BRT Apartments Corp. annual report, FY2023

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BRT Apartments Corp. — 2023 Form 10-K Summary

Business context and reporting period

Annual report for the fiscal year ended December 31, 2023, filed March 14, 2024. BRT is an internally managed REIT focused on multifamily housing. At year-end, it wholly owned 21 properties with 5,420 units and held interests in seven joint-venture properties with 2,287 units, across 11 states, primarily in the Southeast and Texas.

Financial and operating results

  • Revenue: $93.6 million, up 32.7% from $70.5 million in 2022. Rental and other real estate revenue was $93.1 million. The increase largely reflects $20.8 million from 2022 joint-venture partner buyouts that brought properties into consolidated results; same-store revenue increased $2.6 million, mainly from higher rents.
  • Profit: Net income attributable to common stockholders was $3.9 million, or $0.16 per diluted share, versus $50.0 million, or $2.66, in 2022. The prior-year result included substantially larger joint-venture property-sale gains. In 2023, BRT recorded $14.7 million of its share of the Chatham Court and Reflections sale gain. Revenue less reported expenses was negative $14.3 million.
  • Q4 detail: Fourth-quarter revenue was $23.5 million; net loss attributable to common stockholders was $1.7 million, or $0.11 per share.
  • REIT operating measures: FFO was $22.6 million ($1.19 per diluted share), down 2.7%; AFFO was $28.9 million ($1.52 per diluted share), up 1.8%. Company-defined NOI was $51.2 million versus $40.0 million, primarily reflecting the partner buyouts. Same-store NOI was essentially flat at $25.7 million versus $25.7 million. These are non-GAAP measures and are not substitutes for GAAP earnings or cash flow.
  • Property operations and costs: Same-store occupancy declined to 93.6% from 96.4%, while same-store rental revenue rose $2.6 million. Same-store NOI was flat as higher rental revenue was offset by higher operating costs. Total real estate operating expenses rose 36.9% to $41.8 million, and interest expense rose 42.8% to $22.2 million, reflecting the larger consolidated portfolio, higher variable-rate costs and new mortgage debt.
  • Cash flow: Cash provided by operating activities was $19.6 million, versus $15.5 million in 2022. Investing activities provided $16.7 million, including $25.7 million of joint-venture distributions, partly offset by $9.6 million of property improvements. Financing activities used $32.2 million, including $18.9 million of dividends and $14.4 million of share repurchases. Year-end cash and cash equivalents were $23.5 million.
  • Debt and liquidity: Consolidated mortgages totaled $426.4 million gross; junior subordinated notes were $37.4 million; the credit facility had no year-end balance. Consolidated mortgage debt had a 4.02% weighted-average rate and 7.0-year weighted-average remaining maturity. The $37.4 million subordinated notes carry a variable rate, 7.65% at year-end, and mature in 2036. At December 31, BRT reported approximately $83.5 million of available liquidity, including $23.5 million cash and up to $60 million available under its facility, subject to conditions. Joint-venture mortgage debt, not consolidated on BRT’s balance sheet, was approximately $247.0 million.
  • Dividends and repurchases: BRT declared $1.00 per share in 2023 dividends. It repurchased 779,423 shares for approximately $14.4 million during the year and a further 123,061 shares for approximately $2.3 million through March 1, 2024.

Material changes versus 2022

  • Revenue and property operating expenses increased substantially because 11 properties became wholly owned and consolidated following 2022 partner buyouts; the revenue increase should not be read as equivalent organic growth.
  • Net income fell sharply as the 2022 period included $64.5 million of BRT’s share of gains on joint-venture property sales, compared with $14.7 million in 2023.
  • Operating cash flow increased, while reported FFO declined modestly and AFFO rose modestly. Higher interest costs and lower casualty-related insurance gains weighed on FFO.
  • BRT paid off its $19.0 million credit-facility balance in February 2023 using proceeds from a $21.2 million, 4.45% interest-only mortgage on Silvana Oaks, maturing in March 2033.

Outlook, risks and unusual items

  • Management said it was cautious about acquisitions in 2023 and may remain cautious near term because of volatile interest rates, uncertain economic conditions, competitive markets and acquisition pricing. The filing provides no specific earnings or revenue guidance.
  • The Johns Island, South Carolina development was substantially complete and in lease-up at year-end. BRT estimated it would record $350,000–$500,000 of equity-method losses in 2024 as the venture begins recognizing depreciation and interest previously capitalized.
  • Management expects operating-cost pressures, including insurance, personnel, repairs, utilities and real estate taxes, may continue. Most residential leases are one year or less, allowing rents to reset but also exposing revenue more quickly to market-rent declines.
  • Refinancing is a material risk. The filing identifies $138.5 million of balloon payments due in 2025–2026, including $53.5 million at unconsolidated ventures. Separately, its four-year funding discussion cites $204.4 million of balloon payments through 2027, including $76.7 million at unconsolidated ventures. Management says operating cash flow and available cash are insufficient to fund the balloon payments in full; refinancing, property sales or additional equity may be needed.
  • Other key risks include concentrated exposure to the Southeast and Texas, higher interest rates on floating-rate notes, property insurance limits and costs, joint-venture partner disagreements, access to financing, and potential impairment of real estate. BRT also notes that it has from time to time failed to comply with certain debt covenants, while stating it was materially in compliance with its credit facility at year-end.
  • Unusual reporting item: BRT disclosed an immaterial correction to prior-year cash-flow presentation, reclassifying escrow amounts. The filing says this increased previously reported operating cash flow by $425,000 and reduced investing cash flow by $3.596 million. The consolidated financial statements received an unqualified audit opinion; the auditor did not audit internal-control effectiveness.
  • The Chatham sale generated a $14.7 million gain for BRT and $19.4 million of net proceeds to BRT’s joint venture. The Takakura wrongful-death matter was settled and the company’s settlement cost was covered by insurance.

Most important facts for investors to verify

  • Whether the 2025–2027 mortgage maturities can be refinanced on acceptable terms, and the resulting interest costs, covenants and property-sale needs.
  • How occupancy, rental rates and expenses develop, especially at properties facing increased local supply; compare same-store results separately from the buyout-driven portfolio expansion.
  • Whether the $60 million credit facility remains available under borrowing-base and covenant requirements, and how much reported cash is actually accessible at the corporate level.
  • How joint-venture distributions, partner promote provisions and the Johns Island lease-up affect cash available to BRT.
  • Whether the current dividend is supported by recurring cash generation, given the 2023 GAAP earnings and management’s expectation that, absent property sales, a significant portion of 2024 dividends may be treated as return of capital for tax purposes.
  • Any subsequent developments in impairment indicators, insurance availability and costs, or the disclosed correction to prior-period cash-flow presentation.