BRT Realty Trust — Form 10-Q Summary
Reporting period: Three months ended December 31, 2013 (fiscal first quarter of 2014); comparisons are with the three months ended December 31, 2012. The filing identifies the registrant as BRT Realty Trust. BRT is a REIT focused on multifamily property ownership and operations, real estate lending, and commercial and mixed-use properties, including the Newark Joint Venture.
Financial performance and condition
| Metric | Q1 FY2014 | Prior-year quarter |
|---|---|---|
| Total revenue | $14.848 million | $7.910 million |
| Expenses | $18.669 million | $10.155 million |
| Loss from continuing operations | $3.821 million | $2.184 million |
| Net loss attributable to common shareholders | $2.733 million; $0.19 per share | $1.304 million; $0.09 per share |
| Operating cash flow | $(0.938) million | $0.295 million |
| Cash and cash equivalents at period end | $52.306 million | $60.265 million at September 30, 2013 |
| Total assets | $613.571 million | $549.491 million at September 30, 2013 |
| Total debt obligations | $411.882 million | $350.616 million at September 30, 2013 |
Continuing-operations loss was approximately 25.7% of revenue, versus 27.6% in the prior-year quarter; these percentages are calculated from reported figures. The filing does not provide a clear comparable same-property margin. Cash flow from investing was $(72.347) million, principally reflecting property additions; financing provided $65.326 million, including $61.611 million of increased mortgage borrowings and $5.300 million of non-controlling-interest contributions. Restricted construction cash was $25.074 million and was designated for Newark Joint Venture construction.
Material changes and operating activity
- Revenue rose 87.7%, primarily because of multifamily acquisitions and increased rental income. Rental and other property revenue increased to $13.439 million from $5.299 million.
- Interest and fees on real estate loans fell 39.4% to $1.138 million. Management attributed the decline to a lower average earning-loan balance, a lower average loan rate, and reduced loan-fee income; it expects lending activity to continue declining as it emphasizes multifamily investment.
- Common-shareholder net loss widened by $1.4 million. Management cited an $802,000 decline in lending income and a $485,000 increase in multifamily losses. Higher property operating costs, interest expense, and depreciation also reflected portfolio growth.
- BRT acquired six multifamily properties totaling 1,834 units for $81.5 million, with $61.3 million of acquisition mortgage debt. At December 31, its multifamily portfolio included 20 properties, including one held for sale, with 5,620 units and a $372.8 million book value.
- Real estate loans, net, declined to $20.250 million from $30.300 million at September 30. Multifamily properties, net, increased to $479.681 million from $396.021 million.
Liquidity, outlook, risks and unusual items
- Management reported approximately $52.3 million of liquidity at December 31, excluding restricted construction cash, and approximately $37 million at January 31, 2014. It believes available funds can cover 2014 operating expenses and anticipated capital contributions, but acquisition capacity depends on cash availability and access to mortgage financing.
- Teachers Village Phase II was expected to require approximately $34 million to complete. The filing cites $25.1 million of restricted cash and approximately $14.3 million of committed but unfunded loans and tax credits, subject to construction and permitting conditions; management gives no assurance that funding will be released or available as expected.
- The Newark Joint Venture was unprofitable. For the period from the second quarter of fiscal 2014 through fiscal 2015, it estimated at least $3.7 million of additional rental payments would be needed to cover debt service and operating expenses after considering identified funding sources and current tenant rents. Leasing, financing, project completion, and profitability remain uncertain. The venture was also seeking up to $33 million for another development project.
- A Lawrenceville, Georgia multifamily property was under contract for sale. BRT anticipated a second-quarter fiscal 2014 closing and estimated a $1.3 million gain, but stated there was no assurance the sale or gain would be realized.
- After quarter-end, BRT acquired a 400-unit Indianapolis property through an 80%-owned venture, contributing $5.3 million. It also entered a 74.4%-owned Greenville, South Carolina development venture, contributing approximately $6.4 million, with possible additional contributions of up to $3.3 million. The Greenville project’s construction financing is subject to customary conditions.
- BRT had approximately $54 million of net operating loss carryforwards and said a dividend in calendar 2014, or for several years thereafter, was highly unlikely. No dividend was declared in the quarter.
- Risks include competition and reduced demand in lending, interest-rate exposure, reliance on financing and leasing for development projects, and possible recapture of New Markets Tax Credit benefits if program requirements are not met. Management reported effective disclosure controls and no material change in internal control over financial reporting.
Important facts for investors to verify
- Whether the Lawrenceville sale closes and the estimated gain is realized.
- Whether Teachers Village construction funds and leasing targets are achieved, and whether the Newark Joint Venture’s projected funding needs change.
- Cash and restricted-cash balances after quarter-end, including the impact of the Indianapolis and Greenville investments and any further capital commitments.
- Debt levels, mortgage terms, and the ability of property cash flows to support debt service as the portfolio expands.
- Whether lending revenue continues to decline and multifamily operations improve enough to narrow losses; the filing cautions that interim results are not necessarily indicative of full-year results.