BRT Realty Trust — FY2013 Form 10-K
Reporting period: Fiscal year ended September 30, 2013. The filing identifies the registrant as BRT Realty Trust. Its principal activities are multifamily property ownership and operation, real estate lending, and other real estate, including Newark development.
Business context and portfolio
- Multifamily operations expanded rapidly: BRT owned 14 properties with 3,785 units at fiscal year-end, versus five properties with 1,451 units a year earlier. It acquired nine properties during FY2013; by November 29, 2013, it reported 20 properties and 5,620 units across seven states.
- At September 30, 2013, the loan portfolio comprised 10 interest-earning loans totaling $30.5 million, down from $37.1 million and eight loans in 2012. The weighted-average contractual rate was 10.9%, average remaining term 5.29 months, and reported loan-to-value ratio approximately 55%.
- Newark Joint Venture assets include the Teachers Village development and other downtown Newark properties. BRT consolidates the venture despite holding a 50.1% interest.
Financial performance and position
| Metric | FY2013 | FY2012 |
|---|---|---|
| Total revenue | $42.8 million | $19.6 million |
| Total expenses | $47.7 million | $23.4 million |
| Revenue less expenses | $(4.9) million | $(3.9) million |
| Net income attributable to common shareholders | $5.0 million; $0.35 per share | $4.4 million; $0.32 per share |
| FFO / AFFO | $5.9 million / $5.7 million; $0.42 / $0.40 per share | $6.0 million / $5.9 million; $0.42 / $0.42 per share |
| Net cash from operating activities | $0.8 million | $(7.5) million |
Revenue rose 118.7%, principally because of multifamily acquisitions and a full-year contribution from properties acquired in 2012. The increase in common-shareholder income was supported by a $5.5 million gain on sale of a partnership interest and earnings from lending; multifamily activities recorded a $9.0 million attributable loss. The filing reports $2.1 million consolidated net income before adding back the net loss attributable to non-controlling interests.
- Rental and other real estate revenue was $30.6 million, versus $8.7 million; interest and loan fees were $9.9 million, versus $9.5 million.
- Interest expense increased to $12.5 million from $4.7 million, and property operating expenses increased to $16.4 million from $6.0 million, reflecting portfolio growth and financing.
- Investing cash outflow was $176.4 million, primarily reflecting property investment; financing cash inflow was $157.7 million. Cash and cash equivalents were $60.3 million at year-end, plus $29.3 million of restricted construction cash. At November 29, 2013, unrestricted cash was approximately $31 million.
- Total assets were $549.5 million, up from $386.0 million. Mortgages payable were $313.2 million and junior subordinated notes were $37.4 million, for reported balance-sheet debt of $350.6 million. Total liabilities were $384.2 million and total equity was $165.3 million. The $25.8 million of deferred income associated with New Markets Tax Credit financing is not debt in this presentation.
Changes, outlook, and material risks
- Management expects 2014 rental revenue of approximately $53 million from the 20 multifamily properties, assuming stable rents and occupancy and excluding further acquisitions. It estimates 2014 multifamily operating expenses of $27.4 million and multifamily depreciation and amortization of $11.2 million.
- Management estimates 2014 interest expense of approximately $18.1 million across multifamily properties, Newark Joint Venture financing, and junior subordinated notes. These are estimates, not guaranteed results.
- Loan originations fell 29%, to $70.3 million from $98.6 million, due to competition, reduced demand, and increased focus on multifamily acquisitions. Management expects the lending business to contribute less relative to multifamily operations.
- Teachers Village’s first two buildings were completed in summer 2013; three more buildings, planned to include 123 apartments and retail space, were under construction and expected to be completed between March and October 2014. The venture was seeking up to $33 million for a further development phase. Management warns that the venture may remain unprofitable for years and that lease-up, financing, construction completion, and debt service remain uncertain.
- Newark Joint Venture debt service due through 2016 may exceed property cash generation. The venture’s guarantees include up to $31 million of principal and a New Markets Tax Credit indemnity estimated at up to $40 million, excluding interest and penalties, if credits are disallowed.
- At September 30, BRT had $37.4 million of junior subordinated notes, bearing 4.9% through April 2016 and then LIBOR plus 2.0% through 2036. The $25 million revolving facility had no balance outstanding, but the disclosed unsecured availability was limited to $10 million for up to 90 days and the facility matured in June 2014.
- Dividends were not paid in FY2013 or FY2012; management did not expect a dividend in 2014, citing a $58.3 million tax-loss carryforward at December 31, 2012. Other risks include real estate concentration, refinancing and liquidity needs, development and occupancy shortfalls, joint-venture dependence, related-party arrangements, and potential uninsured losses. BRT reported no impairment charges in FY2013.
Important facts for investors to verify
- Whether multifamily occupancy, rent levels, operating costs, and post-year-end acquisitions support management’s 2014 revenue and expense estimates.
- Teachers Village construction progress, retail and residential lease-up, remaining funding, required member contributions, and compliance with tax-credit and school-use conditions.
- Newark Joint Venture debt-service capacity, upcoming maturities, and the scope and likelihood of guarantee or tax-credit indemnity exposure.
- Cash available for investment after restricted construction funds, credit-facility limitations, and the company’s ability to fund planned acquisitions and loan originations.
- The durability of reported common-shareholder income and FFO/AFFO given the one-time partnership-sale gain, multifamily losses, higher interest costs, and continued absence of dividends.