Weathering Challenges in the Multifamily Sector BRT Apartments Corp. (BRT) is a real estate investment trust (REIT) that owns, operates, and holds interests in joint ventures that own multi-family properties. The company has a diversified portfolio of 29 multi-family properties with 7,947 units located across 11 states, primarily in the Southeastern United States and Texas. Over the years, BRT has navigated various market conditions, demonstrating its ability to adapt and create value for shareholders.
BRT’s performance has been tested by the uncertain economic environment, which has presented challenges such as high inflation, volatile interest rates, and rental rate decreases. The company’s property in Bells Bluff, West Nashville, Tennessee, has faced increasing competition from newly constructed multi-family properties in the area, leading to the need for rent concessions and reduced rental rates to maintain occupancy levels. Despite these headwinds, BRT has remained proactive in its approach, implementing strategies to mitigate the impact on its operations.
Company History and Growth BRT’s journey began in the 1960s when it was founded as a REIT focused on multi-family properties. The company is headquartered in Great Neck, New York, and has since grown to become a significant player in the multi-family REIT space. In its early years, BRT concentrated on acquiring and managing properties primarily in the Southeastern United States and Texas, gradually expanding its portfolio through strategic acquisitions and joint venture investments.
A key milestone in BRT’s history came in 2008 when the company significantly expanded its geographic footprint by acquiring a portfolio of properties in the Texas market. This move not only diversified BRT’s asset base but also positioned the company for further growth. During this period, BRT also made strategic investments in joint ventures, leveraging the expertise of local partners to enhance its market presence.
The late 2000s and early 2010s presented challenges for BRT as the broader real estate market experienced significant volatility. However, the company demonstrated its resilience by carefully managing its portfolio, disposing of underperforming assets, and focusing on improving the operational efficiency of its properties. These efforts allowed BRT to maintain its REIT status and continue growing its business despite the adverse market conditions.
Throughout the 2010s, BRT continued its expansion strategy, growing its multi-family portfolio through acquisitions and joint venture investments. The company also initiated efforts to modernize and upgrade its existing properties, investing in capital improvements to enhance the resident experience and maintain the competitiveness of its assets. These initiatives played a crucial role in strengthening BRT’s market position and increasing its appeal to both tenants and investors.
Diversifying Investment Strategies In response to the challenging acquisition environment and limited funds available for property acquisitions, BRT has explored alternative investment opportunities in the multi-family sector. The company has pursued preferred equity investments and bridge loans, providing it with a broader range of investment options beyond traditional property acquisitions. While these types of investments currently do not constitute a significant portion of BRT’s portfolio, the company’s willingness to explore alternative strategies demonstrates its adaptability and commitment to maximizing shareholder value.
Financials BRT has also made efforts to strengthen its balance sheet and liquidity position. In July 2024, the company amended its credit facility with an affiliate of Valley National Bank, reducing the borrowing capacity from $60 million to $40 million, extending the facility’s maturity to September 2027, and revising certain financial and other covenants. Additionally, in August 2024, BRT obtained a $27.4 million mortgage on its Woodland Trails property in La Grange, Georgia, with a fixed interest rate of 5.22% and an interest-only structure until maturity. These financing activities have provided the company with increased financial flexibility to navigate the current market environment.
For the fiscal year 2023, BRT reported revenue of $93.62 million, net income of $3.87 million, operating cash flow of $19.61 million, and free cash flow of $9.96 million. In the most recent quarter (Q3 2024), the company’s revenue was $24.40 million, with a net loss of $2.21 million. Operating cash flow for the quarter stood at $6.12 million, while free cash flow was $9.48 million.
The decrease in net income for Q3 2024 was primarily attributed to a $604,000 decrease in gain on sale of real estate, a $261,000 decrease in insurance recovery of casualty loss, and a $123,000 increase in interest expense. These factors were partially offset by a $310,000 increase in income tax benefit.
Liquidity BRT’s multi-family portfolio is diversified across 11 states, with the majority of properties located in the Southeastern United States and Texas. This geographic diversification helps mitigate the company’s exposure to regional economic fluctuations and provides a degree of stability to its rental income. Additionally, BRT’s investment in unconsolidated joint ventures, which own eight multi-family properties, further diversifies its asset base and provides additional revenue streams.
As of the most recent quarter, BRT’s liquidity position showed a debt-to-equity ratio of 2.31, cash and cash equivalents of $45.80 million, and an available credit line of $40.00 million. The company’s current ratio and quick ratio both stood at 0.26. The $40.00 million credit facility with VNB New York, LLC, an affiliate of Valley National Bank, allows BRT to borrow for property acquisitions, debt repayment, and operating expenses, subject to certain conditions. As of the most recent quarter, there was no outstanding balance on this credit facility.
Commitment to Shareholder Value Despite the challenges faced, BRT remains committed to creating long-term value for its shareholders. The company has maintained its quarterly cash dividend of $0.25 per share, demonstrating its confidence in the underlying strength of its business. BRT’s management team continues to evaluate the timing and amount of the dividend based on its assessment of the company’s cash and liquidity requirements, as well as its long-term prospects.
Looking Ahead As BRT navigates the current market conditions, the company’s ability to adapt, diversify its investment strategies, and maintain a strong balance sheet positions it well to weather the storm. The company’s diversified portfolio, focus on alternative investment opportunities, and dedication to shareholder value provide a solid foundation for its future growth and performance.
BRT’s real estate properties segment consists of 21 wholly-owned multi-family properties with 5,420 units, as well as ownership interests in eight additional multi-family properties with 2,530 units through unconsolidated joint ventures. As of September 30, 2024, the carrying value of BRT’s wholly-owned real estate properties was $619.52 million, while its investments in the unconsolidated joint venture properties had a carrying value of $31.57 million.
The company’s real estate portfolio generated rental and other revenue of $24.18 million and $71.25 million for the three and nine months ended September 30, 2024, respectively. Real estate operating expenses, including costs such as real estate taxes, insurance, and utilities, were $11.19 million and $32.61 million for the same periods. The increase in operating expenses was primarily due to higher real estate tax accruals, insurance premiums, and utility costs across several properties.
BRT’s share of the net income from its unconsolidated joint venture properties was $369,000 and $986,000 for the three and nine months ended September 30, 2024, respectively. Additionally, the company’s share of equity in earnings from the sale of one of the unconsolidated joint venture properties was $14.74 million in the nine-month period.
The unconsolidated joint venture properties are subject to $252.80 million in mortgage debt, which is not reflected on BRT’s consolidated balance sheet. This additional exposure to real estate assets and associated debt further underscores the company’s deep involvement in the multi-family real estate sector and its potential for both growth and risk management through diversified ownership structures.
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