BRT Apartments Corp. — Q1 2021 Form 10-Q
Business context and reporting period. Unaudited results cover the three months ended March 31, 2021, compared with Q1 2020. BRT is a REIT focused on multifamily properties. At quarter-end it wholly owned eight properties with 1,880 units and held interests in 31 unconsolidated joint-venture properties with 9,162 units. Most properties are in the Southeast and Texas. Unless stated otherwise, financial amounts below are in millions.
Financial performance and position
| Metric | Q1 2021 | Q1 2020 / prior date |
|---|---|---|
| Total revenue | $7.1 | $6.9 |
| Rental revenue | $7.1 | $6.7 |
| Total expenses | $9.4 | $9.8 |
| Equity in loss of unconsolidated ventures | $1.3 | $1.8 |
| Net loss attributable to common stockholders | $3.8; $0.22 per share | $4.8; $0.29 per share |
| Net operating income (NOI), consolidated properties | $4.0 | $3.7 |
| Same-store NOI | $3.7 | $3.4 |
| NAREIT FFO / AFFO attributable to common stockholders | $6.0 / $5.1 | $3.3 / $4.0 |
| Operating cash flow | $0.2 | $0.6 |
| Cash, cash equivalents and restricted cash | $27.9 | $28.7 at Dec. 31, 2020 |
| Consolidated debt, net of deferred costs | $166.8 | $167.5 at Dec. 31, 2020 |
| Total assets / total equity | $358.0 / $170.5 | $365.7 / $177.7 at Dec. 31, 2020 |
Rental revenue increased 5.2%; management attributed the increase mainly to higher same-store rental rates, occupancy and ancillary income. Same-store NOI rose $0.3 million, primarily on higher rental revenue, partly offset by higher operating expenses. Interest expense declined 10.8%, mainly because of lower rates on the floating-rate junior subordinated notes. BRT reported no consolidated impairment charge; joint ventures recorded $2.3 million of storm-damage impairments and matching insurance recoveries.
Consolidated mortgage debt had a 4.15% weighted-average rate and 4.13-year weighted-average remaining term. The $37.4 million junior subordinated notes bear a floating rate, 2.21% at March 31, and mature in 2036. The $15 million credit facility had no balance outstanding at quarter-end and bears a 4.25% rate at that date. Unconsolidated joint ventures had $828.6 million of mortgage debt, which is not on BRT’s consolidated balance sheet; BRT’s net equity investment in those ventures was $164.2 million.
Material changes and notable items
- Compared with Q1 2020, revenue rose $0.2 million and total expenses fell $0.4 million. The common-stockholder loss narrowed by approximately $1.1 million.
- Joint-venture rental revenue grew 5.9%, but operating expenses rose 8.1%. Venture net loss improved to $1.9 million from $2.8 million, including equal storm impairment and insurance-recovery entries in Q1 2021.
- In March, BRT contracted to sell Kendall Manor for approximately $24.5 million; its $16.8 million net book value was classified as held for sale. BRT anticipated closing in May and estimated a roughly $7.4 million gain. The filing says the transaction is not assured.
- After quarter-end, BRT sold its 80% interest in Anatole Apartments for $7.5 million and estimated a $2.2 million gain. It also purchased an additional 14.69% interest in two Southaven, Mississippi properties for $6.0 million.
- BRT agreed to acquire the remaining 41.9% interest in Bells Bluff for approximately $28 million, subject to adjustments and closing conditions, including refinancing the property’s $47.2 million floating-rate mortgage. Completion was anticipated in summer 2021 but was not assured.
- The credit facility was amended effective April 1, increasing capacity from $10 million to $15 million and extending maturity to April 2023, subject to borrowing-base and other conditions.
Liquidity, outlook and risks
Management expected operations, joint-venture distributions, property sales and credit-facility availability to fund anticipated needs through 2023. It estimated $122.7 million of mortgage amortization and interest expense and $177.0 million of balloon payments on mortgages maturing in 2021–2023, including amounts attributable to joint ventures. Management stated that operating cash flow and available cash would not fully fund the balloon payments; failure to refinance could require equity issuance or property sales on unfavorable terms. The company also estimated at least $42.6 million of dividends through 2023, assuming a $0.22 quarterly dividend and 17.6 million shares outstanding. The board determines dividends quarterly; no earnings or FFO guidance was provided.
- COVID-19 had no material impact on Q1 results, according to management, but could affect residents’ ability to pay rent, cash flow, debt service and dividends.
- In 2021, a lender notified BRT of noncompliance with a financial covenant under a debt instrument; the lender subsequently waived the noncompliance for the applicable reporting period.
- Management concluded disclosure controls and procedures were ineffective at March 31 because a previously identified material weakness involving consolidation versus equity-method accounting had not yet been tested sufficiently to establish effective remediation. Management stated the financial statements fairly present the company’s financial position and results in conformity with GAAP.
- Other stated risks include refinancing and covenant compliance, reliance on joint-venture distributions, regional concentration, property values and occupancy, insurance adequacy, interest rates, and REIT qualification. Restricted cash of $8.5 million was designated for joint-venture property improvements and was not available for general corporate use.
Most important facts for investors to verify
- Whether Kendall Manor and Bells Bluff transactions closed as anticipated, and the realized sale gains and refinancing terms.
- The status and timing of covenant compliance and the effectiveness of remediation for the material weakness in investment-consolidation controls.
- Refinancing plans and available liquidity for the $177.0 million of 2021–2023 balloon payments, including joint-venture maturities.
- Joint-venture property performance, distributions to BRT, and exposure to storm losses and insurance recoveries.
- Future dividend decisions and whether operating cash flow and asset-sale proceeds support the stated liquidity assumptions.