BRT Realty Trust — Form 10-Q Summary
Reporting period: Fiscal third quarter and nine months ended June 30, 2013; interim financial statements are unaudited. The filing identifies the registrant as BRT Realty Trust.
Business context
BRT operated in three segments: real estate lending, multifamily property ownership and operations, and other real estate assets, principally the Newark Joint Venture and Teachers Village development. During the first nine months of fiscal 2013, BRT acquired eight multifamily properties totaling 1,884 units for approximately $136 million, including approximately $105 million of mortgage debt.
Financial performance and position
| Metric | Three months ended June 30, 2013 | Nine months ended June 30, 2013 |
|---|---|---|
| Total revenue | $12.0 million, up 117% year over year | $30.4 million, up 145% |
| Total expenses | $12.8 million, up 89% | $33.3 million, up 106% |
| Revenue less expenses | Loss of $0.7 million | Loss of $2.8 million |
| Net income (loss) attributable to common shareholders | $0.5 million; $0.04 per share | $0.2 million; $0.02 per share |
| Operating cash flow | Not presented for the quarter | $1.6 million, versus cash used of $6.5 million in 2012 |
Revenue growth mainly reflected rental income from acquired multifamily properties and consolidation of joint ventures. The nine-month result also included a $1.0 million recovery of previously charged-off loan allowances and a $0.5 million gain on securities sales. In the prior-year nine-month period, a $3.2 million loan-sale gain contributed to earnings. Net income attributable to common shareholders differs from consolidated net income because of non-controlling interests.
At June 30, 2013, total assets were $501.8 million, including $349.0 million of real estate properties and $66.8 million of net real estate loans. Cash and equivalents were $24.4 million; available-for-sale securities were $0.3 million; restricted construction cash was $36.4 million. Total debt was $314.8 million, comprising $277.4 million of mortgages and $37.4 million of junior subordinated notes. Equity was $154.1 million. Cash declined $53.8 million over the nine-month period; investing activities used $170.5 million, largely for property acquisitions and loan funding, partly offset by $115.1 million of financing cash flow.
Management reported liquidity of approximately $34.4 million at June 30, excluding restricted construction cash, and approximately $41.4 million at July 31. This liquidity measure includes borrowing availability; the credit facility had no balance outstanding and provided up to $10 million unsecured for up to 90 days. BRT reported no allowance for loan losses and stated all loans were performing and considered fully collectible.
Changes, outlook, and risks
- Multifamily expansion materially increased rental revenue, property operating costs, depreciation, and interest expense. Nine-month interest expense rose to $8.7 million from $2.8 million.
- Teachers Village completed two buildings and principal tenants took possession. Management expected first- and second-phase construction costs to be funded by restricted construction holdbacks, released subject to conditions. It estimated the project would need at least $7 million in additional retail and residential rent to cover 2014–2015 debt service and operating expenses, beyond specified existing lease revenue.
- The Newark Joint Venture was seeking up to $30 million from public and private sources for a third development phase. Management cautioned that financing, leasing, profitability, and sufficient project funding were not assured; it expected the venture to remain unprofitable at least until construction and reasonable occupancy levels were achieved.
- Management believed available resources would cover operating expenses through 2014 and anticipated multifamily property debt service and operating costs would be met from property rents. These are forward-looking assessments, not guarantees.
- On July 31, 2013, BRT completed the sale of substantially all its interest in a joint venture holding a midtown Manhattan leasehold; it estimated a $5.4 million gain for the fourth quarter of fiscal 2013.
- BRT declared no shareholder dividend for the quarter and said approximately $56 million of net operating loss carryforwards made dividends unlikely in 2013 and for several years thereafter. Interest-rate exposure remained relevant: approximately 93% of originated mortgage loans were variable-rate, while nearly all mortgage debt was fixed-rate. A 100-basis-point increase was estimated to raise annual loan income by about $428,000 and increase annual variable-debt expense by about $199,000.
Most important facts to verify
- Whether Teachers Village can secure the financing, lease retail and residential space, and generate the rent needed for projected debt service and operating costs.
- The availability and conditions attached to construction holdbacks, credit-facility borrowing, and funding for the proposed third phase.
- Multifamily property operating performance, debt service, and the effect of acquisition-related interest and expenses on earnings and cash flow.
- Loan portfolio concentration and collectability, particularly given geographic concentration and several large loans; management reported all loans performing.
- The final gain and proceeds from the July 31 joint-venture sale and the timing and likelihood of any future dividends.