UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 20032004
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or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For The Transition Period From ____________ to _______________.
Commission file number 1-7172001-07172
BRT REALTY TRUST
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(Exact name of registrant as specified in its charter)
Massachusetts 13-2755856
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(State or other jurisdiction (I.R.S. employer
of incorporation or organization) identification no.)
60 Cutter Mill Road, Great Neck, New York 11021
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 516-466-3100
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Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
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Shares of Beneficial New York Stock Exchange
Interest, $3.00 Par Value
Securities registered pursuant to Section 12(g) of the Act:
NONE
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(Title of Class)
Indicate by check mark whether the registrant (l) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in PART III of this Form 10-K or any
amendment to this Form 10-K [ ]
Indicate by check mark whether the registrant is an accelerated filer
(as defined in Exchange Act Rule 12b-2).
Yes X No X_
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The aggregate market value of voting and non-voting common equity held
by non-affiliates of the registrant was $46,890,507$83,886,000 based on the last sale price
of the common equity on March 31, 2003,2004, which is the last business day of the
registrant's most recently completed second quarter.
As of December 1, 20032004 the registrant had 7,531,1277,652,223 shares of
Beneficial Interest outstanding, excluding treasury shares.
DOCUMENTS INCORPORATED BY REFERENCEDocuments Incorporated By Reference
Portions of the proxy statement for the annual meeting of shareholders of BRT
Realty Trust to be filed not later than January 28, 20042005 are incorporated by
reference into Part III of this Form 10-K.
PART I
Item l. Business.
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General
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We are a real estate investment trust organized as a business trust in
1972 under the laws of the Commonwealth of Massachusetts. Our principal business
activity is to generate income by originating and holding for investment, for
our own account, senior and junior real estate mortgage loans secured by income
producing real
property. In addition, weWe also purchase and hold for investment senior orand junior
participations in existing mortgage loans originated by others securedand sell senior,
junior and pari passu participations in real estate mortgage loans originated by
income producing real property.us. On occasion, we participate as both lender to and an equity participant in
joint ventures which acquire income producing real property and we will originate and hold for
investment a loan secured by an
improveda commercial or multi-family residential property
that is vacant, pending renovation and sale or leasing. We have originated in
the past, and will consider in the future, loans to entities which own income producing real
property collateralized by pledges of ownership interests that directly or
indirectly control the real property under construction, secured by the individual owners'
partnership or limited liability company interests in the owning entity.property. This type of loan, is commonly referred to as
"mezzanine financing."financing", is subordinate to a conventional first mortgage loan and
senior to our borrower's equity. We also originate and hold for investment
participating mortgage loans secured by income producingreal property. Except forOur focus is to originate
bridge loans to our joint ventures and participating mortgage
loans, we seek and prefer to invest in loanssecured by improved real property with terms ranging from six
months to three years, referred to as bridge loans. Ayears. However, participating mortgage loan is
usuallyloans and loans to joint
ventures may provide for a term of one to five years.longer term.
We do not generally finance new construction, but will finance
renovation activities involved in rehabilitating and upgrading a property. From
time to time we have provided mortgage financing secured by undeveloped real
property. Finally, weWe have also invested in equity securities of other REITs,REITs. Cash
dividends received from these REIT investments, and the increase in the market
value and the subsequent sale of whichthese REIT securities, may account forgenerate income to
us, although we do not consider this to be part of our usualcore business activities.
We will originate loans secured by real property located anywhere in
the United States. In the past our activities have focused on the New York
metropolitan area, including New Jersey and Connecticut. During the last few
years, however, the scope of our lending activities hashave been national.more national in scope. As of September
30, 2003,2004, we had 3240 mortgage loans outstanding, aggregating $66,878,000$135,325,000
principal amount of loans outstanding before allowances of $881,000, which
include senior and junior mortgage loans, senior and junior participations in
mortgage loans, and loans to joint ventures. Our loan portfolio is secured by
real property located in 1013 states, of which 57%52% of the principal amount of our
outstanding loans were secured by properties located in the New York
metropolitan area, including New Jersey and Connecticut, 16%21% by properties
located in the State of California, 12%Tennessee, 10% by properties located in the State of
Delaware,Florida, and 15%17% by
properties in other States. Duringstates. From October 1, 20022003 to September 30, 2003, or2004, our 20032004
fiscal year, we originated $58,716,000$231,588,000 principal amount of loans, and received
payoffs and paydowns of $76,365,000$94,511,000 and sold participations of $68,630,000
principal amount of loans.
A majority of the mortgage loans originated and held by us bear
interest at a floating interest rate related to the prime rate, also referred to
as adjustable rate mortgages, with a stated minimum interest rate. A portion of our
mortgage loans are adjustable rate mortgages without a stated minimum interest rate, and a portion
of our mortgage loans provide for a fixed rate of interest. If the prime rate
declines, our revenues will decline, but this reduction willdecrease should be limited because
a majority of our mortgage loans provide for a stated minimum interest rate.
Conversely, the benefit to us of an increase in the prime rate willshould also be
limited to some extent because a portion of our portfolio provides for a fixed
rate of interest although a substantial number of mortgage loans in our
portfolio contain an adjustable rate interest provision.interest. Interest on mortgage loans held by us is payable monthly.
Furthermore, on first mortgage loans, we usually hold escrows, also payable
monthly, to cover real estate taxes and casualty insurance premiums. We may
require a borrower to fund an interest reserve out of the net loan proceeds,
from which all or a portion of the interest payments due to us are made for a
specified period of time.
We receive a commitment fee on substantially all mortgage loans we
originate and usually receive an extension fee in connection with the extension
of a loan. These fees are generally paid at the time a loan is funded or
extended. Commitment and extension fees are taken into income over the life of
the loan. If we issue a commitment and the loan is not consummated, the fee is
recognized as income at the expiration of the commitment. Non-refundableFor many of our
commitments we receive non-refundable fees, which includesinclude an advance against
projected legal fees, our due diligence costs and other projected miscellaneous
costs we expect to be incurred by us, are received for many
of our commitments.incur. In the 20032004 fiscal year, we earned $1,773,000$1,787,000 on all
commitment and loan related fees.
On September 30, 20032004 our mortgage portfolio consisted of 3240 mortgage
loans totaling $65,997,000$134,444,000 in aggregate principal amount, net of allowances of
$881,000, which represented 47%68% of our total assets. As of September 30, 2003,2004,
all outstanding loans, except for fourtwo mortgage loans in the principal amount of
$3,145,000,$3,096,000, with an allowance of $377,000$500,000 for loan losses, were earning
interest. The mortgage loans not earning interest represent approximately 4.7%2.29%
of theour outstanding loan portfolio at September 30, 2003.2004.
Of the principal amount of loans outstanding on September 30, 2003, 70%
represented2004, 85%
represent first mortgage loans or first mortgage loans in which we held a senior
or pari passu participation interest, and 30% represented15% represent second mortgage loans andor
junior participations.
During the fiscal year ended September 30, 20032004 in addition to
originating mortgage loans and purchasing participations in existing mortgage
loans, we were engaged in managing our loan portfolio, supervising the
management of real estate assets acquired in foreclosure and owned by us, overseeing the activities of joint
ventures in which we wereare involved as an equity participant, and leasing our real
estate assets. Approximately 9.4%6.92% of our total assets on September 30, 2003,2004, or
an aggregate of $13,066,000$13,680,000 after valuation allowances of $325,000, were
represented by real estate assets, excluding mortgage loans receivable but
including investments in joint ventures.
On September 30, 2003,2004, we had an investment of $33,748,000$40,121,000 in the
securities of other real estate investment trusts, or 24.3%20.3% of our total assets,
of which $32,844,000,$39,066,000, or 23.6%19.7% of our total assets, represented an investment in
the common shares of Entertainment Properties Trust ("EPR"). At September 30,
20032004 we owned 1,094,8001,033,500 common shares of the Common Stock of EPR, or 5.44% of EPR's
outstanding shares, at a book cost for book purposes of $14,381,000.$13,575,000. As
of September 30, 2003,2004, we had an unrealized gain on our investment in EPR of
$18,463,000,$25,491,000, and $248,000$446,000 of net unrealized gain on the securities of other real
estate investment trusts. In the 20032004 fiscal year, we sold 260,80061,300 shares of EPR
for a gain of $4,187,000 and since September 30, 2003 we have sold 35,600 additional
shares of EPR at a gain of $720,000.$1,378,000. We may from time-to-time purchase the securities of
other REITs and we may sell the shares we own in other REITs, including common
shares of EPR owned by us, if our management determines that any such
transaction would be beneficial to us. Under the Investment Company Act of 1940
if more than 40% of a company's assets are investment securities then such
company could be subject to the Investment Company Act of 1940. We monitor the
value of our securities portfolio in order to avoid being categorized as an
investment company.
Investment Policy
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We actively pursue lending opportunities with property owners who need
short-term interim financing until permanent financing can be obtained or the
property is sold. Our investment policy emphasizes the origination for our own
account of short-term senior and junior real estate mortgage loans secured by
liens on income producingimproved real property.property which generate rental income. We have on
occasion originated and held for investment a loanloans secured by an improved commercial
or multi-family residential property which is vacant, pending renovation and
sale or leasing.leasing and loans secured by undeveloped real property. We also, from
time-to-time, purchase a senior participationparticipations or a junior participationparticipations in an
existing short term bridge loanloans originated by others and sell on a junior,
senior or pari passu basis a participationparticipations in a loanloans originated by us. Junior
mortgage loans and junior participations in existing mortgage loans are
subordinate to one or more prior liens.
We act promptly on loan requests and provide loan commitments and close
transactions quickly, within a few weeks or days, if required. Our ability to
act quickly and close rapidly, if required, provides us with opportunities that
would not otherwise be awarded to us and permits us to be competitive with
lending firms offering similar lending products.
We also originate mortgage loans to joint ventures in which we are an
equity participant. If a determination is made by managementwe determine that a real property investment will provide
an opportunity to participate in capital appreciation, then we may make an
equity investment with a joint venturer, and make a mortgage loan, either senior
or junior, to the venture. At September 30, 2003,2004, we had $6,930,000$7,793,000 invested in
joint ventures in which we were an equity participant, and $3,159,000$2,080,000 in first
mortgage loans and $3,975,000$5,225,000 in second mortgage loans waswere due to us from these
joint ventures. Every mortgage loan made by us to a joint venture in which we
are an equity participant is secured by the real property owned by the venture.
In the past we have originated for our own account participating
mortgage loans. At September 30, 2003,2004, there were no participating mortgage
loans outstanding. However, we intend to place more emphasis on originating this
lending product in the balance of fiscal 2005 and in fiscal 2006. A
participating mortgage loan is secured by a first or second mortgage lien on income
producing real property and provides for a fixed or floating interest rate,
which is related to the prime rate. This fixed or floating interest rate is at a
somewhat lesser rate than the rate charged by us on our short-term mortgage loans, is
for a longer term, and provides for payment of "additional" or "appreciation"
interest either at the time of the sale or refinancing of the property securing
the loan or at the maturity of the loan. The additional interest is usually calculated
based on the incremental value of the property securing the mortgage from the
date the loan is consummated to the date the loan is paid off, but can also be
based on a fixed rate, or other negotiated criteria.
From time to timeOn a limited basis we originatehave originated mezzanine loans to the owner of
real property secured by some or all of the ownership interests inthat directly or
indirectly control the ownership entity,
usually partnership or limited liability company interests. Thesereal property. Mezzanine loans are juniorsubordinate to the
direct mortgage or mortgages placed on the property owned byand senior to the
equity of the ownership entity.
We have no fixed policy or limitation on the amount or percentage of
our assets which we may invest in a single mortgage loan. The largest loan
originated in our 20032004 fiscal year was $14,000,000,$35,000,000, of which no amount$6,530,000 is
currently outstanding. Theoutstanding at September 30, 2004 after we sold, at par, participating interests
of $26,250,000. We will sell junior or pari passu participations in larger loans
originated by us in order to reduce our exposure. There is a continuing trend over the past few years has been
for larger loan transactions, with the principal amount originated per loan
transaction increasing year over year. DuringFor the year ended September 30, 2004,
the average loan originated was $7,986,000 compared to $3,650,000 for the year
ended September 30, 2003 the average
loan originated was $3,650,000 compared toand $2,575,000 duringfor the year ended September 30, 2002. Since October 1, 2003 we have originated a mortgage loan to
one borrower in the principal amount of $23,500,000.
Our lending activities are nationwide. As of September 30, 2003,2004, we
have loans outstanding that are secured by properties located in 1013 states. It
is not our present intent to originate or otherwise invest in any mortgage loan
secured by property located outside the United States and Puerto Rico.
Loan approvals and approval of joint venture investments are based on a
review of information submitted by the proposed borrower or proposed joint
venturer, as well as due diligence activities undertaken by us, including a site
visit to the property, a title review of the underlying property, in-house
property evaluations, a review of the results of operations of the property or
in case of an acquisition by our borrower a review of the borrower's projected
results of operations for the property, and a review of the financial condition
of the prospective borrower. Final approval is determinedA loan or joint venture investment must be approved
by aour loan committee, consisting of several of our executive officers, and must be obtained before a
loan commitment is issued. Board approval is required for each loan which
exceeds $10,000,000$15,000,000 in principal amount. In addition,amount and Board approval also must be obtained
where the loans to one borrower exceed $15,000,000 in most instances, we receive an
environmental study which is paid for by the potential borrower.aggregate. We do not
require a property appraisal by an independent appraiser.
We use our own capital for investing in mortgage loans and joint
ventures. In addition, we have arranged a credit facility with North Fork Bank
to make funds available for real estate mortgage lending. Under the credit
facility, North Fork Bank makes available up to $30,000,000$60,000,000 on a revolving
basis. The maximum amount which can be outstanding under the credit facility is
the lesser of 65% of first mortgages pledged to North Fork Bank as collateral or
$30,000,000.$60,000,000. At September 30, 2003, $21,061,0002004, $54,362,000 was available under the facility
and $1,000,000$43,050,000 was outstanding. At December 1, 2003 $30,000,0002004 $60,000,000 was available
under the facility and $7,250,000$30,550,000 was outstanding. The credit facility matures
on JuneJuly 1, 2006 with two one-year extensions available to us. Borrowings under
the facility bear interest at prime plus 1/2 of 1% (currently 4 1/2%5.25% per annum).
The loan agreement between us and North Fork Bank contains affirmative and
negative covenants, including a minimum net worth requirement that the ratio of $70,000,000, as defined in the agreement,bank debt to
shareholders' equity shall not exceed 50%, and a required debt coverage ratio.
The definition of net worth excludes any securities available-for-sale owned by
us and, as computed in accordance with the loan agreement, was $89,578,000 at
September 30, 2003.
We are in compliance with all covenants.
We also have the ability to borrow under a margin line of credit
maintained with Wachovia Securities LLCa national brokerage firm, secured by the shares of stock we own
in EPR.Entertainment Properties Trust. Borrowings under the margin line of credit
currently bears interest at 3%3.5% per annum. At September 30, 2003 $13,138,0002004, $13,625,000
was available under this facility, of which we had $3,755,000$10,812,000 was outstanding. At
December 1, 2003, $10,201,0002004, $10, 340,000 is outstanding under the margin facility.
Since the spreads between the interest paid by us on the credit line
and the margin credit line and the interest paid to us by a borrower can range
from approximately 5%4% to 10%, the use of leverage increases our yields.
The mortgage loans that we originate generally provide for recourse to
our borrowers, but are not insured, in whole or in part, as to collectability.
We will obtainrequire in substantially all of the loans originated by us either a personal
guarantee or a "walk-away guarantee" from the principal or principals of the
borrower for most loans originated.borrower. A "walk-away guarantee" provides in substance that the full guarantee
terminates only if the borrower conveys title to the property to us within a
negotiated period of time after a loan default subject to the satisfactionand compliance by the borrower or
the guarantor of specific requirements, such as current payment of all real
estate taxes and operating expenses. The "walk-away guarantee" is intended to
provide an incentive to the principals of a borrower to have the collateral
deeded to us, in lieu of foreclosure, thereby eliminating the need for
foreclosure proceedings in situations where the borrower runs the risk of losing
the property in a foreclosure and the principals of the borrower have the
further risk of being personally responsible on his guaranty for any shortage in the amount we
recover in the foreclosure proceeding. In specific loan situations, we may
require additional collateral unrelated to the property and if we have made more
than one loan to a borrower we may require that all outstanding loans be cross
collateralized.
Loan defaults will reduce our current return and may require us to
become involved in expensive and time consuming procedures, including
foreclosure and/or bankruptcy proceedings. In the event of a default by thea
borrower on a mortgage loan, we will foreclose on the mortgage or other
collateral held by us or seek to protect our investment through negotiations
with the borrower or other interested parties, which may involve further cash
outlays. During a foreclosure proceeding, we will usually not receive interest
payments under our mortgage. Foreclosure proceedings in certain jurisdictions
can take a considerable period of time, up to two years, or more, in many
instances. In addition, if the borrower files for protection under the federal
bankruptcy laws during the foreclosure process, then the delays may be longer. In a
mortgage foreclosure proceeding, we will typically seek to have a receiver
appointed by the Courtcourt or an independent third party property manager appointed
with the borrower's agreement in order to preserve the rental income stream and
provide for the maintenance of the property. At the conclusion of the
foreclosure or negotiated workout process, which occurs after the property is
either sold at auction to a third party purchaser, acquired by us, or the
workout process results in the borrower or its designee retaining the property,
then the amounts, if any, collected by the receiver or the third party manager,
less costs and expenses of operating the property and the receiver's or
manager's fees, are usually paid over to us. Except for two non-earning loans in
the outstanding principal amount of $3,096,000 which are in default and are in
foreclosure and one non-earningearning loan in the outstanding principal amount of
$650,000,$8,200,000 which iswas in default, and is in
foreclosure and three cross-collateralized loans in the total principal amount
of $2,495,000 which is the subject of a single foreclosure action,proceeding and is
now subject to a stipulation and is performing, no other foreclosure proceedingsproceeding
commenced by us were pendingwas active as of September 30, 20032004 and as of the date of this
filing.
When we invest in junior mortgage loans, junior participations in
existing loans or if we invest in the future in mezzanine loans, secured by
partnership or limited liability company interests, the collateral securing our loans are, or will be,is
subordinate to the liens of senior mortgages or senior participations. At
September 30, 2003,2004, approximately 30%15% of our real estate mortgages, or
$19,842,000$20,507,000 in principal amount, were represented by junior mortgages or junior
participations. In certain cases, we may find it advisable to make additional
payments in order to maintain the current status of prior liens or to discharge
them entirely or to make working capital advances to support current operations.
It is possible that the amount which may be recovered by us in cases in which we
hold a junior position may be less than our total investment, less allowances
for possible losses, and we could lose our entire investment in that loan.
Current Loan Status
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Our lending activities focus on income producingimproved operating properties such as
multi-family residential properties, residential condominiums, office buildings, shopping centers, mixed
use buildings, hotels/motels and industrial buildings. As of September 30, 2003,2004,
we had 3240 mortgage loans in our mortgage portfolio, totaling $66,878,000$135,325,000 in
aggregate principal amount and $65,997,000$134,444,000 after allowances for possible losses
of $881,000 against 4placed on three loans. During the year ended September 30, 2003, $58,716,0002004,
$231,588,000 of mortgage loans were originated or acquired and $76,365,000$94,511,000 of
outstanding loans were repaid in whole or in part.part and we sold participation
interests of $68,630,000. The three largest mortgage loans outstanding at
September 30, 20032004 of $10,400,000, $8,200,000$13,994,000, $11,815,000 and $4,916,000$11,000,000 represent 7.48%7.07%,
5.90%5.97% and 3.54%5.56%, respectively, of our total assets. No other mortgage loan
accounted for more than 3.5%5.03% of our total assets on September 30, 2003.2004. As of
December 1, 20032004, the three largest mortgage loans outstanding in principal
amount were $23,500,000,
$10,400,000$14,000,000, $11,934,000 and $8,200,000.$9,950,000.
Loan originations are generated, and senior or junior loan
participations are acquired, by us in a number of ways. To a large extent, we
rely on the relationships developed by our officers and loan originators with
real estate investors, commercial real estate brokers, mortgage brokers, and
bankers. In addition, we advertise our programs and activities in real estate
publications and journals and our executive officers and loan originators attend
industry activities and trade shows. As a result of our advertising and
promotional activities and our participation in trade shows, our transactions
have expanded nationally. We have also experienced a great deal of repeat
business with our borrowers.
The following sets forth information regarding our mortgage loans outstanding at
September 30, 2003:2004:
Interest Non-Interest Prior No. of
Total Earning Earning Liens Loans
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First mortgage loans:
Long-term
Residential (Multi-Family) $ 41,000 $ 41,000 $$36,000 $36,000 - $ - 1
Short-term (five years or less):
Shopping centers/retail 17,544,000 17,544,00037,065,000 37,065,000 - - 5
Industrial buildings 5,985,000 5,985,0004,929,000 4,929,000 - - 3
Office buildings 5,826,000 5,176,0002,735,000 2,085,000 650,000 - 43
Residential 17,640,000 16,112,000 1,528,00065,255,000 62,809,000 2,446,000 - 1117
Land4,798,000 4,798,000 - - - 2
Second mortgage loans and junior participations:
Short-term (five years or less):
Residential 18,817,000 17,850,000 967,000 93,496,000 511,426,000 11,426,000 - 54,696,000 4
Retail 475,000 475,0008,531,000 8,531,000 - 2,509,000 214,804,000 4
Office 550,000 550,000 - 3,767,0003,638,000 1
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$66,878,000 $63,733,000 $ 3,145,000 $99,772,000 32135,325,000 132,229,000 3,096,000 73,138,000 40
As of September 30, 2003,2004, we had allowances for possible losses on our
real estate mortgage portfolio of $881,000. The allowances were on fourthree
mortgage loans with a total principal balance outstanding of $5,452,000.$4,919,000. In
determining the allowance for possible loan losses, we take into account a
number of factors including a market evaluation of the underlying collateral,
the underlying property's estimated cash flow during the projected holding
period, and estimated sales value computed by applying an expected
capitalization rate to the stabilized net operating income of the specific
property, less estimated selling costs. We also take into account the extent of
liquidity in the real estate industry, particularly in the New York metropolitan
area where approximately 57%52% of our portfolio is located. Management monitors a
borrower's performance and compliance with the loan documents and where we hold
a junior lien, we monitor the status of payments to the first mortgagee and
payment of real estate taxes. Our management reviews the loan portfolio on a
quarterly basis to determine if allowances are needed.
When a mortgage loan is in default, we may acquire the underlying
property through foreclosure or may take other action as is necessary to protect
our investment. In negotiated workouts, we seek to acquire title to a property
and in certain cases in the past we have acquired title to a property from our
borrower and afforded the borrower the opportunity to reacquire the property
within a specified period of time at a fixed price.
Investment in EPR
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As of September 30, 2003,2004, we owned 1,094,8001,033,500 common shares of
Entertainment Properties Trust (NYSE:EPR), constituting approximately 5.44%4.21% of
the 20,124,83324,541,388 common shares of EPR outstanding. The shares were purchased at an
average cost for book purposes of $13.14 per share. As of September 30, 2003,2004,
the value of this investment was $32,844,000,$39,066,000, or $30.00$37.80 per share. In the 20032004
fiscal year, EPR paid or declared cash dividends to its shareholders at a
quarterly rate of $.50$.5625 per share, which provided us with an annual yield of
15.22%16.6% on our book cost. In the 20032004 fiscal year, we sold 260,80061,300 of our EPR
shares for a gain of $4,187,000.$1,378,000. Our management will determine whether or not to
dispose of any EPR shares in the fiscal year ending September 30, 2005 depending
on EPR's results of operations and business prospects, as well as our needs and
requirements.
Information with respect to the business of EPR is generally available
from its filings with the Securities and Exchange Commission, including its
Annual Report on Form 10-K for the year ended December 31, 2002, as well as2003, and Form 10-Q's
and Form 8-K's filed by EPR since January 1, 2003.2004. We have not independently
verified any of the information contained therein with respect to
EPRin those filings and we disclaim any
responsibility for the accuracy or completeness thereof. We have no knowledge of
the business, financial condition or results of operations of EPR, other than as
set forth in the reports filed by EPR with the Securities and Exchange
Commission, published industry reports related to the exhibition of motion
pictures, and analysts reports relating to EPR.
Competition
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With respect to our real estate lending activities, we compete for
investments with other mortgage REITs, commercial banks, savings and loan
associations, specialty finance companies, conduits, pension funds, public and
private lending companies, and mortgage banking firms. Competition for mortgage
loans is highly competitive, with lenders competing on rate, fees, amounts
committed, term and service. Many of our competitors possess greater financial
and other resources than we have. Competitive variables include market
visibility, size of loans offered and underwriting standards. To the extent a
competitor is willing to risk larger amounts in a particular transaction, or
employ more liberal underwriting standards, our origination volume and profit
margins could be adversely impacted. We compete by offering rapid response time
in terms of approval and closing and by offering "no prepayment penalty" loans
and we may offer a higher loan to value ratio than institutional competitors. In
order to compete more effectively, we have engagedengage in more activea national advertising and
marketing activities, which has
expanded our lending activities on a more national basis.program.
Employees
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We share executive, administrative, legal, accounting and clerical
personnel with several affiliated companies, including, among others Gould
Investors L.P., a partnership involved in various investment activities,
including the ownership and operation of a diversified portfolio of commercial
real estate, and One Liberty Properties, Inc., an equity REIT which owns a diversified
portfolio of real estate under long-term leases. Jeffrey A. Gould, our President
and Chief Executive Officer, George Zweier, our Vice-President and Chief
Financial Officer, two officers engaged in loan origination and underwriting
activities, and one other person engaged in administrativeunderwriting activities devote all,
or substantially all, of their business time to our activities. The balance of
the other persons who devote time to our activities do so on a part-time basis
pursuant to a Shared Services Agreement under which their payroll is allocated
among the parties to the agreement based on time devoted to the affairs of the
participating parties. We believe this sharing arrangement provides us with
access to senior executives and professionals with substantial experience in
real estate and real estate lending that a company of our size would not
otherwise be able to afford.
In addition, we have entered into an agreement with REIT Management
Corp. pursuant to which it acts as our advisor. Subject to the supervision of
our Board of Trustees, REIT Management Corp. participates in originating and
evaluating loans and other investment opportunities, provides property
inspection services in connection with loan originations, andprovides construction
related activities, directsservices, participates in negotiations in workout situations with
respect to non-earning and delinquent loans and supervises and provides support
services in litigation activities.
We engage entities, including entities affiliated with REIT Management
Corp., to manage properties, including cooperative apartments, held by us and
some of the joint ventures in which we have an equity interest. These management
services include, among other things, rent billing and collection, property
maintenance, contractor negotiation, construction management, sales, leasing and
mortgage brokerage. In management's judgment, theThe fees paid by us to REIT Management Corp. and entities
affiliated with REIT Management Corp. are competitive with
fees that would be charged for comparable serviceshave been approved by unrelated entities.
Proposed Business Activitya majority of the
Board of Trustees, including a majority of the independent Trustees.
Available Information
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You can access financial and other information regarding our company on
our website, www.brtrealty.com. We are in the processmake available, free of drafting the documentation to organize and
obtain regulatory approval to operate a federally chartered savings and loan
association. Regulatory approval will be required from the United States Office
of Thrift Supervision and the Federal Deposit Insurance Corporation. We plan to
operate the "de novo" bank as a wholly owned taxable REIT subsidiary with a
capitalization of $20,000,000. The current plan is for the institution to act as
a community oriented bank attracting deposits from its market area by offering
competitive rates and investing these deposits, together with funds from
on-going operations and borrowings into the origination of multi-family,
commercial real estate, and to a lesser extent one-to-four family residential
loans, construction loans and consumer loans. The "de novo" bank will service
the New York Metropolitan Area, including the five boroughs of New York City,
Nassau, Suffolk, Rockland and Westchester Counties and Northern New Jersey.
There can be no assurance that we will be successful in organizing the
"de novo" bank and obtaining regulatory approvals. The process of filing and
obtaining approval may take nine months or longer and if we are successful in
obtaining all approvals, we do not contemplate that we could commence operations
until the last quartercharge, copies of our
2004 fiscal yearannual report on Form 10-K, quarterly reports on Form 10-Q, Current Reports on
Form 8-K and Amendments to those reports filed or the first quarter of our 2005
fiscal year. We do not contemplate that the operationfurnished pursuant to Section
13(a) or 15(d) of the bank will have aSecurities Exchange Act of 1934 as soon as reasonably
practicable after electronically filing such material effect on our business for several years. We anticipate spending
approximately $300,000 in our 2004 fiscal year in organizingwith, or furnishing such
material to, the "de novo" bank.
Securities and Exchange Commission.
Risk Factors
------------
In addition to the other information contained or incorporated by
reference in this Form 10-K, readers should carefully consider the following
risk factors
Risks Related to Our Business
- -----------------------------
Defaults on Loans by borrowers would result in decrease in income. - We
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originate uninsured and non-investment grade mortgage loans. While holding such
mortgage loans we are subject to risks of borrower defaults and bankruptcies.
Loan defaults will result in a decrease in interest income and an increase in
loan loss reserves. The decrease in interest income resulting from loan defaults
may be for a prolonged period of time as we seek to recover the principal
balance and accrued interest due to us plus default interest and our legal costs
in legal proceedings, including foreclosure actions and bankruptcy and
reorganization proceedings. These legal proceedings are expensive and time
consuming. The decrease in interest income and the costs involved in seeking to
recover the amount due to us will reduce the amount of cash available to meet
our expenses. The decrease in interest income, the costs involved in seeking to
recover the amount due us, combined with increases in loan loss reserves will
also have an adverse impact on our net income, taxable income and shareholders'
equity. The decrease in interest income and the costs involved in seeking to
recover the amounts due to us could also have an adverse impact on the cash
distributions paid by us to our shareholders and our ability to continue to pay
cash distributions.
Our primary source of recovery in the event of a loan default is the
real property underlying a defaulted loan and therefore the value of our loan
depends upon the value of the underlying real property. The value of the
underlying property is dependent on numerous factors outside of our control,
including national, regional and local business and economic conditions,
government economic policies, the level and volatility of interest rates, and
non performance of lease obligations by tenants occupying space at the
underlying real property.
If a significant number of our mortgage loans are in default or we
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otherwise must write down our loans, a breach of the Net Worth Covenantcovenants of our - -----------------------------------------------------------------------------
bank line
- -------------------------------------------------------------------------------
of credit could occur. - If a significant number of our mortgage loans - ----------------------------------
are in
- ----------------------
default and/or a recessionary environment exists under which generally accepted
accounting principles require us to take provisions against our loans or against
our real estate assets, our net worthshareholders' equity could be materially adversely
affected. IfUnder our net worth, as defined, falls below $70,000,000, we would be in
breach of the minimum net worth covenant contained in the credit line we
maintainagreement with North Fork Bank. The definitionBank, the ratio of net worth inbank
debt to shareholders' equity cannot exceed 50%, the minimum ratio of
shareholders' equity (including available for sale securities) to debt can not
be less than 2:1 and our credit line
agreement doesannual debt service coverage ratio (based on the amount
of debt whether advanced or not give effect to any securities owned by us, including our
ownership of shares of EPR. Our net worth at September 30, 2003, computed in
accordance with the credit agreement, was $89,578,000.advanced) shall not be less than 1.65:1.
A breach by us of the net worth covenantany of these covenants would place us in default
under our loan agreement with North Fork Bank and. If, as a result of a breach of
one or more of these covenants, which could occur if there is a decline of
approximately $22,982,000 in our shareholders' equity, the Bank called a default
and required us to repay the full amount outstanding under the loan agreement,
we could be required to dispose of assets in a rapid fashion, which could have
an adverse impact on the amounts we would receive on such disposition. If we
could not dispose of assets in a timely fashion to the satisfaction of the Bank,
the Bank could foreclose on all or any portion of our loan portfolio pledged to
the Bank as collateral, which could result in loans being disposed of at below
market values. Disposition of loans at below our carrying value would adversely
affect net income, reduce our net worth and adversely affect our ability to pay cash distributions to
shareholders.
Inability of our Borrowersborrowers to Refinancerefinance or Sellsell the Underlying Realunderlying real
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Propertyproperty would lead to defaults on our loans. - A majority of our mortgage
- -------------------------------------------------------------------------------------------
portfolio is short term and the preponderance of our portfolio is due within fivetwo
years. In addition, our borrowers are required to pay all or substantially all
of the principal balance of our loans at maturity, in most cases with little or
no amortization of principal over the term of the loan. Accordingly, in order to
satisfy this obligation, at the maturity of a loan, a borrower will be required
to refinance or sell the property or otherwise raise a substantial amount of
cash. The ability to refinance or sell or otherwise raise a substantial amount
of cash is dependent upon factors which neither we nor our borrowers control,
such as national, local and regional business and economic conditions,
government economic policies, and the level and volatility of interest rates. If
a borrower is not able to pay the balance due at maturity, and we are not
willing to extend or restructure the loan, we will in most cases be required to
foreclose on the property, which can be expensive and time consuming and could
adversely affect our net income, shareholders' equity and cash distributions to
shareholders.
A Significantsignificant portion of our loans are Subordinate Loans.subordinate loans. - At
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September 30, 2003 eight2004, nine of our loans, constituting $19,842,000$20,507,000 in principal
amount, or 30%15% of the carrying value of our loan portfolio, were junior mortgage
loans or junior participations in mortgage loans. Because of their subordinate
position, junior liens carryhave a greater credithigher degree of risk than senior lien financing,liens, including
a substantially greater risk of non-payment of interest or principal. A decline
in real estate values in the region in which the underlying property is located
could adversely affect the value of our collateral, so that the outstanding
balance of senior liens may exceed the value of the underlying property.
In the event of a default of a junior lien, we may elect to make
payments to the senior mortgage holder, if we have the right to do so, in order
to prevent foreclosure of the senior position. In certain situations we may not
have the right to elect to make payments to the senior position, and the senior
lienholder may refuse to allow us to make any such payments. In such a
situation, or if we elect not to make payments even if we have the right to do
so, the senior lienholder may foreclose;foreclose in which event we may not have full
recourse to the assets of the borrower or the assets may not be sufficient to
satisfy our loan and we will be entitled to share in the proceeds of the
foreclosure sale only after amounts due to senior lienholders have been paid in
full. This can result in the loss of all or part of our investment, adversely
affecting our net income, shareholders' equity and cash distributions to
shareholders.
Our Loansloans may have High Loanhigh loan to Value Ratios.value ratios. - The loan to value ratio
---------------------------------------------
of certain of our loans exceedsoriginated by us may exceed 80%. Loan to value ratio is defined as the
ratio of the amount of our loan, plus any senior indebtedness, to the value of
the real property underlying the loan as determined by our own in-house valuation
procedures. The higher the loan to value ratio, the greater the risk that upon
default the amount obtainable from a foreclosure or bankruptcy sale may be
insufficient to repay the loan in full. In addition we may find it necessary to
acquire the property at a foreclosure sale or bankruptcy auction, in which event
we assume the risks and(and realize any benefitsbenefits) that may be derived from
ownership.
Our Portfolio Lacks Geographical Diversification.portfolio lacks geographical diversification. - We have not
-------------------------------------------------
established a limit upon the geographic concentration of properties underlying
our loans. As of September 30, ---------------------------------------------------
2003, 57%2004, 52% of the principal amount of our
outstanding loansloan portfolio were secured by properties located in the New York
Metropolitan Area, including New Jersey and Connecticut, although we originate
and hold for investment loans secured by real property located anywhere in the
United States and Puerto Rico. A lack of geographical diversification may make
our mortgage portfolio more sensitive to local or regional economic conditions,
which may result in higher default rates than might be incurred if our portfolio
was more geographically diverse.
We face stiff Competitioncompetition for Loans.loans. - We encounter significant
------------------------------------
competition from other REITS,REITs, banks, conduits, pension funds, public and private
lending companies and mortgage bankers. At times we have to compete based on
yield, which could reducereduces our returns. We seek to compete by offering rapid response
time in terms of approval and closing. In addition, the real estate expertise of
our executive group provides us with the ability to understand and structure
complex loan transactions. However, many of our competitors have substantially
greater assets than we do and therefore have the ability to make larger loans.
An increase in funds available to lenders, or a decrease in borrowing activity,
may increase competition for making loans and may result in loans available to
us having a greater risk. In addition, we gain competitive advantage by being able
to underwrite and close loans within a short time frame. If our underwriting is
not thorough due to the short time frame within which it is performed, we may
fail to identify certain risks that we would otherwise have identified.
We face risks relating to fluctuations in the Real Property Markets.real property markets. -
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We are subject to the general risks of the real estate market. These include
adverse changes in general and local economic conditions, demographics,
retailing trends and traffic patterns, competitive overbuilding, casualty
losses, terrorist activities, and other factors beyond our control. The value of
the collateral underlying our loans, as well as the real estate owned by us and
by joint ventures in which we participate, may also be negatively affected by
factors such as the cost of complying with regulations and liability under
applicable environmental laws, interest rate changes and the availability of
financing. Income from a commercial or multifamily residential property will
also be adversely affected if a significant number of tenants are unable to pay
rent, if tenants terminate or cancel leases, or if available space cannot be
rented on favorable terms. Operating and other expenses of properties,
particularly significant expenses such as real estate taxes, maintenance costs
and casualty and liability insurance costs, generally do not decrease when
income decreases and even if revenues increase, operating and other expenses may
increase faster than revenues.
Casualty Risk.risk. - All of our borrowers obtain, for our benefit,
--------------
comprehensive insurance covering the property collateralizing our loan in an
amount intended to be sufficient to provide for the replacement of the
improvement at the property in the event of casualty. In addition, joint
ventures in which we are a participant carry comprehensive insurance covering
the property owned by the venture for the replacement cost of the improvements
at such property in the event of a casualty and we carry insurance for such
purpose on properties owned by us. However, the amount of insurance coverage
maintained for any property may not be sufficient to pay the full replacement
cost of the improvement following a casualty event. In addition, the rent loss
coverage under a policy may not extend for the full period of time that a tenant
may be entitled to a rent abatement that is a result of, or that may be required
to complete restoration following, a casualty event. In addition, there are
certain types of losses, such as those arising from earthquakes, floods,
hurricanes and terrorist attacks that may be uninsurable or that may not be
economically insurable. Changes in zoning, building codes and ordinances,
environmental considerations and other factors may make it impossible for our
borrower, a joint venture or us, as the case may be, to use insurance proceeds
to replace damaged or destroyed improvements at a property. If any of these or
similar events occur, the amount of coverage may not be sufficient to replace a
damaged or destroyed property and/or to repay in full the amount due on all
loans collateralized by such property and, therefore, may reduce our returns and
the value of our investment.
Other Risk Factors
- ------------------
Senior Management and Key Personnelkey personnel are Criticalcritical to our Businessbusiness and
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our Future Successfuture success may Dependdepend on our Abilityability to Retain Them.retain them. - We depend on the
- --------------------------------------------------------------------------------------------------------------------------
services of Fredric H. Gould, Chairman of our Board of Trustees, Jeffrey A.
Gould our President and Chief Executive Officer, and other members of our senior
management to carry out business and investment strategies. Only four officers,
Jeffrey A. Gould, George Zweier, Vice President and Chief Financial Officer and
David Heiden and Mitchell Gould, Vice Presidents, devote all, or substantially
all, of their business time to our company.affairs. The remainder of our senior
management personnel share their services on a part-time basis with entities
affiliated with us and located in the same executive offices under a Shared
Services Agreement. In
addition, Jeffrey A. Gould devotes a limited amount of his business
time to entities affiliated with us. As we grow our business, we willmay need to
attract and retain qualified senior management and other key personnel, both on
a full-time and part-time basis. The loss of the services of any of our senior
management or other key personnel or our inability to recruit and retain
qualified personnel in the future, could impair our ability to carry out our
business and our investment strategies.
Relationships and Transactionstransactions with Affiliates Involve Conflictsaffiliates involve conflicts of
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Interest.interest. - Entities affiliated with us and with certain of our officers provide
- --------------------
services to us and on our behalf and we intend to continue the relationships
with such entities in the future. For a description of our current relationships
and transactions with affiliates, please see the information under the
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Certain Transactions". Although we seek to have such services
provided by affiliates at competitive market rates, there is the potential that
we may not receive terms in these transactions as favorable as those we would
receive if the services were provided by unaffiliated entities pursuant to
competitive bid.
We May Have Less Controlmay have less control of our Investment When We Investinvestment when we invest in Jointjoint
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Ventures.ventures. - We have made loans to and acquired equity interests in joint
- --------------------
ventures that own income producing real property. Our co-venturers may have
different interests or goals than we do or our co-venturers may not be able or
willing to take an action that is desired by us. If we or our co-venturers have
a disagreement with respect to the activities of the joint venture, it could
result in a substantial diversion of time and effort by our management and could
result in one of the co-venturers (including us) exercising the buy/sell
provision typically contained in our joint venture organizational documents. In
addition, there is no limitation under our charter documents as to the amount of
funds that may be invested in joint ventures. Accordingly, we may invest a
substantial amount of our funds in joint ventures which ultimately may not be
profitable as a result of disagreement with or among co-venturers.
We Cannot Assurecannot assure our Abilityability to Pay Dividendspay dividends in the Future.future. - We
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intend to pay quarterly cash distributions and to make cash distributionsdividends to our
shareholders in amounts such that all, or substantially all, of our taxable
income in each year, subject to adjustments, is distributed. This along with
other factors should enable us to qualify for the tax benefits afforded a REIT
under the Internal Revenue Code. We have not established a minimum cash distributiondividend
payment level and our ability to pay cash distributionsdividends may be adversely affected by
the risk factors described above.in this "Risk Factors" section. All cash distributionsdividends
will be made at the discretion of our Board of Trustees and will depend on our
taxable earnings, our financial condition, maintenance of our REIT status and
such other factors as our Board of Trustees may deem relevant from time-to-time.
We cannot give any assurance that we will be able to pay cash distributionsdividends in the
future.
Effect of Decreasedecrease in Market Valuemarket value of, or Cash Distributions Paidcash distributions paid on,
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EPR Stock.stock. - The value of the shares of Entertainment Properties Trust owned by
- ------------
us at September 200330, 2004 was $32,844,000$39,066,000, while our cost basis was $14,381,000.$13,575,000.
At September 30, 20032004, our balance sheet reflects as an asset $36,354,000$41,491,000 of
available-for-sale securities, of which $32,844,000$39,066,000 represents the market value
of the shares of EPR owned by us on September 30, 20032004 and $18,463,000,$26,162,000, or 15%19.8%
of our shareholders' equity, represents the difference between our cost basis
for such sharesthe securities and the market value for such shares. We have no business
relationship, affiliation with, or influence over or input concerning the business
or operations of EPR. Any substantial decrease in the market value of EPR
shares, whether resulting from activities of EPR, its management, market forces
or otherwise could result in a material decrease in our total assets and in our
shareholders' equity.
Our ownership of shares of EPR resulted in the receipt by us for the
fiscal year ended 20032004 of cash dividends of $2,464,000.$2,271,000. In the fiscal year endingended
September 30, 20032004, we sold 260,80061,300 EPR shares for a gain of $4,187,000.$1,378,000. The
shares sold provided us with cash dividends of $303,000$42,350 in calendar 2003.2004. If
there is a decrease in the EPR dividend, for any reason, it could reduce the
amount of cash distributions available for our shareholders. In addition, if the
stock price of EPR were to decline, our profit from the sale of these shares
would decline or could be eliminated.
We have established a margin line of credit collateralized by the EPR
shares owned by us. At September 30, 2003 $13,138,0002004, $13,625,000 was available under this
line of credit of which $3,755,000$10,812,000 was outstanding. When we have amounts
outstanding under the margin line of credit, a significant decrease in the value
of the EPR shares could result in a margin call and, if cash is not available
from other sources, a sale of EPR shares may be required at a time when we are
not desirous of selling EPR shares, resulting in the possibility that such
shares could be sold at a per share loss.
Risks Related to the REIT Industry
- ----------------------------------
Failure to Qualifyqualify as a REIT Would Resultwould result in Material Adverse Taxmaterial adverse tax
-----------------------------------------------------------------
Consequenceconsequence and Would Significantly Reduce Cash Availablewould significantly reduce cash available for Distributions.distributions. We
- ----------------------------------------------------------------------------
believe that we have operated so as to qualify as a REIT under the Internal
Revenue Code. Qualification as a REIT involves the application of technical and
complex legal provisions for which there are limited judicial and administrative
interpretations. The determination of various factual matters and circumstances
not entirely in our control may affect our ability to qualify as a REIT. In
addition, no assurance can be given that legislation, new regulations,
administrative interpretations or court decisions will not significantly change
the tax laws with respect to qualification as a REIT or the federal income tax
consequences of such qualification.
If we fail to qualify as a REIT, we will be subject to federal, state
and local income tax, including any applicable alternative minimum tax, on our
taxable income at regular corporate rates and would not be allowed a deduction
in computing our taxable income for amounts distributed to shareholders. In
addition, unless entitled to relief under certain statutory provisions, we would
be disqualified from treatment as a REIT for the four taxable years following
the year during which the qualification is lost. The additional tax would reduce
significantly our net income and the cash available for distributions to
shareholders.
We are Subjectsubject to Certain Distribution Requirementscertain distribution requirements that May Resultmay result in
----------------------------------------------------------------------
our Havinghaving to Borrow Fundsborrow funds at Unfavorable Rates.unfavorable rates. - To obtain favorable tax
- --------------------------------------------------------------------------------------------------
treatment associated with being a REIT, we generally will be required, among
other things, to distribute to our shareholders at least 90% of our annual
ordinary taxable income (excluding capital gains) each year. In addition, we are
subject to a 4% non-deductible excise tax, on the amount, if any, by which
certain distributions paid by us with respect to any calendar year are less than
the sum of 85% of our ordinary income, 95% of our capital gain net income and
100% of our undistributed income from prior years. As a result of differences in
timing between the receipt of income and the payment of expenses, and the
inclusion of such income and the deduction of such expenses in arriving at
taxable income, and the affect of non-deductible capital expenditures, the
creation of reserves and the timing of required debt service (including
amortization payments) we may need to borrow funds on a short-term basis in
order to make the distributions necessary to retain the tax benefits associated
with qualifying as a REIT, even if the prevailing market conditions are not
generally favorable for such borrowings. Such borrowings could reduce our net
income and the cash available for distributions to the holders of our beneficial
shares.
Compliance with REIT Requirements May Hinder Our Abilityrequirements may hinder our ability to Maximizemaximize
--------------------------------------------------------------------
Profits.profits. - In order to qualify as a REIT for federal income tax purposes, we
- ------------------
must continually satisfy tests concerning, among other things, our sources of
income, the amounts we distribute to our shareholders and the ownership of our
stock. We may also be required to make cash distributions to shareholders at
disadvantageous times or when we do not have funds readily available for
distribution. Accordingly, compliance with REIT requirements may hinder our
ability to operate solely on the basis of maximizing profits.
In order to qualify as a REIT, we must also insure that at the end of
each calendar quarter, at least 75% of the value of our assets consists of cash,
cash items, government securities, and qualified REIT real estate assets. The
remainder of our investment in securities cannot include more than 10% of the
outstanding voting securities of any one issuer or more than 10% of the total
value of the outstanding securities of any one issuer. In addition, no more than
5% of the value of our assets can consist of the securities of any one issuer,
other than a qualified REIT security. If we fail to comply with these
requirements, we must dispose of a portion of our assets within 30 days after
the end of the calendar quarter in order to avoid losing our REIT status and
suffering adverse tax consequences. This requirement could cause us to dispose
of assets for consideration which is less than the true value and could lead to
a material adverse impact on our results of operations and financial condition.
Forward-Looking Statements
This Annual Report on Form 10-K, together with other statements and
information publicly disseminated by us contains certain-forward looking
statements within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended. We
intend such forward-looking statements to be covered by the safe harbor
provisions for forward-looking statements contained in the Private Securities
Litigation Reform Act of 1995 and include this statement for purposes of
complying with these safe harbor provisions. Forward-looking statements, which
are based on certain beliefs and assumptions and describe our future plans,
strategies and expectations, are generally identifiable by use of the words such as
"may", "will", "will likely result", "shall", "believe", "expect", "intend",
"anticipate", "estimate", "project" or similar expressions or variations
thereof. You should not rely on forward-looking statements since they involve
known and unknown risks, uncertainties and other factors which are, in some
cases, beyond our control and which could materially affect actual results,
performance or achievements. We do not intend to update our forward looking
statements. Factors which may cause actual results to differ materially from
current expectations include, but are not limited to:
o defaults by borrowers in paying debt service on ouroutstanding loans;
o completion of pending transactions;
o an inability to originate loans on favorable terms;
o increased competition from entities engaged in mortgage lending;
o general economic and business conditions;
o general and local real estate conditions;
o changes in federal, state and local governmental laws and regulations;
o an inability to retain our real estate investment trust qualification; and
o the availability of and costs associated with sources of liquidity.
Accordingly, there can be no assurance that our expectations will be realized.
EXECUTIVE OFFICERS OF REGISTRANT
The following lists our executive officers. The business history of officers who
are also Trustees will be provided in our proxy statement to be filed pursuant
to Regulation 14A not later than January 28, 2004.2005.
Name Office
Fredric H. Gould (*) Chairman of the Board of Trustees
Jeffrey A. Gould (*) President and Chief Executive Officer; Trustee
Matthew J. Gould (*) Senior Vice President; Trustee
Simeon Brinberg (**) Senior Vice President; Secretary
David W. Kalish Senior Vice President, Finance
Israel Rosenzweig Senior Vice President
George E. Zweier Vice President, Chief Financial Officer
Mark H. Lundy (**) Vice President
Israel Rosenzweig Senior Vice President
Seth D. Kobay Vice President; Treasurer
David Heiden Vice President
Mitchell K. Gould Vice President
(*)Fredric H. Gould is Jeffrey A. and Matthew J. Gould's father.
(**) Simeon Brinberg is Mark H. Lundy's father-in-law.
Simeon Brinberg (age 70) has been our Secretary since 1983 and a Senior
Vice President since 1988. Mr. Brinberg has been a Vice President of Georgetown
Partners, Inc., the managing general partner of Gould Investors L.P., since
October 1988. Gould Investors L.P. is primarily engaged in the ownership and
operation of real estate properties held for investment. InSince June 1989 he becameMr.
Brinberg has been a Vice President of One Liberty Properties, Inc., a real
estate investment trust engaged in the ownership of income producing real
properties net leased to tenants under long term leases. Mr. Brinberg is a member of
the New York Bar and was engaged in the private practice of law for
approximately thirty years prior to 1988.
David W. Kalish (age 56)57) was our Vice President and Chief Financial
Officer from June 1990 until August 1998. Since August 1998, Mr. Kalish has been
our Senior Vice President, Finance. He has also been Chief Financial Officer of
One Liberty Properties, Inc. and Georgetown Partners, Inc. since June 1990. For
more than five years prior to June 1990, Mr. Kalish, a certified public
accountant, was a partner of Buchbinder Tunick & Company, and its predecessors.
George E. Zweier (age 39) has been employed by us since June 1998 and
was elected Vice President, Chief Financial Officer in August 1998. For
approximately five years prior to joining us, Mr. Zweier, a certified public
accountant, was an accounting officer with the Bank of Tokyo - Mitsubishi
Limited, in New York.
Mark H. Lundy (age 41) has been a Vice President since 1993. He has
been Secretary of One Liberty Properties, Inc. since June 1993 and he also
serves as a Vice President of One Liberty Properties, Inc. Mr. Lundy has been a
Vice President of Georgetown Partners, Inc. since July 1990. He is a member of
the bars of New York and Washington, D.C.
Israel Rosenzweig (age 56)57) has been a Senior Vice President since April
1998. Mr. Rosenzweig has been a Vice President of Georgetown Partners, Inc.
since May 1997 and since 2000 he has been President of GP Partners, Inc., an
affiliate of Gould Investors L.P., engaged in providing advisory services in the
real estate and financial services industries to an investment advisor. He also
has been a Senior Vice President of One Liberty Properties, Inc. since May 1997.
George E. Zweier (age 40) has been employed by us since June 1998 and
was elected Vice President, Chief Financial Officer in August 1998. For
approximately five years prior to joining us, Mr. Zweier, a certified public
accountant, was an accounting officer with the Bank of Tokyo - Mitsubishi
Limited, in New York.
Mark H. Lundy (age 42) has been our Vice President since 1993. He has
been Secretary of One Liberty Properties, Inc. since June 1993 and he also
serves as a Vice President of One Liberty Properties, Inc. Mr. Lundy has been a
Vice President of Georgetown Partners, Inc. since July 1990. He is a member of
the bars of New York and Washington, D.C.
Seth D. Kobay (age 49)50) has been a Vice President and our Treasurer
since March 1994. In addition, Mr. Kobay, a certified public accountant, has
been the Vice President of Operations of Georgetown Partners, Inc. for more than
the past five years and is a Vice President and Treasurer of One Liberty
Properties, Inc.
David Heiden (age 38)39) has been employed by us since April 1998 and has
been a Vice President since March 1999. From May 1997 until April 1998 Mr.
Heiden was an associate at GMAC Commercial Mortgage engaged in originating and
underwriting commercial real estate loans for securitization. He is a licensed
real estate appraiser and real estate broker.
Mitchell K. Gould (age 31)32) has been employed by us since May 1998 and
became a Vice President in March 1999. From January 1998 until May 1998 he was
employed by Bear Stearns Companies, Inc. where he was engaged in originating and
underwriting commercial real estate loans for securitization. Mr. Gould is past
President of the Metropolitan Mortgage Officers Association and is currently a
director of the Young Mortgage Bankers Association.
Item 2. Properties.
----------
Our executive offices are located at 60 Cutter Mill Road, Great Neck,
New York, where we currently occupy approximately 12,000 square feet with Gould
Investors L.P., REIT Management Corp., One Liberty Properties, Inc. and other
related entities. The building in which the executive offices are located is
owned by a subsidiary of Gould Investors L.P. We contributed $60,131$52,000 to the
annual rent of $362,000$349,000 paid by Gould Investors L.P., REIT Management Corp.,
One Liberty Properties, Inc., and related entities in the year ended September
30, 2003.2004. We also lease under a direct lease with a subsidiary of Gould
Investors L.P. approximatelyan additional 1,800 square feet directly adjacent to the 12,000
square feet at an annual rental of $51,000.
At September 30, 2003,2004, we did not own any significant real property
(significant meansmeaning a property with a book value amounting to 10% or more of
our total assets). It has been our policy to operate, with a view toward
eventual sale, all real estate assets acquired by us in foreclosure or deed in
lieu of foreclosure. In 2003,2004, the only real estate assets sold by us were shares
and the related proprietary leases in three cooperative apartments soldand a
condominium unit for a gain on sale of $499,000.$1,261,000.
Item 3. Legal Proceedings.
-----------------
We are not a defendant in any material pending legal proceedings.proceedings nor,
to our knowledge, is any material litigation threatened against us, other than
routine litigation arising in the ordinary course of business, which
collectively are not expected to have a material affect on our business,
financial condition or results of operation.
Item 4. Submission of Matters to a Vote of Security Holders.
---------------------------------------------------
There were no matters submitted to a vote of our security holders
during the fourth quarter of the year ended September 30, 2003 to a vote of our security holders.2004.
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
-----------------------------------------------------------------
Matters and Issuer Purchases of Equity Securities
- -------------------------------------------------
Our shares of Beneficial Interest ("Beneficial Shares") are listed on
the New York Stock Exchange ("NYSE"). The following table shows for the periods
indicated, the high and low sales prices of the Beneficial Shares on the NYSE as
reported on the Composite Tape and the per share dividend paid for the periods
indicated.
Dividend
Fiscal Year Ended September 30, High Low Per Share
------------------------------ ---- --- ---------
Dividend
Fiscal Year Ended September 30, High Low Per Share
------------------------------ ---- --- ---------
2004
First Quarter $29.02 $19.05 $.38
Second Quarter 29.35 20.00 .45
Third Quarter 24.25 19.00 .48
Fourth Quarter 22.38 19.45 .48
2003
First Quarter $13.75 $12.40 $.30
Second Quarter 14.10 13.10 .30
Third Quarter 17.50 13.65 .34
Fourth Quarter 19.49 15.40 .36
2002
First Quarter $12.01 $9.90 $.24
Second Quarter 14.00 12.05 .26
Third Quarter 13.90 13.00 .26
Fourth Quarter 13.75 11.65 .28
As of December 1, 20032004, there were approximately 870924 holders of record
of our Beneficial Shares and approximately 2,9803,310 shareholders. On December 1,
2003, the last reported sales price per Beneficial Share on the NYSE was $24.01.
We qualify as a real estate investment trust for Federal income tax
purposes. In order to maintain that status, we are required to distribute to our
shareholders at least 90% of our annual ordinary taxable income. The amount and
timing of future cash distributions will be at the discretion of the Board of
Trustees and will depend upon our financial condition, earnings, business plan,
cash flow and other factors. Provided we are not in default of the affirmative
and negative covenants contained in our credit agreement with North Fork Bank,
the credit agreement with North Fork Bank does not preclude the payment by us of
the cash distributions necessary to maintain our status as a real estate
investment trust for federal income tax purposes.
Equity Compensation Plan Information
The following table provides information as of September 30, 20032004 with
respect to Beneficial Shares that may be issued under the BRT Realty Trust 1996
Stock Option Plan and the BRT Realty Trust 2003 Incentive Plan.
Number of
Securities
Remaining
Available-for
Number of Future
Securities Issuance Under
to be Issued Weighted- Equity
Upon Exercise Average Compensation
of Outstanding Exercise Price Plans (Excluding
Options, of Outstanding Securities
Warrants and Options, Warrants Reflected in
Rights and Rights Column (a)
------ ---------- ----------
(a) (b) (c)
Equity compensation
plans approved by 240,062 $8.33 321,200149,124 $ 8.64 291,170
security holders
Equity compensation - - -
plans not approved
by security holders - - -
------- ----- ------------- --------
Total 240,062 $8.33 321,200149,124 $ 8.64 291,170
Item 6. Selected Financial Information
The following table, not covered by the report of the independent
auditors, sets forth selected historical financial data for each of the fiscal
periods in the five years ended September 30, 2003.2004. This table should be read in
conjunction with the detailed information and financial statements appearing
elsewhere herein.
Fiscal Years Ended
September 30,
-------------------------------------------------------------------
2004 2003 2002 2001 2000 1999
---- ---- ---- ---- ----
(In thousands, except for per share amounts)
Operating statement data:
Total revenues $18,583 $14,804 $17,398 $13,916 $10,260 $12,223
Income before equity in earnings of
unconsolidated real estate ventures,
and gain on sale and minority interest 8,941 8,416 11,246 7,750 5,064
5,108Discontinued operations 1,261 499 807 1,937 1,814
Net income (1) 12,002 13,683 12,586 10,586 7,635
11,646
Income per
beneficial share: (1)
Income from continuing operations $1.41 $1.76 $1.60 $1.20 $ .82
Discontinued operations .17 .07 .11 .27 .25
----- ----- ----- ----- -----
Basic 1.83 1.71 1.47 1.07 1.63earnings per share $1.58 $1.83 $1.71 $1.47 $1.07
Income from continuing operations $1.39 $1.73 $1.57 $1.19 $ .80
Discontinued operations .16 .07 .11 .26 .25
----- ----- ----- ----- -----
Diluted 1.80 1.68 1.45 1.05 1.61earnings per share $1.55 $1.80 $1.68 $1.45 $1.05
Cash distribution per
common share 1.30 1.04$1.79 $1.30 $1.04 $ .44 -$ -
Balance sheet data:
Total assets 198,005 139,002 134,931 110,016 88,456
84,609
Earning real
estate loans (1)(2) 132,229 63,733 84,112 67,513 40,413
44,682
Non-earning real
estate loans (1)(2) 3,096 3,145 415 415 3,250
-
Real estate assets (1)(2) 14,005 13,391 13,529 13,708 12,325
6,765
Available-for-sale securities
at market 41,491 36,354 31,178 24,030 16,310
-
Borrowed funds 53,862 4,755 14,745 2,101 88
331
Loans and mortgages
payable 2,609 2,680 2,745 2,804 -
841
Shareholders' equity 132,063 125,932 114,291 101,872 85,147
80,624
(1) Includes $1,641,000 and $4,332,000 or $.21 and $.57 per share on a
diluted basis, for the fiscal years ended September 30, 2004 and 2003,
respectively, from gain on sale of available-for-sale-securities.
(2) Earning and non-earning loans and real estate assets are presented
without deduction of the related allowance for possible losses or
valuation allowance.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
-----------------------------------------------------------------------
of Operations
-------------
Results of Operations
- ---------------------
General
- -------
Our primary business operations involves the origination and servicing
of mortgage loans. Our profitability in any year is most affected by the
numberprincipal amount of loans originated during any period,such year, the type of loans
originated and the payoff and pay down of our outstanding mortgage loans.loans during such
year. These factors determine to a significant extent the principal amount or type of loans outstandinginterest income and
fee income earned on loan originations.during such year. We cannot project the principal amount or
type of loans which will be originated in any year or those loan applications
submitted to us which will be approved by our loan committee or Board of
Trustees, as is applicable, nor can we project the rate of payoff or pay down
against our loan portfolio in any year. As noted in the discussion below, the
2004 fiscal year reflects an increase in interest and fee income compared to the
2003 fiscal year and the 2003 fiscal year reflects a decrease in interest and
fee income, compared to the 2002 fiscal year and the 2002 fiscal year reflects an
increase in interest and fee income, compared to the 2001 fiscal year. The primary components of these
changes is a result of loan originations, including the type of loans
originated, and loan payoffs and pay downs.
We do not seecannot project nor have we ascertained any trends in our business
other than that our loan originations arehave been more national in scope and our
loan applications and loan originations have been for larger principal amounts, bothamounts.
Both of whichthese factors we attribute to the increase in our advertising and
marketing activities.
2004 vs. 2003
- -------------
Interest and fees on loans increased to $13,913,000 for the year ended
September 30, 2004, as compared to $9,813,000 for the year ended September 30,
2003, an increase of $4,100,000 or 42%. During the current fiscal year we
experienced an increase in the volume of loan originations that caused the
average balance of loans outstanding to increase to $ 107,300,000 in the current
fiscal year from $ 67,145,000. This resulted in an increase in interest income
of $4,410,000. Also contributing to an increase in interest income was the
receipt of $ 461,000 of interest in excess of the stated rate on four loans that
went into default during the year but have since been returned to performing.
Offsetting these increases was a decline in the interest rate earned on the
portfolio. The average rate earned on the loan portfolio declined 95 basis
points from 11.82% in the prior fiscal year to 10.87% in the current fiscal
year. This resulted in a $680,000 decline in interest income. Also, in the prior
fiscal year, we recognized $105,000 of interest income on the payoff of a loan
that was previously recorded as non performing. We recognized an increase of $
300,000 in fee income in 2004, which is consistent with the increased loan
volume experienced during the period. However this increase was offset by the
collection of $286,000 in fees in the prior fiscal year that were due upon the
payoff of two loans.
Other, primarily investment income, declined $291,000, or 11%, from
$2,667,000 in the fiscal year ended September 30, 2003 to $ 2,376,000 in the
fiscal year ended September 30, 2004. During the first half of the current
fiscal year and the last half of the prior fiscal year, we sold shares of
Entertainment Properties Trust and various other securities which resulted in a
decline of $405,000 of dividend income. Offsetting this decline was an 11%
increase, from $1.975 to $2.1875, in the dividend paid on our remaining shares
of EPR which accounted for an increase of $224,000. The remaining $110,000
decline in investment income was the result of the sale of miscellaneous
securities and reduction in the amount of funds available for investment.
Interest expense on borrowed funds increased to $1,351,000 in the
fiscal year ended September 30, 2004 from $270,000 in the fiscal year ended
September 30, 2003. This increase of $1,081,000, or 400%, is due to an increase
in the average balance of borrowed funds outstanding, which increased $
24,453,000 from $3,670,000 in the prior fiscal year to $28,123,000 in the
current fiscal year. This caused an increase in interest expense of $1,203,000.
This increase was offset by a decline in the average rate paid on borrowings
from 7.24% to 4.74%. The average interest rate includes a .3% fee to maintain a
margin account secured by the shares we own in Entertainment Properties Trust
and is based on the value of the assets in the account.
The fee paid to REIT Management Corp. (the "Advisor's" fee), which is
calculated pursuant to agreement and is based on invested assets, increased $
569,000, or 65%, in the fiscal year ended September 30, 2004 to $ 1,444,000 from
$875,000 in the fiscal year ended September 30, 2003. During the current fiscal
year, we experienced a larger outstanding balance of invested assets, primarily
loans, thereby causing an increase in the fee.
General and administrative expenses increased to $ 3,828,000 in the
fiscal year ended September 30, 2004 from $3,063,000 in the fiscal year ended
September 30, 2003. This increase of $765,000, or 25%, was the result of several
factors. Payroll and payroll related expenses increased $417,000, as a result of
staff additions, increased commissions paid to loan originators and restricted
stock amortization. There was also a $98,000 increase in expenses allocated to
us, primarily legal and accounting expenses, pursuant to a Shared Services
Agreement among us and related entities. Legal expenses also increased $167,000
a result of three foreclosure actions that we have pending and legal fees
incurred in connection with the organization of a "de novo" bank as a taxable
REIT subsidiary. We have decided not to pursue the banking activity at this
time. The remaining increase in expense of $83,000 was due to higher operating
expenses in several categories, none of which was significant.
Other taxes decreased $18,000, or 4%, to $480,000 for the fiscal year
ended September 30, 2004 from $ 498,000 in the fiscal year ended September 30,
2003. The decrease is the result of a $90,000 reduction in the amount of excise
tax recorded. During the current year we increased the dividend paid to
shareholders. By paying to our shareholders more of our earnings within the
prescribed time frame, we reduced the excise tax payment. The excise tax is
based on taxable income that has been generated but not yet distributed. This
was offset by the payment of $116,000 in federal income taxes in the current
fiscal year on earnings that were not distributed to shareholders. The remaining
decline of $ 44,000 is due to a reduction in the amount of state franchise taxes
paid in the current fiscal year.
Operating expenses relating to real estate increased $856,000, or 63%,
from $1,355,000 in the fiscal year ended September 30, 2003 to $2,211,000 in the
fiscal year ended September 30, 2004. The increase is the result of legal fees
and other expenses incurred in defending a lawsuit relating to a property
previously owned by us. This lawsuit was resolved in June 2004.
Equity in earnings of unconsolidated joint ventures decreased $277,000,
or 58%, from $479,000 in the fiscal year ended September 30, 2003 to $202,000 in
the fiscal year ended September 30, 2004. This decrease resulted from the sale
in the prior year of a cooperative unit by one venture and the sale of a parcel
of vacant land by a second venture. There were no similar sales in the current
fiscal year.
Gain on sale of available-for-sale securities declined $2,691,000, or
62%, from $4,332,000 in the fiscal year ended September 30, 2003 to $1,641,000
in the fiscal year ended September 30, 2004. In the current fiscal year we sold
58,550 shares of Atlantic Liberty Financial and 61,300 shares of Entertainment
Properties Trust and other miscellaneous securities which resulted in net
proceeds of $3,384,000 and had a cost basis of $1,743,000. In the prior fiscal
year we sold 260,800 shares of Entertainment properties Trust and other
miscellaneous securities which resulted in net proceeds of $ 8,047,000 and had a
cost basis of $3,715,000.
For the fiscal year ended September 30, 2004 gain on sale of real
estate assets increased to $1,261,000 from $499,000 in the fiscal year ended
September 30, 2003. In the current fiscal year the gain resulted from the sale
of one condominium and four cooperative apartment units. In the prior fiscal
year the gain was the result of the sale of two cooperative apartment units.
2003 vs. 2002
- -------------
Interest and fees on loans decreased to $9,813,000 for the year ended
September 30, 2003 as compared to $11,897,000 for the year ended September 30,
2002. This decrease of $2,084,000,$ 2,084,000, or 18%, was the result of several factors.
In the current fiscal year, the average balance of loans declined $1,220,000 to
$67,145,000 from $68,368,000 in the prior fiscal year. This caused a decrease of
$147,000 in interest income. The average rate earned on the loan portfolio
declined 31 basis points to 11.82% as compared to 12.13% earned on the portfolio
in the fiscal year ended September 30, 2002. This decline causescaused interest income
to decline by $213,000. In the prior fiscal year, four participating loans were
paid off resulting in additional income and fees of $ 2,114,000 in the fiscal
year ended September 30, 2002. Offsetting these declines was the collection of
interest income in the amount of $105,000 in the current fiscal year from a loan
that was previously recorded as non performing. Fee income also increased $286,000$
286,000 in the current fiscal year, primarily the resultbecause of the collection of fees
that were due upon the payoff of two loans.
The fiscal year ended September 30, 2002 was favorably affected by
$500,000 recognized from the recovery of a previously provided allowance related
to a loan that was previously impaired and was paid off in full in 2002. There
was no comparable revenue item in the current fiscal year.
Other, primarily investment income, declined $ 65,000, or 2%, from
$2,732,000 in the fiscal year ended September 30, 2002 to $2,667,000 in the
fiscal year ended September 30, 2003. The decline was primarily caused beby a
decrease in the amount of dividends received on our REIT securities caused by
theour sale of REIT securities during the current2003 fiscal year.
Interest expense on borrowed funds increased to $270,000 in the fiscal
year ended September 30, 2003 from $227,000 in the fiscal year ended September
30, 2002. This increase of $43,000, or 19%, is due to an increase in the average
rate paid for borrowings from 5.86% in the prior2002 fiscal year to 7.24% in the current2003
fiscal year. The average interest rate includes a .3%0.3% fee to maintain a margin
account secured by the shares we own in Entertainment Properties Trust and is
based on the value of the assets in the account, which appreciated in value
during the 2003 fiscal year.
The Advisor's fee, which is calculated pursuant to agreement and is
based on invested assets, decreased $92,000, or 10%, in the fiscal year ended
September 30, 2003 to $875,000 from $967,000 in the fiscal year ended September
30, 2002. During this period, we experienced a lower outstanding balance of
invested assets thereby causing a declinedecrease in the fee.
General and administrative expenses increased to $3,063,000 in the
fiscal year ended September 30, 2003, from $2,911,000 in the fiscal year ended
September 30, 2002. This increase of $ 152,000, or 5%, is primarily the result
of increases in payroll and payroll related expenses which increased $110,000
from the prior year. In addition professional fees increased by approximately
$29,000 from the prior2002 fiscal year.
Other taxes increased by 10% to $498,000 for the fiscal year ended
September 30, 2003 from $452,000 in the fiscal year ended September 30, 2002.
The increase of $46,000 in the current fiscal year is the result of an increase
in the federal excise tax, which is based on taxable income that iswas generated
but not yet distributed.
Operating expenses relating to real estate increased $100,000, or 8%,
from $1,255,000$ 1,255,000 in the fiscal year ended September 30, 2002 to $1,355,000 in
the fiscal year ended September 30, 2003. In the current fiscal year we
experienced higher legal expenses relating to a property that we acquired in
foreclosure in a prior fiscal year, increased insurance expense and increased
common area maintenance charges.
Equity in earnings of unconsolidated real estate ventures declined
$95,000, or 17%, to $479,000 in the fiscal year ended September 30, 2003 from
$574,000 in the fiscal year ended September 30, 2002. In the current fiscal year
one of our joint ventures wrote off expenses relating to a terminated
development project. Additionally, several of our joint ventures have seen
modest declines in income due to declines in occupancy and rental rates.
Offsetting these declines was an increase that resulted from reduced lease
payments on a ground lease position held by a joint venture as ground lessee.
Gain on the sale of real estate assets decreased $308,000, or 38%, in
the fiscal year ended September 30, 2003. In the current fiscal year we
recognized gains of $499,000 from the sale of cooperative apartment units. In
the prior fiscal year we recognized gains of $ 807,000 from the sale of a parcel
of unimproved land that we previously acquired in foreclosure and from the sale
of a cooperative apartment unit.
Gain on the sale of available-for-sale securities was $4,332,000 in the
fiscal year ended September 30, 2003. This gain resulted from the sale of
several real estate investment trust securities, including the sale of 260,800
shares of Entertainment Properties Trust. There were no securities sales in the
fiscal year ended September 30, 2002.
2002 vs. 2001
- -------------
Interest and fees on loans increased to $11,897,000 for the year ended
September 30, 2002 as compared to $8,685,000 for the year ended September 30,
2001. This increase of $ 3,212,000, or 37%, was the result of several factors,
the largest being a $14,160,000 increase in the average balance of loans
outstanding from $54,208,000 in the prior fiscal year to $68,368,000. This
caused an increase in interest income of $1,722,000. During the fiscal year
ended September 30, 2002, three participating loans were paid off resulting in
additional interest income and fees of $1,306,000 and one participating loan was
extended resulting in the collection of additional interest of $808,000. During
the year ended September 30, 2002 the average interest rate earned on the loan
portfolio declined 31 basis points to 12.13% from the 12.44% earned on the
portfolio in the fiscal year ended September 30, 2001. This decline caused
interest income to decrease by $171,000. The twelve month period ended September
30, 2001 included $ 860,000 of additional interest recognized from two loans
that were paid off and $170,000 from non-performing loans that were returned to
performing status. Fee income also increased $576,000 in the 2002 fiscal year,
primarily the result of increased loan originations and an increase in the
number of loans that were extended during the year.
Operating income on real estate properties increased $618,000, or 37%,
to $2,269,000 in the fiscal year ended September 30, 2002 from $1,651,000 in the
fiscal year ended September 30, 2001. This increase, reflecting primarily rental
income, is attributable to our purchase of a leasehold interest in a commercial
property in the last quarter of the fiscal year ended September 30, 2000 (which
was not fully leased until the second quarter of the 2001 fiscal year) and
increased rental income recognized on a residential property in New York City.
The fiscal year ended September 30, 2002 year was favorably affected by
$500,000 recognized from the recovery of a previously provided allowance related
to a loan that was previously impaired and was paid off in the current fiscal
year. There was no comparable revenue item in the fiscal year ended September
30, 2001.
Other, primarily investment income, declined $848,000, or 24%, from
$3,580,000 in the fiscal year ended September 30, 2001 to $ 2,732,000 in the
fiscal year ended September 30, 2002. During the prior fiscal year we received
$438,000 from a residual interest we held in a joint venture. This residual
interest resulted from the sale of a partnership interest in a prior year. There
was also a decrease in investment income due to a decline in the average balance
in money market and treasury investments and in the average rate earned on them.
The average balance of these investments decreased $5,674,000 from $11,187,000
in the fiscal year ended September 30, 2001 to $5,513,000 in the fiscal year
ended September 30, 2002. This decline caused a $213,000 reduction in interest
income. A decline of $281,000 resulted from a reduction in the rate earned on
these investments from 5.27% in the prior fiscal year to 1.74% in the current
fiscal year. These declines were offset by an $84,000 increase in the dividends
we received on our investments in REIT securities.
Interest on borrowed funds increased to $227,000 in the fiscal year
ended September 30, 2002 from $53,000 in the fiscal year ended September 30,
2001. This increase of $174,000, or 328%, is due to an increase in the average
amount of borrowings outstanding in the current fiscal year. The average balance
of borrowings outstanding increased $2,662,000 to $3,126,000 in the current
fiscal year from $464,000 in the prior fiscal year. We borrowed under our credit
lines to fund outstanding loan commitments.
The Advisor's fee, which is calculated pursuant to agreement and is
based on invested assets, increased $222,000, or 30%, in the fiscal year ended
September 30, 2002 to $967,000 from $745,000 in the fiscal year ended September
30, 2001. During this period, we experienced a higher outstanding balance of
invested assets thereby causing an increase in the fee.
Other taxes increased by 82% to $ 452,000 for the fiscal year ended
September 30, 2002 from $249,000 in the fiscal year ended September 30, 2001.
The increase is the result of federal excise taxes which are based on taxable
income generated but not yet distributed. We were subject to these taxes
beginning in the first quarter of the 2002 fiscal year. In the prior fiscal year
we were subject to federal and state alternative minimum taxes during the period
when we were utilizing our net operating loss carry forwards.
During the fiscal year ended September 30, 2001 we incurred expenses
related to investment income of $575,000. During the September 30, 2001 fiscal
year we incurred legal, printing, proxy solicitor fees and other expenses
related to the solicitation of proxies to vote in favor of our nominee to the
Board of Trustees of Entertainment Properties Trust (NYSE:EPR). At September 30,
2002 we owned 7.89% of the outstanding shares of Entertainment Properties Trust.
We did not incur any investment related expenses in the 2002 fiscal year.
Operating expenses relating to real estate increased $330,000, or 36%,
from $925,000 in the fiscal year ended September 30, 2001 to $1,255,000 in the
fiscal year ended September 30, 2002. This increase is due to increased
operating expenses at one of our operating properties.
Equity in earnings of unconsolidated joint ventures declined by 35%, or
$315,000, from $889,000 in the fiscal year ended September 30, 2001 to $574,000
in the fiscal year ended September 30, 2002. This decline was primarily the
result of a loss of $433,000 by a joint venture that was entered into during the
second half of the fiscal year ended September 30, 2001 and a decrease in income
of $292,000 at another joint venture due to a decrease in sales of cooperative
apartments by such venture. These declines were partially offset by a gain of
$385,000 recognized by a joint venture upon the sale of a parcel of land during
the 2002 fiscal year.
Gain on the sale of real estate loans and real estate properties
decreased $1,130,000, or 58%, in the fiscal year ended September 30, 2002. In
the 2002 fiscal year we recognized gains of $807,000 from the sale of a parcel
of unimproved land that we previously acquired in foreclosure and from the sale
of a cooperative apartment unit. In the prior fiscal year we recognized gains of
$1,937,000 from the sale of a residual interest in a partnership and the sale of
cooperative apartment units.
Liquidity and Capital Resources
- -------------------------------
We are primarily engaged in the business of originating and holding
for investment senior and junior real estate mortgages secured by income
producingreal property.
Our investment policy emphasizes short-term mortgage loans. We also purchase
senior and junior participations in short term mortgage loans and originate
participating mortgage loans and loans to joint ventures in which we are an
equity participant. From time to time we participate out senior, junior or pari
passu positions in mortgage loans originated by us. Repayments of real estate
loans in the amount of $49,711,000$127,696,000 are due during the twelve months ending
September 30, 2004,2005, including $5,123,000$3,096,000 due on demand. The availability of
mortgage financing secured by real property and the market for selling real
estate is cyclical. Since these are the principal sources for the generation of
funds by our borrowers to repay our outstanding real estate loans, we cannot
project the portion of loans maturing during the next twelve months which will
be paid or the portion of loans which will be extended for a fixed term or on a
month to month basis.
We maintain a revolving credit facility with North Fork Bank. The
facility provides for borrowings up to $30,000,000,$60,000,000, but no greater than 65% of
qualified first mortgage loans pledged to North Fork Bank. We had $1,000,000$43,050,000
outstanding under this line as of September 30, 20032004 and $20,061,000$11,312,000 of unused
availability under this line as of September 30, 2003.2004. We also have the ability
to borrow on margin, using the shares we own in Entertainment Properties Trust,
or EPR, as collateral. At September 30, 2003,2004, there was $3,755,000$10,812,000 outstanding
of the approximately $13,138,000$13,625,000 available under this facility. If the value of
the EPR shares were to decline, the available funds under the margin credit line
might decline and we could be required to repay a portion or all of the margin
loan.
During the twelve months ended September 30, 2003,2004, we generated cash
of $8,806,000$11,226,000 from operating activities, $8,047,000$3,384,000 from the sale of
securities, and $76,365,000$94,511,000 from collections from real estate loans.loans and $68,630,000
from the sale of participations in loans originated by us. These funds, in
addition to cash on hand and funds borrowed under our revolving credit facility
and our margin line of credit, were used primarily to fund real estate loan
originations of $58,716,000, to repay borrowed funds in the aggregate amount of
$9,990,000$231,588,000, and to pay cash distributions to shareholders in
the amount of $7,035,000.$12,714,000.
We will satisfy our liquidity needs in the year ending September 30,
20042005 from cash and cash investments on hand, the credit facility with North Fork
Bank, the availability in our margin account collateralized by the EPR shares,
interest and principal payments received on outstanding real estate loans, and
net cash flow generated from the operation and sale of real estate assets.
Disclosure of Contractual Obligations
- -------------------------------------
The following table sets forth as of September 30, 20032004 our known contractual
obligations:
Payment due by Period
---------------------
Total Less than 1-3 3-5 More than
Total 1 Year Years Years 5 Years
----- ------ ----- ----- -------
Long-Term Debt Obligations $2,680,000 $70,000 $160,000 $174,000 $2,276,000$2,609,000 $ 77,000 $175,000 $209,000 $2,148,000
Capital Lease Obligations - - - - -
Operating Lease Obligation $107,000 $46,000 $61,000 - -1,340,000 114,000 200,000 156,000 870,000
Purchase Obligations - - - - -
Other Long-Term Liabilities
- - - - -
Reflected on Company
Balance Sheet Under GAAP - - - - -
--------- -------- -------- -------- ----------
- - - - -
Total $3,949,000 $191,000 $375,000 $365,000 $3,018,000
========== ======== ======== ======== ==========
Outlook
- -------
The real estate business in general is cyclical and to a large extent depends
upon, among other factors, national and local business and economic conditions,
government economic policies and the level and volatility of interest rates. A
difficult or declining real estate market in the New York metropolitan area or
in other parts of the country and a recessionary economy could potentially have
the following adverse effects on our business: (i) an increase in loan defaults
which will result in decreased interest and fees on our outstanding real estate
loans, an increase in loan loss reserves and an increase in expenses incurred in
foreclosures and restructurings; (ii) a decrease in loan originations; and (iii)
a decrease in rental income from properties owned by us or joint ventures in
which we are a venture participant and an increase in operating expenses related
to real estate properties.
However, a declining real estate market could also provide us with
opportunities since, in a declining market, other lenders, particularly
institutional lenders, become more conservative in their lending activities. If
such a lending environment should occur the amount of potential business for us
could increase.
We are aware of the difficulties which could be encountered in a
declining real estate environment. We therefore monitor our mortgage portfolio
for compliance by our borrowers.
Since approximately 84%almost all of our loan portfolio provides for stated minimum or
fixed interest rates, the current "low" interest rate environment, although
negatively affecting our revenues and net income, has not had and should not
have a material adverse effect on our revenues and net income.
Cash Distribution Policy
- ------------------------
We have elected to be taxed as a real estate investment trust under
the Internal Revenue Code since our organization. To qualify as a real estate
investment trust, we must meet a number of organizational and operational
requirements, including a requirement that we distribute currently to our
shareholders at least 90% of our adjusted ordinary taxable income. It is the
current intention of our management to comply with these requirements and
maintain our real estate investment trust status. As a real estate investment
trust, we generally will not be subject to corporate federal income tax on
taxable income we distribute currently in accordance with the Internal Revenue
Code and applicable regulations to shareholders. If we fail to qualify as a real
estate investment trust in any taxable year, we will be subject to federal
income taxes at regular corporate rates and may not be able to qualify as a real
estate investment trust for four subsequent tax years. Even if we qualify for
federal taxation as a real estate investment trust, we may be subject to certain
state and local taxes on our income and to federal income and excise taxes on
undistributed taxable income, i.e., taxable income not distributed in the
amounts and in the time frames prescribed by the Internal Revenue Code and
applicable regulations thereunder.
For tax purposes, we report on a calendar year basis as
distinguished from financial reporting purposes for which we are on a September
30th fiscal year. We distributed 100%substantially all of our taxable income for
calendar 20022003 by October 2003.2004. We estimate taxable income for calendar 20032004 will
be $14,712,000,$11,933,000, of which approximately $6,247,000$1,640,000 is expected to represent
capital gain income. To comply with the time frames prescribed by the Internal
Revenue Code and the applicable regulations thereunder at least 90% of the 20032004
ordinary taxable income is required to be declared by September 15, 20042005 and,
assuming we continue to pay the quarterly dividends on or about the 1st day of
each calendar quarter (January 1st, April 1st, July 1st and October 1st)
distributed by October 1, 2004.2005.
It is our intention to pay to our shareholders within the time
periods prescribed by the Internal Revenue Code substantially all of our annual
taxable income, including gains from the sale of real estate and recognized
gains on sale of available-for-sale securities.
Significant Accounting Policies
- -------------------------------
Our significant accounting policies are more fully described in Note
1 to our consolidated financial statements. The preparation of financial
statements and related disclosure in conformity with accounting principles
generally accepted in the United States requires management to make certain
judgments and estimates that affect the amounts reported in the consolidated
financial statements and accompanying notes. Certain of our accounting policies
are particularly important to an understanding of our financial position and
results of operations and require the application of significant judgments and
estimates by our management; as a result they are subject to a degree of
uncertainty. These significant accounting policies include:
Allowance for Possible Losses
We review our mortgage portfolio, real estate assets underlying our
mortgage portfolio and owned by us and the real estate assets owned by joint
ventures in which we are a venture partner on a quarterly basis to ascertain if
there has been any impairment in the value of the real estate assets underlying
our loans or any impairment in the value of any of such real estate assets in
order to determine if there is a need for a provision for an allowance for
possible losses against our real estate loans or an impairment allowance against
real estate assets.
In reviewing the value of the collateral underlying our loan
portfolio, and our real estate assets, and the real estate assets owned by joint
ventures, we seek to arrive at the fair market value of the underlying collateral or
such real estate on an individual basis by taking into account numerous factors
including market evaluations of the underlying collateral or the real estate,
estimated operating cash flow from the property during a projected holding
period and an estimated sales value computed by applying an expected
capitalization rate to the stabilized net operating income of the specific
property, less selling costs, discounted at market discount rates. Each of these
factors entails significant judgments and estimates. Real estate assets held for
use and real estate assets owned by joint ventures are evaluated for indicators
of impairment using an undiscounted cash flow analysis. If that analysis
suggests that the undiscounted cash flows to be generated by the property will
be insufficient to recover our investment, an impairment provision will be
calculated based upon the excess of the carrying amount of the property over its
fair value. Real estate assets which are held for sale are valued at the lower
of the recorded cost or estimated fair value, less the cost to sell. We do not
obtain any independent appraisals of either the real property underlying our
loans or the real estate assets which are held by us and by our joint ventures,
but we rely on our own analysis and valuations. Any valuation allowances taken
with respect to our loan portfolio or real estate assets will reduce our net
income, assets and shareholders' equity to the extent of the amount of the
valuation allowance, but it will not affect our cash flow until such time as the
property is sold. No additional valuation allowance was recorded against our
mortgage portfolio in the fiscal year ended September 30, 2003.2004. There was no
valuation adjustment recorded in fiscal 20032004 against real estate assets.
Revenue Recognition
We recognize interest income and rental income on an accrual basis,
unless we make a judgment that impairment of a loan or loans or of real estate
owned renders doubtful collection of interest or rent in accordance with the
applicable loan documents or leases. In making a judgment as to the
collectibility of interest or rent, we consider, among other factors, the status
of the loan or property, the borrower's or tenant's financial condition, payment
history and anticipated events in the future. Income recognition is suspended
for loans when in the opinion of management a full recovery of income and
principal becomes doubtful. Income recognition is resumed when the loan becomes
contractually current and continued performance is demonstrated. Accordingly,
in looking at various
factors wemanagement must make a significant judgment as to whether to treat a loan or
real estate owned as impaired. If we make a decision to treat a "problem" loan
or real estate asset as unimpaired and therefore continue to recognize the
interest and rent as income on an accrual basis, we could overstate income by
recognizing income that will not be collected and the uncollectible amount will
ultimately have to be written off. The period in which the uncollectible amount
is written off could adversely affect taxable income for a specific year and our
ability to pay cash distributions.
Certain Transactions
Fredric H. Gould, Chairman of our Board of Trustees, is also
Chairman of the Board of Directors of One Liberty Properties, Inc., a real
estate investment trust engaged in the ownership of a diversified portfolio of
income producing real properties leased to tenants primarily under long-term
leases. He is also Chairman of the Board of Directors and sole stockholder of
the managing general partner of Gould Investors L.P. and sole member of a
limited liability company which is also a general partner of Gould Investors
L.P. Jeffrey A. Gould, a Trustee and our President and Chief Executive Officer
is a Senior Vice President and Director of One Liberty Properties, Inc. and a
Senior Vice President of the corporate managing general partner of Gould
Investors L.P. Matthew J. Gould one of our Senior Vice Presidents and a Trustee
is a Senior Vice President and Director of One Liberty Properties, Inc., and
President of the managing general partner of Gould Investors L.P. Gould
Investors L.P. owns approximately 28% of our outstanding beneficial shares. In
addition, David W. Kalish, Simeon Brinberg, Mark H. Lundy and Israel Rosenzweig,
each of whom is an executive officer of our company, are also executive officers
of One Liberty Properties, Inc. and of the corporate managing partner of Gould
Investors L.P. Arthur Hurand, one of our Trustees, is a director of One Liberty
Properties, Inc.
We and certain related entities, including Gould Investors L.P. and
One Liberty Properties, Inc., occupy common office space and use certain
personnel in common. In our 2003 fiscal year we paid Gould Investors L.P.
$656,000 for general and administrative expenses, including rent,
telecommunication services, computer services, bookkeeping, secretarial and
other clerical services and legal and accounting services. This amount includes
an aggregate of $476,000 allocated to us for services (primarily legal and
accounting) performed by executive officers who are not engaged by us on a
full-time basis. The allocation of general and administrative expenses is
computed in accordance with a Shared Services Agreement on a quarterly basis and
is based on the estimated time devoted by executive, administrative and clerical
personnel to the affairs of each participating entity. The services of
secretarial personnel generally are allocated on the same basis as that of the
executive to whom each secretary is assigned.
In the fiscal year ending September 30, 2003, we paid Majestic
Property Management Corp., a company in which we have no ownership interest and
which is 100% owned by the Chairman of our Board of Trustees, fees for
management and brokerage services totaling $92,000. Fredric H. Gould, Jeffrey A.
Gould, Matthew J. Gould, Simeon Brinberg, David W. Kalish, Mark H. Lundy and
Israel Rosenzweig received fees from Majestic Property Management Corp. in the
year ended September 30, 2003. The management services provided by Majestic
Property Management Corp. to us include, among other things, rent billing and
collection, leasing (including compliance with regulatory statutes and rules
(i.e., New York City rent control and rent stabilized rules), and property
sales. The fees paid to this entity are approved by members of our Board of
Trustees, including a majority of independent trustees, and are based on fees
which would have been charged by unaffiliated persons for comparable services.
It is the intention of our Board of Trustees and our management that the fees
paid to related parties are not greater than the fees which would have been paid
to unaffiliated persons for comparable services.
We and REIT Management Corp. ("REIT") are parties to an Advisory
Agreement pursuant to which REIT furnishes administrative services with respect
to our assets and, subject to the supervision of the Trustees, advises us with
respect to our investments. The Advisory Agreement, which was initially entered
into in February 1983, has been renewed by the Board of Trustees to December 31,
2007. Fredric H. Gould and two of our officers are directors of REIT. All of the
outstanding shares of REIT are owned by Fredric H. Gould. Fredric H. Gould,
Chairman of our Board, and Matthew J. Gould, a Trustee, are salaried officers of
REIT. Simeon Brinberg, David W. Kalish, Mark H. Lundy and Israel Rosenzweig,
officers of our company, received fees from REIT in the year ended September 30,
2003.
Pursuant to the terms of the Advisory Agreement, REIT receives an
annual fee for services performed of 1/2 of 1% of Invested Assets other than
mortgages receivable and investments in unconsolidated ventures and a 1% fee
payable on mortgages receivable and investments in unconsolidated ventures. The
computation of the fee includes non-accruing mortgage receivables to the extent
they exceed allowances for loan losses. The fee under the Advisory Agreement is
computed and payable quarterly, subject to adjustment at year end based on the
audited financial statements. During fiscal 2003 REIT earned $875,000 under the
Advisory Agreement. In addition, borrowers pay fees directly to REIT for
services rendered in reviewing, analyzing and facilitating loans made by us.
These fees amounted to $601,000 for year ending September 30, 2003.
Item 7A - Quantitative and Qualitative Disclosure About Market Risk
Disclosure
-------------------------------------------------------------------------------
Our primary component of market risk is interest rate sensitivity. Our
interest income and to a lesser extent our interest expense are subject to
changes in interest rates. We seek to minimize these risks by originating loans
that are indexed to the prime rate, with a stated minimum interest rate, and
borrowing, when necessary, from our available credit line which is also indexed
to the prime rate. At September 30, 20032004, approximately 65%87% of our portfolio was
comprised of variable rate loans tied primarily to the prime rate. Changes in
the prime interest rate would affect our net interest income accordingly. When
determining interest rate sensitivity, we assume that any change in interest
rates is immediate and that the interest rate sensitive assets and liabilities
existing at the beginning of the period remain constant over the period being
measured. We assessed the market risk for our variable rate mortgage receivables
and variable rate debt and believe that a one percent increase in interest rates
would cause an increase of income before taxes of $259,000$527,000 and a one percent
decline in interest rates would cause a declinean increase of income before taxes of
approximately $56,000.$37,000. In addition, we originate loans with short maturities and
maintain a strong capital position. As of September 30, 20032004, a majority of our
loan portfolio was secured primarily by properties located in the New York
metropolitan area, including New Jersey and Connecticut, in California,Tennessee, and in
DelawareFlorida and it is therefore subject to risks associated with the economies of
these localities.
Item 8. Financial Statements and Supplementary Data
-------------------------------------------
This information appears in a separate section of this Report following Part
IV.
Item 9. Changes in and Disagreements with Accountants on Accounting and
---------------------------------------------------------------
Financial Disclosure
--------------------
None.
Item 9A. Controls and Procedures
-----------------------
As required under Rules 13a-15 (e) and 15d-15 (e) under the Securities
Exchange Act of 1934, within 90 days prior to the date of this report, we carried out an evaluation under the supervision and
with the participation of our management, including our Chief Executive Officer,
Senior Vice President - Finance and Chief Financial Officer, of the
effectiveness of the design and operation of our disclosure controls and
procedures.procedures as of September 30, 2004. Based upon that evaluation, the Chief
Executive Officer and Chief Financial Officer concluded that our disclosure
controls and procedures as of September 30, 20032004 are effective.
There have nothas been any significant changesno change in our internal controlscontrol over financial reporting
during the quarter ended September 30, 2004 that has materially affected, or is
reasonably likely to materially affect, our internal control over financial
reporting or in other factors that could significantly affect these controls
subsequent to the date of their evaluation, including any corrective actions
with regard to significant deficiencies and material weaknesses.
Item 9B. Other Information
-----------------
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
--------------------------------------------------
Apart from certain information concerning our executive officers which is
set forth in Part I of this report, the other information required by this Item
is incorporated herein by reference to the applicable information in the proxy
statement for our 2004 annual meeting,2005 Annual Meeting of Stockholders, including the information
set forth under the captions "Election of Trustees," "Section 16(a) Beneficial
Ownership Reporting Compliance" and "Code of Ethics" and "Governance--"Governance -- Audit
Committee--Committee -- Audit Committee Financial Expert."
Item 11. Executive Compensation
----------------------
The information concerning our executive compensation required by Item 11
shall be included in the Proxy Statement to be filed relating to our 20042005 Annual
Meeting of Stockholders and is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management --------------------------------------------------------------and
------------------------------------------------------------------
Related Stockholder Matters
---------------------------
The information concerning our beneficial owners required by Item 12 shall be
included in the Proxy Statement to be filed relating to our 20042005 Annual Meeting
of Stockholders and is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
----------------------------------------------
The information concerning relationships and certain transactions required by
Item 13 shall be included in the Proxy Statement to be filed relating to our
20042005 Annual Meeting of Stockholders and is incorporated herein by reference.
Item 14. Principal Accounting Fees and Services
--------------------------------------
The information concerning our principal accounting fees required by Item 14
shall be included in the Proxy Statement to be filed relating to our 20042005 Annual
Meeting of Stockholders and is incorporated herein by reference.
PART IV
Item 15. Exhibits, Financial Statement Schedules
and Reports on Form 8-K
-------------------------------------------------------------------------------------------------------
(a) 1. Financial Statements - The response is submitted in a separate
section of this report following Part IV.
2. Financial Statement Schedules - The response is submitted in a
separate section of this report following Part IV.
3. Exhibits:
3.1. Second Amended and Restated Declaration of Trust dated
June 13,16, 1972. Incorporated by reference to
Exhibit 3A toFiled with this Form 10-K for the year ended September
30, 1984.10-K.
3.2. First Amendment to Second Amended and Restated
Declaration of Trust dated August 20, 1986.
Incorporated by reference to Registration Statement on
Form S-2 (No. 33-8125).
3.3. Second Amendment to Second Amended and Restated
Declaration of Trust dated March 2, 1987. Incorporated
by reference to Registration Statement on Form S-2
(No.33-11072).
3.4. Third Amendment to Second Amended and Restated
Declaration of Trust dated March 2, 1988. Incorporated
by reference to Exhibit 3D toFiled with
this Form 10-K for the year
ended September 30, 1988.10-K.
3.5. By-laws - Incorporated by reference to Registration
Statement on Form S-2 (No. 33-8125).
10.1.10.1 Advisory Agreement dated February 7, 1983 between the
BRT Realty Trust and REIT Management Corp. Incorporated
by reference to Registration Statement on Form S-2 (No.
33-8125).
10.2.10.2 Credit Agreement with North Fork Bank dated as of July
25, 2001. Incorporated by reference to Exhibit 5 to
Form 8-K filed August 1, 2001.
10.3 First Amendment to Credit Agreement with North Fork
Bank dated as of June 6, 2003. Incorporated by
reference to Exhibits 1 and 2 to Form 8-K filed on June
11, 2003.
10.3.10.4 Second Amendment to Credit Agreement dated as of March
29, 2004. Incorporated by reference to Exhibits 2 and
3 of Form 8-K filed March 31, 2004.
10.5 Third Amendment to Credit Agreement dated as of July
2, 2004. Incorporated by reference as Exhibits 2 and 3
to Form 8-K filed July 14, 2004.
10.6 Shared Services Agreement. Incorporated by reference to
Exhibit 10 (c) to Form 10-K for the year ended
September 30, 2002.
21.1.21.1 Subsidiaries - Each subsidiary is 100% owned by BRT.
Filed with this Form 10-K.
23.1.23.1 Consent of Ernst & Young, LLP. Filed with this Form
10-K.
31.1.31.1 Certification of Chief Executive Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002 (the
"Act"). Filed with this Form 10-K.
31.2.31.2 Certification of Senior Vice President - Finance
pursuant to Section 302 of the Act. Filed with this
Form 10-K.
31.3.31.3 Certification of Chief Financial Officer pursuant to
Section 302 of the Act. Filed with this Form 10-K.
32.1.32.1 Certification of Chief Executive Officer pursuant to
Section 906 of the Act. Filed with this Form 10-K.
32.2.
32.2 Certification of Senior Vice President-Finance pursuant
to Section 906 of the Act. Filed with this Form 10-K.
32.3.32.3 Certification of Chief Financial Officer pursuant to
Section 906 of the Act. Filed with this Form 10-K.
(b) Reports on Form 8-K:
On August 13, 2003 BRT filed an 8-K attaching a copy of
its press release reporting its results of operations
for the quarter and nine months ended June 30, 2003.
(c) Exhibits - See Item 14(a)15(a) 3 above.
(d)(c) See Item 14(a)15(a) 2 above.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BRT REALTY TRUST
Date: December 19, 2003 By: (S) Jeffrey A. Gould
----------------------
Jeffrey A. Gould
Chief Executive Officer, President and Trustee
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated.
Signature Title Date
--------- ----- ----
(S) Fredric H. Gould Chairman of the Board December 19, 2003
- --------------------
Fredric H. Gould
(S) Jeffrey A. Gould Chief Executive Officer, December 19, 2003
- --------------------
Jeffrey A. Gould President and Trustee
(Principal Executive
Officer)
(S) Patrick J. Callan Trustee December 19, 2003
- ---------------------
Patrick J. Callan
(S) Louis C. Grassi Trustee December 19, 2003
- -------------------
Louis C. Grassi
(S) Matthew J. Gould Trustee December 19, 2003
- --------------------
Matthew J. Gould
(S) Arthur Hurand Trustee December 19, 2003
- -----------------
Arthur Hurand
(S) Gary Hurand Trustee December 19, 2003
- ---------------
Gary Hurand
(S) David Herold Trustee December 19, 2003
- ----------------
David Herold
(S) George E. Zweier Chief Financial Officer, December 19, 2003
- ---------------------
George E. Zweier Vice President
(Principal Financial
and Accounting Officer)
Annual Report on Form 10-K
Item 8, Item 15(a)(1) and (2)
- -----------------------------
Index to Consolidated Financial Statements and Consolidated Financial
Statement Schedules
Page No.
--------
Report of Independent Auditors F-1
Consolidated Balance Sheets as of September 30,
20032004 and 20022003 F-2
Consolidated Statements of Income for the
years ended September 30, 2004, 2003 2002 and 20012002 F-3
Consolidated Statements of Shareholders' Equity
for the years ended September 30, 2004, 2003 2002 and 20012002 F-4
Consolidated Statements of Cash Flows for the
years ended September 30, 2004, 2003 2002 and 20012002 F-5
Notes to Consolidated Financial Statements F-7
Consolidated Financial Statement Schedules for
the year ended September 30, 2003:2004:
III - Real Estate and Accumulated Depreciation F-23
IV - Mortgage Loans on Real Estate F-25
All other schedules are omitted because they are not applicable or the required
information is shown in the consolidated financial statements or the notes
thereto.
EXHIBIT 21.1
SUBSIDIARIES
COMPANY STATE OF INCORPORATION
- ------- -----------------------
Hoboken Front Corp. New Jersey
Forest Green Corporation New York
Realty 49 Corp. New York
TRB No. 1 Corp. New York
TRB No. 2 Corp. New York
TRB Cutter Mill Corp. New York
Blue Realty Corp. Delaware
TRB No. 3 Owners Corp. Wyoming
1090 Boston Post Road Realty Corp. New York
TRB Fairway Office Center Corp. Kansas
TRB Abbotts Corp. Pennsylvania
TRB Ashbourne Road Corp. Pennsylvania
BRT Funding Corp. New York
TRB 69th Street Corp. New York
TRB Lawrence Corp. New York
TRB Yonkers Corp. New York
TRB Hartford Corp. Connecticut
TRB Atlanta LLC Georgia
TRB Stroudsberg LLC Pennsylvania
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements
(Form S-8 No. 333-101681) pertaining to the 1996 Stock Option Plan of BRT Realty
Trust and (Form S-8 No. 333-104461) pertaining to the 2003 Incentive Plan of BRT
Realty Trust of our report dated December 8, 2003, with respect to the
consolidated financial statements and schedules of BRT Realty Trust included in
the Annual Report (Form 10-K) for the year ended September 30, 2003.
New York, New York
December 19, 2003 /s/
Ernst & Young LLP
Exhibit 31.1
CERTIFICATION
I, Jeffrey A. Gould, President and Chief Executive Officer of BRT Realty
Trust, certify that:
1. I have reviewed this Annual Report on Form 10-K for the fiscal year
ended September 30, 2003 of BRT Realty Trust;
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows
of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15 (e) and 15d-15 (e)) for the
registrant and have:
(a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in
which this report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
c) Disclosed in this report any change in the registrant's most recent
fiscal quarter that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial
reporting; and
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation of internal controls over financial
reporting, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
a) All significant deficiencies and material weaknesses in the design
or operation of internal controls over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal control over financial reporting.
Date: December 19, 2003
S/Jeffrey A. Gould
------------------
President and Chief Executive Officer
Exhibit 31.2
CERTIFICATION
I, David W. Kalish, Senior Vice President-Finance of BRT Realty Trust,
certify that:
1. I have reviewed this Annual Report on Form 10-K for the fiscal year
ended September 30, 2003 of BRT Realty Trust;
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows
of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15 (e) and 15d-15 (e)) for the
registrant and have:
a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in
which this report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
c) Disclosed in this report any change in the registrant's most recent
fiscal quarter that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial
reporting; and
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation of internal controls over financial
reporting, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
a) All significant deficiencies and material weaknesses in the design
or operation of internal controls over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information and
b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal control over financial reporting.
Date: December 19, 2003
S/David W. Kalish
-----------------
Senior Vice President-Finance
Exhibit 31.3
CERTIFICATION
I, George Zweier, Vice President and Chief Financial Officer of BRT Realty
Trust, certify that:
1. I have reviewed this Annual Report on Form 10-K for the fiscal year
ended September 30, 2003 of BRT Realty Trust;
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows
of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15 (e) and 15d-15 (e)) for the
registrant and have:
a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in
which this report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
c) Disclosed in this report any change in the registrant's most recent
fiscal quarter that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial
reporting; and
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation of internal controls over financial
reporting, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
a) All significant deficiencies and material weaknesses in the design
or operation of internal controls over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information and
b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal control over financial reporting.
Date: December 19, 2003
S/George Zweier
---------------
Vice President and Chief
Financial Officer
EXHIBIT 32.1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350
(SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002)
The undersigned, Jeffrey A. Gould, the Chief Executive Officer of BRT Realty
Trust, (the "Registrant"), does hereby certify, pursuant to 18 U.S.C. Section
1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that
based upon a review of the Annual Report on Form 10-K for the year ended
September 30, 2003 of the Registrant, as filed with the Securities and Exchange
Commission on the date hereof (the "Report").
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of
the Securities Exchange Act of 1934, as amended; and
(2) The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Registrant.
Date: December 19, 2003 /s/ Jeffrey A. Gould
---------------------------
Jeffrey Gould
Chief Executive Officer
EXHIBIT 32.2
CERTIFICATION OF SENIOR VICE PRESIDENT-FINANCE
PURSUANT TO 18 U.S.C. SECTION 1350
(SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002)
The undersigned, David W. Kalish, Senior Vice President-Finance of BRT Realty
Trust, (the "Registrant"), does hereby certify, pursuant to 18 U.S.C. Section
1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that
based upon a review of the Annual Report on Form 10-K for the year ended
September 30, 2003 of the Registrant, as filed with the Securities and Exchange
Commission on the date hereof (the "Report").
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of
the Securities Exchange Act of 1934, as amended; and
(2) The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Registrant.
Date: December 19, 2003 /s/ David W. Kalish
------------------------------------
David W. Kalish
Senior Vice President-Finance
EXHIBIT 32.3
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350
(SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002)
The undersigned, George Zweier, the Chief Financial Officer of BRT Realty Trust,
(the "Registrant"), does hereby certify, pursuant to 18 U.S.C. Section 1350 as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that based
upon a review of the Annual Report on Form 10-K for the year ended September 30,
2003 of the Registrant, as filed with the Securities and Exchange Commission on
the date hereof (the "Report").
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of
the Securities Exchange Act of 1934, as amended; and
(2) The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Registrant.
Date: December 19, 2003 /s/ George Zweier
-----------------------------------
George Zweier
Vice President and Chief Financial Officer
REPORT OF INDEPENDENT AUDITORS
To the Trustees and Shareholders
BRT Realty Trust
We have audited the accompanying consolidated balance sheets of BRT
Realty Trust and Subsidiaries (the "Trust") as of September 30, 20032004
and 2002,2003, and the related consolidated statements of income,
shareholders' equity, and cash flows for each of the three years in
the period ended September 30, 2003.2004. Our audits also included the
financial statement schedules listed in the Index at Item 15(a).
These financial statements and schedules are the responsibility of
the Trust's management. Our responsibility is to express an opinion
on these financial statements and schedules based on our audits.
We conducted our audits in accordance with auditing standards generally accepted inof the
United States.Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position
of BRT Realty Trust and Subsidiaries at September 30, 20032004 and 2002,2003,
and the consolidated results of their operations and their cash flows
for each of the three years in the period ended September 30, 2003,2004,
in conformity with accounting principlesU.S. generally accepted in the
United States.accounting principles.
Also, in our opinion, the related financial statement schedules, when
considered in relation to the basic financial statements taken as a
whole, present fairly in all material respects the information set
forth therein.
/s/ ERNST & YOUNG LLP
New York, New York
December 8, 20032004
BRT REALTY TRUST AND SUBSIDIARIES
Consolidated Balance Sheets
(Amounts(Dollar amounts in thousands except per share amounts)
ASSETS
September 30,
-------------
2004 2003
2002
---- ----------
Real estate loans
- Notes 2, 4 and 6:
Earning interest, including $7,134$7,305 and $8,129$7,134
from related parties $132,229 $ 63,733 $ 84,112
Not earning interest 3,096 3,145
415
--------- ----------------- --------
135,325 66,878 84,527
Allowance for possible losses (881) (881)
--------- ----------------- --------
134,444 65,997
83,646
--------- ----------------- --------
Real estate assets - Notes 3 and 6:
Real estate properties net of accumulated
depreciation of $1,699 and $1,462 and $1,2276,212 6,461 6,573
Investment in unconsolidated
real estate ventures at equity 7,793 6,930
6,956
--------- ----------------- --------
14,005 13,391 13,529
Valuation allowance (325) (325)
--------- ----------------- --------
13,680 13,066
13,204
--------- ----------------- --------
Cash and cash equivalents 5,746 21,694 4,688
Available-for-sale securities at market - Note 541,491 36,354 31,178
Other assets 2,644 1,891
2,215
--------- ----------------- --------
Total Assets $ 139,002 $ 134,931
========= =========$198,005 $139,002
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Borrowed funds - Note 6$ 53,862 $ 4,755
$ 14,745
Mortgage payable - Note 62,609 2,680 2,745
Accounts payable and accrued liabilities including
deposits of $3,164 and $1,103 and $1,2659,471 5,635
3,150
--------- ----------------- --------
Total liabilities 65,942 13,070
20,640
--------- ----------------- --------
Commitments and contingencies - Notes 2, 3, 4, 6, 9 and 10 - -
Shareholders' equity - Note 8:
Preferred shares, $1 par value:
Authorized 10,000 shares, none issued - -
Shares of beneficial interest, $3 par value:
Authorized number of shares, unlimited, issued
8,883 shares 26,650 26,650
Additional paid-in capital 81,769 81,151 80,864
Accumulated other comprehensive income - net
unrealized gain on available-for-sale securities 26,162 19,282 12,426
Unearned compensation (900) (406) -
Retained earnings 9,482 11,154
7,218
--------- ------------------ --------
143,163 137,831 127,158
Cost of 1,3811,288 and 1,4931,381 treasury shares
of beneficial interest (11,100) (11,899)
(12,867)
--------- ----------------- --------
Total shareholders' equity 132,063 125,932
114,291
--------- ----------------- --------
Total Liabilities Andand Shareholders' Equity $198,005 $139,002 $134,931
======== ========
See accompanying notes to consolidated financial statements.
BRT REALTY TRUST AND SUBSIDIARIES
Consolidated Statements of Income
(Amounts(Dollar amounts in thousands except per share amounts)
Year Ended September 30,
------------------------2004 2003 2002 2001
---- ---- ----
Revenues:
Interest and fees on real estate loans, including
$742, $726 $602 and $187$602 from related parties - Note 2$ 13,913 $ 9,813 $ 11,897 $ 8,685
Operating income from real estate properties 2,294 2,324 2,269 1,651
Recovery of previously provided allowances - - 500 -
Other, primarily investment income 2,376 2,667 2,732
3,580
-------- ---------------- --------
Total Revenues 18,583 14,804 17,398
13,916
-------- ---------------- --------
Expenses:
Interest - borrowed funds - Note 61,351 270 227
53
Advisor's fees, - Note 9related party 1,444 875 967 745
General and administrative - Note 9including $754, $656
and $647 to related parties 3,828 3,063 2,911
2,983
Other taxes - Note 7480 498 452 249
Expense related to investment income - - 575
Operating expenses relating to real estate properties
including interest on mortgages payable
of $254, $259 and $265 and $2612,211 1,355 1,255 925
Amortization and depreciation 328 327 340
372
Loss on early extinguishment of debt - - 264
-------- --------------- --------
Total Expenses 9,642 6,388 6,152 6,166
-------- -------- --------
Income before equity in earnings of unconsolidated real estate
ventures, and gain on sale of available-for-sale securities,
minority interest and discontinued operations 8,941 8,416 11,246 7,750
Equity in earnings of unconsolidated real estate ventures 202 479 574
889
Net-------- -------- --------
Income before gain on sale of available-for-sale securities,
minority interest and discontinued operations 9,143 8,895 11,820
Gain on sale of available-for-sale securities 1,641 4,332 -
Minority interest (43) (43) (41)
-------- -------- --------
Income before discontinued operations 10,741 13,184 11,779
Discontinued Operations
Gain on sale of real estate assets 1,261 499 807 1,937
Net realized gain on available-for-sale securities 4,332 - 33
-------- -------- --------
Income before minority interest 13,726 12,627 10,609
Minority interest (43) (41) (23)
-------- -------- -------
Net Income $ 13,683 $ 12,586 $ 10,586
======== ======== ========income $12,002 $13,683 $12,586
======= ======= =======
Income per share of Beneficial Interest:beneficial interest:
Income from continuing operations $ 1.41 $ 1.76 $ 1.60
Discontinued operations .17 .07 .11
------- ------- -------
Basic earnings per share $ 1.58 $ 1.83 $ 1.71
======= ======= =======
Income from continuing operations $ 1.47
======== ======== ========1.39 $ 1.73 $ 1.57
Discontinued operations .16 .07 .11
------- ------- -------
Diluted earnings per share $ 1.55 $ 1.80 $ 1.68
$ 1.45
======== ======== =============== ======= =======
Cash distributions per common share $ 1.79 $ 1.30 $ 1.04
$ .44
======== ======== =============== ======= =======
Weighted average number of common
shares outstanding:
Basic 7,458,8807,617,116 7,470,608 7,373,627 7,221,373
========= ========= =========
Diluted 7,585,4787,734,364 7,595,434 7,503,065 7,327,174
========= ========= =========
See accompanying notesAccompanying Notes to consolidated financial statements.Consolidated Financial Statements.
BRT REALTY TRUST AND SUBSIDIARIES
Consolidated Statements of Shareholders' Equity
Years Ended September 30, 2004, 2003, and 2002
and 2001
(Amounts(Dollar amounts in thousands)thousands except per share data)
Accumulated
Other Retained
Shares of Additional Compre- Unearned
Earnings/
Beneficial Paid-In hensive Compen- AccumulatedRetained Treasury
Interest Capital Income sation DeficitEarnings/ Shares Total
-------- ------- ------ ------ ---------------- ------ -----
Balances, September 30, 2000 $26,665 $81,499 $(3,133) - $(5,047) $(14,837) $85,147
Distributions - Common share
($.44 per share) - - - - (3,226) - (3,226)
Exercise of Stock Options (15) (491) - - - 1,460 954
Net income - - - - 10,586 - 10,586
Other comprehensive income -
unrealized gain on sale of avail-
able-for-sale securities (net of
reclassification adjustment for
gains included in net income
of $33 - - 8,411 - - - 8,411
-----
Comprehensive income - - - - - - 18,997
------------------------------------------------------------------------------------
Balances, September 30, 2001 26,650 81,008$26,650 $81,008 $ 5,278 - $ 2,313 (13,377) 101,872$(13,377) $101,872
Distributions - Common share
($1.04 per share) - - - - (7,681) - (7,681)
Exercise of Stock Options - (144) - - - 510 366
Net income - - - - 12,586 - 12,586
Other comprehensive income -
unrealized gain on sale of avail-
able-for-sale securities - - 7,148 - - - 7,148
-----
Comprehensive income - - - - - - 19,734
---------------------------------------------------------------------------------------------------------------------------------------------------------------------
Balances, September 30, 2002 26,650 80,864 12,426 - 7,218 (12,867) 114,291
Distributions - Common share
($1.30 per share) - - - - (9,747) - (9,747)
Exercise of Stock Options - (155) - - - 968 813
Issuance of restricted stock - 442 - $(442) - - -
Compensation expense -
restricted stock - - - 36 - - 36
Net income - - - - 13,683 - 13,683
Other comprehensive income -
unrealized gain on sale of avail-
able-for-sale securities (net of
reclassification adjustment for
gains included in net income
of $4,332) - - 6,856 - - - 6,856
-----
Comprehensive income - - - - - - 20,539
---------------------------------------------------------------------------------------------------------------------------------------------------------------
Balances, September 30, 2003 26,650 81,151 19,282 (406) 11,154 (11,899) 125,932
Distributions - Common share
($1.79 per share) - - - - (13,674) - (13,674)
Exercise of Stock Options - (74) - - - 784 710
Issuance of restricted stock - 700 - (700) - - -
Restricted stock vesting - (8) - - - 15 7
Compensation expense -
restricted stock - - - 206 - - 206
Net income - - - - 12,002 - 12,002
Other comprehensive income -
unrealized gain on sale of avail-
able-for-sale securities (net of
reclassification adjustment for gains
included in net income of $1,641 - - 6,880 - - - 6,880
------
Comprehensive income - - - - - - 18,882
------------------------------------------------------------------------------
Balances, September 30, 2004 $26,650 $81,151 $19,282 $(406) $11,154 $(11,899) $125,932
=======================================================================================$81,769 $26,162 $(900) $9,482 $(11,100) $132,063
=================================================================================
See accompanying notes to consolidated financial statements.
BRT REALTY TRUST AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Amounts(Dollar amounts in thousands)
Year Ended September 30,
------------------------
2004 2003 2002 2001
---- ---- ----
Cash flows from operating activities:
Net income $ 12,002 $ 13,683 $ 12,586 $ 10,586
Adjustments to reconcile net income to net cash provided
by operating activities:
Loss on early extinguishment of debt - - 264
Amortization and depreciation 328 327 340 372
Recovery of previously provided allowances - - (500) -
Restricted stock expense 213 36 - -
Net gain on sale of real estate loans and propertiesassets from
discontinued operations (1,261) (499) (807) (1,937)
Net gain on sale of available-for-sale securities (1,641) (4,332) - (33)
Equity in (earnings) of unconsolidated
real estate ventures (202) (479) (574) (889)
Increase in straight line rent (153) (153) (126)(153)
(Increase) Decrease (Increase) in interest and dividends receivable (475) 305 (42)
(227)(Increase) Decrease (Increase) in prepaid expenses (56) 19 (8)
(132)
Increase (decrease) in accounts payable and
accrued liabilities 1,005 66 250
(262)Increase (Decrease) Increase in deferred revenues 747 (234) (98) 229
Increase (Decrease) in escrow deposits 905 3 (133) 5
(Increase) Decrease in deferred costs (150) (89) 21
(134)
Other (36) 153 (173)
(33)
-------- --------------- -------
Net cash provided by operating activities 11,226 8,806 10,709
7,683
-------- --------------- -------
Cash flows from investing activities:
Collections from real estate loans 94,511 76,365 40,869
20,011Sale of participation interests 68,630 - -
Proceeds from sale of loans - - 4,311 -
Additions to real estate loans (231,588) (58,716) (61,779) (44,276)
Net costs capitalized to real estate owned (86) (176) (38) (210)
Proceeds from sale of real estate owned 1,358 553 816
2,029Increase (Decrease) Increase in deposits payable 245 (67) (124) 39
Purchase of available-for-sale securities - (2,034) - -
Sale of available-for-sale securities 3,384 8,047 - 723
Investment in real estate ventures (899) (268) (275)
(866)
Partnership distribution 238 773 823
207
-------- --------------- --------
Net cash (used in) provided by (used in) investing activities (64,207) 24,477 (15,397)
(22,343)
-------- --------------- --------
Cash flows from financing activities:
Proceeds from borrowed funds 179,107 4,755 22,500 2,101
Repayment of borrowed funds (130,000) (14,745) (9,856) (88)
Payoff/paydown of loan and mortgages payable (71) (65) (59) (46)
Exercise of stock options 711 813 366 954
Increase in mortgage payable - - 2,850
Cash distribution - common shares (12,714) (7,035) (7,681)
(3,226)
--------- ----------------- --------
Net cash provided by (used in) provided by financing activities 37,033 (16,277) 5,270
2,545-------- --------- --------
-----
Net (decrease) increase (decrease) in cash and cash equivalents (15,948) 17,006 582 (12,115)
Cash and cash equivalents at beginning of year 21,694 4,688 4,106 16,221
-------- -------- --------
Cash and cash equivalents at end of year $ 5,746 $ 21,694 $ 4,688 $ 4,106
======== ======== ========
See accompanying notes to consolidated financial statements.
BRT REALTY TRUST AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Amounts(Dollar amounts in thousands)
(Continued)
Year Ended September 30,
-----------------------------------------------
2004 2003 2002
2001
--------- ---- ----
Supplemental disclosures of cash flow information:
Cash paid during the year for interest expense $ 1,434 $ 527 $ 427
$ 303
======== ======== =============== ======= =======
Cash paid during the year for income taxes $ 542 $ 314 $ 241
$ 249
======== ======== ========
Supplemental schedule of noncash investing and financing activities:
Recognition of valuation allowance upon sale $ - $ - $ 24
======== ======== ======= of real estate owned
Recovery of previously provided allowances $ - $ 500 $ -
======== =============== =======
See accompanying notes to consolidated financial statements.
BRT REALTY TRUST AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended September 30, 2004, 2003 and 2002
and 2001
(Amounts(Dollar Amounts in Thousands Except Per Share Data)
NOTE 1 - ORGANIZATION, BACKGROUND AND SIGNIFICANT ACCOUNTING POLICIES
Organization and Background
BRT Realty Trust is a real estate investment trust organized as a
business trust in 1972 under the laws of the Commonwealth of
Massachusetts. Our principal business activity is to generate income
by originating and holding for investment, for our own account,
senior and junior real estate mortgage loans secured by income
producing real
property. We also originate and hold for investment for our own
account participating real estate mortgage loans secured by income producing real
property and we purchase and hold for investment senior or junior
participations in existing mortgage loans secured by income producing real property.
Principles of Consolidation; Basis of Preparation
The consolidated financial statements include the accounts of BRT
Realty Trust and its wholly-owned subsidiaries. Investments in less
than majority-owned entities have been accounted for using the equity
method. Material intercompany items and transactions have been
eliminated. Many of the wholly-owned subsidiaries were organized to take
title to various properties acquired by BRT Realty Trust. BRT Realty
Trust and its subsidiaries are hereinafter referred to as the "Trust"
or the "Company".
Income Tax Status
The Trust qualifies as a real estate investment trust under Sections
856-860 of the Internal Revenue Code.
The Trustees may, at their option, elect to operate the Trust as a
business trust not qualifying as a real estate investment trust.
Income Recognition
Income and expenses are recorded on the accrual basis of accounting
for both financial reporting and income tax purposes. The Trust does not accrue interest
or rental income on impaired loans or real estate owned where, in the
judgment of management, and the Trustees, collection of interest or rent according to
the contractual terms is considered doubtful. Among the factors the
Trust considers in making an evaluation of the amount of interest or
rent that are collectable,
are the status of the loan or property, the financial condition of the borrower or
tenant and anticipated future events. The Trust accrues interest on
performing impaired loans and records cash receipts as a reduction of
the recorded investment leaving the valuation allowance constant
throughout the life of the loan. For impaired non-accrual loans,
interest is recognized on a cash basis. Loan discounts are amortized
over the life of the real estate loan using the constant interest
method.
Loan commitment and extension fee income on loans held in our
portfolio is deferred and recorded as a component of interest income
over the life of the commitment and loan. Commitment fees are
generally non-refundable. When a commitment expires or the Trust no
longer has any other obligation to perform, the remaining fee is
recognized into income.
Rental income includes the base rent that each tenant is required to
pay in accordance with the terms of their respective leases reported
on a straight line basis over the initial term of the lease.
The basis on which the cost was determined in computing the realized
gain or loss on available-for-sale securities is average historical
cost.
Loans held for sale are carried at lower of cost or estimated fair
value as determinedcalculated in accordance with SFAS 65 on an individual loan
basis. Deferred fees on loans held for sale are recognized as a
component of gain or loss upon the sale. Gains or losses on the sale
are determined by the difference between the sales proceeds and the
carrying value of the loan.
Allowance for Possible Losses
TheA loan evaluated for impairment is deemed to be impaired when based on
current information and events, it is probable that the Trust measureswill not
be able to collect all amounts due according to the impairment of its real estate loans based upon
the fair valuecontractual terms
of the underlying collateral which is determined on an
individual loan basis. In arriving at the fair value of the
collateral,agreement. When making this evaluation numerous factors
are considered, including, market evaluations of the underlying
collateral, estimated operating cash flow from the property during the
projected holding period, and estimated sales value computed by
applying an expected capitalization rate to the stabilized net
operating income of the specific property, less selling costs,
discounted at market discount rates. If upon completion of the
valuations, the underlying collateral securing the loan is less than
the recorded investment in the loan, an allowance is created with a
corresponding charge to expense.
Real Estate Assets
Real estate properties, shown net of accumulated depreciation,
is comprised of real property in which the Trust has invested directly
and properties acquired by foreclosure.
When real estate is acquired by foreclosure or by a deed in lieu of
foreclosure, it is recorded at the lower of the carrying amountrecorded investment
of the loan or estimated fair value at the time of foreclosure. The
recorded investment is the face amount of the loan that has been
increased or decreased by any accrued interest, acquisition costs and
may also reflect a previous direct write down of the loan. Real estate
assets, including assets acquired through foreclosure are operated for
the production of income and are depreciated over their estimated
useful lives. Costs incurred in connection with the foreclosure of the
properties collateralizing the real estate loans and costs incurred to
extend the life or improve the assets subsequent to foreclosure are
capitalized. With respect to the operating properties, operating
income and expenses are reflected in the accompanying consolidated
statements of income.
The Trust accounts for the sale of real estate when title passes to
the buyer, sufficient equity payments have been received and when
there is reasonable assurance that the remaining receivable, if any,
will be collected.
Investments in real estate ventures in which the Trust does not own a
greater than 50% interest or in which it does not have
the ability to exercise operational or financial control, are
accounted for using the equity method. Accordingly, the Trust reports
its pro rata share of net profits and losses from its investments in
unconsolidated real estate ventures in the accompanying consolidated
financial statements.
Valuation Allowance on Real Estate Assets
The Trust reviews each real estate asset owned, including investments
in real estate ventures, for which indicators of impairment are
present to determine whether the carrying amount of the asset will be
recovered. Recognition of impairment is required if the undiscounted
cash flows estimated to be generated by the assets are less than the
assets' carrying amount. Measurement is based upon the fair value of
the asset. Real estate assets held for sale are valued at the lower
of cost or fair value, less costs to sell, on an individual asset
basis. Upon evaluating a property, many indicators of value are
considered, including estimated current and expected operating cash
flow from the property during the projected holding period, costs
necessary to extend the life or improve the asset, expected
capitalization rates, projected stabilized net operating income,
selling costs, and the ability to hold and dispose of such real
estate owned in the ordinary course of business. Valuation
adjustments may be necessary in the event that effective interest
rates, rent-up periods, future economic conditions, and other
relevant factors vary significantly from those assumed in valuing the
property. If future evaluations result in a diminution in the value
of the property, the reduction will be recognized as an addition to
the valuation allowance. If the value of
the property subsequently increases, the valuation allowance will be
reduced.
Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments:
Cash and cash equivalents, accounts receivable, accounts payable and
accrued liabilities: The carrying amounts reported in the balance
sheet for these instruments approximate their fair values due to the
short term nature of these accounts.
Available-for-sale securities: Investments in securities are
considered "available-for-sale", and are reported on the balance sheet
based upon quoted market prices.
Real estate loans: The earning mortgage loans of the Trust have either
variable interest rate provisions, which are based upon a margin over
the prime rate, or are currently fixed at effective interest rates
which approximate market for similar types of loans. Accordingly, the
carrying amounts of the earning, non-impaired mortgage loans
approximate their fair values. For earning loans which are impaired,
the Trust has valued such loans based upon the estimated fair value of
the underlying collateral.
Borrowed funds and mortgages payable: There is no material difference
between the carrying amounts and fair value because interest rates
approximate current market rates for similar types of loans.
Per Share Data
Basic earnings per share was determined by dividing net income
applicable to common shareholders for each year by the weighted
average number of Shares of Beneficial Interest outstanding during
each year. Diluted earnings per share reflects the potential dilution
that could occur if securities or other contracts to issue Shares of
Beneficial Interest were exercised or converted into Shares of
Beneficial Interest or resulted in the issuance of Shares of
Beneficial Interest that then shared in the earnings of the Company.
Diluted earnings per share was determined by dividing net income
applicable to common shareholders for each year by the total of the
weighted average number of Shares of Beneficial Interest outstanding
plus the dilutive effect of the Company's unvested restricted stock
and outstanding options using the treasury stock method.
Cash Equivalents
Cash equivalents consist of highly liquid investments, primarily
direct United States treasury obligations and money market type U.S.
Government obligations, with maturities of three months or less when
purchased.
Use of Estimates
The preparation of the financial statements in conformity with
accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the amounts
reported in the financial statements and accompanying notes. Actual
results could differ from those estimates.
Segment Reporting
Statement of Financial Accounting Standards ("SFAS") No. 131,
Disclosure About Segments of an Enterprise and Related Information
established standards for the way that public business enterprises
report information about operating segments in annual financial
statements and requires that those enterprises report selected
information about operating segments in interim financial reports.
SFAS No. 131 also established standards for related disclosures about
products and services, geographical areas, and major customers. As the
Trust operates predominantly in one industry segment, management has
determined it has one reportable segment and believes it is in
compliance with the standards established by SFAS No. 131.
Derivative Instruments and Hedging Activities
The Trust adopted SFAS Statement No. 133, Accounting for Derivatives
Instruments and Hedging Activities as amended by SFAS Statement No.
137 during the 2001 fiscal year. Because of the Company's minimal
use of derivatives the adoption of SFAS No. 133 did not have a
significant effect on earnings or the financial position of the
Company.
Accounting For Long-Lived Assets
The Financial Accounting Standards Board issued SFAS No.144
"Accounting for the Impairment of Long-Lived Assets" which supersedes
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed of"; however it retained the
fundamental provisions of that statement related to the recognition
and measurement of the impairment of long-lived assets to be "held and
used". In addition, SFAS No. 144 provides more guidance on estimating
cash flows when performing a recoverability test, requires that a
long-lived asset or asset group to be disposed of other than by sale
(e.g. abandoned) be classified as "held and used" until it is disposed
of, and establishes more restrictive criteria to classify an asset or
asset group as "held for sale". The Trust adopted SFAS 144 at the
beginning of the current fiscal year. The adoption of this statement did not
have an effect on the earnings or the financial position of the Trust.
Gains and Losses From ExtinguishmentConsolidation of Debt
On July 1, 2003 the Company adopted Statement SFAS No. 145 which
rescinded SFAS No. 4 "Reporting Gains and Losses From Extinguishment
of Debt". In connection with the adoption of this statement, the
Company reclassified in the 2001 statement of income a loss of $264
from the write off of deferred fees associated with a terminated
revolving credit line, which had previously been reported as an
extraordinary item. Such reclassification had no impact on net income
reported for the 2001 year.
Accounting for Stock-Based Compensation
The Financial Accounting Standards Board issued SFAS No. 148 to amend
SFAS No. 123, "Accounting for Stock-Based Compensation," to provide
alternative methods of transition for a voluntary change to the fair
value based method of accounting for stock-based employee
compensation. In addition, SFAS No. 148 amends the disclosures in both
annual and interim financial statements about the method of accounting
for stock-based employee compensation and the effect of the method
used on reported results. However, the Company has continued to
account for options in accordance with the provision of APB Opinion
No. 25, "Accounting for Stock Issued to Employees" and related
interpretations. See Note 8 for pro forma net income information.
Recently Issued Accounting StandardsVariable Interest Entities
In January 2003, the Financial Accounting Standards Board issued
Interpretation No. 46, "Consolidation of Variable Interest Entities",
which explains how to identify variable interest entities ("VIE") and
how to assess whether to consolidate such entities. The provisions of
this interpretation became immediately effective for VIE's formed
after January 31, 2003. For VIEs formed prior to January 31, 2003, the
provisions of this interpretation apply to the first fiscal year or
interim period beginning after December 15, 2003, unless the Financial
Accounting Standards Board ("FASB") grants a deferral of such
effective date.2003. Management is currently reviewinghas
reviewed its unconsolidated joint ventures to determine if any of themand determined that none
represent variable interest entities which would require consolidation
by the Trust pursuant to the interpretation.
In May, 2003 the FASB issued SFAS No. 150 "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and
Equity." This statement establishes standards for how an issuer
classifies and measures certain financial instruments with
characteristics of both liabilities and equity, and is effective for
financial instruments entered into or modified after May 31,
2003, and otherwise is effective at the beginning of the first
interim period beginning after June 15, 2003. As a result of
further discussion by FASB on October 8, 2003, the FASB clarified
that minority interests in consolidated partnerships with specified
finite lives should be reclassified as liabilities and presented at
fair market value unless the interests are convertible into the
equity of the parent. Fair market value adjustments occurring
subsequent to July 1, 2003 would be recorded as a component of
interest expense. At their October 29, 2003 meeting, the FASB agreed
to indefinitely defer the implementation of a portion of SFAS No. 150
regarding the accounting treatment for minority interests in
finite life partnerships. Therefore, until a final resolution is
reached, the Company will not implement this aspect of the standard.
If the company were to adopt this aspect of the standard under its
current provisions, it is not expected to have a material impact
on the Company's financial statements.
Reclassification
Certain amounts reported in previous financial statements have been
reclassified in the accompanying financial statements to conform to
the current year's presentation.
NOTE 2 - REAL ESTATE LOANS
At September 30, 2003,
NOTE 2 - REAL ESTATE LOANS
At September 30, 2004, information as to real estate loans, is
summarized as follows:
Not
Earning Earning
Total Interest Interest
----- -------- --------
First mortgage loans:
Long-term:
Residential $ 4136 $ 4136 $ -
Short-term (five years or less):
Shopping centers/retail 17,544 17,54437,065 37,065 -
Industrial buildings 5,985 5,9854,929 4,929 -
Office buildings 5,826 5,1762,735 2,085 650
Residential (multiple family units) 17,640 16,112 1,52865,255 62,809 2,446
Land 4,798 4,798 -
Second mortgage loans and junior participations:
Residential 18,817 17,850 96711,426 11,426 -
Retail 475 4758,531 8,531 -
Office 550 550 -
-------- -------- --------
$135,325 $132,229 $ 66,878 $ 63,733 $ 3,1453,096
======== ======== ========
A summary of loans at September 30, 20022003 is as follows:
First mortgage loans
Long term $ 3,61441 $ 3,61441 $ -
Short term 54,424 54,009 41546,995 44,817 2,178
Second mortgage loans
and wrap around mortgages 26,489 26,489 -19,842 18,875 967
-------- -------- --------
$ 84,52766,878 $ 84,11263,733 $ 4153,145
======== ======== ========
There were fourtwo real estate loans not earning interest at September 30,
2003. Two2004. One of these loans with an outstanding balance of $1,617
were$650 was
deemed impaired, as it is probable that the Trust will not be able to
collect all amounts due according to the contractual terms and allowancesan
allowance have been established for them. Allowancesit. An allowance for loan losses
wereloss was
not provided for the remaining two non earning loansloan in the amount of
$1,528$2,446 at September 30, 2003,2004, which loans areloan is expected to be paid in
full, including interest. Of the real estate loans earning interest at
September 30, 2004 and 2003, $4,268 and 2002, $3,835, and $7,220, respectively, were
deemed impaired and all are subject to allowances for possible losses. For
the years ended September 30, 2004, 2003 2002 and 2001,2002, respectively, an
average $5,011, $6,376 $6,197 and $11,025$6,197 of real estate loans were deemed
impaired, on which $373, $449 $837 and $1,310$837 of interest income was
recognized.
Loans originated by the Trust generally provide for interest rates,
which are indexed to the prime rate. The weighted average interest
rate on earning loans was 11.12%10.85% and 12.51%11.12% at September 30, 20032004 and
2002,2003, respectively.
Included in real estate loans are fourfive second mortgages and two first
mortgages to ventures in which the Trust (through wholly owned
subsidiaries) holds a 50% interest. At September 30, 20032004 and
September 30, 2002,2003, the balance of the mortgage loans was $7,134$7,305 and
$8,129,$7,134, respectively. Interest earnedreceived on these loans totaled $726$742
and $602$726 for the year ended September 30, 20032004 and September 30, 2002,2003,
respectively.
Annual maturities of real estate loans receivable before allowances
for possible losses during the next five years and thereafter and are
summarized as follows:
Years Ending September 30 Amount
------------------------- ------
2004......................... $ 49,711
2005......................... 10,844
2006......................... 54
2007......................... 3,300
2008.........................2005................................ $127,696
2006................................ 41
2007................................ 3,320
2008................................ 2,957
20092009................................ 1,307
2010 and thereafter.......... 12thereafter................. 4
--------
Total $ 66,878$135,325
========
The Trust's portfolio consists primarily of senior and junior mortgage
loans, secured by residential and commercial property, 57%52% of which
are located in the New York metropolitan area (which includes New
Jersey and Connecticut), 16%21% in California, 12%Tennessee, 10% in DelawareFlorida and 15%17% in
other states.
If a loan is not repaid at maturity, in addition to foreclosing
on the property, the Trust may either extend the loan or consider the
loan past due. The Trust analyzes each loan separately to determine
the appropriateness of an extension. In analyzing each situation,
management examines many aspects of the loan receivable, including the
value of the collateral, the financial strength of the borrower, past
payment history and plans of the owner of the property. Of theThere were
$49,711 of real estate loans receivable which matured in Fiscal 2003, $16,7022004,
of which, $9,236 were extended.
If all loans classified as non-earning were earning interest at their
contractual rates for the year ended September 30, 20032004 and 2002,2003,
interest income would have increased by $142$328 and $46,$142, respectively.
At September 30, 20032004 the three largest real estate loans had
principal balances outstanding of approximately $10,400, $8,200$13,994, $11,815 and
$4,916,$11,000, respectively. Of the total interest and fees earned on real
estate loans during the fiscal year ended September 30, 2003, 13.3%2004, .1%, .2%.7%
and 1.47%2.1% related to these loans, respectively.
During the fiscal year ended September 30, 2004 the Trust sold junior
and senior participation interests at par in the amount of $68,630.
Accordingly, no gain was recognized on the sale.
NOTE 3 - REAL ESTATE ASSETS
Real Estate Properties
A summary of real estate properties for the year ended September 30,
20032004 is as follows:
Gain on
Sale
Costs from Dis-
September 30, 20022003 Capitalized/ Gain oncontinued September 30, 20032004
# Properties Amount Amortization Sales SaleOperation # Properties Amount
------------ ------ ------------ ----- ------------- ------------ ------
Residential units-shares of
cooperative corporations 2 $ 1674 $ 11223 ($553)1,358) $1,261 1 $ 499 2 $ 740
Shopping centers/retail 2 7,784 657,849 62 - - 2 7,849
-----------------------------------------------------------------------------------
7,800 177 (553) 4997,911
--------------------------------------------------------------------------------------
7,923 85 (1,358) 1,261 7,911
Amortization (1,227) (235)(1,462) (237) - - - (1,462)(1,699)
-------------------------------------------------------------------------------------
Total real estate properties 4 $6,573$6,461 ($58)152) ($553) $ 499 4 $6,4611,358) $1,261 3 $6,212
=====================================================================================
The Trust holds with a minority partner a leasehold interest in a
portion of a retail shopping center located in Yonkers, New York. The
leasehold interest is for approximately 28,500 square feet and
including all option periods expires in 2045. The minority equity
interest, which equals ten percent, amounted to $147 at September 30,
2004 and $175 at September 30, 2003 and $169 at September 30, 2002 is included as a component of other
liabilities on the consolidated balance sheet.
Future minimum rentals to be received by the Trust, pursuant to
noncancellable operating leases in excess of one year, from properties
on which the Trust has title at September 30, 20032004 are as follows:
Years Ending September 30, Amount
-------------------------- ------
2005 ..................................... $ 1,411
2006 ..................................... 1,230
2007 ..................................... 1,135
2008 ..................................... 1,091
2009 ..................................... 1,058
Thereafter ............................... 10,475
-------
$16,400
During the fiscal year ended September 30, 2004, ................................................... $ 1,363
2005 ................................................... 1,211
2006 ................................................... 1,089
2007 ................................................... 999
2008 ................................................... 955
Thereafter ............................................. 11,307
-------
$16,924the Trust sold four
cooperative apartment units and one condominium unit for a gain of
$1,261, which is reported as discontinued operations in the
accompanying consolidated statements of income.
Investment in Unconsolidated JointReal Estate Ventures at Equity
The Trust is a partner in seveneight unconsolidated jointreal estate ventures
which operate seveneight properties. In addition to making an equity
contribution, the Trust may hold a first or second mortgage on the
property. A brief summary of the two most significant jointreal estate
ventures is listed below.
Blue Hen VentureCorporate Center and Mall - In 1999 theThe Trust sold one-half of its interestis a 50% venture
partner in the Blue Hen Corporate Center &and Mall, located in Dover,
Delaware to a
joint venture partner and contributed its remaining one-half interest.Delaware. The Trust holds a 50% interest in the Blue Hen Venture and also holds two first mortgages on this property
totaling $3,158$2,080 at September 30, 2003. These2004, one of these mortgages maturewith a
principal balance of $189, matures on January 1, 2005 ($673) and the other
with a principal balance of $1,891 matures on July 1, 2005 ($2,485) and2005. Both of
these mortgages have a fixed rate of interest of 8.07%. Principal and
interest payments on these two mortgages is $1,295 per year.
Rutherford Glen - The Trust is a 50% jointreal estate venture partner in a
248-unit garden apartment complex located in Atlanta, Georgia. The
first mortgage on this property, which is held by an unaffiliated
third party, was $16,016$15,815 at September 30, 2003.2004. This loan, which
matures on June 11, 2011, has a fixed interest rate of 7.02% and
requires principal and interest payments of $1,312 per year. The Trust
also holds a second mortgage on the property in the amount of $2,950 at
September 30, 2003.2004. This mortgage which carries an 11% fixed rate of
interest and requires interest only payments of $325 per annum matures
on June 1, 2008. During the fiscal year ended September 30, 20032004 the
Trust contributed $268$229 of additional capital to this venture.
Unaudited condensed financial information for these two joint ventures
at September 30, 2003 and for the year then ended:
Unaudited condensed financial information for these two joint ventures
at September 30, 2004 and for the year then ended are as follows:
Blue Hen Rutherford
Venture Glen
------- ----
Condensed Balance Sheet
-----------------------
Cash and cash equivalents $ 1,211327 $ 195214
Real estate investments,assets, net 14,712 18,63215,298 17,795
Other assets 409 293436 232
-------- --------
Total assets $ 16,33216,061 $ 19,12018,241
======== ========
MortgageMortgages payable $ 3,1582,080 $ 18,96618,765(1)
Other liabilities 266 481190 414
Equity 12,908 (327)(Deficit) 13,791 (938)
-------- --------
Total liabilities and equity $ 16,33216,061 $ 19,12018,241
======== ========
Trust's equity (deficit) investment $ 5,3685,855 $ (120)(340)
======== ========
Condensed Statement of Operations
---------------------------------
Revenues, primarily rental income $ 2,9813,219 $ 2,2942,363
Operating expenses 1,414 1,0381,575 1,092
Depreciation 483545 728
Interest expense 299 1,460216 1,441
-------- --------
Total expense 2,196 3,226
Operating income 785 (932)
Gain on sale 611 -
Write off of capitalized development costs 491 -2,336 3,261
-------- --------
Net income (loss) attributable to members $ 905883 $ (932)(898)
======== =================
Trust's share of net income (loss) $ 452441 $ (466)(449)
======== =================
Amount recorded in income statement (2) $ 661487 $ (466)(449)
======== ========
========
(1) Includes $2,950 second mortgage held by the Trust.
(2) The unamortized excess of the Trust's share of the net equity
over its investment in the Blue Hen joint venture that is attributable
to building and improvements is being amortized over the life of
the related property. The portion that is attributable to land
will be recognized upon the disposition of the land.
During fiscal 2003 a
parcel of land was sold and the Trust recognized $253 of this excess.
The remaining five jointsix ventures contributed $284$164 in equity earnings for the
fiscal year ended September 30, 20032004
NOTE 4 - ALLOWANCE FOR POSSIBLE LOAN LOSSES
The Trust was not required to record any additional allowance
provisions for possible loan losses nor valuation adjustments on
owned real estate during the years ended September 30, 2004, 2003 2002 and
2001.2002.
An analysis of the allowance for possible losses is as follows:
Year Ended September 30,
---------------------------------------------------------------
2004 2003 2002 2001
---- ---- ----
Balance at beginning of year $ 881 $ 1,381881 $ 1,381
Recovery of previously provided allowances - - (500)
-
-------- --------- -------- -------
Balance at end of year $ 881 $ 881 $ 1,381881
======== ======== ===============
The allowance for possible losses applies to loans aggregating
$4,919 at September 30, 2004, $5,452 at September 30, 2003 and
$7,220 at September 30, 2002 and
$6,579 at September 30, 2001.2002.
NOTE 5 - AVAILABLE-FOR-SALE SECURITIES
The cost of available-for-sale securities held for sale at September 30, 20032004 was
$17,072.$15,329. The fair value of these securities was $36,354$41,491 at September
30, 2003.2004. Gross unrealized gains and losses at September 30, 20032004 were
$19,351$26,226 and $69,$64, respectively and are reflected as accumulated other
comprehensive income on the accompanying consolidated balance sheets.
Included in available for sale securities are 1,094,8001,033,500 shares of
Entertainment Properties Trust (NYSE:EPR), which have a cost basis of
$14,381$13,575 and a fair value at September 30, 20032004 of $32,844.$39,066. The shares
held by BRT represent approximately 5.44%4.07% of the outstanding shares of
Entertainment Properties Trust.Trust as of October 14, 2004. The fair value
of the Trust's investment in Entertainment Properties Trust at
November 30, 2003December 1, 2004 was $36,772.$46,239. During the year ended September 30,
2003, 260,8002004, 61,300 shares of
EPR were sold for a gain of $4,187 and subsequent to September 30,
2003 and through December 2, 2003, 35,600 additional shares of EPR
were sold at a gain of $720.$1,378.
Also included in available-for-sale securities are 133,95075,400 shares of
Atlantic Liberty Financial Corp. (NASDAQ:ALFC), which have a cost
basis of $2,034$1,145 and a fair market value of $2,605.$1,370. The shares held
by
the Trust represent approximately 7.83%4.49% of the outstanding shares of Atlantic
Liberty as of SeptemberJune 30, 2003.2004.
NOTE 6 - DEBT OBLIGATIONS
Debt obligations consist of the following:
September 30,
-------------
2004 2003
2002
----------------- --------
Note payable - credit facility $ 1,00043,050 $ 5,5001,000
Margin account 10,812 3,755
9,245
---------- --------- --------
Borrowed funds 53,862 4,755 14,745
Mortgage payable 2,609 2,680
2,745
---------- --------- --------
Total debt obligations $ 56,471 $ 7,435
$ 17,490
========== ========= ========
On January 11, 2001 BRT terminated its revolvingmaintains a $60,000 credit facility with
TransAmerica Business Credit Corporation ("TransAmerica"). During the
year ended September 30, 2001 unamortized deferred fees in the amount
of $264 associated with the terminated TransAmerica revolving credit
facility were written off.
On July 25, 2001 BRT entered into a $15,000 revolving credit agreementline with North Fork Bank (North Fork).
The credit line, which was subsequently$30,000 at September 30, 2003 was amended
on June 6, 2003,March 24, 2004, primarily to increase the maximum borrowingsamount to $30
million.$45,000 and
again on July 2, 2004, primarily to increase it to its current amount
of $60,000.
In addition, the maturity date of the facility was extended from AugustJune
1, 20042006 to JuneJuly 1, 2006. A fee of $75 was paid to North Fork Bank in
connection with this amendment.each of these amendments. The Trust also may extend
the term of the facility for two one year periods for a fee of $75
each year. Borrowings under the facility are secured by specific loan
receivables and the credit agreement provides thatwith the amount borrowed will not to exceed 65% (increased from 60%) of the
collateral pledged.
As of September 30, 20032004 BRT had provided collateral to North Fork
Bank which would permit BRT to borrowborrowings of up to $21,100$54,362 under the
facility.
The average outstanding balance on the credit facility for the year
ended September 30, 20032004 and September 30, 20022003 was $764$17,913 and $461,$764,
respectively and the average interest rate paid was 4.84.7% and 5.2%4.8%.
Interest expense for the year ended September 30, 20032004 and September
30, 20022003 was $37$853 and $24.$37. At September 30, 2004 $43,050 was
outstanding on the credit line. The interest rate at September 30,
2004 was 5.25%.
In addition to its credit facility, BRT has the ability to borrow
funds through a margin account. In order to maintain this account BRT
pays an
annual fee equal to .3% of the market value of the pledged securities
which is included in interest expense.expense is paid. At September 30, 20032004
there was an outstanding balance of $3,755$10,812 on the margin account. The
interest rate at September 30, 20032004 was 3.00%3.5%. Marketable securities
with a fair market value at of $32,844$39,066 were pledged as collateral. The
average outstanding balance on the margin facility for the year ended
September 30, 20032004 was $2,905$10,210 and the average interest rate paid was
7.9%4.8%. For the year ended September 30, 20022003 there was an average
outstanding balance of $3,351$2,905 at a rate of 5.95%7.9%. At December 1, 2004
$10,340 was outstanding on the margin account.
The mortgage payable was placed on a shopping center in which the
Trust, through a subsidiary, is a joint venture partner and holds a
majority interest in a leasehold position. The mortgage with an
original balance of $2,850 bears interest at a fixed rate of 8.75% for
the first five years and has a maturity of November 1, 2005. There is
an option to extend the mortgage to November 1, 2010. At September 30,
20032004 the outstanding balance was $2,680.$2,609.
Scheduled principal repayments on the mortgage during the initial and
extended maturity are as follows:
Years Ending September 30, Amount
2004-------------------------- ------
2005 $ 70
2005 77
2006 83
2007 92
2008 and thereafter 2,450
-----
$2,6802,357
------
$2,609
======
NOTE 7 - INCOME TAXES
The Trust has elected to be taxed as a real estate investment trust
("REIT)REIT"), as defined under the Internal Revenue Code. As a REIT, the
Trust will generally not be subject to Federal income taxes at the
corporate level if it distributes at least 90% of its REIT taxable
income, as defined, to its shareholders. There are a number
organizational and operational requirements the Trust must meet to
remain a REIT. If the Trust fails to qualify as a REIT in any taxable
year, its taxable income will be subject to Federal income tax at
regular corporate tax rates and it may not be able to qualify as a
REIT for four subsequent tax years. Even if it is qualified as a REIT,
the Trust may beis subject to certain state and local income taxes and to
Federal income and excise taxes on its undistributed taxable income.
For income tax purposes the Trust reports on a calendar year.
During the years ended September 30, 20032004 and 20022003 the Trust recorded
$498$480 and $452,$498, respectively of corporate tax expense includingwhich included
(i) $283 and $374,
and $322, respectively, for the payment of Federal excise
tax which is based on taxable income generated but not yet
distributed.distributed; (ii) $121 and $0, respectively, for federal corporate
income tax relating to $340 and $0 of undistributed income from the
2003 and 2002 tax years; and (iii) $76 and $124, respectively, for
state and local taxes from the 2003 and 2002 tax years.
Earnings and profits, which determine the taxability of dividends to
shareholders, differ from net income reported for financial statement
purposes due to various items among which are timing differences
related to depreciation methods and carrying values.
The taxable income is expected to be approximately $418$730 higher than
the financial statement income during calendar 2003.2004.
NOTE 8 - SHAREHOLDERS' EQUITY
Distributions
During the year ended September 30, 20032004 BRT declared cash
distributions in the amount of $1.30.$1.79. It is estimated that 14% of the
distribution or $.25 will be capital gain distributions and the
remaining $1.54 will be ordinary income.
Stock Options
On December 6, 1996, the Board of Trustees adopted the BRT 1996 Stock
Option Plan (Incentive/Nonstatutory Stock Option Plan), whereby a
maximum of 450,000 shares of beneficial interest are reserved for
issuance to the Trust's officers, employees, trustees and consultants
or advisors to the Trust. Incentive stock options are granted at per
share amounts at least equal to the fair value at the date of grant,
whereas for nonstatutory stock options, the exercise price may be any
amount determined by the Board, but not less than the par value of a
share. In December 2001, the 1996 stock option plan was amended to
allow for an additional 250,000 shares to be issued.
In March and April 1998 the Board of Trustees granted, under the 1996
Stock Option Plan options to purchase 50,000 shares of beneficial
interest at prices ranging from $7.3125 to $7.9375 per share to a
number of directors, officers and employees of the Trust. The options
are cumulatively exercisable at a rate of 25% per annum, commencing
after two years, and expire ten years after the grant date. During the
current year 12,000 of the options were exercised. At
September 30, 2003, there were no remaining options under this grant.
In December 1998 the Board of Directors granted, under the 1996 Stock
Option Plan options to purchase 180,000 shares of beneficial interest
at $5.9375 per share to a number of officers, employees, consultants
and trustees of the Trust. The options are cumulatively exercisable at
a rate of 25% per annum, commencing after one year (50,000) and two
years (130,000), and expire five years (50,000) and ten years (130,000)
after the date of the grant. During the current year 50,50030,250 of the
options were exercised. At September 30, 20032004 options to purchase 35,2505,000
shares are remaining, 6,000all of which are exercisable.
In December 2000 the Board of Directors granted under the 1996 Stock
Option Plan options to purchase 165,500 shares of beneficial interest
at $7.75 per share to a number of officers, employees and consultants
of the Trust. The options are cumulatively exercisable at a rate of 25%
per annum, commencing after two years and expire ten years after grant
date. During the current year 35,68838,188 of the options were exercised. At
September 30, 20032004 options to purchase 129,81291,624 shares are remaining,
5,6888,874 of which are exercisable.
In December 2001 the Board of Directors granted, under the 1996 Stock
Option Plan, options to purchase 89,000 shares of beneficial interest
at $10.45 per share to a number of officers, employees and consultants
of the Trust. The options are cumulatively exercisable at a rate of 25%
per annum, commencing after one year and expiring ten years after grant
date. During the current year 14,00022,500 of the options were exercised. At
September 30, 20032004 options to purchase 75,00052,500 shares are remaining,
8,2508,000 of which are exercisable.
The Trust elected Accounting Principles BoardIn December 2002, the FASB issued Statement No. 148 to amend
alternative methods of transition for a voluntary change to the fair
value based method of accounting for stock-based employee compensation.
In addition, Statement No. 148 amends the disclosures in both annual
and interim financial statements about the method of accounting used on
reported results. However, the Company has continued to account for
options in accordance with the provision of APB Opinion No. 25,
Accounting for"Accounting For Stock IssuedIssues to Employees ("APB 25"),Employees" and related Interpretations in accounting for its employee stock options. Under APB
25,interpretations.
Accordingly, no compensation expense ishas been recognized because the exercise price of
the Trust's employeefor stock
options equals the market price of the
underlying stock on the date of grant.option plans. Pro forma information regarding net income and earnings
per share is required by FAS No. 123, and has been determined as if the Trust had accounted for its
employee stock options under the fair value method. The fair value for
these options was estimated at the date of the grant using the
Black-Scholes option pricing model with the following weighted-average
assumptions:
December 2001 December 2000 December 1998 December 1998 March/April 1998
89,000 Shares 165,000 Shares 50,000 Shares 130,000 Shares 50,000 Shares
--------------- -------------- ------------- -------------- -----------------------------
Risk Free Interest Rate 3.91% 4.76% 4.38% 4.62% 5.64%
Dividend Yield 8.3% 4.36% 0% 0% 0%
Volatility Factor .210 .205 .208 .208 .188
Expected Life (Years) 5 6 5 6 6
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting
restrictions and are fully transferable. In addition, option valuation
models require the input of highly subjective assumptions including
expected stock price volatility. Because the Trust's employee stock
options have characteristics significantly different from those of
traded options, and changes in the subjective input assumptions can
materially affect the fair value estimate, management believes the
existing models do not necessarily provide a reliable single measure of
the fair value of its employee stock options.
Pro forma net income and earnings per share calculated using the
Black-Scholes option valuation model is as follows:
Year Ended September 30,
-------------------------
2004 2003 2002 2001
---- ---- ----
Net income to common
shareholders as reported $12,002 $13,683 $12,586 $10,586
Less: Total stock-based
employee compensation
expense determined under
fair value based methods
for all awards 120 126 126 46
Pro forma net income $11,882 $13,557 $12,460 $10,540
Pro forma earnings per share of
beneficial interest:
Basic 1.56 1.82 1.69
1.46
Diluted 1.54 1.79 1.66 1.44
Changes in the number of shares under all option arrangements are
summarized as follows:
Year Ended September 30,
------------------------
2004 2003 2002 2001
---- ---- ----
Outstanding at beginning of period 240,062 352,250 327,375
332,500
Granted - - 89,000 165,500
Option price per share granted - 10.45
7.75
Cancelled - - 5,000-
Exercised 90,938 112,188 59,125
165,625
Expired - - 5,000 -
Outstanding at end of period 149,124 240,062 352,250 327,375
Exercisable at end of period 21,874 19,938 16,750 27,125
Option prices per share outstanding $5.9375-$10.45 $5.9375-$10.45 $4.375-$5.9375-$7.937510.45
As of September 30, 20032004 the outstanding options had a weighted average
remaining contractual life of approximately 7.196.45 years and a weighted
average exercise price of $8.33.$8.64.
Restricted Shares
On March 24, 2003 the Board of Trustees adopted the BRT Incentive Plan,
whereby a maximum of 350,000 shares of beneficial interest may be
issued in the form of options or restricted shares to the Trust's
officers, employees, trustees and consultants of the Trust.
During the year ended September 30, 2004 and September 30, 2003 the
Trust issued 30,230 and 28,800 restricted shares under its 2003 Incentivethe Plan,
which was approved by BRT's
shareholders in March of 2003. The total number of shares allocated to
this Plan is 350,000.respectively. The shares vest five years from the date of issuance and
under certain circumstances may vest earlier. For accounting purposes,
the restricted stock is not included in the outstanding shares shown on
the balance sheet until they vest. The Trust records compensation
expense under the APB 25 over the vesting period, measuring the
compensation cost based on the market value of the shares on the date
of grant. For the year ended September 30, 2004 and 2003, the Trust
recordedrecognized $213 and $36 of compensation expense. Included in the 2004
expense is $40 related to the early vesting of 1,750 shares.
Changes in number of shares under the 2003 BRT Incentive Plan is shown
below:
Years Ended September 30,
2004 2003
---- ----
Outstanding at beginning of period 28,800 -
Issued 30,230 28,800
Cancelled 200 -
Vested 1,750 -
Outstanding at the end of period 57,080 28,800
Earnings Per Share
The following table sets forth the computation of basic and diluted
earnings per share:
2004 2003 2002 2001
---- ---- ----
Numerator for basic and diluted
earnings per share:
Net income $12,002 $13,683 $12,586 $10,586
Denominator:
Denominator for basic earnings
per share -weighted average shares 7,458,8807,617,116 7,470,608 7,373,627 7,221,373
Effect of dilutive securities:
Employee stock options 126,598117,248 124,826 129,438
105,801
------- ------- ---------------- --------- ---------
Denominator for diluted earnings
per share - adjusted weighted average
shares and assumed conversions 7,585,4787,734,364 7,595,434 7,503,065 7,327,174
Basic earnings per share $ 1.58 $ 1.83 $ 1.71 $ 1.47
Diluted earnings per share $ 1.801.55 $ 1.681.80 $ 1.451.68
Treasury Shares
During the fiscal year ended September 30, 20032004 and September 30, 20022003
no shares were purchased by the Trust.
During the fiscal year ended September 30, 2003, 112,1882004, 92,688 treasury shares
were issued in connection with the exercise of stock options and
restricted stock issuance under the Trust's plan.plans. In the fiscal year
ended September 30, 2002,2003, the Trust issued 59,125112,188 Treasury shares in
connection with the exercise of stock options under the Trust's
existing stock option plan. As of September 30, 20032004 the Trust owns
1,381,0281,288,340 Treasury shares of beneficial interest at an aggregate cost
of $11,899.$11,100.
NOTE 9 - ADVISOR'S COMPENSATION AND CERTAIN TRANSACTIONS
Certain of the Trust's officers and trustees are also officers,
directors and the shareholder of REIT Management Corp. ("REIT"), to
which the Trust pays advisory fees for administrative services and
investment advice. The agreement, which expires on December 31, 2007,2008,
provides that directors and officers of REIT may serve as trustees,
officers and employees of the Trust, but shall not be compensated for
services rendered in such latter capacities. Advisory fees are charged
to operations at a rate of 1% on real estate loans and 1/2 of 1% on
other invested assets. Advisory fees amounted to $1,444, $875 $967 and $745$967
for the years ended September 30, 2004, 2003, 2002, and 2001,2002, respectively.
At September 30, 2003 $272004 $22 remains unpaid and is reflectedincluded in accounts
payable on the consolidated balance sheet.
The borrowerBorrowers may pay fees to REIT for services rendered in arranging,
closing and restructuring loans by the Trust. These fees, which are
allowed by the advisory agreement, on loans arranged on behalf of the
Trust and which are paid directly by the borrower to REIT amounted to
$2,029, $601 $591
and $443$591 for the years ended September 30, 2004, 2003 2002 and
20012002 respectively.
REIT arranges for the management of certain properties for the Trust
under renewable year-to-year agreements. Management fees, legal fees
and leasing, selling and financing commissions incurred and reimbursed
or owed to REIT or an other affiliated company for the years ended
September 30, 2004, 2003 and 2002 aggregated $128, $92 and 2001 aggregated $92, $95, and $132,
respectively.
The Chairman of the Board of Trustees of the Trust holds a similar
position in One Liberty Properties, Inc. a related party, is an
executive officer of the managing general partner and was a general
partner through July 1, 2001 of Gould Investors L.P. a related party.
Effective July 1, 2001 Mr. Gould assigned his general partner interest
to Gould General LLC, an entity of which he is the sole member. During
the years ended September 30, 2004, 2003 2002 and 2001,2002, allocated general
and administrative expenses charged to the Trust by Gould Investors L.P.L.P
pursuant to a Shared Services Agreement. aggregated $754, $656 $647 and
$645,$647, respectively. At September 30, 2003 $722004 $102 remains unpaid and is
reflectedincluded in accounts payable on the consolidated balance sheet.
NOTE 10 - COMMITMENT
The Trust maintains a non-contributory defined contribution pension
plan covering eligible employees and officers. Contributions by the
Trust are made through a money purchase plan, based upon a percent of
qualified employees' total salary as defined. Pension expense
approximated $180, $168 $163 and $155$163 during the years ended September 30,
2004, 2003 and 2002, and 2001, respectively.
NOTE 11 - QUARTERLY FINANCIAL DATA (Unaudited)
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Total
Oct.-Dec. Jan.-March April-June July-Sept. For Year
--------- ---------- --------------------- ----------- --------
20032004
---------------------------------------------------------------------------
Revenues $ 3,669 $ 4,599 $ 4,886 $ 5,429 $18,583
Income before equity in earnings
of unconsolidated joint ventures,
gain on sale of available-for-sale
securities, minority interest and
discontinued operations 1,951 2,346 1,724 2,920 8,941
Discontinued operations 591 - 559 111 1,261
Net income 3,294 3,251 2,309 3,148 12,002
Income per beneficial share
Continuing operations .36 .43 .23 .04 1.41
Discontinued operations .08 - .07 .01 .17
--------------------------------------------------------------------------
Basic earnings per share $ .44 $ .43 $ .30 $ .41 $ 1.58 (a)
2003
--------------------------------------------------------------------------
Revenues $ 4,130 $ 3,514 $ 3,765 $ 3,395 $14,804
Income before equity in earnings
of unconsolidated real estatejoint ventures, and
gain on sale of available-for-sale
securities, minority interest and
discontinued operations 2,588 2,038 2,108 1,682 8,416
Discontinued operations 195 - 200 104 499
Net income 2,836 2,205 4,754 3,888 13,683
PerIncome per beneficial share
Continuing operations .35 .30 .60 .50 1.76
Discontinued operations .03 - .03 .02 .07
--------------------------------------------------------------------------
Basic earnings per share $ .38 $ .30 $ .64.63 $ .52 $ 1.83 (a)
2002
--------------------------------------------------------------------------
Revenues $ 4,693 $ 3,931 $ 3,658 $ 5,116 $17,398
Income before equity in earnings
of unconsolidated real estate
ventures and gain on sale 3,174 2,525 2,074 3,473 11,246
Net income 3,456 3,343 2,122 3,665 12,586
Per share $ .47 $ .45 $ .29 $ .50 $ 1.71 (a)
Per share earnings represent basic earnings per beneficial share.
(a) Calculated on weighted average shares outstanding for the fiscal year.
May not foot due to rounding.
NOTE 12 - SUBSEQUENT EVENT
On November 7, 2003 the Trust originated a $23,500 loan on a
multi-family property located in Tampa, Florida using available cash and
borrowings under the margin account and credit facility.
BRT REALTY TRUST
SCHEDULE III - REAL ESTATE PROPERTIES AND ACCUMULATED DEPRECIATION
SEPTEMBER 30, 20032004
(Amounts in Thousands)
Gross Amount At Which Carried At
Initial Cost To Company September 30, 2003
----------------------- ----------------------------------2004
Buildings Costs Capitalized Buildings Accum.
Encum- And Subsequent to Acquisition And Amorti-
Description brances Land Improvements Improvements Carrying Costs Land Improvements Total
zation
- ----------------------------------------------------------------------------------------------------------------------
Residential
New York, New York - - - $74 - - $74 $74- - -
Shopping Center/Retail
Rock Springs, WY - $600 $2,483 725$788 $28 $600 3,236 3,836 $1,126$3,299 $3,899
Yonkers, New York $2,680 - 4,000 12 - - 4,012 4,012
335
-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
TOTAL $2,680 $600 $6,483 $811$800 $28 $600 $7,322 $7,922 $1,461
===========================================================================================$7,311 $7,911
=================================================================================
(a) (b)
BRT REALTY TRUST
SCHEDULE III - REAL ESTATE PROPERTIES AND ACCUMULATED DEPRECIATION
SEPTEMBER 30, 20032004
(Amounts in Thousands)
Depreciation
Accum. Life For
Amorti- Date Ofof Date Latest Income
Description zation Construction Acquired Statement
------------ -------- ---------
Residential
New York, New York - -
Shopping Center/Retail
Rock Springs, WY $1,252 - Jan-92 21-35 Years
Yonkers, New York 447 - Aug-00 39 Years
----------------------------------------------------------------------------
TOTAL ====================================================$1,699
========================
(b) (c)
BRT REALTY TRUST
SCHEDULE III - REAL ESTATE PROPERTIES AND ACCUMULATED DEPRECIATION
SEPTEMBER 30, 20032004
(Amounts in Thousands)
Notes to the schedule:
(a) Total real estate properties $ 7,9227,911
Less: Accumulated amortization 1,4611,699
--------
Net real estate properties $ 6,4616,212
========
(b) Amortization of the Trust's leasehold interests is over the shorter of
estimated useful life or the term of the respective land lease.
(c) Information not readily obtainable.
A reconciliation of real estate properties is as follows:
Year Ended September 30,
------------------------
2004 2003 2002 2001
---- ---- ----
Balance at beginning of year $6,461 $6,573 $6,777 $6,944
Additions:
Acquisitions - - -
Capitalization of expenses 86 176 39
201
------- ------ ------ ------
6,547 6,749 6,816
7,145
------------- ------ ------
Deductions:
Sales/conveyances 97 54 9
117
Depreciation/amortization 238 234 234
251
------- ------- ------ ------ ------
335 288 243
368
------- ------------- ------ ------
Balance at end of year $6,212 $6,461 $6,573 $6,777
====== ====== ======
The aggregate cost of investments in real estate assets for
federal income tax purposes approximates book value.
BRT REALTY TRUST
SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE
SEPTEMBER 30, 20032004
(Amounts in Thousands)
FINAL
# OF INTEREST MATURITY
DESCRIPTION LOANS RATE DATE PERIODIC PAYMENT TERMS
- ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
First mortgage loans:
Long term:
Cooperative Apartments, Bronx, NY 1 7.3% Jan-07 Interest and principal monthly
Miscellaneous
$0-$499 21
Short term:
Apartments, Goodlettsville, TN 1 Prime+5.25% Sept-05 Interest monthly, principal at maturity
Retail/Office, New York, NY 1 Prime+5.15% Sept-05 Interest monthly, principal at maturity
Apartments, Nashville, TN 1 Prime+5.75% July-05 Interest monthly, principal at maturity
Retail/Hotel, New York, NY 1 Prime+6.00% Sept-05 Interest monthly, principal at maturity
Apartments, Tampa, FL 1 Prime+6.00% Feb-05 Interest monthly, principal at maturity
Retail, New York, NY 1 Prime+6.5% Oct-046.50% Jan-05 Interest monthly, principal at maturity
Apartments, New York, NY 1 Prime+7.00% June-05 Interest monthly, principal at maturity
Apartments, Staten Island, NY 1 Prime+7.00% June-05 Interest monthly, principal at maturity
Retail, Asbury park, NJLoveland, TX 1 Prime+6.75% May-046.00% Apr-05 Interest monthly, principal at maturity
Apartments, Elmsmere, DELand, Cape Coral, FL 1 Prime+6.5% Apr-04 Interest monthly, principal at maturity
Condominium Units, New York, NY 1 Prime+7.75% Nov-03 Interest monthly, principal at maturity
Industrial Building, Jersey City, NJ 1 Prime + 4.0% Jan-04 Interest monthly, principal at maturity
Office Building, Dover, DE 1 8.07% July-05 Interest and principal monthly
Apartments, Charlotte, NC 1 Prime+8.75% May-04 Interest monthly, principal at maturity
Retail/Multi-family, New York, NY 1 Prime+7.25% Nov-03 Interest monthly, principal at maturity
Office, New York, NY 1 12.5% Nov-038.00% June-05 Interest monthly, principal at maturity
Miscellaneous
$0-$499 3
$500-$999 5
$1,500-4
$1,000-$1,9991,499 3
$2,000-$2,499 4
$2,500-$2,999 2
$3,000-$3,499 4
Junior mortgage loans
and junior participations:
LongShort Term:
Retail, New York, NY 1 Prime+5.25% Aug-05 Interest monthly, principal at maturity
Apartments, Southwoods, VA 1 9.00% July-05 Interest monthly, principal at maturity
Apartments, Atlanta, GA 1 11.00% June-08 Interest monthly, principal at maturity
Short Term:
Apartments and office building,
San Francisco, CA 1 Prime + 5.0% Jan-04 Interest monthly, principal at maturity
Apartments, Nashville, TN 1 13.00% May-04 Interest monthly, principal at maturity
Miscellaneous
$0-$499 2
$500-$999 3
32
====2
$1,000-$1,499 2
---
40
===
BRT REALTY TRUST
SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE
SEPTEMBER 30, 20032004
(Amounts in Thousands)
PRINCIPAL AMOUNT
CARRYING OF LOANS SUBJECT
FACE AMOUNT AMOUNT TO DELIONQUENTDELINQUENT
DESCRIPTION PRIOR LIENS OF MORTGAGES OF MORTGAGES(b) PRINCIPAL OR INTEREST
- -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
First mortgage loans:
Long term:
Cooperative Apartments, Bronx, NY - $ 3,200 $ 2,675 -
Miscellaneous
$0-$499 $ - 52 52$ 36 $ 36 $ -
Short term:
Apartments, Goodlettsville, TN - 13,994 13,994 -
Retail/Office, New York, NY - 11,815 11,815 -
Apartments, Nashville, TN - 11,000 11,000 -
Retail/Hotel, New York, NY - 9,950 9,950 -
Apartments, Tampa, FL - 9,300 9,300 -
Retail, New York, NY - 8,200 8,200 -
Retail, Asbury park, NJ - 4,916 4,916 -
Apartments, Elmsmere, DE - 4,567 4,567 -
Condominium Units, New York, NY - 3,817 3,817 -
Industrial Building, Jersey City, NJ - 2,600 2,600 -
Office Building, Dover, DE - 2,497 2,4976,182 6,182 -
Apartments, Charlotte, NC - 2,378 2,378 -
Retail/Multi-family, New York,Staten Island, NY - 2,200 2,2004,297 4,297 -
Office, New York, NYRetail, Loveland, TX - 2,000 2,0004,100 4,100 -
Land, Cape Coral, FL - 3,698 3,698 -
Miscellaneous
$0-$499 - 509 509 -856 356 650
$500-$999 - 3,602 3,352 2,178
$1,500-$1,9993,128 3,128 -
6,863 6,863$1,000-$1,499 - 3,747 3,526 -
$2,000-$2,499 - 6,731 6,731 2,446
$2,500-$2,999 - 5,422 5,262 -
$3,000-$3,499 - 12,362 12,362 -
Junior mortgage loans
and junior participations:
LongShort Term:
Retail, New York, NY 7,500 6,806 6,806 -
Apartments, Southwoods, VA 24,030 6,530 6,530 -
Apartments, Atlanta, GA $16,01615,815 2,950 2,950 -
Short Term:
Apartments and office building,
San Francisco, CA 53,476 10,400 10,400 -
Apartments, Nashville, TN 9,000 3,500 3,500 -
Miscellaneous
$0-$499 2,509 475 47515,123 426 426 -
$500-$999 14,630 2,517 2,046 967
--------------------------------------------------------
$95,631 $67,243 $65,997 8,237 1,495 1,495 -
$1,000-$ 3,145
=========================================================1,499 2,432 2,300 2,300 -
-----------------------------------------------------------------
$73,137 $135,325 $134,444 $3,096
================================================================
BRT REALTY TRUST
SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE
SEPTEMBER 30, 20032004
(Amounts in Thousands)
Notes to the schedule:
(a) The following summary reconciles mortgages receivable at their carrying
values:
Year Ended September 30,
-------------------------
2004 2003 2002
2001
-------- ------- ----------- ---- ----
Balance at beginning of year $ 65,997 $ 83,646 $ 66,547 $ 42,282
Additions:
Advances under real estate loans 231,588 58,716 61,779 44,276
Recovery of previously provided allowances - - 500 -
-------- -------- --------
142,063297,585 142,362 128,826
86,558
-------- --------------- --------
Deductions:
Collections of principal 94,511 76,365 40,869
20,011Sale of participation interests 68,630 - -
Sale of loans - - 4,311
-------- ------- --------
163,141 76,365 45,180
-------- --------
76,066 45,180 20,011
-------- --------------- --------
Balance at end of year $134,444 $ 65,997 $ 83,646 $ 66,547
======== ======== ========
(b) Carry amount of mortgages are net of a direct write off in the amount of
$365 that was recognized in a prior year and allowances for loan losses
in the amount of $881 on fourthree loans.
(c) The aggregate cost of investments in mortgage loans is the same for
financial reporting purposes and Federal income tax purposes.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
BRT REALTY TRUST
Date: December 13, 2004 By: (s) Jeffrey A. Gould
----------------------
Jeffrey A. Gould
Chief Executive Officer, President and Trustee
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacity and on the dates indicated.
Signature Title Date
- --------- ----- ----
(s) Fredric H. Gould Chairman of the Board December 13, 2004
- --------------------
Fredric H. Gould
(s) Jeffrey A. Gould Chief Executive Officer, December 13, 2004
- -------------------- President and Trustee
Jeffrey A. Gould (Principal Executive
Officer)
(s) Kenneth Bernstein Trustee December 13, 2004
- ---------------------
Kenneth Bernstein
(s) Patrick J. Callan Trustee December 13, 2004
- ---------------------
Patrick J. Callan
(s) Louis C. Grassi Trustee December 13, 2004
- -------------------
Louis C. Grassi
(s) Matthew J. Gould Trustee December 13, 2004
- --------------------
Matthew J. Gould
(s) Gary Hurand Trustee December 13, 2004
- ---------------
Gary Hurand
- ---------------- Trustee December 13, 2004
David Herold
(s) Jeffrey Rubin Trustee December 13, 2004
- -----------------
Jeffrey Rubin
(s) George E. Zweier Chief Financial Officer, December 13, 2004
- -------------------- Vice President
George E. Zweier (Principal Financial
and Accounting Officer)
EXHIBIT 3.1
SECOND AMENDED AND RESTATED
DECLARATION OF TRUST
BRT REALTY TRUST
TABLE OF CONTENTS
ARTICLE I- NAME, PRINCIPAL PLACE OF BUSINESS AND TITLE TO
PROPERTY 2
1.1 Name 2
1.2 Location 2
1.3 Nature of Trust 2
1.4 Definitions 2
ARTICLE II - TRUSTEES 6
2.1 Number and Qualification 6
2.2 Term and Election 7
2.3 Resignation and Removal 7
2.4 Vacancies 8
2.5 Meetings 8
2.6 Executive and Investment Committees 9
2.7 Officers 9
2.8 By-Laws 9
2.9 Trustees May Own Shares 9
ARTICLE III-POWERS OF THE TRUSTEES 9
3.1 General 9
3.2 Investments 10
3.3 Appraisals 10
3.4 Legal Title 10
3.5 Disposition, Renting, Etc. of Assets 11
3.6 Financing; Issuance of Securities; Facsimiles 12
3.7 Taxes 12
3.8 Right as Holder of Mortgages and Securities 13
3.9 Collection 13
3.10 Expenses 13
3.11 Guaranties 13
3.12 Deposits 14
3.13 Allocation 14
3.14 Valuation 14
3.15 Fiscal Year 14
3.16 FHA Qualification 14
3.17 Power to Contract 15
3.18 Organization of Business Entities 15
3.19 Associations 16
3.20 Insurance 16
3.21 Pension and Other Plans 16
3.22 Seal 16
3.23 Charitable Contributions 16
3.24 Indemnification 16
3.25 Remedies 16
3.26 Trustees May Appoint Advisor 17
3.27 Independence of Trustees 17
3.28 Prohibition Against Self-Dealing and Misuse of Trust Assets 18
3.29 Further Powers 20
3.30 Transfer of Advisory Contract 21
3.31 Qualification as "Real Estate Investment Trust" 21
ARTICLE IV-INVESTMENT POLICIES 21
4.1 Statement of Investment Policy 21
4.2 Uninvested Assets 22
4.3 Restrictions 22
ARTICLE V-LIMITATIONS OF LIABILITY 23
5.1 Liability to Third Persons 23
5.2 Liability to Trust of to Shareholders 24
5.3 Indemnification 24
5.4 Surety Bonds 25
5.5 Apparent Authority 25
5.6 Express Exculpatory Clauses in Instruments 25
5.7 Reliance on Experts, Etc 26
ARTICLE VI-SHARES OF BENEFICIAL INTEREST 26
6.1 Description of Shares 26
6.2 Shares Represent Beneficial Interest or Preferred Interest 27
6.3 Certificates and Transfer 27
6.4 Issuance of Shares and Fractional Shares 27
6.5 Shareholder Register 28
6.6 Transfer Agents and Registers 28
6.7 Method of Transfer 28
6.8 Transfers by Operation of Law 28
6.9 Form of Ownership of Shares 29
6.10 Limitation of Trustees' Duty to Inquire 29
6.11 Replacement of Lost Certificates 29
6.12 Dividends, Distributions and Retained Earnings 29
6.13 Statement of Source of Distributed Funds 30
6.14 Shareholders Notices 30
6.15 Purchase of Trust Shares 30
6.16 Trustees May Purchase or Sell Shares 30
6.17 Information from Holders of Securities of the Trust 31
6.18 Warrants 31
6.19 No Pre-emptive Rights 31
6.20 Redemption and Stop Transfers for Tax Purposes 31
6.21 Issuance of Units 32
ARTICLE VII-RIGHTS OF SHAREHOLDERS 32
7.1 Limits of Shareholder Interest 32
7.2 Death of Shareholder 33
7.3 Meetings of Shareholders 33
7.4 Notice of Meetings 34
7.5 Majority for Quorum 34
7.6 Voting Rights of Shareholders 34
7.7 Record Date for Meetings 34
7.8 Proxies 35
7.9 Reports 35
7.10 Inspection of Records 36
ARTICLE VIII-AMENDMENT OR TERMINATION OF TRUST 36
8.1 Amendment or Termination 36
8.2 Power to Effect Reorganization 37
8.3 Compliance with Internal Revenue Code 37
8.4 Trustees May Terminate Prior to Effective Date 38
ARTICLE IX-MISCELLANEOUS 38
9.1 Recording 38
9.2 Counterparts 39
9.3 Reliance by Third Parties 39
9.4 Governing Law 39
9.5 Construction of Trust Instrument 39
ARTICLE X-DURATION OF TRUST 40
10.1 Duration 40
SECOND AMENDED
AND RESTATED
DECLARATION OF TRUST
OF
BRT REALTY TRUST
The Declaration of Trust of BRT Realty Trust (formerly called Berg
Enterprises Realty Group) (the "Trust") made on the 16th day of June, 1972 by
Elliot M. Surkin and John M. Kahn (such persons, so long as they shall continue
in office in accordance with the terms of this Declaration of Trust, and all
other persons who at the time in question have been duly elected or appointed as
Trustees in accordance with the provisions of this Declaration of Trust and are
then in office, are hereinafter called the "Trustees") with a usual place of
business at Suite 3201, 225 Franklin Street, Boston, Massachusetts, and filed in
the office of the Secretary of the Commonwealth of Massachusetts and in the
office of the Clerk of the City of Boston, has been amended and restated in its
entirety by the affirmative vote of the holders of a majority of all the shares
of the Trust outstanding and entitled to vote pursuant to Section 8.1 hereof, as
follows:
WHEREAS, the Trustees desire to form a voluntary association commonly known as a
business trust, as described in the provisions of Chapter 182 of the General
Laws of Massachusetts, for the purpose of acquiring, holding, managing,
improving, dealing with and disposing of property, real and personal, including
mortgages, deeds of trust and other interests therein, wherever situated, in
such manner as to qualify as a "real estate investment trust" under the
provisions of Sections 856, 857 and 858 of the United States Internal Revenue
Code of 1954, as amended, and the Regulations issued thereunder, and,
WHEREAS, simultaneously herewith, the settlor of the Trust, Mary J. Swanson, a
resident of Boston, Massachusetts, has executed and delivered to the Trustees a
binding stock subscription for one hundred transferable Shares of Beneficial
Interest in the trust assets as described herein; and
WHEREAS, the Trustees have acknowledged the receipt of the initial stock
subscription referred to in the preceding paragraph and have agreed to hold,
invest and dispose of any property received pursuant thereto and pursuant to
subsequent stock subscriptions and any property acquired or otherwise added
thereto as hereinafter provided;
NOW, THEREFORE, the Trustees hereby declare that they will hold all property of
every type and description which they are acquiring or may hereafter acquire as
such Trustees, together with the proceeds thereof, in trust, to manage and
dispose of the same for the benefit of the holders of record from time to time
of the certificates for Shares being issued and to be issued hereunder and in
the manner and subject to the provisions hereof, to wit:
ARTICLE I
NAME, PRINCIPAL PLACE OF BUSINESS AND TITLE TO PROPERTY
Section 1.1 Name. The name of the trust created by this Declaration of Trust is
BRT Realty Trust (hereinafter called the "Trust") and so far as may be
practicable the Trustees shall conduct the Trust's activities, execute all
documents and be sued under that name, which name (and the word "Trust" wherever
used in this Declaration of Trust, except where the context otherwise requires)
shall refer to the Trustees in their capacity as Trustees, and not individually
or personally, and shall not refer to the officers, agents, employees, or
Shareholders of the Trust or of such Trustees. Should the Trustees determine
that the use of such name is not practicable, legal or convenient, they may use
such other designation or they may adopt such other name for the Trust as they
deem proper and the Trustees may hold property and conduct the Trust's
activities under such designation or name.
Section 1.2 Location. The principal place of business shall be in Great Neck,
New York, at such address as the Trustees may from time to time designate;
however, the Trustees may change the principal place of business to any other
location as they in their discretion determine appropriate. The Trust may have
such other offices or places of business as the Trustees may from time to time
determine.
Section 1.3 Nature of Trust. The Trust shall be of the type commonly termed a
Massachusetts business trust. The Trust is not intended to be, shall not be
deemed to be, and shall not be treated as, a general partnership, limited
partnership, joint venture, corporation or joint stock company, but nothing
herein shall preclude the Trust from being taxable as an association under the
REIT Provisions of the Internal Revenue Code (as hereinafter defined). The
Shareholders shall be beneficiaries and their relationship to the Trustees shall
be solely in-that capacity in accordance with the rights conferred upon them
hereunder. The Trust may, but is not required to, conduct business in a manner
intended to qualify as a "real estate investment trust" as that term is defined
in the REIT Provisions of the Internal Revenue Code and this Declaration of
Trust, and all actions of the Trustees hereunder shall be construed in
accordance with such intent.
Section 1.4 Definitions. As used in this Declaration of Trust, the following
terms shall have the following meanings unless the context hereof otherwise
requires:
"Advisor" shall mean any Person appointed, employed or contracted with
by the Trustees pursuant to the provisions of Section 3.26 hereof.
"Affiliate" shall mean as to any corporation, partnership or trust, any
Person who (a) holds beneficially, directly or indirectly, 1% or more of the
outstanding capital stock, shares or equity interests of such corporation,
partnership or trust or (b) is an officer, director, employee, general partner
or trustee of such corporation, partnership or trust or of any Person which
controls, is controlled by, or is under common control with, such corporation,
partnership or trust, or (c) directly or indirectly controls, is controlled by,
or is under common control with, such corporation, partnership or trust.
"Appraisal" shall mean a determination of the fair market value, as of
the date of the Appraisal, of Real Property in its existing state or in a state
to be created, by any bank, insurance company or other Person which makes
appraisals in connection with its lending, brokerage or servicing activities
(whether or not an Affiliate of the Advisor), or by a disinterested Person
having no economic interest in the Real Property, provided such Person is, in
the sole judgment of the Trustees, properly qualified to make such a
determination.
"Certificates of Deposit" shall mean evidence of deposits in, or
obligations of, banking institutions and savings institutions which are members
of the Federal Deposit Insurance Corporation or of the Federal Home Loan Bank
System.
"Construction Loans" shall mean Mortgage Loans made to finance the
construction of buildings and other improvements on land and may include the
financing of all or part of the cost of the acquisition, of such land (including
leaseholds therein).
"Conventional Loans" shall mean Mortgage Loans (which may be
Construction, Development or Permanent Loans) which are not guaranteed by FHA or
VA.
"Declaration of Trust" shall mean this Declaration of Trust as amended,
restated or modified from time to time. References in this Declaration of Trust
to "Declaration", "hereof", "herein" and "hereunder" shall be deemed to refer to
the Declaration of Trust and shall not be limited to the particular text,
article or section in which such words appear.
"Development Loans" shall mean Mortgage Loans made to finance the
development of land into a site or sites suitable for the construction of
improvements thereon or suitable for other residential, recreational,
commercial, industrial or public uses and may include the financing of all or
part of the cost of the acquisition of such land (including leaseholds therein).
"Equity Investments in Real Property" shall mean investments in the
ownership of, or participations in the ownership of, Real Property including the
development thereof and any interest therein other than Mortgage Loans. or any
type of interest in any corporation or other entity principally involved in
owning, developing, improving, financing, operating or managing Real Property.
"Equity Securities" shall mean Shares and other Securities of the Trust
convertible at any time into shares with or without the payment of additional
consideration.
"FHA" shall mean the Federal Housing Administration and any successor
thereto.
"FHA Loans" shall mean loans guaranteed by the FHA.
"First Mortgage" shall mean a Mortgage which takes priority or
precedence over all other charges or encumbrances upon Real Property, other than
a leasehold interest therein, and which must be satisfied before such other
charges are entitled to participate in the proceeds of any sale or other
disposition of such Real Property. However, such priority shall not be deemed to
be abrogated by liens for taxes, assessments which are not due or remain payable
without penalty, contracts and leases acceptable to the Trust (other than
contracts for repayment of borrowed monies) mechanics' and materialmen's liens
and other similar liens for work performed and materials furnished for the
improvement of real estate which are not in default or are in good faith being
contested, and other claims normally deemed in the same jurisdiction in which
the Real Property is located to abrogate the priority of a first mortgage.
"First Mortgage Loans" shall mean Mortgage Loans secured or
collateralized by First Mortgages.
"Fiscal Year" shall mean any period for which an income tax return is
submitted to the Internal Revenue Service and which is treated by the Internal
Revenue Service as a reporting period.
"Gap Loans" shall mean Junior Mortgage Loans made or acquired by the
Trust to finance the difference between the minimum amount which a permanent
lender has agreed to fund and the maximum amount which such permanent lender
would fund if certain occupancy, rental or other requirements are met.
"Government Securities" shall mean Securities which are obligations of,
or guaranteed by, the United States Government, any State or Territory of the
United States of America, or any agency or political subdivision thereof,
including, without limitation, all Government Securities from time to time
constituting qualified real estate investment trust assets under the Internal
Revenue Code.
"Junior Mortgage" shall mean a Mortgage which (I) has the same priority
of precedence over all other charges or encumbrances upon Real Property as that
required for a First Mortgage except that it is subject to the priority of one
or more other Mortgages and (2) must be satisfied before such other charges or
incumbrances (other than prior Mortgages) are entitled to participate in the
proceeds of any sale or other disposition of such Real Property.
"Junior Mortgage Loans" shall mean Mortgage Loans secured or
collateralized by Junior Mortgages.
"Long-Term" in relation to loans shall mean loans having a maturity
(disregarding sinking fund or optional prepayment provisions prior to the
maturity date of such loan) of at least 10 years from the date of original
issue.
"Medium Term" in relation to loans shall mean loans having a maturity
(disregarding sinking fund or optional prepayment provisions prior to the
maturity date of such loan) of not less than 5 years nor more than 10 years from
the date of original issue.
"Mortgage Loans" shall mean loans evidenced by notes, debentures, bonds
and other evidences of indebtedness or obligations, which are negotiable or
non-negotiable and which are secured or collateralized by Mortgages.
"Mortgages" shall mean mortgages, deeds of trust or other security
interests in Real Property or on rights or interests, including leasehold
interests, in Real Property.
"Non-Recourse Indebtedness" shall mean indebtedness of the Trust
incurred in connection with the acquisition or financing of any asset wherein
the liability of the Trust is limited to the asset acquired or financed and
income and proceeds attributable thereto and which does not-- represent a
general obligation of the Trust. .`
"Permanent Takeout" shall mean a commitment by a lender of substantial
financial standing to purchase the Trust's Construction Loan no later than the
expiration of the term thereof or to provide a permanent loan no later than the
expiration of the term of the Trust's Construction Loan, the proceeds of which
permanent loan shall be sufficient to reimburse the Trust for its Construction
Loan.
"Person" shall mean and include individuals, corporations, limited
partnerships, general partnerships, joint stock companies or associations, joint
ventures, associations. companies, trusts, banks, trust companies, land trusts,
business trusts, or other organizations whether or not legal entities, and
governments and agencies and political subdivisions thereof.
"Commercial Paper" shall mean indebtedness of the Trust evidenced by
unsecured promissory notes maturing not more than 270 days after the date of
issue which arises out of a current transaction or the proceeds of which have
been or are to be used for current transactions.
"Real Property" shall mean land, rights in land, interests (including.
without limitation, air rights and leasehold interests as lessee or lessor), and
buildings, structures, improvements, furniture and fixtures located on or used
in connection with land and rights in land or interests therein, but not
including Mortgages, Mortgage Loans or interests therein.
"REIT Provisions of the Internal Revenue Code" shall mean Sections 856
through 858 of the Internal Revenue Code of 1954, as now enacted or hereafter
amended, or successor statutes and regulations and rulings promulgated
thereunder, provided, however, that any such statute, regulation or ruling
enacted or promulgated after the date hereof which is by its terms applicable to
real estate investment trusts in existence on the date hereof only upon the
election of, or failure to elect otherwise by such trust, shall be applicable to
this Trust only if this Trust shall so elect or fail to elect otherwise in
accordance with the terms thereof.
"Securities" shall mean any stock, shares, voting trust certificates,
bonds, debentures, notes, or other evidences of indebtedness, secured or
unsecured, convertible, subordinated or otherwise or in general any instruments
commonly known as "securities" or any certificates of interest, shares or
participations in temporary or interim certificates for, guarantees of or any
warrant or right to subscribe to, purchase or acquire any of the foregoing.
"Securities of the Trust" shall mean any Securities issued by the
Trust.
"Shareholders" shall mean as of any particular time all holders of
record of outstanding Shares at such time.
"Shares" shall mean the shares of beneficial interest and shares of
preferred stock of the Trust, as the case may be.
"Short-Term" in relation to loans shall mean loans other than Long-Term
and Medium-Term loans.
"Total Assets of the Trust" shall mean the aggregate value of all of
the assets included in the Trust Property as such value appears on the most
recent balance sheet of the Trust, prepared in accordance with sound accounting
practice, without deduction for Mortgage Loans or other security interests to
which such assets are subject and before provision for depreciation, depletion
and amortization but after provision for bad debt loss and similar reserves.
"Trust Property" shall mean as of any particular time any and all
property, real, personal or otherwise, tangible or intangible, which is
transferred, conveyed or paid to the Trust or Trustees and all rents, income,
profits and gains therefrom and which at such time is owned or held by, or for
the account of the Trust or the Trustees.
"VA Loans" shall mean Mortgage Loans (which may be Construction,
Development or Permanent Loans) which are guaranteed under the provisions of the
Servicemen's Readjustment Act of 1944, as amended.
"Warehousing Loans" shall mean loans which are secured by a pledge of
Mortgage Loans owned by the borrower.
"Wraparound Loans" shall mean Junior Mortgage Loans made pursuant to an
agreement obligating the borrower to pay the Trust a principal amount equal to
that of any senior Mortgage Loan plus that of such Junior Mortgage Loan with
interest on the combined principal and obligating the Trust to pay, as received
from the borrower, the principal and interest due on any such Senior Mortgage
Loan.
ARTICLE II
TRUSTEES
Section 2.1 Number and Qualification. The number of Trustees shall be not less
than 5 nor more than 15 persons. The exact number of Trustees within the minimum
and maximum limitations specified in the preceding sentence shall be fixed from
time to time by the Trustees then in office pursuant to a resolution adopted by
the entire Board of Trustees. No reduction in the number of Trustees shall have
the effect of removing any Trustee from office prior to the expiration of his
term. Whenever a vacancy in the number of Trustees shall occur, until such
vacancy is filled, the Trustees or Trustee continuing in office, regardless of
their number, shall have all the powers granted to the Trustees and shall
discharge all the duties imposed upon the Trustees by this Declaration of Trust.
A Trustee shall be an individual at least 21 years of age who is not under legal
disability. The Trustees, in their capacity as Trustees, shall not be required
to devote their entire time to the business and affairs of the Trust. Trustees
shall be United States citizens. Trustees may, but need not, own Shares or other
Securities of the Trust.
Section 2.2 Term and Election. At the 1984 meeting of Shareholders, the Trustees
shall be divided into three classes, as nearly equal in number as possible, with
the term of office of the first class to expire at the 1985 annual meeting of
Shareholders, the term of office of the second class to expire at the 1986
annual meeting of Shareholders and the term of office of the third class to
expire at the 1987 annual meeting of Shareholders. At each annual meeting of
Shareholders following such initial classification and election, Trustees
elected to succeed those directors whose terms expire shall be elected for a
term of office to expire at the third succeeding annual meeting of Shareholders
after their election.
Subject to the rights of the holders of any series of preferred stock then
outstanding, newly created trusteeships resulting from any increase in the
authorized number of Trustees or any vacancies in the Board of Trustees
resulting from death, resignation, retirement, disqualification, removal from
office or other cause shall be filled by a majority vote of the Trustees than in
office, although less than a quorum, and Trustees so chosen shall hold office
for a term expiring at the annual meeting of Shareholders at which the term of
the class to which they have been elected expires. If the number of Trustees is
changed any increase or decrease shall be apportioned among the classes so as to
maintain the number of Trustees in each class as nearly equal as possible. No
decrease in the number of Trustees constituting the Board of Trustees shall
shorten the term of any incumbent Trustee.
Notwithstanding the foregoing, whenever the holders of any class of stock (other
than holders of beneficial Shares) issued by Trust shall have the right, voting
as a class or otherwise, to elect Trustees, the then authorized number of
Trustees of the Trust shall be increased by the number of additional Trustees to
be elected.
Section 2.3 Resignation and Removal. Any Trustee may resign his trust (without
need for prior or subsequent accounting) by an instrument in writing signed by
him and delivered or mailed to the President or the Secretary of the Trust and
such resignation shall be effective upon such delivery, or at a later date
according to the terms of the notice. Any of the Trustees may be removed either
(a) for cause, as determined in the reasonable judgment of two-thirds of the
remaining Trustees or (b) with or without cause, at any meeting of Shareholders
by the affirmative vote of the holders of at least a majority of the Shares
entitled to vote present in person or by proxy at such meeting provided a quorum
is at such meeting.
Section 2.4 Vacancies. The term of office of a Trustee shall terminate and a
vacancy shall occur in the event of the death, resignation, bankruptcy,
adjudicated incompetence or other incapacity to exercise the duties of the
office, or removal of such Trustee. No such vacancy shall operate to annul this
Declaration of Trust or to revoke any existing agency created pursuant to the
terms of this Declaration of Trust.
Section 2.5 Meetings. Meetings of the Trustees shall be held from time to time
upon the call of the President or the Secretary of the Trust or any two
Trustees. Regular meetings of the Trustees may be held without call or notice at
a time and place fixed by resolution of the Trustees. Notice of any other
meeting shall be mailed or otherwise given not less than 48 hours before the
meeting but may be waived in writing by any Trustee either before or after such
meeting. The attendance of a Trustee at a meeting shall constitute a waiver of
notice of such meeting except where a Trustee attends a meeting for the express
purpose of objecting to the transaction of any business on the ground that the
meeting has not been lawfully called or convened. A quorum for all meetings of
the Trustees shall be a majority of the Trustees. Unless specifically provided
otherwise in this Declaration of Trust, any action of the Trustees may be taken
at a meeting by vote of a majority of the Trustees present (a quorum being
present). The execution of any agreement, deed, mortgage, lease or other
instrument of writing by one or more of the Trustees or by any authorized Person
may be authorized or ratified by action of the Trustees and shall thereafter be
valid and binding upon the Trustees and upon the Trust.
Any Executive or Investment Committee may act with or without a meeting. A
quorum for all meetings of any such Committee shall be a majority of the members
thereof. Unless specifically provided otherwise in this Declaration of Trust.,
any action of any Investment or Executive Committee may be taken at a meeting by
vote of a majority of the members present (a quorum being present) or without a
meeting by written consents of a majority of the members,
With respect to actions of the Trustees and any Executive or Investment
Committee, Trustees who are affiliated or otherwise interested in any action to
be taken may be counted for quorum purposes under this Section 2.5 and shall be
entitled to vote. Any action of the Trustees or of a committee taken without a
meeting may be taken without prior notice and without a vote if a consent in
writing, setting forth the action so taken, shall be signed by a majority of the
Trustees then in office or the then members of the committee (as the case may
be), or such other proportion thereof as would be necessary to authorize or take
such action at a meeting of the Trustees or the committee (as the case may be)
at which all Trustees or all members of such committee (as the case may be) were
present, provided that notice of the taking of the action without a meeting by
less than unanimous written consent of the Trustees or the committee (as the
case may be) shall be given, within 15 days after the execution of such consent
by the last Trustee whose execution thereof shall be required for effective
action to be taken thereby, to those Trustees or members who have not so
consented in writing.
All or any one or more Trustees may participate in a meeting of the Trustees or
any committee thereof by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other and participation in a meeting pursuant to such communications shall
constitute presence in person at such meeting. The minutes of any meeting of
Trustees held by telephone shall be prepared in the same manner as a meeting of
Trustees held in person.
Section 2.6 Executive and Investment Committees. The Trustees may appoint from
among their own members an Executive and/or Investment Committee of two or more
persons to whom the Trustees may delegate, consistent with their ultimate
responsibility to supervise the affairs of the Trust, such of the powers herein
given to the Trustees as they may deem expedient, except as herein otherwise
provided.
Section 2.7 Officers. The Trustees shall annually elect a President from among
their number who shall be the chief executive officer of the Trust. The Trustees
may elect or appoint, from among their number or otherwise, or may authorize the
President to appoint one or more Vice Presidents, a Treasurer and a Secretary, a
Comptroller, one or more Assistant Secretaries and Assistant Treasurers and such
other officers or agents who shall have such powers, duties and responsibilities
as the Trustees may deem to be advisable and who shall act as agents of the
Trustees and be subject to the provisions of this Declaration of Trust. Two or
more offices may be held by the same person, except that the President may not
also be the Secretary. The Board of Trustees may, in its discretion, elect a
Chairman of the Board.
Section 2.8 By-Laws. The Trustees (by majority vote) may adopt and from time to
time amend or repeal By-Laws not inconsistent with this Declaration of Trust for
the conduct of the business of the Trust, and in such By-Laws may define the
duties of the officers, agents, employees and representatives of the Trust.
Section 2.9 Trustees May Own Shares. Any Trustee, officer or agent may acquire,
hold and sell Shares on his personal account, either in his individual name, or
in a fiduciary capacity or jointly with other persons, or as a member of a firm
or association or otherwise, without being thereby disqualified as a Trustee,
officer or agent, and while so holding any Shares on his personal account shall
be entitled to the same rights and privileges as other Shareholders.
ARTICLE III
POWERS OF THE TRUSTEES
Section 3.1 General. The Trustees shall have, without other or further
authorization, continuing full, absolute and exclusive power, control, and
authority over and management of the Trust Property and of the affairs of the
Trust, to the same extent as if the Trustees were the sole owners of such
property in their own right, subject only to the limitations herein expressly
stated. Such powers of the Trustees may be exercised without the necessity of
applying to any court or to the Shareholders for leave to do so. No person shall
in any event be bound to see to the application of any money or property paid to
or delivered to the Trustees or their authorized representatives. The
enumeration of any specific power or authority herein shall not be construed as
limiting the aforesaid power or authority or any other power or authority.
Section 3.2 Investments. The Trustees shall have power, for such consideration
as they may deem proper, to invest in, purchase or otherwise acquire, for cash
or other property or through the issuance of Securities of the Trust, and hold
or retain for investment full or participating interests of any type in real,
personal or mixed, tangible or intangible, property of any kind wherever
located: including, without limitation, the following: (a) a full or
participating interest in Securities of every nature, whether or not secured by
Mortgages; (b) a full or participating interest in rents, lease payments or
other income from, or the profits from, or the equity or ownership of, Real
Property; and (c) a full or participating interest in investments secured by the
pledge or transfer of Mortgage Loans.
In the exercise of their powers, the Trustees shall not be limited to investing
in obligations maturing before the possible termination of the Trust, nor shall
the Trustees be limited by any law now or hereafter in effect limiting the
investments which may be held or retained by trustees or other fiduciaries, but
they shall have full authority and power to make any and all investments within
the limitations of this Declaration of Trust, that they, in their absolute
discretion, shall determine, and without liability for loss, even though such
investments shall be of a character or in amount not considered proper for
investment of trust funds or which do not or may not produce income. No
investment or reinvestment of the Trust property hereunder shall be deemed
improper because of its speculative character, or because a greater proportion
of the Trust property is invested therein than is usual for trustees, or solely
by reason of any interest therein, direct or indirect, of the Trustees or any
other party whatsoever.
Section 3.3 Appraisals. If the Trustees should at any time purchase Real
Property (other than where such purchase results from a foreclosure or
satisfaction of indebtedness to the Trust or is made in connection with the
acquisition of a mortgage loan), the consideration paid for such Real Property
shall be based upon the fair market value of the property as determined by an
Appraisal or as determined in the discretion of the Trustees; provided, however,
that no purchase of Real Property from an Affiliate of the Trust or the Advisor,
shall be effected without an Appraisal made by a Person who is not an Affiliate
of the Trust or the Advisor. The Trustees may in good faith rely on a previous
Appraisal made on behalf of other Persons provided it meets the aforesaid
standards and was made in connection with an investment in which the Trust
acquires an entire or participating interest.
Section 3.4 Legal Title. Legal title to all the Trust Property shall be vested
in the Trustees as joint tenants and held by and transferred to the Trustees,
except that, insofar as permitted by applicable law, the Trustees shall have
power to cause legal title to any Trust Property to be held by or in the name of
one or more of the Trustees with suitable reference to their trustee status, or
in the name of the Trust, or in the name of any other Person as nominee, or, in
the case of securities, in bearer form, on such terms, in such manner and with
such powers as the Trustees may determine, so long as in their judgment the
interest of the Trust is adequately protected.
The right, title and interest of the Trustees in and to the Trust Property shall
vest automatically in all persons who may hereafter become Trustees upon their
due election without any further act. Upon the death, resignation, removal,
bankruptcy, adjudicated incompetence or other incapacity to exercise the duties
of the office of a Trustee, he (and in the event of his death, his estate) shall
automatically cease to have any right, title or interest in or to any of the
Trust Property, and the right, title and interest of such Trustee in and to the
Trust Property including any and all Trust Property held in his name alone or
jointly with one or more other Trustees shall vest automatically in the
remaining Trustees without any further act. Such vesting and cessation of title
shall be effective whether or not conveyancing documents have been executed and
delivered.
For the purpose of more fully effectuating the foregoing, upon the resignation
or removal of a Trustee, or his otherwise ceasing to be a Trustee, the remaining
Trustees may require such Trustee to execute and deliver such documents for the
purpose of conveying to the Trust or the remaining Trustees, any Trust Property
held in the name of the resigning or removed Trustee. Upon the incapacity or
death of any Trustee, his legal representative shall execute and deliver on his
behalf such documents as the remaining Trustees shall require as provided in the
preceding sentence.
Section 3.5 Disposition, Renting, Etc. of Assets. The Trustees shall have power
to sell, grant security interests in, otherwise encumber, lease, exchange, grant
options with respect to or otherwise dispose of any and all Trust Property free
and clear of any and all trusts, at public or private sale, for cash or on terms
or for Securities, or a combination thereof, without advertisement, and subject
to such restrictions, stipulations, agreements and reservations as they shall
deem proper, including the power to take back mortgages to secure the whole or
any part of the purchase price of any of the Trust Property sold or transferred
by them, and to execute and deliver any deed or other instrument in connection
with the foregoing. The Trustees shall also have power to:
(a) rent, lease or hire from others or to others for terms which may extend
beyond the termination of this Declaration of Trust any property or rights to
property, real, personal or mixed, tangible or intangible, and to own, manage,
use and hold such property and such rights;
(b) subdivide, partition or improve Real Property and tear down, alter or make
improvements thereon and grant easements or impose restrictions in relation
thereto;
(c) give consents and make contracts relating to Trust Property or its use;
(d) release, dedicate or adjust the boundaries of any Trust Property; and
(e) develop, operate, pool, unitize, grant production payments out of or lease
or otherwise dispose of oil, gas and other mineral properties and rights.
Section 3.6 Financings; Issuance of Securities; Facsimiles. The Trustees shall
have power to lend money, whether secured or unsecured, to borrow or in any
other manner raise such sum or sums of money or other property as they shall
determine in any amount and in any manner and on any terms, and to evidence the
same by Securities which may mature at any time or times even beyond the
possible date of termination of the Trust, to reacquire any such Securities, to
enter into other contracts on behalf of the Trust and to execute and deliver any
Mortgage, pledge or other instrument to secure any such Securities or other
obligations or contracts; provided that the Trustees shall not issue debt
securities to the public unless the historical cash flow of the Trust or the
estimated future cash flow of the Trust, excluding extraordinary items, is
sufficient in the judgment of the Trustees to cover the interest on such debt
securities. Any Securities, instruments or other obligations of the Trust may,
at the discretion of the Trustees, without vote of the Shareholders, be
convertible or exercisable into Shares at such time and on such terms as the
Trustees may prescribe.
Subject to the provisions of Section 6.18, the Trustees shall have power to
issue any type of Securities of the Trust, without vote or other action by the
Shareholders, to such Persons for such cash, property, services, expenses or
other consideration (including Securities issued or created by, or interests in,
any Person) at such time or times and in such amounts and in such manner and on
such terms as the Trustees may deem advisable and to list any of the foregoing
Securities of the Trust or any depositary receipts representing such Securities
on any securities exchange and to purchase or otherwise acquire, hold, cancel,
reissue, sell and transfer any such Securities of the Trust or any depositary
receipts representing such Securities. The Trustees may authorize the use of
facsimile signatures and/or a facsimile seal of the Trust on Securities of the
Trust or any depositary receipts representing such Securities, provided that
where facsimile signatures are so used, one of the authorized signatures be
manual or the Securities or any such depositary receipts be manually
countersigned or authenticated (except with respect to any type of Security with
respect to which the then current commercial practice does not require manual
countersignature or manual authentication) by a transfer agent or registrar or
by an authenticating agent or trustee or similar person. In case any Person who
shall have signed (or whose facsimile signature shall appear on) Securities of
the Trust or any such depositary receipts shall have ceased to occupy the office
or perform the function with respect to which such signature was authorized
before such Securities or any such depositary receipts shall have been actually
issued, such Securities or any such depositary receipts may nevertheless be
issued with the same effect as though such Person had not ceased to occupy such
office or perform such function.
Section 3.7 Taxes. The Trustees shall have power to pay all taxes or
assessments, of whatever kind or nature, imposed upon or against the Trust or
the Trustees in connection with the Trust Property, or upon or against the Trust
Property or income of any part thereof, to settle and compromise disputed tax
liabilities, and for the foregoing purposes to make such returns and do all such
other acts and things as may be deemed by the Trustees necessary or desirable.
Section 3.8 Rights as Holder of Mortgages and Securities. The Trustees shall
have power to exercise all the rights, powers and privileges appertaining to the
ownership of all or any Mortgages or Securities forming part of the Trust
Property to the same extent that any individual might, and, without limiting the
generality of the foregoing. to vote or give any consent, request or notice or
waive any notice either in person or by proxy or power of attorney with or
without power of substitution, to one or more Persons, which proxies and powers
of attorney may be for meetings or action generally or for any particular
meetings or action, and may include the exercise of discretionary powers.
Section 3.9 Collection. The Trustees shall have power to collect, sue for,
receive and receipt for all sums money or other property due to the Trust, to
consent to extensions of the time for payment, or to the renewal, of any
Securities or obligations; to engage or intervene in, prosecute, defend,
compound, compromise, abandon or adjust by arbitration or otherwise any actions,
suits, proceedings, disputes, claims, demands or things relating to the Trust
Property; to foreclose any Mortgage or other Security securing any notes,
debentures, bonds, obligations or contracts, by virtue of which any sums of
money are owed to the Trust; to exercise any power of sale held by them, and to
convey good title thereunder free of any and all trusts, and, in connection with
any such foreclosure or sale, to purchase or otherwise acquire title to any
property; to be parties to reorganizations and to transfer to and deposit with
any corporation, committee, voting trustee or other Person any Securities or
obligations of any corporation, trust, association or other organization, the
Securities of which form a part of the Trust Property, for the purpose of any
reorganization of any such corporation, trust, association or other
organization, or otherwise to participate in any arrangement for enforcing or
protecting the interests of the Trustees as the owners or holders of such
Securities or obligations and to pay any assessment levied in connection with
such reorganization or arrangement; to extend the time with or without security
for the payment or delivery of any debt or property and to execute and to enter
into releases, agreements and other instruments; and to pay or satisfy any debts
or claims upon any evidence that the Trustees shall think sufficient.
Section 3.10 Expenses. The Trustees shall have power to incur and pay any
charges or expenses which in the opinion of the Trustees are necessary or
incidental or proper for carrying out any of the purposes of this Declaration of
Trust, and to reimburse others for the payment therefor, and to pay appropriate
compensation or fees from the funds of the Trust to themselves as Trustees and
to persons with whom the Trust has contracted or transacted business. The
Trustees shall fix the compensation of all officers and Trustees. The Trustees
may be paid reasonable compensation for their general services as Trustees and
officers hereunder, and the Trustees may pay themselves or any one or more of
themselves such compensation for special services, including legal services, as
they in good faith may deem reasonable and reimbursement for expenses reasonably
incurred by themselves or any one or more of themselves on behalf of the Trust.
Section 3.11 Guaranties. The Trustees shall have power to endorse or guarantee
the payment of any notes or other obligations of any Person other than the
Trustees acting in their individual capacity: to make contracts of guaranty or
suretyship, or otherwise assume liability for payment thereof; and to mortgage
and pledge the Trust Property or any part thereof to secure any of or all such
obligations.
Section 3.12 Deposits. The Trustees shall have power to deposit any moneys or
Securities included in the Trust Property with any one or more banks, trust
companies or other banking institutions, whether or not such deposit will draw
interest, provided that no funds of the Trust shall be commingled with funds of
the Advisor. Such deposits are to be subject to withdrawal in such manner as the
Trustees may determine, and the Trustees shall have no responsibility for any
loss which may occur by reason of the failure of the bank, trust company or
other banking institution with whom the moneys or Securities have been
deposited.
Section 3.13 Allocation. The Trustees shall have power to determine whether
moneys or other assets received by the Trust shall be charged or credited to
income or capital or allocated between income and capital, including the power
to amortize or fail to amortize any part or all of any premium or discount, to
treat any part or all the profit resulting from the maturity or sale of any
asset, whether purchased at a premium or at a discount, as income or capital or
apportion the same between income and capital to apportion the sale price of any
asset between income and capital, and to determine in what manner any expense or
disbursements are to be borne as between income and capital, whether or not in
the absence of the power and authority conferred by this Section 3.13 such
assets would be regarded as income or as capital or such expense or
disbursements would be charged to income or to capital; to treat any dividend or
other distribution on any investment as income or capital or apportion the same
between income or capital; to provide or fail to provide reserves for
depreciation, amortization or obsolescence in respect of any Trust Property in
such amounts and by such methods and for such purposes as they shall determine,
and to allocate to the share of beneficial interest account less than all of the
consideration received for Shares (but not less than the par value thereof) and
to allocate the balance thereof to paid-in capital, all as the Trustees may
reasonably deem proper.
Section 3.14 Valuation. The Trustees shall have power to determine conclusively
the value of any of the Trust Property and of any services, Securities, assets
or other consideration hereafter to be acquired or disposed of by the Trust, and
to revalue the Trust Property.
Section 3.15 Fiscal Year. The Trustees shall have power to determine the fiscal
year of the Trust and the method or form in which its accounts shall be kept and
from time to time to change the fiscal year or method or form of accounts.
Section 3.16 FHA Qualification. If the Trust shall be an "FHA Approved
Mortgagee", the Trustees shall have power to sell or otherwise dispose of any
FHA loan or an interest therein which the Trust owns in accordance with the
provisions of the National Housing Act of 1934, as amended, and regulations
promulgated thereunder. The Trustees shall have the power to execute on behalf
of the Trust, in connection with any project on which FHA has insured the
indebtedness, in whole or in part, any and all deeds of trust or mortgages, and
other agreements, documents and forms which may be required by FHA in connection
with the approval of FHA of the transfer of physical assets from any entity to
the Trustees or the insurance by FHA of any indebtedness on any project as to
which the Trustees are or shall become owners pursuant to this Declaration of
Trust, and the provisions of any such agreement shall be binding upon the Trust
notwithstanding any conflict with or limitation of this Declaration of Trust.
Section 3.17 Power to Contract. The Trustees shall have power to appoint, employ
or contract with any Person (including one or more of themselves and any
corporation, partnership or trust of which one or more of them may be an
Affiliate, subject to the applicable requirements of Section 3.28 hereof) as the
Trustees may deem necessary or desirable for the transaction of the business of
the Trust including any Person who, under the supervision of the Trustees, may,
among other things: administer the day-to-day affairs of the Trust; serve as the
Trust's investment advisor and consultant in connection with the Trust's
investments; act as consultants, accountants, mortgage loan originators or
servicers, correspondents, leaders, techincal advisors, attorneys, brokers,
underwriters, corporate fiduciaries, escrow agents, depositories, custodians or
agents for collection, insurers or insurance agents, transfer agents or
registrars or paying agents for Securities of the Trust, or in any other
capacity deemed by the Trustees necessary or desirable; investigate, select,
and, on behalf of the Trust, conduct relations with Persons acting in such
capacities and pay appropriate fees to, and enter into appropriate contracts
with, or employ, or retain services performed or to be performed by, any of them
in connection with the investments acquired, sold, or otherwise disposed of;
substitute any other Person for any such Person; act as attorney-in-fact or
agent in the purchase or sale or other disposition of investments, and in the
handling, prosecuting or settling of any claims of the Trust, including the
foreclosure or other endorsement of any mortgage or other lien or other security
securing investments; and assist in the performance of such ministerial
functions necessary in the management of the Trust as may be agreed upon with
the Trustees or officers of the Trust. The Trust shall not knowingly appoint,
employ or contract with, or extend the term of any advisory or other contract
with, any Trustee or any Person of whom any Trustee may be an Affiliate unless
such contract shall be made, approved or ratified, after disclosure of such
relationship, by a majority of the Trustees not so affiliated.
Section 3.18 Organization of Business Entities. The Trustees shall have power to
cause to be organized or assist in organizing any Person under the laws of any
jurisdiction to acquire the Trust Property or any part or parts thereof or
indirectly have an interest, and, subject to the provisions of this Declaration
of Trust, to cause the Trust to merge with such Person or any existing Person or
to sell, rent, lease, hire, convey, negotiate, assign, exchange or transfer the
Trust Property or any part or parts thereof to or with any such Person or any
existing Person in exchange for the Securities thereof or otherwise, and to lend
money to, subscribe for the Securities of, and enter into any contract with, any
such Person in which the Trust holds or is about to acquire Securities or any
other interest.
Section 3.19 Associations. The Trustees shall have power to enter into joint
ventures, general or limited partnerships and any other combinations or
associations.
Section 3.20 Insurance. The Trustees shall have the power to purchase and pay
for entirely out of Trust Property insurance policies insuring the Shareholders,
Trustees, officers, employees, agents. investment advisors, including the
Advisor, or independent contractors of the Trust individually against all claims
and liabilities of every nature arising by reason of holding, being or having
held any such office or position, or by reason of any action alleged to have
been taken or omitted by any such Person or Shareholder, Trustee, officer,
employee, agent. investment advisor, or independent contractor, including any
action taken or omitted that may be determined to constitute negligence whether
or not the Trust would have the power to indemnify such Person against such
liability.
Section 3.21 Pension and Other Plans. The Trustees shall have the power to pay
pensions for faithful service, as deemed appropriate by the Trustees, and
(except as provided in Section 6.18 hereof) to adopt, establish and carry out
pension, profit-sharing, Share bonus, Share purchase, savings, thrift and other
retirement, incentive and benefit plans, trusts and provisions, including the
purchasing of life insurance and annuity contracts as a means of providing such
retirement and other benefits, for any or all of the Trustees, officers,
employees and agents of the Trust.
Section 3.22 Seal. The Trustees shall have the power to adopt and use a seal for
the Trust, but unless otherwise required by the Trustees, the seal shall not be
necessary to be placed on, and its absence shall not impair the validity of, any
document, instrument or other paper executed and delivered by or on behalf of
the Trust.
Section 3.23 Charitable Contributions. The Trustees shall have power to make
donations, irrespective of benefit to the Trust, for the public welfare or for
community fund, hospital, charitable. religious, educational, scientific, civic
or similar purpose, and in time or war or other national emergency in aid
thereof.
Section 3.24 Indemnification. The Trustees shall have power to the extent
permitted by law to indemnify or enter into agreements with respect to
indemnification with any Person with whom the Trust has dealings, including,
without limitation, any investment advisor, including the Advisor, or
independent contractor, to such extent as the Trustees shall determine.
Section 3.25 Remedies. Notwithstanding any provision of this Declaration of
Trust, when the Trustees deem that there is a significant risk that an obligor
to the Trust may default or is in default under the terms of any obligation to
the Trust, the Trustees shall have power to pursue any remedies " permitted by
law which, in their sole judgment, are in the interests of the Trust, and the
Trustees shall have the power to enter into any investment, commitment or
obligation of the Trust resulting from the pursuit of such remedies or necessary
or desirable to dispose of property acquired in the pursuit of such remedies.
Section 3.26 Trustees May Appoint Advisor. The Trustees are responsible for the
general policies of the Trust and for such general supervision of the business
of the Trust conducted by officers, agents, employees, investment advisors or
independent contractors of the Trust as may be necessary to insure that such
business conforms to the provisions of the Declaration of Trust. However, the
Trustees are not required personally to conduct the business of the Trust and,
consistent with their ultimate responsibility as stated herein, the Trustees
shall have power to appoint, employ, or contract with any such natural or, legal
person or persons.(including one or more of themselves and any corporation,
partnership or trust in which one or more of them may be directors, officers,
stockholders, partners or trustees) as the Trustees may deem necessary or
desirable for the transaction of the business of the Trust. The Trustees may,
therefore, employ or contract with a corporation, partnership, trust or
individual (herein referred to as the "Advisor"), and the Trustees may grant or
delegate such authority to the Advisor as the Trustees may, in their sole
discretion, deem necessary or desirable, without regard to whether such
authority is normally granted or delegated by trustees.
The Trustees shall have the power to determine the terms of compensation of the
Advisor or any other person or persons whom they may employ or with whom they
may contract; provided, however, that any determination to appoint, employ, or
contract with any Trustee or any entity with which a Trustee is affiliated by
reason of a managerial or ownership interest, shall be valid only if made,
approved or ratified, after disclosure of such relationship, by a majority of
the Trustees not so affiliated. The Trustees may exercise broad discretion in
allowing the Advisor to administer and regulate the operations of the Trust, to
act as agent for the Trust, to execute documents on behalf of the Trustees, and
to make executive decisions which conform to general policies and general
principles previously established by the Trustees.
The initial contract entered into by the Trustees with any Advisor may have an
initial term of two full fiscal years (plus, in the case of the first such
contract entered into by the Trustees any period between the date of this
Declaration and the last day of the month in which the closing of the first
public offering and sale of Securities of the Trust is held); the term of each
renewal or extension of any such contract with the same Advisor shall not exceed
one year. Any such advisory contract shall provide, however, that it may be
terminated at any time without penalty, by the Trustees or a majority of the
holders of Shares, upon not less than sixty (60) days' written notice to the
Advisor.
Section 3.27 Independence of Trustees. Not more than 49% of the total number of
Trustees or of the total number of members of any Investment Committee may be
Affiliates of the Advisor, provided, however, that if at any time the percentage
of all Trustees or of members of such Investment Committee then in office,
because of the death, resignation, removal or change in affiliation of a Trustee
or member of such Investment Committee who is not such an Affiliate, such
requirement shall not be applicable for a period of sixty (60) days, during
which time a majority of all the Trustees then in office shall appoint a
sufficient number of other individuals as Trustees or as members of such
Investment Committee so that there is again not more than 49% of the total
number of all Trustees or members of such Investment Committee then in office
who are Affiliates of the Advisor. The Trustees shall at all times endeavor to
comply with such requirement, but failure so to comply shall not affect the
validity or effectiveness of any action of the Trustees or of the lnvestment
Committee as the case may be.
Section 3.28 Prohibition Against Self-Dealing and Misuse of Trust Assets. (a)
Notwithstanding any other provisions of this Declaration of Trust, the Trustees,
when acting on behalf of the Trust, may not knowingly, directly or indirectly,
lend any of the Trust Property to, purchase or otherwise acquire any property
whatsoever from, sell or otherwise transfer any property whatsoever to, contract
with, or pay any commission or other remuneration, directly or indirectly, in
connection with the purchase or sale of Trust assets to (i) any Trustee, officer
or employee of the Trust (acting in their individual capacities), (ii) the
Advisor, (iii) any corporation, partnership, trust or other organization with
which a Trustee, any officer or employee of the Trust, the Advisor, any
independent contractor to the Trust or any officer, director or employee of the
Advisor, or any such independent contractor to the Trust is an Affiliate, or
(iv) any officer, managing agent, director or employee (acting in their
individual capacities) of the Advisor, of any Affiliate of the Advisor or of any
independent contractor to the Trust; except that the Trustees shall be entitled
to engage in any transaction on behalf of the Trust notwithstanding any such
affiliation, provided (i) each such transaction has been approved or ratified,
after full disclosure of such affiliation, by a majority of the Trustees
including a majority of the Trustees who are not Affiliates of any Person (other
than the Trust) who is a party to the transaction, or by a majority of
the-members of any committee of the Trustees including a majority of the members
of such committee who are not Affiliates of any Person (other than the Trust)
who is a party to the transaction, and (ii) the Trustees approving the
transaction have determined that such transaction is fair and reasonable to the
Shareholders of the Trust and that such transaction is on terms not less
favorable to the Trust than terms available for a comparable transaction with
others that are not so affiliated, and (iii) if such transaction relates to: (x)
the acquisition by the Trust of federally insured or guaranteed mortgages, it
shall be effeted at prices not exceeding the currently quoted prices at which
the Federal National Mortgage Association is purchasing comparable mortgages; or
(y) the acquisition by the Trust of other property, it shall be effected at
prices not exceeding the fair value thereof as determined by an independent
Appraisal. For purposes of this Section 3.28 the term "independent contractor"
means an "independent contractor" as defined in Section 856(d)(3) of the
Internal Revenue Code which furnishes or renders services to tenants of or
manages or operates Real Property owned by the Trust. The simultaneous
acquisition by the Trust and the Advisor or any Affiliate of the Advisor of
participations in a loan or other investment shall not be deemed to constitute
an acquisition or sale of property by one of them to the other, provided that
the terms, other than the size of the participation, are not less favorable to
the Trust than to such other Person.
Any Trustee or officer, employee or agent of the Trust may acquire, own, hold
and dispose of Securities of the Trust, for his individual account, and may
exercise all rights of a holder of such Securities to the same extent and in the
same mariner as if he were not such a Trustee or officer, employee or agent. The
Trustees shall use their best efforts to obtain through an Advisor or other
Persons a continuing and suitable investment program, consistent with the
investment policies and objectives of the Trust, and the Trustees shall be
responsible for reviewing and approving or rejecting investment opportunities
presented by the Advisor or such other Persons. So long as there is such Advisor
or other Person, the Trustees shall have no responsibility for the origination
of investment opportunities for the Trust. Any Trustee or officer, employee, or
agent of the Trust may, in his personal capacity, or in a capacity of trustee,
officer, director, stockholder, partner, member, advisor or employee of any
Person, have business interests and engage in business activities in addition to
those relating to the Trust, which interests and activities may be similar to
those of the Trust and include the acquisition, syndication, holding,
management, operation or disposition, for his own account or for the account of
such Person, of interests in Mortgages, interests in Real Property, or interests
in Persons engaged in the real estate business, and each Trustee, officer,
employee and agent of the Trust shall be free of any obligation to present to
the Trust any investment opportunity which comes to him in any capacity other
than solely as Trustee, officer, employee or agent of the Trust, even if such
opportunity is of a character which, if presented to the Trust, could be taken
by the Trust, provided, however, that no Trustee, advisor, officer, employee, or
agent of the Trust may compete with the Trust in (i) any transaction in which
the Trust is engaged or (ii) any proposed transaction which has been presented
to the Trustees in writing for their consideration and which has not been
rejected by the vote of a majority of the Trustees not interested in such a
proposed transaction. Each Trustee shall disclose any interest he has, and any
interest known to him of any Affiliate of his, in any investment opportunity
presented to the Trust. Subject to the provisions of this any Trustee or
officer, employee or agent of the Trust may be interested as trustee, officer,
director, shareholder, partner, member, advisor or employee of, or otherwise
have a direct or indirect interest in, any Person who may be engaged to render
advice or services to the Trust, and may receive compensation from such Person
as well as compensation as Trustee, officer, employee or agent of the Trust or
otherwise hereunder. None of the activities referred to in, and permitted by,
this paragraph shall be deemed to conflict with his duties and powers as
Trustee, officer, employee or agent of the Trust.
The Trust shall not, in dealing with any Trustee, investment officer or employee
of the Trust, enter into any transaction contrary to the obligations imposed
upon fiduciaries acting under the Declaration of Trust by courts in
Massachusetts having equity powers. No investment recommended to the Trust by
the Advisor shall be made by the Trust at a time when a Trustee is an Affiliate
of the Advisor unless such investment has been approved by a majority of the
Trustees including a majority of Trustees not so affiliated or by a majority of
the members of any Investment Committee of the Trustees including a majority of
the members of such committee not so affiliated.
(b) Notwithstanding any other provisions of this Declaration of Trust, in
connection with any "Business Combination" (as hereinafter defined) with any
"Related Person" (as hereinafter defined) the Trustees of the Trust who are not
affiliated with the Related Person (the "Independent Trustees") shall have the
authority to negotiate with the Related Person on behalf of the Shareholders of
the Trust, other than the Related Person (the "Minority Shareholders"), with the
assistance of legal counsel and such other persons as the Independent Trustees
deem necessary for that purpose (the fees and expenses of such legal counsel and
other persons to be borne by the Trust), and shall approve the terms and
conditions of the definitive agreement which embodies the Business Combination.
As a condition to the consummation of the Business Combination, the Board of
Trustees of the Trust shall have received a written opinion from an investment
banking firm of national reputation that the proposed Business Combination is
fair to Minority Shareholders from a financial point of view. Such determination
shall be based upon the value of the Trust as a whole and the fact that the
Shares held by the Minority Shareholders represent a minority interest in the
Trust shall not be considered to diminish their value.
The provisions set forth in this Section 3.28(b) may not be repealed or amended
in any respect, unless such action is approved by the affirmative vote of the
holders of not less than a majority of the outstanding shares of Voting Stock
held by Minority Shareholders. In the event a quorum of such Minority
Shareholders is not present at two successive annual meetings of Shareholders at
which the repeal or amendment of the provisions set forth in this Section
3.28(b) is proposed, then the requisite vote for such action shall be governed
by Section 8.1 hereof. The term "Voting Stock" shall mean all outstanding Shares
of the Trust or another corporation entitled to vote generally in the election
of Trustees and each reference to a proportion of shares of Voting Stock shall
refer to such proportion of the votes entitled to be cast by such shares.
For the purposes of this Section 3.28(b):
(i) The term "Business Combination" shall mean (a) any merger or
consolidation of the Trust or a subsidiary of the Trust with or into a Related
Person, (b) any sale, lease, exchange, transfer or other disposition, including
without limitation a mortgage or any other security device of all or
substantially all of the assets either of the Trust or of a subsidiary of the
Trust, to a Related Person, (c) any merger or consolidation of a Related Person
with or into the Trust, (d) any sale, lease, exchange, transfer or other
disposition of all or substantially all of the assets of a Related Person to the
Trust or a subsidiary of the Trust or (e) any agreement, contract or other
arrangement providing for any of the transactions described in the Business
Combination; and
(ii) The term "Related Person" shall mean and include any individual,
corporation, partnership or other person or entity which, together with its
"Affiliates" and "Associates" (as defined on November 1, 1982 in Rule 12b-2
under the Securities Exchange Act) "Beneficially Owns" (as defined on November
1, 1982 in Rule 13d-3 under the Securities Exchange Act of 1934) in the
aggregate 50 percent or more of the outstanding Voting Stock of the Trust, and
any Affiliate or Associate of any such individual, corporation, partnership or
other person or entity.
Section 3.29 Further Powers. The Trustees shall have power to do all such other
matters and things and execute all such instruments as they deem necessary,
proper or desirable in order to carry out, promote or advance the interests of
the Trust although such matters or things are not herein specifically mentioned.
Any determination as to what is in the interests of the Trust made by the
Trustees in good faith shall be conclusive. In construing the provisions of this
Declaration of Trust, the presumption, shall be in favor of a grant of power to
the Trustees. The Trustees will not be required to obtain any court order to
deal with the Trust Property.
Section 3.30 Transfer of Advisory Contract. Neither the Trust nor any holder of
Equity Securities shall have any rights in or with respect to any income, assets
or profit realized by the Advisor, any holders of Securities of the Advisor, or
any director, officer or employee of the Advisor by reason of the transfer or
assignment of the contract with the Advisor referred to in Section 3.26 hereof
or any other agreement with the Advisor of any securities issued by the Advisor,
and each such holder and the Trust shall be deemed to have consented to any such
transfer or assignment (except such as specifically require consent of the Trust
under the terms of such contract) and to have expressly and irrevocably waived
any rights in such income, assets or profits, whether arising under the laws of
the United States or any State or territory or any judicial decision thereunder.
Section 3.31 Qualification as "Real Estate Investment Trust". The Trustees shall
have the power to determine whether or not in any fiscal year to qualify for
taxation as a "real estate investment trust" as described in the REIT Provisions
of the Internal Revenue Code.
ARTICLE IV
INVESTMENT POLICIES
Section 4.1 Statement of Investment Policy. The investment objective of the
Trust is to invest the Trust Property in Real Property, Mortgage Loans, and
other investments related to Real Property in such proportions as the Trustees
may deem advisable from time to time in light of changing economic conditions.
Except as specifically provided herein, there shall be no percentage limitation.
either minimum or maximum, with respect to the proportion of assets of the Trust
which may be placed at any given time in any type or category of investments.
Investments of the Trust may be made in various combinations and may involve
participations with other Persons. Such investments may incorporate a variety of
real property financing techniques, including, without limitation, Conventional
Loans, Long, Medium and Short Term Loans, Construction Loans with or without a
Permanent Takeout, Equity Investments in Real Property, FHA Loans, VA Loans,
First and Junior Mortgage Loans, Gap Loans, Warehousing Loans, Wraparound Loans,
Development Loans, sale and leasebacks, land purchase-leases, net lease
financings, purchase and installment sale lease backs, high credit lease-secured
mortgages, convertible Mortgages and Mortgages of special interests including,
without limitation, leaseholds, air rights and condominiums.
The Trustees may. but shall not be required to, make investments in such a
manner as to comply with the requirements of the REIT Provisions of the Internal
Revenue Code with respect to the composition of the Trust's investments and the
derivation of its income; provided, however, that no Trustee, director, officer,
employee or agent of the Trust or the Advisor shall be liable to any Person for
any act or omission resulting in the loss of tax benefits under the Internal
Revenue Code, except for that arising from his or its own bad faith, willful
misconduct, gross negligence or reckless disregard of his or its duties or for
his failure to act in good faith in the reasonable belief that such action was
in the best interest of the Trust.
Section 4.2 Uninvested Assets. To the extent that the Trust has assets not
otherwise invested in accordance with Section 4.1 hereof the Trustees may invest
such assets in:
(a) obligations of or guaranteed or insured by, the United States Government or
any agencies or political subdivisions thereof, including the FHA and the
Federal National Mortgage Association:
(b) obligations of or guaranteed by, any state, territory or possession of the
United States of America or any agencies or political subdivision thereof;
(c) evidences of deposits in, or obligations of, banking institutions, state and
federal savings and loan associations and savings institutions which are members
of the Federal Deposit Insurance Corporation or of the Federal Home Loan Bank
System;
(d) shares of other real estate investment trusts, but in the event the Trust is
being operated as a "real estate investment trust" as described in the REIT
Provisions of the Internal Revenue Code, then only to the extent permitted by
the REIT Provisions of the Internal Revenue Code, except as prohibited by
Section 4.3(e); and
(e) other marketable Securities but in the event the Trust is being operated as
a "real estate investment trust" as described in the REIT Provisions of the
Internal Revenue Code, then only marketable securities which, in the opinion of
the Trustees, may be held by the Trust without jeopardizing the Trust's
qualification as a real estate investment trust under the REIT Provisions of the
Internal Revenue Code.
Section 4.3 Restrictions. Notwithstanding anything in this Declaration of Trust
which may be deemed to authorize the contrary, the Trustees shall not:
(a) invest in commodities, foreign currencies, bullion or chattels, except as
required in the day-to-day business of the Trust or in connection with its
investments;
(b) invest in real estate contracts for sale (except under circumstances wherein
the investment of the Trust is substantially equivalent to a mortgagee's
interest) in excess of a value of 1% of the Total Assets of the Trust; provided,
however, that nothing in this Section 4.3 shall prevent the holding of contracts
of sale as security for loans made by the Trust and the acquisition and
ownership of such contracts of sale upon foreclosure of, or realization upon,
such security interests, and contracts of sale so held or owned shall be
excluded from the computation required by this Section 4.3;
(c) engage in any short sale:
(d) issue "redeemable securities" as defined in Section 2(a)(31) of the
Investment Company Act of 1940;
(e) if the Trust is being operated as a "real estate investment trust" as
described in the REIT Provisions of the Internal Revenue Code hold securities in
any real estate investment trust which, to the actual knowledge of the Trustees,
is then holding investments or engaging in activities prohibited to the Trustees
under this Section 4.3, if, as a result thereof, the Trust will fail to qualify
as a real estate investment trust under the REIT Provisions of the Internal
Revenue Code;
(f) engage in trading as compared with investment activities, or engage in the
business or underwriting or agency distribution of Securities issued by others,
but this prohibition shall not prevent the Trust from buying or selling Mortgage
Loans, including participations therein, or interests in Real Property;
(g) hold property primarily for sale to customers in the ordinary course of the
trade or business of the Trust, but this prohibition shall not be construed to
deprive the Trust of the power to sell any property which it owns at any time;
(h) invest in equity securities (except securities acquired in connection with
the acquisition of or foreclosure on mortgage loans made by the Trust) of any
Person which to the knowledge of the Trustees is then holding investments or
engaging in activities prohibited to the Trust, if, after giving effect to such
investment, the aggregate value, as determined by a majority of the Trustees of
such investments would exceed 5% of the total assets of the Trust.
ARTICLE V
LIMITATIONS OF LIABILITY
Section 5.1 Liability to Third Persons. No Shareholder shall be subject to any
personal liability whatsoever, in tort, contract or otherwise, to any Person or
Persons in connection with Trust Property or the affairs of the Trust; and no
Trustee, officer, employee or agent of the Trust shall be subject to any
personal liability whatsoever, in tort, contract or otherwise, to any other
Person or Persons in connection with Trust Property or the affairs of the Trust,
save only that arising from his bad faith, wilful misconduct, gross negligence
or reckless disregard of his duties or for his failure to act in good faith in
the reasonable belief that his action was in the best interest of the Trust; and
all such other Persons shall look solely to the Trust Property for satisfaction
of claims of any nature arising in connection with the affairs of the Trust. If
any Shareholder, Trustee, officer, employee or agent, as such, of the Trust is
made a party to any suit or proceedings to enforce any such liability, he shall
not on account thereof be held to any personal liability.
Section 5.2 Liability to Trust or Shareholders. No Trustee, officer, employee or
agent of the Trust shall be liable to the Trust or to any Shareholder, Trustee,
officer, employee or agent of the Trust for any action or failure to act
(including without limitation the failure to compel in any way any former or
acting Trustee to redress any breach of trust) except for his own bad faith,
wilful misconduct, gross negligence or reckless disregard .of his duties or for
his failure to act in good faith in the reasonable belief that his action was in
the best interests of the Trust.
Section 5.3 Indemnification. The Trust shall indemnify and hold each Shareholder
harmless from and against all claims and liabilities, whether they proceed to
judgment or are settled or otherwise brought to a conclusion, to which such
Shareholder may become subject by reason of his being or having been a
Shareholder, and shall reimburse such Shareholder for all legal and other
expenses reasonably incurred by him in connection with any such claim or
liability; provided, however, that the Trust shall have no liability to
reimburse Shareholders for taxes assessed against them by reason of their
ownership of Shares (unless such tax is of a character which in the Commonwealth
of Massachusetts would be assessed against the Trust Property or the Trustees,
but is assessed in the jurisdiction assessing such tax against all Shareholders
ratably rather than against the Trust Property or the Trustees), nor for any
losses suffered by reason of changes in the market value of Securities of the
Trust. Subject to the proviso clause and except for expenses not reasonably
incurred, the foregoing sentence is intended to provide for indemnification of
each Shareholder to the fullest extent permitted by law. The rights accruing to
a Shareholder under this Section 5.3 shall not exclude any other right to which
such Shareholder may be lawfully entitled, nor shall anything herein contained
restrict the right of the Trust to reimburse or indemnify a Shareholder in any
appropriate situation even though not specifically provided herein.
The Trust shall indemnify each of its Trustees, officers, employees and agents
(including any Person who serves at its request as director. officer or trustee
of another organization in which it has any interest as a shareholder, creditor
or otherwise), against all liabilities and expenses, including amounts paid in
satisfaction of judgments, in compromise or as fines and penalties, and counsel
fees, reasonably incurred by him in connection with the defense or disposition
of any action, suit or other proceeding by the Trust or any other Person,
whether civil or criminal, in which he may be involved or with which he may be
threatened, while in office or thereafter, by reason of his being or having been
such a Trustee, officer, employee or agent; provided, however, that no
indemnification shall be made with respect to any matter as to which he shall
have been adjudicated to have acted in bad faith or with wilfull misconduct or
reckless disregard of his duties or gross negligence or not to have acted in
good faith in the reasonable belief that his action was in the best interests of
the Trust and further provided, that as to any matter disposed of by a
compromise payment by such Trustee, officer, employee or agent, pursuant to a
consent decree or otherwise, no indemnification either for said payment or for
any other expense shall be provided unless such a compromise shall be approved
as in the best interests of the Trust by a majority of the disinterested
Trustees or unless the Trust shall have received a written opinion from
independent legal counsel to the effect that such Trustee, officer, employee or
agent appears to have acted in good faith in the reasonable belief that his
action was in the best interests of the Trust. Subject to the proviso clauses,
and except for expenses not reasonably incurred, the foregoing sentence is
intended to provide for indemnification of Trustees, officers, employees and
agents to the fullest extent provided by law. The rights accruing to any
Trustee, officer, employee or agent under these provisions shall not exclude any
other right to which he may be lawfully entitled; provided, however, that no
Trustee, officer, employee or agent may satisfy any right of indemnity or
reimbursement granted herein or to which he may be otherwise entitled except out
of the Trust Property, and no Shareholder shall be personally liable to any
Person with respect to any claim for indemnity or reimbursement or otherwise.
The Trustees may make advance payments in connection with indemnification under
this Section 5.3, provided that the indemnified Trustee, officer, employee or
agent shall have given a written undertaking to reimburse the Trust in the event
it is subsequently determined that he is not entitled to such indemnification.
Any action taken in good faith by or conduct engaged in good faith on the part
of the Advisor, a Trustee, officer, employee or agent of the Trust in conformity
with or in reliance upon any of the provisions of this Declaration of Trust
shall not, for the purposes of this Trust, constitute bad faith, wilful
misconduct, gross negligence or reckless disregard of his duties or failure to
act in good faith or in the reasonable belief that his action was in the best
interests of the Trust.
Section 5.4 Surety Bonds. No Trustee shall, as such, be obligated to give any
bond or surety or other security for the performance of any of his duties.
Section 5.5 Apparent Authority. No purchaser, lender, transfer agent or other
Person dealing with the Trustees or any officer, employee or agent of the Trust
shall be bound to make inquiry concerning, or be liable for, the application of
money or property paid, loaned or delivered to or on the duly authorized order
of the Trustees or of such officer, employee or agent.
Section 5.6 Express Exculpatory Clauses in Instruments. Every note, debenture,
bond. obligation, contract, instrument, certificate, Share or undertaking and
every other act or thing whatsoever executed in connection with the Trust shall
be conclusively presumed to have been executed or done by a Trustee or Trustees
or an officer, employee or agent of the Trust only in his or their capacity as
Trustee or Trustees under this Declaration of Trust or in the capacity of
officer, employee or agent of the Trust. The Trustees shall cause every note,
debenture, bond, obligation, contract, instrument, certificate, Share or
undertaking made or issued by or on behalf of the Trust to refer to this
Declaration of Trust and contain a recital to the effect that the obligations
thereunder are not binding on, nor shall resort be had to the private property
of, any of the Trustees, their employees or the Shareholders of the Trust
individually, but only upon the Trustees as trustees and upon the Trust
Property, and may contain any further recital which they may deem appropriate,
but the omission of such recital or further recital shall not be construed to
evidence an intention to impose personal liability on any of the Trustees.
Shareholders, officers, employees or agents of the Trust. The Trustees shall. at
all times, maintain insurance for the protection of the Trust Property, its
Shareholders, Trustees, officers, employees or agents in such amount as the
Trustees shall deem adequate to cover all foreseeable tort liability to the
extent available at reasonable rates.
Section 5.7 Reliance on Experts, Etc. Each Trustee and each officer of the Trust
shall, in the performance of his duties, be fully and completely justified and
protected with regard to any act or any failure to act resulting from reliance
in good faith upon the books of account or other records of the Trust, upon an
opinion of counsel or upon reports made to the Trust by any of its officers or
employees or by the Advisor, accountants, appraisers or other experts or
consultants selected with reasonable care by the Trustees or officers of the
Trust, regardless of whether such counsel or expert may also be a Trustee.
ARTICLE VI
SHARES OF BENEFICIAL, INTEREST
Section 6.1 Description of Shares. The Trust shall have authority to issue
Shares of beneficial interest, having a par value of $1.00 per Share and Shares
of preferred stock having a par value of $1.00 per Share. No Shares shall be
issued for a consideration having a fair value of less than the aggregate par
value of such Shares. All Shares duly issued hereunder shall be deemed fully
paid, and no assessment shall ever be made upon Shareholders except against
holders of Shares as to which the entire par value has not been paid in, but
only to the extent of such unpaid par value.
The number of Shares of beneficial interest authorized hereunder is unlimited.
All Shares of beneficial interest shall have equal non-cumulative voting,
distribution, liquidation and other rights, and shall have no preference,
conversion, exchange, preemptive or redemption rights.
The number of Shares of preferred stock authorized hereunder is 3,000,000. The
preferred stock may be issued, from time to time, in one or more series as
authorized by the Board of Trustees. Prior to issuance of a series, the Board of
Trustees by resolution shall designate that series to distinguish it from other
series and classes of stock of the Trust, shall specify the number of shares to
be included in the series, and shall fix the terms, rights, restrictions,
qualifications of the shares of the series, including any preferences, voting
powers, dividend rights and redemption, sinking fund and conversion rights.
Subject to the express terms of any other series of Preferred Stock outstanding
at the time, the Board of Trustees may increase or decrease the number of shares
or alter the designation or classify or reclassify any unissued shares of a
particular series of preferred stock by fixing or altering in any or more
respects from time to time before issuing the shares any terms, rights,
restrictions and qualifications of the shares.
Section 6.2 Shares Represent Beneficial Interest or Preferred Interest. It is
the intention of the Trustees to create only the relationship of Trustee and
beneficiary between the Trustees and each Shareholder from time to time, and to
give each Shareholder only such rights and to impose upon him only such
obligations as are conferred or imposed upon him as a beneficiary hereunder. It
is not the intention of the Trustees to create a general partnership, limited
partnership, joint stock association, corporation, bailment or any form of legal
relationship other than a business trust.
Nothing in this Declaration of Trust or in the certificates of Shares shall be
construed to make the holders of said certificates, either by themselves or with
the Trustees, partners or members of an association other than a business trust.
Section 6.3 Certificates and Transfer. Every Shareholder shall be entitled to
receive a certificate, in such form as the Trustees shall from time to time
approve, specifying the number of Shares held by such Shareholder. Except as
provided by Sections 6.20 and 6.21, such certificates shall be treated as
negotiable and title thereto, and to the Shares represented hereby shall be
transferred by delivery thereof to the same extent in all respects as stock
certificates, and the Shares represented thereby, of a Massachusetts business
corporation. Unless otherwise determined by the Trustees and except as provided
in Section 3,6 hereof, such certificates shall be signed by the President and
Secretary, and shall be countersigned by a transfer agent, and registered by a
registrar, if any. There shall be filed with each transfer agent and registrar,
if any, a copy of the authorized form of certificate, certified by the President
and Secretary, and such form shall continue to be used unless and until the
Trustees approve some other form. Certificates for Shares shall bear the legend
required by Section 6.20.
6.4 Issuance of Shares and Fractional Shares. The Trustees, in their discretion,
may from time to time without vote of the Shareholders issue Shares, in addition
to the then issued and outstanding Shares and Shares held in the treasury, to
such party or parties and, except as required in Section 6.1 hereof, for such
payment, property or other consideration, at such time or times, and on such
terms as the Trustees may deem best, and may in such manner acquire other assets
(including the acquisition of assets subject to and in connection with the
assumption of liabilities). In connection with any issuance of Shares, the
Trustees may issue fractional Shares or may provide for the issuance of scrip
for fractions of Shares and determine the terms of such scrip including, without
limiting the generality of the foregoing, the time within which any such scrip
must be surrendered for exchange into Shares and the rights, if any, of holders
of scrip upon the expiration of the time so fixed, the rights, if any, to
receive proportional distributions, and the rights, if any, to redeem scrip for
cash, or the Trustees may in their discretion, or if they see fit at the option
of each holder, provide in lieu of scrip for the adjustment of fractions in
cash. The provisions of Section 6.3 and Section 6.20 hereof relative to
certificates for Shares shall apply so far as appropriate to such scrip, except
that such scrip may in the discretion of the Trustees be signed by a transfer
agent alone notwithstanding that there is then a registrar for the Shares.
Section 6.5 Shareholder Register. A register shall be kept by or on behalf of
the Trustees, under the direction of the Trustees, which shall contain the names
and addresses of the Shareholders; the number of Shares held by each of them;
the number of the certificates representing such Shares; and a record of all
transfers thereof. Only Shareholders whose certificates are so recorded shall be
entitled to vote, receive dividends or distributions, or otherwise to exercise
or enjoy the rights of Shareholders. No Shareholder shall be entitled to receive
payment of any dividend or distribution, nor to have notice given to him as
herein provided, until he has given his address to a transfer agent or such
other officer or agent of the Trustees as shall keep the register for entry
thereon.
Section 6.6 Transfer Agents and Registrars. The Trustees shall have power to
employ a transfer agent or transfer agents and registrar or registrars. The
transfer agent or transfer agents may keep the register provided for in Section
6.5 hereof and record therein the original issues and transfers, if any, of
Shares and countersign certificates of Shares issued to the persons entitled to
the same. Any such transfer agent or transfer agents and registrar or registrars
shall perform the duties usually performed by transfer agents and registrars of
certificates of stock in a corporation, except as modified by the Trustees. In
accordance with the usual custom of corporations having a transfer agent, signed
certificates for Shares in blank may be deposited with any transfer agent of the
Trust, to be used by the transfer agent in accordance with the authority
conferred upon it as occasion may require, and in doing so the signers of such
certificates shall not be responsible for any loss resulting therefrom.
Section 6.7 Method of Transfer. Shares shall be transferable on the records of
the Trust, other than by operation of law, only by the record holder thereof or
by his agent thereunto duly authorized in writing, upon delivery to the Trustees
or a transfer agent of the Trust of the certificate therefor, properly endorsed
or accompanied by a duly executed instrument of transfer, with all transfer
taxes affixed, together with such evidence of the genuineness of each such
endorsement, execution, and authorization and of other matters as may reasonably
be required by the Trust or the transfer agent. Upon such delivery the transfer
shall be recorded on the register of the Trust and a new certificate for the
Shares so transferred shall be issued to the transferree, and in case of a
transfer of only a part of the Shares represented by any certificate, a new
certificate for the residue thereof, shall be issued to the transferor. But
until such record is made, the Shareholder of record shal1 be deemed to be the
holder of such Shares for all purposes hereof and neither the Trustees nor any
transfer agent or registrar nor any officer or agent of the Trust shall be
affected by any notice of the proposed transfer. This Section 6.7 is subject in
all respects to the provisions of Section 6.20 and 6.21 hereof.
Section 6.8 Transfers by Operation of Law. Any person becoming entitled to any
Shares in consequence of the death, bankruptcy or incompetence of any
Shareholder, or otherwise by operation of law, shall be recorded as the holder
of such Shares and receive a new certificate therefor upon production of the
proper evidence thereof and delivery of the existing certificate to the Trustees
or a transfer agent of the Trust. But until such record is made, the Shareholder
of record shall be deemed to be the holder of such Shares for all purposes
hereof and neither the Trustees nor any transfer agent or registrar nor any
officer or agent of the Trust shall be affected by any notice of such death,
bankruptcy or incompetence, or other event. This Section 6.8 is subject in all
respects to the provisions of Sections 6.20 and 6.21 hereof.
Section 6.9 Form of Ownership of Shares. The Trustee may treat two or more
Persons holding any Shares as joint tenants of the entire interest unless their
ownership is expressly otherwise recorded on the register of the Trust provided
for in Section 6.5 hereof, but no entry shall be made in the register or in any
certificates that any person is in any other manner entitled to any future.
limited, or contingent interest in any Shares; provided, however, that any
Person recorded as a holder of any Shares may, subject to the provisions
hereinafter contained, be described in the register provided for in Section 6.5
hereof or in any certificate as a fiduciary of any kind and any customary words
may be added to the description of the holder to identify the nature of such
fiduciary relationship.
Section 6.10 Limitation of Trustees' Duty to Inquire. The Trustees shall not,
nor shall the Shareholders, or any officer, transfer agent or other agent of the
Trust or of the Trustees, be bound to see to the execution of any trust,
express, implied or constructive, or of any charge, pledge or equity to which
any of the Shares or any interest therein are subject or to ascertain or inquire
whether any sale or transfer of any such Shares or interests therein by any such
Shareholder or his personal representatives is authorized by such trust, charge,
pledge or equity, or to recognize any person as having any interest therein
except for the Persons recorded as such Shareholders. The receipt of the Person
in whose name any Share is recorded, or, if such Share is recorded in the names
of more than one Person, the receipt of any one of such Persons, or, the receipt
of the duly authorized agent of any such Person shall be a sufficient discharge
for all dividends and other money and for all shares, notes, debentures, bonds,
obligations, scrip, and other property payable. issuable or deliverable in
respect of any such Share and from all liability to see to the proper
application thereof.
Section 6.11 Replacement of Lost Certificates. If any certificate representing
Securities of the Trust shall be lost, stolen, destroyed or mutilated, the
Trustees, upon submission of evidence satisfactory to them of such fact, may
issue a new certificate representing such Securities and in that connection may
require a bond of indemnity satisfactory to them.
Section 6.12 Dividends, Distributions and Retained Earnings. Subject to the
rights of the holders of shares of preferred stock the Trustees may from time to
time declare and pay to the holders of shares of beneficial interest, in
proportion to their respective ownership of shares of beneficial interest, out
of the earnings, profits, surplus, capital or assets in the hands of the
Trustees, such dividends or other distributions as they see fit. The declaration
and payment of such dividends or other distributions and the determination of
earnings, profits, surplus and capital available for dividends and other
purposes shall lie wholly in the discretion of the Trustees and no Shareholder
shall be paid any dividend or receive any distribution, except as determined by
the Trustees in the exercise of said discretion. In the event the Trust is being
operated as a "real estate investment trust" as described in the REIT Provisions
of the Internal Revenue Code, the Trustees shall endeavor from time to time to
declare and pay such dividends and distributions as shall be necessary for the
Trust to qualify for the tax benefits accorded a real estate investment trust
under the REIT Provisions of the Internal Revenue Code. The Trustees may, in
addition. from time to time in their discretion, declare and pay as dividends or
other distributions such additional amounts, whether or not out of earnings,
profits or surplus available therefor, sufficient to enable the Trust to avoid
or reduce its liability for Federal income taxes, inasmuch as the computations
of net income and gains for Federal income tax purposes may vary from the
computations thereof on the books of the Trust. Any or all such dividends or
other distributions may be made, in whole or in part, in cash, property or other
assets of the Trust, or in senior or subordinated secured or unsecured evidences
of indebtedness of the Trust, as the Trustees may in their sole discretion from
time to time determine. The Trustees may also distribute to the Shareholders, in
proportion to their respective ownership of Shares, additional Shares in such
manner and on such terms as they may deem proper. The Trustees. except as
otherwise required by this Section 6.12, may always retain from the net profits
such amounts as they may deem necessary to pay the debts and expenses of the
Trust, to meet obligations of the Trust, to establish reserves, or as they may
deem desirable to use in the conduct of its affairs or to retain for future
requirements or extensions of the business.
Section 6.13 Statement of Source of Distributed Funds. On an annual basis, the
Trustees shall furnish Shareholders with a statement in writing, for tax
purposes, advising as to the source of any funds distributed to Shareholders so
that distributions of ordinary income, return of capital and capital gains
income will be clearly distinguished. Such statements shall be forwarded to
Shareholders no later than March 31 in each year.
Section 6.14 Shareholders Notices. Any and all notices to which any Shareholder
hereunder may be entitled and any and all communications shall be deemed duly
served or given if mailed, postage prepaid, addressed to any Shareholder of
record at his last known address as recorded on the register provided for in
Section 6.5 hereof.
Section 6.15 Purchase of Trust Shares. The Trustees may, on behalf of the Trust,
purchase or otherwise acquire outstanding Shares in the Trust from time to time
for such consideration and on such terms as they may deem proper. Shares so
purchased or acquired by the Trustees on behalf of the Trust shall not, so long
as they belong to the Trust, receive dividends or distributions, or be entitled
to any voting rights or be deemed outstanding for any purpose hereunder. Such
Shares may in the discretion of the Trustees be cancelled and the number of
Shares issued thereby reduced, or such Shares may in the discretion of the
Trustees be held in the treasury and may be disposed of by the Trustees at such
time or times, to such party or parties and for such consideration as the
Trustees may determine. Shares cancelled pursuant to this Section 6.15 are
restored to the status of authorized but unissued shares.
Section 6.16 Trustees May Purchase or Sell Shares. The Trustees, or any of them,
may in their individual capacity purchase and otherwise acquire or sell and
otherwise dispose of Shares or other Securities of the Trust and in so doing
shall be subject to the same limitations as a director of a Massachusetts
corporation.
Section 6.17 Information from Holders of Securities of the Trust. In the event
the Trust is being operated as a "real estate investment trust" as described in
the REIT Provision of the Internal Revenue Code, holders of Securities of the
Trust shall upon demand disclose to the Trustees in writing such information
regarding actual and constructive ownership of Securities of the Trust as the
Trustees deem reasonably necessary to comply with the REIT Provisions of the
Internal Revenue Code or the provisions of any other applicable law.
Section 6.18 Warrants. The Trustees, in their discretion, may from time to time
without vote of the Shareholders issue warrants to purchase Shares which shall
entitle the holders thereof to subscribe to Shares and/or fractional Shares or
scrip at such time or times and on such terms as the Trustees may prescribe
including, without limiting the generality of the foregoing, the times within
which any such warrants must be exercised, any provision for redemption of
warrants by the Trust and the consideration to be paid for such Shares. Warrants
may be issued to such parties and for such consideration as the Trustees may
from time to time determine (including the issuance of detachable or
nondetachable warrants as an inducement to persons acquiring or underwriting any
Securities of the Trust). The provisions of Section 3.6 hereof relative to
certificates for Shares shall apply so far as appropriate to such warrants,
except that such warrants may, in the discretion of the Trustees, be signed by
the transfer agent or warrant agent only.
Notwithstanding the foregoing, no warrant, option or other similar right to buy
Securities of the Trust may be issued at an exercise price less than the fair
market value of such Securities at the time of the issuance thereof except as
part of a public offering or of a ratable issue to the holders of a class of
Securities of the Trust.
Section 6.19 No Pre-emptive Rights. Shareholders shall have no pre-emptive
rights with respect to any Shares, warrants, evidences of indebtedness
(convertible or otherwise) or other Securities of the Trust sold, offered or
issued at any time and no offering of any securities of the Trust need to be
made to Shareholders or any of them.
Section 6.20 Redemption and Stop Transfers for Tax Purposes. In the event the
Trust is being operated as a "real estate investment trust"' as described in the
REIT Provisions of the Internal Revenue Code and if the Trustees shall at any
time and in good faith be of the opinion that direct or indirect ownership of
Equity Securities of the Trust has or may become concentrated to an extent which
is contrary to the requirements of the REIT Provisions of the Internal Revenue
Code, the Trustees shall have the power, in their sole discretion, to refuse to
sell, transfer or deliver Shares to any person, corporation, partnership, trust
or any other legal entity, or to call for redemption from the person or entity
whose most recent acquisition or purchase of Shares resulted in a concentration
of Shares which is believed to be contrary to the REIT Provisions of the
Internal Revenue Code, a number of Shares held by such person or entity
sufficient in the opinion of the Trustees to bring the direct or indirect
ownership of Shares of the Trust into conformity with the requirements of the
REIT Provisions of the Code. The redemption price shall be equal to the fair
market value of the Shares as reflected in the closing bid price for the Shares
on the American Stock Exchange as of the date fixed for redemption. From and
after the date fixed for redemption by the Trustees, the holder of any Shares so
called for redemption shall cease to be entitled to dividends, voting rights and
other benefits with respect to such Shares, except only the right to payment of
the redemption price fixed as aforesaid.
Each certificate evidencing Equity Securities shall contain a legend imprinted
thereon to the following effect, or such other legends as the Trustees may from
time to time adopt:
Provisions Relating to Redemption and Prohibition of Transfer
If necessary to effect compliance by the Trust with certain
requirements of the Internal Revenue Code, the Securities represented by this
Certificate are subject to redemption by the Trustees of the Trust and the
transfer thereof may be prohibited upon the terms and conditions set forth in
the Declaration of Trust. The Trust will furnish a copy of such terms and
conditions to the registered holder of this Certificate upon request and without
charge.
Section 6.21 Issuance of Units. Notwithstanding any other provision of this
Declaration of Trust, the Trustees may issue from time to time units consisting
of different Securities of the Trust. Any Security issued in any such unit shall
have the same characteristics and shall entitle the registered holder thereof to
the same rights as any identical Securities issued by the Trustees, except that
the Trustees may provide (and may cause a notation to be placed on the
certificate representing such unit or Securities of the Trust issued in any such
unit) that for a specified period not to exceed one year after issuance,
Securities of the Trust issued in any such unit may be transferred upon the
books of Trust only in such unit.
ARTICLE VII
RIGHTS OF SHAREHOLDERS
Section 7.1 Limits of Shareholder Interest. The ownership of the Trust Property
of every description and the right to conduct any business hereinbefore
described are vested exclusively in the Trustees, and the Shareholders shall
have no interest therein other than the interest conferred by their Shares, and
they shall have no right to call for any partition or division of any property,
profits, rights or interests of the Trust nor can they be called upon to share
or assume any losses of the Trust or suffer an assessment of any kind by virtue
of their ownerhsip of Shares. The Shares shall be personal property giving only
the rights in this Declaration of Trust and in the certificates for Shares
specifically set forth. Notwithstanding any other provisions hereof, all real
estate at any time forming part of the Trust Property shall be held upon trust
subject to sale and conversion into personal estate at such time or times and in
such manner and upon such terms as the Trustees shall approve, but the Trustees
shall have power, until the termination of this Trust, to postpone such
conversion so long as they in their uncontrolled discretion shall think fit, and
for the purpose of determining the nature of the interest of the Shareholders
therein, all such real estate shall at all times be considered as personal
estate; and the real estate and personal property comprising the trust estate
shall constitute a single fund.
Section 7.2 Death of Shareholder. The death of a Shareholder during the
continuance of this Trust shall not terminate the Trust nor give his legal
representatives a right to an accounting or to take any action in the courts or
otherwise against other Shareholders or the Trustees or the property held
hereunder, but shall simply entitle the legal representatives of the deceased
Shareholder to demand and receive, pursuant to Section 6.8 hereof, a new
certificate for Shares in place and upon surrender of the certificate held by
the deceased Shareholder, and upon the acceptance of such new certificate such
legal representatives shall succeed to all the rights of the deceased
Shareholder under this Trust.
Section 7.3 Meetings of Shareholders.
(a) Annual Meetings. Annual meetings of the Shareholders shall be held on such
date at such place within or without the Commonwealth of Massachusetts on such
day and at such time as the Trustees shall designate. The business transacted at
such meeting shall include the election of Trustees and may include the
transaction of such other business as Shareholders may be entitled to vote upon
as hereinafter provided in this Article or as the Trustees may determine. The
holders of a majority of outstanding Shares entitled to vote present in person
or by proxy shall constitute a quorum at any annual or special meeting. Failure
to hold the Annual Meeting shall not work a forefeiture or affect the existence
of the Trust, nor shall such failure affect valid acts of the Trust. The first
Annual Meeting of Shareholders shall be held within six months after the end of
the first full fiscal year of the Trust. In the event that an Annual Meeting is
not held in a year as above provided in this Section 7.3, a Special Meeting of
Shareholders may be held in lieu thereof with all the force and effect of an
Annual Meeting.
(b) Special Meetings. Special meetings of the Shareholders may be called at any
time by the President or a majority of the Trustees and shall be called by the
Secretary of the Trust upon written request of Shareholders holding in the
aggregate not less than 20% of the outstanding Shares having voting rights, such
request specifying the purpose or purposes for which such meeting is to be
called. Any such meeting shall be held within or without the Commonwealth of
Massachusetts on such day and at such time as the Trustees shall designate. In
case none of the officers is able and willing to call a special meeting,
Shareholders holding in the aggregate not less than 20% of the outstanding
Shares having voting rights may bring an action in the appropriate court in the
Commonwealth of Massachusetts to authorize one or more of such Shareholders to
call a meeting by giving such notice as is required by law.
(c) Shareholder Action by Written Consent. Any action required herein to be
taken by Shareholders at a meeting may be taken without a meeting if a majority
of the Shareholders entitled to vote on the matter (or such larger portion
thereof as shall be required by any express provision of this Declaration of
Trust) consent to the action in writing and the written consents are filed with
the records of the meeting of Shareholders. Such consent shall be treated for
all purposes as a vote taken at a meeting of Shareholders.
Section 7.4 Notice of Meetings. Notice of all meetings of the Shareholders
stating the time, place and purpose of such meeting shall be mailed or delivered
by a Trustee or Trustees or an officer or agent of the Trust to each Shareholder
at his registered address at least ten (10) days and not more than sixty (60)
days before the meeting. No business shall be transacted at any Special Meeting
of Shareholders unless notice of such business has been given in the notice of
the meeting. An adjourned meeting may be held as adjourned without further
notice.
Section 7.5 Majority for Quorum. The presence in person or by proxy of the
holders of a majority of the Shares issued, outstanding and entitled to vote,
shall be necessary to constitute a quorum at all Shareholders' meetings for the
transaction of business. If a quorum shall not be present, a majority of the
Shareholders entitled to vote thereat, present in person or represented by
proxy, shall have power to adjourn from time to time the meeting until a quorum
shall be present or represented. At any adjourned meeting at which a quorum
shall be present or represented, any business may be transacted which might have
been transacted at the meeting as originally notified.
Section 7.6 Voting Rights of Shareholders. At all meetings of Shareholders each
holder of Beneficial Shares shall be entitled to cast one vote for each Share of
beneficial interest owned upon each Matter presented for vote. At all meetings
of Shareholders each share of Preferred Stock shall have such vote, if any, as
shall be determined by the Board of Trustees in accordance with Section 6.1
hereof. The Shareholders shall be entitled to vote only upon the following
matters: (a) election of Trustees as provided in Section 2.2 hereof; (b) removal
and election of Trustees as provided in Sections 2.3 hereof, (c) amendment of
this Declaration of Trust or termination of this Trust as provided in Section
8.1 hereof; (d) any merger or consolidation of the Trust or the sale, lease or
exchange of all or substantially all of the property and assets of the Trust,
including its good will, as provided in Section 8.2; (e) termination as provided
in Section 3.26 hereof of any agreement entered into pursuant thereto; and (1)
to the same extent as the shareholders of a Massachusetts business corporation,
on the question of whether or not a court action, proceeding or claim should be
brought or maintained derivatively or as a class action on behalf of the Trust
or its Shareholders. Except as otherwise expressly provided herein, each such
matter shall require the affirmative vote of the holders of not less than a
majority of the Shares then outstanding and entitled to vote. Except with
respect to the foregoing matters specified in this Section 7.6 which the
specified Shareholders' vote shall determine the Trustees' action, no action
taken by the Shareholders at any meeting shall in any way bind the Trustees.
Section 7.7 Record Date for Meetings. For the purpose of determining the
Shareholders who are entitled to vote or act at any meeting or any adjournment
thereof, or who are entitled to participate in any dividend or distribution, or
for the purpose of any other action, the Trustees may from time to time close
the transfer books for such period, not exceeding 30 days, as the Trustees may
determine; or without closing the transfer books the Trustees may fix a date not
more than 60 days prior to the date of any meeting of Shareholders or dividend
payment or other action as a record date for the determination of Shareholders
entitled to vote at such meeting or any adjournment thereof or to receive such
dividend or to be treated as Shareholders of record for purposes of such other
action, and any Shareholder who was a Shareholder at the time so fixed shall be
entitled to vote at such meeting or any adjournment thereof or to receive such
dividend, even though he has since that date disposed of his Shares, and no
Shareholder becoming such after that date shall be so entitled to vote at such
meeting or any adjournment thereof or to receive such dividend or to be treated
as a Shareholder of record for purposes of such other action.
Section 7.8 Proxies. At any meeting of the Shareholders, any Shareholder
entitled to vote therefore may vote by proxy, provided, however that no proxy
shall be voted at any meeting unless it shall have been filed with the Secretary
of the Trust before the time set for the commencement of the meeting, or at such
time prior to the commencement of the meeting as ma} be fixed by the By-Laws of
the Trust as the Secretary may direct. Neither fractional Shares nor scrip shall
be entitled to any vote. When any full Share is held jointly' by several
persons, any one of them may vote at any meeting in person or by proxy in
respect of such Share, but if more than one of them shall be present at such
meeting in person or by proxy in respect of such Share, and such joint owners or
their proxies so present disagree as to any vote to be cast, such vote shall not
be received in respect of such Share. If the holder of any such Share is a minor
or a person of unsound mind. and subject to guardianship or to the legal control
of any other person as regards the charge or management of such Share, he may
vote by his guardian or such other person appointed or having such control, and
such vote may be given in person or by proxy. A proxy purporting to be executed
by or on behalf of a Shareholder shall be deemed valid unless challenged at or
prior to its exercise, and the burden of proving invalidity shall rest upon the
challenger.
Section 7.9 Reports. The Trustees shall cause to be prepared at least annually a
report of operations containing a balance sheet and statement of income and
undistributed income of the Trust prepared in conformity with generally accepted
accounting principles and an opinion of an independent certified public
accountant or independent public accountant on the financial statements based on
an examination of the books and records of the Trust, and made in accordance
with generally accepted auditing standards. -A signed copy of such report and
opinion shall be filed with the Trustees within 90 days after the close of the
period covered thereby, and with any state securities or "Blue Sky"
administrator or other similar authority who requests that such report be filed.
Copies of such reports shall be mailed to all Shareholders of record within 120
days of the period covered by the report, and in any event within a reasonable
period preceding the annual meeting of Shareholders. The Trustees shall, in
addition, furnish to the Shareholders, promptly after the end of each of the
first three quarterly periods of every fiscal year, an interim report containing
an unaudited balance sheet of the Trust as at the end of such quarterly period
and a statement of income and surplus for the period from the beginning of the
current fiscal year to the end of such quarterly period. The Trustees shall also
file with any state securities or "Blue Sky" administrator or similar authority
who requests it, a copy of said interim report.
Section 7.10 Inspection of Records. The records of the Trust shall be open to
inspection by Shareholders to the same extent as is permitted shareholders of a
Massachusetts business corporation. Any federal or state securities or "Blue
Sky" administrator or other similar authority shall have the right, at
reasonable times during business hours and for proper purposes, to inspect the
books of account of the Trust and the records of the meetings of Shareholders
and Trustees.
ARTICILE VIII
AMENDMENT OR TERMINATION OF TRUST
Section 8.1 Amendment or Termination. The provisions of this Declaration of
Trust may be amended or altered (except as to the limitations of personal
liability of the Shareholders and Trustees, the requirement of an exculpatory
recital contained in Section 5.6 hereof and the prohibition of assessments upon
Shareholders), or the Trust may be terminated at any meeting of Shareholders
called for the purpose, by the affirmative vote of the holders of not less than
a majority of the Shares then outstanding and entitled to vote, or by an
instrument or instruments in writing, without a meeting, signed by a majority of
the Trustees and the holders of not less than a majority of the Trustees and the
holders of not less than a majority of such Shares; provided, however, that,
with the advice of counsel, the Trustees may, from time to time by a two-thirds
vote of the Trustees, amend or alter the provisions of this Declaration of Trust
(except as to the limitations of personal liability of the Shareholders and
Trustees, the requirement of an exculpatory recital contained in Section 5.6
hereof and the prohibition of assessments upon Shareholders), without the vote
or assent of the Shareholders, in the event the Trust is being operated as a
"real estate investment" as described in the REIT Provisions of the Internal
Revenue Code, to the extent deemed b} the Trustees in good faith to be necessary
to meet the requirements for qualification as a real estate investment trust
under the REIT Provisions of the Internal Revenue Code or any interpretation
thereof by a Cowl or other governmental agency of competent jurisdiction.
Notwithstanding the foregoing, no amendment may be made pursuant to this Section
8.1 which would change any rights with respect to any outstanding shares of the
Trust by reducing the amount payable thereon upon liquidation of the Trust or by
diminishing or eliminating any voting rights pertaining thereto, except with the
vote or written consent of the holders of two-thirds of the outstanding Shares
entitled to vote thereon. Notice of any amendment to the Trust effected
otherwise than by Shareholder vote shall be given to all Shareholders within 15
days after the date such amendment becomes effective.
At the next meeting of Shareholders after the Trustees shall have notified the
Shareholders that an amendment to the Declaration of Trust has been effected
otherwise than by Shareholder vote, there shall be submitted to the Shareholders
for their approval or disapproval by the affirmative vote of the holders of not
less than a majority of the Shares then outstanding and entitled to vote the
question as to whether such amendment should be rescinded.
Upon the termination of the Trust pursuant to this Section 8.1:
(a) The Trust shall carry on no business except for the purpose .of winding up
its affairs.
(b) The Trustees shall proceed to wind up the affairs of the Trust and all of
the powers of the Trustees under this Declaration of Trust shall continue until
the affairs of the Trust shall have been wound up, including the power to
fulfill or discharge the contracts of the Trust, collect its assets, sell,
convey, assign, exchange, transfer or otherwise dispose of all or any part of
the remaining Trust Property to one or more persons at public or private sale
for consideration which may consist in whole or in part of cash, securities or
other property of any kind, discharge or pay its liabilities, and do all other
acts appropriate to liquidate its business; provided, however that any sale,
conveyance, assignment, exchange, transfer or other disposition of all or
substantially all of the Trust Property shall require approval of the principal
terms of the transaction and the nature and amount of the consideration by
affirmative vote of not less than a majority of all outstanding Shares entitled
to vote.
(c) After paying or adequately providing for the payment of all liabilities, and
upon receipt of such releases, indemnities and refunding agreements as they deem
necessary for their protection, the Trustees may distribute the remaining Trust
Property, in cash or in kind or partly each, among the Shareholders according to
their respective rights.
Upon termination of the Trust as provided in this Section 8.1, a majority of the
Trustees shall execute and lodge among the records of the Trust and with the
Secretary of the Commonwealth of Massachusetts an instrument in writing setting
forth the fact of such termination, and the Trustees shall thereupon be
discharged from all further liabilities and duties hereunder, and the right,
title and interest of all Shareholders shall cease and be cancelled and
discharged.
Section 8.2 Power to Effect Reorganization. The Trustees, after receiving an
affirmative vote of not less than a majority of the Shares then outstanding and
entitled to vote may select or direct the organization of a corporation,
association, trust or other organization with which the Trust may merge, or
which shall take over the Trust property and carry on the affairs of the Trust.
The Trustees may effect such merger or may sell, convey and transfer the Trust
Property to any such corporation, association, trust or organization in exchange
for hares or securities thereof, or beneficial interest therein with the
assumption by such transferee of the liabilities of the Trust; and thereupon the
Trustees shall terminate the Trust and deliver such shares, securities or
beneficial interest ratably among the Shareholders of this Trust in redemption
of their Shares.
Section 8.3 Compliance with Internal Revenue Code. (a) In the event the Trust is
being operated as a "real estate investment trust" as described in the REIT
Provisions of the Internal Revenue Code, the provisions of this Declaration of
Trust giving the Shareholders the right to elect Trustees and the right to amend
and terminate the Trust shall be subject to the requirements of the Internal
Revenue Code. If any provision granting or limiting such Shareholders' rights
shall conflict with the requirements of Sections 856, 857 or 858 of the Internal
Revenue Code, such provision shall be deemed to be void and without any force or
effect ab initio, but any action taken pursuant to any such provision shall have
been validly taken upon the vote of the Trustees required hereunder. In the
event that the provision relating to the election of Trustees by the
Shareholders of the Trust shall be deemed to be without force or effect, the
Trustees then in office shall be deemed to be the acting Trustees until such
time as the successor Trustees have been named and accepted their appointments.
At the next meeting of Shareholders after the Trustees shall have notified the
Shareholders that any or all of the Shareholders' rights hereunder created such
a conflict and, therefore, are without force and effect, there shall be
submitted to the Shareholders for their approval or disapproval by the
affirmative vote of the holders of not less than a majority of the Shares then
outstanding and entitled to vote the question as to whether such Shareholders'
right or rights should be restored. If the Shareholders vote to restore such
right or rights, the Trustees, without the necessity of further Shareholder
action, shall promptly take all action necessary to effect any amendments to the
Declaration of Trust necessary to restore such right or rights.
(b) If any provisions of this Declaration of Trust shall be held invalid or
unenforceable in. any jurisdiction; such invalidity or unenforceability shall
attach only to such provision in such jurisdiction and shall not in any manner
affect or render invalid or unenforceable such provision in any other
jurisdiction or any other provision of this Declaration of Trust in any
jurisdiction.
Section 8.4 Trustees May Terminate Prior to Effective Date. Notwithstanding any
other provision hereof, until such time as a Registration Statement under the
Securities Act of 1933, as amended, covering the first public offering of
Securities of the Trust shall have become effective, this Declaration of Trust
may be terminated or amended in any respect by the affirmative vote of a
majority of the Trustees or by an instrument signed by a majority of the
Trustees.
ARTICLE IX
MISCELLANEOUS
Section 9.1 Recording. This Declaration of Trust is executed by the Trustees and
is delivered in the Commonwealth of Massachusetts and with reference to the laws
thereof, and the rights of all parties and the construction and effect of every
provision hereof shall be subject to and construed according to the laws of said
Commonwealth. As soon as reasonably practicable after its execution, this
Declaration of Trust and any amendment hereto shall be filed with the Secretary
of the Commonwealth of Massachusetts and shall be recorded with the Clerk of the
City of Boston, Massachusetts, and in all other offices in which such recording
may be required from time to time by the laws of the commonwealth of
Massachusetts to qualify the Trust as a Business Trust under the provisions of
Chapter 182 of the Massachusetts General Laws, and in the office of the county
recorder of any county where land and/or improvements thereon owned by the Trust
are located. The Trustees shall also cause to be filed with the Secretary of the
Commonwealth appropriate instruments disclosing changes in the persons who are
Trustees of the Trust, but such filing shsll not be deemed a condition to the
effectiveness of, and the failure to so file shall not be deemed to invalidate,
any election or appointment of any person as a Trustee or the resignation or
removal of a Trustee.
Each amendment filed to this Declaration of Trust shall be accompanied by a
certificate signed and acknowledged by a Trustee stating that such action was
duly taken in a manner provided herein; and unless such amendment or such
certificate filed with the Secretary of the Commonwealth of Massachusetts sets
forth some earlier or later time for the effectiveness of such amendment, such
amendment shall be effective upon its filing with the Secretry of said
Commonwealth. A restated Declaration, containing the original Declaration and
all amendments theretofore made, may be executed any time or from time to time
by a majority of the Trustees and shall, upon filing with the Secretary of the
Commonwealth of Massachusetts, be conclusive- evidence of all amendments
contained therein and may thereafter be referred to in lieu of the original
Declaration and the various amendments thereto.
Section 9.2 Counterparts. This Declaration of Trust and any amendment hereof may
be simultaneously executed in several counterparts, each of which so executed
shall be deemed to be an original, and such counterparts together shall
constitute one and the same instrument, which shall be sufficiently evidenced by
any such counterpart.
Secton 9.3 Reliance By Third Parties. Any certificate executed by a person who,
according to the records of the Trust or according to the records of the
Secretary of the Commonwealth of Massachusetts, appears to be a Trustee
hereunder, certifying to: (a) the number or identity of Trustees or
Shareholders. (b) the due authorization of the execution of any instrument or
writing or the due authorization of any action taken or to be taken by any
Trustee, officer, agent or employee of the Trust, (c) the form of any vote
passed at a meeting of Trustees or Shareholders, (d) the fact that the number of
Trustees or Shareholders present at any meeting or executing any written
instrument satisfies the requirements of this Declaration of Trust, (e) the form
of any By-Law adopted by or the identity of any officers elected by the.
Trustees, or .{l) the existence of any fact or facts which in any manner relate
to the affairs of the Trust, shall be conclusive evidence as to the matters so
certified in favor of any person dealing with the Trustees or any of them and
the successors of such person.
Section 9.4 Governing Law. This Declaration of Trust is executed by the Trustees
and delivered in the Commonwealth of Massachusetts and with reference to the
laws thereof, and the rights of all parties and the validity, construction and
effect of every provision hereof shall be subject to and construed according to
the laws of said Commonwealth.
Section 9.5 Construction of Trust Instrument. In the construction of this
Declaration of Trust, whether or not so expressed, words used in the singular or
in the plural respectively include both the plural and singular, words denoting
males include females and words denoting persons include individuals, firms,
associations, companies (joint stock or otherwise), trusts and corporations,
unless a contrary intention is to be inferred from or required by the subject
matter or context. The cover, title. headings of different parts hereof, the
table of contents, the index of definitions and the marginal notes. if any, are
inserted only for convenience of reference and are not to be taken to be any
part hereof or to control or affect the meaning, construction, interpretation or
effect hereof
ARTICLE X
DURATION OF TRUST
Section 10.1 Duration. Subject to possible termination in accordance with the
provisions of Article VIII hereof, the Trust created hereby shall continue until
the expiration of 20 years after the death of the last survivor of the initial
Trustees named herein and the following named
Name Birthday Parents' Name Address
- --------------------------------------------------------------------------------------------------------------------
Kory Lewis Berg May 5, 1960 Kenneth & Mildred E. Berg 8 Fairway Drive
Edison, New Jersey 08817
Robert Eric Berg Dec.9, 1962 Kenneth & Mildred E. Berg 8 Fairway Drive
Edison, New Jersey 08817
Lee Steven Berg January 6,1958 Leonard & Thelma G. Berg 6 Moraine Road
Edison, New Jersey 08817
Lon Thomas Berg Nov. 9, 1960 Leonard & Thelma G. Berg 6 Moraine Road
Edison, New Jersey 08817
Lori Marlane Berg Aug. 21, 1965 Leonard & Thelma G. Berg 6 Moraine Road
Edison, New Jersey 08817
Linda Louise Berg Aug. 21, 1965 Leonard & Thelma G. Berg 6 Moraine Road
Edison, New Jersey 08817
Jeffrey Michael Beck Dec. 24, 1953 Felix M. & Doris Beck 70 Springbrook Road
Livingston, New Jersey 07039
Bruce David Beck Sept. 18, 1956 Felix M. & Doris Beck 70 Springbrook Road
Livingston, New Jersey 07039
Steven Paul Beck Oct. 21, 1960 Felix M. & Doris Beck 70 Springbrook Road
Livingston, New Jersey 07039
Tracey Jill Watson July 26, 1958 Robert E. & Ann Watson 290 N. Wyoming Avenue,
South Orange, New Jersey
Todd David Watson March 1, 1962 Robert E. & Ann Watson 290 N. Wyoming Avenue,
South Orange, New Jersey
Elizabeth Marmora April 28. 1964 Joseph J. & Virginia Marmora 907 Darlene Avenue
Wanamassa, New Jersey
Paul Marmora Mar. 23, 1966 Joseph J. & Virginia Marmora 907 Darlene Avenue
Wanarnassa, New Jersey
Jeffery Keith Weiner Mar.16, 1961 David & Eileen Weiner 10 Fairview Drive
Middletown, New Jersey
Joanna Beth Weiner Aug.19, 1967 David & Eileen Weiner 10 Fairview Drive
Middletown, New Jersey
Erik Helistrom Freund Jan. 8, 1966 James C. & Barbra Freund 277 West End Avenue
New York., New York 10023
Thomas Hagstrom Aug. 28, 1968 James C. & Barbra Freund 277 West End Avenue
Freund New York, New York 10023
Daniel Phillip March 7, 1956 Samuel & Eva Weiner 2 River Lane
Weiner Westport, Conn. 06880
David Michel Weiner Jan. 4, 1958 Samuel & Eva Weiner 2 River Lane
Westport, Conn. 06880
Sara Michelle Feb. 18, 1960 Samuel &. Eva Weiner 2 River Lane
Weiner Westport, Conn. 06880
Louis Howard Kozloff Jan. 13, 1971 David M. & Jeraldine 1507 Garfield Ave.
D. Kozloff Wyoming, Penna. 19610
- ----------------------------------------------------------------------------------------------------------------------
STATE OF NEW YORK )
SS.:
COUNTY OF NEW YORK )
BE IT REMEMBERED, that on this 27th day of January, 1984, personally came before
m a Notary Public in and for the County and State aforesaid, Fredric H. Gould,
Trustee of BRT Realty Trust, and he duly executed the foregoing Declaration of
Trust before me and acknowledged the said Declaration of Trust to be his act and
deed and that the facts stated therein are true.
IN WITNESS WHEREOF, I have hereunto set my hand and the seal of office the day
anti year aforesaid.
EXHIBIT 3.4
I, Israel Rosenzweig, a Trustee of BRT Realty Trust, a Massachusetts
business trust (the "Trust"), hereby certify that at the Annual Meeting of
Shareholders of the Trust held on March 2, 1988, the holders of not less than a
majority of the beneficial shares, par value $3.00 per share, of the Trust
outstanding voted in favor of the amendment attached hereto as Exhibit A, as set
forth to the Trust's Second Amended and Restated Declaration of Trust and
therefore, the amendment as set forth is hereby adopted by the Trust, effective
as of the date of the filing of this certificate with the Secretary of State of
the Commonwealth of Massachusetts.
IN WITNESS WHEREOF, the undersigned, being presently a Trustee of BRT
Realty Trust, has signed these presents, this 2nd day of March, 1988.
/s Israel Rosenzweig
--------------------
Israel Rosenzweig
EXHIBIT A
There is presented below the text of a proposed new third paragraph to
Section 3.26 which will replace the existing third paragraph of Section 3.26.
The proposed language enables the Trust to enter into an Advisory Agreement for
an initial term of five years renewable on an annual basis by the Board of
Trustees for a maximum of a five year term.
The contract entered into by the Trustees with any Advisor may have a
term of up to five full years. The term of each renewal of extension of any such
contract with the same Advisor may be renewed by a majority of the Board of
Trustees for a period equal to a maximum of five years. However, at a special
meeting of shareholders called by the shareholders pursuant to Section 7.3 (b)
herein, a majority of the outstanding Shares shall have the right to rescind the
renewal of the Advisory Agreement which was authorized by the Board of Trustees
at the immediately preceding Board of Trustees meeting, but any such rescission
shall have no effect on the term of the Advisory Agreement, as same may have
been previously renewed.
EXHIBIT 21.1
SUBSIDIARIES
COMPANY STATE OF INCORPORATION
- ------- -----------------------
Hoboken Front Corp. New Jersey
Forest Green Corporation New York
Realty 49 Corp. New York
TRB No. 1 Corp. New York
TRB No. 2 Corp. New York
Blue Realty Corp. Delaware
TRB No. 3 Owners Corp. Wyoming
2190 Boston Post Road Realty Corp. New York
TRB Fairway Office Center Corp. Kansas
TRB Abbotts Corp. Pennsylvania
TRB Ashbourne Road Corp. Pennsylvania
BRT Funding Corp. New York
TRB 69th Street Corp. New York
TRB Lawrence Corp. New York
TRB Yonkers Corp. New York
TRB Hartford Corp. Connecticut
TRB Atlanta LLC Georgia
TRB Stroudsberg LLC Pennsylvania
TRB New York Corp. New York
EXHIBIT 23.1
- ------------
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
- --------------------------------------------------------
We consent to the incorporation by reference in the Registration Statements
(Form S-8 No. 333-101681) pertaining to the 1996 Stock Option Plan of BRT Realty
Trust , (Form S-8 No. 333-104461) pertaining to the 2003 Incentive Plan of BRT
Realty Trust and (Form S-3 No. 333-118915) pertaining to the BRT Realty Trust
Dividend Reinvestment and Share Purchase Plan of our report dated December 8,
2004, with respect to the consolidated financial statements and schedules of BRT
Realty Trust included in the Annual Report (Form 10-K) for the year ended
September 30, 2004.
New York, New York
December 8, 2004 /s/
Ernst & Young LLP
Exhibit 31.1
CERTIFICATION
I, Jeffrey A. Gould, President and Chief Executive Officer of BRT Realty
Trust, certify that:
1. I have reviewed this Annual Report on Form 10-K for the fiscal year
ended September 30, 2004 of BRT Realty Trust;
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows
of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15 (e) and 15d-15 (e)) for the
registrant and have:
(a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in
which this report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
c) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's
most recent fiscal quarter that has materially affected, or is
reasonably likely to materially affect, the registrant's internal
control over financial reporting; and
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation of internal controls over financial
reporting, to the registrant's auditors and the audit committee of the
registrant's board of directors (or persons performing the equivalent
functions):
a) All significant deficiencies and material weaknesses in the design
or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal control over financial reporting.
Date: December 13, 2004
/s/ Jeffrey A. Gould
--------------------
President and Chief Executive Officer
Exhibit 31.2
CERTIFICATION
I, David W. Kalish, Senior Vice President-Finance of BRT Realty
Trust, certify that:
1. I have reviewed this Annual Report on Form 10-K for the fiscal year
ended September 30, 2004 of BRT Realty Trust;
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows
of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15 (e) and 15d-15 (e)) for the
registrant and have:
a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in
which this report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
c) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's
most recent fiscal quarter that has materially affected, or is
reasonably likely to materially affect, the registrant's internal
control over financial reporting; and
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation of internal controls over financial
reporting, to the registrant's auditors and the audit committee of the
registrant's board of directors (or persons performing the equivalent
functions):
a) All significant deficiencies and material weaknesses in the design
or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information and
b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal control over financial reporting.
Date: December 13, 2004
/s/David W. Kalish
-------------------
Senior Vice President-Finance
Exhibit 31.3
CERTIFICATION
I, George Zweier, Vice President and Chief Financial Officer of BRT Realty
Trust, certify that:
1. I have reviewed this Annual Report on Form 10-K for the fiscal year
ended September 30, 2004 of BRT Realty Trust;
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows
of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15 (e) and 15d-15 (e)) for the
registrant and have:
a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in
which this report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
c) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's
most recent fiscal quarter that has materially affected, or is
reasonably likely to materially affect, the registrant's internal
control over financial reporting; and
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation of internal controls over financial
reporting, to the registrant's auditors and the audit committee of the
registrant's board of directors (or persons performing the equivalent
functions):
a) All significant deficiencies and material weaknesses in the design
or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information and
b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal control over financial reporting.
Date: December 13, 2004
/s/George Zweier
-------------------------
Vice President and Chief
Financial Officer
EXHIBIT 32.1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350
(SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002)
The undersigned, Jeffrey A. Gould, the Chief Executive Officer of BRT Realty
Trust, (the "Registrant"), does hereby certify, pursuant to 18 U.S.C. Section
1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that
based upon a review of the Annual Report on Form 10-K for the year ended
September 30, 2004 of the Registrant, as filed with the Securities and Exchange
Commission on the date hereof (the "Report").
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of
the Securities Exchange Act of 1934, as amended; and
(2) The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Registrant.
Date: December 13, 2004 /s/ Jeffrey A. Gould
------------------------------
Jeffrey Gould
President and Chief Executive Officer
EXHIBIT 32.2
CERTIFICATION OF SENIOR VICE PRESIDENT-FINANCE
PURSUANT TO 18 U.S.C. SECTION 1350
(SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002)
The undersigned, David W. Kalish, Senior Vice President-Finance of BRT Realty
Trust, (the "Registrant"), does hereby certify, pursuant to 18 U.S.C. Section
1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that
based upon a review of the Annual Report on Form 10-K for the year ended
September 30, 2004 of the Registrant, as filed with the Securities and Exchange
Commission on the date hereof (the "Report").
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of
the Securities Exchange Act of 1934, as amended; and
(2) The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Registrant.
Date: December 13, 2004 /s/ David W. Kalish
------------------------------------
David W. Kalish
Senior Vice President-Finance
EXHIBIT 32.3
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350
(SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002)
The undersigned, George Zweier, the Chief Financial Officer of BRT Realty Trust,
(the "Registrant"), does hereby certify, pursuant to 18 U.S.C. Section 1350 as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that based
upon a review of the Annual Report on Form 10-K for the year ended September 30,
2004 of the Registrant, as filed with the Securities and Exchange Commission on
the date hereof (the "Report").
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of
the Securities Exchange Act of 1934, as amended; and
(2) The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Registrant.
Date: December 13, 2004 /s/ George Zweier
---------------------------------
George Zweier
Vice President and Chief Financial Officer