Business context and reporting period
BRT Realty Trust’s unaudited Form 10-Q covers the quarter and nine months ended June 30, 2014, its fiscal third quarter. The filing identifies the registrant as BRT Realty Trust; the request metadata names BRT Apartments Corp. BRT operates multifamily properties, commercial and mixed-use real estate, and real estate lending activities. It reported 25 multifamily properties with 7,338 units at quarter-end, excluding a development project.
Financial results and position
| Metric | Three months ended June 30, 2014 | Nine months ended June 30, 2014 | Comparable 2013 period |
|---|---|---|---|
| Total revenue | $18.1 million | $49.1 million | $12.0 million; $30.4 million |
| Net loss attributable to common shareholders | $0.3 million; $0.02 loss per share | $5.7 million; $0.40 loss per share | $0.5 million income; $0.04 per share, and $0.2 million income; $0.02 per share |
| Net cash from operating activities | Not presented for the quarter | $0.5 million | $1.6 million for nine months |
For the quarter, revenue less expenses was a $4.0 million loss, versus a $0.7 million loss in 2013. For nine months, it was an $11.3 million loss, versus a $2.8 million loss. Rental revenue growth was outweighed by higher property costs, interest, and depreciation. The filing reports FFO of $2.5 million for the quarter and $2.1 million for nine months; AFFO was $3.0 million and $3.3 million, respectively. These are non-GAAP supplemental measures, not substitutes for earnings or cash flow.
At June 30, total assets were $700.3 million, including $611.0 million in net real estate properties; total liabilities were $527.6 million and total equity was $172.7 million. Debt obligations totaled $489.1 million: $451.7 million of mortgages and $37.4 million of junior subordinated notes. Cash and cash equivalents were $29.4 million, with a further $25.2 million of restricted cash unavailable for general purposes. Management reported approximately $18 million of unrestricted cash at July 31. Nine-month investing cash outflow was $182.3 million and financing cash inflow was $154.3 million.
Material changes versus prior periods
- Nine-month revenue increased 61% year over year, principally as multifamily rental revenue rose to $46.1 million from $20.8 million, reflecting acquisitions and partial-period ownership of acquired properties.
- Nine-month multifamily revenue was $42.5 million, while multifamily activities produced a $7.9 million loss attributable to common shareholders. Total property operating expense rose 134%, interest expense 75%, and depreciation and amortization 119% year over year.
- Interest and fees from real estate loans fell 73% to $2.1 million for nine months. The loan portfolio declined from $30.3 million at September 30, 2013 to one outstanding loan with $2.0 million principal at June 30, 2014.
- Real estate properties increased from $402.9 million to $611.0 million, and mortgage debt rose from $313.2 million to $451.7 million, reflecting property acquisitions and financing.
- Management said a nonrecurring $2.6 million adjustment related to the Newark Joint Venture’s deferred interest payment favorably affected the common-shareholder result for the 2014 nine-month period.
Outlook, risks, and unusual items
Management expects multifamily activities to contribute a greater share of revenue and lending activity to continue declining. The filing gives no earnings or revenue guidance. Management expected multifamily rents to fund property operating expenses and debt service from the fourth quarter of 2014 through 2015.
The Newark Joint Venture’s Teachers Village development remained unprofitable. Management estimated approximately $23.3 million was needed to complete Phase II, to be funded by restricted cash and committed but unfunded loans and tax credits, subject to conditions; it cautioned that funding sufficiency was not assured. Management also estimated an additional $2.1 million in rent would be needed to cover Phase I and II debt service and operating costs from the fourth quarter of 2014 through 2015, and noted uncertainty about leasing and rent levels. Phase III required up to $30 million of financing, with no assurance it would be obtained on acceptable terms or that the project would be profitable.
The $25 million revolving credit facility expired in June 2014. BRT was seeking a replacement but gave no assurance it would obtain one. The Trust reported approximately $54 million of net operating loss carryforwards and said dividends were highly unlikely in 2014 and for several years thereafter; no dividend was declared for the quarter. The Newark New Markets Tax Credit arrangements carry potential tax-credit recapture and related indemnity risk during the seven-year compliance period. Most multifamily mortgage debt is non-recourse, subject to customary carve-outs. The filing states disclosure controls were effective and no material change in internal control occurred during the quarter.
Important facts for investors to verify
- Confirm the registrant and period: the filing is for BRT Realty Trust, quarter ended June 30, 2014, not a filing explicitly titled BRT Apartments Corp.
- Assess whether new multifamily acquisitions can generate returns sufficient to offset higher operating costs, interest, and depreciation.
- Verify the availability and conditions of Phase II funding, leasing progress and rent collections at Teachers Village, and financing prospects for Phase III.
- Review liquidity after the credit facility’s expiration, debt maturities and interest-rate exposure, and the extent to which restricted cash can be used only for designated purposes.
- Distinguish GAAP losses and operating cash flow from FFO/AFFO, and account for the disclosed nonrecurring Newark-related adjustment.