BRT Realty Trust — Form 10-Q Summary
Reporting period: Fiscal second quarter and six months ended March 31, 2015; filed May 8, 2015. The filing identifies the registrant as BRT Realty Trust, although the request names BRT Apartments Corp.
Business context
BRT is a REIT owning, operating and developing multifamily properties and commercial, mixed-use and other real estate. At March 31, 2015, it owned 27 multifamily properties in ten states, totaling 8,075 units, including 360 units at a development property. Its commercial and mixed-use operations are principally the Newark Joint Venture and its Teachers Village project.
Financial results and position
| Metric | Three months ended March 31, 2015 | Six months ended March 31, 2015 | Prior-year comparable |
|---|---|---|---|
| Total revenue | $20.5 million | $40.2 million | $15.2 million and $29.2 million |
| Net loss attributable to common shareholders | $0.75 million | $3.25 million | $2.59 million and $5.33 million |
| Basic and diluted loss per share | $0.05 | $0.23 | $0.18 and $0.37 |
| Funds from operations (FFO) | $1.65 million | $2.26 million | $(0.08) million and $(0.45) million |
| Adjusted funds from operations (AFFO) | $2.11 million | $3.31 million | $0.35 million and $0.35 million |
For the six-month period, revenue increased 37.7%, while total expenses rose 24.5% to $46.9 million. The company reported a $2.8 million gain on real estate sales, including the February sale of its Lawrenceville, Georgia property. Cash provided by operating activities was $15.3 million, versus cash used of $0.2 million a year earlier. Investing activities used $29.4 million and financing activities provided $9.0 million; cash and cash equivalents fell $5.2 million to $18.0 million.
At March 31, total assets were $760.1 million, total liabilities $604.4 million and total equity $155.7 million. Debt obligations totaled $553.9 million: mortgages payable of $516.5 million and junior subordinated notes of $37.4 million. Cash was $18.0 million, excluding $23.5 million of restricted cash. The company had no dividend declared for the quarter.
Changes versus prior period
- Six-month revenue rose by $11.0 million, largely from properties acquired during the prior 12 months, additional contribution from previously acquired properties and increased rental rates; Teachers Village occupancy also contributed.
- The six-month common-shareholder net loss narrowed by $2.1 million, primarily reflecting the $2.8 million property-sale gain and improved multifamily operations. Revenue growth was accompanied by higher operating costs, interest expense and depreciation.
- Mortgage debt increased by $34.1 million from September 30, 2014. The increase included debt assumed with the Pensacola acquisition and new or refinanced property financing.
- FFO and AFFO improved from the prior-year six-month periods, but remain non-GAAP measures and do not replace cash flow or net income.
Outlook, risks and unusual items
- Management said it expected available resources to cover 2015 operating expenses and general property and joint-venture contributions, but limited funds had significantly reduced its ability to acquire additional multifamily properties. Cash and cash equivalents were approximately $15.7 million at April 30, 2015.
- Teachers Village remained unprofitable, and management expected losses to continue until construction is complete and occupancy reaches reasonable levels. Estimated project completion costs rose to $42–$47 million; management identified an additional $8–$13 million funding need over approximately 6–18 months, with no commitments yet for that additional financing. Failure to obtain funding and complete the project could materially adversely affect BRT and the venture.
- The venture expected about $19–$20 million of debt service and operating expenses through March 2017, with anticipated funding from reserves, tax-credit proceeds, a Treasury interest subsidy and building operations. The filing cautions that these sources may not cover the shortfall and that third-party financing or member contributions may be needed.
- A Houston joint venture property was contracted for sale on April 9, 2015, for $39.9 million, including assumption of $24.1 million of mortgage debt. Closing was expected in the quarter ending September 30, 2015, subject to customary conditions and lender approval; estimated gain was approximately $5.3 million. The sale was not completed as of the filing.
- BRT had preliminary discussions with an institutional investor regarding a purchase of all or substantially all of its Newark Joint Venture equity, but gave no assurance of a transaction.
- Management stated that net operating loss carryforwards made a dividend in calendar 2015 and for several years thereafter highly unlikely. NMTC tax credits related to Newark are subject to a seven-year recapture period if program requirements are not met.
- Most mortgage debt was fixed-rate; two variable-rate mortgages were estimated to produce a $372,000 annual negative net-income effect from a 100-basis-point rate increase. The filing also notes geographic concentration, particularly in Texas, Georgia, Tennessee and Florida.
Important facts for investors to verify
- Whether the Newark Joint Venture secures the additional $8–$13 million needed to complete Teachers Village and can meet near-term debt service and operating costs.
- Whether the Houston property sale closes on the anticipated terms and timing, including lender approval of the mortgage assumption.
- Current unrestricted liquidity, future debt service and maturities, and any required guarantees or capital contributions; the filing does not provide a clear consolidated debt-maturity schedule in the text supplied.
- Teachers Village construction progress, leasing and occupancy, and compliance with New Markets Tax Credit requirements.
- That reported FFO/AFFO, property-sale gains and cash flow are assessed alongside GAAP results, debt obligations and restricted cash.