BRT Apartments Corp. — Form 10-Q Summary
Business context and period: BRT is a REIT focused on owning, operating and developing multifamily properties, primarily through joint ventures. This fiscal second-quarter filing covers the three and six months ended March 31, 2018; comparisons are to the same periods in 2017. At quarter-end, BRT owned 34 properties with 9,632 units and had interests in three unconsolidated multifamily ventures.
Financial performance
| Metric | Three months ended March 31 | Six months ended March 31 |
|---|---|---|
| Total revenue | $29.7 million, up 19.2% | $58.0 million, up 14.8% |
| Revenue less total expenses | $(4.9) million, versus $(3.6) million | $(8.8) million, versus $(6.0) million |
| Net income attributable to common stockholders | $25.2 million ($1.77 basic/share), versus a $4.2 million loss | $31.6 million ($2.23 basic/share), versus $11.5 million |
| NAREIT FFO attributable to common stockholders | $5.3 million ($0.37/share), versus $1.8 million | $8.4 million ($0.58/share), versus $3.6 million |
| Adjusted FFO attributable to common stockholders | $3.8 million ($0.26/share), versus $2.3 million | $7.6 million ($0.53/share), versus $5.2 million |
| Net cash provided by operating activities | Not separately reported for the quarter | $20.0 million, versus $11.6 million |
Reported earnings benefited materially from property-sale gains ($52.0 million for the quarter; $64.5 million year to date) and a $3.2 million insurance recovery gain. Before those items, total expenses exceeded total revenue in both 2018 comparison periods. Revenue growth reflected acquisitions, lease-up activity and improved same-store rental rates and occupancy; expenses also rose, notably interest and depreciation.
Balance sheet, debt and liquidity
- At March 31, 2018, total assets were $1.089 billion, total liabilities $797.3 million and total equity $291.4 million.
- Cash and cash equivalents were $31.0 million, with an additional $7.7 million of restricted cash designated for property capital improvements. Management reported available cash, excluding restricted cash, of approximately $20.4 million as of May 1, 2018.
- Mortgage principal was $749.8 million before deferred costs ($743.2 million net on the balance sheet); junior subordinated notes were $37.4 million before deferred costs. Total debt obligations, net of deferred costs, were $780.3 million.
- Six-month investing cash flow was positive $25.4 million, including $168.7 million of real-estate sale proceeds and $125.9 million of property additions. Financing cash flow was negative $26.8 million, including mortgage activity, dividends and distributions to noncontrolling interests.
Material changes and notable items
- BRT acquired four properties during the six-month period for an aggregate purchase price of approximately $179.0 million, including the Ocoee, Florida and Lawrenceville, Georgia acquisitions during the quarter.
- It sold three multifamily properties and a cooperative unit during the six months for aggregate proceeds of $171.0 million and recognized $64.5 million in gains. The sales included the 542-unit Fountains Apartments and 618-unit Valley Venue Apartments.
- Quarterly interest expense increased 35.2% to $8.7 million; six-month interest expense increased 27.1% to $16.6 million. Management attributed the increases principally to debt on acquired properties and other financing factors.
- Hurricane Harvey damaged the 268-unit Retreat at Cinco Ranch. By March 31, BRT had received approximately $7.4 million in related insurance recoveries, including amounts recorded as rental income. Repairs were ongoing; the company anticipated substantial completion by September 2018 and was still pursuing recovery of tenant-concession costs.
- The quarterly dividend was increased from $0.18 to $0.20 per share and paid April 6, 2018. BRT also sold shares under a $20 million at-the-market offering; net proceeds were $1.4 million through March 31 and a further $0.7 million through May 8.
Outlook, risks and contingencies
Management expected operating expenses payable through 2019 to be funded from property operations, and debt service through 2019 from operations, mortgage refinancing, property-sale proceeds and possible equity sales. BRT planned to refinance adjustable-rate loans on two lease-up properties after stabilization, but cautioned that stabilization and acceptable refinancing terms were not assured. The Bells Bluff development was expected to complete in stages from late 2018 through late 2019, funded by partner capital and available construction financing; no amount had been drawn on that loan by March 31.
Interest-rate exposure remains relevant: management estimated that a 100-basis-point increase in rates would reduce annual net income by $589,000 on the three remaining unhedged variable-rate mortgages and increase annual interest expense on subordinated notes by approximately $374,000. The portfolio is geographically concentrated, particularly in Texas and the Southeast. BRT identified the usual uncertainty in forward-looking statements and referred investors to risk factors in its 2017 Form 10-K. No off-balance-sheet arrangements were reported. Management stated disclosure controls were effective and reported no material change in internal control over financial reporting.
Important facts for investors to verify
- How much of reported net income and FFO growth reflects recurring property operations versus asset-sale gains and the insurance recovery.
- Current occupancy, lease-up progress and repair completion at affected or developing properties, including Retreat at Cinco Ranch, Factory at Garco Park, Vanguard Heights and Bells Bluff.
- Debt maturities, refinancing availability and sensitivity to interest rates, including the variable-rate loans and subordinated notes.
- Cash available for capital spending, dividends and acquisitions after restricted cash, distributions and ongoing development needs.
- Future acquisition and disposition activity, equity issuance under the ATM program, and the sustainability of the dividend.