Business Context and Reporting Period
This Form 8-K, filed on January 11, 2013, by BRT Realty Trust (BRT), reports the acquisition of the Spring Valley Club Apartments, a 160-unit multi-family residential property in Panama City, Florida. The acquisition was executed by a consolidated joint venture in which BRT holds an 80% equity interest. The filing includes audited financial statements for the acquired property for the year ended December 31, 2011, and unaudited pro forma consolidated financial statements for BRT as of December 31, 2012, and for the periods ended September 30, 2012, and December 31, 2012.
Key Financial Metrics
Acquisition Details (Spring Valley Club Apartments)
- Purchase Price: $7.2 million
- Financing: $5.6 million in mortgage debt
- Property Revenue (Year Ended Dec 31, 2011): $1.34 million
- Property Revenue (Nine Months Ended Sept 30, 2012): $921,000
- Property Net Operating Income (Year Ended Dec 31, 2011): $652,000
- Property Net Operating Income (Nine Months Ended Sept 30, 2012): $388,000
Pro Forma Consolidated Financials (BRT Realty Trust)
Amounts in thousands, except per share data.
| Metric | Historical (Year Ended Sept 30, 2012) | Pro Forma Adjusted (Year Ended Sept 30, 2012) | Historical (Three Months Ended Dec 31, 2012) | Pro Forma Adjusted (Three Months Ended Dec 31, 2012) |
|---|---|---|---|---|
| Total Revenues | $19,579 | $26,815 | $8,251 | $9,344 |
| Total Expenses | $23,447 | $30,133 | $10,494 | $11,614 |
| Net Income Attributable to Common Shareholders | $4,430 | $4,839 | $(1,304) | $(1,330) |
| Basic/Diluted EPS | $0.32 | $0.35 | $(0.09) | $(0.09) |
| Total Assets (as of Dec 31, 2012) | $432,343 | $438,563 | - | - |
| Total Liabilities (as of Dec 31, 2012) | $284,829 | $290,539 | - | - |
| Mortgages Payable (as of Dec 31, 2012) | $214,810 | $220,398 | - | - |
Material Changes and Context
The pro forma statements reflect the impact of three recent acquisitions made through joint ventures where BRT holds an 80% interest:
- Grove at Trinity Pointe (Cordova, TN): Acquired November 15, 2012. 464 units. Net purchase price $25.5 million ($19.25 million debt).
- Avondale Station Apartments (Decatur, GA): Acquired November 19, 2012. 212 units. Net purchase price $10.45 million ($8.0 million debt).
- Spring Valley Club Apartments (Panama City, FL): Acquired January 11, 2013. 160 units. Net purchase price $7.2 million ($5.6 million debt).
The pro forma adjustments increase total revenues and expenses to reflect the inclusion of these properties as if they had been acquired at the beginning of the respective reporting periods. The acquisition of Spring Valley Club Apartments specifically added $1.329 million to pro forma revenues for the year ended September 30, 2012, and $332,000 for the three months ended December 31, 2012.
Guidance, Risks, and Unusual Items
Management Commentary: The filing states that the pro forma financial statements are for informational purposes only and do not purport to represent actual future results. They are based on assumptions and estimates considered appropriate by management.
Unusual Items: The historical financial statements for the year ended September 30, 2012, included significant non-recurring gains that contributed to net income, including a $3.192 million gain on the sale of a loan and a $792,000 gain on the sale of real estate assets (discontinued operations). These items are not expected to recur in the same manner.
Risks and Contingencies: The filing notes that the pro forma statements exclude certain expenses not directly related to future operations in the property-level statements (e.g., interest, depreciation). The Trust's operations involve joint ventures with non-controlling interests, which impacts the attribution of net income.
Investor Verification Checklist
- Verify the occupancy rates and rental income trends for the newly acquired Spring Valley Club Apartments, as revenue declined from $1.34 million (2011) to $921,000 (9 months 2012).
- Confirm the interest rates and terms of the $5.6 million mortgage on Spring Valley Club Apartments (stated as 4.06% in pro forma notes).
- Assess the impact of the $3.192 million gain on loan sale and $792,000 gain on asset sale in the historical 2012 results on the company's core operating profitability.
- Review the leverage ratio implications of the combined $32.85 million in new mortgage debt from the three recent acquisitions.
- Examine the "non-controlling interests" line item to understand the portion of earnings attributable to joint venture partners versus BRT shareholders.