:

Three Months Ended
June 30,
(Dollars in thousands)20192018Increase (Decrease)% Change
Equity in loss of unconsolidated joint ventures(161)$(127)$(34)26.8  
Gain on insurance recoveries517 — 517 N/A  
Total other income and expenses$356 $(127)$483 (380.3)%


Gain on insurance recoveries. During the three months ended June 30, 2019, we recognized a $517,000 gain from two properties soldthe receipt of insurance proceeds related to our Waterside Property - Indianapolis, IN, representing the insurance proceeds received in excess of the current quarter.assets written-off.


Depreciation.Results of Operations – six months ended June 30, 2019 compared to six months ended June 30, 2018.

Revenues

The following table compares our revenues for the periods indicated:
Six Months Ended June 30,
(Dollars in thousands):20192018Increase
(Decrease)		%
Change
Rental revenue$63,632 $59,427 $4,205 7.1  
Other income434 378 56 14.8  
Total revenues$64,066 $59,805 $4,261 7.1  

Rental revenue

The increase is due primarily to:to increases of:
•$3.43.8 million from seventhree properties acquired during the twelve months ended March 31, 2018,June 30, 2019, including $1.9 million from two properties acquired during the current period,
•$3.8 million from the inclusion, for the entire six months ended June 30, 2019, of four properties that were only owned for a portion of the corresponding period in the current quarter that accounted for $1,217,000prior year, and
•$2.1 million from same store properties - approximately (i) $1.2 million of the increase is due to an increase in rental rates at most of these properties, (ii) $600,000 of the increase is due to increases in variable lease payments and (iii) $300,000 of the increase is due to an increase in occupancy, and
•$266,000395,000 from Factory at Garco Park,our Bells Bluff property ($221,000) which is in lease-up and our Vanguard property ($174,000) which was under developmentin lease-up in the corresponding period of the prior year.

Offsetting this increase is the inclusion, in the corresponding period of the prior year, of $5.8 million from the four properties sold from January 1, 2018 to June 30, 2019.


24
Expenses

The following table compares our expenses for the periods indicated:
Six Months Ended June 30,
(Dollars in thousands)20192018Increase
(Decrease)		% Change
Real estate operating expenses$30,914 $28,657 $2,257 7.9  
Interest expense18,508 17,443 1,065 6.1  
General and administrative5,025 4,905 120 2.4  
Depreciation19,964 19,440 524 2.7  
Total expenses$74,411 $70,445 $3,966 5.6  


Real estate operating expenses.

The increase is due primarily to increases of:
•$2.1 million from the inclusion, for the entire six months ended June 30, 2019, of four properties that were only owned for a portion of the corresponding period in the prior year,
•$1.8 million from three properties acquired during the twelve months ended June 30, 2019, including $758,000 from two properties acquired during the current period,
•$1.2 million from same store properties, including approximately $392,000 due to increased real estate taxes resulting from increased assessments at several properties and the inclusion, in the corresponding period of the prior year, of a refund related to a tax appeal, $347,000 from increased replacements and repairs and maintenance due to unit turns at several properties and $287,000 due to increased staffing as we filled vacant positions at several properties.

Offsetting the increase is the inclusion, in the corresponding period in the prior year, andof $3.4 million of expense related to the four properties sold from January 1, 2018 to June 30, 2019.
Interest Expense.

The increase is currently in lease-up, anddue primarily to increases of:
•$251,0001.2 million from three properties acquired during the twelve months ended June 30, 2019, including $570,000 from two properties acquired during the current period,
•$712,000 from the inclusion, for the entire threesix months ended March 31,June 30, 2019, of four properties that were only owned for a portion of the corresponding period in the prior year,
•$277,000 related to the Bells Bluff property which is currently in lease-up - in the corresponding period of the prior year, the property was in development and interest of $27,000 was capitalized, and
•$240,000 related to the increase in the (i) outstanding balance on our credit facility ($96,000) and (ii) the interest rate on our floating rate subordinated debt ($144,000).

Offsetting the increase is the inclusion, in the corresponding period of the prior year, of $1.5 million of expense related to the four properties sold from January 1, 2018 to June 30, 2019.


Depreciation.
The increase is due primarily to increases of:
•$2.1 million from four properties acquired during the twelve months ended June 30, 2019, including $1.2 million from two properties acquired in the current period,
•$919,000 from the inclusion, for the entire six months ended June 30, 2019, of twosuch expense on four properties that were only owned for a portion of the corresponding period of the prior year.year, and

•$227,000 from the Bells Bluff property, which in the corresponding period of the prior year was in development.

Offsetting the increase is a decreasethe inclusion, in the corresponding period of $1.2the prior year, of $1.5 million from properties sold from January 1, 2017,2018 to March 31, 2018,June 30, 2019, and $1.3 million from same store properties due to purchase price allocation adjustments madethe reduction of amortization, in the corresponding periodordinary course of the prior year.business, of tenant origination costs at several properties.

25
Other Income and Expenses


The following table compares our other income and expenses for the periods indicated:
Six Months Ended June 30,
(Dollars in thousands)20192018Increase (Decrease)% Change
Equity in loss of unconsolidated joint ventures(384)$(190)$(194)102.1  
Gain on sale of real estate— 51,981 (51,981)(100.0) 
Gain on insurance recoveries517 3,227 (2,710)(84.0) 
Loss on extinguishment of debt— (593)593 (100.0) 
Total other income and expenses$133 $54,425 $(54,292)(99.8)%


Equity in loss of unconsolidated joint ventures. The increase in the loss is due primarily to the inclusion of depreciation and interest expense at a Columbia, SC property that was in development in the corresponding period in the prior year and is now in lease-up.

Gain on sale of real estate. The increase is due to the sales described under "Acquisitions, Dispositions and Other Developments During the Three Months Ended March 31,six months ended June 30, 2018, - Dispositions"we sold three properties and a $438,000 gain from the sale of a cooperative apartment unit. Duringunit for a sales price of $148.7 million and recognized a gain of $52.0 million, of which $25.1 million was allocated to the three months ended March 31, 2017 there were no comparable sales.non-controlling partner.

Gain on insurance recovery. recoveries. In the current six months, we recognized a gain of $517,000 from the receipt of insurance proceeds related to Waterside - Indianapolis, IN. During the threesix months ended March 31,June 30, 2018, we recognized a $3.2 million gain from the receipt of insurance proceeds related to Retreat at Cinco Ranch - Katy, Texas representingTX. In each case, the gain represents the insurance proceeds received in excess of the assets written off.written-off.

Loss on extinguishment of debt. During the threesix months ended March 31,June 30, 2018, we incurred $593,000 of mortgage prepayment charges in connection with the sale of The Fountain Apartments-PalmFountains Apartments - Palm Beach Gardens, FL. There was no corresponding charge in the three months ended March 31, 2017.

Income tax provision (benefit)provision .In the three months ended March 31, 2018, we received a refund of state taxes related to a prior year. The three months ended March 31, 2017, reflects state taxes paid as a result of income recognized at the state level, primarily from gains on property sales.

21



Results of Operations – Six months ended March 31, 2018, compared to six months ended March 31, 2017.

Revenues

The following table compares our revenues for the periods indicated:
  Six Months Ended
March 31,		    
(Dollars in thousands): 2018 2017 Increase
(Decrease)		 
%
Change
Rental and other revenues from real estate properties $57,638
 $49,731
 $7,907
 15.9
Other income 362
 792
 (430) (54.3)
Total revenues $58,000
 $50,523
 $7,477
 14.8

Rental and other revenues from real estate properties.

The increase is due primarily to:
$10.6 million from seven properties acquired during the twelve months ended March 31, 2018, including $3.8 million from the four properties acquired during the current period,
$1.8 million from the inclusion, for the entire six months ended March 31, 2018, of three properties that were only owned for a portion of the corresponding period in the prior year,
$1.5 million from Factory at Garco Park that is currently in lease up, and
$1.4 million from same store properties due to a net increase in rental and occupancy rates - eight properties accounted for over 75% of the net increase.

Offsetting this increase were decreases of:
$4.0 million from the seven properties sold during the twelve months ended September 30, 2017,
$3.1 million from three properties sold duringFor the six months ended March 31, 2018, and
$255,000 from reduced rentalJune 30, 2019, we recognized an income at Retreat at Cinco Ranch primarily duetax provision of $121,000 compared to rent concessions and the lossan income tax benefit of ancillary tenant income due to reduced occupancy.

Other Income.

The decrease is due to reduced interest income on our loan to the Newark Joint Venture primarily as a result of the $13.6 million paydown in December 2016.

Expenses

The following table compares our expenses for the periods indicated:
  Six Months Ended
March 31,		    
(Dollars in thousands) 2018 2017 
Increase
(Decrease)
 % Change
Real estate operating expenses $27,545
 $24,355
 $3,190
 13.1
Interest expense 16,637
 13,089
 3,548
 27.1
General and administrative 4,756
 4,987
 (231) (4.6)
Depreciation 17,888
 14,069
 3,819
 27.1
Total expenses $66,826
 $56,500
 $10,326
 18.3

22


Real estate operating expenses.

The increase is due primarily to:
$4.6 million from seven properties acquired during the twelve months ended March 31, 2018, including $1.6 million from four properties acquired during the current period,
$899,000 from the inclusion, for the entire six months ended March 31, 2018, of three properties that were only owned for a portion of the corresponding period of the prior year,
$577,000 from Factory at Garco Park, and
$463,000 from same store properties due to a net increases in payroll, utilities and repairs and maintenance at several properties.

Offsetting this increase was a decrease of:
$2.1 million from the seven properties sold during the twelve months ended September 30, 2017, and
$1.3 million from three properties sold during the six months ended March 31, 2018.

Interest expense.

The increase is due primarily to:
$3.7 million from seven properties acquired during the twelve months ended March 31, 2018, including $1.2 million from four properties acquired during the current period,
$632,000 from the inclusion, for the entire six months ended March 31, 2018, of three properties that were only owned for a portion of the corresponding period in the prior year,
$455,000 from Factory at Garco Park - the interest expense at this property in the 2017 period was capitalized as the property was then in development, and
$121,000 from an increase in the rate paid on our subordinated debt.

Offsetting this increase was a decrease of:
$816,000 from the seven properties sold during the twelve months ended September 30, 2017, and
$513,000 from three properties sold during the six months ended March 31, 2018.

General and administrative expense. The decrease is due primarily to the inclusion, in the six months ended March 31, 2017, of approximately $250,000 of professional and other fees, a significant portion of which related to our conversion to a Maryland corporation.
Depreciation.
The increase is due primarily to:
$5.3 million from seven properties acquired during the twelve months ended March 31, 2018, including $1.7 million from four properties acquired during the current period,
$806,000 from the inclusion, for the entire six months ended March 31, 2018, of three properties that were only owned for a portion of the corresponding period in the prior year, and
$676,000 from our Factory at Garco Park that was in development during the corresponding period of the prior year .

Offsetting this increase was a decrease of:

$1.4 million resulting from purchase price allocation adjustments$152,000 in the corresponding period of the prior year,
$1.0 million from three properties sold during the six months ended March 31,year. The 2018 and
$517,000 from the seven properties sold during the twelve months ended September 30, 2017.

Other Income and Expenses

Gain on sale of real estate. During the six months ended March 31, 2018, we sold three multi-family properties and one cooperative apartment unit for an aggregate sales price of $171.0 million and recognized an aggregate gain of $64.5 million, of which $27.4 million was allocated to the non-controlling partners. During the six months ended March 31, 2017, we sold four multi-family properties andperiod includes a cooperative apartment unit for an aggregate sales price of $130.7 million and recognized an aggregate gain of $35.8 million, of which $17.1 million was allocated to the non-controlling partner.

23


Loss on extinguishment of debt. In the six months ended March 31, 2018, we incurred $850,000 of mortgage prepayment charges in connection with the sale of The Fountain Apartments and Waverly Place Apartments . In the six months ended March 31, 2017, we incurred $799,000 of mortgage prepayment charges in connection with the sale of Spring Valley Apartments, Panama City, FL.
Incomestate tax (benefit) provision. In the six months ended March 31, 2018, we received a refund of state taxes related to a property sold prior year. The six months ended March 31, 2017 reflects state taxes paid as a result of income recognized at the state level, primarily from gains on property sales.to 2018.

Liquidity and Capital Resources
We require funds to pay operating expenses and debt service, obligations, acquire properties, make capital improvements and pay dividends. Generally, our primary sources of capital and liquidity are the operations of and distributions from, our multi-family properties our available cash (including restricted cash)distributions from the joint ventures that own such properties), mortgage debt financingfinancings and refinancings, equity contributions from our share of the net proceeds from the sale of multi-family properties. As a result of the at-the-market equity offering program that commenced January 11, 2018, we may, in the future, generate funds from the sale of our common stock. At March 31, 2018, and May 1, 2018, our available cash, excluding restricted cash of $7.7 million and $7.9 million respectively, intendedjoint venture partners for capital improvements at 17 multi-family properties, is approximately $31.0 million and $20.4 million, respectively.
We anticipate that operating expenses payable through 2019 will be funded from the cash generated from operations of our properties and that the debt service (including principal payments) payable in 2018 and 2019 will be funded from the cash generated from operations of the properties, the refinancing of mortgages,acquisitions, our share of the proceeds from the sale of properties, the sale of shares of our common stock pursuant to our at-the-market equity distribution program, our credit facility and our available cash (including restricted cash). Our available liquidity at August 6, 2019, was $35.9 million, including $16.0 million of cash and cash equivalents, $9.9 million of restricted cash and, subject to borrowing base requirements, up to $10.0 million available under our credit facility.
We anticipate that (i) our operating expenses, dividend payments and $86.2 million (as of June 30, 2019) of interest expense and mortgage amortization payments over the next two years will be funded from cash generated from the operations of our multi-family properties and, to the extent such sources are insufficient, from mortgage refinancing, sales of properties, or sales of our common stock, if any.stock.
    The mortgage debt with respect to the
Capital improvements at (i) 18 multi-family properties generally is non-recourse to uswill be funded by approximately $10.0 million of restricted cash available at June 30, 2019 and our subsidiary holding our interest in the applicable joint venture. cash flow from operations at such properties and (ii) other properties will be funded from the cash flow from operations of such properties.

Our ability to acquire additional multi-family properties is limited by our available cash, and our ability to (i) draw on our credit facility and (ii) obtain, on acceptable terms, equity contributions from joint venture partners and mortgage debt from
26
lenders. Further, if and to the availabilityextent we generate ordinary taxable income, we will be required to make distributions to stockholders to maintain our REIT status and as a result, will be limited in our ability to use gains, if any, from property sales, as a source of mortgage debt.funds for operating expenses, debt service and property acquisitions.

We anticipate that the construction and other costs associated with completing the 402-unit Bells Bluff development project will be funded by capital previously contributed by us and our joint venture partner andthe remaining in-place construction financing of up to $47.4$5.8 million. As of March 31, 2018, there have been no draws against this construction loan.

Credit Facility

We intendentered into a credit facility dated April 18, 2019, as amended, with VNB New York, LLC, an affiliate of Valley National Bank. The facility allows us to refinanceborrow, subject to compliance with borrowing base requirements and other conditions, up to $10 million. The facility is available for the adjustableacquisition of, and investment in, multi-family properties, is secured by the cash available in certain cash accounts maintained by the Company at VNB, matures April 2021 and bears an annual interest rate mortgages in aggregate principalof 50 basis points over the prime rate, with a floor of 5%. There is an unused facility fee of 0.25% per annum on the difference between the outstanding loan balance and maximum amount then available under the facility.

The terms of the facility include certain restrictions and covenants which limit, among other things, the incurrence of liens, and which require compliance with financial ratios relating to, among other things, the minimum amount of $56.3 million at our twodebt service coverage with respect to the properties that(and amounts drawn on the facility) used in calculating the borrowing base, the minimum number of wholly owned properties and the minimum number of properties used in calculating the borrowing base. Net proceeds received from the sale, financing or refinancing of wholly owned properties are currently in lease up (Factory at Garco Park - N. Charleston, SC and Vanguard Heights, Creve Coeur, MO) with longer term fixed-rate financing once these properties has been stabilized; however, no assurance cangenerally required to be given that these properties will ever be stabilized, that financing will be available at such time or, if available, that it will be on terms acceptableused to us. These loans mature (after giving effect to extension options) in October 2020 and April 2019, respectively.repay amounts outstanding under the facility.



Cash Distribution Policy
We are taxedhave elected to be treated as a REIT under the Internal Revenue Code of 1986, as amended, which we refer to as the “Code”.“Code.” To qualify as a REIT, accordingly 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).
We estimate that our net operating lossesloss at December 31, 2017 range from $15 million to $202018 is approximately 16.8 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 each of OctoberJanuary 4, 2019, April 5, 20172019 and January 5, 2018, we paid a cash dividend of $0.18 per share, and on April 6, 2018,July 9, 2019 we paid a cash dividend of $0.20 per share. Though we currently intend to continue to pay cash dividends on a quarterly basis, we cannot provide any assurance that we will do so.


Off Balance Sheet Arrangements


None.





24
27


Funds from Operations; Adjusted Funds from Operations


We disclose below 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 (computed in accordance with generally accepting accounting principles), excluding gains (or losses) from sales of property, plus depreciation and amortization, plus impairment write‑downswrite-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 deducting from FFO our straight-line rent accruals, loss on extinguishment of debt, restricted stock and restricted stock unit expense, deferred mortgage costs and gain on insurance recovery. Since the NAREIT White Paper only provides guidelines for computing FFO, the computation of AFFO may vary from one REIT to another.
We believe that FFO and AFFO are useful and standard supplemental measures of the operating performance for equity REITs and are used frequently by securities analysts, investors and other interested parties in evaluating equity REITs, many of which present FFO and AFFO when reporting their operating results. FFO and AFFO are intended to exclude GAAP historical cost depreciation and amortization of real estate assets, which assumes that the 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 and cash flows from operating, investing and financing activities.

25
28



The tabletables below provides a reconciliation of net loss determined in accordance with Generally Accepted Accounting Principles ("GAAP") to FFO and AFFO on a dollar and per share basis for each of the indicated periods (amounts in thousands):
Three Months Ended
June 30,		Six Months Ended
June 30,
2019201820192018
GAAP Net (loss) income attributable to common stockholders$(4,317)$(4,689)$(8,564)$20,533 
Add: depreciation of properties10,347 10,200 19,964 19,440 
Add: our share of depreciation in unconsolidated joint ventures467 385 934 832 
Deduct: gain on sale of real estate— — — (51,981)
Adjustments for non-controlling interests(3,018)(3,160)(5,793)19,246 
NAREIT Funds from operations attributable to common stockholders3,479 2,736 6,541 8,070 
Adjustments for: straight-line rent accruals(10)(10)(20)(20)
Add: loss on extinguishment of debt— — — 593 
Add: amortization of restricted stock and restricted stock units372 361 737 658 
Add: amortization of deferred mortgage costs558 383 937 756 
Deduct gain on insurance recovery(517)— (517)(3,227)
Adjustments for non-controlling interests(11)(87)(89)347 
Adjusted funds from operations attributable to common stockholders$3,871 $3,383 $7,589 $7,177 

Three Months Ended
June 30,		Six Months Ended
June 30,
2019201820192018
GAAP Net (loss) income attributable to common stockholders$(0.27)$(0.33)$(0.54)$1.41 
Add: depreciation of properties0.65 0.71 1.25 1.34 
Add: our share of depreciation in unconsolidated joint ventures0.03 0.03 0.06 0.06 
Deduct: gain on sale of real estate— — — (3.58)
Adjustment for non-controlling interests(0.19)(0.21)(0.36)1.32 
NAREIT Funds from operations per common stock basic and diluted0.22 0.20 0.41 0.55 
Adjustments for: straight line rent accruals— —— —
Add: loss on extinguishment of debt— — — 0.04 
Add: amortization of restricted stock and restricted stock units0.01 0.02 0.05 0.05 
Add: amortization of deferred mortgage costs0.04 0.03 0.06 0.05 
Deduct gain on insurance recovery(0.03)— (0.03)(0.22)
Adjustments for non-controlling interests— (0.01)(0.01)0.02 
Adjusted funds from operations per common stock basic and diluted$0.24 $0.24 $0.48 $0.49 

  Three Months Ended
March 31,		 Six Months Ended
March 31,
  2018 2017 2018 2017
GAAP Net income attributable to common stockholders $25,222
 $(4,229) $31,573
 $11,541
Add: depreciation of properties 9,240
 7,772
 17,888
 14,069
Add: our share of depreciation in unconsolidated joint ventures 447
 130
 816
 213
Deduct: gain on sale of real estate (51,981) —
 (64,500) (35,838)
Adjustments for non-controlling interests 22,406
 (1,923) 22,596
 13,651
NAREIT Funds from operations attributable to common stockholders 5,334
 1,750
 8,373
 3,636
         
Adjustments for: straight-line rent accruals (10) (14) (20) (36)
Add: loss on extinguishment of debt 593
 —
 850
 799
Add: amortization of restricted stock and restricted stock units 297
 386
 612
 710
Add: amortization of deferred mortgage costs 373
 224
 732
 525
Deduct gain on insurance recovery (3,227) —
 (3,227) —
Adjustments for non-controlling interests 434
 (44) 307
 (469)
Adjusted funds from operations attributable to common stockholders $3,794
 $2,302
 $7,627
 $5,165
29
  Three Months Ended
March 31,		 Six Months Ended March 31,
  2018 2017 2018 2017
GAAP Net income attributable to common stockholders $1.75
 $(0.30) $2.21
 $0.83
Add: depreciation of properties 0.64
 0.55
 1.23
 1.01
Add: our share of depreciation in unconsolidated joint ventures 0.03
 0.01
 0.06
 0.02
Deduct: gain on sale of real estate (3.60) —
 (4.50) (2.58)
Adjustment for non-controlling interests 1.55
 (0.14) 1.58
 0.98
NAREIT Funds from operations per common stock basic and diluted 0.37
 0.12
 0.58
 0.26
         
Adjustments for: straight line rent accruals —
 —
 —
 —
Add: loss on extinguishment of debt 0.04
 —
 0.06
 0.06
Add: amortization of restricted stock and restricted stock units 0.01
 0.03
 0.04
 0.05
Add: amortization of deferred mortgage costs 0.03
 0.02
 0.05
 0.04
Deduct gain on insurance recovery (0.22) —
 (0.22) —
Adjustments for non-controlling interests 0.03
 (0.01) 0.02
 (0.04)
Adjusted funds from operations per common stock basic and diluted $0.26
 $0.16
 $0.53
 $0.37

26


Item 3. Quantitative and Qualitative Disclosures About Market Risks


All of our mortgage debt is fixed rate, other than sevenfour mortgages, three of which are subject to interest rate swap agreements and one which isthat effectively fix the rate at a fixed rate. With respect to the mortgage not subject to an interest rate cap. With respect to the remaining three variable rate mortgages,swap, an increase of 100 basis points in interest rates would reduce annual net income by $589,000$416,000 and a decrease of 100 basis points would increase annual net income by $589,000.$416,000.

As of March 31, 2018,June 30, 2019, we had three interest rate swap agreements outstanding and onean interest rate cap. The fair value of these derivative instruments is dependent upon existing market interest rates and swap spreads, which change over time. At March 31, 2018,June 30, 2019, if there had been (i) an increase of 100 basis points in forward interest rates, the fair market value of these derivative instruments and the net unrealized gain thereon would have increased by approximately $3.0$2.6 million and (ii) if there had been a decrease of 100 basis points in forward interest rates, the fair market value of these derivatives and the net unrealized gain thereon would have decreased by approximately $3.2$2.7 million. These changes would not have any impact on our net income or cash.


Our junior subordinated notes bear interest at the rate of three month LIBOR plus 200 basis points. At March 31, 2018,June 30, 2019, the interest rate on these notes was 3.77%4.58%. A 100 basis point increase in the rate would increase our related interest expense by approximately $374,000 annually and a 100 basis point decrease in the rate would decrease our related interest expense by $374,000 annually.


As of March 31, 2018,June 30, 2019, based on the number of residential units in each state, 30%29% of our properties are located in Texas, 16%15% in Georgia, 11%12% in Florida, 8% in Missouri, 8% in Mississippi, 7% in Tennessee, 7% in South Carolina, 7% in Alabama and the remaining 13%15% in fourfive other states; we are therefore subject to risks associated with the economies in these areas.


Item 4. Controls and Procedures


As required under Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, we carried out an evaluation under the supervision and with the participation of our management, including our Chief Executive Officer, Senior Vice President-Finance and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of March 31, 2018.2019. Based upon that evaluation, the Chief Executive Officer, Senior Vice President-Finance and Chief Financial Officer concluded that our disclosure controls and procedures as of March 31, 2018June 30, 2019 are effective.


There have been no changes in our internal control over financial reporting during the quarter ended March 31, 2018June 30, 2019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting or in other factors that could significantly affect these controls subsequent to the date of their evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.




27
30


Part II - Other Information



Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

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. 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
April 1 - April 30, 2019— — — 4,838,489 
May 1 - May 31, 2019— — — 4,838,489 
June 1 - June 30, 20193,590 $12.80 3,590 4,792,535 
Total3,590 $12.80 3,590 




Item 6. Exhibits



Exhibit
     No.
Title of Exhibits
31.1
Certification of President and Chief Executive Officer pursuant to Section 302 of the Sarbanes‑OxleySarbanes-Oxley Act of 2002
31.2
Certification of Senior Vice President—Finance pursuant to Section 302 of the Sarbanes‑OxleySarbanes-Oxley Act of 2002
31.3
Certification of Vice President and Chief Financial Officer pursuant to Section 302 of the Sarbanes‑OxleySarbanes-Oxley Act of 2002
32.1
Certification of President and Chief Executive Officer pursuant to Section 906 of the Sarbanes‑OxleySarbanes-Oxley Act of 2002
32.2
Certification of Senior Vice President—Finance pursuant to Section 906 of the Sarbanes‑OxleySarbanes-Oxley Act of 2002
32.3
Certification of Vice President and Chief Financial Officer pursuant to Section 906 of the Sarbanes‑OxleySarbanes-Oxley Act of 2002
101.INSXBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCHXBRL Taxonomy Extension Schema Document
101.CALXBRL Taxonomy Extension Calculation Linkbase Document
101.DEFXBRL Taxonomy Extension Definition LinkbaseDefinitions Document
101.LABXBRL Taxonomy Extension Definition Label LinkbaseLabels Document
101.PREXBRL Taxonomy Extension Presentation Linkbase Document

_____________________

28
31


SIGNATURES






Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.










BRT APARTMENTS CORP.







August 8, 2019
May 8, 2018/s/ Jeffrey A. Gould
Jeffrey A. Gould, President and
Chief Executive Officer
MayAugust 8, 20182019/s/ George Zweier
George Zweier, Vice President
and Chief Financial Officer
(principal financial officer)




29

32