BRT Apartments Corp. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; comparisons are with Q1 2021 unless noted. BRT is a REIT focused on owning, operating and, to a lesser extent, developing multifamily properties, primarily in the Southeast and Texas. At quarter-end it wholly owned 11 properties with 2,864 units and held interests in 21 unconsolidated properties with 6,121 units, plus an interest in a planned development.
Financial performance
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Total revenue | $11.4 million | $7.1 million |
| Operating expenses | $14.0 million | $9.4 million |
| Income (loss) attributable to common stockholders | $11.5 million; $0.62 per share | $(3.8) million; $(0.22) per share |
| Cash provided by operating activities | $0.5 million | $0.2 million |
| Net cash provided by investing activities | $13.0 million | $3.7 million |
| Net cash used in financing activities | $(16.1) million | $(4.6) million |
| FFO / AFFO attributable to common stockholders (non-GAAP) | $6.5 million / $7.2 million; $0.35 / $0.39 per diluted share | $6.0 million / $5.1 million; $0.35 / $0.30 per diluted share |
Revenue rose 61.1%, primarily as partner buyouts brought properties into the consolidated results; same-store rental revenue also increased. Same-store NOI was $3.8 million, up $390,000, while total consolidated NOI was $6.7 million, compared with $4.0 million. GAAP earnings included BRT’s $13.0 million share of a joint-venture property sale gain; the quarter’s positive net income therefore does not represent recurring property operations alone. Revenue less expenses was a loss of $2.6 million, versus a $2.3 million loss.
At March 31, total assets were $483.0 million, total liabilities $268.8 million and equity $214.2 million. Cash and cash equivalents were $29.7 million, with $6.5 million of restricted cash unavailable for general corporate use. Consolidated debt, net of deferred costs, was $248.7 million, including $211.6 million of mortgages and $37.1 million of junior subordinated notes. Including unconsolidated joint ventures, mortgage debt was $747.3 million. Consolidated mortgages had a 3.73% weighted-average rate and 10.2-year weighted-average remaining term; joint-venture mortgages had a 4.07% rate and 7.6-year remaining term.
Material changes and transactions
- Rental and other property revenue increased $4.3 million. Partner buyouts added about $4.4 million of revenue, and same-store rental growth added $614,000; the 2021 sale of Kendall Manor partly offset the increase.
- Expenses increased 48.6%, including higher operating costs, interest, corporate expenses and depreciation, largely reflecting properties consolidated through partner buyouts. G&A also rose with non-cash stock compensation.
- An unconsolidated joint venture sold Verandas at Shavano for $53.8 million, generating a $23.7 million venture gain and BRT’s $13.0 million share. BRT also sold Daytona vacant land for $4.7 million at a nominal gain and paid off $14.6 million of mortgage debt.
- BRT acquired the remaining 28.1% interest in Verandas at Alamo for $8.7 million, bringing the 288-unit property and its $27 million mortgage onto the consolidated statements from March 23. It also invested in a 17.45% interest in a planned 240-unit development.
- After quarter-end, BRT bought the remaining interest in Vanguard Heights for $4.8 million and agreed to buy remaining partner interests in nine ventures for a total stated purchase price of $89.3 million. These transactions were expected to add debt and real estate assets upon completion, subject to customary conditions.
- Joint ventures contracted to sell Retreat at Cinco Ranch and The Vive for $68.5 million and $92.0 million, respectively; closings were anticipated in Q2 2022, subject to customary conditions. Management estimated BRT’s share of gains, after specified mortgage prepayment charges, at approximately $16.4 million and $21.5 million.
Liquidity, outlook and risks
BRT had no borrowings on its $35 million credit facility at March 31, with the full amount available, subject to borrowing-base requirements and other conditions. The facility matures in November 2024, bears a floating rate (3.75% at quarter-end) and was in material covenant compliance. BRT sold 136,279 shares through its at-the-market program for $3.0 million net and entered a new ATM agreement authorizing up to $40 million in aggregate sales.
Management estimated $104.5 million of mortgage amortization and interest and $25.7 million of balloon payments due from April 2022 through 2024, including amounts at unconsolidated ventures, and at least $47.0 million of dividends assuming a $0.23 quarterly rate and 18.6 million shares. It stated operating cash flow and available cash were insufficient to fund the $25.7 million of balloon payments; if refinancing is unavailable, equity issuance or property sales may be required, potentially on unfavorable terms. Joint-venture distributions are a material liquidity source, and BRT may also need to make significant contributions to those ventures.
Management expected a possible slight decline in operating results in Q2 2022 as property sales could precede certain partner buyouts; it expected the identified sales and buyouts, once completed, to have no material short-term effect on net income, FFO or AFFO. These are expectations, not guarantees. COVID-19 had no direct material adverse effect in the quarter, but management said it had been more conservative with rent increases, acquisitions and value-add programs. Risks include interest-rate movements, refinancing and capital availability, property-market conditions, geographic concentration, acquisitions and development execution, joint-venture dependencies, disasters, tenant demand, REIT qualification and the ability to maintain debt-covenant compliance. A 100-basis-point increase in the floating rate on the junior subordinated notes would increase annual interest expense by about $374,000.
The board declared a $0.23-per-share quarterly distribution, paid April 7, 2022. Management intends to maintain REIT status; the filing notes a $35.7 million net operating loss at December 31, 2021. Disclosure controls were reported effective, and no material change in internal control over financial reporting was reported.
Important facts for investors to verify
- Whether the contracted joint-venture property sales and nine partner buyouts closed on schedule, and the resulting realized proceeds, gains, debt and operating contribution.
- Liquidity available to meet 2022–2024 balloon maturities and planned acquisitions, including refinancing terms, any new borrowing, ATM issuance or asset dispositions.
- Recurring property performance apart from the Shavano sale gain and other transaction-related changes; reconcile GAAP earnings with FFO, AFFO and same-store NOI.
- Joint-venture distributions, debt service and capital needs, given their importance to liquidity and the substantial mortgage debt not on BRT’s consolidated balance sheet.
- Effects of floating-rate exposure, rising property expenses and market conditions on debt costs, dividends and the ability to execute the acquisition and development plans.