BRT Apartments Corp. annual report, FY2022

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BRT Apartments Corp. — 2022 Form 10-K

Reporting period: Fiscal year ended December 31, 2022. BRT is an internally managed REIT focused on multifamily properties. At year-end it wholly owned 21 properties with 5,420 units and held interests in eight joint-venture properties with 2,781 units, concentrated primarily in the Southeast and Texas.

Financial results and liquidity

  • Revenue: Total revenue was $70.5 million, up 120% from $32.1 million in 2021. Rental and other real estate revenue increased $38.5 million, chiefly because 11 properties became wholly owned through partner buyouts; same-store revenue also increased $2.6 million, primarily from higher rents.
  • Profit: Net income attributable to common stockholders was $50.0 million, or $2.66 per diluted share, versus $29.1 million, or $1.62, in 2021. Results included $64.5 million of BRT’s share of gains on joint-venture property sales. Revenue less expenses before equity earnings and sale gains was a loss of $15.0 million. Fourth-quarter net loss attributable to common stockholders was $4.2 million.
  • REIT operating measures: FFO was $23.2 million ($1.24 per diluted share), up 33%; AFFO was $28.4 million ($1.52 per diluted share), up 19%. NOI was $40.0 million versus $17.8 million; same-store NOI rose to $15.7 million from $14.1 million. These are non-GAAP measures and are not substitutes for GAAP earnings or cash flow.
  • Cash flow: Operating cash flow was $15.0 million, compared with cash used of $0.5 million in 2021. Investing activities used $19.4 million and financing activities used $13.4 million. Cash and cash equivalents were $20.3 million at year-end, with restricted cash of $0.9 million.
  • Debt: At December 31, gross consolidated mortgages were $408.0 million, junior subordinated notes were $37.4 million, and the credit facility balance was $19.0 million; reported debt obligations net of deferred costs were $459.4 million. Consolidated mortgage debt had a 4.00% weighted-average rate and 7.9-year weighted-average remaining maturity. Property mortgage debt, including unconsolidated ventures, had a 3.99% weighted-average rate and 7.2-year weighted-average term as disclosed in the filing.
  • Liquidity: Year-end available liquidity was approximately $61.3 million, including $20.3 million cash and $41.0 million available under the facility, subject to conditions. By March 1, 2023, reported liquidity was $75.3 million, with no facility balance and up to $60.0 million available.
  • Dividends and occupancy: BRT declared $0.98 per share in 2022, an 8.7% increase in the quarterly rate effective June 2022. Portfolio average occupancy was 95.9%. The dividend reinvestment plan reduced 2022 cash dividend outlay by $1.3 million.

Material changes versus 2021

  • BRT bought out partners in 11 joint ventures for $105.9 million, consolidating the properties and approximately $236.6 million of associated mortgage debt. The buyouts materially increased reported revenue, operating expenses, interest expense and depreciation.
  • BRT’s share of gains from four joint-venture property sales was $64.5 million in 2022. In 2021, BRT recorded $35.0 million of its share of joint-venture sale earnings, plus gains on other property and partnership-interest sales.
  • Real estate operating expenses increased 115% to $30.6 million; interest expense increased 130% to $15.5 million; and depreciation increased to $24.8 million from $8.0 million. Higher expenses largely reflected the buyouts and consolidation.
  • Same-store NOI increased by approximately $1.6 million, reflecting higher rental revenue partly offset by increased property expenses. General and administrative expense rose 16% to $14.7 million, including higher non-cash stock compensation.
  • Operating cash flow improved from a $0.5 million use to $15.0 million provided. Year-end cash declined to $20.3 million from $32.3 million, while debt increased following the partner buyouts.

Outlook, risks and unusual items

  • Property-level outlook: For the 11 buyout properties, management estimated 2023 rental revenue of $41.8 million, operating expense of $18.0 million, interest expense of $11.9 million and depreciation of $16.6 million. These are estimates, not company-wide guidance; management expected insurance costs and interest expense to rise.
  • Funding and maturities: BRT identified $118.4 million of mortgage balloon payments due in 2025–2026, including $33.5 million at unconsolidated joint ventures. It expects to use operating cash, mortgage financings or refinancings, property sales, equity issuance and the credit facility to meet obligations. Operating cash and available cash alone would not cover the balloon payments; unfavorable refinancing conditions could require asset sales or equity issuance.
  • Rates and insurance: The credit facility bears a floating prime rate; its rate was 7.50% at year-end and 7.75% on March 1, 2023. Junior subordinated notes totaling $37.4 million were tied to three-month LIBOR plus 200 basis points, creating transition risk as LIBOR was scheduled to cease. Management also warned of inflation-related operating costs, including insurance, taxes, utilities and maintenance.
  • Subsequent transactions: In February 2023, BRT obtained $21.2 million of 4.45% mortgage debt on Silvana Oaks and used the proceeds to repay its credit-facility balance. In March 2023, a joint venture contracted to sell Chatham Court and Reflections; BRT estimated its share of the gain at $14.3 million, subject to closing. BRT also agreed to acquire a 238-unit Richmond property for about $62.5 million, including assumption of approximately $32 million of 3.34% mortgage debt; completion remained conditional.
  • Other material matters: A fire at the Stono Oaks development led to an $8.6 million impairment recorded by the venture and an offsetting insurance recovery. A wrongful-death lawsuit seeks more than $1 million in unspecified compensatory damages plus exemplary damages; the insurer is defending the claim, but exemplary damages may not be covered. The filing reports no material environmental claims known to management.
  • Principal risks: Exposure to concentrated Southeast and Texas markets; refinancing and interest-rate risk; rising insurance and property expenses; joint-venture partner and property-manager risks; potential uninsured casualty losses; REIT qualification requirements; and possible impairment or reduced access to capital. Management reported effective disclosure controls and internal control over financial reporting; the auditor issued an unqualified opinion on the financial statements.

Key facts investors should verify

  • How much of reported earnings and year-over-year growth is attributable to property-sale gains versus recurring property operations; compare GAAP net income with FFO, AFFO and same-store NOI.
  • Current refinancing plans and lender terms for the $118.4 million of 2025–2026 balloon payments, and compliance with credit-facility covenants and borrowing-base requirements.
  • Whether insurance premiums, deductibles and coverage limits are adequate, particularly for wind, flood and other catastrophe exposure, and the realized effect of the master insurance program on expenses.
  • Whether the Chatham Court sale and Richmond acquisition closed on the anticipated terms and dates, and how proceeds, assumed debt and any gains affect liquidity and earnings.
  • Whether high occupancy and rent growth persist, and whether property-level expense inflation offsets rental gains.
  • The outcome and potential uninsured exposure of the wrongful-death litigation, as well as any material developments in the LIBOR transition for the junior subordinated notes.