BRT Apartments Corp. — Form 10-Q Summary
Business context and reporting period
The filing covers the three and nine months ended June 30, 2018; the comparable periods ended June 30, 2017. BRT is a multifamily REIT that primarily invests through joint ventures. At June 30, 2018, it owned 36 multifamily properties with 10,121 units, including 402 units under development, and held interests in three unconsolidated multifamily ventures. The filing is dated August 8, 2018.
Financial performance and position
| Metric | Three months ended June 30 | Nine months ended June 30 |
|---|---|---|
| Total revenue | $30.2 million, up 12.3% | $88.2 million, up 13.9% |
| Net income (loss) attributable to common stockholders | $(4.7) million; $(0.33) per diluted share | $26.9 million; $1.87 per diluted share |
| FFO per diluted share | $0.20 | $0.77 |
| AFFO per diluted share | $0.24 | $0.77 |
For the quarter, expenses were $35.9 million, exceeding revenue by $5.7 million. For the nine-month period, expenses were $102.7 million, exceeding revenue by $14.6 million before other items. Nine-month GAAP earnings included $64.5 million of gains on property sales and a $3.2 million insurance-recovery gain; these items materially distinguish GAAP income from property operating performance. Nine-month operating cash flow was $29.8 million, compared with $6.4 million in 2017. Investing activities used $32.0 million, while financing activities provided $14.9 million. Cash and cash equivalents were $25.1 million at June 30, versus $12.4 million at September 30, 2017; an additional $7.6 million was restricted, primarily for property capital improvements.
Total debt, net of deferred financing costs, was $820.6 million, compared with $734.8 million at September 30, 2017. Total assets were $1.145 billion and total equity was $301.5 million. The company declared a $0.20 per-share quarterly dividend, paid July 6, 2018.
Material changes versus the prior comparable period
- Quarterly revenue rose 12.3%, primarily reflecting acquisitions and properties newly included for a full period, partly offset by property sales. Quarterly expenses increased 18.3%, including higher interest and depreciation, and the common-stockholder loss widened from $3.4 million to $4.7 million.
- Nine-month revenue rose 13.9%; operating expenses increased 11.6%, interest expense 25.4%, and depreciation 29.9%. The nine-month common-stockholder result increased to $26.9 million from $8.1 million, chiefly reflecting larger property-sale gains and the insurance recovery.
- The company acquired six properties during the nine months for an aggregate purchase price of $230.3 million and sold properties for aggregate proceeds of $170.9 million. It also raised $11.9 million net through its at-the-market equity program during the nine months.
- Mortgage debt increased, and interest expense rose. The filing attributes part of the increase to acquired properties, expanded ownership periods, and higher LIBOR on subordinated debt.
Outlook, risks, contingencies, and unusual items
- Management expected operating expenses through 2019 to be funded from property operations. It expected 2018–2019 debt service to be funded by property cash flows, refinancing, property-sale proceeds, and common-stock sales, if any. These are expectations, not assured funding sources.
- BRT intended to refinance $56.3 million of adjustable-rate mortgages on two properties now considered stabilized; management cautioned that financing might not be available on acceptable terms. The company also noted its ability to acquire properties depends on available cash and mortgage financing.
- The 402-unit Bells Bluff development was expected to be completed in phases from late 2018 through late 2019; its construction loan had a $47.4 million maximum, with $8.7 million drawn at June 30. Retreat at Cinco Ranch, damaged by Hurricane Harvey, was expected to be substantially repaired by September 2018. Insurance negotiations continued; 48 of 96 damaged ground-floor units had been restored and 30 leased by June 30.
- Three mortgages remained variable-rate and unhedged; a 100-basis-point rate increase was estimated to reduce annual net income by $679,000. A 100-basis-point increase in three-month LIBOR was estimated to raise annual interest expense on the $37.4 million junior subordinated notes by approximately $374,000.
- Properties are concentrated in Texas, Georgia, and Florida, among other southeastern states, exposing results to regional economic conditions. The filing also describes related-party service and shared-service arrangements. No off-balance-sheet arrangements were reported.
- No formal earnings guidance was provided. Management said continued quarterly dividends were intended but not assured. It anticipated no material financial-statement impact from adopting the new lease standard.
Important facts for investors to verify
- How much of nine-month GAAP earnings reflects recurring property operations versus the $64.5 million sale gain and $3.2 million insurance gain; review FFO and AFFO definitions and reconciliation.
- Current leasing, repair, and insurance-recovery status at Retreat at Cinco Ranch, and whether the expected September 2018 repair timetable was met.
- Availability and terms of planned refinancing, maturity and rate exposure of variable-rate debt, and financing for the Bells Bluff development.
- Subsequent equity issuance: the company reported additional ATM sales through August 2, 2018, with approximately $18.0 million in net proceeds from April 1 onward; assess dilution alongside capital needs and dividend sustainability.