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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section
13 or 15(d) of
the Securities Exchange Act of 1934
For the quarterly period ended June 30, 2004
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Commission File Number 001-07172
BRT REALTY TRUST
----------------
(Exact name of Registrant as specified in its charter)
Massachusetts 13-2755856
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
60 Cutter Mill Road, Great Neck, NY 11021
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (516) 466-3100
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act)
Yes No X
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
stock, as of the latest practicable date.
7,652,295 Shares of Beneficial Interest,
$3 par value, outstanding on August 6, 2004
Part 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
BRT REALTY TRUST AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Amounts In Thousands)
June 30, September 30,
2004 2003
---- ----
(Unaudited) (Audited)
ASSETS
Real estate loans - Note 3:
Earning interest, including $7,576 and
$7,134 from related parties $124,144 $ 63,733
Not earning interest 3,096 3,145
-------- --------
127,240 66,878
Allowance for possible losses (881) (881)
-------- --------
126,359 65,997
-------- --------
Real estate assets - Note 4:
Real estate properties net of accumulated
depreciation of $1,640 and $1,462 6,272 6,461
Investment in unconsolidated real
estate ventures at equity 7,690 6,930
-------- --------
13,962 13,391
Valuation allowance (325) (325)
-------- --------
13,637 13,066
-------- --------
Cash and cash equivalents 5,287 21,694
Securities available-for-sale at market - Note 5 39,362 36,354
Other assets 2,669 1,891
-------- --------
Total Assets $187,314 $139,002
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Borrowed funds - Note 6 $ 45,313 $ 4,755
Mortgage payable 2,628 2,680
Accounts payable and accrued liabilities,
including deposits of $2,520 and $1,103 5,296 5,635
Dividends payable 3,673 -
-------- --------
Total Liabilities 56,910 13,070
-------- --------
Shareholders' Equity - Note 2:
Preferred shares, $1 par value:
Authorized 10,000 shares, none issued - -
Shares of beneficial interest, $3 par value:
Authorized number of shares - unlimited,
issued - 8,883 shares at each date 26,650 26,650
Additional paid-in capital 81,769 81,151
Accumulated other comprehensive income - net
unrealized gain on available-for-sale securities 24,033 19,282
Unearned compensation (954) (406)
Retained earnings 10,006 11,154
-------- --------
141,504 137,831
Cost of 1,288 and 1,381 treasury shares of
beneficial interest at each date (11,100) (11,899)
-------- --------
Total Shareholders' Equity 130,404 125,932
-------- --------
Total Liabilities and Shareholders' Equity $187,314 $139,002
======== ========
See Accompanying Notes to Consolidated Financial Statements.
BRT REALTY TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(Amounts In Thousands Except for Per Share Data)
Three Months Ended Nine Months Ended
June 30, June 30,
------- --------
2004 2003 2004 2003
---- ---- ---- ----
Revenues:
Interest and fees on real estate loans, including
interest from related parties of $197 and $178
for the three month periods, respectively, and
$548 and $550 for the nine month periods, respectively $ 3,679 $ 2,479 $ 9,637 $ 7,611
Operating income on real estate owned 617 656 1,742 1,770
Other, primarily investment income 590 630 1,775 2,028
------- ------- ------- -------
Total revenues 4,886 3,765 13,154 11,409
------- ------- ------- -------
Expenses:
Interest on borrowed funds 353 72 781 206
Advisor's fee 393 220 1,032 640
General and administrative 1,014 814 2,828 2,234
Other taxes 209 122 365 367
Operating expenses relating to real estate owned,
including interest on mortgages of $63 and $65 for the
three month periods, respectively, and $191 and $195
for the nine month periods respectively 1,106 354 1,887 982
Amortization and depreciation 87 75 240 246
------- ------- ------- -------
Total expenses 3,162 1,657 7,133 4,675
------- ------- ------- -------
Income before equity in earnings of unconsolidated joint
ventures, gain on sale of available-for-sale securities,
minority interest and gain on sale of real estate assets 1,724 2,108 6,021 6,734
Equity in earnings of unconsolidated joint ventures 33 (7) 74 87
------- ------- ------- -------
Income before gain on sale of available-for-sale securities,
minority interest and gain on sale of real estate assets 1,757 2,101 6,095 6,821
Gain on sale of available-for -sale securities 4 2,468 1,641 2,614
Minority interest (11) (15) (32) (35)
------- ------- ------- -------
Income before gain on sale of real estate assets 1,750 4,554 7,704 9,400
------- ------- ------- -------
Gain on sale of real estate assets 559 200 1,150 395
------- ------- ------- -------
Net income $ 2,309 $ 4,754 $ 8,854 $ 9,795
======= ======= ======= =======
Income per share of beneficial interest:
Income before gain on sale of real estate assets $ .23 $ .60 $ 1.01 $ 1.26
Gain on sale of real estate assets .07 .03 .15 .05
------- ------- ------- -------
Basic earnings per share $ .30 $ .63 $ 1.16 $ 1.31
======= ======= ======= =======
Income before gain on sale of real estate assets $ .23 $ .59 $ .99 $ 1.24
Gain on sale of real estate assets .07 .03 .15 .05
------- ------- ------- -------
Diluted earnings per share $ .30 $ .62 $ 1.14 $ 1.29
======= ======= ======= =======
Cash distributions per common share $ .48 $ .34 $ 1.31 $ .94
======= ======= ======= =======
Weighted average number of common shares outstanding:
Basic 7,650,471 7,487,751 7,605,366 7,451,546
========= ========= ========= =========
Diluted 7,738,076 7,617,296 7,733,032 7,575,045
========= ========= ========= =========
See Accompanying Notes to Consolidated Financial Statements.
BRT REALTY TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Unaudited)
(Amounts In Thousands except for Per Share Data)
Accumulated
Shares of Additional Other Com- Unearned
Beneficial Paid-In prehensive Compen- Retained Treasury
Interest Capital Income sation Earnings Shares Total
-------- ------- ------ ------ -------- ------ -----
Balances, September 30, 2003 $26,650 $81,151 $19,282 $ (406) $11,154 $(11,899) $125,932
Distributions - common share
($1.31 per share) - - - - (10,002) - (10,002)
Exercise of stock options - (74) - - - 784 710
Issuance of restricted stock - 700 - (700) - - -
Compensation expense -
restricted stock - 7 - 152 - - 159
Restricted stock vesting - (15) - - - 15 -
Net income - - - - 8,854 - 8,854
Other comprehensive
income - net unrealized
gain on available-for-sale
securities (net of reclassi-
fication adjustment for
gains included in net
income of $1,641) - - 4,751 - - - 4,751
-----
Comprehensive income - - - - - - 13,605
-----------------------------------------------------------------------------------
Balances, June 30, 2004 $26,650 $81,769 $24,033 $ (954) $10,006 $(11,100) $130,404
===================================================================================
See Accompanying Notes to Consolidated Financial Statements.
BRT REALTY TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Amounts In Thousands)
Nine Months Ended
June 30,
2004 2003
---- ----
Cash flows from operating activities:
Net income $ 8,854 $ 9,795
Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization and depreciation 240 246
Amortization of restricted stock 159 14
Net gain on sale of real estate loans and properties (1,150) (395)
Net gain on sale of available-for-sale securities (1,641) (2,614)
Equity in earnings of unconsolidated real estate ventures (74) (87)
Increase in straight line rent (115) (115)
Increases and decreases from changes in other
assets and liabilities
(Increase) Decrease in interest and dividends receivable (619) 211
(Increase) Decrease in prepaid expenses (73) 28
Increase (Decrease) in accounts payable and accrued liabilities 1,268 (218)
Increase in deferred costs (75) (75)
Increase (Decrease) in deferred revenues 490 (169)
Increase (Decrease) in escrow deposits 416 (181)
Other 53 (11)
------- -------
Net cash provided by operating activities 7,733 6,429
------- -------
Cash flows from investing activities:
Collections from real estate loans 64,699 68,145
Additions to real estate loans (125,061) (44,026)
Net costs capitalized to real estate assets (86) (101)
Proceeds from the sale of real estate 1,247 432
Investment in real estate ventures (856) (214)
Purchase of available-for-sale securities - (2,027)
Sales of available-for-sale securities 3,384 5,052
Decrease (Increase) in deposits payable 188 (68)
Partnership distributions 170 153
------- -------
Net cash (provided by) used in investing activities (56,315) 27,346
------- -------
Cash flows from financing activities:
Net change in borrowed funds - credit facility 34,050 (14,745)
Net change in borrowed funds - margin account 6,508 -
Payoff/paydown of loan and mortgages payable (52) (48)
Cash distribution - common shares (9,041) (4,476)
Exercise of stock options 710 778
------- -------
Net cash provided by (used in) financing activities 32,175 (18,491)
------- -------
Net (decrease) increase in cash and cash equivalents (16,407) 15,284
Cash and cash equivalents at beginning of period 21,694 4,688
------- -------
Cash and cash equivalents at end of period $ 5,287 $19,972
======= =======
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 851 $ 411
======= =======
Non cash investing and financing activity:
Accrued distributions $ 3,673 $ 2,559
======= =======
See Accompanying Notes to Consolidated Financial Statements.
BRT REALTY TRUST AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 1 - Basis of Preparation
The accompanying interim unaudited consolidated financial statements as of June
30, 2004 and for the three and nine months ended June 30, 2004 reflect all
normal recurring adjustments which are, in the opinion of management, necessary
for a fair statement of the results for such interim periods. The results of
operations for the three and nine months ended June 30, 2004 are not necessarily
indicative of the results for the full year.
Certain items on the consolidated financial statements for the preceding periods
have been reclassified to conform with the current consolidated financial
statements.
The consolidated financial statements include the accounts of BRT Realty Trust,
its wholly owned subsidiaries, and its majority-owned or controlled real estate
entities. Investments in less than majority-owned entities have been accounted
for using the equity method. Material intercompany items and transactions have
been eliminated. BRT Realty Trust and its subsidiaries are hereinafter referred
to as "BRT" or the "Trust".
These statements should be read in conjunction with the consolidated financial
statements and related notes which are included in BRT's Annual Report on Form
10-K for the year ended September 30, 2003.
The preparation of the financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements. Actual results could differ from those estimates.
Note 2 - Shareholders' Equity
Distributions
During the quarter ended June 30, 2004, BRT declared a cash distribution to
shareholders of $.48 per share. This distribution totaled $3,673,000 and was
payable July 2, 2004 to shareholders of record on June 24, 2004.
Stock Options
Pro forma information regarding net income and earnings per share is required by
FAS No. 123, and has been determined as if the Trust had accounted for its
employee stock options under the fair value method. The fair value for these
options was estimated at the date of the grant using the Black-Scholes option
pricing model with the following weighted-average assumptions for both 2004 and
2003: risk free interest rate of 4.43%, volatility factor of the expected market
price of the Trust's shares of beneficial interest based on historical results
of .207, dividend yield of 5.5% and an expected option life of six years.
Note 2 - Shareholders' Equity (Continued)
Pro forma net income and earnings per share calculated using the Black-Scholes
option valuation model is as follows:
Three Months Ended Nine Months Ended
June 30, June 30,
-------- --------
2004 2003 2004 2003
---- ---- ---- ----
Net income to common
shareholders as reported $2,309 $4,754 $8,854 $9,795
Less: Total stock-based employee
compensation expense
determined under fair value
method for all awards 30 31 90 93
------ ------ ------ ------
Pro forma net income $2,279 $4,723 $8,764 $9,702
====== ====== ====== ======
Pro forma earnings per share
of beneficial interest
Basic $ .30 $ .63 $ 1.15 $ 1.30
====== ====== ====== ======
Diluted $ .29 $ .62 $ 1.13 $ 1.28
====== ====== ====== ======
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options, which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including expected stock price volatility. Because the
Trust's employee stock options have characteristics significantly different from
those of traded options, and changes in the subjective input assumptions can
materially affect the fair value estimated, management believes the existing
models do not necessarily provide a reliable single measure of the fair value of
its employee stock options.
Restricted Stock
During the quarter ended June 30, 2004 the Trust issued 2,000 shares of
restricted stock under its 2003 Incentive Plan. The 2003 Incentive Plan was
approved by BRT's shareholders at the Annual Meeting of Shareholders' held in
March, 2003. As of June 30, 2004, 59,030 shares were issued under this plan. The
total number of shares allocated to this plan is 350,000. The shares issued vest
five years from the date of issuance and under certain circumstances may vest
earlier. The Trust records compensation expense under APB 25 over the vesting
period, measuring the compensation cost based on the market value of the shares
on the date of the award of the restricted stock. For the three and nine months
ended June 30, 2004, the Trust recorded $54,000 and $159,000 of compensation
expense. This includes $39,000 in the nine month period, of compensation expense
recorded due to the accelerated vesting of 1,750 shares of restricted stock.
Note 2 - Shareholders' Equity (Continued)
Per Share Data
Basic earnings per share was determined by dividing net income for the period by
the weighted average number of shares of common stock outstanding during each
period.
Diluted earnings per share reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or converted
into common stock or resulted in the issuance of common stock that then shared
in the earnings of BRT.
The following table sets forth the computation of basic and diluted shares:
Three Months Ended Nine Months Ended
June 30, June 30,
-------- --------
2004 2003 2004 2003
---- ---- ---- ----
Basic 7,650,471 7,487,751 7,605,366 7,451,546
Effect of dilutive securities 87,605 129,545 127,666 123,499
--------- --------- --------- ---------
Diluted 7,738,076 7,617,296 7,733,032 7,575,045
========= ========= ========= =========
Note 3 - Real Estate Loans
Management evaluates the adequacy of the allowance for possible losses
periodically and believes that the allowance for losses is adequate to absorb
probable losses on the existing portfolio.
If all loans classified as non-earning were earning interest at their
contractual rates for the three months ended June 30, 2004 and 2003, interest
income would have increased by approximately $102,000 and $21,000, respectively.
For the nine month period ended June 30, 2004 and 2003, respectively, the
increase would have been $390,000 and $63,000, respectively. During the quarter
ended June 30, 2004 three loans to one borrower totaling $2,528,000 were
reclassified as performing loans. For the three and nine months ended June 30,
2004 the Trust collected $346,000 and $417,000 of past due interest income, that
had not been previously accrued.
Included in real estate loans are five second mortgages and two first mortgages
to ventures in which the Trust (through wholly owned subsidiaries) holds a 50%
interest. At June 30, 2004, the aggregate balance of these mortgage loans was
$7,576,000. Interest earned on these loans totaled $198,000 and $179,000 for the
three months ended June 30, 2004 and 2003, respectively. For the nine months
ended June 30, 2004 and 2003 interest earned on these loans totaled $548,000 and
$550,000, respectively.
As of June 30, 2004 there were four loans outstanding to one borrower. These
loans totaled $33,260,000, which is approximately 26% of the Trust's loan
portfolio and 18% of the Trust's total assets. All four loans are collateralized
by multi-family apartment developments. Two of the loans, with a balance at June
30, 2004 of $19,510,000, are collateralized by properties located in Florida.
The remaining loans, with a balance at June 30, 2004 of $13,750,000, are
collateralized by properties in Tennessee. All four loans have adjustable
interest rates and a combined loan to value ratio of approximately 86%.
Note 4 - Investment in Unconsolidated Joint Ventures at Equity
The Trust is a partner in eight unconsolidated joint ventures which own and
operate eight properties. In addition to making an equity contribution, the
Trust may hold a first or second mortgage on the property owned by the venture.
Unaudited condensed financial information for the two most significant joint
ventures is shown below.
Blue Hen Venture
----------------
June 30, September 30,
2004 2003
---- ----
Condensed Balance Sheet
-----------------------
Cash and cash equivalents $ 452 $ 1,211
Real estate investments, net 15,346 14,712
Other assets 216 409
-------- --------
Total assets $ 16,014 $ 16,332
======== ========
Mortgages payable $ 2,357 $ 3,158
Other liabilities 183 266
Equity 13,474 12,908
-------- --------
Total liabilities and equity $ 16,014 $ 16,332
Trust's equity investment $ 5,681 $ 5,368
======== ========
Three Months Ended Nine Months Ended
June 30, June 30,
-------- --------
2004 2003 2004 2003
---- ---- ---- ----
Condensed Statement of Operations
---------------------------------
Revenues, primarily rental income $ 825 $ 772 $ 2,327 $ 2,214
------- ------- ------- -------
Operating expenses 434 352 1,207 1,062
Depreciation 136 122 385 359
Interest expense 51 72 170 231
------- ------- ------- -------
Total expenses 621 546 1,762 1,652
------- ------- ------- -------
Net income attributable to members $ 204 $ 226 $ 565 $ 562
======= ======= ======= =======
Trust's share of net income
recorded in income statement $ 102 $ 84 $ 253 $ 252
======= ======= ======= =======
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.
Note 4 - Investment in Unconsolidated Joint Ventures at Equity (Continued)
Rutherford Glen
---------------
June 30, September 30,
2004 2003
---- ----
Condensed Balance Sheet
-----------------------
Cash and cash equivalents $ 233 $ 195
Real estate investments, net 18,163 18,632
Other assets 254 293
-------- --------
Total assets $ 18,650 $ 19,120
======== ========
Mortgages payable $ 18,815 $ 18,966
Other liabilities 441 481
Equity (606) (327)
-------- --------
Total liabilities and equity $ 18,650 $ 19,120
======== ========
Trust's equity investment $ (278) $ (120)
======== ========
Three Months Ended Nine Months Ended
June 30, June 30,
-------- --------
2004 2003 2004 2003
---- ---- ---- ----
Condensed Statement of Operations
---------------------------------
Revenues, primarily rental income $ 603 $ 550 $ 1,768 $ 1,725
------- ------- ------- -------
Operating expenses 264 276 830 767
Depreciation 182 182 546 546
Interest expense 361 364 1,080 1,095
------- ------- ------- -------
Total expenses 807 822 2,456 2,408
------- ------- ------- -------
Net loss attributable to members $ (204) $ (272) $ (688) $ (683)
======= ======= ======= =======
Trust's share of net loss
recorded in income statement $ (102) $ (136) $ (344) $ (341)
======= ======= ======= =======
Note 5 - Available-For-Sale Securities
Included in available-for-sale securities are 1,033,500 shares of Entertainment
Properties Trust (NYSE:EPR), which have a cost basis of $13,575,000 and a fair
value at June 30, 2004 of $36,937,000. The shares held by the Trust represent
approximately 4.21% of the outstanding shares of Entertainment Properties Trust
as of June 22, 2004.
Also included in available-for-sale securities are 75,400 shares of Atlantic
Liberty Financial Corp. (NASDAQ:ALFC), which have a cost basis of $1,145,000 and
a fair market value of $1,390,000. The shares held by the Trust represent
approximately 4.46% of the outstanding shares of Atlantic Liberty Financial
Corp. as of June 14, 2004.
Note 6 -Borrowed Funds
The Trust maintains a $45 million credit line with North Fork Bank, which on
July 13, 2004 was amended primarily to increase the maximum borrowing to $60
million. The amended credit line has a maturity date of July 1, 2006. A fee of
$75,000 was paid to North Fork Bank in connection with this amendment. The Trust
may extend the term of the facility for two one year periods for a fee of
$150,000 for each extension. Borrowings under this facility are secured by
specific receivables and the credit agreement provides that the amount borrowed
will not exceed 65% of the collateral pledged. As of June 30, 2004 BRT had
provided collateral that would permit BRT to borrow the full $45,000,000
available under the facility. At June 30, 2004 BRT had $35,050,000 outstanding
under the facility. Interest charged on the outstanding balance is at prime plus
1/2%. For the three and nine months ended June 30, 2004 the average outstanding
balance on the credit line was $19,804,000 and $12,059,000, respectively. For
the three and nine month periods ended June 30, 2003 the average outstanding
balance on the credit line was $-0- and $685,000, respectively.
In addition to its credit facility BRT has the ability to borrow funds through a
margin account. In order to maintain the account BRT pays an annual fee, equal
to .3% of the market value of the pledged securities, which is included in
interest expense. At June 30, 2004, there was an outstanding balance under the
facility of $10,263,000. The average outstanding balance for the three and nine
months ended June 30, 2004 was $10,317,000 and $10,049,000, respectively, and
the average interest rate paid was 4.88% and 4.81%, respectively. At June 30,
2004, marketable securities with a fair value of $36,937,000 were pledged as
collateral. For the three and nine month periods ended June 30, 2003 the average
balance outstanding was $4,789,000 and $3,695,000, respectively.
Note 7 - Comprehensive Income
Comprehensive income for the three month period ended was as follows:
Three Months Ended Nine Months Ended
June 30, June 30,
-------- --------
2004 2003 2004 2003
---- ---- ---- ----
Net income $ 2,309 $ 4,754 $ 8,854 $ 9,795
Other comprehensive loss income -
Unrealized gain on available -
for-sale securities (5,452) 974 4,751 6,770
-------- ------- ------- -------
Comprehensive loss income $(3,143) $ 5,728 $13,605 $16,565
======== ======= ======= =======
Accumulated other comprehensive income, which is solely comprised of the net
unrealized gain on available-for-sale securities, was $24,033,000 and
$19,196,000 at June 30, 2004 and 2003, respectively.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Forward-Looking Statements
With the exception of historical information, this report on Form 10-Q contains
certain forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933. We intend such forward-looking statements to be covered
by the safe harbor provision for forward-looking statements contained in the
Private Securities Litigation Reform Act of 1995 and include this statement for
purposes of complying with these safe harbor provisions. Forward-looking
statements, which are based on certain assumptions and describe our future
plans, strategies and expectations, are generally identifiable by use of the
words "may", "will", "believe", "expect", "intend", "anticipate", "estimate",
"project", or similar expressions or variations thereof. Forward-looking
statements should not be relied on since they involve known and unknown risks,
uncertainties and other factors which are, in some cases, beyond our control and
which could materially affect actual results, performance or achievements.
Investors are cautioned not to place undue reliance on any forward-looking
statements.
Overview
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.
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
$106,182,000 are due and payable to us during the twelve months ending June 30,
2005, including $3,096,000 currently not earning interest and 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.
On July 13, 2004 the revolving credit facility we maintain with North Fork Bank
was increased from $45 million to $60 million. The maturity date of the amended
facility is July 1, 2006 and may be extended at our option for two one year
terms. Borrowings under the facility are secured by specific receivables and the
agreement provides that the amount borrowed will not exceed 65% of qualified
first mortgages pledged to North Fork Bank. Interest is charged on the
outstanding balance at prime plus 1/2% (currently 4 3/4% per annum). At June 30,
2004 we pledged collateral that would permit us to borrow the full $45 million
under the facility, of which $35,050,000 was outstanding. As of July 31, 2004 we
pledged collateral that would permit us to borrow approximately $59 million
under the facility, of which $36,050,000 was outstanding.
We also have the ability to borrow on margin, using the shares we own in
Entertainment Properties Trust as collateral. At June 30, 2004 there was
approximately $14,775,000 available under this facility, of which $10,263,000
was outstanding. The amount available under the facility will be reduced if the
market value of the stock of Entertainment Properties Trust declines.
During the nine months ended June 30, 2004, we generated cash of $7,733,000 from
operations, $64,699,000 from real estate loan collections, $40,558,000 from
borrowings on existing credit facility and margin account and $4,631,000 from
the sale of securities and real estate assets. These funds, in addition to cash
on hand, were used primarily to fund real estate loan originations of
$125,061,000 and pay shareholder dividends of $9,041,000. Our cash and cash
equivalents were $5,287,000 at June 30, 2004.
We will satisfy our liquidity needs from cash and liquid investments on hand,
the credit facility with North Fork Bank, the availability in our margin account
collateralized by shares of Entertainment Properties Trust, interest and
principal payments received on outstanding real estate loans and net cash flow
generated from the operation and sale of real estate assets.
As of June 30, 2004 there were four loans outstanding to one borrower. These
loans totaled $33,260,000, which is approximately 26% of total loans and 18% of
total assets.
Results of Operations
Interest and fees on loans increased by $1,200,000, or 48%, to $3,679,000 for
the three months ended June 30, 2004 from $2,479,000 for the three months ended
June 30, 2003. During the current quarter the average balance of loans
outstanding increased by approximately $44.4 million accounting for an increase
in interest income of $1,201,000. We also realized an increase in interest
income of $270,000 resulting from the collection of interest on three loans that
were returned to performing status in the current quarter. A decrease in the
average interest rate earned on the loan portfolio to 10.70% in the three months
ended June 30, 2004 from 11.75% in the three months ended June 30, 2003 caused
interest income to decrease by $193,000. We also realized a decline in fee
income of $78,000. This decline was the result of the recording of non
refundable fees earned on loans that did not close in the June 30, 2003 quarter.
For the nine months ended June 30, 2004, interest and fees on loans increased
$2,026,000, or 27%, from $7,611,000 to $9,637,000. During the nine months ended
June 30, 2004 the average balance of loans outstanding increased by $29.7
million resulting in an increase in interest income of $2,493,000. We also
realized a $157,000 increase in the current quarter in interest income due
primarily to the collection of interest on three loans that were returned to
performing status in the current nine month period. A decrease in the average
interest rate earned on the loan portfolio from 11.86% for the nine months ended
June 30, 2003 to 11.09% for the nine months ended June 30, 2004 caused a
decrease in interest income of $419,000. In addition, in the prior nine month
period ended June 30, 2003, we received $105,000 of interest income that was
recognized upon the payoff in full of a previously non-earning loan and $100,000
in fee income, the majority of which was an exit fee received on the payoff of a
loan.
Operating income on real estate owned decreased $39,000 or 6% for the three
month period ended June 30, 2004 to $617,000 from $656,000 in the three month
period ended June 30, 2003. The increase was primarily caused by a reduction in
the amount received from tenant rebills in the current three month period. For
the current nine month period operating income from real estate owned was
relatively unchanged from the prior year.
Other revenues, primarily investment income, decreased to $590,000 in the three
months ended June 30, 2004, from $630,000 in the three months ended June 30,
2003, a decline of $40,000, or 6%. For the nine months ended June 30, 2004 other
revenues, primarily investment income, decreased by $253,000, or 12%, from
$2,028,000 to $1,775,000. In both the three and nine month periods ended June
30, 2004, we received less dividend income from our investment in Entertainment
Properties Trust shares, resulting from the sale of a portion of our shares
during the current fiscal year.
Interest expense on borrowed funds increased to $353,000 in the three months
ended June 30, 2004 from $72,000 in the three months ended June 30, 2003, an
increase of $281,000, or 387%. For the nine months ended June 30, 2004 interest
on borrowed funds increased $575,000 to $781,000 from $206,000 in the nine month
period ended June 30, 2003, an increase of 279%. The increase in both periods is
a result of an increase in the level of borrowings to fund our increased loan
portfolio. In the current three month period ended June 30, 2004, the average
balance of borrowed funds increased from $4.4 million to $22.1 million an
increase of $17.7 million and for the nine month period ended June 30, 2004 the
average balance of borrowed funds increased $25.3 million from $4.8 million to
$30.1 million.
The Advisor's fee, which is calculated based on invested assets, increased
$173,000, or 78%, in the three months ended June 30, 2004 to $393,000 from
$220,000 in the three months ended June 30, 2003. In the nine months ended June
30, 2004 the fee increased $392,000, or 61%, from $640,000 in the nine months
ended June 30, 2003 to $1,032,000. In both of these periods, we experienced a
large increase in the outstanding balance of invested assets, primarily loans,
the basis upon which the fee is calculated.
General and administrative fees increased $200,000, or 25%, from $814,000 in the
three months ended June 30, 2003 to $1,014,000 in the three months ended June
30, 2004. For the nine months ended June 30, 2004 general and administrative
expenses increased $594,000, or 27%, from $2,234,000 in the nine month period
ended June 30, 2003 to $2,828,000 in the nine months ended June 30, 2004. The
increases in both periods are the result of an increase in payroll and payroll
related expenses which resulted from the increased volume of loan originations.
There were also increases in advertising expense and legal services allocated to
us pursuant to a Shared Services Agreement among us and related entities in both
periods. Additionally, compensation expense was incurred in both the three and
nine month periods ended June 30, 2004, as a result of restricted stock
amortization. In the current three and nine month periods the Trust also
expensed costs relating to the organization of a "de novo" bank as a taxable
REIT subsidiary. BRT has decided not to pursue this activity at this time.
Other taxes increased $87,000, or 71%, in the three months ended June 30, 2004
from $122,000 in the three months ended June 30, 2003 to $209,000. This is
primarily the result of the payment of $122,000 of income tax in the current
period that is due on earnings not distributed to shareholders. For the nine
months ended June 30, 2004 other taxes decreased $2,000 from $367,000 in the
prior nine month period to $365,000 in the current nine month period. The
current years expense includes the payment of income tax due on earnings not
distributed to shareholders. This amount was offset by a decrease in the amount
of state taxes paid the prior year. Additionally, both the three and nine month
periods contain provisions for the payment of federal excise taxes which are
based on taxable income generated but not yet distributed.
Operating expenses relating to real estate increased $752,000, or 213%, from
$354,000 in the three months ended June 30, 2003 to $1,106,000 in the three
months ended June 30, 2004. For the nine months ended June 30, 2004 operating
expenses related to real estate increased $905,000, or 92%, from $982,000 to
$1,887,000. The increase for both the three and nine month periods is the result
of legal fees and other expenses incurred by the Trust defending a lawsuit which
was resolved in June 2004.
Equity in earnings of unconsolidated ventures increased $40,000, or 578%, in the
three months ended June 30, 2004 to $33,000 from a loss of $4,000 in the three
months ended June 30, 2003. During the current period we realized a reduction in
the losses being generated by one of the Trust's joint venturers which owns and
operates a multi-family apartment complex in the Atlanta, Georgia area. For the
nine months ended June 30, 2004 equity in earnings of unconsolidated ventures
decreased $13,000, or 15%, from $87,000 to $74,000. During the nine month period
several of the Trust's joint ventures showed a decline in income, the result of
increased expenses at the properties.
Gain on sale of available-for-sale securities declined to $4,000 in the three
month period ended June 30, 2004 from $2,468,000. In the prior three month
period the Trust sold 163,700 shares of Entertainment Properties Trust which
resulted in net proceeds of $4,618,000 against a cost basis of $2,150,000. For
the nine month period ended June 30, 2004 gain on sale of available-for-sale
securities decreased $973,000 from $2,614,000 to $1,641,000. In the current nine
month period the Trust sold 58,500 shares of Atlantic Liberty Financial and
61,300 shares of Entertainment Properties Trust and other miscellaneous
securities which resulted in net proceeds of $3,384,000 and had a cost basis of
$1,743,000. In the prior nine month period the Trust sold 163,700 shares of
Entertainment Properties Trust and other miscellaneous securities which resulted
in net proceeds of $5,052,000 and had a cost basis of $2,438,000.
For the three month period ended June 30, 2004 gain on sale of real estate
assets increased to $559,000 from $200,000 in the period ended June 30, 2003. In
the current three month period the Trust sold two cooperative apartment units
and in the prior three month period one unit was sold. For the nine month period
ended June 30, 2004 gain on sale of real estate assets increased to $1,150,000
from $395,000 in the period ended June 30, 2003. In the current nine month
period the gain resulted from the sale of four cooperative apartment units. In
the prior nine month period the gain resulted from the sale of two cooperative
apartment units.
Item 3. Quantitative and Qualitative Disclosures About Market Risks
Our primary component of market risk is interest rate sensitivity. Our interest
income and to a lesser extent our interest expense is subject to changes in
interest rates. We seek to minimize these risks by originating loans that are
indexed to the prime rate, with a stated minimum interest rate, and borrowing,
when necessary, from our available credit line which is also indexed to the
prime rate. At June 30, 2004, approximately 80% of our loan portfolio was
variable rate based primarily on the prime rate. Any changes in the prime
interest rate could positively or negatively effect on our net interest income.
When determining interest rate sensitivity, we assume that any change in
interest rates is immediate and that the interest rate sensitive assets and
liabilities existing at the beginning of the period remain constant over the
period being measured. We assessed the market risk for our variable rate
mortgage receivables and variable rate debt and believe that a one percent
increase in interest rates would have approximately a $479,000 positive effect
on income before taxes and a one percent decline in interest rates would also
have approximately a $349,000 positive effect on income before taxes. In
addition, we originate loans with short maturities and maintain a strong capital
position. At June 30, 2004 our loan portfolio was primarily secured by
properties located in the New York metropolitan area, New Jersey, California,
Florida, Tennessee and Virginia it is therefore, subject to risks associated
with the economies of these localities.
Item 4. Controls and Procedures
As required under Rules 13a-15 (e) and 15d-15 (e) under the Securities Exchange
Act of 1934, we carried out an evaluation under the supervision and with the
participation of our management, including our Chief Executive Officer and Chief
Financial Officer, of the effectiveness of the design and operation of our
disclosure controls and procedures (as defined in Rule 13a-15(e) under the
Securities Exchange Act of 1934). Based upon that evaluation, the Chief
Executive Officer and Chief Financial Officer concluded that our disclosure
controls and procedures as of June 30, 2004 are effective.
There were no changes in our internal control over financial reporting (as
defined in Rule 13a-15(f) under the Securities Exchange Act of 1934) during the
nine months of the fiscal year ending June 30, 2004 that materially affected, or
are reasonably likely to materially affect, our internal control over financial
reporting.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 31.1 Certification of President and Chief Executive Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
Exhibit 31.2 Certification of Senior Vice President-Finance pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.
Exhibit 31.3 Certification of Vice President and Chief Financial Officer
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Exhibit 31.4 Certification of President and Chief Executive Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
Exhibit 31.5 Certification of Senior Vice President-Finance pursuant to Section
906 of the Sarbanes-Oxley Act of 2002.
Exhibit 31.6 Certification of Vice President and Chief Financial Officer
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K
On May 17, 2004 BRT filed an 8-K attaching a copy of its press release reporting
the results of operations for the three months ended March 31, 2003.
On June 15, 2004 BRT filed an 8-K reporting an increase in the size of the Board
of Trustees of BRT and the election of Mr. Kenneth F. Bernstein and Mr. Matthew
J. Gould to the Board of Trustees. It also reported its decision not to pursue
its organization and regulatory approval of a "De Novo" bank as a taxable RIET
subsidiary.
On July 14, 2004 BRT filed an 8-K attaching a copy of its press release
reporting that on July 12, 2004 BRT amended its $45 million credit facility with
North Fork Bank.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BRT REALTY TRUST
Registrant
August 9, 2004 /s/ Jeffrey A. Gould
- -------------- ----------------------
Date Jeffrey A. Gould, President
August 9, 2004 /s/ George Zweier
- -------------- ------------------
Date George Zweier, Vice President
and Chief Financial Officer
(principal financial officer)
EXHIBIT 31.1
CERTIFICATION
I, Jeffrey A. Gould, President and Chief Executive Officer of BRT Realty
Trust, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q for the quarter ended
June 30, 2004 of BRT Realty Trust;
2. Based on my knowledge, this report does not contain any untrue statement
of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered
by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows
of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the
registrant and have:
a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision,
to ensure that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us by others
within those entities, particularly during the period in which this
report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation;
c) Disclosed in this report any change in the registrant's internal control
over financial reporting that occurred during the registrant's most
recent fiscal quarter (the registrant's fourth fiscal quarter in the
case of an annual report) 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 control 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 control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
control over financial reporting.
Date: August 9, 2004 /s/ Jeffrey A. Gould
--------------------
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 Quarterly Report on Form 10-Q for the quarter ended
June 30, 2004 of BRT Realty Trust;
2. Based on my knowledge, this report does not contain any untrue statement
of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered
by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows
of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the
registrant and have:
a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision,
to ensure that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us by others
within those entities, particularly during the period in which this
report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation;
c) Disclosed in this report any change in the registrant's internal control
over financial reporting that occurred during the registrant's most
recent fiscal quarter (the registrant's fourth fiscal quarter in the
case of an annual report) 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 control 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 control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
control over financial reporting.
Date: August 9, 2004 /s/ David W. Kalish
-------------------
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 Quarterly Report on Form 10-Q for the quarter ended
June 30, 2004 of BRT Realty Trust;
2. Based on my knowledge, this report does not contain any untrue statement
of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered
by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows
of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the
registrant and have:
a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision,
to ensure that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us by others
within those entities, particularly during the period in which this
report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation;
c) Disclosed in this report any change in the registrant's internal control
over financial reporting that occurred during the registrant's most
recent fiscal quarter (the registrant's fourth fiscal quarter in the
case of an annual report) 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 control 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 control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to record,
process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
control over financial reporting.
Date: August 9, 2004
/s/ George Zweier
----------------------
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,
to the best of my knowledge, based upon a review of the Quarterly Report on Form
10-Q for the quarter ended June 30, 2004 of the Registrant, as filed with the
Securities and Exchange Commission on the date hereof (the "Report"):
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of
the Securities Exchange Act of 1934, as amended; and
(2) The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Registrant.
Date: August 9, 2004 /s/ Jeffrey A. Gould
-----------------------
Jeffrey A. 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,
to the best of my knowledge, based upon a review of the Quarterly Report on Form
10-Q for the quarter ended June 30, 2004 of the Registrant, as filed with the
Securities and Exchange Commission on the date hereof (the "Report"):
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of
the Securities Exchange Act of 1934, as amended; and
(2) The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Registrant.
Date: August 9, 2004 /s/ David W. Kalish
--------------------
David W. Kalish
Senior Vice President-Finance
EXHIBIT 32.3
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350
(SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002)
The undersigned, George Zweier, the Chief Financial Officer of BRT Realty Trust,
(the "Registrant"), does hereby certify, pursuant to 18 U.S.C. Section 1350 as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the
best of my knowledge, based upon a review of the Quarterly Report on Form 10-Q
for the quarter ended June 30, 2004 of the Registrant, as filed with the
Securities and Exchange Commission on the date hereof (the "Report"):
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of
the Securities Exchange Act of 1934, as amended; and
(2) The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Registrant.
Date: August 9, 2004 /s/ George Zweier
--------------------------
George Zweier
Chief Financial Officer