BRT Apartments Corp. — Q2 2020 Form 10-Q
Reporting period: Three and six months ended June 30, 2020. BRT is a REIT focused on multifamily properties, primarily held through unconsolidated joint ventures. At quarter-end it wholly owned eight properties with 1,880 units and held interests in 31 joint-venture properties with 9,162 units, including 741 units in lease-up. Most properties are in the Southeast and Texas. Unless indicated otherwise, amounts below are in millions.
Financial performance and position
| Metric | Q2 2020 | Q2 2019 | First half 2020 | First half 2019 |
|---|---|---|---|---|
| Total revenue | $6.816 | $7.287 | $13.740 | $14.417 |
| Net loss attributable to common stockholders | $(4.246) | $(4.317) | $(9.077) | $(8.564) |
| Loss per share, basic and diluted | $(0.25) | $(0.27) | $(0.53) | $(0.54) |
| FFO per diluted share | $0.24 | $0.22 | $0.44 | $0.41 |
| AFFO per diluted share | $0.27 | $0.24 | $0.51 | $0.48 |
- Q2 revenue declined 6.5%; first-half revenue declined 4.7%. Q2 rental revenue was $6.657 million, down 6.2%.
- Q2 total expenses rose 3.2% to $9.579 million; first-half expenses rose 5.0% to $19.425 million. General and administrative expense increased 19.2% in Q2 and 25.9% in the first half, including restatement-related professional fees.
- Consolidated NOI was $3.653 million in Q2 and $7.340 million in the first half, versus $3.772 million and $7.482 million, respectively, in 2019. Same-store NOI increased to $3.171 million in Q2 and $6.296 million in the first half.
- Operating cash flow was negative $1.203 million for the first half, compared with positive $2.038 million a year earlier. Investing cash outflow was $7.190 million; financing cash inflow was $2.311 million. Cash, cash equivalents and restricted cash totaled $26.336 million at June 30.
- At June 30, BRT reported $385.602 million of assets, $190.451 million of liabilities, and $195.151 million of equity. Debt net of deferred financing costs was $168.913 million: $131.840 million of mortgages and $37.073 million of junior subordinated notes.
- Consolidated mortgage debt had a 4.15% weighted-average rate. The $37.4 million subordinated notes mature in 2036 and have a floating LIBOR-based rate; the filing gives differing current-rate figures—2.76% in the debt note and 3.77% in market-risk disclosure.
Changes versus prior comparable periods
- Lower revenue mainly reflected the prior-year contribution of properties sold in July 2019, partly offset by revenue from a property acquired through a partner buyout and higher same-store rents. Same-store occupancy declined.
- Q2 included $75,000 of rent concessions for two commercial tenants related to COVID-19. BRT said the pandemic had not materially affected Q2 results, but identified potential impacts on collections, occupancy, costs, rent growth, acquisitions and liquidity.
- Equity-method joint-venture loss improved to $1.387 million in Q2 from $2.218 million, and to $3.202 million in the first half from $4.286 million. Joint-venture revenue grew, but expenses also increased, including at acquired and lease-up properties.
- During the first half, BRT sold common shares through its at-the-market program for $12.293 million gross proceeds, repurchased $616,000 of shares, and paid $7.556 million in dividends.
Outlook, liquidity, risks and unusual items
- No earnings or operating guidance is provided. Management said the pandemic’s ultimate effects are uncertain, particularly given renewed cases in the Southeast and Texas. The board reviews the dividend quarterly; the declared quarterly distribution was $0.22 per share.
- Management reported $30.2 million of available liquidity at August 1, 2020, including $10.6 million cash, $9.6 million restricted cash and up to $10.0 million of credit-facility availability subject to borrowing-base requirements. Restricted cash is not available for general corporate purposes.
- Management estimated $115.3 million of mortgage amortization and interest and $182.9 million of balloon payments through 2022, including amounts attributable to unconsolidated joint ventures. It said operating cash flow and available cash are insufficient to fund all balloon payments; refinancing, property sales or additional equity may be needed, potentially on unfavorable terms.
- Joint ventures held $830.9 million of mortgage debt not recorded on BRT’s consolidated balance sheet. Distributions from these ventures are a material source of liquidity, and BRT may need to contribute additional capital.
- A $4.0 million Newark real estate loan matured June 30, 2020 and remained unpaid. Management believed principal and accrued interest were collectible and recorded no impairment, but said recovery is uncertain and it does not anticipate further interest or fee income.
- The filing references a prior-period restatement and material weakness concerning accounting for property ventures. Remediation procedures were implemented, but management concluded disclosure controls were not effective as of June 30 because the enhanced controls had not been sufficiently tested. Management nevertheless concluded the financial statements fairly present the reported periods in accordance with GAAP.
- Other risks include tenant payment defaults, rent restrictions or eviction limitations, higher operating costs, interest-rate exposure, refinancing needs, and the company’s geographic concentration. The credit facility matures in April 2021; there was no balance outstanding at June 30 or August 9.
Important facts for investors to verify
- Collections, delinquencies, occupancy and concessions at owned and joint-venture properties as pandemic effects evolve.
- Refinancing plans and funding sources for the stated 2020–2022 balloon payments, including joint-venture debt obligations.
- Repayment or recovery status of the matured Newark loan and any future impairment assessment.
- Progress and testing results for remediation of the material weakness, and any further restatement-related developments.
- The subordinated notes’ applicable interest rate, given the inconsistent figures in the filing, and the sustainability of the $0.22 quarterly dividend relative to cash generation and financing needs.