BRT Apartments Corp. — Q3 2021 Form 10-Q
Business context and reporting period. This unaudited quarterly report covers the three and nine months ended September 30, 2021. BRT is a REIT focused on multifamily properties, concentrated in the southeastern U.S. and Texas. At quarter-end, it wholly owned eight properties with 2,010 units and held interests in 27 unconsolidated joint-venture properties with 7,444 units. The results include the August acquisition of the remaining interest in Bells Bluff, which became wholly owned.
Financial results and key metrics
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Total revenue | $7.7 million | $7.3 million | $21.8 million | $21.1 million |
| Net income (loss) attributable to common stockholders | $28.1 million | $(7.5) million | $30.4 million | $(16.6) million |
| Diluted earnings (loss) per share | $1.54 | $(0.44) | $1.70 | $(0.97) |
| Operating cash flow | — | $(0.2) million | $(1.7) million |
Earnings quality and operating performance. Q3 and nine-month GAAP earnings were driven mainly by property-sale gains, especially BRT’s share of gains on two JV property sales ($35.0 million in Q3 and nine months). Before equity-method results and sale gains, consolidated revenues less expenses were negative $2.1 million in Q3 and negative $7.4 million for nine months. Same-store NOI increased 6.3% to $3.46 million in Q3 and 8.6% to $10.39 million for nine months. AFFO was $5.7 million ($0.31 per diluted share) in Q3 and $16.3 million ($0.92 per diluted share) for nine months; Q3 NAREIT FFO was approximately breakeven at $7,000.
Balance sheet and liquidity. At September 30, cash and cash equivalents were $29.6 million; restricted cash was $7.6 million, for total cash and restricted cash of $37.2 million. Total assets were $398.0 million and total equity $206.3 million. Consolidated mortgages were $134.7 million and junior subordinated notes were $37.4 million; total debt obligations, net of financing costs, were $171.3 million. BRT reported $797.8 million of mortgage debt across consolidated and unconsolidated entities, including $663.1 million at JVs. The company had no outstanding balance on its $15 million credit facility and reported compliance with its covenants.
For the first nine months, investing activities provided $61.2 million, principally reflecting JV distributions and property-sale proceeds; financing activities used $52.5 million, including dividends and mortgage payoffs. The quarterly dividend increased to $0.23 per share. Management estimated at least $37.6 million of dividend payments through 2023 at the then-current rate and cited $88.2 million of mortgage balloon payments due through 2023. It stated operating cash flow and available cash would not fully cover those balloon payments.
Material changes and significant transactions
- Revenue rose 5.5% in Q3 and 3.4% for nine months year over year. Same-store rental growth and the Bells Bluff consolidation contributed; Kendall Manor’s sale partly offset the increase.
- Q3 expenses fell 25.3%, primarily because the prior-year quarter included a $3.6 million impairment. Nine-month expenses fell 10.6%; interest expense declined, while G&A increased in part due to equity compensation and professional fees.
- Two unconsolidated JVs sold properties in Q3; BRT recorded $35.0 million of equity in sale gains. BRT also sold Kendall Manor in May, recognizing a $7.3 million gain, and sold its Anatole JV interest, recognizing a $2.2 million gain.
- BRT bought the remaining 41.9% of Bells Bluff for $27.9 million and refinanced its construction loan with $52.0 million of 20-year fixed-rate debt at 3.48%, interest-only for 10 years. The quarter-end portfolio figures do not include the October purchase of the remaining Crestmont at Thornblade interest.
- BRT paid off certain consolidated mortgages and recorded a $0.9 million extinguishment loss. The filing gives differing payoff amounts in different passages: $31.9 million in the debt note and $37.9 million in MD&A.
Outlook, risks, and other notable disclosures
No formal company-wide earnings guidance was provided. Management estimated Bells Bluff would generate approximately $2.0 million of rental revenue in Q4 2021, with $805,000 of operating expenses, $460,000 of interest expense and $1.2 million of depreciation. The filing also disclosed the October Crestmont acquisition and the November sale of BRT’s OPOP interests; BRT anticipated an approximately $385,000 gain on the latter.
Management said COVID-19 had not materially adversely affected results for the reported periods, but warned that residents’ ability to pay rent, evictions, dividends and debt service could be affected. Other stated risks include refinancing or repaying upcoming maturities, access to capital, interest-rate changes, property and market concentration, JV reliance and partner risks, occupancy and rental-rate changes, natural disasters, and property impairment. Much of BRT’s liquidity depends on distributions from unconsolidated JVs, whose properties carry substantial mortgage debt not on BRT’s balance sheet. Consolidated mortgages were fixed-rate; the $37.4 million subordinated notes float at three-month LIBOR plus 200 basis points. Disclosure controls were assessed as effective; the filing refers readers to the prior quarter’s report for information about remediation of an internal-control weakness.
Important facts for investors to verify
- How much of reported earnings and per-share income reflects one-time property-sale gains, versus recurring property operations and AFFO.
- The timing, refinancing prospects and funding plan for the $88.2 million of stated balloon payments through 2023; the filing’s maturity disclosure also includes unclear parenthetical amounts attributed to JVs.
- JV distributions, property-level cash flows and debt obligations, given their importance to BRT’s liquidity and the scale of debt outside the consolidated balance sheet.
- The differing $31.9 million and $37.9 million disclosures for consolidated mortgage payoffs, and the filing’s maturity and balloon-payment presentation.
- Same-store occupancy, rent collection and operating-cost trends, including exposure to weather events and the company’s southeastern U.S. and Texas concentration.
- The status and details of the previously disclosed internal-control weakness and remediation, as well as related-party fees and equity-compensation dilution.