BRT Realty Trust — Form 10-Q Summary
Filing identity and period: The supplied filing names BRT Realty Trust, not BRT Apartments Corp. It covers the quarter and six months ended March 31, 2012; this is the company’s fiscal second quarter, not a quarter ended June 30. Unless noted, amounts below are in millions of dollars.
Business context
BRT primarily originates and holds short-term senior mortgage loans secured by commercial and multifamily properties. During the quarter, it expanded into owning multifamily properties through joint ventures. It also owns or invests in other real estate ventures, including the Newark Teachers Village redevelopment.
Financial performance and position
- Quarter revenue: $3.69 million, down 35% from $5.70 million. The prior-year quarter included $2.57 million of recoveries of previously provided loan allowances; current-quarter recoveries were negligible.
- Quarter result: Net loss attributable to common shareholders was $1.03 million, or $0.07 per share, compared with income of $1.85 million, or $0.13 per share, a year earlier. Property acquisition costs of $1.79 million contributed to the current-quarter loss.
- Six-month revenue and earnings: Revenue was $6.84 million, down 16% from $8.15 million. Net income attributable to common shareholders was $2.85 million ($0.20 per share), versus $1.34 million ($0.10 per share). The current period included a $3.19 million gain on sale of a loan.
- Cash flow: Operating activities used $6.48 million in the six months, compared with $1.73 million provided in the prior-year period. Investing activities used $99.46 million and financing activities provided $99.01 million. Cash and cash equivalents ended at $37.09 million, down from $44.03 million at September 30, 2011.
- Balance sheet: Total assets were $299.34 million, versus $191.01 million at fiscal year-end. Debt obligations totaled $137.71 million: $100.31 million of mortgages and $37.40 million of junior subordinated notes. Equity was $144.25 million.
- Liquidity: March 31 available liquidity was reported as $39.6 million, excluding $33.1 million of restricted construction cash; this included $37.1 million of cash and cash equivalents. At May 4, available liquidity was $47.8 million, including $39.2 million of cash and up to $6.5 million available under the credit facility.
- Portfolio and operating data: Net real estate loans were $72.2 million, and management said all loans were performing, with no loan-loss allowance. Approximately 94% of loan principal was floating-rate. Two consolidated ventures acquired 750 multifamily units for $68.7 million, with $52.9 million of mortgage debt; BRT also invested $4.8 million in two unconsolidated ventures that acquired 377 units.
- Margins: The filing does not provide a single company-wide operating margin; the business combines lending and real estate operations.
Material changes versus the prior period
- Quarterly results shifted from common-shareholder income to a loss, chiefly reflecting the absence of the prior-year loan allowance recoveries and the new $1.79 million property acquisition expense.
- Interest and loan-fee revenue increased over the six-month period, supported by a higher average earning-loan balance and loan-fee amortization, but the weighted-average rate on performing loans declined amid competitive pricing.
- Mortgage debt rose substantially as BRT funded new multifamily acquisitions and Newark redevelopment financing. Real estate properties increased to $132.0 million from $59.3 million.
- Loan originations were $66.1 million in the first six months, compared with $88.9 million a year earlier.
Outlook, risks and unusual items
- Management expects rent revenue, real estate operating expenses and operating cash flows to increase as the multifamily properties contribute for full periods. It also estimated quarterly depreciation and amortization would rise by about $417,000 from the acquired properties.
- Management anticipated higher interest expense: the March acquisitions’ mortgage debt was not included for a full quarter, and the junior subordinated notes’ rate was scheduled to increase from 3% to 4.9% in August 2012.
- Management believed it had sufficient capital for fiscal 2012 operations and lending, but said further property acquisitions could be constrained by liquidity. It expected $6.6 million of Newark venture debt maturing in June 2012 to be extended or refinanced; there was no assurance this would occur.
- Teachers Village Phase 1 financing included $31.8 million of mortgage financing and approximately $16.2 million of New Markets Tax Credit proceeds. About $33.1 million was restricted for construction. Later phases contemplated raising another $85 million in 2012; financing and project profitability were not assured.
- Teachers Village debt service and operating costs after the interest reserve is expected to be used depend partly on leasing retail space. Management said at least $420,000 in additional retail rent was needed to cover estimated debt service and operating costs beyond charter-school and daycare leases. A shortfall could adversely affect the venture.
- New Markets Tax Credit noncompliance could trigger recapture and an indemnity obligation of up to $23.4 million, excluding interest and penalties. BRT also disclosed a $1.65 million guarantee of Newark venture mortgage debt and other project-related guarantees.
- BRT had no outstanding balance on its revolving credit facility at March 31. The facility is subject to financial and collateral covenants; an April 17 amendment permitted limited unsecured borrowing for up to 90 days.
- Management said net operating loss carryforwards made a dividend in 2012, and for several years thereafter, highly unlikely. No dividend was declared for the quarter.
- Key risks include joint-venture partner and execution risks, BRT’s limited experience owning multifamily properties, concentration of multifamily assets in Florida and Georgia, tenant turnover and rental competition, and potential changes to federal support for multifamily housing. Management reported no material changes to previously disclosed risks other than those described in the filing.
- Management stated disclosure controls were effective as of March 31, 2012 and reported no material change in internal control over financial reporting during the quarter.
Most important facts for investors to verify
- Confirm the registrant and reporting period: the source is a BRT Realty Trust filing for the quarter ended March 31, 2012, notwithstanding the request metadata.
- Track the June 2012 Newark venture debt maturity, refinancing or extension, and the recourse portion of near-term obligations.
- Monitor Teachers Village construction, retail leasing, later-phase financing, and compliance with New Markets Tax Credit requirements.
- Assess whether multifamily property cash flows cover debt service and operating costs, particularly given the company’s limited ownership and management history and geographic concentration.
- Reconcile reported liquidity with restricted construction funds, credit-facility availability, and contractual obligations; monitor the anticipated increase in interest expense.