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 June 30, 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
----------------
(Exact name of Registrant as specified in its charter)
Massachusetts 13-2755856
-----------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
60 Cutter Mill Road, Great Neck, NY 11021
------------------------------------------------------------------
(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.
7,390,139 Shares of Beneficial Interest,
$3 par value, outstanding on August 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
----- -----
Part 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
BRT REALTY TRUST AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Amounts In Thousands)
June 30, September 30,
2002 2001
---- ----
(Unaudited)
ASSETS
Real estate loans - Note 3:
Earning interest, including $8,366 and $3,425
from related parties $ 79,075 $ 67,513
Not earning interest 415 415
-------- --------
79,490 67,928
Allowance for possible losses (881) (1,381)
-------- --------
78,609 66,547
-------- --------
Real estate assets:
Real estate properties net 6,637 6,777
Investment in unconsolidated real
estate ventures at equity 7,030 6,931
-------- --------
13,667 13,708
Valuation allowance (325) (325)
-------- --------
13,342 13,383
-------- --------
Cash and cash equivalents 5,275 4,106
Securities available-for-sale at market - Note 4 34,717 24,030
Other assets 1,817 1,950
--------- ---------
Total Assets $ 133,760 $ 110,016
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Borrowed funds - Note 5 $ 9,770 $ 2,101
Mortgage payable 2,761 2,804
Accounts payable and accrued liabilities,
including deposits of $1,278 and $1,620 3,075 3,239
Dividends Payable 1,921 -
--------- ---------
Total Liabilities 17,527 8,144
--------- ---------
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 80,864 81,008
Accumulated other comprehensive income - net
unrealized gain on available-for-sale securities 15,965 5,278
Accumulated earnings 5,621 2,313
--------- ---------
129,100 115,249
Cost of 1,493 and 1,552 treasury shares of
beneficial interest at each date (12,867) (13,377)
--------- ---------
Total Shareholders' Equity 116,233 101,872
--------- ---------
Total Liabilities and Shareholders' Equity $ 133,760 $ 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 Nine Months Ended
June 30, June 30,
-------- -------
2002 2001 2002 2001
---- ---- ---- ----
Revenues:
Interest and fees on real estate loans, including interest
from related parties of $196 and $36 for the three month
periods, respectively, and $408 and $84 for the nine
month periods, respectively $ 2,342 $ 1,844 $ 7,989 $ 6,427
Operating income on real estate owned 622 504 1,739 1,192
Reversal of previously provided provision - - 500 -
Equity in earnings of unconsolidated entities 58 301 571 747
Other, primarily investment income 694 812 2,054 2,888
-------- -------- -------- --------
Total revenues 3,716 3,461 12,853 11,254
------- ------- ------- -------
Expenses:
Interest on borrowed funds 40 - 83 20
Advisor's fee 265 186 695 523
General and administrative 715 786 2,186 2,272
Other taxes 133 60 341 230
Expense related to investment income - 274 - 575
Operating expenses relating to real estate owned,
including interest on mortgages of $66 and $67
for the three month periods, respectively, and $199
and $194 for the nine month periods, respectively 346 250 949 704
Amortization and depreciation 85 71 255 294
------- ------- ------- -------
Total expenses 1,584 1,627 4,509 4,618
------- ------- ------- -------
Income before gain on sale of real estate
assets and available-for-sale securities 2,132 1,834 8,344 6,636
Net gain on sale of real estates assets - 282 607 1,757
Net realized (loss) gain on sale of
available-for-sale securities - (4) - 11
-------- -------- ------- --------
Income before minority interest 2,132 2,112 8,951 8,404
Minority interest (10) (12) (30) (10)
--------- --------- --------- ---------
Income before extraordinary item 2,122 2,100 8,921 8,394
Extraordinary item - loss on early
extinguishment of debt - - - (264)
---------- ---------- ---------- ---------
Net income $ 2,122 $ 2,100 $ 8,921 $ 8,130
======= ======= ======= =======
Income per share of beneficial interest:
Basic earnings per share
Income before extraordinary item $ .29 $ .29 $ 1.21 $ 1.17
Extraordinary item - - - (.04)
--------- -------- -------- ---------
Net earnings per common share $ .29 $ .29 $ 1.21 $ 1.13
========= ======== ======== ========
Diluted earnings per share
Income before extraordinary item $ .28 $ .29 $ 1.19 $ 1.16
Extraordinary item - - - (.04)
--------- -------- -------- ---------
Net earnings per common share $ .28 $ .29 $ 1.19 $ 1.12
========= ======== ======== ========
Cash distributions per common share $ .26 $ .22 $ .76 $ .22
========= ======== ======== ========
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
-----
Comprehensive income - - - - - 18,997
------------------------------------------------------------------------------
Balances, September 30, 2001 26,650 81,008 5,278 2,313 (13,377) 101,872
Distributions - Common share - - - (5,613) - (5,613)
(.76 per share)
Exercise of stock options - (144) - - 510 366
Net income - - - 8,921 - 8,921
Other comprehensive income
- net unrealized gain on
available-for-sale securities - - 10,687 - - 10,687
--------
Comprehensive income - - - - - 19,608
--------------------------------------------------------------------------------
Balances, June 30, 2002 $26,650 $80,864 $15,965 $5,621 $(12,867) $116,233
===============================================================================
See Accompanying Notes to Consolidated Financial Statements.
BRT REALTY TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Amounts In Thousands)
Nine Months Ended
June 30,
-------
2002 2001
---- ----
Cash flow from operating activities:
Net income $ 8,921 $ 8,130
Adjustments to reconcile net income to net cash
provided by operating activities:
Extraordinary item - loss on early extinguishment of debt - 264
Amortization and depreciation 255 294
Reversal of previously provided allowances (500) -
Net gain on sale of foreclosed properties held for sale (607) (1,757)
Net gain on sale of available-for-sale securities - (11)
Equity in earnings of unconsolidated entities (571) (747)
Decrease (Increase) in interest and dividends receivable 123 (115)
Decrease (Increase) in prepaid expenses 11 (117)
Increase (Decrease) in accounts payable
and accrued liabilities 89 (392)
(Decrease) Increase in deferred revenues (62) 70
Decrease in escrow deposits (346) (160)
Decrease (Increase) in deferred costs 21 (124)
Net change in other assets (90) (71)
---------- ----------
Net cash provided by operating activities 7,244 5,264
---------- ----------
Cash flows from investing activities:
Collections from real estate loans 25,848 18,571
Proceeds from sale of loans 4,097 -
Additions to real estate loans (34,383) (25,992)
Additions to real estate loans - BRT joint ventures (7,123) (3,175)
Net costs capitalized to real estate owned (35) (115)
Proceeds from sale of real estate assets 607 1,844
Increase in deposits payable 141 24
Sales of marketable securities - 701
Capital contributions to unconsolidated entities (275) (861)
Partnership distributions 747 65
---------- -----------
Net cash used in investing activities (10,376) (8,938)
---------- ---------
Cash flow from financing activities:
Increase in mortgage payable - 2,850
Payoff/paydown of loan and mortgage payable (44) (31)
Net change in borrowed funds - margin account 7,669 -
Repayment of note payable - credit facility - (88)
Cash distribution - common shares (3,690) -
Exercise of stock options 366 954
---------- ----------
Net cash provided by financing activities 4,301 3,685
--------- ---------
Net increase in cash and cash equivalents 1,169 11
Cash and cash equivalents at beginning of period 4,106 16,221
--------- ---------
Cash and cash equivalents at end of period $ 5,275 $ 16,232
========= =========
Supplemental disclosure of cash flow information:
Cash paid during the period for interest expense $ 259 $ 277
========= =========
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 June
30, 2002 and for the three and nine months ended June 30, 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 nine months ended June 30, 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 June 30, 2002 BRT declared a cash distribution to
shareholders of $.26 per share. This distribution totaled $1,921,000 and was
payable on July 3, 2002 to shareholders of record on June 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.
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.
The following table sets forth the computation of basic and diluted shares:
For the three months ended For the nine months ended
June 30, 2002 June 30, 2001 June 30, 2002 June 30, 2001
------------- ------------- ------------- -------------
Basic 7,383,282 7,202,417 7,368,063 7,184,424
Effect of dilutive securities 147,474 126,073 129,837 107,130
------- ------- ------- -------
Diluted 7,530,756 7,328,490 7,497,900 7,291,554
Stock Options
During the quarter ended June 30, 2002, 8,000 previously issued options were
exercised. Proceeds from these options totaled $62,000. For the nine months
ended June 30, 2002, 59,125 previously issued options were exercised. Proceeds
from these options totaled $366,000.
Note 3 - Real Estate Loans
If all loans classified as non-earning were earning interest at their
contractual rates for the three and nine months ended June 30, 2002 and 2001,
interest income would have increased by approximately $11,000 and $34,000 in
each of the two years.
At June 30, 2002 BRT had $8,366,000 of loans outstanding to joint ventures. In
each of these ventures BRT and its joint venture partners each have a 50%
interest. As part of most of these venture agreements BRT made a capital
contribution in addition to making a mortgage loan. For the three and nine
months ended June 30, 2002 interest income on all loans to joint venture
entities was $196,000 and $408,000, respectively.
During the quarter ended June 30, 2002 a loan with a fair value of $595,000 was
sold to a financial institution. This loan, which was previously classified as
held-for-sale, was sold at cost and therefore, no gain or loss was recognized on
this sale.
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.
Management evaluates the adequacy of the allowance for possible losses
periodically and believes that the allowance for losses is adequate to absorb
probable losses on the existing loan 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 June 30, 2002 of $33,416,000. At August 9, 2002 the fair value of these
shares was $30,365,440. During the quarter ended June 30, 2001 the Trust
incurred legal, printing, proxy solicitor fees and other expenses of $274,000
related to the solicitation of proxies in favor of BRT's nominee to the Board of
Trustees of Entertainment Properties Trust. For the nine months ended June 30,
2001 this amount totaled $575,000. 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 $15 million 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 June 30, 2002 BRT had provided collateral,
as defined, that would permit BRT to borrow up to approximately $12,200,000
under the facility. Interest is charged on the outstanding balance at prime plus
1/4% or under certain circumstances at prime. At June 30, 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 June 30, 2002 there was
an outstanding balance on this margin facility of $9,770,000. The interest rate
at June 30, 2002 was 3.875%. Interest expense for the three and nine months
ended June 30, 2002 was $40,000 and $83,000, respectively, which includes the
fees charged to maintain the margin account. At June 30, 2002 marketable
securities with a fair value of $33,416,000 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 nine months ended June 30, 2002 accumulated
other comprehensive income, which is solely comprised of the net unrealized gain
on available-for-sale securities, increased $2,823,000 to $15,965,000 from
$13,142,000 and increased $10,687,000 from $5,278,000 to $15,965,000,
respectively. For the three and nine months ended June 30, 2001 it increased
$5,456,000 to $7,181,000 from $1,725,000 and increased $10,314,000 from
$(3,133,000) to $7,181,000 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
Forward-Looking Statements
With the exception of historical information, this report on Form 10-Q contains
certain forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933. We intend such forward-looking statements to be covered
by the safe harbor provision 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 assumptions and describe our future
plans, strategies and expectations, are generally identifiable by use of the
words "may", "will", "believe", "expect", "intend", "anticipate", "estimate",
"project", or similar expressions or variations thereof. Forward-looking
statements should not be relied on 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.
Investors are cautioned not to place undue reliance on any forward-looking
statements.
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 41 mortgage loans
aggregating $79,490,000 outstanding at June 30, 2002, of which $ 415,000 is not
earning interest. 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 (generally
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 generally do not provide financing for undeveloped
real property. We have expanded our activities in more recent years 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 real estate investment trust (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
distribute on a current basis, 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 $52,057,000 are due during the twelve months
ending June 30, 2003, including $544,000 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 $15,000,000 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 June 30, 2002 we had provided collateral,
as defined, that would permit us to borrow up to approximately $12,200,000 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 June 30, 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. There was an
outstanding balance under this margin account at June 30, 2002 of $9,770,000
which currently bears interest at a rate of 3.875%.
During the nine months ended June 30, 2002, we generated cash of $7,244,000 from
operations, $25,848,000 from collections of real estate loans, $4,097,000 from
the sale of real estate loans and $7,669,000 from net borrowings on our margin
account. These funds, in addition to cash on hand, were used primarily to fund
real estate loan originations of $34,383,000, to originate and purchase loans
relating to joint ventures of $7,123,000 and to pay cash distributions to
shareholders totaling $3,690,000. BRT's cash and cash equivalents totaled
$5,275,000 at June 30, 2002.
We will satisfy our liquidity needs from cash and liquid investments on hand,
the credit facility with North Fork Bank, the margin account , interest and
principal payments received on outstanding real estate loans and net cash flow
generated from the operation and sale of real estate assets.
Results of Operations
Interest and fees on loans increased by $498,000, or 27%, to $2.3 million for
the three months ended June 30, 2002 from $1.8 million for the three months
ended June 30, 2001. During the current quarter the average balance of loans
outstanding increased by approximately $15.2 million accounting for an increase
in interest income of $454,000. Additionally, fee income increased $161,000
during the June 30, 2002 quarter. This was due to increased amortization on fees
previously paid to us resulting from increased loan volume and an increase of
fees collected on loan extensions and expired commitments. These increases were
offset by a decline in the average interest rate earned on the loan portfolio to
11.79% in the three months ended June 30, 2002 from 12.66% in the three months
ended March 31, 2001 caused interest income to decline by $118,000.
For the nine months ended June 30, 2002, interest and fees on loans increased
$1.6 million, or 24%, from $6.4 million to $8.0 million. During the nine months
ended June 30, 2002 the average balance of loans outstanding increased by $13.5
million resulting in an increase in interest income of $1.2 million. A decline
in the average interest rate earned on the loan portfolio from 12.61% for the
nine months ended June 30, 2001 to 11.87% for the nine months ended June 30,
2002 caused a decline in interest income of $297,000. In addition, during the
nine month period ended June 30, 2002, two participating loans were paid off
resulting in additional interest and fees of $1,182,000. The nine month period
ended June 30, 2001 includes $844,000 of additional interest and fees recognized
from a loan that was paid off. In addition, in the nine months ended June 30,
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
nine months ended June 30, 2002 by $372,000 primarily as a result of increased
loan volume.
Operating income on real estate properties increased to $622,000 in the three
months ended June 30, 2002 from $504,000 in the three months ended June 30,
2001, an increase of $118,000 or 23%. This increase was caused by increased
rental income being recognized on a residential property located in New York
City and increased percentage rents received on a retail center in Rock Springs,
Wyoming. For the nine months ended June 30, 2002 operating income on real estate
owned increased $547,000, or 46%, from $1.2 million to $1.7 million. 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 and increased rental income recognized on a
residential property located in New York City.
Reversal of previously provided provisions increased to $500,000 from $-0- for
the nine month period ended June 30, 2002. During the current nine month period
we were able to reduce our loan loss allowance as a loan which was previously
considered impaired was paid in full.
Equity in earnings of unconsolidated ventures decreased $243,000 or 81% in the
three months ended June 30, 2002 to $58,000 from $301,000 in the three months
ended June 30, 2001 and for the nine months ended June 30, 2002 $176,000, or
24%, from $747,000 to $571,000. The decrease in both periods was primarily due
to a loss generated by a joint venture entered into during the second half of
the fiscal year ended September 30, 2001 and reduced unit sales at another joint
venture. The decline in the nine month period was offset in part by a gain that
was recognized by a joint venture upon the sale of a parcel of land during the
current nine month period.
Other revenues, primarily investment income, declined to $694,000 in the three
months ended June 30, 2002, from $812,000 in the three months ended June 30,
2001, a decline of $118,000 or 15%. A decline in the rates earned on invested
balances of approximately 148 basis points from 8.73% to 7.25% caused a decline
of $142,000. An increase in the average balance outstanding of $1.1 million
offset this decline by $24,000. For the nine months ended June 30, 2002 other
revenues, primarily investment income, decreased by $834,000 or 29% from $2.9
million to $2.1 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
$396,000 is the result of a 156 basis point decline in the yield earned on our
investments from 9.66% to 8.10%.
Interest on borrowed funds increased to $40,000 in the three month period ended
June 30, 2002 from $0 in the three month period ended June 30, 2001 and also
increased $ 63,000 from $20,000 in the nine month period ended June 30, 2001 to
$83,000 in the nine month period ended June 30, 2002. The increase during the
three and nine month periods ended June 30, 2002 represent increased interest
expense that resulted from borrowings under our margin account.
The Advisor's fee, which is calculated based on invested assets, increased
$79,000, or 42%, in the three months ended June 30, 2002 to $265,000 from
$186,000 in the three months ended June 30, 2001. In the nine months ended June
30, 2002 the fee increased $172,000, or 33%, from $523,000 in the nine months
ended June 30, 2001 to $695,000. During both of these periods, we experienced a
higher outstanding balance of invested assets thereby causing an increase in the
fee.
General and administrative expenses declined $71,000, or 9%, from $786,000 in
the three months ended June 30, 2001 to $715,000 in the three months ended June
30, 2002. For the nine months ended June 30, 2002 general and administrative
expenses decreased $86,000, or 4%, from $2.3 million to $2.2 million in the nine
months ended June 30, 2002. For both the three and six month periods ended June
30, 2002, the decline was caused primarily by reduced legal expenses.
Other taxes increased $ 73,000 in the three month period ended June 30, 2002 to
$ 133,000 from $60,000 in the three month period ended June 30, 2001. For the
nine months ended June 30, 2002 this category increased $ 111,000 to $ 341,000
from $230,000. The increase in the current three and nine month periods is
primarily the result of federal excise taxes which is based on income generated
but not yet distributed. In the prior periods we were responsible for federal
and state alternative minimum tax while we utilized our net operating loss
carryforwards.
For the three and nine months ended June 30, 2001 we incurred expenses related
to investment income of $274,000 and $575,000 respectively. 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 nine months ended June 30, 2002.
Operating expenses relating to real estate increased $96,000, or 38%, from
$250,000 in the three months ended June 30, 2001 to $346,000. For the nine
months ended June 30, 2002 operating expenses related to real estate increased
$245,000 or 35% from $704,000 to $949,000. The increase in both periods is due
to increased operating expenses being recognized on one of the Trust's operating
residential properties located in New York City.
Amortization and depreciation for the three months ended June 30, 2002 was
$85,000, an increase of $14,000, or 20% from $71,000 in the three months ended
June 30, 2001. The current quarter reflects amortization for the new credit
line. For the nine months ended June 30, 2002 amortization and depreciation
expense declined $39,000, or 13%, from $294,000 to $255,000. 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 $1.2
million, or 65%, in the nine months ended June 30, 2002 to $607,000 from $1.8
million. The gain in the nine months ended June 30, 2002 resulted primarily from
the sale of an unimproved parcel of land we previously acquired in foreclosure.
The gain for the three months ended June 30, 2001 resulted from the sale of
cooperative units, while the gain in the nine months ended June 30, 2001
resulted from the sale cooperative units and 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 June 30, 2002 approximately 63% 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 $344,000 positive effect on income
before taxes and a one percent decline in interest rates would have
approximately a $144,000 negative effect on income before taxes. In addition, we
originate loans with short maturities and maintain a strong capital position. At
June 30, 2002 our loan portfolio was primarily secured by properties located in
the New York metropolitan area, New Jersey, Connecticut, and 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
August 14, 2002 /s/ Jeffrey Gould
- --------------- -----------------
Date Jeffrey Gould, President
and Chief Executive Officer
August 14, 2002 /s/ George Zweier
- --------------- -----------------
Date George Zweier, Vice President
and Chief Financial Officer