BRT Realty Trust — Form 10-Q Summary
Business context and period. BRT Realty Trust, a multifamily-focused REIT, reported its unaudited fiscal first quarter ended December 31, 2016, with comparisons to the three months ended December 31, 2015. At quarter-end, it owned 30 multifamily properties with 8,624 units across 11 states; stabilized-property occupancy averaged 93.2%. The filing proposed a conversion to a Maryland corporation named BRT Apartments Corp., subject to shareholder approval.
Financial performance and position
- Revenue: $25.6 million, up 14.8% from $22.3 million. Rental and other property revenue rose 12.1% to $25.0 million; other income was $0.6 million, mainly interest on the Newark loan.
- Profit: Net income was $32.3 million versus a $2.8 million loss. Net income attributable to common shareholders was $15.8 million, or $1.13 per diluted share, versus a $2.0 million loss, or $0.14 per share. Results included a $35.8 million property-sale gain and a $0.8 million debt-extinguishment loss.
- Operating performance: Expenses were $28.4 million, up 17.7%, leaving a $2.7 million loss before property-sale gains and debt-extinguishment loss. NAREIT FFO attributable to common shareholders was $1.9 million ($0.14 per share); AFFO was $2.9 million ($0.21 per share).
- Cash flow: Operating activities provided $7.8 million, investing activities provided $104.5 million, and financing activities used $88.5 million. Cash and equivalents increased $23.8 million to $51.2 million. Investing cash flow included $127.9 million in property-sale proceeds and $13.6 million of loan principal collections.
- Debt and liquidity: Debt obligations were $610.6 million, net of deferred mortgage costs, versus $652.5 million at September 30, 2016. Total assets were $849.1 million and equity $219.6 million. Cash excluding $6.7 million of restricted cash was $51.2 million at quarter-end. Management said operating cash flow and, if needed, supplemental financings were expected to fund operating expenses and debt service through 2018.
- Other financial facts: No dividend was declared for the quarter; BRT said it had not paid cash dividends since 2010. Estimated net operating loss carryforwards were approximately $15–20 million.
Changes, outlook and notable items
- Revenue growth reflected acquisitions, including 10 properties acquired in the prior 12 months, and higher same-store rental rates; sales of properties partly offset the increase. Same-store revenue increased $818,000, while same-store operating expenses rose $500,000.
- During the quarter, BRT acquired a 220-unit property in Fredericksburg, Virginia, for $38.5 million, including $29.9 million of acquisition mortgage debt. It also invested $14.4 million in two Columbia, South Carolina, joint ventures, one owning a property and one planning a 339-unit development.
- BRT sold four multifamily properties and a cooperative unit for $130.7 million, recognizing a $35.8 million gain; $17.1 million of the gain was allocated to non-controlling interests. It repaid related mortgages and recorded a $799,000 prepayment charge.
- The Newark real estate loan balance fell from $19.5 million to $5.9 million after a $13.6 million principal payment; BRT also received $2.6 million of current and deferred interest. The remaining balance matures in June 2017, bears 11% interest and is secured by Newark properties.
- BRT early adopted accounting guidance that allowed acquisition costs to be capitalized; $643,000 was capitalized this quarter, favorably affecting reported net income, FFO and AFFO compared with prior-period treatment.
- No specific earnings or operating guidance was provided. Management stated that the North Charleston development was expected to be funded by contributed capital and construction financing of up to $30.3 million; $20.7 million had been drawn by quarter-end.
- Interest-rate exposure includes variable-rate junior subordinated notes at 2.89% at quarter-end. BRT disclosed that a 100-basis-point rate increase would add about $374,000 of quarterly interest expense on those notes. Property concentration also creates regional economic exposure, with 32% of residential units in Texas.
Important facts for investors to verify
- How much recurring earnings and cash generation remain after separating property-sale gains, acquisition effects and the accounting change from underlying operations.
- The June 2017 maturity and repayment prospects for the remaining $5.9 million Newark loan balance.
- Debt maturities, refinancing needs, variable-rate exposure and the availability of supplemental financing.
- Performance, funding requirements and development execution for the Columbia ventures and North Charleston project.
- Shareholder approval and completion terms for the proposed corporate conversion, and the company’s dividend intentions.