BRT Apartments Corp. quarterly report, Q2 FY2021

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BRT Apartments Corp. — Q2 2021 Form 10-Q

Reporting period: Quarter and six months ended June 30, 2021. BRT is a REIT focused on multifamily properties, primarily in the Southeast and Texas. At quarter-end it wholly owned seven properties with 1,608 units and held interests in 30 unconsolidated joint-venture properties with 8,954 units.

Financial results and liquidity

  • Q2 revenue: $6.96 million, up 2.1% year over year. Rental revenue rose 4.5% to $6.96 million; same-store rental gains reflected higher rents, occupancy, and ancillary income.
  • Q2 earnings: Net income attributable to common stockholders was $6.03 million, or $0.34 per share, versus a $4.25 million loss, or $0.25 per share, in Q2 2020. The 2021 result included $7.28 million gain on a property sale and $2.24 million gain on a joint-venture interest sale.
  • First-half results: Revenue was $14.06 million, up 2.3%; common-stockholder net income was $2.26 million, or $0.13 per share, versus a $9.08 million loss, or $0.53 per share, in 2020. The first-half comparison also benefited from the sale gains.
  • Operating measures: Q2 FFO was $5.06 million ($0.29 per share) and AFFO was $5.49 million ($0.31 per share), versus $4.19 million and $4.71 million, respectively, a year earlier. First-half FFO was $11.09 million ($0.63 per share) and AFFO was $10.61 million ($0.61 per share). Same-store NOI was $3.48 million for Q2 and $6.93 million for the first half, up 12.5% and 9.8%, respectively.
  • Cash flow: First-half operating cash flow was negative $3.09 million, compared with negative $1.20 million in 2020. Investing activities provided $33.10 million, mainly from property and partnership-interest sales and JV distributions. Cash, cash equivalents, and restricted cash totaled $42.60 million at June 30, including $34.67 million unrestricted cash.
  • Debt and liquidity: Consolidated debt, net of deferred costs, was $151.84 million at June 30, comprising $114.75 million of mortgages and $37.09 million of junior subordinated notes. Consolidated mortgage debt had a 4.14% weighted-average rate and 4.34-year weighted-average remaining term. Unconsolidated JVs had $814.07 million of mortgage debt. BRT’s $15 million credit facility was undrawn at June 30 and July 31. Management reported $61.8 million of cash and cash equivalents on August 2, excluding JV cash.
  • Dividend: The company declared a quarterly cash dividend of $0.22 per share, payable July 9, 2021. The board reviews the dividend quarterly.

Material changes and significant transactions

  • BRT sold wholly owned Kendall Manor in Houston for $24.5 million, recording a $7.28 million gain and repaying $14.26 million of associated mortgage debt.
  • BRT sold its 80% JV interest in Anatole Apartments for $7.54 million and recorded a $2.24 million gain. It also bought an additional 14.69% interest in Civic Center I and II for $6.03 million.
  • BRT recorded a $0.52 million impairment on its OPOP Tower and Lofts investment, which was under a sale agreement.
  • Same-store operating performance improved, while higher property costs partially offset rental growth. At unconsolidated properties, first-half operating expenses rose 5.9%, including higher utilities, insurance, and property taxes.
  • In July, BRT paid down $17 million of mortgage debt. Two JVs sold properties after quarter-end; BRT estimated its share of their gains at approximately $19 million and $15 million, respectively, while its share of the first sale’s mortgage prepayment charge was estimated at $4.2 million.

Outlook, risks, and unusual items

  • The filing provides no formal earnings or revenue guidance. Management cautioned that COVID-19 resurgence could affect residents’ ability to pay rent and the company’s ability to pay dividends or service debt.
  • Management estimated $163 million of mortgage balloon payments through 2023, alongside $108.4 million of mortgage amortization and interest expense. It said operating cash flow and available cash would not fully fund the balloon payments; inability to refinance could require equity issuance or property sales, potentially on unfavorable terms.
  • The planned purchase of the remaining 41.9% interest in Bells Bluff for approximately $28 million was subject to closing conditions and refinancing of its $47.2 million floating-rate mortgage. BRT disclosed that the property had previously breached a financial covenant, with a waiver, and management believed it remained out of compliance with a similar covenant. The proposed refinancing commitment was $52 million at 3.48%; completion was not assured.
  • Other risks include reliance on distributions from unconsolidated JVs, substantial JV mortgage debt not on BRT’s consolidated balance sheet, interest-rate exposure on LIBOR-based junior subordinated notes, property concentration in the Southeast and Texas, and potential real estate impairments.
  • A previously reported material weakness involving consolidation accounting was subject to remediation procedures and testing. Management concluded disclosure controls and procedures were effective as of June 30, 2021; investors should distinguish that conclusion from the status of internal control over financial reporting.
  • Unusual items affecting reported earnings included property-sale gains, the OPOP impairment, and Texas ice-storm impairment charges at JVs offset by insurance recoveries. The filing also reports costs tied to a proposed common-stock offering that was terminated in May.

Important facts for investors to verify

  • How much of reported earnings and FFO/AFFO improvement reflects recurring property operations versus dispositions, impairments, and insurance recoveries.
  • Progress and final financing terms for the Bells Bluff acquisition, including resolution of its mortgage covenant issue.
  • Refinancing plans and available liquidity for the 2021–2023 debt maturities, particularly JV obligations and any required capital contributions.
  • Whether JV distributions, occupancy, rent collection, and property costs remain consistent with the improving same-store trends.
  • Post-quarter sale proceeds, actual gains and prepayment costs, and the use of cash following the $17 million mortgage paydown.
  • Remediation and ongoing effectiveness of controls related to consolidation accounting.