BRT Apartments Corp. — Q2 2019 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2019. BRT owns, operates and develops multifamily properties and qualifies as a REIT. In February 2019, it changed its fiscal year-end from September 30 to December 31; 2019 is therefore a calendar-year reporting period.
Business and operating context
At June 30, BRT owned 37 multifamily properties with 10,336 units, including 402 units in lease-up, and held interests in three unconsolidated ventures with 1,026 units. It acquired two properties in the first half, totaling 640 units, for approximately $91.1 million. Same-store comparisons exclude properties in development or lease-up and exclude the hurricane-damaged Retreat at Cinco Ranch.
Financial results
| Metric | Three months ended June 30, 2019 | Six months ended June 30, 2019 |
|---|---|---|
| Total revenue | $33.1 million, up 9.8% year over year | $64.1 million, up 7.1% |
| Expenses | $38.7 million, up 7.7% | $74.4 million, up 5.6% |
| Net loss attributable to common stockholders | $4.3 million; $0.27 per diluted share | $8.6 million; $0.54 per diluted share |
| Operating cash flow | Not presented separately for the quarter | $15.3 million, versus $21.4 million in 2018 |
| FFO / AFFO attributable to common stockholders | $3.5 million / $3.9 million | $6.5 million / $7.6 million |
For Q2, revenue less expenses was a loss of $5.5 million, compared with a $5.7 million loss in Q2 2018. Rental revenue growth reflected acquisitions, higher same-store rents and occupancy, and properties owned for more of the comparison period; these increases were partly offset by properties sold. Same-store rental revenue increased approximately $1.5 million in Q2 and $2.1 million for the first half.
First-half 2018 net income included a $52.0 million property-sale gain and $3.2 million insurance recovery; neither is comparable to 2019 results. First-half 2019 included a $517,000 insurance recovery gain. FFO and AFFO are non-GAAP supplemental measures, not substitutes for GAAP income or cash flow.
Balance sheet, debt and liquidity
At June 30, total assets were $1.198 billion and total equity was $276.8 million. Cash and cash equivalents were $17.3 million, with $10.0 million of restricted cash. Net debt obligations were $892.4 million, versus $808.9 million at December 31, 2018; the balance included $852.9 million of mortgages, $37.4 million of junior subordinated notes and $9.0 million drawn on the credit facility.
Six-month cash flow included $70.2 million used in investing, primarily property additions and joint-venture investment, and $41.6 million provided by financing. Cash, cash equivalents and restricted cash declined by $13.3 million to $27.3 million. Management reported available liquidity of $35.9 million as of August 6, including cash, restricted cash and up to $10.0 million available under the facility, subject to borrowing-base conditions.
Most mortgage debt is fixed-rate; junior subordinated notes and certain other borrowings are floating-rate. The $37.4 million subordinated notes bore 4.58% interest at June 30 and mature in 2036. The credit facility matures in April 2021, has a 5% rate floor, and carried a 6% rate at June 30. Management estimated $86.2 million of interest and mortgage amortization payments over the next two years.
Changes, outlook and risks
- Q2 interest expense rose 10.8% to $9.7 million, principally due to acquired properties, the Bells Bluff project moving from development into lease-up, loan payoff costs and higher floating-rate costs.
- Bells Bluff, a 402-unit Nashville project, began leasing in Q1. At June 30, 180 units were available for lease; management expected the remaining 222 units to be completed in stages during 2019. Remaining completion costs were expected to be funded by up to $5.8 million of construction financing.
- After quarter-end, on July 10, BRT sold its 91%-owned Stonecrossing properties in Houston for $33.2 million gross, with an estimated $9.9 million gain. It incurred a $1.4 million prepayment charge. On July 11, it repaid the $9.0 million facility balance.
- Management said operating costs, dividends and debt service are expected to be funded from property operations, with refinancing, property sales or common-stock sales as potential additional sources if needed. No earnings or FFO guidance was provided. The company stated it intends to continue quarterly $0.20-per-share dividends, but gave no assurance.
- Risks include debt-service and borrowing-base covenants, access to financing and joint-venture capital, floating interest rates, lease-up execution, and geographic concentration: Texas represented 29% of units, Georgia 15% and Florida 12%. REIT status requires meeting tax-law conditions; the company reported an estimated $16.8 million net operating loss at December 31, 2018.
Important facts for investors to verify
- Whether the Stonecrossing sale closed on the disclosed terms and how the gain and prepayment charge affect subsequent-period results and debt.
- Bells Bluff completion, occupancy, leasing pace and remaining construction funding needs.
- Debt maturities, floating-rate exposure, covenant compliance and availability under the credit facility.
- Same-store rent growth, occupancy and operating-cost trends, alongside the impact of acquisitions and dispositions.
- Cash generation relative to dividends, capital improvements and the company’s stated two-year debt-service and amortization needs.
- Related-party fees and joint-venture arrangements, including their effect on operating costs and capital allocation.