BRT Apartments Corp. — Form 10-Q Summary
Reporting period: Fiscal third quarter and nine months ended June 30, 2017; fiscal year ends September 30. The filing was signed August 8, 2017. Amounts are in U.S. dollars unless stated otherwise.
Business context
BRT is a REIT primarily focused on owning, operating and developing multifamily properties, generally through joint ventures. At June 30, 2017, it owned 35 multifamily properties with 9,890 units across 11 states, including units in lease-up or under construction, and held interests in two unconsolidated multifamily ventures. It converted from a Massachusetts business trust to a Maryland corporation on March 18, 2017; the company said the conversion did not affect its business or management.
Financial and operating results
| Metric | Three months ended June 30, 2017 | Nine months ended June 30, 2017 |
|---|---|---|
| Total revenue | $26.9 million, up 10.6% year over year | $77.4 million, up 6.5% |
| Net income (loss) attributable to common stockholders | $(3.4) million; $(0.24) per share | $8.1 million; $0.58 per share |
| Net income (loss) | $(3.8) million | $23.8 million |
| Funds from operations (FFO), attributable to common stockholders | $2.6 million; $0.19 per share | $6.3 million; $0.45 per share |
| Adjusted FFO (AFFO), attributable to common stockholders | $3.3 million; $0.23 per share | $8.4 million; $0.61 per share |
| Cash flow from operations | Not separately provided for the quarter | $6.4 million |
Quarterly rental and other property revenue rose 12.6%, primarily from acquisitions and higher same-store rental rates, partly offset by property sales. At stabilized properties, average occupancy was 94.0% versus 94.1% a year earlier; average rent per occupied unit increased 9.6% to $936. Quarterly expenses rose 9.7%, including higher operating costs, interest and depreciation. The quarter’s common-stockholder loss compares with prior-year income of $5.5 million, when property-sale gains contributed $10.3 million. For the nine-month comparison, common-stockholder income was $8.1 million versus $28.4 million; the prior period included discontinued-operation income of $12.7 million. Current-period results included $35.8 million of property-sale gains.
At June 30, total assets were $979.4 million, cash and cash equivalents $9.8 million, and restricted cash $5.8 million, which was designated for property capital improvements and was not generally available for corporate purposes. Total equity was $233.9 million. Debt obligations, net of deferred financing costs, were $728.4 million, including net mortgages of $691.3 million and junior subordinated notes of $37.0 million. Cash declined $17.6 million during the nine months, from $27.4 million; investing activities used $74.1 million and financing activities provided $50.1 million.
Changes, outlook and risks
- Growth in rental revenue and expenses largely reflected acquisitions, while dispositions reduced both. The company acquired multifamily properties and development land during the period and invested $14.4 million in unconsolidated ventures.
- In July 2017, BRT sold three Texas properties for $39.0 million. It estimated a fourth-quarter gain of approximately $16.7 million, of which $7.4 million would be allocated to non-controlling interests, and reported approximately $662,000 of mortgage prepayment costs.
- Management expected operating costs and debt service through 2018 to be funded by property cash flows and, if needed, supplemental financing. It anticipated funding the West Nashville development with contributed capital and up to $47.4 million of construction financing; no draws had been made by June 30.
- The company intended to refinance $56.3 million of adjustable-rate mortgages on properties in North Charleston and Creve Coeur after stabilization, and planned to refinance the Creve Coeur loan before its July 2018 maturity. Management cautioned that financing may not be available or acceptable on suitable terms.
- Interest-rate exposure includes variable-rate mortgages and LIBOR-based subordinated notes. Management estimated that a 100-basis-point rate increase would raise annual interest expense by $563,000 on two variable-rate mortgages and by $374,000 on the subordinated notes.
- BRT had not paid cash dividends since 2010 and declared none in the reported periods. Management stated that its net operating loss carryforward meant it was not then required to pay a dividend to maintain REIT status.
- The company reported effective disclosure controls and no material change in internal control over financial reporting during the quarter. It reported no off-balance-sheet arrangements.
Most important facts for investors to verify
- Whether acquisitions, lease-up and development deliver the anticipated occupancy, rents and returns, particularly the expected stabilization of Creve Coeur and West Nashville.
- Availability and terms of refinancing for adjustable-rate and near-term-maturity loans, and the company’s liquidity needs relative to cash and planned investment.
- Actual proceeds, gains and prepayment costs from the July Texas property sale, including allocations to non-controlling interests.
- How much reported earnings and FFO depend on property-sale gains, and how recurring property operations perform against rising interest, operating and depreciation expenses.
- Joint-venture capital requirements and distributions, as well as the company’s exposure to interest-rate changes and regional economic conditions.