BRT Realty Trust — Form 10-Q Summary
Reporting period: Three months ended December 31, 2012, the first quarter of fiscal 2013. The filing identifies the registrant as BRT Realty Trust, notwithstanding the request metadata naming BRT Apartments Corp.
Business context and results
BRT is a REIT operating in real estate lending, multifamily properties, and other real estate, principally the Newark Joint Venture’s Teachers Village development. It originates senior mortgage loans, generally short-term loans, and typically invests 80% of the equity in multifamily property joint ventures.
Total revenue was $8.251 million, up 161.5% year over year, while total expenses rose to $10.494 million. Net loss attributable to common shareholders was $1.304 million, or $0.09 per share, compared with net income of $3.874 million, or $0.28 per share, in the prior-year quarter. The 2011 result included a $3.192 million loan-sale gain and a $490,000 real estate-sale gain. The 2012 result included a $1.238 million multifamily segment loss.
- Revenue mix and changes: Property rental and other revenue was $5.640 million versus $768,000, primarily reflecting multifamily acquisitions. Loan interest and fees were $1.879 million versus $2.252 million, despite a higher average portfolio rate, as average earning loan balances declined. A $422,000 recovery of a previously provided allowance contributed to revenue.
- Costs and segment performance: Interest expense was $2.946 million versus $467,000, reflecting property and Newark financing, and the increase in junior subordinated note rates. Multifamily incurred $878,000 in acquisition costs and $1.104 million in depreciation and amortization. Loan and investment operations contributed $493,000 of income attributable to common shareholders; multifamily and other real estate recorded losses of $1.238 million and $559,000, respectively.
- Cash flow: Operating activities provided $295,000, compared with $367,000. Investing activities used $93.392 million, including $57.400 million of property additions and $42.818 million of new loan originations, partly offset by loan collections and restricted-cash movements. Financing provided $47.465 million, including a $46.010 million increase in mortgage debt. Cash and cash equivalents declined $45.632 million to $32.613 million.
Financial position and material changes
- Total assets were $432.343 million at December 31, 2012, up from $385.956 million at September 30, 2012. Real estate properties increased to $255.422 million; net real estate loans rose to $70.201 million.
- Cash and cash equivalents were $32.613 million, and restricted construction cash was $49.597 million. Available-for-sale securities were $1.226 million.
- Total debt obligations were $252.210 million, including $214.810 million of mortgages and $37.400 million of junior subordinated notes. Mortgages increased from $169.284 million, principally alongside multifamily acquisitions. No balance was outstanding on the revolving credit facility.
- Total equity was $147.514 million. BRT did not declare a dividend during the quarter. Management cited approximately $56 million of net operating loss carryforwards and said a dividend was highly unlikely in 2013 and for several years thereafter.
- BRT acquired three multifamily properties totaling 884 units for $57.4 million, financed with approximately $45.0 million in acquisition mortgages. It originated $42.8 million of mortgage loans. At quarter-end, the $70.2 million net loan portfolio was reported as performing; three loans each represented about 20% of gross loans.
Outlook, risks, and unusual items
- Management estimated approximately $12.2 million of fiscal 2013 interest expense attributable to eight multifamily properties, Newark Joint Venture 2012 financings, and junior subordinated notes.
- Management believed available funds were sufficient for 2013 operating expenses and anticipated capital contributions, while noting that lending and acquisitions depend on available cash, loan participations, credit-facility capacity, and mortgage financing.
- Teachers Village requires construction funding and adequate occupancy. BRT reported $49.6 million of restricted construction holdbacks, subject to release conditions. The Newark Joint Venture estimated it would need at least $7 million in additional retail and residential rent to cover 2014–2015 debt service and operating expenses, beyond rents under existing leases. Leasing and rental sufficiency are not assured.
- The Newark Joint Venture was seeking up to $30 million for a third Teachers Village phase; there is no assurance it can secure acceptable financing or that the project will be profitable. Management expected the venture to remain unprofitable until construction and reasonable occupancy are achieved.
- About 86% of outstanding mortgage loan principal was variable-rate. Management estimated a 1 percentage point rate increase would raise annual pretax income by approximately $430,000; a 1 percentage point decrease would have no annual effect because of minimum loan rates. Geographic concentration, development execution, occupancy, financing availability, and loan exposure are material risks.
- New Markets Tax Credit proceeds of $25.848 million remained deferred income and are subject to seven-year compliance and potential tax-credit recapture. The filing also discloses debt covenants, mortgage maturities, and derivative default provisions.
Important facts for investors to verify
- Confirm the intended issuer and period: the filing is for BRT Realty Trust and the quarter ended December 31, 2012, not a filing labeled BRT Apartments Corp. or a quarter ended in calendar Q1 2013.
- Review the drivers and sustainability of the multifamily and Newark losses, acquisition costs, and projected interest expense.
- Assess Teachers Village construction funding, required leasing, third-phase financing, and potential NMTC recapture exposure.
- Verify liquidity, covenant headroom, debt maturities, and the filing’s statement that January 31 liquidity was approximately $31 million; the text labels the date “January 31, 2012,” which appears inconsistent with the reporting timeline.
- Review loan concentration and confirm the reported performing status, particularly for the three loans that each exceeded 10% of total loans.