BRT Apartments Corp. — Q3 2019 Form 10-Q
Business context and period. BRT owns, operates and develops multifamily properties as a REIT. This unaudited report covers the quarter and nine months ended September 30, 2019; comparisons are with the corresponding 2018 periods. The company changed its fiscal year-end from September 30 to December 31, so 2019 results reflect January–September. At quarter-end, it owned 36 properties with 10,152 units and held interests in three unconsolidated ventures with 1,026 units.
Financial performance and position
| Metric | Q3 2019 | Q3 2018 | Nine months 2019 | Nine months 2018 |
|---|---|---|---|---|
| Total revenue | $34.0 million | $31.5 million | $98.1 million | $91.3 million |
| Net income (loss) attributable to common stockholders | $3.3 million | $(3.1) million | $(5.3) million | $17.4 million |
| Revenue less total expenses | $(4.5) million | $(5.6) million | $(14.8) million | $(16.2) million |
| Operating cash flow | Not provided by quarter | Not provided by quarter | $22.5 million | $30.2 million |
| FFO / AFFO attributable to common stockholders | $2.0 million / $4.2 million | $4.1 million / $3.4 million | $8.5 million / $11.8 million | $12.2 million / $10.6 million |
Q3 basic/diluted EPS was $0.21/$0.20, versus $(0.20)/$(0.20) in Q3 2018. Nine-month EPS was $(0.33), versus $1.18 basic and $1.16 diluted in 2018. FFO and AFFO are non-GAAP measures.
- Balance sheet (September 30): Total assets were $1.193 billion; total liabilities $917.5 million; equity $275.1 million. Cash and cash equivalents were $18.5 million, with $10.8 million restricted.
- Debt: Total debt, net of deferred financing costs, was $885.2 million, up from $808.9 million at December 31, 2018. This included $851.1 million of mortgage principal, $37.4 million of junior subordinated notes and $3.6 million drawn on a $10 million credit facility.
- Cash flows: Nine-month investing cash use was $60.9 million and financing cash provided was $27.1 million; cash, cash equivalents and restricted cash declined $11.4 million to $29.3 million.
- Liquidity: Management reported $32.4 million available at November 1, 2019: $14.4 million cash and cash equivalents, $10.8 million restricted cash and up to $7.2 million available under the credit facility, subject to borrowing-base requirements.
- Margins: The filing does not provide a clear consolidated operating-margin measure. Revenue less total expenses remained negative in both reported periods.
Material changes and notable items
- Revenue rose 8.1% in Q3 and 7.5% for the nine months, mainly from acquisitions, higher same-store rents and variable tenant charges, and lease-up at Bells Bluff. Same-store revenue increased $1.7 million in Q3 and $3.2 million year to date.
- Expenses increased 3.9% in Q3 and 5.0% year to date. Interest expense rose 9.8% and 7.4%, respectively, reflecting acquired properties, Bells Bluff and higher borrowing costs; Q3 G&A also rose, partly because of a prior-year stock-compensation reversal.
- Q3 net income included a $9.9 million real-estate sale gain, partly offset by a $1.8 million debt-extinguishment loss. The company sold two Houston properties for $33.2 million and acquired a 200-unit Auburn, Alabama property for $18.4 million during the quarter.
- Nine-month 2019 common-stockholder loss contrasts with 2018 income, which benefited from $52.4 million in real-estate sale gains and $4.5 million in insurance-recovery gains. The 2019 nine-month sale gain was $9.9 million; 2019 insurance-recovery gain was $0.5 million.
- Bells Bluff, a 402-unit development in lease-up, was 49.5% occupied at September 30; all units were available for lease. Management expected remaining completion costs to be funded from up to $2.6 million of construction financing.
- On October 10, 2019, BRT paid a quarterly dividend of $0.22 per share, a 10% increase from the prior quarter. Management said it intended to continue quarterly dividends but gave no assurance.
Outlook, risks and contingencies
Management expected operating costs, dividends and $85.2 million of interest and mortgage amortization payments over the next two years to be funded primarily by property operations, with refinancing, property sales or common-stock sales as possible supplemental sources. It noted that acquisitions depend on available cash, credit-facility capacity, joint-venture equity and access to mortgage financing. No quantified earnings guidance was provided.
- Interest-rate exposure includes floating-rate junior subordinated notes ($37.4 million; 4.27% at September 30) and one unhedged adjustable-rate mortgage. A 100-basis-point increase was estimated to raise annual interest expense by $374,000 on the notes and reduce annual net income by $448,000 on the unhedged mortgage.
- The credit facility has a 5% interest-rate floor, borrowing-base conditions and financial covenants, and matures in April 2021. Restricted cash is designated for property capital improvements, not general corporate use.
- A Houston property subsidiary faces a wrongful-death lawsuit seeking unspecified compensatory damages exceeding $1 million and unspecified exemplary damages. The primary insurer is defending; BRT believes insurance is adequate for compensatory damages, while exemplary damages generally are not covered.
- BRT disclosed related-party service and shared-services arrangements. Investors may wish to review their fees and governance oversight.
Important facts for investors to verify
- Whether occupancy and rent growth at same-store properties and Bells Bluff support ongoing cash generation.
- Debt maturities, floating-rate exposure, covenant compliance and the facility’s borrowing-base availability.
- How acquisitions, dispositions and capital spending affect leverage and liquidity, including the use of restricted cash.
- Whether operating cash flow and recurring FFO/AFFO cover dividends, debt service and property investment; these measures are not equivalent to GAAP cash flow or net income.
- Developments in the Houston litigation, insurance coverage and potential exposure to exemplary damages.