BRT Realty Trust — Form 10-Q Summary
Reporting period: Three months ended December 31, 2014, the first quarter of fiscal 2015. The supplied filing identifies the registrant as BRT Realty Trust, although the request metadata names BRT Apartments Corp.
Business context and financial position
BRT is a REIT focused on multifamily properties and other commercial and mixed-use real estate, including the Newark Joint Venture’s Teachers Village development. At quarter-end, it reported 28 multifamily properties with 8,245 units, including units under construction.
- Total assets were $750.3 million; total liabilities were $591.7 million; total equity was $158.6 million.
- Debt obligations totaled $539.5 million: $502.1 million of mortgages and $37.4 million of junior subordinated notes. Debt increased from $519.8 million at September 30, 2014.
- Cash and cash equivalents were $11.0 million. Management reported available liquidity of approximately $11.0 million at December 31, excluding $25.2 million of restricted cash, and $5.1 million at January 31, 2015.
Results and cash flow
| Metric | Three months ended Dec. 31, 2014 | Prior-year period |
|---|---|---|
| Total revenue | $19.8 million | $14.1 million |
| Expenses | $23.3 million | $18.7 million |
| Loss from continuing operations | $3.5 million | $4.6 million |
| Net loss attributable to common shareholders | $2.5 million; $0.18 per share | $2.7 million; $0.19 per share |
| Net cash provided by (used in) operating activities | $7.7 million | $(0.9) million |
| Cash and cash equivalents, end of period | $11.0 million | $52.3 million |
Revenue rose 40.5%, primarily reflecting multifamily acquisitions and a full quarter of revenue from properties acquired in the prior-year quarter. Expenses rose 24.8%, including higher property operating costs, interest and depreciation. BRT reported FFO of $0.6 million and AFFO of $1.2 million, versus FFO of $(0.4) million and AFFO of approximately break-even in the prior-year period. These non-GAAP measures are not substitutes for GAAP earnings or cash flow. The filing does not provide a clear consolidated operating-margin measure.
Investing activities used $23.4 million, chiefly for property additions, capitalized costs and purchases of noncontrolling interests. Financing activities provided $3.6 million. Cash declined by $12.2 million during the quarter.
Material changes and notable transactions
- BRT acquired a 276-unit Pensacola, Florida property for approximately $28.0 million, financed in part with $17.2 million of mortgage debt.
- It increased ownership in two multifamily joint ventures, paying approximately $2.0 million and $1.9 million, respectively.
- It repurchased 345,081 shares for approximately $2.4 million at $7.02 per share. The board expanded the repurchase authorization to $4.0 million and extended it through September 30, 2017.
- The Lawrenceville, Georgia property was classified as held for sale and sold on February 5, 2015, for $9.7 million. Management estimated a roughly $2.5 million gain before a $1.1 million minority interest.
- No dividend was declared for the quarter. Management said it was highly unlikely that BRT would pay, or need to pay to maintain REIT status, a dividend in calendar 2015 and for several years thereafter, citing net operating loss carryforwards.
Outlook, risks and contingencies
Management said available funds were expected to cover 2015 operating expenses and anticipated capital contributions for general property and joint venture needs, but limited liquidity had significantly reduced BRT’s ability to acquire additional multifamily properties. It expected multifamily property rent to fund debt service and operating costs; most related mortgages were described as non-recourse, subject to customary carve-outs.
Teachers Village was not yet fully developed or occupied, and the Newark Joint Venture was expected to remain unprofitable until construction and occupancy progressed. BRT estimated approximately $37.3 million was needed to complete Phases II and III, to be funded by restricted construction cash and committed but unfunded loans and tax credits subject to conditions. Management said there was no assurance these funds would be sufficient or that leasing and rents would meet projections. The venture estimated it needed at least $5.2 million in additional tenant rental payments through 2016 to cover projected debt service and operating expenses; BRT could make further capital contributions to cover any shortfall.
Most mortgage debt was fixed rate, but four mortgages were identified as variable rate, with one subject to a swap and two to caps. A 100-basis-point increase in rates on the remaining variable-rate mortgage was estimated to reduce annual income by $185,000. The Newark New Markets Tax Credit arrangements carry potential tax-credit recapture and indemnification obligations if program requirements are not met.
Important facts for investors to verify
- Confirm liquidity after quarter-end and the availability and conditions of the committed Newark construction financing and tax credits.
- Track Teachers Village construction, occupancy, leasing, rental collections and any required BRT capital support.
- Verify the Lawrenceville sale proceeds, recognized gain and use of proceeds.
- Review debt maturities, variable-rate exposure, covenant or default risks, and the status of the New Markets Tax Credit compliance period.
- Check the official filing for apparent text inconsistencies: the supplied document gives a 2016 signature date despite describing 2014–2015 events, and its controls-and-procedures discussion refers to 2013 dates. The reported share count should also be reconciled with the cover-page count.