UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 2003
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or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For The Transition Period From ____________ to _______________.
Commission file number 1-7172
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 (I.R.S. employer
of incorporation or organization) identification no.)
60 Cutter Mill Road, Great Neck, New York 11021
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 516-466-3100
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Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
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Shares of Beneficial New York Stock Exchange
Interest, $3.00 Par Value
Securities registered pursuant to Section 12(g) of the Act:
NONE
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(Title of Class)
Indicate by check mark whether the registrant (l) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in PART III of this Form 10-K or any
amendment to this Form 10-K [ ]
Indicate by check mark whether the registrant is an accelerated filer
(as defined in Exchange Act Rule 12b-2).
Yes No X
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The aggregate market value of voting and non-voting common equity held
by non-affiliates of the registrant was $46,890,507 based on the last sale price
of the common equity on March 31, 2003, which is the last business day of the
registrant's most recently completed second quarter.
As of December 1, 2003 the registrant had 7,531,127 shares of
Beneficial Interest outstanding, excluding treasury shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the proxy statement for the annual meeting of shareholders of BRT
Realty Trust to be filed not later than January 28, 2004 are incorporated by
reference into Part III of this Form 10-K.
PART I
Item l. Business.
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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 and junior real estate mortgage loans secured by income
producing real property. In addition, we purchase and hold for investment senior
or junior participations in existing mortgage loans originated by others secured
by income producing real property. On occasion, we participate as both lender to
and an equity participant in joint ventures which acquire income producing real
property and we will originate and hold for investment a loan secured by an
improved commercial or multi-family residential property that is vacant, pending
renovation and sale or leasing. We have originated in the past, and will
consider in the future, loans to entities which own income producing real
property or real property under construction, secured by the individual owners'
partnership or limited liability company interests in the owning entity. This
type of loan is commonly referred to as "mezzanine financing." We also originate
and hold for investment participating mortgage loans secured by income producing
property. Except for loans to our joint ventures and participating mortgage
loans, we seek and prefer to invest in loans with terms ranging from six months
to three years, referred to as bridge loans. A participating mortgage loan is
usually for a term of one to five years. We do not generally finance new
construction, but will finance renovation activities involved in rehabilitating
and upgrading a property. From time to time we have provided mortgage financing
secured by undeveloped real property. Finally, we have invested in equity
securities of other REITs, the increase in the market value and the subsequent
sale of which may account for income to us, although we do not consider this to
be part of our usual business activities.
We will originate loans secured by real property located anywhere in
the United States. In the past our activities have focused on the New York
metropolitan area, including New Jersey and Connecticut. During the last few
years, however, the scope of our lending activities has been national. As of
September 30, 2003, we had 32 mortgage loans outstanding, aggregating
$66,878,000 principal amount of loans outstanding before allowances of $881,000,
which include senior and junior mortgage loans, senior and junior participations
in mortgage loans, and loans to joint ventures. Our loan portfolio is secured by
real property located in 10 states, of which 57% of the principal amount of our
outstanding loans were secured by properties located in the New York
metropolitan area, including New Jersey and Connecticut, 16% by properties
located in the State of California, 12% by properties located in the State of
Delaware, and 15% by properties in other States. During October 1, 2002 to
September 30, 2003, or our 2003 fiscal year, we originated $58,716,000 principal
amount of loans and received payoffs and paydowns of $76,365,000 principal
amount of loans.
A majority of the mortgage loans originated and held by us bear
interest at a floating rate related to the prime rate, also referred to as
adjustable rate mortgages, with a stated minimum interest rate. A portion of our
mortgage loans are adjustable rate mortgages without a stated minimum interest
rate, and a portion of our mortgage loans provide for a fixed rate of interest.
If the prime rate declines, our revenues will decline, but this reduction will
be limited because a majority of our mortgage loans provide for a stated minimum
interest rate. Conversely, the benefit to us of an increase in the prime rate
will also be limited because a portion of our portfolio provides for a fixed
rate of interest although a substantial number of mortgage loans in our
portfolio contain an adjustable rate interest provision. Interest on mortgage
loans held by us is payable monthly. Furthermore, on first mortgage loans, we
usually hold escrows, also payable monthly, to cover real estate taxes and
casualty insurance premiums. We may require a borrower to fund an interest
reserve out of the net loan proceeds, from which all or a portion of the
interest payments due to us are made for a specified period of time.
We receive a commitment fee on substantially all mortgage loans we
originate and usually receive an extension fee in connection with the extension
of a loan. These fees are generally paid at the time a loan is funded or
extended. Commitment and extension fees are taken into income over the life of
the loan. If we issue a commitment and the loan is not consummated, the fee is
recognized at the expiration of the commitment. Non-refundable fees, which
includes an advance against projected legal fees, our due diligence costs and
other projected miscellaneous costs to be incurred by us, are received for many
of our commitments. In the 2003 fiscal year, we earned $1,773,000 on all
commitment and loan related fees.
On September 30, 2003 our mortgage portfolio consisted of 32 mortgage
loans totaling $65,997,000 in aggregate principal amount, net of allowances of
$881,000, which represented 47% of our total assets. As of September 30, 2003,
all outstanding loans, except for four mortgage loans in the principal amount of
$3,145,000, with an allowance of $377,000 for loan losses, were earning
interest. The mortgage loans not earning interest represent approximately 4.7%
of the outstanding loan portfolio at September 30, 2003.
Of the principal amount of loans outstanding on September 30, 2003, 70%
represented first mortgage loans or first mortgage loans in which we held a
senior or pari passu participation, and 30% represented second mortgage loans
and junior participations.
During the fiscal year ended September 30, 2003 in addition to
originating mortgage loans and purchasing participations in existing mortgage
loans, we were engaged in managing our loan portfolio, supervising the
management of real estate assets acquired in foreclosure and owned by us,
overseeing the activities of joint ventures in which we were involved as an
equity participant, and leasing our real estate assets. Approximately 9.4% of
our total assets on September 30, 2003, or an aggregate of $13,066,000 after
valuation allowances of $325,000, were represented by real estate assets,
excluding mortgage loans receivable, but including investments in joint
ventures.
On September 30, 2003, we had an investment of $33,748,000 in the
securities of other real estate investment trusts, or 24.3% of our total assets,
of which $32,844,000, or 23.6% of our total assets, represented an investment in
the common shares of Entertainment Properties Trust ("EPR"). At September 30,
2003 we owned 1,094,800 shares of the Common Stock of EPR, or 5.44% of EPR's
outstanding shares, at a cost for book purposes of $14,381,000. As of September
30, 2003, we had an unrealized gain on our investment in EPR of $18,463,000, and
$248,000 of net unrealized gain on the securities of other real estate
investment trusts. In the 2003 fiscal year, we sold 260,800 shares of EPR for a
gain of $4,187,000 and since September 30, 2003 we have sold 35,600 additional
shares of EPR at a gain of $720,000. We may from time-to-time purchase the
securities of other REITs and we may sell the shares we own in other REITs,
including common shares of EPR owned by us, if our management determines that
any such transaction would be beneficial to us. Under the Investment Company Act
of 1940 if more than 40% of a company's assets are investment securities then
such company could be subject to the Investment Company Act of 1940. We monitor
the value of our securities portfolio in order to avoid being categorized as an
investment company.
Investment Policy
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Our investment policy emphasizes the origination for our own account of
short-term senior and junior real estate mortgage loans secured by liens on
income producing real property. We have on occasion originated and held for
investment a loan secured by an improved commercial or multi-family residential
property which is vacant, pending renovation and sale or leasing. We also, from
time-to-time, purchase a senior participation or a junior participation in an
existing short term bridge loan originated by others and sell on a junior,
senior or pari passu basis a participation in a loan originated by us. Junior
mortgage loans and junior participations in existing mortgage loans are
subordinate to one or more prior liens.
We also originate mortgage loans to joint ventures in which we are an
equity participant. If a determination is made by management that a real
property investment will provide an opportunity to participate in capital
appreciation, then we may make an equity investment with a joint venturer, and
make a loan, either senior or junior, to the venture. At September 30, 2003, we
had $6,930,000 invested in joint ventures in which we were an equity
participant, and $3,159,000 in first mortgage loans and $3,975,000 in second
mortgage loans was due to us from these joint ventures. Every mortgage loan made
by us to a joint venture in which we are an equity participant is secured by the
property owned by the venture.
In the past we have originated for our own account participating
mortgage loans. At September 30, 2003, there were no participating mortgage
loans outstanding. A participating mortgage loan is secured by a first or second
mortgage lien on income producing real property and provides for a fixed or
floating interest rate, which is related to the prime rate. This fixed or
floating interest rate is at a somewhat lesser rate than the rate charged by us
on our short-term mortgage loans, is for a longer term, and provides for payment
of "additional" or "appreciation" interest either at the time of the sale or
refinancing of the property securing the loan or at the maturity of the loan.
The additional interest is usually calculated based on the incremental value of
the property securing the mortgage from the date the loan is consummated to the
date the loan is paid off, but can also be based on a fixed rate, or other
negotiated criteria.
From time to time we originate mezzanine loans to the owner of real
property secured by some or all of the interests in the ownership entity,
usually partnership or limited liability company interests. These loans are
junior to the direct mortgage or mortgages placed on the property owned by the
ownership entity.
We have no fixed policy or limitation on the amount or percentage of
our assets which we may invest in a single mortgage loan. The largest loan
originated in our 2003 fiscal year was $14,000,000, of which no amount is
currently outstanding. The trend over the past few years has been for larger
loan transactions with the principal amount originated per loan transaction
increasing year over year. During the year ended September 30, 2003, the average
loan originated was $3,650,000 compared to $2,575,000 during the year ended
September 30, 2002. Since October 1, 2003 we have originated a mortgage loan to
one borrower in the principal amount of $23,500,000.
Our lending activities are nationwide. As of September 30, 2003, we
have loans outstanding that are secured by properties located in 10 states. It
is not our present intent to originate or otherwise invest in any mortgage loan
secured by property located outside the United States and Puerto Rico.
Loan approvals and approval of joint venture investments are based on a
review of information submitted by the proposed borrower or proposed joint
venturer, as well as due diligence activities undertaken by us, including a site
visit to the property, a title review of the underlying property, in-house
property evaluations, a review of the results of operations of the property or
in case of an acquisition by our borrower a review of the borrower's projected
results of operations for the property, and a review of the financial condition
of the prospective borrower. Final approval is determined by a loan committee
consisting of several of our executive officers and must be obtained before a
commitment is issued. Board approval is required for each loan which exceeds
$10,000,000 in principal amount. In addition, in most instances, we receive an
environmental study which is paid for by the potential borrower. We do not
require a property appraisal by an independent appraiser.
We use our own capital for investing in mortgage loans and joint
ventures. In addition, we have arranged a credit facility with North Fork Bank
to make funds available for real estate mortgage lending. Under the credit
facility, North Fork Bank makes available up to $30,000,000 on a revolving
basis. The maximum amount which can be outstanding under the credit facility is
the lesser of 65% of first mortgages pledged to North Fork Bank as collateral,
or $30,000,000. At September 30, 2003, $21,061,000 was available under the
facility and $1,000,000 was outstanding. At December 1, 2003 $30,000,000 was
available under the facility and $7,250,000 was outstanding. The credit facility
matures on June 1, 2006 with two one-year extensions available to us. Borrowings
under the facility bear interest at prime plus 1/2 of 1% (currently 4 1/2% per
annum). The loan agreement between us and North Fork Bank contains affirmative
and negative covenants, including a minimum net worth requirement of
$70,000,000, as defined in the agreement, and a required debt coverage ratio.
The definition of net worth excludes any securities available-for-sale owned by
us and, as computed in accordance with the loan agreement, was $89,578,000 at
September 30, 2003. We are in compliance with all covenants.
We also have the ability to borrow under a margin line of credit
maintained with Wachovia Securities LLC secured by the shares of stock we own in
EPR. Borrowings under the margin line of credit currently bears interest at 3%
per annum. At September 30, 2003 $13,138,000 was available under this facility
of which we had $3,755,000 outstanding. At December 1, 2003, $10,201,000 is
outstanding under the margin facility.
Since the spreads between the interest paid by us on the credit line
and the margin credit line and the interest paid to us by a borrower can range
from approximately 5% to 10%, the use of leverage increases our yields.
The mortgage loans that we originate generally provide for recourse to
our borrowers, but are not insured, in whole or in part, as to collectability.
We will obtain either a personal guarantee or a "walk-away guarantee" from the
principal or principals of the borrower for most loans originated. A "walk-away
guarantee" provides in substance that the guarantee terminates if the borrower
conveys title to the property to us within a negotiated period of time after a
loan default, subject to the satisfaction by the borrower or the guarantor of
specific requirements such as current payment of all real estate taxes and
operating expenses. The "walk-away guarantee" is intended to provide an
incentive to the principals of a borrower to have the collateral deeded to us,
in lieu of foreclosure, thereby eliminating the need for foreclosure proceedings
in situations where the borrower runs the risk of losing the property in a
foreclosure and the further risk of being personally responsible on his guaranty
for any shortage in the amount we recover in the foreclosure proceeding.
Loan defaults will reduce our current return and may require us to
become involved in expensive and time consuming procedures, including
foreclosure and/or bankruptcy proceedings. In the event of a default by the
borrower on a mortgage loan, we will foreclose on the mortgage or other
collateral held by us or seek to protect our investment through negotiations
with the borrower or other interested parties, which may involve further cash
outlays. During a foreclosure proceeding, we will usually not receive interest
payments under our mortgage. Foreclosure proceedings in certain jurisdictions
can take a considerable period of time, up to two years or more in many
instances. In addition, if the borrower files for protection under the federal
bankruptcy laws during the foreclosure process, then the delays may be longer.
In a mortgage foreclosure proceeding, we will typically seek to have a receiver
appointed by the Court or an independent third party property manager appointed
with the borrower's agreement in order to preserve the rental income stream and
provide for the maintenance of the property. At the conclusion of the
foreclosure or negotiated workout process, which occurs after the property is
either sold at auction to a third party purchaser, acquired by us, or the
workout process results in the borrower or its designee retaining the property,
then the amounts, if any, collected by the receiver or the third party manager,
less costs and expenses of operating the property and the receiver's or
manager's fees, are usually paid over to us. Except for one non-earning loan in
the outstanding principal amount of $650,000, which is in default and is in
foreclosure and three cross-collateralized loans in the total principal amount
of $2,495,000 which is the subject of a single foreclosure action, no
foreclosure proceedings commenced by us were pending as of September 30, 2003
and as of the date of this filing.
When we invest in junior mortgage loans, junior participations in
existing loans or if we invest in the future in mezzanine loans secured by
partnership or limited liability company interests, the collateral securing our
loans are, or will be, subordinate to the liens of senior mortgages or senior
participations. At September 30, 2003, approximately 30% of our real estate
mortgages, or $19,842,000 principal amount, were represented by junior mortgages
or junior participations. In certain cases, we may find it advisable to make
additional payments in order to maintain the current status of prior liens or to
discharge them entirely or to make working capital advances to support current
operations. It is possible that the amount which may be recovered by us in cases
in which we hold a junior position may be less than our total investment, less
allowances for possible losses, and we could lose our entire investment in that
loan.
Current Loan Status
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Our lending activities focus on income producing properties such as
multi-family residential properties, residential condominiums, office buildings,
shopping centers, mixed use buildings, hotels/motels and industrial buildings.
As of September 30, 2003, we had 32 mortgage loans in our mortgage portfolio,
totaling $66,878,000 in aggregate principal amount and $65,997,000 after
allowances for possible losses of $881,000 against 4 loans. During the year
ended September 30, 2003, $58,716,000 of mortgage loans were originated or
acquired and $76,365,000 of outstanding loans were repaid in whole or in part.
The three largest mortgage loans outstanding at September 30, 2003 of
$10,400,000, $8,200,000 and $4,916,000 represent 7.48%, 5.90% and 3.54%,
respectively, of our total assets. No other mortgage loan accounted for more
than 3.5% of our total assets on September 30, 2003. As of December 1, 2003 the
three largest mortgage loans outstanding in principal amount were $23,500,000,
$10,400,000 and $8,200,000.
Loan originations are generated, and senior or junior loan
participations are acquired, by us in a number of ways. To a large extent, we
rely on the relationships developed by our officers and loan originators with
real estate investors, commercial real estate brokers, mortgage brokers, and
bankers. In addition, we advertise our programs and activities in real estate
publications and journals and our executive officers and loan originators attend
industry activities and trade shows. As a result of our advertising and
promotional activities and our participation in trade shows, our transactions
have expanded nationally. We have also experienced a great deal of repeat
business with our borrowers.
The following sets forth information regarding our mortgage loans outstanding at
September 30, 2003:
Interest Non-Interest Prior No. of
Total Earning Earning Liens Loans
First mortgage loans:
Long-term
Residential (Multi-Family) $ 41,000 $ 41,000 $ - $ - 1
Short-term (five years or less):
Shopping centers/retail 17,544,000 17,544,000 - - 5
Industrial buildings 5,985,000 5,985,000 - - 3
Office buildings 5,826,000 5,176,000 650,000 - 4
Residential 17,640,000 16,112,000 1,528,000 - 11
Second mortgage loans, and junior participations:
Short-term (five years or less):
Residential 18,817,000 17,850,000 967,000 93,496,000 5
Retail 475,000 475,000 - 2,509,000 2
Office 550,000 550,000 - 3,767,000 1
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$66,878,000 $63,733,000 $ 3,145,000 $99,772,000 32
As of September 30, 2003, we had allowances for possible losses on our
real estate mortgage portfolio of $881,000. The allowances were on four mortgage
loans with a total principal balance outstanding of $5,452,000. In determining
the allowance for possible loan losses, we take into account a number of factors
including a market evaluation of the underlying collateral, the underlying
property's estimated cash flow during the projected holding period, and
estimated sales value computed by applying an expected capitalization rate to
the stabilized net operating income of the specific property, less estimated
selling costs. We also take into account the extent of liquidity in the real
estate industry, particularly in the New York metropolitan area where
approximately 57% of our portfolio is located. Management monitors a borrower's
performance and compliance with the loan documents and where we hold a junior
lien, we monitor the status of payments to the first mortgagee and real estate
taxes. Our management reviews the loan portfolio on a quarterly basis to
determine if allowances are needed.
When a mortgage loan is in default, we may acquire the underlying
property through foreclosure or may take other action as is necessary to protect
our investment. In negotiated workouts, we seek to acquire title to a property
and in certain cases in the past we have acquired title to a property from our
borrower and afforded the borrower the opportunity to reacquire the property
within a specified period of time at a fixed price.
Investment in EPR
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As of September 30, 2003, we owned 1,094,800 common shares of
Entertainment Properties Trust (NYSE:EPR), constituting approximately 5.44% of
the 20,124,833 common shares of EPR outstanding. The shares were purchased at an
average cost for book purposes of $13.14 per share. As of September 30, 2003,
the value of this investment was $32,844,000, or $30.00 per share. In the 2003
fiscal year, EPR paid or declared cash dividends to shareholders at a quarterly
rate of $.50 per share, which provided us with an annual yield of 15.22% on our
book cost. In the 2003 fiscal year, we sold 260,800 of our EPR shares for a gain
of $4,187,000.
Information with respect to the business of EPR is generally available
from its filings with the Securities and Exchange Commission, including its
Annual Report on Form 10-K for the year ended December 31, 2002, as well as Form
10-Q's and Form 8-K's filed by EPR since January 1, 2003. We have not
independently verified any of the information contained therein with respect to
EPR and we disclaim any responsibility for the accuracy or completeness thereof.
We have no knowledge of the business, financial condition or results of
operations of EPR, other than as set forth in the reports filed by EPR with the
Securities and Exchange Commission, published industry reports related to the
exhibition of motion pictures, and analysts reports relating to EPR.
Competition
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With respect to our real estate lending activities, we compete for
investments with other REITs, commercial banks, savings and loan associations,
conduits, pension funds, public and private lending companies, and mortgage
banking firms. Competition for mortgage loans is highly competitive, with
lenders competing on rate, fees, amounts committed, term and service. Many of
our competitors possess greater financial and other resources than we have. We
compete by offering rapid response time in terms of approval and closing and by
offering "no prepayment penalty" loans and we may offer a higher loan to value
ratio than institutional competitors. In order to compete more effectively, we
have engaged in more active advertising and marketing activities, which has
expanded our lending activities on a more national basis.
Employees
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We share executive, administrative, legal, accounting and clerical
personnel with several affiliated companies, including, among others Gould
Investors L.P., a partnership involved in the ownership and operation of a
diversified portfolio of commercial real estate, and One Liberty Properties,
Inc., an equity REIT which owns a diversified portfolio of real estate under
long-term leases. Jeffrey A. Gould, our President and Chief Executive Officer,
George Zweier, our Vice-President and Chief Financial Officer, two officers
engaged in loan origination and underwriting activities, and one person engaged
in administrative activities devote all, or substantially all, of their business
time to our activities. The balance of the other persons who devote time to our
activities do so on a part-time basis pursuant to a Shared Services Agreement
under which their payroll is allocated among the parties to the agreement based
on time devoted to the affairs of the participating parties. We believe this
sharing arrangement provides us with access to senior executives and
professionals with substantial experience in real estate and real estate lending
that a company of our size would not otherwise be able to afford.
In addition, we have entered into an agreement with REIT Management
Corp. pursuant to which it acts as our advisor. Subject to the supervision of
our Board of Trustees, REIT Management Corp. participates in originating and
evaluating loans and investment opportunities, provides property inspection
services in connection with loan originations and construction related
activities, directs negotiations in workout situations with respect to
non-earning and delinquent loans and supervises and provides support services in
litigation activities.
We engage entities, including entities affiliated with REIT Management
Corp., to manage properties, including cooperative apartments, held by us and
some of the joint ventures in which we have an equity interest. These management
services include, among other things, rent billing and collection, property
maintenance, contractor negotiation, construction management, sales, leasing and
mortgage brokerage. In management's judgment, the fees paid to REIT Management
Corp. and entities affiliated with REIT Management Corp. are competitive with
fees that would be charged for comparable services by unrelated entities.
Proposed Business Activity
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We are in the process of drafting the documentation to organize and
obtain regulatory approval to operate a federally chartered savings and loan
association. Regulatory approval will be required from the United States Office
of Thrift Supervision and the Federal Deposit Insurance Corporation. We plan to
operate the "de novo" bank as a wholly owned taxable REIT subsidiary with a
capitalization of $20,000,000. The current plan is for the institution to act as
a community oriented bank attracting deposits from its market area by offering
competitive rates and investing these deposits, together with funds from
on-going operations and borrowings into the origination of multi-family,
commercial real estate, and to a lesser extent one-to-four family residential
loans, construction loans and consumer loans. The "de novo" bank will service
the New York Metropolitan Area, including the five boroughs of New York City,
Nassau, Suffolk, Rockland and Westchester Counties and Northern New Jersey.
There can be no assurance that we will be successful in organizing the
"de novo" bank and obtaining regulatory approvals. The process of filing and
obtaining approval may take nine months or longer and if we are successful in
obtaining all approvals, we do not contemplate that we could commence operations
until the last quarter of our 2004 fiscal year or the first quarter of our 2005
fiscal year. We do not contemplate that the operation of the bank will have a
material effect on our business for several years. We anticipate spending
approximately $300,000 in our 2004 fiscal year in organizing the "de novo" bank.
Risk Factors
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In addition to the other information contained or incorporated by
reference in this Form 10-K, readers should carefully consider the following
risk factors
Risks Related to Our Business
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Defaults on Loans by borrowers would result in decrease in income. -
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Loan defaults will result in a decrease in interest income and an increase in
loan loss reserves. The decrease in interest income resulting from loan defaults
may be for a prolonged period of time as we seek to recover the principal
balance and accrued interest due to us plus default interest and our legal costs
in legal proceedings, including foreclosure actions and bankruptcy and
reorganization proceedings. These legal proceedings are expensive and time
consuming. The decrease in interest income and the costs involved in seeking to
recover the amount due to us will reduce the amount of cash available to meet
our expenses. The decrease in interest income combined with increases in loan
loss reserves will also have an adverse impact on our net income, taxable income
and shareholders' equity. The decrease in interest income and the costs involved
in seeking to recover the amounts due to us could also have an adverse impact on
the cash distributions paid by us to our shareholders and our ability to
continue to pay cash distributions.
Our primary source of recovery in the event a loan default is the real
property underlying a defaulted loan and therefore the value of our loan depends
upon the value of the underlying real property. The value of the underlying
property is dependent on numerous factors outside of our control, including
national, regional and local business and economic conditions, government
economic policies, the level of interest rates, and non performance of lease
obligations by tenants occupying space at the underlying real property.
If a significant number of our mortgage loans are in default or we
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otherwise must write down our loans, a breach of the Net Worth Covenant of our
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bank line of credit could occur. - If a significant number of our mortgage loans
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are in default and/or a recessionary environment exists under which generally
accepted accounting principles require us to take provisions against our loans
or against our real estate assets, our net worth could be materially adversely
affected. If our net worth, as defined, falls below $70,000,000, we would be in
breach of the minimum net worth covenant contained in the credit line we
maintain with North Fork Bank. The definition of net worth in our credit line
agreement does not give effect to any securities owned by us, including our
ownership of shares of EPR. Our net worth at September 30, 2003, computed in
accordance with the credit agreement, was $89,578,000.
A breach by us of the net worth covenant would place us in default
under our loan agreement with North Fork Bank and if the Bank called a default
and required us to repay the full amount outstanding under the loan agreement,
we could be required to dispose of assets in a rapid fashion, which could have
an adverse impact on the amounts we would receive on such disposition. If we
could not dispose of assets in a timely fashion to the satisfaction of the Bank,
the Bank could foreclose on all or any portion of our loan portfolio pledged to
the Bank as collateral, which could result in loans being disposed of at below
market values. Disposition of loans at below our carrying value would adversely
affect net income, reduce our net worth and adversely affect our ability to pay
cash distributions to shareholders.
Inability of our Borrowers to Refinance or Sell the Underlying Real
-------------------------------------------------------------------
Property would lead to defaults on our loans. - A majority of our mortgage
- -----------------------------------------------
portfolio is short term and the preponderance of our portfolio is due within
five years. In addition, our borrowers are required to pay all or substantially
all of the principal balance of our loans at maturity, in most cases with little
or no amortization of principal over the term of the loan. Accordingly, in order
to satisfy this obligation, at the maturity of a loan, a borrower will be
required to refinance or sell the property or otherwise raise a substantial
amount of cash. The ability to refinance or sell or otherwise raise a
substantial amount of cash is dependent upon factors which neither we nor our
borrowers control, such as national, local and regional business and economic
conditions, government economic policies, and the level of interest rates. If a
borrower is not able to pay the balance due at maturity, and we are not willing
to extend or restructure the loan, we will in most cases be required to
foreclose on the property, which can be expensive and time consuming and could
adversely affect our net income, shareholders' equity and cash distributions to
shareholders.
A Significant portion of our loans are Subordinate Loans. - At
-----------------------------------------------------------
September 30, 2003 eight of our loans, constituting $19,842,000 in principal
amount, or 30% of the carrying value of our loan portfolio, were junior mortgage
loans or junior participations in mortgage loans. Because of their subordinate
position, junior liens carry a greater credit risk than senior lien financing,
including a substantially greater risk of non-payment of interest or principal.
A decline in real estate values in the region in which the underlying property
is located could adversely affect the value of our collateral, so that the
outstanding balance of senior liens may exceed the value of the underlying
property.
In the event of a default of a junior lien, we may elect to make
payments to the senior mortgage holder, if we have the right to do so, in order
to prevent foreclosure of the senior position. In certain situations we may not
have the right to elect to make payments to the senior position, and the senior
lienholder may refuse to allow us to make any such payments. In such a
situation, or if we elect not to make payments even if we have the right to do
so, the senior lienholder may foreclose; in which event we will be entitled to
share in the proceeds of the foreclosure sale only after amounts due to senior
lienholders have been paid in full. This can result in the loss of all or part
of our investment, adversely affecting our net income, shareholders' equity and
cash distributions to shareholders.
Our Loans may have High Loan to Value Ratios. - The loan to value ratio
---------------------------------------------
of certain of our loans exceeds 80%. Loan to value ratio is defined as the ratio
of the amount of our loan, plus any senior indebtedness, to the value of the
real property underlying the loan as determined by our own in-house procedures.
The higher the loan to value ratio, the greater the risk that upon default the
amount obtainable from a foreclosure or bankruptcy sale may be insufficient to
repay the loan in full. In addition we may find it necessary to acquire the
property at a foreclosure sale or bankruptcy auction, in which event we assume
the risks and realize any benefits that may be derived from ownership.
Our Portfolio Lacks Geographical Diversification. - As of September 30,
---------------------------------------------------
2003, 57% of the principal amount of our outstanding loans were secured by
properties located in the New York Metropolitan Area, including New Jersey and
Connecticut, although we originate and hold for investment loans secured by real
property located anywhere in the United States and Puerto Rico. A lack of
geographical diversification may make our mortgage portfolio more sensitive to
local or regional economic conditions, which may result in higher default rates
than might be incurred if our portfolio was more geographically diverse.
We face stiff Competition for Loans. - We encounter significant
------------------------------------
competition from other REITS, banks, conduits, pension funds, public and private
lending companies and mortgage bankers. At times we have to compete based on
yield, which could reduce our returns. We seek to compete by offering rapid
response time in terms of approval and closing. In addition, the real estate
expertise of our executive group provides us with the ability to understand and
structure complex loan transactions. However, many of our competitors have
substantially greater assets than we do and therefore have the ability to make
larger loans. An increase in funds available to lenders, or a decrease in
borrowing activity, may increase competition for making loans and may result in
loans available to us having a greater risk.
We face risks relating to fluctuations in the Real Property Markets. -
----------------------------------------------------------------------
We are subject to the general risks of the real estate market. These include
adverse changes in general and local economic conditions, demographics,
retailing trends and traffic patterns, competitive overbuilding, casualty losses
and other factors beyond our control. The value of the collateral underlying our
loans, as well as the real estate owned by us and by joint ventures in which we
participate, may also be negatively affected by factors such as the cost of
complying with regulations and liability under applicable environmental laws,
interest rate changes and the availability of financing. Income from a
commercial or multifamily residential property will also be adversely affected
if a significant number of tenants are unable to pay rent, if tenants terminate
or cancel leases, or if available space cannot be rented on favorable terms.
Operating and other expenses of properties, particularly significant expenses
such as real estate taxes, maintenance costs and casualty and liability
insurance costs, generally do not decrease when income decreases and even if
revenues increase, operating and other expenses may increase faster than
revenues.
Casualty Risk. - All of our borrowers obtain, for our benefit,
--------------
comprehensive insurance covering the property collateralizing our loan in an
amount intended to be sufficient to provide for the replacement of the
improvement at the property in the event of casualty. In addition, joint
ventures in which we are a participant carry comprehensive insurance covering
the property owned by the venture for the replacement cost of the improvements
at such property in the event of a casualty and we carry insurance for such
purpose on properties owned by us. However, the amount of insurance coverage
maintained for any property may not be sufficient to pay the full replacement
cost of the improvement following a casualty event. In addition, the rent loss
coverage under a policy may not extend for the full period of time that a tenant
may be entitled to a rent abatement that is a result of, or that may be required
to complete restoration following, a casualty event. In addition, there are
certain types of losses, such as those arising from earthquakes, floods,
hurricanes and terrorist attacks that may be uninsurable or that may not be
economically insurable. Changes in zoning, building codes and ordinances,
environmental considerations and other factors may make it impossible for our
borrower, a joint venture or us, as the case may be, to use insurance proceeds
to replace damaged or destroyed improvements at a property. If any of these or
similar events occur, the amount of coverage may not be sufficient to replace a
damaged or destroyed property and/or to repay in full the amount due on all
loans collateralized by such property and, therefore, may reduce our returns and
the value of our investment.
Other Risk Factors
Senior Management and Key Personnel are Critical to our Business and
--------------------------------------------------------------------
our Future Success may Depend on our Ability to Retain Them. - We depend on the
- --------------------------------------------------------------
services of Fredric H. Gould, Chairman of our Board of Trustees, Jeffrey A.
Gould our President and Chief Executive Officer, and other members of our senior
management to carry out business and investment strategies. Only four officers,
Jeffrey A. Gould, George Zweier, Vice President and Chief Financial Officer and
David Heiden and Mitchell Gould, Vice Presidents, devote substantially all of
their business time to our company. The remainder of our management personnel
share their services on a part-time basis with entities affiliated with us and
located in the same executive offices under a Shared Services Agreement. In
addition, Jeffrey A. Gould devotes a limited amount of his business time to
entities affiliated with us. As we grow our business, we will need to attract
and retain qualified senior management and other key personnel, both on a
full-time and part-time basis. The loss of the services of any of our senior
management or other key personnel or our inability to recruit and retain
qualified personnel in the future, could impair our ability to carry out our
business and our investment strategies.
Relationships and Transactions with Affiliates Involve Conflicts of
-------------------------------------------------------------------
Interest. - Entities affiliated with us and with certain of our officers provide
- -----------
services to us and on our behalf and we intend to continue the relationships
with such entities in the future. For a description of our current relationships
and transactions with affiliates, please see the information under the
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Certain Transactions". Although we seek to have such services
provided by affiliates at competitive market rates, there is the potential that
we may not receive terms in these transactions as favorable as those we would
receive if the services were provided by unaffiliated entities pursuant to
competitive bid.
We May Have Less Control of our Investment When We Invest in Joint
------------------------------------------------------------------
Ventures. - We have made loans to and acquired equity interests in joint
- -----------
ventures that own income producing real property. Our co-venturers may have
different interests or goals than we do or our co-venturers may not be able or
willing to take an action that is desired by us. If we or our co-venturers have
a disagreement with respect to the activities of the joint venture, it could
result in a substantial diversion of time and effort by our management and could
result in one of the co-venturers (including us) exercising the buy/sell
provision typically contained in our joint venture organizational documents. In
addition, there is no limitation under our charter documents as to the amount of
funds that may be invested in joint ventures. Accordingly, we may invest a
substantial amount of our funds in joint ventures which ultimately may not be
profitable as a result of disagreement with or among co-venturers.
We Cannot Assure our Ability to Pay Dividends in the Future. - We
--------------------------------------------------------------
intend to pay quarterly cash distributions and to make cash distributions to our
shareholders in amounts such that all or substantially all of our taxable income
in each year, subject to adjustments, is distributed. This along with other
factors should enable us to qualify for the tax benefits afforded a REIT under
the Internal Revenue Code. We have not established a minimum cash distribution
payment level and our ability to pay cash distributions may be adversely
affected by the risk factors described above. All cash distributions will be
made at the discretion of our Board of Trustees and will depend on our taxable
earnings, our financial condition, maintenance of our REIT status and such other
factors as our Board of Trustees may deem relevant from time-to-time. We cannot
give any assurance that we will be able to pay cash distributions in the future.
Effect of Decrease in Market Value of, or Cash Distributions Paid on,
---------------------------------------------------------------------
EPR Stock. - The value of the shares of Entertainment Properties Trust owned by
- ------------
us at September 2003 was $32,844,000 while our cost basis was $14,381,000. At
September 30, 2003 our balance sheet reflects as an asset $36,354,000 of
available-for-sale securities, of which $32,844,000 represents the market value
of the shares of EPR owned by us on September 30, 2003 and $18,463,000, or 15%
of our shareholders' equity, represents the difference between our cost basis
for such shares and the market value for such shares. We have no business
relationship, affiliation with or influence over, the business or operations of
EPR. Any substantial decrease in the market value of EPR shares, whether
resulting from activities of EPR, its management, market forces or otherwise
could result in a material decrease in our total assets and in our shareholders'
equity.
Our ownership of shares of EPR resulted in the receipt by us for the
fiscal year ended 2003 of cash dividends of $2,464,000. In the fiscal year
ending September 30, 2003 we sold 260,800 EPR shares for a gain of $4,187,000.
The shares sold provided us with cash dividends of $303,000 in calendar 2003. If
there is a decrease in the EPR dividend, for any reason, it could reduce the
amount of cash distributions available for our shareholders. In addition, if the
stock price of EPR were to decline, our profit from the sale of these shares
would decline or could be eliminated.
We have established a margin line of credit collateralized by the EPR
shares owned by us. At September 30, 2003 $13,138,000 was available under this
line of credit of which $3,755,000 was outstanding. When we have amounts
outstanding under the margin line of credit, a significant decrease in the value
of the EPR shares could result in a margin call and, if cash is not available
from other sources, a sale of EPR shares may be required at a time when we are
not desirous of selling EPR shares, resulting in the possibility that such
shares could be sold at a per share loss.
Risks Related to the REIT Industry
- ----------------------------------
Failure to Qualify as a REIT Would Result in Material Adverse Tax
-----------------------------------------------------------------
Consequence and Would Significantly Reduce Cash Available for Distributions. We
- ----------------------------------------------------------------------------
believe that we have operated so as to qualify as a REIT under the Internal
Revenue Code. Qualification as a REIT involves the application of technical and
complex legal provisions for which there are limited judicial and administrative
interpretations. The determination of various factual matters and circumstances
not entirely in our control may affect our ability to qualify as a REIT. In
addition, no assurance can be given that legislation, new regulations,
administrative interpretations or court decisions will not significantly change
the tax laws with respect to qualification as a REIT or the federal income tax
consequences of such qualification.
If we fail to qualify as a REIT, we will be subject to federal, state
and local income tax, including any applicable alternative minimum tax, on our
taxable income at regular corporate rates and would not be allowed a deduction
in computing our taxable income for amounts distributed to shareholders. In
addition, unless entitled to relief under certain statutory provisions, we would
be disqualified from treatment as a REIT for the four taxable years following
the year during which the qualification is lost. The additional tax would reduce
significantly our net income and the cash available for distributions to
shareholders.
We are Subject to Certain Distribution Requirements that May Result in
----------------------------------------------------------------------
our Having to Borrow Funds at Unfavorable Rates. - To obtain favorable tax
- --------------------------------------------------
treatment associated with being a REIT, we generally will be required, among
other things, to distribute to our shareholders at least 90% of our ordinary
taxable income (excluding capital gains) each year. In addition, we are subject
to a 4% non-deductible excise tax, on the amount, if any, by which certain
distributions paid by us with respect to any calendar year are less than the sum
of 85% of our ordinary income, 95% of our capital gain net income and 100% of
our undistributed income from prior years. As a result of differences in timing
between the receipt of income and the payment of expenses, and the inclusion of
such income and the deduction of such expenses in arriving at taxable income,
and the affect of non-deductible capital expenditures, the creation of reserves
and the timing of required debt service (including amortization payments) we may
need to borrow funds on a short-term basis in order to make the distributions
necessary to retain the tax benefits associated with qualifying as a REIT, even
if the prevailing market conditions are not generally favorable for such
borrowings. Such borrowings could reduce our net income and the cash available
for distributions to the holders of our beneficial shares.
Compliance with REIT Requirements May Hinder Our Ability to Maximize
--------------------------------------------------------------------
Profits. - In order to qualify as a REIT for federal income tax purposes, we
- ----------
must continually satisfy tests concerning, among other things, our sources of
income, the amounts we distribute to our shareholders and the ownership of our
stock. We may also be required to make cash distributions to shareholders at
disadvantageous times or when we do not have funds readily available for
distribution. Accordingly, compliance with REIT requirements may hinder our
ability to operate solely on the basis of maximizing profits.
In order to qualify as a REIT, we must also insure that at the
end of each calendar quarter, at least 75% of the value of our assets consists
of cash, cash items, government securities, and qualified REIT real estate
assets. The remainder of our investment in securities cannot include more than
10% of the outstanding voting securities of any one issuer or more than 10% of
the total value of the outstanding securities of any one issuer. In addition, no
more than 5% of the value of our assets can consist of the securities of any one
issuer, other than a qualified REIT security. If we fail to comply with these
requirements, we must dispose of a portion of our assets within 30 days after
the end of the calendar quarter in order to avoid losing our REIT status and
suffering adverse tax consequences. This requirement could cause us to dispose
of assets for consideration which is less than the true value and could lead to
a material adverse impact on our results of operations and financial condition.
Forward-Looking Statements
This Annual Report on Form 10-K, together with other statements and
information publicly disseminated by us contains certain-forward looking
statements within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended. We
intend such forward-looking statements to be covered by the safe harbor
provisions for forward-looking statements contained in the Private Securities
Litigation Reform Act of 1995 and include this statement for purposes of
complying with these safe harbor provisions. Forward-looking statements, which
are based on certain 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. You should not rely on forward-looking
statements since they involve known and unknown risks, uncertainties and other
factors which are, in some cases, beyond our control and which could materially
affect actual results, performance or achievements. Factors which may cause
actual results to differ materially from current expectations include, but are
not limited to:
o defaults by borrowers in paying debt service on our loans;
o an inability to originate loans on favorable terms;
o increased competition from entities engaged in mortgage lending;
o general economic and business conditions;
o general and local real estate conditions;
o changes in federal, state and local governmental laws and regulations;
o an inability to retain our real estate investment trust qualification; and
o the availability of and costs associated with sources of liquidity.
Accordingly, there can be no assurance that our expectations will be realized.
EXECUTIVE OFFICERS OF REGISTRANT
The following lists our executive officers. The business history of officers who
are also Trustees will be provided in our proxy statement to be filed pursuant
to Regulation 14A not later than January 28, 2004.
Name Office
Fredric H. Gould (*) Chairman of the Board of Trustees
Jeffrey A. Gould (*) President and Chief Executive Officer;
Trustee
Matthew J. Gould (*) Senior Vice President; Trustee
Simeon Brinberg (**) Senior Vice President; Secretary
David W. Kalish Senior Vice President, Finance
George E. Zweier Vice President, Chief Financial Officer
Mark H. Lundy (**) Vice President
Israel Rosenzweig Senior Vice President
Seth D. Kobay Vice President; Treasurer
David Heiden Vice President
Mitchell K. Gould Vice President
(*)Fredric H. Gould is Jeffrey A. and Matthew J. Gould's father.
(**) Simeon Brinberg is Mark H. Lundy's father-in-law.
Simeon Brinberg (age 70) has been our Secretary since 1983 and a Senior
Vice President since 1988. Mr. Brinberg has been a Vice President of Georgetown
Partners, Inc., the managing general partner of Gould Investors L.P., since
October 1988. Gould Investors L.P. is primarily engaged in the ownership and
operation of real estate properties held for investment. In June 1989 he became
a Vice President of One Liberty Properties, Inc., a real estate investment trust
engaged in the ownership of income producing real properties net leased to
tenants under long term leases. Mr. Brinberg is a member of the New York Bar and
was engaged in the private practice of law for approximately thirty years prior
to 1988.
David W. Kalish (age 56) was Vice President and Chief Financial Officer
from June 1990 until August 1998. Since August 1998, Mr. Kalish has been our
Senior Vice President, Finance. He has also been Chief Financial Officer of One
Liberty Properties, Inc. and Georgetown Partners, Inc. since June 1990. For more
than five years prior to June 1990, Mr. Kalish, a certified public accountant,
was a partner of Buchbinder Tunick & Company, and its predecessors.
George E. Zweier (age 39) has been employed by us since June 1998 and
was elected Vice President, Chief Financial Officer in August 1998. For
approximately five years prior to joining us, Mr. Zweier, a certified public
accountant, was an accounting officer with the Bank of Tokyo - Mitsubishi
Limited, in New York.
Mark H. Lundy (age 41) has been a Vice President since 1993. He has
been Secretary of One Liberty Properties, Inc. since June 1993 and he also
serves as a Vice President of One Liberty Properties, Inc. Mr. Lundy has been a
Vice President of Georgetown Partners, Inc. since July 1990. He is a member of
the bars of New York and Washington, D.C.
Israel Rosenzweig (age 56) has been a Senior Vice President since April
1998. Mr. Rosenzweig has been a Vice President of Georgetown Partners, Inc.
since May 1997 and since 2000 he has been President of GP Partners, Inc., an
affiliate of Gould Investors L.P., engaged in providing advisory services in the
real estate and financial services industries to an investment advisor. He also
has been a Senior Vice President of One Liberty Properties, Inc. since May 1997.
Seth D. Kobay (age 49) has been a Vice President and our Treasurer
since March 1994. In addition, Mr. Kobay, a certified public accountant, has
been the Vice President of Operations of Georgetown Partners, Inc. for more than
the past five years and is a Vice President and Treasurer of One Liberty
Properties, Inc.
David Heiden (age 38) has been employed by us since April 1998 and has
been a Vice President since March 1999. From May 1997 until April 1998 Mr.
Heiden was an associate at GMAC Commercial Mortgage engaged in originating and
underwriting commercial real estate loans for securitization. He is a licensed
real estate appraiser and real estate broker.
Mitchell K. Gould (age 31) has been employed by us since May 1998 and
became a Vice President in March 1999. From January 1998 until May 1998 he was
employed by Bear Stearns Companies, Inc. where he was engaged in originating and
underwriting commercial real estate loans for securitization. Mr. Gould is
President of the Metropolitan Mortgage Officers Association and a director of
the Young Mortgage Bankers Association.
Item 2. Properties.
----------
Our executive offices are located at 60 Cutter Mill Road, Great Neck,
New York, where we currently occupy approximately 12,000 square feet with Gould
Investors L.P., REIT Management Corp., One Liberty Properties, Inc. and other
related entities. The building in which the executive offices are located is
owned by a subsidiary of Gould Investors L.P. We contributed $60,131 to the
annual rent of $362,000 paid by Gould Investors L.P., REIT Management Corp.,
One Liberty Properties, Inc., and related entities in the year ended September
30, 2003. We also lease under a direct lease with a subsidiary of Gould
Investors L.P. approximately 1,800 square feet directly adjacent to the 12,000
square feet at an annual rental of $51,000.
At September 30, 2003, we did not own any significant real property,
(significant means a property with a book value amounting to 10% or more of our
total assets). It has been our policy to operate, with a view toward eventual
sale, all real estate assets acquired by us in foreclosure or deed in lieu of
foreclosure. In 2003, the only real estate assets sold by us were shares and the
related proprietary leases in three cooperative apartments sold for a gain on
sale of $499,000.
Item 3. Legal Proceedings.
-----------------
We are not a defendant in any material pending legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders.
---------------------------------------------------
There were no matters submitted during the fourth quarter of the year
ended September 30, 2003 to a vote of our security holders.
PART II
Item 5. Market for the Registrant's Common Equity and Related Matters
Our shares of Beneficial Interest ("Beneficial Shares") are listed on
the New York Stock Exchange ("NYSE"). The following table shows for the periods
indicated, the high and low sales prices of the Beneficial Shares on the NYSE as
reported on the Composite Tape and the per share dividend paid for the periods
indicated.
Dividend
Fiscal Year Ended September 30, High Low Per Share
------------------------------ ---- --- ---------
2003
First Quarter $13.75 $12.40 $.30
Second Quarter 14.10 13.10 .30
Third Quarter 17.50 13.65 .34
Fourth Quarter 19.49 15.40 .36
2002
First Quarter $12.01 $9.90 $.24
Second Quarter 14.00 12.05 .26
Third Quarter 13.90 13.00 .26
Fourth Quarter 13.75 11.65 .28
As of December 1, 2003 there were approximately 870 holders of record
of our Beneficial Shares and approximately 2,980 shareholders. On December 1,
2003, the last reported sales price per Beneficial Share on the NYSE was $24.01.
We qualify as a real estate investment trust for Federal income tax
purposes. In order to maintain that status, we are required to distribute to our
shareholders at least 90% of our annual ordinary taxable income. The amount and
timing of future cash distributions will be at the discretion of the Board of
Trustees and will depend upon our financial condition, earnings, business plan,
cash flow and other factors. Provided we are not in default of the affirmative
and negative covenants contained in our credit agreement with North Fork Bank,
the credit agreement with North Fork Bank does not preclude the payment by us of
the cash distributions necessary to maintain our status as a real estate
investment trust for federal income tax purposes.
Equity Compensation Plan Information
The following table provides information as of September 30, 2003 with
respect to Beneficial Shares that may be issued under the BRT Realty Trust 1996
Stock Option Plan and the BRT Realty Trust 2003 Incentive Plan.
Number of
Securities
Remaining
Available-for
Number of Future
Securities Issuance Under
to be Issued Weighted- Equity
Upon Exercise Average Compensation
of Outstanding Exercise Price Plans (Excluding
Options, of Outstanding Securities
Warrants and Options, Warrants Reflected in
Rights and Rights Column (a)
------ ---------- ----------
(a) (b) (c)
Equity compensation
plans approved by 240,062 $8.33 321,200
security holders
Equity compensation - - -
plans not approved
by security holders
------- ----- -------
Total 240,062 $8.33 321,200
Item 6. Selected Financial Information
The following table, not covered by the report of the independent
auditors, sets forth selected historical financial data for each of the fiscal
periods in the five years ended September 30, 2003. This table should be read in
conjunction with the detailed information and financial statements appearing
elsewhere herein.
Fiscal Years Ended
September 30,
-------------------------------------------------------------------
2003 2002 2001 2000 1999
---- ---- ---- ---- ----
(In thousands, except for per share amounts)
Operating statement data:
Total revenues $14,804 $17,398 $13,916 $10,260 $12,223
Income before equity in earnings of
unconsolidated real estate ventures
and gain on sale 8,416 11,246 7,750 5,064 5,108
Net income 13,683 12,586 10,586 7,635 11,646
Income per
beneficial share:
Basic 1.83 1.71 1.47 1.07 1.63
Diluted 1.80 1.68 1.45 1.05 1.61
Cash distribution per
common share 1.30 1.04 .44 - -
Balance sheet data:
Total assets 139,002 134,931 110,016 88,456 84,609
Earning real
estate loans (1) 63,733 84,112 67,513 40,413 44,682
Non-earning real
estate loans (1) 3,145 415 415 3,250 -
Real estate assets (1) 13,391 13,529 13,708 12,325 6,765
Available-for-sale securities
at market 36,354 31,178 24,030 16,310 -
Borrowed funds 4,755 14,745 2,101 88 331
Loans and mortgages
payable 2,680 2,745 2,804 - 841
Shareholders' equity 125,932 114,291 101,872 85,147 80,624
(1) Earning and non-earning loans and real estate assets are presented without deduction of the related allowance for possible
losses or valuation allowance.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
-----------------------------------------------------------------------
of Operations
-------------
Results of Operations
- ---------------------
General
- -------
Our primary business operations involves the origination and servicing
of mortgage loans. Our profitability is most affected by the number of
loans originated during any period, the type of loans originated and the
payoff and pay down of our outstanding mortgage loans. These factors
determine the principal amount or type of loans outstanding and fee income
earned on loan originations. We cannot project the principal amount or type of
loans which will be originated in any year or those loan applications submitted
to us which will be approved by our loan committee nor can we project the rate
of payoff or pay down against our loan portfolio in any year. As noted in the
discussion below, the 2003 fiscal year reflects a decrease in interest and fee
income compared to the 2002 fiscal year and the 2002 fiscal year reflects an
increase in interest and fee income, compared to the 2001 fiscal year. The
primary components of these changes is a result of loan originations,
including the type of loans originated, and loan payoffs and pay downs.
We do not see any trends in our business other than that our loan
originations are more national in scope and our loan applications and loan
originations have been for larger principal amounts, both of which factors we
attribute to the increase in our advertising and marketing activities.
2003 vs. 2002
- -------------
Interest and fees on loans decreased to $9,813,000 for the year ended
September 30, 2003 as compared to $11,897,000 for the year ended September 30,
2002. This decrease of $2,084,000, or 18%, was the result of several factors.
In the current fiscal year, the average balance of loans declined
$1,220,000 to $67,145,000 from $68,368,000 in the prior fiscal year. This
caused a decrease of $147,000 in interest income. The average rate earned
on the loan portfolio declined 31 basis points to 11.82% as compared to 12.13%
earned on the portfolio in the fiscal year ended September 30, 2002. This
decline causes interest income to decline by $213,000. In the prior fiscal
year, four participating loans were paid off resulting in additional income
and fees of $ 2,114,000 in the fiscal year ended September 30, 2002.
Offsetting these declines was the collection of interest income in the amount
of $105,000 in the current fiscal year from a loan that was previously
recorded as non performing. Fee income also increased $286,000 in the current
fiscal year, primarily the result of the collection of fees that were due
upon the payoff of two loans.
The fiscal year ended September 30, 2002 was favorably affected by $500,000
recognized from the recovery of a previously provided allowance related to a
loan that was previously impaired and was paid off in full in 2002. There was no
comparable revenue item in the current fiscal year.
Other, primarily investment income, declined $ 65,000, or 2%, from
$2,732,000 in the fiscal year ended September 30, 2002 to $2,667,000 in the
fiscal year ended September 30, 2003. The decline was primarily caused be a
decrease in the amount of dividends received on our REIT securities caused by
the sale of REIT securities during the current fiscal year.
Interest expense on borrowed funds increased to $270,000 in the fiscal year
ended September 30, 2003 from $227,000 in the fiscal year ended September 30,
2002. This increase of $43,000, or 19%, is due to an increase in the average
rate paid for borrowings from 5.86% in the prior fiscal year to 7.24% in the
current fiscal year. The average interest rate includes a .3% fee to maintain a
margin account secured by the shares we own in Entertainment Properties Trust
and is based on the value of the assets in the account, which appreciated in
value during the fiscal year.
The Advisor's fee, which is calculated pursuant to agreement and is based on
invested assets, decreased $92,000, or 10%, in the fiscal year ended September
30, 2003 to $875,000 from $967,000 in the fiscal year ended September 30, 2002.
During this period, we experienced a lower outstanding balance of invested
assets thereby causing a decline in the fee.
General and administrative expenses increased to $3,063,000 in the fiscal
year ended September 30, 2003, from $2,911,000 in the fiscal year ended
September 30, 2002. This increase of $ 152,000, or 5%, is primarily the result
of increases in payroll and payroll related expenses which increased $110,000
from the prior year. In addition professional fees increased by approximately
$29,000 from the prior fiscal year.
Other taxes increased by 10% to $498,000 for the fiscal year ended
September 30, 2003 from $452,000 in the fiscal year ended September 30, 2002.
The increase of $46,000 in the current fiscal year is the result of an increase
in the federal excise tax, which is based on taxable income that is generated
but not yet distributed.
Operating expenses relating to real estate increased $100,000, or 8%, from
$1,255,000 in the fiscal year ended September 30, 2002 to $1,355,000 in the
fiscal year ended September 30, 2003. In the current fiscal year we experienced
higher legal expenses relating to a property that we acquired in foreclosure in
a prior fiscal year, increased insurance expense and increased common area
maintenance charges.
Equity in earnings of unconsolidated real estate ventures declined $95,000,
or 17%, to $479,000 in the fiscal year ended September 30, 2003 from $574,000 in
the fiscal year ended September 30, 2002. In the current fiscal year one of our
joint ventures wrote off expenses relating to a terminated development project.
Additionally, several of our joint ventures have seen modest declines in income
due to declines in occupancy and rental rates. Offsetting these declines was an
increase that resulted from reduced lease payments on a ground lease position
held by a joint venture as ground lessee.
Gain on the sale of real estate assets decreased $308,000, or 38%, in the
fiscal year ended September 30, 2003. In the current fiscal year we recognized
gains of $499,000 from the sale of cooperative apartment units. In the prior
fiscal year we recognized gains of $ 807,000 from the sale of a parcel of
unimproved land that we previously acquired in foreclosure and from the sale of
a cooperative apartment unit.
Gain on the sale of available-for-sale securities was $4,332,000 in the
fiscal year ended September 30, 2003. This gain resulted from the sale of
several real estate investment trust securities, including the sale of 260,800
shares of Entertainment Properties Trust. There were no securities sales in the
fiscal year ended September 30, 2002.
2002 vs. 2001
- -------------
Interest and fees on loans increased to $11,897,000 for the year ended
September 30, 2002 as compared to $8,685,000 for the year ended September 30,
2001. This increase of $ 3,212,000, or 37%, was the result of several factors,
the largest being a $14,160,000 increase in the average balance of loans
outstanding from $54,208,000 in the prior fiscal year to $68,368,000. This
caused an increase in interest income of $1,722,000. During the fiscal year
ended September 30, 2002, three participating loans were paid off resulting in
additional interest income and fees of $1,306,000 and one participating loan was
extended resulting in the collection of additional interest of $808,000. During
the year ended September 30, 2002 the average interest rate earned on the loan
portfolio declined 31 basis points to 12.13% from the 12.44% earned on the
portfolio in the fiscal year ended September 30, 2001. This decline caused
interest income to decrease by $171,000. The twelve month period ended September
30, 2001 included $ 860,000 of additional interest recognized from two loans
that were paid off and $170,000 from non-performing loans that were returned to
performing status. Fee income also increased $576,000 in the 2002 fiscal year,
primarily the result of increased loan originations and an increase in the
number of loans that were extended during the year.
Operating income on real estate properties increased $618,000, or 37%,
to $2,269,000 in the fiscal year ended September 30, 2002 from $1,651,000 in the
fiscal year ended September 30, 2001. This increase, reflecting primarily rental
income, is attributable to our purchase of a leasehold interest in a commercial
property in the last quarter of the fiscal year ended September 30, 2000 (which
was not fully leased until the second quarter of the 2001 fiscal year) and
increased rental income recognized on a residential property in New York City.
The fiscal year ended September 30, 2002 year was favorably affected by
$500,000 recognized from the recovery of a previously provided allowance related
to a loan that was previously impaired and was paid off in the current fiscal
year. There was no comparable revenue item in the fiscal year ended September
30, 2001.
Other, primarily investment income, declined $848,000, or 24%, from
$3,580,000 in the fiscal year ended September 30, 2001 to $ 2,732,000 in the
fiscal year ended September 30, 2002. During the prior fiscal year we received
$438,000 from a residual interest we held in a joint venture. This residual
interest resulted from the sale of a partnership interest in a prior year. There
was also a decrease in investment income due to a decline in the average balance
in money market and treasury investments and in the average rate earned on them.
The average balance of these investments decreased $5,674,000 from $11,187,000
in the fiscal year ended September 30, 2001 to $5,513,000 in the fiscal year
ended September 30, 2002. This decline caused a $213,000 reduction in interest
income. A decline of $281,000 resulted from a reduction in the rate earned on
these investments from 5.27% in the prior fiscal year to 1.74% in the current
fiscal year. These declines were offset by an $84,000 increase in the dividends
we received on our investments in REIT securities.
Interest on borrowed funds increased to $227,000 in the fiscal year
ended September 30, 2002 from $53,000 in the fiscal year ended September 30,
2001. This increase of $174,000, or 328%, is due to an increase in the average
amount of borrowings outstanding in the current fiscal year. The average balance
of borrowings outstanding increased $2,662,000 to $3,126,000 in the current
fiscal year from $464,000 in the prior fiscal year. We borrowed under our credit
lines to fund outstanding loan commitments.
The Advisor's fee, which is calculated pursuant to agreement and is
based on invested assets, increased $222,000, or 30%, in the fiscal year ended
September 30, 2002 to $967,000 from $745,000 in the fiscal year ended September
30, 2001. During this period, we experienced a higher outstanding balance of
invested assets thereby causing an increase in the fee.
Other taxes increased by 82% to $ 452,000 for the fiscal year ended
September 30, 2002 from $249,000 in the fiscal year ended September 30, 2001.
The increase is the result of federal excise taxes which are based on taxable
income generated but not yet distributed. We were subject to these taxes
beginning in the first quarter of the 2002 fiscal year. In the prior fiscal year
we were subject to federal and state alternative minimum taxes during the period
when we were utilizing our net operating loss carry forwards.
During the fiscal year ended September 30, 2001 we incurred expenses
related to investment income of $575,000. During the September 30, 2001 fiscal
year we incurred legal, printing, proxy solicitor fees and other expenses
related to the solicitation of proxies to vote in favor of our nominee to the
Board of Trustees of Entertainment Properties Trust (NYSE:EPR). At September 30,
2002 we owned 7.89% of the outstanding shares of Entertainment Properties Trust.
We did not incur any investment related expenses in the 2002 fiscal year.
Operating expenses relating to real estate increased $330,000, or 36%,
from $925,000 in the fiscal year ended September 30, 2001 to $1,255,000 in the
fiscal year ended September 30, 2002. This increase is due to increased
operating expenses at one of our operating properties.
Equity in earnings of unconsolidated joint ventures declined by 35%, or
$315,000, from $889,000 in the fiscal year ended September 30, 2001 to $574,000
in the fiscal year ended September 30, 2002. This decline was primarily the
result of a loss of $433,000 by a joint venture that was entered into during the
second half of the fiscal year ended September 30, 2001 and a decrease in income
of $292,000 at another joint venture due to a decrease in sales of cooperative
apartments by such venture. These declines were partially offset by a gain of
$385,000 recognized by a joint venture upon the sale of a parcel of land during
the 2002 fiscal year.
Gain on the sale of real estate loans and real estate properties
decreased $1,130,000, or 58%, in the fiscal year ended September 30, 2002. In
the 2002 fiscal year we recognized gains of $807,000 from the sale of a parcel
of unimproved land that we previously acquired in foreclosure and from the sale
of a cooperative apartment unit. In the prior fiscal year we recognized gains of
$1,937,000 from the sale of a residual interest in a partnership and the sale of
cooperative apartment units.
Liquidity and Capital Resources
- -------------------------------
We are primarily engaged in the business of originating and holding
for investment senior and junior real estate mortgages secured by income
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
$49,711,000 are due during the twelve months ending September 30, 2004,
including $5,123,000 due on demand. The availability of mortgage financing
secured by real property and the market for selling real estate is cyclical.
Since these are the principal sources for the generation of funds by our
borrowers to repay our outstanding real estate loans, we cannot project the
portion of loans maturing during the next twelve months which will be paid or
the portion of loans which will be extended for a fixed term or on a month to
month basis.
We maintain a revolving credit facility with North Fork Bank. The
facility provides for borrowings up to $30,000,000, but no greater than 65% of
qualified first mortgage loans pledged to North Fork Bank. We had $1,000,000
outstanding under this line as of September 30, 2003 and $20,061,000 of unused
availability under this line as of September 30, 2003. We also have the ability
to borrow on margin, using the shares we own in Entertainment Properties Trust,
or EPR, as collateral. At September 30, 2003, there was $3,755,000 outstanding
of the approximately $13,138,000 available under this facility. If the value of
the EPR shares were to decline, the available funds under the margin credit line
might decline and we could be required to repay a portion or all of the margin
loan.
During the twelve months ended September 30, 2003, we generated cash
of $8,806,000 from operating activities, $8,047,000 from the sale of securities
and $76,365,000 from collections from real estate loans. These funds, in
addition to cash on hand, were used primarily to fund real estate loan
originations of $58,716,000, to repay borrowed funds in the aggregate amount of
$9,990,000 and to pay cash distributions to shareholders in the amount of
$7,035,000.
We will satisfy our liquidity needs in the year ending September 30,
2004 from cash and cash investments on hand, the credit facility with North Fork
Bank, the availability in our margin account collateralized by the EPR shares,
interest and principal payments received on outstanding real estate loans, and
net cash flow generated from the operation and sale of real estate assets.
Disclosure of Contractual Obligations
The following table sets forth as of September 30, 2003 our known contractual
obligations:
Payment due by Period
---------------------
Total Less than 1-3 3-5 More than
1 Year Years Years 5 Years
Long-Term Debt Obligations $2,680,000 $70,000 $160,000 $174,000 $2,276,000
Capital Lease Obligations - - - - -
Operating Lease Obligation $107,000 $46,000 $61,000 - -
Purchase Obligations - - - - -
Other Long-Term Liabilities - - - - -
Reflected on Company
Balance Sheet Under GAAP
Outlook
- -------
The real estate business in general is cyclical and to a large extent
depends upon, among other factors, national and local business and economic
conditions, government economic policies and the level of interest rates. A
difficult or declining real estate market in the New York metropolitan area or
in other parts of the country and a recessionary economy could potentially have
the following adverse effects on our business: (i) an increase in loan defaults
which will result in decreased interest and fees on our outstanding real estate
loans, an increase in loan loss reserves and an increase in expenses incurred in
foreclosures and restructurings; (ii) a decrease in loan originations; and (iii)
a decrease in rental income from properties owned by us or joint ventures in
which we are a venture participant and an increase in operating expenses related
to real estate properties.
However, a declining real estate market could also provide us with
opportunities since, in a declining market, other lenders, particularly
institutional lenders, become more conservative in their lending activities. If
such a lending environment should occur the amount of potential business for us
could increase.
We are aware of the difficulties which could be encountered in a
declining real estate environment. We therefore monitor our mortgage portfolio
for compliance by our borrowers.
Since approximately 84% of our loan portfolio provides for stated
minimum or fixed interest rates, the current "low" interest rate environment,
although negatively affecting our revenues and net income, has not had and
should not have a material adverse effect on revenues and net income.
Cash Distribution Policy
- ------------------------
We have elected to be taxed as a real estate investment trust under
the Internal Revenue Code since our organization. To qualify as a real estate
investment trust, we must meet a number of organizational and operational
requirements, including a requirement that we distribute currently to our
shareholders at least 90% of our adjusted ordinary taxable income. It is the
current intention of our management to comply with these requirements and
maintain our real estate investment trust status. As a real estate investment
trust, we generally will not be subject to corporate federal income tax on
taxable income we distribute currently in accordance with the Internal Revenue
Code and applicable regulations to shareholders. If we fail to qualify as a real
estate investment trust in any taxable year, we will be subject to federal
income taxes at regular corporate rates and may not be able to qualify as a real
estate investment trust for four subsequent tax years. Even if we qualify for
federal taxation as a real estate investment trust, we may be subject to certain
state and local taxes on our income and to federal income and excise taxes on
undistributed taxable income, i.e., taxable income not distributed in the
amounts and in the time frames prescribed by the Internal Revenue Code and
applicable regulations thereunder.
For tax purposes, we report on a calendar year basis as
distinguished from financial reporting purposes for which we are on a September
30th fiscal year. We distributed 100% of our taxable income for calendar 2002 by
October 2003. We estimate taxable income for calendar 2003 will be $14,712,000,
of which approximately $6,247,000 is expected to represent capital gain income.
To comply with the time frames prescribed by the Internal Revenue Code and the
applicable regulations thereunder at least 90% of the 2003 ordinary taxable
income is required to be declared by September 15, 2004 and, assuming we
continue to pay the quarterly dividends on or about the 1st day of each calendar
quarter (January 1st, April 1st, July 1st and October 1st) distributed by
October 1, 2004.
It is our intention to pay to our shareholders within the time
periods prescribed by the Internal Revenue Code substantially all of our annual
taxable income, including gains from the sale of real estate and recognized
gains on sale of available-for-sale securities.
Significant Accounting Policies
- -------------------------------
Our significant accounting policies are more fully described in Note
1 to our consolidated financial statements. The preparation of financial
statements and related disclosure in conformity with accounting principles
generally accepted in the United States requires management to make certain
judgments and estimates that affect the amounts reported in the consolidated
financial statements and accompanying notes. Certain of our accounting policies
are particularly important to an understanding of our financial position and
results of operations and require the application of significant judgments and
estimates by our management; as a result they are subject to a degree of
uncertainty. These significant accounting policies include:
Allowance for Possible Losses
We review our mortgage portfolio, real estate assets and the real
estate assets owned by joint ventures on a quarterly basis to ascertain if there
has been any impairment in the value of the real estate assets underlying our
loans or any impairment in the value of any of such real estate assets in order
to determine if there is a need for a provision for an allowance for possible
losses against our real estate loans or an impairment allowance against real
estate assets.
In reviewing the value of the collateral underlying our loan
portfolio and our real estate assets, and the real estate assets owned by joint
ventures, we seek to arrive at the fair market value of the underlying
collateral or such real estate by taking into account numerous factors including
market evaluations of the underlying collateral or the real estate, operating
cash flow from the property during a projected holding period and estimated
sales value computed by applying an expected capitalization rate to the
stabilized net operating income of the specific property, less selling costs,
discounted at market discount rates. Each of these factors entails significant
judgments and estimates. Real estate assets held for use and real estate assets
owned by joint ventures are evaluated for indicators of impairment using an
undiscounted cash flow analysis. If that analysis suggests that the undiscounted
cash flows to be generated by the property will be insufficient to recover our
investment, an impairment provision will be calculated based upon the excess of
the carrying amount of the property over its fair value. Real estate assets
which are held for sale are valued at the lower of the recorded cost or
estimated fair value, less the cost to sell. We do not obtain any independent
appraisals of either the real property underlying our loans or the real estate
assets which are held by us and by our joint ventures, but we rely on our own
analysis and valuations. Any valuation allowances taken with respect to our loan
portfolio or real estate assets will reduce our net income, assets and
shareholders' equity to the extent of the amount of the valuation allowance, but
it will not affect our cash flow until such time as the property is sold. No
valuation allowance was recorded against our mortgage portfolio in the fiscal
year ended September 30, 2003. There was no valuation adjustment recorded in
fiscal 2003 against real estate assets.
Revenue Recognition
We recognize interest income and rental income on an accrual basis,
unless we make a judgment that impairment of a loan or loans or of real estate
owned renders doubtful collection of interest or rent in accordance with the
applicable loan documents or leases. In making a judgment as to the
collectibility of interest or rent, we consider, among other factors, the status
of the loan or property, the borrower's or tenant's financial condition, payment
history and anticipated events in the future. Accordingly, in looking at various
factors we must make a significant judgment as to whether to treat a loan or
real estate owned as impaired. If we make a decision to treat a "problem" loan
or real estate asset as unimpaired and therefore continue to recognize the
interest and rent as income on an accrual basis, we could overstate income by
recognizing income that will not be collected and the uncollectible amount will
ultimately have to be written off. The period in which the uncollectible amount
is written off could adversely affect taxable income for a specific year and our
ability to pay cash distributions.
Certain Transactions
Fredric H. Gould, Chairman of our Board of Trustees, is also
Chairman of the Board of Directors of One Liberty Properties, Inc., a real
estate investment trust engaged in the ownership of a diversified portfolio of
income producing real properties leased to tenants primarily under long-term
leases. He is also Chairman of the Board of Directors and sole stockholder of
the managing general partner of Gould Investors L.P. and sole member of a
limited liability company which is also a general partner of Gould Investors
L.P. Jeffrey A. Gould, a Trustee and our President and Chief Executive Officer
is a Senior Vice President and Director of One Liberty Properties, Inc. and a
Senior Vice President of the corporate managing general partner of Gould
Investors L.P. Matthew J. Gould one of our Senior Vice Presidents and a Trustee
is a Senior Vice President and Director of One Liberty Properties, Inc., and
President of the managing general partner of Gould Investors L.P. Gould
Investors L.P. owns approximately 28% of our outstanding beneficial shares. In
addition, David W. Kalish, Simeon Brinberg, Mark H. Lundy and Israel Rosenzweig,
each of whom is an executive officer of our company, are also executive officers
of One Liberty Properties, Inc. and of the corporate managing partner of Gould
Investors L.P. Arthur Hurand, one of our Trustees, is a director of One Liberty
Properties, Inc.
We and certain related entities, including Gould Investors L.P. and
One Liberty Properties, Inc., occupy common office space and use certain
personnel in common. In our 2003 fiscal year we paid Gould Investors L.P.
$656,000 for general and administrative expenses, including rent,
telecommunication services, computer services, bookkeeping, secretarial and
other clerical services and legal and accounting services. This amount includes
an aggregate of $476,000 allocated to us for services (primarily legal and
accounting) performed by executive officers who are not engaged by us on a
full-time basis. The allocation of general and administrative expenses is
computed in accordance with a Shared Services Agreement on a quarterly basis and
is based on the estimated time devoted by executive, administrative and clerical
personnel to the affairs of each participating entity. The services of
secretarial personnel generally are allocated on the same basis as that of the
executive to whom each secretary is assigned.
In the fiscal year ending September 30, 2003, we paid Majestic
Property Management Corp., a company in which we have no ownership interest and
which is 100% owned by the Chairman of our Board of Trustees, fees for
management and brokerage services totaling $92,000. Fredric H. Gould, Jeffrey A.
Gould, Matthew J. Gould, Simeon Brinberg, David W. Kalish, Mark H. Lundy and
Israel Rosenzweig received fees from Majestic Property Management Corp. in the
year ended September 30, 2003. The management services provided by Majestic
Property Management Corp. to us include, among other things, rent billing and
collection, leasing (including compliance with regulatory statutes and rules
(i.e., New York City rent control and rent stabilized rules), and property
sales. The fees paid to this entity are approved by members of our Board of
Trustees, including a majority of independent trustees, and are based on fees
which would have been charged by unaffiliated persons for comparable services.
It is the intention of our Board of Trustees and our management that the fees
paid to related parties are not greater than the fees which would have been paid
to unaffiliated persons for comparable services.
We and REIT Management Corp. ("REIT") are parties to an Advisory
Agreement pursuant to which REIT furnishes administrative services with respect
to our assets and, subject to the supervision of the Trustees, advises us with
respect to our investments. The Advisory Agreement, which was initially entered
into in February 1983, has been renewed by the Board of Trustees to December 31,
2007. Fredric H. Gould and two of our officers are directors of REIT. All of the
outstanding shares of REIT are owned by Fredric H. Gould. Fredric H. Gould,
Chairman of our Board, and Matthew J. Gould, a Trustee, are salaried officers of
REIT. Simeon Brinberg, David W. Kalish, Mark H. Lundy and Israel Rosenzweig,
officers of our company, received fees from REIT in the year ended September 30,
2003.
Pursuant to the terms of the Advisory Agreement, REIT receives an
annual fee for services performed of 1/2 of 1% of Invested Assets other than
mortgages receivable and investments in unconsolidated ventures and a 1% fee
payable on mortgages receivable and investments in unconsolidated ventures. The
computation of the fee includes non-accruing mortgage receivables to the extent
they exceed allowances for loan losses. The fee under the Advisory Agreement is
computed and payable quarterly, subject to adjustment at year end based on the
audited financial statements. During fiscal 2003 REIT earned $875,000 under the
Advisory Agreement. In addition, borrowers pay fees directly to REIT for
services rendered in reviewing, analyzing and facilitating loans made by us.
These fees amounted to $601,000 for year ending September 30, 2003.
Item 7A - Market Risk Disclosure
----------------------
Our primary component of market risk is interest rate sensitivity. Our
interest income and to a lesser extent our interest expense are subject to
changes in interest rates. We seek to minimize these risks by originating loans
that are indexed to the prime rate, with a stated minimum interest rate, and
borrowing, when necessary, from our available credit line which is also indexed
to the prime rate. At September 30, 2003 approximately 65% of our portfolio was
comprised of variable rate loans tied primarily to the prime rate. Changes in
the prime interest rate would affect our net interest income accordingly. When
determining interest rate sensitivity, we assume that any change in interest
rates is immediate and that the interest rate sensitive assets and liabilities
existing at the beginning of the period remain constant over the period being
measured. We assessed the market risk for our variable rate mortgage receivables
and variable rate debt and believe that a one percent increase in interest rates
would cause an increase of income before taxes of $259,000 and a one percent
decline in interest rates would cause a decline of income before taxes of
approximately $56,000. In addition, we originate loans with short maturities and
maintain a strong capital position. As of September 30, 2003 a majority of our
loan portfolio was secured primarily by properties located in the New York
metropolitan area, including New Jersey and Connecticut, in California, and in
Delaware and it is therefore subject to risks associated with the economies of
these localities.
Item 8. Financial Statements and Supplementary Data
-------------------------------------------
This information appears in a separate section of this Report following Part
IV.
Item 9. Changes in and Disagreements with Accountants on Accounting and
---------------------------------------------------------------
Financial Disclosure
--------------------
None.
Item 9A. Controls and Procedures
-----------------------
As required under Rules 13a-15 (e) and 15d-15 (e) under the Securities
Exchange Act of 1934, within 90 days prior to the date of this report, we
carried out an evaluation under the supervision and with the participation of
our management, including our Chief Executive Officer, Senior Vice President -
Finance and Chief Financial Officer, of the effectiveness of the design and
operation of our disclosure controls and procedures. Based upon that evaluation,
the Chief Executive Officer and Chief Financial Officer concluded that our
disclosure controls and procedures as of September 30, 2003 are effective.
There have not been any significant changes in our internal controls or in
other factors that could significantly affect these controls subsequent to the
date of their evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
PART III
Item 10. Directors and Executive Officers of the Registrant
--------------------------------------------------
Apart from certain information concerning our executive officers which is
set forth in Part I of this report, the other information required by this Item
is incorporated herein by reference to the applicable information in the proxy
statement for our 2004 annual meeting, including the information set forth
under the captions "Election of Trustees," "Section 16(a) Beneficial Ownership
Reporting Compliance" and "Code of Ethics" and "Governance-- Audit Committee--
Audit Committee Financial Expert."
Item 11. Executive Compensation
----------------------
The information concerning our executive compensation required by Item
11 shall be included in the Proxy Statement to be filed relating to our 2004
Annual Meeting of Stockholders and is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
--------------------------------------------------------------
The information concerning our beneficial owners required by Item 12
shall be included in the Proxy Statement to be filed relating to our 2004 Annual
Meeting of Stockholders and is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
----------------------------------------------
The information concerning relationships and certain transactions
required by Item 13 shall be included in the Proxy Statement to be filed
relating to our 2004 Annual Meeting of Stockholders and is incorporated herein
by reference.
Item 14. Principal Accounting Fees and Services
--------------------------------------
The information concerning our principal accounting fees required by
Item 14 shall be included in the Proxy Statement to be filed relating to our
2004 Annual Meeting of Stockholders and is incorporated herein by reference.
PART IV
Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
----------------------------------------------------------------
(a) 1. Financial Statements - The response is submitted in a separate
section of this report following Part IV.
2. Financial Statement Schedules - The response is submitted in a
separate section of this report following Part IV.
3. Exhibits:
3.1. Second Amended and Restated Declaration of Trust
dated June 13, 1972. Incorporated by reference to
Exhibit 3A to Form 10-K for the year ended September
30, 1984.
3.2. First Amendment to Second Amended and Restated
Declaration of Trust dated August 20, 1986.
Incorporated by reference to Registration Statement on
Form S-2 (No. 33-8125).
3.3. Second Amendment to Second Amended and Restated
Declaration of Trust dated March 2, 1987. Incorporated
by reference to Registration Statement on Form S-2
(No.33-11072).
3.4. Third Amendment to Second Amended and Restated
Declaration of Trust dated March 2, 1988. Incorporated
by reference to Exhibit 3D to Form 10-K for the year
ended September 30, 1988.
3.5. By-laws - Incorporated by reference to Registration
Statement on Form S-2 (No. 33-8125).
10.1. Advisory Agreement dated February 7, 1983 between the
BRT Realty Trust and REIT Management Corp. Incorporated
by reference to Registration Statement on Form S-2 (No.
33-8125).
10.2. Credit Agreement with North Fork Bank dated as of June
6, 2003. Incorporated by reference to Exhibits 1 and
2 to Form 8-K filed on June 11, 2003.
10.3. Shared Services Agreement. Incorporated by reference
to Exhibit 10 (c) to Form 10-K for the year ended
September 30, 2002.
21.1. Subsidiaries - Each subsidiary is 100% owned by BRT.
Filed with this Form 10-K.
23.1. Consent of Ernst & Young, LLP. Filed with this Form
10-K.
31.1. Certification of Chief Executive Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002 (the
"Act"). Filed with this Form 10-K.
31.2. Certification of Senior Vice President - Finance
pursuant to Section 302 of the Act. Filed with this
Form 10-K.
31.3. Certification of Chief Financial Officer pursuant to
Section 302 of the Act. Filed with this Form 10-K.
32.1. Certification of Chief Executive Officer pursuant to
Section 906 of the Act. Filed with this Form 10-K.
32.2. Certification of Senior Vice President-Finance pursuant
to Section 906 of the Act. Filed with this Form 10-K.
32.3. Certification of Chief Financial Officer pursuant to
Section 906 of the Act. Filed with this Form 10-K.
(b) Reports on Form 8-K:
On August 13, 2003 BRT filed an 8-K attaching a copy of
its press release reporting its results of operations
for the quarter and nine months ended June 30, 2003.
(c) Exhibits - See Item 14(a) 3 above.
(d) See Item 14(a) 2 above.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BRT REALTY TRUST
Date: December 19, 2003 By: (S) Jeffrey A. Gould
----------------------
Jeffrey A. Gould
Chief Executive Officer, President and Trustee
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated.
Signature Title Date
--------- ----- ----
(S) Fredric H. Gould Chairman of the Board December 19, 2003
- --------------------
Fredric H. Gould
(S) Jeffrey A. Gould Chief Executive Officer, December 19, 2003
- --------------------
Jeffrey A. Gould President and Trustee
(Principal Executive
Officer)
(S) Patrick J. Callan Trustee December 19, 2003
- ---------------------
Patrick J. Callan
(S) Louis C. Grassi Trustee December 19, 2003
- -------------------
Louis C. Grassi
(S) Matthew J. Gould Trustee December 19, 2003
- --------------------
Matthew J. Gould
(S) Arthur Hurand Trustee December 19, 2003
- -----------------
Arthur Hurand
(S) Gary Hurand Trustee December 19, 2003
- ---------------
Gary Hurand
(S) David Herold Trustee December 19, 2003
- ----------------
David Herold
(S) George E. Zweier Chief Financial Officer, December 19, 2003
- ---------------------
George E. Zweier Vice President
(Principal Financial
and Accounting Officer)
Annual Report on Form 10-K
Item 8, Item 15(a)(1) and (2)
Index to Consolidated Financial Statements and Consolidated Financial Statement
Schedules
Page No.
--------
Report of Independent Auditors F-1
Consolidated Balance Sheets as of September 30,
2003 and 2002 F-2
Consolidated Statements of Income for the
years ended September 30, 2003, 2002 and 2001 F-3
Consolidated Statements of Shareholders' Equity
for the years ended September 30, 2003, 2002 and 2001 F-4
Consolidated Statements of Cash Flows for the
years ended September 30, 2003, 2002 and 2001 F-5
Notes to Consolidated Financial Statements F-7
Consolidated Financial Statement Schedules for the year
ended September 30, 2003:
III - Real Estate and Accumulated Depreciation F-23
IV - Mortgage Loans on Real Estate F-25
All other schedules are omitted because they are not applicable or the required
information is shown in the consolidated financial statements or the notes
thereto.
EXHIBIT 21.1
SUBSIDIARIES
COMPANY STATE OF INCORPORATION
- ------- -----------------------
Hoboken Front Corp. New Jersey
Forest Green Corporation New York
Realty 49 Corp. New York
TRB No. 1 Corp. New York
TRB No. 2 Corp. New York
TRB Cutter Mill Corp. New York
Blue Realty Corp. Delaware
TRB No. 3 Owners Corp. Wyoming
1090 Boston Post Road Realty Corp. New York
TRB Fairway Office Center Corp. Kansas
TRB Abbotts Corp. Pennsylvania
TRB Ashbourne Road Corp. Pennsylvania
BRT Funding Corp. New York
TRB 69th Street Corp. New York
TRB Lawrence Corp. New York
TRB Yonkers Corp. New York
TRB Hartford Corp. Connecticut
TRB Atlanta LLC Georgia
TRB Stroudsberg LLC Pennsylvania
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements
(Form S-8 No. 333-101681) pertaining to the 1996 Stock Option Plan of BRT Realty
Trust and (Form S-8 No. 333-104461) pertaining to the 2003 Incentive Plan of BRT
Realty Trust of our report dated December 8, 2003, with respect to the
consolidated financial statements and schedules of BRT Realty Trust included in
the Annual Report (Form 10-K) for the year ended September 30, 2003.
New York, New York
December 19, 2003 /s/
Ernst & Young LLP
Exhibit 31.1
CERTIFICATION
I, Jeffrey A. Gould, President and Chief Executive Officer of BRT Realty
Trust, certify that:
1. I have reviewed this Annual Report on Form 10-K for the fiscal year
ended September 30, 2003 of BRT Realty Trust;
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows
of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15 (e) and 15d-15 (e)) for the
registrant and have:
(a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in
which this report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
c) Disclosed in this report any change in the registrant's most recent
fiscal quarter that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial
reporting; and
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation of internal controls over financial
reporting, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
a) All significant deficiencies and material weaknesses in the design
or operation of internal controls over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal control over financial reporting.
Date: December 19, 2003
S/Jeffrey A. Gould
------------------
President and Chief Executive Officer
Exhibit 31.2
CERTIFICATION
I, David W. Kalish, Senior Vice President-Finance of BRT Realty Trust,
certify that:
1. I have reviewed this Annual Report on Form 10-K for the fiscal year
ended September 30, 2003 of BRT Realty Trust;
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows
of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15 (e) and 15d-15 (e)) for the
registrant and have:
a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in
which this report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
c) Disclosed in this report any change in the registrant's most recent
fiscal quarter that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial
reporting; and
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation of internal controls over financial
reporting, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
a) All significant deficiencies and material weaknesses in the design
or operation of internal controls over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information and
b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal control over financial reporting.
Date: December 19, 2003
S/David W. Kalish
-----------------
Senior Vice President-Finance
Exhibit 31.3
CERTIFICATION
I, George Zweier, Vice President and Chief Financial Officer of BRT Realty
Trust, certify that:
1. I have reviewed this Annual Report on Form 10-K for the fiscal year
ended September 30, 2003 of BRT Realty Trust;
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows
of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15 (e) and 15d-15 (e)) for the
registrant and have:
a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in
which this report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
c) Disclosed in this report any change in the registrant's most recent
fiscal quarter that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial
reporting; and
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation of internal controls over financial
reporting, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
a) All significant deficiencies and material weaknesses in the design
or operation of internal controls over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information and
b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal control over financial reporting.
Date: December 19, 2003
S/George Zweier
---------------
Vice President and Chief
Financial Officer
EXHIBIT 32.1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350
(SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002)
The undersigned, Jeffrey A. Gould, the Chief Executive Officer of BRT Realty
Trust, (the "Registrant"), does hereby certify, pursuant to 18 U.S.C. Section
1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that
based upon a review of the Annual Report on Form 10-K for the year ended
September 30, 2003 of the Registrant, as filed with the Securities and Exchange
Commission on the date hereof (the "Report").
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of
the Securities Exchange Act of 1934, as amended; and
(2) The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Registrant.
Date: December 19, 2003 /s/ Jeffrey A. Gould
---------------------------
Jeffrey Gould
Chief Executive Officer
EXHIBIT 32.2
CERTIFICATION OF SENIOR VICE PRESIDENT-FINANCE
PURSUANT TO 18 U.S.C. SECTION 1350
(SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002)
The undersigned, David W. Kalish, Senior Vice President-Finance of BRT Realty
Trust, (the "Registrant"), does hereby certify, pursuant to 18 U.S.C. Section
1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that
based upon a review of the Annual Report on Form 10-K for the year ended
September 30, 2003 of the Registrant, as filed with the Securities and Exchange
Commission on the date hereof (the "Report").
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of
the Securities Exchange Act of 1934, as amended; and
(2) The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Registrant.
Date: December 19, 2003 /s/ David W. Kalish
------------------------------------
David W. Kalish
Senior Vice President-Finance
EXHIBIT 32.3
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350
(SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002)
The undersigned, George Zweier, the Chief Financial Officer of BRT Realty Trust,
(the "Registrant"), does hereby certify, pursuant to 18 U.S.C. Section 1350 as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that based
upon a review of the Annual Report on Form 10-K for the year ended September 30,
2003 of the Registrant, as filed with the Securities and Exchange Commission on
the date hereof (the "Report").
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of
the Securities Exchange Act of 1934, as amended; and
(2) The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Registrant.
Date: December 19, 2003 /s/ George Zweier
-----------------------------------
George Zweier
Vice President and Chief Financial Officer
REPORT OF INDEPENDENT AUDITORS
To the Trustees and Shareholders
BRT Realty Trust
We have audited the accompanying consolidated balance sheets of BRT
Realty Trust and Subsidiaries (the "Trust") as of September 30, 2003
and 2002, and the related consolidated statements of income,
shareholders' equity, and cash flows for each of the three years in
the period ended September 30, 2003. Our audits also included the
financial statement schedules listed in the Index at Item 15(a).
These financial statements and schedules are the responsibility of
the Trust's management. Our responsibility is to express an opinion
on these financial statements and schedules based on our audits.
We conducted our audits in accordance with auditing standards
generally accepted in the United States. Those standards require that
we plan and perform the audit to obtain reasonable assurance about
whether the consolidated financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position
of BRT Realty Trust and Subsidiaries at September 30, 2003 and 2002,
and the consolidated results of their operations and their cash flows
for each of the three years in the period ended September 30, 2003,
in conformity with accounting principles generally accepted in the
United States. Also, in our opinion, the related financial statement
schedules, when considered in relation to the basic financial
statements taken as a whole, present fairly in all material respects
the information set forth therein.
/s/ ERNST & YOUNG LLP
New York, New York
December 8, 2003
BRT REALTY TRUST AND SUBSIDIARIES
Consolidated Balance Sheets
(Amounts in thousands except per share amounts)
ASSETS
September 30,
2003 2002
---- ----
Real estate loans - Notes 2, 4 and 6:
Earning interest, including $7,134 and $8,129
from related parties $ 63,733 $ 84,112
Not earning interest 3,145 415
--------- ---------
66,878 84,527
Allowance for possible losses (881) (881)
--------- ---------
65,997 83,646
--------- ---------
Real estate assets - Notes 3 and 6:
Real estate properties net of accumulated
depreciation of $1,462 and $1,227 6,461 6,573
Investment in unconsolidated
real estate ventures at equity 6,930 6,956
--------- ---------
13,391 13,529
Valuation allowance (325) (325)
--------- ---------
13,066 13,204
--------- ---------
Cash and cash equivalents 21,694 4,688
Available-for-sale securities at market - Note 5 36,354 31,178
Other assets 1,891 2,215
--------- ---------
Total Assets $ 139,002 $ 134,931
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Borrowed funds - Note 6 $ 4,755 $ 14,745
Mortgage payable - Note 6 2,680 2,745
Accounts payable and accrued liabilities including
deposits of $1,103 and $1,265 5,635 3,150
--------- ---------
Total liabilities 13,070 20,640
--------- ---------
Commitments and contingencies - Notes 2, 3, 4, 6, 9 and 10 - -
Shareholders' equity - Note 8:
Preferred shares, $1 par value:
Authorized 10,000 shares, none issued - Shares of beneficial
interest, $3 par value:
Authorized number of shares, unlimited, issued
8,883 shares 26,650 26,650
Additional paid-in capital 81,151 80,864
Accumulated other comprehensive income - net
unrealized gain on available-for-sale securities 19,282 12,426
Unearned compensation (406) -
Retained earnings 11,154 7,218
--------- ----------
137,831 127,158
Cost of 1,381 and 1,493 treasury shares
of beneficial interest (11,899) (12,867)
--------- ---------
Total shareholders' equity 125,932 114,291
--------- ---------
Total Liabilities And Shareholders' Equity $139,002 $134,931
======== ========
See accompanying notes to consolidated financial statements.
BRT REALTY TRUST AND SUBSIDIARIES
Consolidated Statements of Income
(Amounts in thousands except per share amounts)
Year Ended September 30,
------------------------
2003 2002 2001
---- ---- ----
Revenues:
Interest and fees on real estate loans,
including $726, $602 and $187 from related parties - Note 2 $ 9,813 $ 11,897 $ 8,685
Operating income from real estate properties 2,324 2,269 1,651
Recovery of previously provided allowances - 500 -
Other, primarily investment income 2,667 2,732 3,580
-------- --------- --------
Total Revenues 14,804 17,398 13,916
-------- --------- --------
Expenses:
Interest - borrowed funds - Note 6 270 227 53
Advisor's fees - Note 9 875 967 745
General and administrative - Note 9 3,063 2,911 2,983
Other taxes - Note 7 498 452 249
Expense related to investment income - - 575
Operating expenses relating to real estate properties
including interest on mortgages payable
of $259, $265 and $261 1,355 1,255 925
Amortization and depreciation 327 340 372
Loss on early extinguishment of debt - - 264
-------- -------- --------
Total Expenses 6,388 6,152 6,166
-------- -------- --------
Income before equity in earnings of unconsolidated
real estate ventures and gain on sale 8,416 11,246 7,750
Equity in earnings of unconsolidated real estate ventures 479 574 889
Net gain on sale of real estate assets 499 807 1,937
Net realized gain on available-for-sale securities 4,332 - 33
-------- -------- --------
Income before minority interest 13,726 12,627 10,609
Minority interest (43) (41) (23)
-------- -------- -------
Net Income $ 13,683 $ 12,586 $ 10,586
======== ======== ========
Income per share of Beneficial Interest:
Basic earnings per share $ 1.83 $ 1.71 $ 1.47
======== ======== ========
Diluted earnings per share $ 1.80 $ 1.68 $ 1.45
======== ======== ========
Cash distributions per common share $ 1.30 $ 1.04 $ .44
======== ======== ========
Weighted average number of common shares outstanding:
Basic 7,458,880 7,373,627 7,221,373
========= ========= =========
Diluted 7,585,478 7,503,065 7,327,174
========= ========= =========
See accompanying notes to consolidated financial statements.
BRT REALTY TRUST AND SUBSIDIARIES
Consolidated Statements of Shareholders' Equity
Years Ended September 30, 2003, 2002, and 2001
(Amounts in thousands)
Accumulated
Other Retained
Shares of Additional Compre- Unearned Earnings/
Beneficial Paid-In hensive Compen- Accumulated Treasury
Interest Capital Income sation Deficit Shares Total
-------- ------- ------ ------ ------- ------ -----
Balances, September 30, 2000 $26,665 $81,499 $(3,133) - $(5,047) $(14,837) $85,147
Distributions - Common share
($.44 per share) - - - - (3,226) - (3,226)
Exercise of Stock Options (15) (491) - - - 1,460 954
Net income - - - - 10,586 - 10,586
Other comprehensive income -
unrealized gain on sale of avail-
able-for-sale securities (net of
reclassification adjustment for
gains included in net income
of $33 - - 8,411 - - - 8,411
-----
Comprehensive income - - - - - - 18,997
------------------------------------------------------------------------------------
Balances, September 30, 2001 26,650 81,008 5,278 - 2,313 (13,377) 101,872
Distributions - Common share
($1.04 per share) - - - - (7,681) - (7,681)
Exercise of Stock Options - (144) - - - 510 366
Net income - - - - 12,586 - 12,586
Other comprehensive income -
unrealized gain on sale of avail-
able-for-sale securities - - 7,148 - - - 7,148
-----
Comprehensive income - - - - - - 19,734
-----------------------------------------------------------------------------------
Balances, September 30, 2002 26,650 80,864 12,426 - 7,218 (12,867) 114,291
Distributions - Common share
($1.30 per share) - - - - (9,747) - (9,747)
Exercise of Stock Options - (155) - - - 968 813
Issuance of restricted stock - 442 - $(442) - - -
Compensation expense -
restricted stock - - - 36 - - 36
Net income - - - - 13,683 - 13,683
Other comprehensive income -
unrealized gain on sale of avail-
able-for-sale securities (net of
reclassification adjustment for
gains included in net income
of $4,332) - - 6,856 - - - 6,856
-----
Comprehensive income - - - - - - 20,539
---------------------------------------------------------------------------------
Balances, September 30, 2003 $26,650 $81,151 $19,282 $(406) $11,154 $(11,899) $125,932
=======================================================================================
See accompanying notes to consolidated financial statements.
BRT REALTY TRUST AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Amounts in thousands)
Year Ended September 30,
------------------------
2003 2002 2001
---- ---- ----
Cash flows from operating activities:
Net income $ 13,683 $ 12,586 $ 10,586
Adjustments to reconcile net income to net cash provided
by operating activities:
Loss on early extinguishment of debt - - 264
Amortization and depreciation 327 340 372
Recovery of previously provided allowances - (500) -
Restricted stock expense 36 - -
Net gain on sale of real estate loans and properties (499) (807) (1,937)
Net gain on sale of available-for-sale securities (4,332) - (33)
Equity in (earnings) of unconsolidated
real estate ventures (479) (574) (889)
Increase in straight line rent (153) (153) (126)
Decrease (Increase) in interest and dividends receivable 305 (42) (227)
Decrease (Increase) in prepaid expenses 19 (8) (132)
Increase (decrease) in accounts payable and
accrued liabilities 66 250 (262)
(Decrease) Increase in deferred revenues (234) (98) 229
Increase (Decrease) in escrow deposits 3 (133) 5
(Increase) Decrease in deferred costs (89) 21 (134)
Other 153 (173) (33)
-------- ------- -------
Net cash provided by operating activities 8,806 10,709 7,683
-------- ------- -------
Cash flows from investing activities:
Collections from real estate loans 76,365 40,869 20,011
Proceeds from sale of loans - 4,311 -
Additions to real estate loans (58,716) (61,779) (44,276)
Net costs capitalized to real estate owned (176) (38) (210)
Proceeds from sale of real estate owned 553 816 2,029
(Decrease) Increase in deposits payable (67) (124) 39
Purchase of available-for-sale securities (2,034) - -
Sale of available-for-sale securities 8,047 - 723
Investment in real estate ventures (268) (275) (866)
Partnership distribution 773 823 207
-------- ------- --------
Net cash provided by (used in) investing activities 24,477 (15,397) (22,343)
-------- ------- --------
Cash flows from financing activities:
Proceeds from borrowed funds 4,755 22,500 2,101
Repayment of borrowed funds (14,745) (9,856) (88)
Payoff/paydown of loan and mortgages payable (65) (59) (46)
Exercise of stock options 813 366 954
Increase in mortgage payable - - 2,850
Cash distribution - common shares (7,035) (7,681) (3,226)
--------- -------- --------
Net cash (used in) provided by financing activities (16,277) 5,270 2,545
--------- -------- -----
Net increase (decrease) in cash and cash equivalents 17,006 582 (12,115)
Cash and cash equivalents at beginning of year 4,688 4,106 16,221
-------- -------- --------
Cash and cash equivalents at end of year $ 21,694 $ 4,688 $ 4,106
======== ======== ========
See accompanying notes to consolidated financial statements.
BRT REALTY TRUST AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Amounts in thousands)
(Continued)
Year Ended September 30,
------------------------
2003 2002 2001
----- ---- ----
Supplemental disclosures of cash flow information:
Cash paid during the year for interest expense $ 527 $ 427 $ 303
======== ======== ========
Cash paid during the year for income taxes $ 314 $ 241 $ 249
======== ======== ========
Supplemental schedule of noncash investing and financing activities:
Recognition of valuation allowance upon sale $ - $ - $ 24
======== ======== =======
of real estate owned
Recovery of previously provided allowances $ - $ 500 $ -
======== ======== =======
See accompanying notes to consolidated financial statements.
BRT REALTY TRUST AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended September 30, 2003, 2002 and 2001
(Amounts in Thousands Except Share Data)
NOTE 1 - ORGANIZATION, BACKGROUND AND SIGNIFICANT ACCOUNTING POLICIES
Organization and Background
BRT Realty Trust is a real estate investment trust organized as a
business trust in 1972 under the laws of the Commonwealth of
Massachusetts. Our principal business activity is to generate income
by originating and holding for investment, for our own account,
senior and junior real estate mortgage loans secured by income
producing real property. We also originate and hold for investment
for our own account participating real estate mortgage loans secured
by income producing real property and we purchase and hold for
investment senior or junior participations in existing mortgage loans
secured by income producing real property.
Principles of Consolidation; Basis of Preparation
The consolidated financial statements include the accounts of BRT
Realty Trust and its wholly-owned subsidiaries. Investments in less
than majority-owned entities have been accounted for using the equity
method. Material intercompany items and transactions have been
eliminated. Many of the wholly-owned subsidiaries were organized to
take title to various properties acquired by BRT Realty Trust. BRT
Realty Trust and its subsidiaries are hereinafter referred to as the
"Trust".
Income Tax Status
The Trust qualifies as a real estate investment trust under Sections
856-860 of the Internal Revenue Code.
The Trustees may, at their option, elect to operate the Trust as a
business trust not qualifying as a real estate investment trust.
Income Recognition
Income and expenses are recorded on the accrual basis of accounting
for both financial reporting and income tax purposes. The Trust does
not accrue interest or rental income on impaired loans or real estate
owned where, in the judgment of management and the Trustees,
collection of interest or rent according to the contractual terms is
considered doubtful. Among the factors the Trust considers in making
an evaluation of the amount of interest or rent that are collectable
are the status of the loan or property, the financial condition of the
borrower or tenant and anticipated future events. The Trust accrues
interest on performing impaired loans and records cash receipts as a
reduction of the recorded investment leaving the valuation allowance
constant throughout the life of the loan. For impaired non-accrual
loans, interest is recognized on a cash basis. Loan discounts are
amortized over the life of the real estate loan using the constant
interest method.
Loan commitment and extension fee income is deferred and recorded as
income over the life of the commitment and loan. Commitment fees are
generally non-refundable. When a commitment expires or the Trust no
longer has any other obligation to perform, the remaining fee is
recognized into income.
Rental income includes the base rent that each tenant is required to
pay in accordance with the terms of their respective leases reported
on a straight line basis over the initial term of the lease.
The basis on which the cost was determined in computing the realized
gain or loss on available-for-sale securities is average historical
cost.
Loans held for sale are carried at lower of cost or estimated fair
value as determined on an individual loan basis. Deferred fees on
loans held for sale are recognized as a component of gain or loss upon
the sale. Gains or losses on the sale are determined by the difference
between the sales proceeds and the carrying value of the loan.
Allowance for Possible Losses
The Trust measures the impairment of its real estate loans based upon
the fair value of the underlying collateral which is determined on an
individual loan basis. In arriving at the fair value of the
collateral, numerous factors are considered, including, market
evaluations of the underlying collateral, operating cash flow from the
property during the projected holding period, and estimated sales
value computed by applying an expected capitalization rate to the
stabilized net operating income of the specific property, less selling
costs, discounted at market discount rates. If upon completion of the
valuations, the underlying collateral securing the loan is less than
the recorded investment in the loan, an allowance is created with a
corresponding charge to expense.
Real Estate Assets
Real estate properties is comprised of real property in which the
Trust has invested directly and properties acquired by foreclosure.
When real estate is acquired by foreclosure or by a deed in lieu of
foreclosure, it is recorded at the lower of the carrying amount of the
loan or estimated fair value at the time of foreclosure. Real estate
assets, including assets acquired through foreclosure are
operated for the production of income and are depreciated over their
estimated useful lives. Costs incurred in connection with the
foreclosure of the properties collateralizing the real estate loans
and costs incurred to extend the life or improve the assets subsequent
to foreclosure are capitalized. With respect to the operating
properties, operating income and expenses are reflected in the
consolidated statements of income.
The Trust accounts for the sale of real estate when title passes to
the buyer, sufficient equity payments have been received and when
there is reasonable assurance that the remaining receivable will be
collected.
Investments in real estate ventures in which the Trust does not own a
greater than 50% interest or in which it does not have the ability to
exercise operational or financial control, are accounted for using
the equity method. Accordingly, the Trust reports its pro rata share
of net profits and losses from its investments in unconsolidated real
estate ventures in the accompanying consolidated financial
statements.
Valuation Allowance on Real Estate Assets
The Trust reviews each real estate asset owned, including investments
in real estate ventures, for which indicators of impairment are
present to determine whether the carrying amount of the asset will be
recovered. Recognition of impairment is required if the undiscounted
cash flows estimated to be generated by the assets are less than the
assets' carrying amount. Measurement is based upon the fair value of
the asset. Real estate assets held for sale are valued at the lower
of cost or fair value, less costs to sell, on an individual asset
basis. Upon evaluating a property, many indicators of value are
considered, including current and expected operating cash flow from
the property during the projected holding period, costs necessary to
extend the life or improve the asset, expected capitalization rates,
projected stabilized net operating income, selling costs, and the
ability to hold and dispose of such real estate owned in the ordinary
course of business. Valuation adjustments may be necessary in the
event that effective interest rates, rent-up periods, future economic
conditions, and other relevant factors vary significantly from those
assumed in valuing the property. If future evaluations result in a
diminution in the value of the property, the reduction will be
recognized as an addition to the valuation allowance. If the value of
the property subsequently increases, the valuation allowance will be
reduced.
Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments:
Cash and cash equivalents, accounts receivable, accounts payable and
accrued liabilities: The carrying amounts reported in the balance
sheet for these instruments approximate their fair values due to the
short term nature of these accounts.
Available-for-sale securities: Investments in securities are
considered "available-for-sale", and are reported on the balance sheet
based upon quoted market prices.
Real estate loans: The earning mortgage loans of the Trust have either
variable interest rate provisions, which are based upon a margin over
the prime rate, or are currently fixed at effective interest rates
which approximate market for similar types of loans. Accordingly, the
carrying amounts of the earning, non-impaired mortgage loans
approximate their fair values. For earning loans which are impaired,
the Trust has valued such loans based upon the estimated fair value of
the underlying collateral.
Borrowed funds and mortgages payable: There is no material difference
between the carrying amounts and fair value because interest rates
approximate current market rates for similar types of loans.
Per Share Data
Basic earnings per share was determined by dividing net income
applicable to common shareholders for each year by the weighted
average number of Shares of Beneficial Interest outstanding during
each year. Diluted earnings per share reflects the potential dilution
that could occur if securities or other contracts to issue Shares of
Beneficial Interest were exercised or converted into Shares of
Beneficial Interest or resulted in the issuance of Shares of
Beneficial Interest that then shared in the earnings of the Company.
Diluted earnings per share was determined by dividing net income
applicable to common shareholders for each year by the total of the
weighted average number of Shares of Beneficial Interest outstanding
plus the dilutive effect of the Company's unvested restricted stock
and outstanding options using the treasury stock method.
Cash Equivalents
Cash equivalents consist of highly liquid investments, primarily
direct United States treasury obligations and money market type U.S.
Government obligations, with maturities of three months or less when
purchased.
Use of Estimates
The preparation of the financial statements in conformity with
accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the amounts
reported in the financial statements and accompanying notes. Actual
results could differ from those estimates.
Segment Reporting
Statement of Financial Accounting Standards ("SFAS") No. 131,
Disclosure About Segments of an Enterprise and Related Information
established standards for the way that public business enterprises
report information about operating segments in annual financial
statements and requires that those enterprises report selected
information about operating segments in interim financial reports.
SFAS No. 131 also established standards for related disclosures about
products and services, geographical areas, and major customers. As the
Trust operates predominantly in one industry segment, management has
determined it has one reportable segment and believes it is in
compliance with the standards established by SFAS No. 131.
Derivative Instruments and Hedging Activities
The Trust adopted SFAS Statement No. 133, Accounting for Derivatives
Instruments and Hedging Activities as amended by SFAS Statement No.
137 during the 2001 fiscal year. Because of the Company's minimal
use of derivatives the adoption of SFAS No. 133 did not have a
significant effect on earnings or the financial position of the
Company.
Accounting For Long-Lived Assets
The Financial Accounting Standards Board issued SFAS No.144
"Accounting for the Impairment of Long-Lived Assets" which supersedes
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed of"; however it retained the
fundamental provisions of that statement related to the recognition
and measurement of the impairment of long-lived assets to be "held and
used". In addition, SFAS No. 144 provides more guidance on estimating
cash flows when performing a recoverability test, requires that a
long-lived asset or asset group to be disposed of other than by sale
(e.g. abandoned) be classified as "held and used" until it is disposed
of, and establishes more restrictive criteria to classify an asset or
asset group as "held for sale". The Trust adopted SFAS 144 at the
beginning of the current fiscal year. The adoption of this statement
did not have an effect on the earnings or the financial position of
the Trust.
Gains and Losses From Extinguishment of Debt
On July 1, 2003 the Company adopted Statement SFAS No. 145 which
rescinded SFAS No. 4 "Reporting Gains and Losses From Extinguishment
of Debt". In connection with the adoption of this statement, the
Company reclassified in the 2001 statement of income a loss of $264
from the write off of deferred fees associated with a terminated
revolving credit line, which had previously been reported as an
extraordinary item. Such reclassification had no impact on net income
reported for the 2001 year.
Accounting for Stock-Based Compensation
The Financial Accounting Standards Board issued SFAS No. 148 to amend
SFAS No. 123, "Accounting for Stock-Based Compensation," to provide
alternative methods of transition for a voluntary change to the fair
value based method of accounting for stock-based employee
compensation. In addition, SFAS No. 148 amends the disclosures in both
annual and interim financial statements about the method of accounting
for stock-based employee compensation and the effect of the method
used on reported results. However, the Company has continued to
account for options in accordance with the provision of APB Opinion
No. 25, "Accounting for Stock Issued to Employees" and related
interpretations. See Note 8 for pro forma net income information.
Recently Issued Accounting Standards
In January 2003, the Financial Accounting Standards Board issued
Interpretation No. 46, "Consolidation of Variable Interest Entities",
which explains how to identify variable interest entities ("VIE") and
how to assess whether to consolidate such entities. The provisions of
this interpretation became immediately effective for VIE's formed
after January 31, 2003. For VIEs formed prior to January 31, 2003, the
provisions of this interpretation apply to the first fiscal year or
interim period beginning after December 15, 2003, unless the Financial
Accounting Standards Board ("FASB") grants a deferral of such
effective date. Management is currently reviewing its unconsolidated
joint ventures to determine if any of them represent variable interest
entities which would require consolidation by the Trust pursuant to
the interpretation.
In May, 2003 the FASB issued SFAS No. 150 "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and
Equity." This statement establishes standards for how an issuer
classifies and measures certain financial instruments with
characteristics of both liabilities and equity, and is effective for
financial instruments entered into or modified after May 31,
2003, and otherwise is effective at the beginning of the first
interim period beginning after June 15, 2003. As a result of
further discussion by FASB on October 8, 2003, the FASB clarified
that minority interests in consolidated partnerships with specified
finite lives should be reclassified as liabilities and presented at
fair market value unless the interests are convertible into the
equity of the parent. Fair market value adjustments occurring
subsequent to July 1, 2003 would be recorded as a component of
interest expense. At their October 29, 2003 meeting, the FASB agreed
to indefinitely defer the implementation of a portion of SFAS No. 150
regarding the accounting treatment for minority interests in
finite life partnerships. Therefore, until a final resolution is
reached, the Company will not implement this aspect of the standard.
If the company were to adopt this aspect of the standard under its
current provisions, it is not expected to have a material impact
on the Company's financial statements.
Reclassification
Certain amounts reported in previous financial statements have been
reclassified in the accompanying financial statements to conform to
the current year's presentation.
NOTE 2 - REAL ESTATE LOANS
At September 30, 2003, information as to real estate loans, is
summarized as follows:
Not
Earning Earning
Total Interest Interest
----- -------- --------
First mortgage loans:
Long-term:
Residential $ 41 $ 41 $ -
Short-term (five years or less):
Shopping centers/retail 17,544 17,544 -
Industrial buildings 5,985 5,985 -
Office buildings 5,826 5,176 650
Residential (multiple family units) 17,640 16,112 1,528
Second mortgage loans
and junior participations:
Residential 18,817 17,850 967
Retail 475 475 -
Office 550 550 -
-------- -------- --------
$ 66,878 $ 63,733 $ 3,145
======== ======== ========
A summary of loans at September 30, 2002 is as follows:
First mortgage loans
Long term $ 3,614 $ 3,614 $ -
Short term 54,424 54,009 415
Second mortgage loans
and wrap around mortgages 26,489 26,489 -
-------- -------- --------
$ 84,527 $ 84,112 $ 415
======== ======== ========
There were four real estate loans not earning interest at September
30, 2003. Two of these loans with an outstanding balance of $1,617
were deemed impaired, as it is probable that the Trust will not be
able to collect all amounts due according to the contractual terms and
allowances have been established for them. Allowances for loan losses
were not provided for the remaining two non earning loans in the
amount of $1,528 at September 30, 2003, which loans are expected to be
paid in full, including interest. Of the real estate loans earning
interest at September 30, 2003 and 2002, $3,835 and $7,220,
respectively, were deemed impaired and all are subject to allowances
for possible losses. For the years ended September 30, 2003, 2002 and
2001, respectively, an average $6,376, $6,197 and $11,025 of real
estate loans were deemed impaired, on which $449, $837 and $1,310 of
interest income was recognized.
Loans originated by the Trust generally provide for interest rates,
which are indexed to the prime rate. The weighted average interest
rate on earning loans was 11.12% and 12.51% at September 30, 2003 and
2002, 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 September 30, 2003 and
September 30, 2002, the balance of the mortgage loans was $7,134 and
$8,129, respectively. Interest earned on these loans totaled $726
and $602 for the year ended September 30, 2003 and September 30, 2002,
respectively.
Annual maturities of real estate loans receivable before allowances
for possible losses during the next five years and thereafter and are
summarized as follows:
Years Ending September 30 Amount
------------------------- ------
2004......................... $ 49,711
2005......................... 10,844
2006......................... 54
2007......................... 3,300
2008......................... 2,957
2009 and thereafter.......... 12
--------
Total $ 66,878
========
The Trust's portfolio consists primarily of senior and junior mortgage
loans, secured by residential and commercial property, 57% of which
are located in the New York metropolitan area (which includes New
Jersey and Connecticut), 16% in California, 12% in Delaware and 15% in
other states.
If a loan is not repaid at maturity, in addition to foreclosing on
the property, the Trust may either extend the loan or consider the
loan past due. The Trust analyzes each loan separately to determine
the appropriateness of an extension. In analyzing each situation,
management examines many aspects of the loan receivable, including the
value of the collateral, the financial strength of the borrower, past
payment history and plans of the owner of the property. Of the $49,711
of real estate loans receivable which matured in Fiscal 2003, $16,702
were extended.
If all loans classified as non-earning were earning interest at their
contractual rates for the year ended September 30, 2003 and 2002,
interest income would have increased by $142 and $46, respectively.
At September 30, 2003 the three largest real estate loans had
principal balances outstanding of approximately $10,400, $8,200 and
$4,916, respectively. Of the total interest and fees earned on real
estate loans during the fiscal year ended September 30, 2003, 13.3%,
.2% and 1.47% related to these loans, respectively.
NOTE 3 - REAL ESTATE ASSETS
Real Estate Properties
A summary of real estate properties for the year ended
September 30, 2003 is as follows:
Costs
September 30, 2002 Capitalized/ Gain on September 30, 2003
# Properties Amount Amortization Sales Sale # Properties Amount
------------ ------ ------------ ----- ---- ------------ ------
Residential units-shares of
cooperative corporations 2 $ 16 $ 112 ($553) $ 499 2 $ 74
Shopping centers/retail 2 7,784 65 - - 2 7,849
-----------------------------------------------------------------------------------
7,800 177 (553) 499 7,923
Amortization (1,227) (235) - - - (1,462)
Total real estate properties 4 $6,573 ($58) ($553) $ 499 4 $6,461
=====================================================================================
The Trust holds with a minority partner a leasehold interest in a
portion of a retail shopping center located in Yonkers, New York. The
leasehold interest is for approximately 28,500 square feet and
including all option periods expires in 2045. The minority equity
interest, which equals ten percent, amounted to $175 at September 30,
2003 and $169 at September 30, 2002 is included as a component of other
liabilities on the consolidated balance sheet.
Future minimum rentals to be received by the Trust, pursuant to
noncancellable operating leases in excess of one year, from properties
on which the Trust has title at September 30, 2003 are as follows:
Years Ending September 30, Amount
-------------------------- ------
2004 ................................................... $ 1,363
2005 ................................................... 1,211
2006 ................................................... 1,089
2007 ................................................... 999
2008 ................................................... 955
Thereafter ............................................. 11,307
-------
$16,924
Investment in Unconsolidated Joint Ventures at Equity
The Trust is a partner in seven unconsolidated joint ventures which
operate seven properties. In addition to making an equity
contribution, the Trust may hold a first or second mortgage on the
property. A brief summary of the two most significant joint ventures
is listed below.
Blue Hen Venture - In 1999 the Trust sold one-half of its interest in
the Blue Hen Corporate Center & Mall, located in Dover, Delaware to a
joint venture partner and contributed its remaining one-half interest.
The Trust holds a 50% interest in the Blue Hen Venture and also holds
two first mortgages on this property totaling $3,158 at September 30,
2003. These mortgages mature on January 1, 2005 ($673) and July 1,
2005 ($2,485) and have a fixed rate of interest of 8.07%. Principal
and interest payments on these two mortgages is $1,295 per year.
Rutherford Glen - The Trust is a 50% joint venture partner in a
248-unit garden apartment complex located in Atlanta, Georgia. The
first mortgage on this property, which is held by an unaffiliated
third party was $16,016 at September 30, 2003. This loan, which
matures on June 11, 2011, has a fixed interest rate of 7.02% and
requires principal and interest payments of $1,312 per year. The Trust
also holds a second mortgage on the property in the amount of $2,950
at September 30, 2003. This mortgage which carries an 11% fixed rate
of interest and requires interest only payments of $325 matures on
June 1, 2008. During the fiscal year ended September 30, 2003 the
Trust contributed $268 to this venture.
Unaudited condensed financial information for these two joint ventures
at September 30, 2003 and for the year then ended:
Blue Hen Rutherford
Venture Glen
------- ----
Condensed Balance Sheet
Cash and cash equivalents $ 1,211 $ 195
Real estate investments, net 14,712 18,632
Other assets 409 293
-------- --------
Total assets $ 16,332 $ 19,120
======== ========
Mortgage payable $ 3,158 $ 18,966
Other liabilities 266 481
Equity 12,908 (327)
-------- --------
Total liabilities and equity $ 16,332 $ 19,120
======== ========
Trust's equity investment $ 5,368 $ (120)
======== ========
Condensed Statement of Operations
Revenues, primarily rental income $ 2,981 $ 2,294
Operating expenses 1,414 1,038
Depreciation 483 728
Interest expense 299 1,460
-------- --------
Total expense 2,196 3,226
Operating income 785 (932)
Gain on sale 611 -
Write off of capitalized development costs 491 -
-------- --------
Net income attributable to members $ 905 $ (932)
======== =========
Trust's share of net income $ 452 $ (466)
======== =========
Amount recorded in income statement $ 661 $ (466)
======== ========
The unamortized excess of the Trust's share of the net equity over its
investment in the Blue Hen joint venture that is attributable to
building and improvements is being amortized over the life of the
related property. The portion that is attributable to land will be
recognized upon the disposition of the land. During fiscal 2003 a
parcel of land was sold and the Trust recognized $253 of this excess.
The remaining five joint ventures contributed $284 in equity earnings
for the fiscal year ended September 30, 2003
NOTE 4 - ALLOWANCE FOR POSSIBLE LOAN LOSSES
The Trust was not required to record any additional allowance
provisions for possible loan losses nor valuation adjustments on
owned real estate during the years ended September 30, 2003, 2002 and
2001.
An analysis of the allowance for possible losses is as follows:
Year Ended September 30,
------------------------
2003 2002 2001
---- ---- ----
Balance at beginning of year $ 881 $ 1,381 $ 1,381
Recovery of previously provided allowances - (500) -
-------- --------- --------
Balance at end of year $ 881 $ 881 $ 1,381
======== ======== ========
The allowance for possible losses applies to loans aggregating
$5,452 at September 30, 2003, $7,220 at September 30, 2002 and
$6,579 at September 30, 2001.
NOTE 5 - AVAILABLE-FOR-SALE SECURITIES
The cost of securities held for sale at September 30, 2003 was
$17,072. The fair value of these securities was $36,354 at September
30, 2003. Gross unrealized gains and losses at September 30, 2003 were
$19,351 and $69, respectively and are reflected as accumulated other
comprehensive income on the accompanying consolidated balance sheets.
Included in available for sale securities are 1,094,800 shares of
Entertainment Properties Trust (NYSE:EPR), which have a cost basis of
$14,381 and a fair value at September 30, 2003 of $32,844. The shares
held by BRT represent approximately 5.44% of the outstanding shares of
Entertainment Properties Trust. The fair value of the Trust's
investment in Entertainment Properties Trust at November 30, 2003 was
$36,772. During the year ended September 30, 2003, 260,800 shares of
EPR were sold for a gain of $4,187 and subsequent to September 30,
2003 and through December 2, 2003, 35,600 additional shares of EPR
were sold at a gain of $720.
Also included in available-for-sale securities are 133,950 shares of
Atlantic Liberty Financial Corp. (NASDAQ:ALFC), which have a cost
basis of $2,034 and a fair market value of $2,605. The shares held by
the Trust represent approximately 7.83% of the outstanding shares of
Atlantic Liberty as of September 30, 2003.
NOTE 6 - DEBT OBLIGATIONS
Debt obligations consist of the following:
September 30,
-------------
2003 2002
-------- --------
Note payable - credit facility $ 1,000 $ 5,500
Margin account 3,755 9,245
---------- ---------
Borrowed funds 4,755 14,745
Mortgage payable 2,680 2,745
---------- ---------
Total debt obligations $ 7,435 $ 17,490
========== =========
On January 11, 2001 BRT terminated its revolving credit facility with
TransAmerica Business Credit Corporation ("TransAmerica"). During the
year ended September 30, 2001 unamortized deferred fees in the amount
of $264 associated with the terminated TransAmerica revolving credit
facility were written off.
On July 25, 2001 BRT entered into a $15,000 revolving credit agreement
with North Fork Bank (North Fork) which was subsequently amended on
June 6, 2003, primarily to increase the maximum borrowings to $30
million.
In addition, the maturity date of the facility was extended from
August 1, 2004 to June 1, 2006. A fee of $75 was paid to North Fork
Bank in connection with this amendment. The Trust also may extend the
term of the facility for two one year periods for a fee of $75 each
year. Borrowings under the facility are secured by specific
receivables and the credit agreement provides that the amount borrowed
will not exceed 65% (increased from 60%) of the collateral pledged.
As of September 30, 2003 BRT had provided collateral to North Fork
Bank which would permit BRT to borrow up to $21,100 under the
facility.
The average outstanding balance on the credit facility for the year
ended September 30, 2003 and September 30, 2002 was $764 and $461,
respectively and the average interest rate paid was 4.8 and 5.2%.
Interest expense for the year ended September 30, 2003 and September
30, 2002 was $37 and $24.
In addition to its credit facility, BRT has the ability to borrow
funds through a margin account. In order to maintain this account BRT
pays an annual fee equal to .3% of the market value of the pledged
securities which is included in interest expense. At September 30,
2003 there was an outstanding balance of $3,755 on the margin account.
The interest rate at September 30, 2003 was 3.00%. Marketable
securities with a fair market value at of $32,844 were pledged as
collateral. The average outstanding balance on the margin facility for
the year ended September 30, 2003 was $2,905 and the average interest
rate paid was 7.9%. For the year ended September 30, 2002 there was an
average outstanding balance of $3,351 at a rate of 5.95%.
The mortgage payable was placed on a shopping center in which the
Trust, through a subsidiary, is a joint venture partner and holds a
majority interest in a leasehold position. The mortgage with an
original balance of $2,850 bears interest at a fixed rate of 8.75% for
the first five years and has a maturity of November 1, 2005. There is
an option to extend the mortgage to November 1, 2010. At September 30,
2003 the outstanding balance was $2,680.
Scheduled principal repayments on the mortgage during the initial
maturity are as follows:
Years Ending September 30, Amount
2004 $ 70
2005 77
2006 83
2007 and thereafter 2,450
-----
$2,680
NOTE 7 - INCOME TAXES
The Trust has elected to be taxed as a real estate investment trust
("REIT), as defined under the Internal Revenue Code. As a REIT the
Trust will generally not be subject to Federal income taxes at the
corporate level if it distributes at least 90% of its REIT taxable
income, as defined, to its shareholders. There are a number
organizational and operational requirements the Trust must meet to
remain a REIT. If the Trust fails to qualify as a REIT in any taxable
year, its taxable income will be subject to Federal income tax at
regular corporate rates and it may not be able to qualify as a REIT
for four subsequent tax years. Even if it is qualified as a REIT, the
Trust may be subject to certain state and local income taxes and to
Federal income and excise taxes on its undistributed taxable income.
During the years ended September 30, 2003 and 2002 the Trust recorded
$498 and $452, respectively of corporate tax expense including $374
and $322, respectively for the payment of Federal excise tax which is
based on income generated but not yet distributed.
Earnings and profits, which determine the taxability of dividends to
shareholders, differ from net income reported for financial statement
purposes due to various items among which are timing differences
related to depreciation methods and carrying values.
The taxable income is expected to be approximately $418 higher than
the financial statement income during calendar 2003.
NOTE 8 - SHAREHOLDERS' EQUITY
Distributions
During the year ended September 30, 2003 BRT declared cash
distributions in the amount of $1.30.
Stock Options
On December 6, 1996, the Board of Trustees adopted the BRT 1996 Stock
Option Plan (Incentive/Nonstatutory Stock Option Plan), whereby a
maximum of 450,000 shares of beneficial interest are reserved for
issuance to the Trust's officers, employees, trustees and consultants
or advisors to the Trust. Incentive stock options are granted at per
share amounts at least equal to the fair value at the date of grant,
whereas for nonstatutory stock options, the exercise price may be any
amount determined by the Board, but not less than the par value of a
share. In December 2001, the 1996 stock option plan was amended to
allow for an additional 250,000 shares to be issued.
In March and April 1998 the Board of Trustees granted, under the 1996
Stock Option Plan options to purchase 50,000 shares of beneficial
interest at prices ranging from $7.3125 to $7.9375 per share to a
number of directors, officers and employees of the Trust. The options
are cumulatively exercisable at a rate of 25% per annum, commencing
after two years, and expire ten years after the grant date. During the
current year 12,000 of the options were exercised. At September 30,
2003, there were no remaining options under this grant.
In December 1998 the Board of Directors granted, under the 1996 Stock
Option Plan options to purchase 180,000 shares of beneficial interest
at $5.9375 per share to a number of officers, employees, consultants
and trustees of the Trust. The options are cumulatively exercisable at
a rate of 25% per annum, commencing after one year (50,000) and two
years (130,000), and expire five years (50,000) and ten years (130,000)
after the date of the grant. During the current year 50,500 of the
options were exercised. At September 30, 2003 options to purchase
35,250 shares are remaining, 6,000 of which are exercisable.
In December 2000 the Board of Directors granted under the 1996 Stock
Option Plan options to purchase 165,500 shares of beneficial interest
at $7.75 per share to a number of officers, employees and consultants
of the Trust. The options are cumulatively exercisable at a rate of 25%
per annum, commencing after two years and expire ten years after grant
date. During the current year 35,688 of the options were exercised. At
September 30, 2003 options to purchase 129,812 shares are remaining,
5,688 of which are exercisable.
In December 2001 the Board of Directors granted, under the 1996 Stock
Option Plan, options to purchase 89,000 shares of beneficial interest
at $10.45 per share to a number of officers, employees and consultants
of the Trust. The options are cumulatively exercisable at a rate of 25%
per annum, commencing after one year and expiring ten years after grant
date. During the current year 14,000 of the options were exercised. At
September 30, 2003 options to purchase 75,000 shares are remaining,
8,250 of which are exercisable.
The Trust elected 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. Pro forma information regarding
net income and earnings per share is required by FAS No. 123, and has
been determined as if the Trust had accounted for its employee stock
options under the fair value method. The fair value for these options
was estimated at the date of the grant using the Black-Scholes option
pricing model with the following weighted-average assumptions:
December 2001 December 2000 December 1998 December 1998 March/April 1998
89,000 Shares 165,000 Shares 50,000 Shares 130,000 Shares 50,000 Shares
--------------- -------------- ------------- -------------- -------------
Risk Free Interest Rate 3.91% 4.76% 4.38% 4.62% 5.64%
Dividend Yield 8.3% 4.36% 0% 0% 0%
Volatility Factor .210 .205 .208 .208 .188
Expected Life (Years) 5 6 5 6 6
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting
restrictions and are fully transferable. In addition, option valuation
models require the input of highly subjective assumptions including
expected stock price volatility. Because the Trust's employee stock
options have characteristics significantly different from those of
traded options, and changes in the subjective input assumptions can
materially affect the fair value estimate, management believes the
existing models do not necessarily provide a reliable single measure of
the fair value of its employee stock options.
Pro forma net income and earnings per share calculated using the
Black-Scholes option valuation model is as follows:
Year Ended September 30,
-------------------------
2003 2002 2001
---- ---- ----
Net income to common
shareholders as reported $13,683 $12,586 $10,586
Less: Total stock-based
employee compensation
expense determined under
fair value based methods
for all awards 126 126 46
Pro forma net income $13,557 $12,460 $10,540
Pro forma earnings per share of
beneficial interest:
Basic 1.82 1.69 1.46
Diluted 1.79 1.66 1.44
Changes in the number of shares under all option arrangements are
summarized as follows:
Year Ended September 30,
------------------------
2003 2002 2001
---- ---- ----
Outstanding at beginning of period 352,250 327,375 332,500
Granted - 89,000 165,500
Option price per share granted - 10.45 7.75
Cancelled - - 5,000
Exercised 112,188 59,125 165,625
Expired - 5,000 -
Outstanding at end of period 240,062 352,250 327,375
Exercisable at end of period 19,938 16,750 27,125
Option prices per share outstanding $5.9375-$10.45 $5.9375-$10.45 $4.375-$7.9375
As of September 30, 2003 the outstanding options had a weighted average
remaining contractual life of approximately 7.19 years and a weighted
average exercise price of $8.33.
Restricted Shares
During the year ended September 30, 2003, the Trust issued 28,800
shares under its 2003 Incentive Plan which was approved by BRT's
shareholders in March of 2003. The total number of shares allocated to
this Plan is 350,000. The shares vest five years from the date of
issuance and under certain circumstances may vest earlier. For
accounting purposes, the restricted stock is not included in the
outstanding shares shown on the balance sheet until they vest. The
Trust records compensation expense under the APB 25 over the vesting
period, measuring the compensation cost based on the market value of
the shares on the date of grant. For the year ended September 30, 2003,
the Trust recorded $36 of compensation expense.
Earnings Per Share
The following table sets forth the computation of basic and diluted
earnings per share:
2003 2002 2001
---- ---- ----
Numerator for basic and diluted
earnings per share:
Net income $13,683 $12,586 $10,586
Denominator:
Denominator for basic earnings
per share -weighted average shares 7,458,880 7,373,627 7,221,373
Effect of dilutive securities:
Employee stock options 126,598 129,438 105,801
------- ------- -------
Denominator for diluted earnings
per share - adjusted weighted average
shares and assumed conversions 7,585,478 7,503,065 7,327,174
Basic earnings per share $ 1.83 $ 1.71 $ 1.47
Diluted earnings per share $ 1.80 $ 1.68 $ 1.45
Treasury Shares
During the fiscal year ended September 30, 2003 and September 30, 2002
no shares were purchased by the Trust.
During the fiscal year ended September 30, 2003, 112,188 treasury
shares were issued in connection with the exercise of stock options
under the Trust's plan. In the fiscal year ended September 30, 2002,
the Trust issued 59,125 Treasury shares in connection with the exercise
of stock options under the Trust's existing stock option plan. As of
September 30, 2003 the Trust owns 1,381,028 Treasury shares of
beneficial interest at an aggregate cost of $11,899.
NOTE 9 - ADVISOR'S COMPENSATION AND CERTAIN TRANSACTIONS
Certain of the Trust's officers and trustees are also officers,
directors and the shareholder of REIT Management Corp. ("REIT"), to
which the Trust pays advisory fees for administrative services and
investment advice. The agreement, which expires on December 31, 2007,
provides that directors and officers of REIT may serve as trustees,
officers and employees of the Trust, but shall not be compensated for
services rendered in such latter capacities. Advisory fees are charged
to operations at a rate of 1% on real estate loans and 1/2 of 1% on
other invested assets. Advisory fees amounted to $875, $967 and $745
for the years ended September 30, 2003, 2002, and 2001, respectively.
At September 30, 2003 $27 remains unpaid and is reflected in accounts
payable on the consolidated balance sheet.
The borrower may pay fees to REIT for services rendered in arranging
and restructuring loans by the Trust. These fees, which are allowed by
the advisory agreement, on loans arranged on behalf of the Trust and
which are paid directly by the borrower to REIT amounted to $601, $591
and $443 for the years ended September 30, 2003, 2002 and 2001
respectively.
REIT arranges for the management of certain properties for the Trust
under renewable year-to-year agreements. Management fees, legal fees
and leasing, selling and financing commissions incurred and reimbursed
or owed to REIT or an other affiliated company for the years ended
September 30, 2003, 2002 and 2001 aggregated $92, $95 and $132,
respectively.
The Chairman of the Board of Trustees of the Trust holds a similar
position in One Liberty Properties, Inc. a related party, is an
executive officer of the managing general partner and was a general
partner through July 1, 2001 of Gould Investors L.P. a related party.
Effective July 1, 2001 Mr. Gould assigned his general partner interest
to Gould General LLC, an entity of which he is the sole member. During
the years ended September 30, 2003, 2002 and 2001, allocated general
and administrative expenses charged to the Trust by Gould Investors
L.P. aggregated $656, $647 and $645, respectively. At September 30,
2003 $72 remains unpaid and is reflected in accounts payable on the
consolidated balance sheet.
NOTE 10 - COMMITMENT
The Trust maintains a non-contributory pension plan covering eligible
employees and officers. Contributions by the Trust are made through a
money purchase plan, based upon a percent of qualified employees' total
salary as defined. Pension expense approximated $168, $163 and $155
during the years ended September 30, 2003, 2002 and 2001, respectively.
NOTE 11 - QUARTERLY FINANCIAL DATA (Unaudited)
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Total
Oct.-Dec. Jan.-March April-June July-Sept. For Year
--------- ---------- ---------- ----------- --------
2003
---------------------------------------------------------------------------
Revenues $ 4,130 $ 3,514 $ 3,765 $ 3,395 $14,804
Income before equity in earnings
of unconsolidated real estate
ventures and gain on sale 2,588 2,038 2,108 1,682 8,416
Net income 2,836 2,205 4,754 3,888 13,683
Per share $ .38 $ .30 $ .64 $ .52 $ 1.83 (a)
2002
--------------------------------------------------------------------------
Revenues $ 4,693 $ 3,931 $ 3,658 $ 5,116 $17,398
Income before equity in earnings
of unconsolidated real estate
ventures and gain on sale 3,174 2,525 2,074 3,473 11,246
Net income 3,456 3,343 2,122 3,665 12,586
Per share $ .47 $ .45 $ .29 $ .50 $ 1.71 (a)
Per share earnings represent basic earnings per beneficial share.
(a) Calculated on weighted average shares outstanding for the fiscal year.
May not foot due to rounding.
NOTE 12 - SUBSEQUENT EVENT
On November 7, 2003 the Trust originated a $23,500 loan on a
multi-family property located in Tampa, Florida using available cash and
borrowings under the margin account and credit facility.
BRT REALTY TRUST
SCHEDULE III - REAL ESTATE PROPERTIES AND ACCUMULATED DEPRECIATION
SEPTEMBER 30, 2003
(Amounts in Thousands)
Gross Amount At Which Carried At
Initial Cost To Company September 30, 2003
----------------------- ----------------------------------
Buildings Costs Capitalized Buildings Accum.
Encum- And Subsequent to Acquisition And Amorti-
Description brances Land Improvements Improvements Carrying Costs Land Improvements Total zation
- ----------------------------------------------------------------------------------------------------------------------
Residential
New York, New York - - - $74 - - $74 $74 -
Shopping Center/Retail
Rock Springs, WY - $600 $2,483 725 $28 $600 3,236 3,836 $1,126
Yonkers, New York $2,680 - 4,000 12 - - 4,012 4,012 335
-------------------------------------------------------------------------------------------
TOTAL $2,680 $600 $6,483 $811 $28 $600 $7,322 $7,922 $1,461
===========================================================================================
(a) (b)
BRT REALTY TRUST
SCHEDULE III - REAL ESTATE PROPERTIES AND ACCUMULATED DEPRECIATION
SEPTEMBER 30, 2003
(Amounts in Thousands)
Depreciation
Life For
Date Of Date Latest Income
Construction Acquired Statement
------------ -------- ---------
Residential
New York, New York
Shopping Center/Retail
Rock Springs, WY - Jan-92 21-35 Years
Yonkers, New York - Aug-00 39 Years
----------------------------------------------------
TOTAL
====================================================
(c)
BRT REALTY TRUST
SCHEDULE III - REAL ESTATE PROPERTIES AND ACCUMULATED DEPRECIATION
SEPTEMBER 30, 2003
(Amounts in Thousands)
Notes to the schedule:
(a) Total real estate properties $ 7,922
Less: Accumulated amortization 1,461
--------
Net real estate properties $ 6,461
========
(b) Amortization of the Trust's leasehold interests is over the shorter of
estimated useful life or the term of the respective land lease.
(c) Information not readily obtainable.
A reconciliation of real estate properties is as follows:
Year Ended September 30,
------------------------
2003 2002 2001
---- ---- ----
Balance at beginning of year $6,573 $6,777 $6,944
Additions:
Acquisitions - - -
Capitalization of expenses 176 39 201
------- ------ ------
6,749 6,816 7,145
------- ------ ------
Deductions:
Sales/conveyances 54 9 117
Depreciation/amortization 234 234 251
------- ------- ------
288 243 368
------- ------- ------
Balance at end of year $6,461 $6,573 $6,777
====== ====== ======
The aggregate cost of investments in real estate assets for
federal income tax purposes approximates book value.
BRT REALTY TRUST
SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE
SEPTEMBER 30, 2003
(Amounts in Thousands)
FINAL
# OF INTEREST MATURITY
DESCRIPTION LOANS RATE DATE PERIODIC PAYMENT TERMS
- ----------------------------------------------------------------------------------------------------------------------
First mortgage loans:
Long term:
Cooperative Apartments, Bronx, NY 1 7.3% Jan-07 Interest and principal monthly
Miscellaneous
$0-$499 2
Short term:
Retail, New York, NY 1 Prime+6.5% Oct-04 Interest monthly, principal at maturity
Retail, Asbury park, NJ 1 Prime+6.75% May-04 Interest monthly, principal at maturity
Apartments, Elmsmere, DE 1 Prime+6.5% Apr-04 Interest monthly, principal at maturity
Condominium Units, New York, NY 1 Prime+7.75% Nov-03 Interest monthly, principal at maturity
Industrial Building, Jersey City, NJ 1 Prime + 4.0% Jan-04 Interest monthly, principal at maturity
Office Building, Dover, DE 1 8.07% July-05 Interest and principal monthly
Apartments, Charlotte, NC 1 Prime+8.75% May-04 Interest monthly, principal at maturity
Retail/Multi-family, New York, NY 1 Prime+7.25% Nov-03 Interest monthly, principal at maturity
Office, New York, NY 1 12.5% Nov-03 Interest monthly, principal at maturity
Miscellaneous
$0-$499 3
$500-$999 5
$1,500-$1,999 4
Junior mortgage loans
and junior participations:
Long Term:
Apartments, Atlanta, GA 1 11.00% June-08 Interest monthly, principal at maturity
Short Term:
Apartments and office building,
San Francisco, CA 1 Prime + 5.0% Jan-04 Interest monthly, principal at maturity
Apartments, Nashville, TN 1 13.00% May-04 Interest monthly, principal at maturity
Miscellaneous
$0-$499 2
$500-$999 3
32
====
BRT REALTY TRUST
SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE
SEPTEMBER 30, 2003
(Amounts in Thousands)
PRINCIPAL AMOUNT
CARRYING OF LOANS SUBJECT
FACE AMOUNT AMOUNT TO DELIONQUENT
DESCRIPTION PRIOR LIENS OF MORTGAGES OF MORTGAGES(b) PRINCIPAL OR INTEREST
- ------------------------------------------------------------------------------------------------------------------------------------
First mortgage loans:
Long term:
Cooperative Apartments, Bronx, NY - $ 3,200 $ 2,675 -
Miscellaneous
$0-$499 - 52 52 -
Short term:
Retail, New York, NY - 8,200 8,200 -
Retail, Asbury park, NJ - 4,916 4,916 -
Apartments, Elmsmere, DE - 4,567 4,567 -
Condominium Units, New York, NY - 3,817 3,817 -
Industrial Building, Jersey City, NJ - 2,600 2,600 -
Office Building, Dover, DE - 2,497 2,497 -
Apartments, Charlotte, NC - 2,378 2,378 -
Retail/Multi-family, New York, NY - 2,200 2,200 -
Office, New York, NY - 2,000 2,000 -
Miscellaneous
$0-$499 - 509 509 -
$500-$999 - 3,602 3,352 2,178
$1,500-$1,999 - 6,863 6,863 -
Junior mortgage loans
and junior participations:
Long Term:
Apartments, Atlanta, GA $16,016 2,950 2,950 -
Short Term:
Apartments and office building,
San Francisco, CA 53,476 10,400 10,400 -
Apartments, Nashville, TN 9,000 3,500 3,500 -
Miscellaneous
$0-$499 2,509 475 475 -
$500-$999 14,630 2,517 2,046 967
--------------------------------------------------------
$95,631 $67,243 $65,997 $ 3,145
=========================================================
BRT REALTY TRUST
SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE
SEPTEMBER 30, 2003
(Amounts in Thousands)
Notes to the schedule:
(a) The following summary reconciles mortgages receivable at their carrying
values:
Year Ended September 30,
-------------------------
2003 2002 2001
-------- ------- -------
Balance at beginning of year $ 83,646 $ 66,547 $ 42,282
Additions:
Advances under real estate loans 58,716 61,779 44,276
Recovery of previously provided allowances - 500 -
-------- -------- --------
142,063 128,826 86,558
-------- ------- --------
Deductions:
Collections of principal 76,365 40,869 20,011
Sale of loans - 4,311 -
-------- -------- --------
76,066 45,180 20,011
-------- -------- --------
Balance at end of year $ 65,997 $ 83,646 $ 66,547
======== ======== ========
(b) Carry amount of mortgages are net of a direct write off in the amount of
$365 that was recognized in a prior year and allowances for loan losses
in the amount of $881 on four loans.
(c) The aggregate cost of investments in mortgage loans is the same for
financial reporting purposes and Federal income tax purposes.