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, 2003
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
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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 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
---- ----
Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act)
Yes No X
---- ----
Indicate the number of shares outstanding of each of the issuer's classes of
stock, as of the latest practicable date.
7,491,002 Shares of Beneficial Interest,
$3 par value, outstanding on May 10, 2003
Part 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
BRT REALTY TRUST AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Amounts In Thousands)
March 31, September 30,
2003 2002
---- ----
(Unaudited) (Audited)
ASSETS
Real estate loans - Note 3:
Earning interest, including $7,668 and
$8,129 from related parties $ 50,080 $ 84,112
Not earning interest 650 415
-------- --------
50,730 84,527
Allowance for possible losses (881) (881)
-------- --------
49,849 83,646
-------- --------
Real estate assets - Note 4:
Real estate properties net of accumulated
depreciation of $1,345 and $1,227 6,516 6,573
Investment in unconsolidated real
estate ventures at equity 7,152 6,956
-------- --------
13,668 13,529
Valuation allowance (325) (325)
-------- --------
13,343 13,204
-------- --------
Cash and cash equivalents 24,155 4,688
Securities available-for-sale at market - Note 5 38,621 31,178
Other assets 2,357 2,215
-------- --------
Total Assets $128,325 $134,931
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Borrowed funds - Note 6 $ - $ 14,745
Mortgage payable 2,714 2,745
Accounts payable and accrued liabilities,
including deposits of $666 and $1,265 2,227 3,150
Dividends Payable 2,238 -
-------- --------
Total Liabilities 7,179 20,640
-------- --------
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 80,751 80,864
Accumulated other comprehensive income - net
unrealized gain on available-for-sale securities 18,222 12,426
Retained earnings 7,783 7,218
-------- --------
133,406 127,158
Cost of 1,423 and 1,493 treasury shares of
beneficial interest at each date (12,260) (12,867)
-------- --------
Total Shareholders' Equity 121,146 114,291
-------- --------
Total Liabilities and Shareholders' Equity $128,325 $134,931
======== ========
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,
--------- --------
2003 2002 2003 2002
---- ---- ---- ----
Revenues:
Interest and fees on real estate loans, including
interest from related parties of $182 and $108
for the three month periods, respectively, and
$372 and $206 for the six month periods,
respectively $ 2,222 $ 2,132 $ 5,132 $ 5,647
Operating income on real estate owned 567 586 1,114 1,117
Reversal of previously provided provision - 500 - 500
Other, primarily investment income 725 713 1,398 1,360
------- ------- ------- -------
Total revenues 3,514 3,931 7,644 8,624
------- ------- ------- -------
Expenses:
Interest on borrowed funds 28 24 134 43
Advisor's fee 186 219 420 430
General and administrative 744 715 1,420 1,471
Other taxes 115 57 245 208
Operating expenses relating to real estate owned,
including interest on mortgages of $66 and $66
for the three month periods, respectively, and $131
and $133 for the six month periods, respectively 317 305 628 603
Amortization and depreciation 86 86 171 170
------- ------- ------- -------
Total expenses 1,476 1,406 3,018 2,925
------- ------- ------- -------
Income before equity in earnings of
unconsolidated joint ventures and gain on sale 2,038 2,525 4,626 5,699
Equity in earnings of unconsolidated entities 31 221 94 513
Net gain on sale of real estates assets - 607 195 607
Net realized gain on sale of available-for
-sale securities 146 - 146 -
------- ------- ------- -------
Income before minority interest 2,215 3,353 5,061 6,819
Minority interest (10) (10) (20) (20)
------- ------- -------- -------
Net income $ 2,205 $ 3,343 $ 5,041 $ 6,799
======= ======= ======= =======
Income per share of beneficial interest:
Basic earnings per share $ .30 $ .45 $ .68 $ .92
======= ======= ======= =======
Diluted earnings per share $ .29 $ .44 $ .67 $ .91
======= ======= ======= =======
Cash distributions per common share $ .30 $ .26 $ .60 $ .50
======= ======= ======= =======
Weighted average number of common Shares outstanding:
Basic 7,460,282 7,380,000 7,433,444 7,360,454
========= ========= ========= =========
Diluted 7,571,689 7,581,711 7,553,921 7,481,471
========= ========= ========= =========
See Accompanying Notes to Consolidated Financial Statements.
BRT REALTY TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Unaudited)
(Amounts In Thousands except for Per Share Data)
Accumulated
Shares of Additional Other Com-
Beneficial Paid-In prehensive Retained Treasury
Interest Capital Income Earnings Shares Total
-------- ------- ------ -------- ------ -----
Balances, September 30, 2002 $26,650 $80,864 $12,426 $7,218 $(12,867) $114,291
Distributions - common share
($.60 per share) - - - (4,476) - (4,476)
Exercise of stock options - (113) - - 607 494
Net income - - - 5,041 - 5,041
Other comprehensive income -
net unrealized gain on
available-for-sale securities
(net of reclassification adjust-
ment for gains included in
net income of $146) - - 5,796 - - 5,796
-------
Comprehensive income - - - - - 10,837
---------------------------------------------------------------------------------
Balances, March 31, 2003 $26,650 $80,751 $18,222 $7,783 $(12,260) $121,146
=================================================================================
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,
2003 2002
---- ----
Cash flow from operating activities:
Net income $ 5,041 $ 6,799
Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization and depreciation 171 170
Reversal of previously provided allowances - (500)
Net gain on sale of real estate loans and properties (195) (607)
Net gain on sale of available-for-sale securities (146) -
Equity in earnings of unconsolidated real estate ventures (94) (513)
Decrease in interest and dividends receivable 88 42
Decrease in prepaid expenses 43 36
(Decrease) Increase in accounts payable
and accrued liabilities (427) 837
Decrease in deferred revenues (254) (161)
Decrease in escrow deposits (255) (193)
Decrease in deferred costs - 21
Other (328) (38)
-------- --------
Net cash provided by operating activities 3,644 5,893
-------- --------
Cash flows from investing activities:
Collections from real estate loans 47,902 23,052
Proceeds from sale of loans - 3,522
Additions to real estate loans (14,105) (12,478)
Additions to real estate loans - BRT joint ventures - (7,123)
Net costs capitalized to real estate assets (79) (8)
Proceeds from the sale of real estate owned 214 607
Investment in real estate ventures (214) (275)
Purchase of available-for-sale securities (1,935) -
Sales of available-for-sale securities 434 -
Increase (Decrease) in deposits payable 14 (86)
Partnership distributions 113 699
-------- --------
Net cash provided by investing activities 32,344 7,910
-------- --------
Cash flow from financing activities:
Repayment of borrowed funds (14,745) (2,130)
Payoff/paydown of loan and mortgages payable (32) -
Cash distribution - common shares (2,238) (1,771)
Exercise of stock options 494 304
-------- --------
Net cash used in financing activities (16,521) (3,597)
-------- --------
Net increase in cash and cash equivalents 19,467 10,206
Cash and cash equivalents at beginning of period 4,688 4,106
-------- --------
Cash and cash equivalents at end of period $ 24,155 $ 14,312
======== ========
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 279 $ 169
======== ========
Non cash investing and financing activity:
Accrued distributions $ 2,238 $ -
======== ========
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, 2003 and for the three and six months ended March 31, 2003 and 2002 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, 2003 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 consolidated financial
statements and related notes which are included in BRT's Annual Report on Form
10-K for the year ended September 30, 2002.
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, 2003, BRT declared a cash distribution to
shareholders of $.30 per share. This distribution totaled $2,238,000 and was
payable April 2, 2003 to shareholders of record on March 24, 2003.
Stock Options
During the quarter ended March 31, 2003, 638 previously issued options were
exercised. Proceeds from these options totaled $6,000.
The Trust adopted Accounting Principles Board Opinion No. 25, Accounting for
Stock Issued to Employees ("APB 25), and related interpretations in accounting
for its employee stock options. Under APB 25, no compensation expense is
recognized because the exercise price of the Trust's employee stock options
equals the market price of the underlying stock on the date of grant.
Note 2 - Shareholders' Equity (Continued)
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 for both 2003 and
2002: risk free interest rate of 4.62%, volatility factor of the expected market
price of the Company's common stock based on historical results of .205,
dividend yield of 3.1% and an expected option life of six years.
Pro forma net income and earnings per share calculated using the Black-Scholes
option valuation model is as follows:
Three Months Ended Six Months Ended
March 31, March 31,
--------- ---------
2003 2002 2003 2002
---- ---- ---- ----
Net income to common
shareholders as reported $2,205 $3,343 $5,041 $6,799
Less: Total stock-based employee
compensation expense
determined under fair value
based methods for all awards 31 31 62 62
------ ------ ------ ------
Pro forma net income $2,174 $3,312 $4,979 $6,737
====== ====== ====== ======
Pro forma earnings per share
of beneficial interest
Basic $ .29 $ .45 $ .67 $ .91
====== ====== ====== ======
Diluted $ .29 $ .44 $ .66 $ .90
====== ====== ====== ======
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 estimated, management believes the existing
models do not necessarily provide a reliable single measure of the fair value of
its employee stock options.
Note 2 - Shareholders' Equity (Continued)
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 six months ended
March 31, March 31,
--------- ---------
2003 2002 2003 2002
---- ---- ---- ----
Basic 7,460,282 7,380,000 7,433,444 7,360,454
Effect of dilutive securities 111,407 201,711 120,477 121,017
------- ------- ------- -------
Diluted 7,571,689 7,581,711 7,553,921 7,481,471
========= ========= ========= =========
Note 3 - Real Estate Loans
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 portfolio.
If all loans classified as non-earning were earning interest at their
contractual rates for the three months ended March 31, 2003 and 2002, interest
income would have increased by approximately $21,000 and $11,000, respectively.
For the six month period ended March 31, 2003 and 2002 the increase would have
been $42,000 and $23,000, respectively.
Included in real estate loans are four second mortgages and two first mortgages
to ventures in which the Trust (through wholly owned subsidiaries) holds a 50%
interest. At March 31, 2003, the aggregate balance of these mortgage loans was
$7,668,000. Interest earned on these loans totaled $182,000 and $108,000 for the
three months ended March 31, 2003 and March 31, 2002, respectively. For the six
month periods ended March 31, 2003 and March 31, 2002 interest earned on these
loans totaled $372,000 and $206,000, respectively.
Note 4 - Investment in Unconsolidated Joint Ventures at Equity
We are a partner in seven unconsolidated joint ventures which own and operate
seven properties. In addition to making an equity contribution, we may hold a
first or second mortgage on the property owned by the venture.
Unaudited condensed financial information for the two most significant joint
ventures is shown below.
Blue Hen Venture
March 31, September 30,
2003 2002
---- ----
Condensed Balance Sheet
Cash and cash equivalents $ 988 $ 1,040
Real estate investments, net 15,973 15,921
Other assets 213 314
-------- --------
Total assets $ 17,174 $ 17,275
======== ========
Mortgages payable $ 3,666 $ 4,154
Other liabilities 168 118
Equity 13,340 13,003
-------- --------
Total liabilities and equity $ 17,174 $ 17,275
======== ========
Trust's equity investment $ 5,375 $ 5,207
======== ========
Three Months Ended Six Months Ended
March 31, March 31,
--------- ---------
2003 2002 2003 2002
----- ---- ---- ----
Condensed Statement of Operations
Revenues, primarily rental income $ 753 $ 764 $ 1,442 $ 1,541
------- ------- ------- -------
Operating expenses 414 320 710 614
Depreciation 120 110 237 223
Interest expense 77 96 159 199
------- ------- ------- -------
Total expenses 611 526 1,106 1,036
------- ------- ------ -------
Income before gain 142 238 336 505
Gain on sale - - - 385
------- ------- ------- -------
Net income attributable to members $ 142 $ 238 $ 336 $ 890
======= ======= ======= =======
Trust's share of net income $ 71 $ 119 $ 168 $ 252
======= ======= ======= =======
Amount recorded in income statement $ 71 $ 291 $ 168 $ 617
======= ======= ======= =======
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.
Note 4 - Investment in Unconsolidated Joint Ventures at Equity (Continued)
Rutherford Glen
March 31, September 30,
2003 2002
---- ----
Condensed Balance Sheet
Cash and cash equivalents $ 187 $ 110
Real estate investments, net 18,996 19,360
Other assets 296 268
-------- --------
Total assets $ 19,479 $ 19,738
======== ========
Mortgages payable $ 19,058 $ 19,147
Other liabilities 349 435
Equity 72 156
-------- --------
Total liabilities and equity $ 19,479 $ 19,738
======== ========
Trust's equity investment $ 86 $ 78
======== ========
Three Months Ended Six Months Ended
March 31, March 31,
--------- ---------
2003 2002 2003 2002
----- ---- ---- ----
Condensed Statement of Operations
Revenues, primarily rental income $ 578 $ 636 $ 1,175 $ 1,279
------- ------- ------- -------
Operating expenses 264 289 491 566
Depreciation 182 182 364 364
Interest expense 364 370 731 743
------- ------- ------- -------
Total expenses 810 841 1,586 1,673
------- ------- ------- -------
Net income attributable to members $ (232) $ (205) $ (411) $ (394)
======== ======== ======== ========
Trust's share of net income $ (116) $ (103) $ (205) $ (197)
======== ======== ======== ========
Amount recorded in income statement $ (116) $ (103) $ (205) $ (197)
======== ======== ======== ========
During the quarter ended March 31, 2003 the Trust and the other 50% joint
venture partner of the Rutherford Glen joint venture funded their portion of a
$245,000 capital call.
Note 5 - 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, 2003 of $35,923,000. The shares held by the Trust represent
approximately 7.89% of the outstanding shares of Entertainment Properties Trust
as of February 21, 2003.
During the quarter ended March 31, 2003 the Trust purchased 127,950 shares of
Atlantic Liberty Financial Corp. (NASDAQ:ALFC) at a cost of $1,942,000. At March
31, 2003 these shares had a fair value of $1,915,000 and represented
approximately 9.34% of the outstanding shares of Atlantic Liberty.
Note 6 -Borrowed Funds
The Trust maintains a $15 million revolving credit agreement with North Fork
Bank. Borrowings under the facility are secured by specific receivables and the
credit agreement provides that the amount borrowed will not exceed 60% of the
collateral pledged. As of March 31, 2003, BRT had provided collateral, as
defined under the credit agreement, that would permit BRT to borrow up to
approximately $8,900,000 under the facility. Interest is charged on the
outstanding balance at prime plus 1/2% or under certain circumstances at prime.
At March 31, 2003, there was no outstanding balance on this facility.
In addition to our credit facility we have the ability to borrow funds through a
margin account. At March 31, 2003, there was no outstanding balance on this
margin facility. Interest expense for the three months ended March 31, 2003 was
$28,000, which included the fees charged to maintain the margin account. At
March 31, 2003, marketable securities with a fair value of $35,923,000 were
pledged as collateral.
Note 7 - Comprehensive Income
Comprehensive income for the three and six month periods as follows:
Three Months Ended Six Months Ended
March 31, March 31,
-------- ---------
2003 2002 2003 2002
---- ---- ---- ----
Net income $ 2,205 $ 3,343 $ 5,041 $ 6,799
Other comprehensive income -
Unrealized gain on available -
for-sale securities 3,870 4,511 5,796 7,864
------- ------- ------- -------
Comprehensive income $ 6,075 $ 7,854 $10,837 $14,663
======= ======= ======= =======
Accumulated other comprehensive income, which is solely comprised of the net
unrealized gain on available-for-sale securities was $18,222,000 and $13,142,000
at March 31, 2003 and 2002, respectively.
Note 8 - Recent Accounting Pronouncements
Accounting for Stock-Based Compensation
The Financial Accounting Standards Board issued Statement No. 148 to amend
Statement 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,
Statement 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 2 for pro forma net income information.
Note 8 - Recent Accounting Pronouncements (Continued)
Consolidation of Variable 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 are 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 June 15, 2003. Management has not
yet determined whether any of its unconsolidated joint ventures represent
variable interest entities pursuant to interpretation. Such determination could
result in a change in the Trust's consolidation policy related to such entities.
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". The new statement retains the fundamental provisions
of the superseded 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 adopted Statement 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.
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.
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 producing
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. Repayments of real estate loans in the amount of
$36,214,000 are due and payable to us during the twelve months ending March 31,
2004, including $650,000 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 $15,000,000 revolving credit facility 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 qualified
first mortgage loans pledged to North Fork Bank. The agreement also provides
that no more than 20% of the pledged loans may relate to properties situated
outside the New York metropolitan area (as defined in the credit agreement). As
of March 31, 2003, we had provided collateral that would permit BRT to borrow up
to approximately $8,900,000 under the facility. Interest is charged on the
outstanding balance at prime plus 1/2% or under certain circumstances at prime.
The facility matures August 1, 2004 and may be extended, at our option, for two
one year terms. At March 31, 2003, there was no outstanding balance on this
facility.
On February 6, 2003 North Fork Bank and BRT signed a commitment letter to
increase the revolving credit facility to $30,000,000. This commitment increases
the amount available to be borrowed to 65% of our pledged collateral and removes
the restriction relating to the geographic location of the pledged collateral.
The term of the proposed facility would be three years and may be extended, at
our option, for two one year terms. A commitment fee of $75,000 is to be paid.
The commitment is subject to the satisfaction of certain conditions, including
the negotiation of a definitive agreement.
We also have the ability to borrow on margin, using the shares we own in
Entertainment Properties Trust as collateral. At March 31, 2003 there was no
outstanding balance of the approximately $14,348,000 available under this
facility. The amount available under the facility will be reduced if the market
value of the stock of Entertainment Properties Trust declines.
During the six months ended March 31, 2003, we generated cash of $3,644,000 from
operations and $47,902,000 from real estate loan collections. These funds, in
addition to cash on hand, were used primarily to fund real estate loan
originations of $14,105,000 and to repay outstanding borrowed funds of
$14,745,000. Our cash and cash equivalents were $24,155,000 at March 31, 2003.
We will satisfy our liquidity needs from cash and liquid investments on hand,
the credit facility with North Fork Bank, the availability in our margin account
collateralized by shares of Entertainment Properties Trust, 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 $90,000, or 4%, to $2,222,000 for the
three months ended March 31, 2003 from $2,132,000 for the three months ended
March 31, 2002. An increase in the average interest rate earned on the loan
portfolio to 11.63% in the three months ended March 31, 2003 from 11.25% in the
three months ended March 31, 2002 caused interest income to increase by $57,000.
During the current quarter the average balance of loans outstanding declined by
approximately $4.2 million accounting for a decrease in interest income of
$120,000. The current quarter also realized a $153,000 increase in fee income
due primarily to increased amortization from early payoffs and a $90,000 exit
fee received on the payoff of a loan.
For the six months ended March 31, 2003, interest and fees on loans decreased
$515,000, or 9%, from $5,647,000 to $5,132,000. In the six month period ended
March 31, 2002 two participating loans were repaid resulting in additional
interest and fees of $1,182,000, as compared to $105,000 that was recognized in
the current six month period upon the payoff in full of a previously non-earning
loan. Additional interest on participating loans is "non recurring" in nature.
During the six months ended March 31, 2003 the average balance of loans
outstanding increased by $4.9 million resulting in an increase in interest
income of $296,000. An increase in the average interest rate earned on the loan
portfolio from 11.74% for the six months ended March 31, 2002 to 11.91% for the
six months ended March 31, 2003 caused an increase in interest income of
$55,000. In addition, during the six month period ended March 31, 2003, fee
income increased by $211,000 due primarily to increased amortization from early
payoffs and a $90,000 exit fee received on the payoff of a loan.
Reversal of previously provided provisions decreased to $-0- from $500,000 for
both the three and six month periods ended March 31, 2003. During the quarter
and six month periods ended March 31, 2002 we reduced our loan loss allowance as
a loan which was previously considered impaired, was paid in full.
Other revenues, primarily investment income, increased to $725,000 in the three
months ended March 31, 2003, from $713,000 in the three months ended March 31,
2001, an increase of $12,000, or 2%. For the six months ended March 31, 2003
other revenues, primarily investment income, increased by $38,000, or 3%, from
$1,360,000 to $1,398,000. In both the three and six month periods ended March
31, 2003, we benefited from increased dividends received on our investment in
Entertainment Properties Trust. These increases were partially offset by
declines in interest income on our remaining invested balances due to a decline
in interest rates.
Interest expense on borrowed funds increased to $28,000 in the three months
ended March 31, 2003 from $24,000 in the three months ended March 31, 2002. The
increase of $4,000, or 18%, is due to an increase in the fee charged to maintain
the margin account. The fee is based on the market value of the securities
pledged. Interest expense on borrowed funds increased to $134,000 in the six
months ended March 31, 2003 from $43,000 in the six months ended March 31, 2002.
This increase of $91,000, or 210%, is due to an increase of $1.5 million in the
average amount of borrowings outstanding in the current six month period as
compared to the prior six month period. At March 31, 2003 all amounts
outstanding under our credit facility and margin account had been paid down to
zero from principal payments received on outstanding loans.
The Advisor's fee, which is calculated based on invested assets, decreased
$33,000, or 15%, in the three months ended March 31, 2003 to $186,000 from
$219,000 in the three months ended March 31, 2002. In the six months ended March
31, 2003 the fee decreased $10,000, or 2%, from $430,000 in the six months ended
March 31, 2002 to $420,000. During both of these periods, we experienced a
decline in the outstanding balance of invested assets, the basis upon which the
fee is calculated, thereby causing a decrease in the fee.
General and administrative fees increased $29,000, or 4%, from $715,000 in the
three months ended March 31, 2002 to $744,000 in the three months ended March
31, 2003, primarily as a result of an increase in employee compensation expense.
For the six months ended March 31, 2003 general and administrative expenses
decreased $51,000, or 3%, from $1,471,000 to $1,420,000 in the six months ended
March 31, 2003 due to decreased legal and travel related expenses.
Other taxes increased $58,000, or 101%, in the three months ended March 31, 2003
from $57,000 in the three months ended March 31, 2002 to $115,000. For the six
months ended March 31, 2003 other taxes increased $37,000, or 18%, to $245,000
from $208,000. The amount in both periods represents the payment of federal
excise taxes which are based on income generated but not yet distributed.
Operating expenses relating to real estate increased $12,000, or 4%, from
$305,000 in the three months ended March 31, 2002 to $317,000. For the six
months ended March 31, 2003 operating expenses related to real estate increased
$25,000, or 4%, from $603,000 to $628,000. The increase in both periods is due
to modest increases in certain operating expenses associated with our operating
properties.
Equity in earnings of unconsolidated ventures decreased $190,000 or 86% in the
three months ended March 31, 2003 to $31,000 from $221,000 in the three months
ended March 31, 2002. For the six months ended March 31, 2003 equity in earnings
of unconsolidated ventures decreased $419,000, or 82%, from $513,000 to $94,000.
The decline in both periods is primarily the result of a gain recorded by one of
the joint ventures in the three and six month periods ended March 31, 2002 from
the sale of a parcel of land.
Gain on the sale of real estate assets decreased $607,000 in the three months
ended March 31, 2003 to $-0- in the three month period ended March 31, 2002. For
the six month period ended March 31, 2003 gain on sale of real estate assets
declined from $607,000 in the period ended March 31, 2002 to $195,000 in the six
months ended March 31, 2003. In the current six month period the gain resulted
from the sale of a cooperative apartment unit. In the prior year quarter and six
month period the gain resulted from the sale of an unimproved parcel of land we
previously acquired in foreclosure.
Gain on sale of available-for-sale securities increased to $146,000 in both the
current three and six month period ended March 31, 2003 from $-0- in the three
end six month periods ended March 31, 2002. The gain in both the current three
and six month periods resulted from the sale of various real estate investment
trust securities.
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 is 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, 2003, approximately 65% of our loan 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 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 $104,000 positive effect
on income before taxes and a one percent decline in interest rates would have
approximately a $187,000 negative effect on income before taxes. In addition, we
originate loans with short maturities and maintain a strong capital position. At
March 31, 2003 our loan portfolio was primarily secured by properties located in
the New York metropolitan area, New Jersey, California and Delaware and it is
therefore, subject to risks associated with the economies of these localities.
Item 4. Controls and Procedures
Our president and chief executive officer, senior vice president-finance and
vice president and chief financial officer have participated in the design and
implementation of our disclosure controls and procedures and have evaluated our
disclosure controls and procedures. Based on their evaluation within 90 days of
the filing of this quarterly report on Form 10-Q, these officers have concluded
that our disclosure controls and procedures were effective.
There have been no significant changes in our internal controls or in other
factors that could significantly affect internal controls subsequent to the date
that we conducted our last evaluation. No significant deficiencies or material
weaknesses were detected in our internal controls and therefore no corrective
actions were taken.
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
(a) We held an annual meeting of shareholders on March 24, 2003.
(b) Proxies for the meeting were solicited pursuant to Regulation 14D under the
Securities Exchange Act of 1934. There was no solicitation in opposition to the
nominees listed in the proxy statement and all the nominees were elected.
(c) Shareholders approved the adoption of the BRT Realty Trust 2003 Incentive
Plan. 6,898,183 votes were cast in favor of adopting the Plan, 89,903 against,
25,265 abstained and there were 108,316 broker non-votes. Shareholders also
approved the appointment of Ernst & Young LLP as our auditors for the year ended
September 30, 2003. 7,005,248 votes were cast in the favor of the appointment,
2,964 against, 5,141 abstained and there were 108,316 votes broker non-votes.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 99.1 Certification of President and Chief Executive Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
Exhibit 99.2 Certification of Senior Vice President-Finance pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.
Exhibit 99.3 Certification of Vice President and Chief Financial Officer
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Exhibit 99.4 Certification of President and Chief Executive Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
Exhibit 99.5 Certification of Senior Vice President-Finance pursuant to Section
906 of the Sarbanes-Oxley Act of 2002.
Exhibit 99.6 Certification of Vice President and Chief Financial Officer
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
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, 2003 /s/ Jeffrey Gould
- ------- ---- -----------------
Date Jeffrey Gould, President
May 13, 2003 /s/ George Zweier
- ------------ -----------------
Date George Zweier, Vice President
and Chief Financial Officer
(principal financial officer)
EXHIBIT 99.1
CERTIFICATION
I, Jeffrey Gould, President and Chief Executive Officer of BRT Realty Trust,
certify that:
1. I have reviewed this Quarterly Report on Form 10-Q for the quarter
ended March 31, 2003 of BRT Realty Trust;
2. Based on my knowledge, this Quarterly 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 Quarterly Report;
3. Based on my knowledge, the financial statements, and other financial
information included in this Quarterly 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 Quarterly 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-14 and 15d-14) for the Registrant and
we have;
a) designed such disclosure controls and procedures 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 Quarterly Report
is being prepared;
b) evaluated the effectiveness of the Registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
Quarterly Report (the "Evaluation Date"); and
c) presented in this Quarterly Report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The Registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the Registrant's auditors and the
audit committee of Registrant's board of directors (or persons
performing the equivalent function);
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the Registrant's ability to
record, process, summarize and report financial data and have
identified for the Registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the Registrant's internal
controls; and
6. The Registrant's other certifying officers and I have indicated in this
Quarterly Report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: May 13, 2003
S/Jeffrey Gould
---------------
President
EXHIBIT 99.2
CERTIFICATION
I, David W. Kalish, Senior Vice President-Finance of BRT Realty Trust,
certify that:
1. I have reviewed this Quarterly Report on Form 10-Q for the quarter
ended March 31, 2003 of BRT Realty Trust;
2. Based on my knowledge, this Quarterly 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 Quarterly Report;
3. Based on my knowledge, the financial statements, and other financial
information included in this Quarterly 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 Quarterly 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-14 and 15d-14) for the Registrant and
we have:
a) designed such disclosure controls and procedures 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 Quarterly Report is being
prepared;
b) evaluated the effectiveness of the Registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
Quarterly Report (the "Evaluation Date"); and
c) presented in this Quarterly Report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The Registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the Registrant's auditors and the
audit committee of Registrant's board of directors (or persons
performing the equivalent function);
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the Registrant's ability to
record, process, summarize and report financial data and have
identified for the Registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the Registrant's internal
controls; and
6. The Registrant's other certifying officers and I have indicated in this
Quarterly Report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: May 13, 2003
S/David W. Kalish
-----------------
Senior Vice President - Finance
EXHIBIT 99.3
CERTIFICATION
I, George Zweier, Vice President and Chief Financial Officer of BRT Realty
Trust, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q for the quarter
ended March 31, 2003 of BRT Realty Trust;
2. Based on my knowledge, this Quarterly 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 Quarterly Report;
3. Based on my knowledge, the financial statements, and other financial
information included in this Quarterly 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 Quarterly 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-14 and 15d-14) for the Registrant and
we have:
a) designed such disclosure controls and procedures 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 Quarterly Report is being
prepared;
b) evaluated the effectiveness of the Registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
Quarterly Report (the "Evaluation Date"); and
d) presented in this Quarterly Report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The Registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the Registrant's auditors and the
audit committee of Registrant's board of directors (or persons
performing the equivalent function);
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the Registrant's ability to
record, process, summarize and report financial data and have
identified for the Registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the Registrant's internal
controls; and
6. The Registrant's other certifying officers and I have indicated in this
Quarterly Report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: May 13, 2003
S/George Zweier
--------------------------
Vice President and Chief
Financial Officer
EXHIBIT 99.4
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 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, to the
best of my knowledge, based upon a review of the Quarterly Report on Form 10-Q
for the quarter ended March 31, 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: May 13, 2003 /s/ Jeffrey Gould
------------------
Jeffrey Gould
Chief Executive Officer
EXHIBIT 99.5
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,
to the best of my knowledge, based upon a review of the Quarterly Report on Form
10-Q for the quarter ended March 31, 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: May 13, 2003 /s/ David W. Kalish
------------------------------
David W. Kalish
Senior Vice President-Finance
EXHIBIT 99.6
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, to the
best of my knowledge, based upon a review of the Quarterly Report on Form 10-Q
for the quarter ended March 31, 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: May 13, 2003 /s/ George Zweier
------------------------
George Zweier
Chief Financial Officer