Good day, and welcome to BRT Apartments Corp Conference Call for the Second Quarter of 2019. Today's conference is being recorded. At this time, I would like to turn the conference over to Morey Marcus of ICR. You may begin, sir. Please proceed.

Thank you. Good day everyone and welcome to the BRT Apartments conference call. On the call today is Jeffrey Gould, President and Chief Executive Officer. Also available are Georgia Zweier, Chief Financial Officer; David Kalish, Senior Vice President; and Ryan Baltimore, Senior Vice President. As a reminder, this call is being webcast through the company's website at www.brtapartments.com. Additionally, the company's supplemental information and earnings release are available for your review and the company's 10-Q will be available later today on the Investor Relations section of the BRT's website. Before we begin, I would like to remind everyone that this conference call contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that are based on management current expectations, assumptions and beliefs. Forward-looking statements can be often identified by words such as believe, expect, estimate, anticipate, intend and similar expressions and variations or negatives of these words. These forward-looking statements include but are not limited to statements regarding BRT strategy and expectations for the future. They are not guarantees of future results and are subject to risks, uncertainties and assumptions that could cause actual results to differ materially from those expressed in any forward-looking statements. Listeners should not place undue reliance on any forward-looking statements and are encouraged to review the company's most recent annual report on form 10-K and the company's other filings with the SEC for a more complete discussion of risks and other factors that could affect these forward-looking statements. Except as required by law, BRT does not undertake any obligation to publicly update or revise any forward-looking statements. This conference call also include a discussion of funds from operations or FFO, adjusted funds from operations or AFFO and net operating income or NOI. All of which are non-GAAP financial measures of performance. These non-GAAP measures should be used as a supplement to and not a substitute for net income computed in accordance with GAAP. For a more complete discussion of FFO, AFFO and NOI see the company's earnings release and supplemental that were filed yesterday and the 10-Q that will be filed later today. As a reminder, the company recently changed its fiscal year so that it ends on December 31. I would now like to turn the call over to Jeffrey Gould, President and CEO of BRT Apartments Corp. Please go ahead, Jeff.

Thank you, Morey. I would like to welcome everyone to BRT's second quarter conference call. Let me start with an overview of our differentiated multifamily business model. BRT is focused on the ownership, operation and to a limited extent development of multifamily properties. These properties are owned primarily through consolidated joint ventures, in which we generally contribute 65% to 80% of the equity. The properties concentrated in the southeast United States and Texas are located primarily in secondary markets with high employment and population growth. As of August 6th, we owned 38 multifamily properties consisting of 10,978 units in 12 states, including properties and lease that are owned by unconsolidated joint ventures. We currently believe that acquiring properties through joint ventures is our most efficient strategy. We have a proven record of aligning with select operators that possess local expertise. These operators present us with off-market transactions. We target opportunities that are under our contract which allows us to focus on deals that are likely to close. We do not waste valuable resources pursuing deals that we may not win. We leverage our local partners' expertise in property management platforms to produce the best risk-adjusted returns for our stockholders. Our approach in acquiring multifamily assets is unlike other models in the space but given our size, we believe this approach maximizes our resources and relationships. Moving on to our second quarter 2019 results; we will be referring to the quarter ended June 30, 2019, as the current quarter and the quarter ended June 30, 2018, as the 2018 quarter. Net loss was $4.3 million or a loss of $0.27 per diluted share in the current quarter versus a net loss of $4.7 million or $0.33 per diluted share in the 2018 quarter. NOI for the current quarter increased by 8.6%…

Thank you. [Operator instructions] Our first question comes from Gueva Neta with National Security, please go ahead with the question.

Thanks, good morning guys. A couple of quick questions. First, can you talk about the value add opportunity in your portfolio? And should we expect going forward?

Yes. First, I hope you all can hear me okay. We had a little technical issue here. So I hope you can hear me all right. We're continuing to plan and move forward with our value add program. We're estimating over the next two years and anticipate we have about 1,000 units still available to renovate and more to come after that. It's obviously subject to our renovation program, our turnover et cetera. Obviously, when we have tenants in place and they're paying rent and we're getting renewals that are subsidy we generally don't want to take those units off the market. But we do have a plan to continue with the renovation program.

Okay. And second question on your same-store growth, how much of your same-store growth for the year has been driven by renovations and how much is organic?

I don't know if I have the specific numbers as to how much of each specific. We can get back to you with that information. I know that there was a combination, frankly, of the two. The renovation increases were definitely part of that. And I can get back to the specifics and we'll have that for you at the next meeting if you will.

Okay. And lastly, can you discuss what you're seeing on your same-store expenses and do you expect them to remain elevated for the near future?

Yes. So the same-store expense growth was 6.7% which besides taxes, which I would say we've talked about taxes in the past and that's been uncertain. And we've spent a lot of time on the property tax situation and fighting taxes where we can et cetera. But this particular quarter, we had an increase in replacements and repairs and maintenance. It really resulted primarily from the higher turnover costs that we had. And we had some additional payroll expenses as we filled some staff vacancies at some of our properties that were vacant -- the staff vacancies in the prior year. That's specific to the increases. But overall, again, we're watching our margins very carefully. We're really focused on spending time to see what we can do on the expense side to bring up all of our margins.

Okay, thank you for taking the questions.

Thank you.

Our next question comes from Barry Oxford with D.A. Davidson. Please proceed with your question.

Great. Thanks, guys. On the daving [ph] acquisition. Are you seeing a lot of opportunities in the marketplace right now that people want to kind of continue to do joint ventures from that perspective?

The answer is yes. Generally speaking, when we have available capital, we basically reach out to our partner group of 15 to 20 or so potential partners that we have and we say to them, look, we have money available for deals. So, obviously, we had a sale recently and we are in a position now we have some cash and we're looking at interesting opportunities. There's no doubt that there's more competition in the market -- in our market but at the same time, our partner network is still funding plenty of deals for us to look at. And the nice thing is the efficiencies we have under the strategy is such that we might get 5 to 10 -- 15 deals in to pick one or two that we like. So overall, our partners are busy looking at potential acquisitions. And whenever -- and this goes back to when we started this. Whenever we've had dollars available, we've had plenty of opportunities to put it to work.

Perfect. What type of cap rates are you seeing currently, when you're looking kind of at your shortlist right now?

Yes, to be realistic we're primarily focusing on the value add strategy. And we're not really doing much but we have stabilized deals so the value add program we're generally going in expecting a stabilized cap rate of about 6% once renovated and then frankly, we're selling deals at sub-five. So it's a good strategy overall. We're seeing cash flows probably north of 7 going in and rising pretty steadily with the renovations and the renewals and the efficiencies and management that we're taking on.

Perfect. Now are dispositions going to be kind of your primary source of capital given the capital structure right now?

That's dependent on a few things. First of all, we do have a couple of properties that we're considering selling. We're really trying to have age of our properties overall in the portfolio as a younger basis. We're basically looking at properties where the expense ratios are very high from older properties and realizing that the margins aren't as good there and there's a possibility of selling like we did in the Houston asset that we sold already. And there may be a few other situations like that. Also, when we have properties that we feel like we've pretty much completed the value add program those are definitely candidates for sale. I wouldn't say there's a lot of property that we're looking to move but there definitely is some and we evaluate very carefully each and every property to see where it fits and where we have opportunity and growth versus converting that equity into something new -- a new value add opportunity that we think is more beneficial for the company.

Right. On these dispositions are a lot of investors kind of showing up I would imagine?

It's amazing. I could say -- I'll use the Houston property as an example. I don't have the numbers in front of me but I will tell you that it must have been 40 or 50 inspections of the property. And we must have had 15 to 20 bidders on the property just to give you some idea. And we sold it at a very, very favorable cap rate. Again, this was like late 70s construction. And it just gives you a sense of the market. So yeah, it is competitive, no doubt.

Perfect. Thanks, guys.

Thank you.

Our next question comes from Craig Kucera with B. Riley FBR. Please proceed with the question.

Thanks. Good morning, guys. Appreciate the incremental color on the potential thoughts on the size of the value add program. But I think you've been running it about 300 units a quarter. Are you saying 24 months just to be conservative as you're sort of thinking about, hey, we know we can do it over 24 months? Or are you saying that this sort of 300 a quarter pace is likely to slow down and kind of how are you thinking about that?

Let me turn that over to Ryan Baltimore to answer that question for you.

Hey, Craig how are you? Basically, the way we look at it, we kind of budget on an annual basis in terms of the value add program. Again, it's really dependent on the turnover and when we can get units back. We've been seeing pretty substantial renewal rate growth so we've been able to kind of keep the properties a little bit more occupied and grow the rents that way. So it's an estimated number based on kind of our projected numbers over the next year or 2. It could change depending on how much turnover we have. A lot of the larger numbers deal with a lot of the recent acquisitions, a lot of the numbers we can do pretty quickly over the first year or 2. So as we acquire more of that number should go up as well. This is just the current portfolio so new acquisitions there'll be more opportunity.

Got it and just going back to the Houston assets that you sold. I know you mentioned that they were sub-five but can you pin that down with how closer was that? Was it a 4.5 or was it 4.9? Any color would be great.

I hope the buyers are on the phone but to be honest with you our numbers I think was probably around 4.9 or so and our and actual numbers I mean brokers packages are such that -- I don't represent so I don't know how they're looking at it or their underwriting. But on our trailing numbers, it was better. I'm in the neighbor of about 4.9.

Got it. And appreciate the color on your discussions around St. Louis. I know you've been sort of disappointed in the performance there for a bit. Is the thought process that you maybe are trying to stabilize them and then maybe sell them or kind of -- what's kind of the game plan there?

We have a downtown asset that really is encompassing two properties and that's the one that friends were having a bit more trouble with. The reason for the trouble, first of all is, it's much more transient population than we expected. There's a lot more turnover renewals are not as high as we expected. And frankly, the rents are not as good as we had -- or the bumps in rent is not as good as we had hoped. We are trying to stabilize it. The accuracy actually is pretty good. We actually are bringing down some expense numbers to where we can because there's a parking element involved in it, where we can bring down some expenses. And we're working with the city on that, as far as reserve spots and things. We have another acid in St. Louis in principle which is doing great. So it's not the entire St. Louis market that we're speaking of, it's really the downtown market. And I don't want to -- we want to be as transparent as possible. So it's not like we're getting killed on the asset or something that we're not making any return on. It's just something that it's troublesome for us and it's not what we expected so we wanted to identify that.

Thank you.

Thank you.

Thank you. The allotted time for the Q&A session is done. So I would like to turn the call back to management for closing comments.

So thank you, everyone, for your time. We appreciate you today. If you have any further questions, feel free to reach out by email to investors at www.brtapartment.com. And we appreciate your time today and look forward to speaking with you in the future. And have a good day. Thank you.

This concludes today's teleconference. You may disconnect your lines at this time and have a great day.