Business Context and Reporting Period
This Form 8-K, filed on May 6, 2016, by BRT Realty Trust (BRT), reports the acquisition of Vantage at Shavano Park, a 288-unit multi-family complex in San Antonio, Texas. The filing includes audited financial statements for the property for the year ended December 31, 2015, and unaudited statements for the three months ended March 31, 2016. It also presents unaudited pro forma consolidated financial statements reflecting this acquisition alongside other recent transactions.
Key Financial Metrics
Acquisition Details
- Purchase Price: $35.2 million total.
- Debt Assumed: $26.4 million mortgage at 3.61% interest, maturing in 2023 (interest-only for 23 months).
- Equity Contribution: $6.9 million for a 65% interest.
Property Performance (Vantage at Shavano Park)
- Year Ended Dec 31, 2015: Total revenues of $3.154 million; Revenues in excess of certain expenses of $1.55 million.
- Three Months Ended Mar 31, 2016: Total revenues of $834,000; Revenues in excess of certain expenses of $451,000.
Pro Forma Consolidated Position (As of March 31, 2016)
- Total Assets: $783.3 million.
- Total Liabilities: $600.0 million (including $521.5 million in mortgages).
- Total Equity: $183.3 million.
- Cash and Equivalents: $28.5 million.
Material Changes vs. Prior Period
The pro forma financial statements reflect significant changes due to the Shavano acquisition and other recent activity:
- Acquisitions: In addition to Shavano, BRT acquired three other properties in early 2016 (Civic Center I, River Place, and Retreat at Cinco Ranch) totaling approximately $89.8 million in purchase price.
- Disposition: BRT sold its equity interest in the Newark Joint Venture for $16.9 million in February 2016.
- Pro Forma Impact (Six Months Ended Mar 31, 2016): The inclusion of these transactions adjusted Net Income attributable to common shareholders from a historical $8.565 million to a pro forma $8.460 million. Basic EPS adjusted from $0.61 to $0.60.
- Pro Forma Impact (Year Ended Sep 30, 2015): Adjusted Net Income attributable to common shareholders from a historical loss of $245,000 to a pro forma income of $1.175 million, driven largely by a $15 million gain on the sale of real estate assets.
Outlook, Risks, and Unusual Items
Management Commentary: The pro forma statements are presented for informational purposes only and do not purport to represent actual future results. They assume the acquisitions and disposition were completed on October 1, 2014, and October 1, 2015, respectively.
Unusual Items: The historical results for the six months ended March 31, 2016, included a significant one-time gain on the sale of real estate assets ($24.8 million) and a loss on extinguishment of debt ($2.7 million).
Risks and Contingencies: The filing notes that the property financial statements exclude interest, depreciation, and corporate expenses, which may not be comparable to future operations. The pro forma adjustments include estimated interest expenses and depreciation based on a 30-year useful life.
Investor Verification Checklist
- Verify the occupancy rates and rental income trends for Vantage at Shavano Park post-acquisition.
- Confirm the terms of the $26.4 million mortgage, specifically the interest-only period and prepayment penalties.
- Review the integration costs and capital expenditure requirements for the four properties acquired in early 2016.
- Assess the impact of the Newark disposition on the company's overall portfolio strategy and liquidity.
- Monitor the company's leverage ratios given the increase in total mortgages payable to over $521 million.