BRT Apartments Corp. — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended September 30, 2022. BRT is a REIT focused on owning and operating multifamily properties, primarily in the Southeast and Texas. At quarter-end it wholly owned 21 properties with 5,420 units and held interests in eight joint-venture properties with 2,781 units, plus a development investment.
Financial and operating results
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $21.7 million | $7.7 million | $47.8 million | $21.8 million |
| Net income attributable to common stockholders | $7.1 million | $28.1 million | $54.2 million | $30.4 million |
| Diluted EPS | $0.37 | $1.54 | $2.89 | $1.70 |
| Adjusted FFO | $7.2 million; $0.38/share | $5.7 million; $0.31/share | $21.4 million; $1.14/share | $16.3 million; $0.92/share |
| Same-store NOI | $4.1 million | $3.5 million | $11.8 million | $10.4 million |
Revenue growth primarily reflected the consolidation of properties following 11 joint-venture partner buyouts completed in 2022. Same-store NOI rose about 18% in Q3 and 14% year to date, reflecting higher rental rates, partly offset by higher property expenses. Q3 net income was substantially below the prior-year quarter, which included a larger share of gains from joint-venture property sales. Year-to-date net income included $64.5 million of BRT’s equity earnings from joint-venture property sales, compared with $35.0 million in 2021; it is therefore not a direct measure of recurring operating performance. Before joint-venture earnings and sale gains, consolidated revenue less expenses was a loss of $4.4 million in Q3 and $10.1 million year to date.
Year-to-date operating cash flow was $8.5 million, versus cash used of $0.2 million in 2021. Investing activities used $19.0 million, while financing activities used $5.6 million. Cash, cash equivalents and restricted cash declined $16.2 million from year-end 2021 to $22.7 million at September 30.
Debt, liquidity and capital
- At September 30, total debt obligations, net of deferred financing costs, were $462.7 million. Consolidated mortgage principal was $423.4 million; mortgage debt at unconsolidated ventures added approximately $247.6 million and is not on BRT’s consolidated balance sheet.
- Consolidated mortgages had a 3.99% weighted-average rate and 7.8-year weighted-average remaining maturity. The $37.4 million junior subordinated notes have a floating rate; it was 4.78% at quarter-end and 6.41% on November 4.
- The amended credit facility has a $60 million limit and matures in September 2025. BRT had $7 million drawn at September 30, at 6.25%; on November 4, $19 million was drawn at 7.00%, leaving $41 million available. Management reported compliance with facility requirements at quarter-end.
- Available liquidity on November 4 was $55.9 million, including $14.9 million cash and $41 million available under the facility. A $14.9 million mortgage maturity was paid October 31 using a $15 million facility draw.
- BRT sold shares through its at-the-market program and raised approximately $10.1 million gross year to date. The quarterly dividend was $0.25 per share; management estimated at least $42.1 million of dividend payments from October 2022 through 2024, assuming the rate and share count remained as stated.
Material changes, outlook and risks
- The 11 2022 partner buyouts increased consolidated property assets, debt, revenue and expenses. Purchase prices totaled $105.9 million, excluding closing costs; the acquired properties carried associated mortgage debt.
- Four joint-venture property sales in 2022 generated significant equity earnings. Management said it expected to be especially cautious about acquisitions in the near term amid economic uncertainty; it provided no specific earnings or operating guidance.
- Management highlighted inflation, rising interest rates, capital availability and refinancing, property operating costs, and exposure to the Southeast and Texas as risks. Floating-rate notes and the prime-rate facility expose results to further rate increases. A 100-basis-point rate change was estimated to affect annual interest expense by approximately $444,000 at quarter-end debt levels.
- Joint-venture distributions are an important liquidity source, and BRT may need to make capital contributions. The ventures had $247.6 million of mortgage debt at quarter-end; although BRT is not the borrower, foreclosure or similar loss of a property could materially harm BRT.
- Contingencies include a wrongful-death lawsuit seeking unspecified compensatory damages exceeding $1 million and exemplary damages; management could not estimate potential loss. Separately, after quarter-end, parties in another personal-injury case agreed, subject to a definitive agreement, to a settlement funded by BRT’s insurer for $850,000.
- Management was evaluating a possible UPREIT structure, without a timetable or assurance it would be implemented. Disclosure controls were reported effective, with no material quarterly change in internal control over financial reporting.
Investor verification priorities
- Separate recurring property operations and same-store trends from sale gains and partner-buyout effects; review FFO/AFFO reconciliations and share dilution.
- Track floating-rate borrowing costs, credit-facility draws and covenants, mortgage maturities, and the funding plan for dividends and other obligations.
- Assess joint-venture distributions, underlying debt, capital needs and BRT’s exposure despite the debt being off balance sheet.
- Monitor rent growth against property expense inflation, and check occupancy and leasing trends; the filing text does not provide a clear portfolio-wide occupancy value.
- Follow the legal settlement documentation and the outcome of the wrongful-death claim, including any uninsured exemplary-damages exposure.