BRT Apartments Corp. — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020. BRT owns and operates multifamily properties, primarily through joint ventures, and operates as a REIT. At quarter-end, it wholly owned eight properties with 1,880 units and held interests in 31 unconsolidated properties with 9,162 units, including 741 units in lease-up. Most properties are in the Southeast and Texas.
Financial and operating results
- Revenue: $6.9 million, down 2.9% from $7.1 million in Q1 2019. Rental revenue declined 2.0% to $6.7 million.
- Profitability: Net loss attributable to common stockholders was $4.8 million, or $0.29 per share, compared with a $4.2 million loss, or $0.27 per share. Total expenses increased 6.9% to $9.8 million; general and administrative expense rose 32.4% to $3.4 million. Equity in losses of unconsolidated ventures improved to $1.8 million from $2.1 million.
- Property measures: Consolidated net operating income (NOI) was $3.7 million versus $3.7 million; same-store NOI increased to $3.1 million from $3.1 million, a $55,000 increase. FFO was $3.3 million ($0.19 per diluted share), versus $3.1 million ($0.19); AFFO was $4.0 million ($0.23 per share), versus $3.7 million ($0.23).
- Cash flow: Operating activities provided $557,000, compared with $316,000. Investing activities used $10.9 million, mainly reflecting $13.7 million of contributions to joint ventures, partly offset by $3.0 million of venture distributions. Financing activities provided $6.8 million, including $12.1 million in net equity-offering proceeds; dividends paid were $3.8 million. Cash, cash equivalents and restricted cash totaled $29.0 million at quarter-end.
- Debt and liquidity: Consolidated debt, net of deferred costs, was $169.6 million at March 31; mortgage debt carried a 4.15% weighted-average rate. The $10 million credit facility had no balance at quarter-end, but BRT borrowed $5.0 million on May 21. At June 1, stated liquidity was $33.4 million, including $18.5 million cash, $9.9 million restricted cash and up to $5.0 million of facility availability, subject to borrowing-base requirements. Joint ventures had $831.7 million of mortgage debt not on BRT’s consolidated balance sheet.
- Balance sheet: Total assets were $395.0 million and total equity was $202.7 million at March 31, 2020.
Material changes and notable items
- Revenue fell mainly because two properties sold in July 2019 contributed $1.0 million in the prior-year quarter. This was partly offset by a property partner buyout and higher same-store rents.
- G&A increased by $823,000, including $523,000 of professional fees associated with the prior-period financial-statement restatement. Management estimated another $160,000 of restatement-related fees for Q2 2020.
- BRT acquired an 80% interest, through a joint venture, in a 264-unit Wilmington, North Carolina property for $38.0 million; BRT contributed $13.7 million of equity.
- BRT sold 694,298 shares through its at-the-market program for $12.3 million before fees and expenses, and repurchased 39,093 shares for $616,000.
Outlook, risks and contingencies
- COVID-19: Management said the pandemic had not materially affected Q1 results. Collections of amounts billed at consolidated and unconsolidated multifamily properties were 98% in April, 98% in May and 95% through June 15; the filing cautions these results may not indicate future collections. Risks include resident payment difficulties, added operating costs, rent concessions, leasing and transaction delays, and legal limits on collection remedies. Two commercial tenants received $75,000 in rent abatements for Q2.
- Funding and maturities: Through 2022, BRT anticipated $126.9 million of mortgage amortization and interest, $182.9 million of mortgage balloon payments, and at least $37.8 million of cash dividends, based on the current $0.22 quarterly rate and 17.2 million shares. The filing says operating cash flow and available cash are insufficient to fund all balloon payments; refinancing, property sales or additional equity may be required, potentially on unfavorable terms.
- Dividends: BRT declared quarterly distributions of $0.22 per share, payable April 7 and July 9, 2020. Management said the board evaluates dividends each quarter in light of liquidity, debt maturities, prospects and other factors.
- Controls and restatement: Disclosure controls were deemed ineffective at March 31 because a previously disclosed material weakness concerned accounting for property ventures as consolidated versus equity-method investments. Management implemented remediation procedures after quarter-end and planned to test them by year-end 2020. Management nevertheless stated the financial statements fairly present the periods shown. The filing also says COVID-19 contributed to the late filing.
- Other risks: BRT cited geographic concentration, leasing and rental-rate risks, joint-venture dependence, financing and refinancing needs, interest-rate exposure, and uncertainty around COVID-19. A subsidiary faces a wrongful-death lawsuit seeking more than $1 million in unspecified compensatory damages plus exemplary damages; insurance is defending the claim, but exemplary damages generally are not covered.
Important facts for investors to verify
- Whether rent collections and resident payment performance remain resilient as pandemic effects and public assistance evolve.
- Availability and terms of refinancing for the $182.9 million of projected mortgage balloon payments through 2022, including joint-venture obligations.
- Actual unrestricted liquidity and borrowing capacity under the credit facility, including compliance with borrowing-base and covenant requirements.
- Progress and effectiveness testing of the remediation plan for the material weakness, and any further restatement-related costs or accounting adjustments.
- Whether the $0.22 quarterly dividend remains supportable given cash needs, maturities and operating conditions.