BRT Apartments Corp. — Q1 2023 Form 10-Q
Business context and period: For the three months ended March 31, 2023. BRT is a REIT focused on multifamily properties, with 21 wholly owned properties totaling 5,420 units and interests in eight joint-venture properties totaling 2,781 units. Its portfolio is concentrated in the Southeast and Texas.
Key financial results
| Metric | Q1 2023 | Q1 2022 |
|---|---|---|
| Total revenue | $22.9 million | $11.4 million |
| Total expenses | $28.0 million | $14.0 million |
| Net income (loss) attributable to common stockholders | $(4.1) million; $(0.21) per share | $11.5 million; $0.62 per share |
| Operating cash flow | $2.9 million | $0.5 million |
| FFO / AFFO attributable to common stockholders | $5.3 million / $6.9 million | $6.5 million / $7.2 million |
| Same-store NOI | $6.4 million | $6.4 million |
Revenue increased 100.6%, primarily because 2022 acquisitions of partners’ interests brought 11 properties into the consolidated portfolio; same-store rent growth also contributed. Total expenses rose 99.7%, including higher operating costs, interest and depreciation. The reported loss compares with prior-year income that included a $13.0 million share of gains from joint-venture property sales. Same-store NOI was nearly flat: higher rental revenue was largely offset by higher property expenses. FFO and AFFO declined year over year, mainly on higher interest expense.
Balance sheet, debt and liquidity
- At March 31, 2023, cash and cash equivalents were $15.3 million, restricted cash was $0.8 million, and total assets were $719.7 million.
- Consolidated debt obligations, net of deferred costs, were $460.9 million. The company reported $428.5 million of mortgage principal, $37.4 million of junior subordinated notes, and no credit-facility balance. Consolidated mortgages had a 4.02% weighted-average rate and 7.8-year weighted-average remaining term.
- Including mortgage debt at unconsolidated ventures, mortgage debt was approximately $691.2 million. The ventures’ $260.8 million of mortgage debt is not on BRT’s consolidated balance sheet.
- In February, BRT obtained a $21.2 million, 10-year mortgage on Silvana Oaks and used the proceeds to repay its $19.0 million credit-facility balance. The facility limit is $60 million, bears an 8% rate at quarter-end, and was fully available at May 1.
- Management reported $73.4 million of available liquidity at May 1, 2023, including $13.4 million of cash and $60 million available under the facility. Cash, cash equivalents and restricted cash declined by $5.1 million during Q1.
Outlook, risks and unusual items
- Management anticipates $123.4 million of mortgage balloon payments in 2025 and 2026 and says operating cash flow and available cash are insufficient to fund them fully. Refinancing, equity issuance or property sales may be needed; unfavorable financing or disposition terms could affect results.
- BRT agreed to acquire a 238-unit Richmond, Virginia property for approximately $62.5 million, including assumption of about $32 million of mortgage debt at 3.34%, subject to due diligence and lender approval. Closing is anticipated by year-end 2023, with no assurance it will occur.
- A 50%-owned joint venture contracted to sell its 494-unit Dallas property for $73 million. BRT estimates its share of the gain at approximately $14.6 million and expects closing in Q2 2023, subject to customary conditions.
- Interest-rate exposure includes the floating-rate junior subordinated notes and credit facility. The notes’ rate was 6.80% at March 31 and was expected to reset to 7.30% for the quarter ending July 31. The filing notes uncertainty about replacement rates when LIBOR becomes unavailable. A 100-basis-point rate change was estimated to affect annual interest expense by approximately $374,000.
- Insurance recoveries included a $240,000 gain in Q1. Management anticipated additional recoveries related to late-2022 storm damage; amounts and timing are estimates.
- The company disclosed a wrongful-death lawsuit seeking unspecified damages in excess of $1 million plus exemplary damages. Its insurer is defending the claim; management could not determine the probability or magnitude of any potential loss.
Important facts for investors to verify
- Progress and financing plans for the $123.4 million of 2025–2026 mortgage maturities, including refinancing access and covenant capacity.
- Whether the Richmond acquisition and Dallas joint-venture sale close as expected, and their actual financing, proceeds and gains.
- Rent, occupancy, insurance, utility and other operating-cost trends, given Q1’s flat same-store NOI.
- Floating-rate debt costs and the transition from LIBOR for the junior subordinated notes.
- The Silvana Oaks mortgage rate: the filing reports 4.45% in the MD&A discussion and 4.55% in the debt note.
- Dividend sustainability: the quarterly dividend was $0.25 per share, while management’s liquidity outlook assumes at least $71.6 million of cash dividends through 2026.