BRT Realty Trust 2011 Form 10-K
Reporting period: Fiscal year ended September 30, 2011. The filing identifies the registrant as BRT Realty Trust, not BRT Apartments Corp.
Business context
BRT’s primary business is originating and holding short-term senior mortgage loans secured by commercial and multifamily properties. It also owns and operates real estate, principally through a 50.1%-owned consolidated joint venture with substantial Newark, New Jersey holdings. After focusing on workouts during the credit downturn, BRT shifted back toward loan origination in 2010 and 2011.
Financial and operating results
| Metric | FY2011 / Sept. 30, 2011 | FY2010 / Sept. 30, 2010 |
|---|---|---|
| Total revenue | $17.9 million | $8.1 million |
| Total expenses | $13.8 million | $19.8 million |
| Net income (loss) attributable to common shareholders | $6.4 million; $0.45 per share | $(8.0) million; $(0.58) per share |
| Cash provided by (used in) operating activities | $1.4 million | $(5.7) million |
| Cash and cash equivalents | $44.0 million | $58.5 million |
| Total assets | $191.0 million | $186.3 million |
| Total debt obligations | $51.8 million | $53.4 million |
| Shareholders’ equity | $129.1 million | $124.6 million |
- Loan originations were $131.3 million, compared with $17.4 million in 2010. Performing loans rose to $67.3 million from $17.3 million; non-performing loans fell to zero from $35.1 million.
- Revenue growth included higher loan interest and fees, plus a $3.6 million recovery of previously provided loan allowances. BRT also reported a $1.3 million gain on securities sales and $1.35 million of income from discontinued operations.
- The $2.1 million accounting loss on extinguishment of debt related to the junior subordinated note restructuring. There were no loan-loss provisions or impairment charges in 2011, versus $3.2 million and $2.6 million, respectively, in 2010.
- At year-end, the loan portfolio’s weighted-average contractual rate was 11.5%, and 82% of outstanding loan principal had floating rates. BRT reported approximately $60.3 million of total available liquidity at September 30, 2011, excluding the later participation arrangement; this included cash, marketable securities and available credit. At December 5, liquidity was reported at $84.3 million.
- Operating cash flow was positive, while investing activities used $13.7 million and financing activities used $2.2 million. Cash declined by $14.5 million during the year.
Changes, outlook, risks and unusual items
- Management attributed the improved results primarily to renewed lending activity, resolved problem loans, allowance recoveries, and the absence of the prior year’s loan-loss and impairment charges. Originations slowed from $88.8 million in the first half of 2011 to $42.5 million in the second half.
- In March 2011, BRT repaid $5 million of junior subordinated notes at par and reduced interest rates on remaining notes. It estimated interest-cost savings of about $588,000 in fiscal 2012 and $1.72 million in fiscal 2013. Notes outstanding at year-end were $37.4 million.
- A Capital One revolving facility provides borrowing capacity up to the lesser of $25 million and a collateral-based borrowing base; no amount was outstanding at September 30. The facility matures in June 2014 and has financial covenants, including minimum consolidated net worth of $100 million and liquidity of $7.5 million.
- The Newark Joint Venture held properties with a $48.1 million book value. Management expected the venture to operate at a loss in 2012 and for several years, potentially requiring further pro rata contributions. Teachers Village was estimated to cost about $150 million; the venture had only up to $8.6 million of committed, high-cost soft-cost financing and had drawn $4.0 million by year-end. The filing gives no assurance that construction financing, approvals, profitability, or repayment of BRT’s related loans will be achieved.
- Real estate exposure is concentrated: 71% of the loan portfolio was secured by New York metropolitan-area properties, and Newark Joint Venture properties represented 81.2% of real property assets. Newark properties were only 34% to 47% leased in the principal assemblages; many leases were short-term or cancellable.
- BRT paid no cash dividends in 2011 or 2010 and stated it did not expect a 2012 dividend, citing approximately $70.5 million of tax loss carryforwards. The filing cautions that originations, borrower defaults, collateral values, financing access, interest rates, development execution, tenant retention, and related-party arrangements could affect results.
- Subsequent events included the October 2011 sale of rights to a loan held for sale for net proceeds of about $23.5 million, followed by $15 million of financing that was repaid in December 2011; a November 2011 loan participation arrangement with 512 Lending; and an amendment to the related-party advisory agreement effective January 2012.
Important facts for investors to verify
- Whether the post-year-end loan sale proceeds and repayment of the $15 million financing were realized as described, and how much liquidity remained afterward.
- The status, financing, costs, approvals, capital-call needs, leasing and expected returns of Teachers Village and the broader Newark Joint Venture.
- The repayment or extension status of loans and mortgages due in 2012, including the Newark Teachers Village financing, and compliance with credit-facility covenants.
- The sustainability of 2011 earnings given the $3.6 million allowance recovery, securities gains, discontinued-operation income, and the second-half slowdown in originations.
- The effects of the amended advisory-fee structure and other related-party arrangements, along with potential dilution from equity awards and warrants.
- Management reported effective disclosure controls and internal control over financial reporting; the auditors issued unqualified opinions on the financial statements and internal controls.