Filing summary
Issuer and period: The supplied filing is for BRT Realty Trust and its subsidiaries, not an issuer named BRT Apartments Corp. It is a Form 10-Q for the quarter ended June 30, 2015 (the company’s fiscal third quarter), with comparisons to the periods ended June 30, 2014. Amounts below are U.S. dollars; financial statement amounts are in thousands unless stated otherwise.
Business context and operating results
BRT is a REIT that owns, operates and develops multifamily properties and commercial/mixed-use real estate, principally the Newark Teachers Village project. At June 30, it owned 27 multifamily properties in 10 states, totaling 7,715 units, including 360 development units; occupancy excluding the development units was 94.8%.
| Metric | Three months ended June 30 | Nine months ended June 30 |
|---|---|---|
| Total revenue | $21.225 million vs. $17.768 million in 2014, up 19.5% | $61.474 million vs. $47.003 million, up 30.8% |
| Expenses | $24.733 million vs. $21.959 million | $71.672 million vs. $59.669 million |
| Revenue less expenses | Loss of $3.508 million vs. $4.191 million | Loss of $10.198 million vs. $12.666 million |
| Net loss attributable to common shareholders | $2.578 million, or $0.18/share, vs. $0.331 million, or $0.02/share | $5.824 million, or $0.41/share, vs. $5.656 million, or $0.40/share |
| NAREIT FFO attributable to common shareholders | $1.267 million vs. $2.520 million | $4.735 million vs. $2.073 million |
| AFFO attributable to common shareholders | $1.747 million vs. $2.963 million | $6.267 million vs. $3.308 million |
Revenue growth primarily reflected acquisitions, additional months of contribution from previously acquired properties, higher rents at certain existing properties and increased occupancy at completed Teachers Village residential units. Expenses also rose, notably real estate operating costs, interest and depreciation. The nine-month comparison includes a $2.777 million real estate gain in 2015; 2014 included discontinued lending operations. FFO and AFFO are non-GAAP supplemental measures, not substitutes for GAAP earnings or cash flow.
Cash flow, balance sheet and debt
- For the nine months, operating cash flow was $12.005 million, compared with $0.486 million in 2014; investing cash outflow was $38.583 million versus $182.300 million; financing cash inflow was $19.583 million versus $154.348 million. Cash and cash equivalents ended at $16.186 million, down from $23.181 million at September 30, 2014. Separately, management reported $29.3 million cash at July 31, 2015; $21.3 million of June 30 restricted cash was excluded from available cash.
- At June 30, total assets were $766.537 million, total liabilities $614.345 million and equity $152.192 million. Real estate held for sale was $68.259 million.
- Debt obligations were $520.932 million, comprising $483.532 million of mortgages and $37.400 million of junior subordinated notes; this excludes $43.291 million of mortgages classified as held for sale. Mortgage balances were broadly stable from September 2014. The junior notes bear 4.90% through April 2016, then LIBOR plus 2.00% through 2036.
- Management said it believed available funds were sufficient for operating expenses and anticipated contributions over at least the next 12 months, while noting limited funds had reduced capacity for further multifamily acquisitions. No dividend was declared for the quarter.
Material changes, outlook and risks
- In February 2015, BRT sold its Lawrenceville, Georgia property for $9.7 million and recorded a $2.7 million gain. During the nine months it also bought a Pensacola property, increased ownership in several joint ventures, and repurchased 345,081 shares for $2.422 million.
- After quarter-end, BRT sold Ivy Ridge in Georgia for $17.6 million and The Palms in Houston for $39.9 million, including assumption of $24.1 million of mortgage debt. It estimated approximately $12 million of combined gains, about $3.9 million allocable to noncontrolling interests. It also acquired a 618-unit Alabama property for $44 million plus closing-related amounts, financed with $29 million of mortgage debt and equity contributions.
- Management estimated these July transactions would reduce quarterly revenue by about $650,000, operating expenses by $370,000, depreciation by $120,000 and interest expense by $110,000. It expected the estimated gains to be recognized in fiscal fourth-quarter 2015. These are estimates, not reported results.
- Newark/Teachers Village is a significant funding risk. The joint venture estimated $35–$40 million was needed to complete the project, $8–$13 million above prior estimates. It identified $15.5 million of restricted construction cash and about $13 million of tax-credit proceeds and committed-but-unfunded loans, subject to conditions. The remaining need was expected to require additional equity or debt, but no funding commitments had been obtained. The filing warns that failure to secure funding and complete construction could materially adversely affect the venture and BRT. The venture also anticipated $19–$20 million of operating expenses and debt service through June 2017, with uncertainty over whether reserves and property operations would cover the need.
- The Newark venture was expected to remain unprofitable until construction was completed and occupancy reached reasonable levels. BRT had held preliminary discussions with an institutional investor regarding a possible purchase of all or substantially all of its Newark venture interest; there was no assurance of a transaction.
- BRT stated it was highly unlikely to pay, or be required to pay to maintain REIT status, a dividend in calendar 2015 and for several years thereafter, citing approximately $54 million of net operating loss carryforwards available at December 31, 2013.
- Interest-rate exposure includes two variable-rate mortgages; a 100-basis-point increase was estimated to reduce annual net income by $470,000, while a 100-basis-point decrease was estimated to increase it by $133,000. The filing also identifies geographic concentration, particularly Texas, Georgia, Tennessee and Florida. Management reported disclosure controls were effective and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Confirm the issuer identity and filing period: the document identifies BRT Realty Trust and a June 30, 2015 quarter-end.
- Track actual funding, construction costs, completion timing and leasing at Teachers Village, including whether the unfunded financing sources become available.
- Verify the final proceeds, gains and noncontrolling-interest allocations from the post-quarter property sales, and the realized financing and operating performance of the Alabama acquisition.
- Assess debt maturities, variable-rate exposure, restricted-cash availability and liquidity after property dispositions and development commitments.
- Distinguish acquisition-driven revenue growth and one-time sale gains from ongoing operating performance; compare GAAP results with FFO/AFFO and review their stated limitations.