BRT Apartments Corp. — Q2 2023 Form 10-Q
Business context and period: BRT is a REIT owning and operating multifamily properties, primarily in the Southeast and Texas. This unaudited filing covers the three and six months ended June 30, 2023, compared with the same periods in 2022. At quarter-end, BRT wholly owned 21 properties with 5,420 units and held interests in seven joint-venture properties with 2,287 units.
Key financial results
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Total revenue | $23.3 million | $14.7 million | $46.3 million | $26.1 million |
| Net income attributable to common stockholders | $11.2 million | $35.6 million | $7.1 million | $47.1 million |
| Diluted earnings per share | $0.58 | $1.91 | $0.37 | $2.53 |
| NAREIT FFO per diluted share | $0.28 | $0.20 | $0.55 | $0.55 |
| AFFO per diluted share | $0.37 | $0.37 | $0.73 | $0.76 |
Revenue and operating performance: Rental and other property revenue rose 58.4% in Q2 and 76.9% for the six-month period, primarily because 2022 joint-venture partner buyouts brought additional properties into the consolidated portfolio. Same-store revenue increased, mainly from higher rents, but was partly offset by occupancy declines. Consolidated same-store NOI was $6.6 million in Q2, down from $7.0 million, and $12.8 million for the first half, approximately flat year over year. Total consolidated NOI increased to $12.7 million in Q2 and $25.2 million for the first half, substantially reflecting the enlarged portfolio.
Profit and unusual items: Results include BRT’s $14.7 million share of the gain on its joint venture’s May sale of Chatham Court and Reflections. Prior-year comparisons included larger gains from multiple joint-venture property sales: $40.1 million in Q2 2022 and $53.1 million in the first half of 2022. This helps explain why reported net income fell despite higher rental revenue. Q2 also included a $215,000 insurance recovery related to storm damage; the first half included a further $240,000 insurance recovery.
Expenses and interest: Q2 total expenses increased 54.2% to $27.5 million; first-half expenses rose 74.2% to $55.4 million. Growth reflected partner buyouts, higher interest expense, operating costs, and depreciation. Consolidated interest expense was $5.5 million in Q2 and $11.0 million for the first half, versus $2.9 million and $4.9 million, respectively, in 2022. Higher rates on junior subordinated notes contributed to the increase.
Cash flow and liquidity: First-half cash from operating activities was $6.9 million, versus $2.8 million in 2022. Investing activities provided $18.2 million, including $23.2 million of distributions from unconsolidated joint ventures. Financing activities used $14.1 million, including $9.5 million of dividends, $5.8 million of share repurchases, and repayment of the credit facility. Cash, cash equivalents, and restricted cash totaled $32.2 million at June 30. At August 1, management reported $86.7 million of available liquidity: $26.7 million cash and $60.0 million available under the credit facility.
Debt and balance sheet: Total debt obligations, net of deferred costs, were $460.5 million at June 30, compared with $459.4 million at year-end 2022. Consolidated mortgages had a 4.02% weighted-average rate and 7.7-year weighted-average remaining term. BRT also reported $37.4 million principal of junior subordinated notes, with a 7.30% rate at June 30 and a stated 7.63% rate for the three months ending October 31, 2023. The $60 million credit facility had no outstanding balance at June 30 and matures in September 2025. Including unconsolidated joint ventures, mortgage debt was approximately $664.2 million.
Material changes and management commentary
- Higher reported rental revenue and expenses largely reflect 2022 acquisitions of partners’ interests, rather than solely same-store growth.
- Same-store operating costs increased, including insurance, repairs and maintenance, utilities, and other expenses. Management cited occupancy pressure at certain properties, including market supply and demand changes at Bells Bluff and stricter tenant screening at Alamo Ranch.
- The joint venture sale of Chatham Court and Reflections generated $14.7 million of BRT-attributable gain; associated debt extinguishment costs were $212,000 to BRT.
- The board extended the share repurchase program through December 31, 2025, with authorization of up to $10 million. BRT repurchased 309,153 shares for $5.8 million in Q2 and reported $3.2 million of remaining authorization at August 1, after subsequent repurchases.
- BRT declared and paid a quarterly dividend of $0.25 per share on July 6. Management stated that the board reassesses dividends each quarter based on liquidity, debt maturities, operating prospects, and other considerations.
Outlook, risks, and contingencies
- No earnings or operating guidance was provided. Management described inflation, rising interest rates, and moderating rental-rate growth as challenges that could constrain acquisitions, rental growth, and expense control.
- Management estimates $123.4 million of mortgage balloon payments due in 2025 and 2026 and stated operating cash flow and available cash are insufficient to fund them in full. Refinancing on acceptable terms is not assured; otherwise, additional equity issuance or property dispositions may be needed, potentially on unfavorable terms.
- BRT has agreed to acquire a 238-unit Richmond, Virginia property for approximately $62.5 million, including assumption of approximately $32 million of debt at 3.34% maturing in 2061. The transaction remains subject to conditions, including lender approval. A $1.25 million nonrefundable deposit could be forfeited if the transaction is not completed, with certain exceptions. Management anticipates needing to draw on its credit facility and gave no assurance the acquisition will close.
- Management identified risks from interest rates, refinancing and capital availability, property expenses and occupancy, regional concentration, weather and insurance, joint ventures, and maintaining REIT status. A 100-basis-point rate change was estimated to affect annual interest expense by approximately $374,000.
- BRT is a defendant in a wrongful-death lawsuit seeking unspecified damages exceeding $1 million plus exemplary damages. The insurer is defending the claim; management could not determine the probability or magnitude of potential loss and believes insurance covers compensatory damages. Insurance generally does not cover exemplary damages.
Important facts for investors to verify
- How much of revenue, NOI, and FFO growth reflects partner buyouts versus comparable same-store performance; monitor same-store occupancy, rents, and operating costs.
- The durability of recurring earnings excluding the Chatham sale gain and other insurance recoveries, and the effect of higher borrowing costs on AFFO and dividend coverage.
- Refinancing plans and available capital for the $123.4 million of 2025–2026 balloon maturities, as well as compliance with credit-facility covenants.
- Whether the Richmond acquisition closes, the final funding mix, lender approval, and exposure of the $1.25 million deposit.
- Future dividend decisions, remaining share-repurchase authorization, and the potential impact of the litigation and other uninsured losses.