BRT Apartments Corp. — Q3 2020 Form 10-Q
Business and reporting period: BRT owns and operates multifamily properties as a REIT. This filing reports the three and nine months ended September 30, 2020, compared with the same 2019 periods. At quarter-end, it wholly owned eight properties with 1,880 units and held interests in 31 unconsolidated joint-venture properties with 9,162 units, including 741 in lease-up. Most properties are in the Southeast and Texas.
Financial performance and position
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Total revenue | $7.3 million | $6.4 million | $21.1 million | $20.8 million |
| Net income (loss) attributable to common stockholders | ($7.5 million) | $3.3 million | ($16.6 million) | ($5.3 million) |
| Basic earnings (loss) per share | ($0.44) | $0.21 | ($0.97) | ($0.33) |
| FFO per diluted share | $0.27 | $0.12 | $0.71 | $0.54 |
| AFFO per diluted share | $0.28 | $0.26 | $0.80 | $0.74 |
| Same-store NOI | $3.2 million | $3.3 million | $9.5 million | $9.5 million |
Margins and operating trends: Q3 total expenses were $13.2 million, up 56.5%, and exceeded revenue; the period included a $3.6 million land impairment. Same-store NOI fell $23,000 in Q3 as higher operating expenses more than offset revenue growth. Nine-month same-store NOI increased $69,000. BRT reported equity-method losses from unconsolidated ventures of $1.5 million in Q3 and $4.7 million for nine months.
Cash flow and liquidity: Operating cash flow was negative $1.7 million for the first nine months, versus positive $3.1 million in 2019. Cash, cash equivalents and restricted cash totaled $24.8 million at September 30; unrestricted cash was $15.7 million. Management reported available liquidity of $35.1 million at November 1, including $15.8 million cash, $9.3 million restricted cash and up to $10.0 million of credit-facility availability, subject to borrowing-base requirements.
Debt and equity: Consolidated debt, net of deferred costs, was $168.2 million at September 30, including $131.8 million of mortgages and $37.4 million of junior subordinated notes. The weighted-average mortgage rate was 4.15%; the subordinated notes reset at three-month LIBOR plus 2.00% (2.27% at quarter-end). The $10 million credit facility had no balance outstanding and matures April 2021. Joint ventures had $825.8 million of mortgage debt not recorded on BRT’s consolidated balance sheet. BRT issued shares through its at-the-market program for $12.1 million net during the first nine months and paid quarterly dividends of $0.22 per share.
Material changes and unusual items
- Q3 revenue rose 13.9%, primarily from a property made wholly owned after a partner buyout, same-store rent increases and default interest on a loan sold in September.
- Q3 net loss included a $3.6 million impairment on vacant land in South Daytona Beach. BRT agreed to sell the parcel for $4.7 million, subject to buyer due diligence, enhanced zoning and other conditions; closing was expected in mid-2021, with no assurance it would occur.
- The 2019 comparison included a $9.9 million gain on property sales and a $1.4 million debt-extinguishment loss, making year-over-year GAAP earnings comparisons less directly comparable.
- For nine months, general and administrative expense rose 21.4%, including $688,000 of professional fees related to the restatement and higher compensation and shared-service costs.
- BRT sold a $4.0 million real estate loan at book value plus $325,000 of interest and fees; proceeds were received October 1 and recorded in other assets at quarter-end.
Outlook, risks and controls
BRT provided no specific earnings guidance. Management said COVID-19 had not materially affected reported results through the period, but warned that tenant payment capacity, occupancy and rents could weaken; operating costs could rise; and leasing, rent increases, acquisitions, dispositions and value-add work could be hindered. Management cited related risks to liquidity, debt service and dividends.
Management estimated through 2022 $104.0 million of mortgage amortization and interest expense and $182.9 million of balloon payments, and anticipated at least $34.1 million of dividends assuming the existing quarterly rate and share count. It stated operating cash flow and available cash would not fully fund the balloon payments; refinancing, equity issuance or property sales may be needed. The filing’s parenthetical breakdown of the $182.9 million balloon total cites $88.2 million and $108.2 million of joint-venture amounts, which do not reconcile to that total.
A previously disclosed material weakness involved determining whether property ventures should be consolidated or accounted for under the equity method. Management implemented enhanced review and training procedures but said there had not been sufficient opportunity to test them; disclosure controls remained ineffective as of September 30. Management nevertheless concluded the presented financial statements fairly state the company’s financial position, results and cash flows in accordance with GAAP. The filing also references restatement of prior-period statements.
Key facts investors should verify
- Whether the South Daytona land sale closes, on what terms, and whether proceeds are realized as expected.
- Tenant collections, occupancy, rent concessions and operating costs as COVID-19 effects develop.
- Refinancing plans and available funding for the stated 2020–2022 maturities, including the inconsistency in the balloon-payment breakdown.
- Cash distributions from joint ventures, potential capital contributions, and the exposure represented by their $825.8 million of debt.
- Progress in remediating and testing the material weakness, and any further consequences of the prior-period restatement.
- The board’s continued ability and willingness to maintain the $0.22 quarterly dividend amid negative operating cash flow and substantial maturities.