SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the quarterly period ended March 31, 2002
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Commission File Number 1-7172
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 of (I.R.S. Employer
incorporation or organization) Identification No.)
60 Cutter Mill Road, Great Neck, NY 11021
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (516) 466-3100
Indicate the number of shares outstanding of each of the issuer's classes of
stock, as of the latest practicable date.
7,382,139 Shares of Beneficial Interest,
$3 par value, outstanding on May 10, 2002
Indicate by check mark whether the Registrant (1) 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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Part 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
BRT REALTY TRUST AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Amounts In Thousands)
March 31, September 30,
2002 2001
---- ----
(Unaudited)
ASSETS
Real estate loans - Note 3:
Earning interest, including $8,598 and $3,425
from related parties $ 59,943 $ 67,513
Not earning interest 415 415
-------- --------
60,358 67,928
Allowance for possible losses (881) (1,381)
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59,477 66,547
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Real estate assets:
Real estate properties net 6,668 6,777
Investment in unconsolidated real
estate ventures at equity 7,020 6,931
-------- --------
13,688 13,708
Valuation allowance (325) (325)
-------- --------
13,363 13,383
-------- --------
Cash and cash equivalents 14,312 4,106
Securities available-for-sale at market - Note 4 31,894 24,030
Real estate loans held for sale - Note 3 596 -
Other assets 1,846 1,950
-------- --------
Total Assets $121,488 $110,016
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Borrowed funds - Note 5 $ - $ 2,101
Mortgage payable 2,775 2,804
Accounts payable and accrued liabilities,
including deposits of $1,079 and $1,620 3,613 3,239
Dividends Payable 1,952 -
-------- --------
Total Liabilities 8,340 8,144
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Shareholders' Equity - Note 2:
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 at each date 26,650 26,650
Additional paid-in capital 80,871 81,008
Accumulated other comprehensive income - net
unrealized gain on available-for-sale securities 13,142 5,278
Accumulated earnings 5,421 2,313
-------- --------
126,084 115,249
Cost of 1,501 and 1,552 treasury shares of
beneficial interest at each date (12,936) (13,377)
-------- --------
Total Shareholders' Equity 113,148 101,872
-------- --------
Total Liabilities and Shareholders' Equity $121,488 $110,016
======== ========
See Accompanying Notes to Consolidated Financial Statements.
BRT REALTY TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(Amounts In Thousands except for Per Share Data)
Three Months Ended Six Months Ended
March 31, March 31,
--------- ---------
2002 2001 2002 2001
---- ---- ---- ----
Revenues:
Interest and fees on real estate loans, including
interest from related parties of $108 and $24
for the three month periods, respectively, and $206
and $48 for the six month periods, respectively $ 2,132 $ 1,851 $ 5,647 $ 4,583
Operating income on real estate owned 586 381 1,117 688
Reversal of previously provided provision 500 - 500 -
Equity in earnings of unconsolidated entities 221 284 513 446
Other, primarily investment income 713 809 1,360 2,076
------- ------- ------- -------
Total revenues 4,152 3,325 9,137 7,793
------- ------- ------- -------
Expenses:
Interest on borrowed funds 24 3 43 20
Advisor's fee 219 169 430 337
General and administrative 715 694 1,471 1,484
Other taxes 57 110 208 170
Expense related to investment income - 301 - 301
Operating expenses relating to real estate owned,
including interest on mortgages of $66 and $68
for the three-month periods, respectively, and $133
and $127 for the six month periods, respectively 305 246 603 454
Amortization and depreciation 86 84 170 223
------- ------- ------- -------
Total expenses 1,406 1,607 2,925 2,989
------- ------- ------- -------
Income before gain on sale of real estate
assets and available-for-sale securities 2,746 1,718 6,212 4,804
Net gain on sale of real estates assets 607 1,475 607 1,475
Net realized gain on sale of available-for
-sale securities - - - 15
------- ------- ------- -------
Income before minority interest 3,353 3,193 6,819 6,294
Minority interest (10) - (20) -
------- ------- ------- -------
Income before extraordinary item 3,343 3,193 6,799 6,294
Extraordinary item - loss on early
extinguishment of debt - ( 264) - (264)
------- ------- ------- -------
Net income $ 3,343 $ 2,929 $ 6,799 $ 6,030
======= ======= ======= =======
Income per share of beneficial interest:
Basic earnings per share
Income before extraordinary item $ .45 $ .45 $ .92 $ .88
Extraordinary item - (.04) - (.04)
------- ------- ------- -------
Net earnings per common share $ .45 $ .41 $ .92 $ .84
======= ======= ======= =======
Diluted earnings per share
Income before extraordinary item $ .44 $ .44 $ .91 $ .87
Extraordinary item - (.04) - (.04)
------- ------- ------- -------
Net earnings per common share $ .44 $ .40 $ .91 $ .83
======= ======= ======= =======
Cash distributions per common share $ .26 $ - $ .50 $ -
======= ======= ======= =======
See Accompanying Notes to Consolidated Financial Statements.
BRT REALTY TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Unaudited)
(Amounts In Thousands)
Accumulated
Other
Shares of Additional Compre-
Beneficial Paid-In hensive Retained Treasury
Interest Capital Income Earnings 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 loss on sale of avail-
able-for-sale securities (net of
reclassification adjustment for
gains included in net income
of $33 - - 8,411 - - 8,411
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Comprehensive income - - - - - 18,997
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Balances, September 30, 2001 26,650 81,008 5,278 2,313 (13,377) 101,872
Distributions - Common share - - - (3,691) - (3,691)
(.50 per share)
Exercise of stock options - (137) - - 441 304
Net income - - - 6,799 - 6,799
Other comprehensive income
- net unrealized gain on
available-for-sale securities - - 7,864 - - 7,864
--------
Comprehensive income - - - - - 14,663
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Balances, March 31, 2002 $26,650 $80,871 $13,142 $5,421 $(12,936) $113,148
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See Accompanying Notes to Consolidated Financial Statements.
BRT REALTY TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Amounts In Thousands)
Six Months Ended
March 31,
--------
2002 2001
---- ----
Cash flow from operating activities:
Net income $ 6,799 $ 6,030
Adjustments to reconcile net income to net cash
provided by operating activities:
Extraordinary item - loss on early extinguishment of debt - 264
Amortization and depreciation 170 223
Reversal of previously provided allowances (500) -
Net gain on sale of foreclosed properties held for sale (607) (1,475)
Net gain on sale of available-for-sale securities - (15)
Equity in earnings of unconsolidated entities (513) (446)
Decrease (Increase) in interest and dividends receivable 42 (230)
Decrease (Increase) in prepaid expenses 36 (74)
Increase (Decrease) in accounts payable
and accrued liabilities 837 (145)
(Decrease) Increase in deferred revenues (161) 123
(Decrease) Increase in escrow deposits (193) 53
Decrease (Increase) in deferred costs 21 (124)
Net change in other assets (38) (79)
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Net cash provided by operating activities 5,893 4,105
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Cash flows from investing activities:
Collections from real estate loans 23,052 14,238
Proceeds from sale of loans 3,522 -
Additions to real estate loans (12,478) (20,162)
Additions to real estate loans - BRT joint ventures (7,123) (225)
Net costs capitalized to real estate owned (8) (34)
Proceeds from sale of real estate assets 607 1,475
(Decrease) Increase in deposits payable (86) 17
Sales of marketable securities - 495
Capital contributions to unconsolidated entities (275) (137)
Partnership distributions 699 65
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Net cash provided by (used in) investing activities 7,910 (4,268)
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Cash flow from financing activities:
Increase in mortgage payable - 2,850
Payoff/paydown of loan and mortgage payable (2,130) (18)
Repayment of note payable - credit facility - (88)
Cash distribution - common shares (1,771) -
Exercise of stock options 304 60
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Net cash provided by (used in) financing activities (3,597) 2,804
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Net increase in cash and cash equivalents 10,206 2,641
Cash and cash equivalents at beginning of period 4,106 16,221
-------- --------
Cash and cash equivalents at end of period $ 14,312 $ 18,862
======== ========
Supplemental disclosure of cash flow information:
Cash paid during the period for interest expense $ 169 $ 109
======== ========
See Accompanying Notes to Consolidated Financial Statements.
BRT REALTY TRUST AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 1 - Basis of Preparation
The accompanying interim unaudited consolidated financial statements as of March
31, 2002 and for the three and six months ended March 31, 2002 and 2001 reflect
all normal recurring adjustments which are, in the opinion of management,
necessary for a fair statement of the results for such interim periods. The
results of operations for the three and six months ended March 31, 2002 are not
necessarily indicative of the results for the full year.
Certain items on the consolidated financial statements for the preceding periods
have been reclassified to conform with the current consolidated financial
statements.
The consolidated financial statements include the accounts of BRT Realty Trust,
its wholly owned subsidiaries, and its majority-owned or controlled real estate
entities. Investments in less than majority-owned entities have been accounted
for using the equity method. Material intercompany items and transactions have
been eliminated. BRT Realty Trust and its subsidiaries are hereinafter referred
to as "BRT" or the "Trust".
These statements should be read in conjunction with the audited consolidated
financial statements and related notes which are included in BRT's Annual Report
on Form 10-K for the year ended September 30, 2001.
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. Actual results could differ from those estimates.
Note 2 - Shareholders' Equity
Distributions
During the quarter ended March 31, 2002 BRT declared a cash distribution to
shareholders of $.26 per share. This distribution totaled $1,919,000 and was
payable on April 4, 2002 to shareholders of record on March 22, 2002.
Per Share Data
Basic earnings per share was determined by dividing net income for the period by
the weighted average number of shares of common stock outstanding during each
period which was 7,380,000 and 7,180,263 for the three month period ended March
31, 2002 and 2001 and 7,360,454 and 7,175,481 for the six month periods ended
March 31, 2002 and 2001, respectively. Diluted earnings per share reflects the
potential dilution that could occur if securities or other contracts to issue
common stock were exercised or converted into common stock or resulted in the
issuance of common stock that then shared in the earnings of BRT. For the three
and six months ended March 31, 2002 and 2001 diluted earnings per share was
determined by dividing net income for the period by the total of the weighted
average number of shares of common stock outstanding plus the dilutive effect of
the BRT's outstanding options using the treasury stock method which aggregated
7,581,711 and 7,291,144 for the three month periods and 7,481,471 and 7,273,282
for the six month periods, respectively.
Stock Options
During the quarter ended March 31, 2002, 2,500 previously issued options were
exercised. Proceeds from these options totaled $15,000. For the six months ended
March 31, 2002, 51,125 previously issued options were exercised. Proceeds from
these options totaled $304,000.
Note 3 - Real Estate Loans
If all loans classified as non-earning were earning interest at their
contractual rates for the three and six months ended March 31, 2002 and 2001,
interest income would have increased by approximately $11,000 and $23,000 in
each of the two years.
In the quarter ended March 31, 2002, BRT entered into a joint venture agreement
in which BRT and an affiliated entity each have a 50% interest. As part of this
agreement BRT, made a capital contribution of $275,000 and a mortgage loan to
the venture in the original principal amount of $550,000. The balance due on
this mortgage loan is $550,000 at March 31, 2002. Also during the quarter ended
March 31, 2002 BRT purchased, from an unaffiliated financial institution, two
mortgage loans that encumber a property that is owned by an existing joint
venture in which BRT owns a 50% interest. These loans were purchased at par and
had a balance at the time of purchase and have a current balance of $4,623,000.
At March 31, 2002 mortgage loans to all joint ventures in which BRT is a
venturer totaled $8,598,000. For the three and six months ended March 31, 2002
interest income on all loans to joint venture entities was $108,000 and
$206,000, respectively.
Real estate loans held for sale are carried at the lower of cost or estimated
fair value. At March 31, 2002 a real estate loan held for sale totaled $596,000.
The carrying amount of this loan approximated estimated fair value. Fair value
was determined based on contractual commitments from a third party to purchase
this loan. During the quarter ended March 31, 2002, loans with a fair value of
$3,502,000 were sold to a financial institution. These loans were sold at cost
and therefore no gain or loss was recognized on this sale. In April 2002 the
remaining loan with a fair value of $596,000 was sold.
Profits and losses relating to the sale of real estate loans are recognized when
all indications of legal control pass to the buyer and the sales price is
collected.
In the quarter ended March 31, 2002 a loan with a principal balance of $3.5
million, which the Trust held a reserve against, was paid in full (including all
interest and fees) allowing the Trust to reduce its allowance for possible
losses by $500,000 and recording income from a reversal of a previously provided
allowance. Management evaluates the adequacy of the allowance periodically and
believes that the allowance for losses is adequate to absorb probable losses on
the existing portfolio.
Note 4 - Available-For-Sale Securities
Included in available-for-sale securities are 1,355,600 shares of Entertainment
Properties Trust (NYSE:EPR), which have a cost basis of $17,806,000 and a fair
value at March 31, 2002 of $30,637,000. At May 10, 2002 the fair value of these
shares was $30,501,000. During the prior years quarter ended March 31, 2001 the
Trust incurred legal, printing, proxy solicitor fees and other expenses of
$301,000 related to the solicitation of proxies in favor of BRT's nominee to the
Board of Trustees of Entertainment Properties Trust. These expenses are included
as a component of general and administrative expense in the consolidated
statements of income. The shares held by BRT represent approximately 8.07% of
the outstanding shares of Entertainment Properties Trust.
Note 5 -Borrowed Funds
On July 25, 2001 BRT entered into a revolving credit agreement with North Fork
Bank. Borrowings under the facility are secured by specific receivables and the
agreement provides that the amount borrowed will not exceed 60% of the
collateral pledged. As of March 31, 2002 BRT had provided collateral, as
defined, that would permit BRT to borrow up to approximately $7,300,000 under
the facility. Interest is charged on the outstanding balance at prime plus 1/4%
or under certain circumstances at prime. At March 31, 2002 there was no
outstanding balance on this facility. In addition to its credit facility BRT has
the ability to borrow funds through a margin account. At March 31, 2002 there
was no outstanding balance on this margin facility. At March 31, 2002 marketable
securities with a fair value of $30,637,000 were pledged as collateral.
Note 6 - Comprehensive Income
Statement No. 130 establishes standards for reporting comprehensive income and
its components in a full set of general-purpose financial statements and
requires that all components of comprehensive income be reported in a financial
statement that is displayed with the same prominence as other financial
statements. During the three and six months ended March 31, 2002 accumulated
other comprehensive income, which is solely comprised of the net unrealized gain
on available-for-sale securities, increased $4,511,000 to $13,142,000 from
$8,631,000 and increased $7,864,000 from $5,278,000 to $13,142,000,respectively.
For the three and six months ended March 31, 2001 it increased $4,397,000 to
$1,725,000 from $(2,672,000) and increased $4,858,000 from $(3,133,000) to
$1,725,000 respectively.
Note 7 - Accounting for Long-Lived Assets
The Financial Accounting Standards Board issued Statement No. 144 "Accounting
for the Impairment of Long-Lived Assets" which supersedes FASB Statement No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of"; however it retains 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, Statement 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's management does not anticipate that the adoption of
this statement will have an effect on the earnings or the financial position of
the Trust.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
General
- -------
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 real estate mortgage loans secured by income producing real
property and to a lesser extent second mortgage loans secured by income
producing real property. Our loan portfolio consists of 39 mortgage loans
aggregating $60,358,000 outstanding at March 31, 2002. In addition, we are a
member of six joint ventures that own eight income producing properties and we
own three operating properties which we previously acquired in foreclosure. We
also own 8.07% of the outstanding common shares of Entertainment Properties
Trust.
We emphasize loans with terms ranging from six months to three years (referred
to as bridge loans) to persons requiring short term funds, among other reasons,
for the acquisition of a property, the purchase (normally at a discount) of a
mortgage applicable to a property owned by the borrower, repositioning,
rehabilitating or renovating a property or converting a commercial property to
residential use (co-op or condo conversions). We do not finance new construction
and normally do not provide financing for undeveloped real property. We have
expanded our activities by originating for our own account participating
mortgage loans and by participating as both a lender to and an equity
participant in joint ventures which acquire income producing real property.
We have elected to be taxed as a REIT under the Internal Revenue Code. To
qualify as a REIT, we must meet a number of organizational and operational
requirements, including a requirement that we currently distribute at least 90%
of ordinary taxable income to our stockholders. We intend to adhere to these
requirements and to maintain our REIT status.
Liquidity and Capital Resources
- -------------------------------
Our investment policy emphasizes short-term mortgage loans. Repayments of real
estate loans in the amount of $45,709,000 are due during the twelve months
ending March 31, 2003, including $552,000 due on demand. The availability of
mortgage financing secured by real property and the market for selling real
estate is cyclical. Accordingly, 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.
On July 25, 2001 we entered into a revolving credit agreement with North Fork
Bank. Borrowings under the facility are secured by specific receivables and the
agreement provides that the amount borrowed will not exceed 60% of the
collateral pledged. As of March 31, 2002 we had provided collateral, as defined,
that would permit us to borrow up to approximately $7,300,000 under the
facility. Interest is charged on the outstanding balance at prime plus 1/4% or
under certain circumstances at prime. The facility matures August 1, 2004 and
may be extended for two one year terms. At March 31, 2002 there was no
outstanding balance on this facility. We also have the ability to borrow up to
approximately $12 million on a margin account which we maintain. No amount was
outstanding under this margin account at March 31, 2002.
During the six months ended March 31, 2002, we generated cash of $5,893,000 from
operations, $23,052,000 from collections of real estate loans and $3,502,000
from the sale of real estate loans. These funds, in addition to cash on hand,
were used primarily to fund real estate loan originations of $12,458,000, to
originate and purchase loans relating to joint venturers of $7,123,000, to repay
outstanding debt of $2,130,000 and to pay cash distributions to shareholders
totaling $1,771,000. BRT's cash and cash equivalents totaled $14,312,000 at
March 31, 2002.
We will satisfy our liquidity needs from cash and liquid investments on hand,
the credit facility with North Fork Bank, interest and principal payments
received on outstanding real estate loans and net cash flow generated from the
operation and sale of real estate assets. We also have the ability to borrow on
margin, using the shares we own in Entertainment Properties Trust as collateral.
Results of Operations
- ---------------------
Interest and fees on loans increased by $281,000, or 15%, to $2.1 million for
the three months ended March 31, 2002 from $1.9 million for the three months
ended March 31, 2001. During the current quarter the average balance of loans
outstanding increased by approximately $9.1 million accounting for an increase
in interest income of $268,000. A decline in the average interest rate earned on
the loan portfolio to 11.25% in the three months ended March 31, 2002 from
12.60% in the three months ended March 31, 2001 caused interest income to
decline by $192,000. Additional fee income of $204,000 was generated during the
March 31, 2002 quarter. The current quarter realized an $89,000 increase in fee
income due to increased amortization from early payoffs and the sale of several
loans. The remaining $115,000 increase is attributable to increased fee income
generated by a larger average balance of loans in the quarter ended March 31,
2002 versus the comparable quarter of the prior year.
For the six months ended March 31, 2002, interest and fees on loans increased $1
million, or 23%, from $4.6 million to $5.6 million. During the six months ended
March 31, 2002 the average balance of loans outstanding increased by $13.6
million resulting in an increase in interest income of $807,000. A decline in
the average interest rate earned on the loan portfolio from 12.58% for the six
months ended March 31, 2001 to 11.74% for the six months ended March 31, 2002
caused a decline in interest income of $225,000. In addition, during the six
month period ended March 31, 2002, two participating loans were paid off
resulting in additional interest and fees of $1,182,000. The six month period
ended March 31, 2001 includes $844,000 of additional interest and fees
recognized from a loan that was paid off. In addition, in the six months ended
March 31, 2001 a loan that was previously non-performing was returned to
performing status and $170,000 of delinquent interest was recorded. Fee income
increased in the six months ended March 31, 2002 by $211,000 of which $89,000 is
due to the increased amortization from early payoffs and the sale of several
loans. The remaining increase is the result of increased amortization of fees
collected on loans originated in prior periods.
Operating income on real estate properties increased to $586,000 in the three
months ended March 31, 2002 from $381,000 in the three months ended March 31,
2001, an increase of $205,000 or 54%. For the six months ended March 31, 2002
operating income on real estate owned increased $429,000, or 62%, from $688,000
to $1.1 million. For both periods, this increase, primarily rental income, is
attributable to our purchase of a leasehold interest in a commercial real
property in the last quarter of the fiscal year ended September 30, 2000.
Reversal of previously provided provisions increased to $500,000 from $-0- for
both the three and six month periods ended March 31, 2002. During the current
quarter and six months we were able to reduce our loan loss allowance as a loan
which was previously considered impaired was paid if full.
Equity in earnings of unconsolidated ventures decreased $63,000 or 22% in the
three months ended March 31, 2002 to $221,000 from $284,000 in the three months
ended March 31, 2001. The primary reason for this decline is a loss generated by
a joint venture that was entered into during the second half of the fiscal year
ended September 30, 2001. For the six months ended March 31, 2002 equity in
earnings of unconsolidated ventures increased $67,000, or 15%, from $446,000 to
$513,000. The increase was caused by a gain on the sale of a parcel of land by
one of our joint ventures. This gain was offset by a loss generated by the
venture that was entered into in the second half of the fiscal year ended
September 30, 2001.
Other revenues, primarily investment income, declined to $713,000 in the three
months ended March 31, 2002, from $809,000 in the three months ended March 31,
2001, a decline of $96,000 or 12%. A decline in the rates earned on invested
balances of approximately 288 basis points from 10.12% to 7.24% caused a decline
of $259,000. An increase in the average balance outstanding of $7.3 million
offset this decline by $161,000. For the six months ended March 31, 2002 other
revenues, primarily investment income, decreased by $716,000 or 35% from $2.1
million to $1.4 million. During the prior year we received $438,000 from a
residual interest we held in a venture. This residual interest resulted from the
sale of a partnership interest in a prior year. The remaining decline of
$278,000 is the result of a decline in the yield earned on our investments
offset by a slight increase in the outstanding average balance of those
investments. A 225 basis point decline from 10.21% to 7.96% caused income to
decline by $378,000 while the average balance increased $2.1 million causing
income to increase $100,000.
The Advisor's fee, which is calculated based on invested assets, increased
$50,000, or 30%, in the three months ended March 31, 2002 to $219,000 from
$169,000 in the three months ended March 31, 2001. In the six months ended March
31, 2002 the fee increased $93,000, or 21%, from $337,000 in the six months
ended March 31, 2001 to $430,000. During both of these periods, we experienced a
higher outstanding balance of invested assets thereby causing an increase in the
fee.
General and administrative fees increased $21,000, or 3%, from $694,000 in the
three months ended March 31, 2001 to $715,000 in the three months ended March
31, 2002. For the six months ended March 31, 2002 general and administrative
expenses decreased $13,000, or less than 1%, from $1,484,000 to $1,471,000 in
the six months ended March 31, 2002.
Other taxes declined $53,000 or 48% in the three months ended March 31, 2002
from $110,000 in the three months ended March 31, 2001 to $57,000. For the six
months ended March 31, 2002 other taxes increased $38,000, or 22%, to $208,000
from $170,000. In the prior year we paid federal alternative minimum tax while
we utilized our net operating loss carryforwards. In the current year we were
responsible for paying a federal excise tax which is based on income generated
but not yet distributed.
For the three and six months ended March 31, 2001 we incurred expenses related
to investment income of $301,000. During these periods 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). We own 8.07% of the outstanding
shares of Entertainment Properties Trust. We did not incur any investment
related expenses in the three or six months ended March 31, 2002.
Operating expenses relating to real estate increased $59,000, or 24%, from
$246,000 in the three months ended March 31, 2001 to $305,000. For the six
months ended March 31, 2002 operating expenses related to real estate increased
$149,000 or 33% from $454,000 to $603,000. The increase in both periods is due
to increased operating expenses associated with the Trust's operating
properties.
Amortization and depreciation for the three months ended March 31, 2002 was
$86,000, relatively unchanged from $84,000 in the three months ended March 31,
2001. For the six months ended March 31, 2002 amortization and depreciation
expense declined $53,000, or 24%, from $223,000 to $170,000. This decline is the
result of reduced amortization of deferred expenses associated with our current
credit facility.
Gain on the sale of real estate assets and foreclosed properties decreased
$868,000, or 59%, in both the three and six months ended March 31, 2002 to
$607,000 from $1,475,000. The gain in the three and six months ended March 31,
2002 resulted primarily from the sale of an unimproved parcel of land we
previously acquired in foreclosure. The gain for the three and six months ended
March 31, 2001 resulted from the sale of a residual interest in a partnership.
Item 3. Quantitative and Qualitative Disclosures About Market Risks
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 March 31, 2002 approximately 69% of the portfolio was variable
rate based primarily on the prime rate. Any changes in the prime interest rate
could have a positive or negative effect on our net interest income. 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 have 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 have approximately a $253,000 positive effect on income
before taxes and a one percent decline in interest rates would have
approximately a $142,000 negative effect on income before taxes. In addition, we
originate loans with short maturities and maintain a strong capital position. At
March 31, 2002 our loan portfolio was primarily secured by properties located in
the New York metropolitan area, New Jersey, Connecticut and in Florida and our
portfolio is therefore subject to risks associated with the economies of these
localities.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
None.
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
Registrant
May 13, 2002 /s/ Jeffrey Gould
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Date Jeffrey Gould, President
and Chief Executive Officer
May 13, 2002 /s/ George Zweier
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Date George Zweier, Vice President
and Chief Financial Officer