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 December 31, 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 X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
stock, as of the latest practicable date.
7,715,405 Shares of Beneficial Interest,
$3 par value, outstanding on February 6, 2005
Part 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
BRT REALTY TRUST AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Amounts in Thousands)
December 31, September 30,
2004 2004
---- ----
(Unaudited) (Audited)
ASSETS
Real estate loans:
Earning interest, including $6,824 and
$7,305 from related parties $118,360 $132,229
Not earning interest 650 3,096
-------- --------
119,010 135,325
Allowance for possible losses (881) (881)
-------- --------
118,129 134,444
-------- --------
Real estate assets:
Real estate properties net of accumulated
depreciation of $1,759 and $1,699 8,742 6,212
Investment in unconsolidated real
estate ventures 8,058 7,793
-------- --------
16,800 14,005
Valuation allowance (325) (325)
-------- --------
16,475 13,680
-------- --------
Cash and cash equivalents 5,528 5,746
Securities available-for-sale at fair value 47,894 41,491
Other assets 2,650 2,644
-------- --------
Total Assets $190,676 $198,005
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Borrowed funds $ 38,892 $ 53,862
Mortgage payable 2,591 2,609
Accounts payable and accrued liabilities,
including deposits of $3,484 and $3,164 5,418 5,798
Dividends payable 3,704 3,673
-------- --------
Total Liabilities 50,605 65,942
-------- --------
Shareholders' Equity:
Preferred shares, $1 par value:
Authorized 10,000 shares, none issued - -
Shares of beneficial interest, $3 par value:
Authorized number of shares - unlimited,
issued - 8,889 and 8,883 shares respectively 26,667 26,650
Additional paid-in capital 81,877 81,769
Accumulated other comprehensive income - net
unrealized gain on available-for-sale securities 32,887 26,162
Unearned compensation (840) (900)
Retained earnings 10,089 9,482
-------- --------
150,680 143,163
Cost of 1,231 and 1,288 treasury shares of
beneficial interest at each date (10,609) (11,100)
-------- --------
Total Shareholders' Equity 140,071 132,063
-------- --------
Total Liabilities and Shareholders' Equity $190,676 $198,005
======== ========
See Accompanying Notes to Consolidated Financial Statements.
BRT REALTY TRUST AND SUBSIDIARIES
Consolidated Statements of Income
(Dollar amounts in thousands except per share amounts)
Three Months Ended
December 31,
2004 2003
---- ----
Revenues:
Interest and fees on real estate loans, including
$185 and $171 from related parties $ 4,863 $ 2,570
Operating income from real estate properties 577 528
Other, primarily investment income 593 571
-------- --------
Total Revenues 6,033 3,669
-------- --------
Expenses:
Interest - borrowed funds 667 178
Advisor's fees, related party 385 298
General and administrative - including $187
and $163 to related parties 968 798
Other taxes 110 74
Operating expenses relating to real estate
properties including interest on mortgages
payable of $46 and $64 297 303
Amortization and depreciation 68 67
-------- --------
Total Expenses 2,495 1,718
-------- --------
Income before equity in earnings of unconsolidated real
estate ventures, gain on sale of available-for-sale securities,
minority interest and discontinued operations 3,538 1,951
Equity in earnings of unconsolidated real estate ventures 55 43
-------- --------
Income before gain on sale of available-for-sale securities,
minority interest and discontinued operations 3,593 1,994
Gain on sale of available-for-sale securities 729 720
Minority interest (11) (11)
-------- --------
Income before discontinued operations 4,311 2,703
Discontinued Operations
Gain on sale of real estate assets - 591
-------- --------
Net income $ 4,311 $ 3,294
======== ========
Income per share of beneficial interest:
Income from continuing operations $ .56 $ .36
Discontinued operations - .08
-------- --------
Basic earnings per share $ .56 $ .44
======== ========
Income from continuing operations $ .55 $ .35
Discontinued operations - .08
-------- --------
Diluted earnings per share $ .55 $ .43
======== ========
Cash distributions per common share $ .48 $ .38
======== ========
Weighted average number of common shares outstanding:
Basic 7,662,372 7,513,383
========= =========
Diluted 7,774,303 7,671,566
========= =========
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, 2004 $26,650 $81,769 $26,162 $ (900) $ 9,482 $(11,100) $132,063
Shares issued - purchase plan 17 111 - - - - 128
Distributions - common share
($.48 per share) - - - - (3,704) - (3,704)
Exercise of stock options - 1 - - - 491 492
Forfeiture of restricted stock - (4) - 4 - - -
Compensation expense -
restricted stock - - - 56 - - 56
Net income - - - - 4,311 - 4,311
Other comprehensive
income - net unrealized
gain on available-for-sale
securities (net of reclassi-
fication adjustment for
gains included in net
income of $729) - - 6,725 - - - 6,725
-----
Comprehensive income - - - - - - 11,036
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Balances, December 31, 2004 $26,667 $81,877 $32,887 $ (840) $10,089 $(10,609) $140,071
===================================================================================
See Accompanying Notes to Consolidated Financial Statements.
BRT REALTY TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Amounts in Thousands)
Three Months Ended
December 31,
2004 2003
---- ----
Cash flows from operating activities:
Net income $ 4,311 $ 3,294
Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization and depreciation 100 76
Amortization of restricted stock 60 22
Net gain on sale of real estate loans and properties - (591)
Net gain on sale of available-for-sale securities (729) (720)
Equity in earnings of unconsolidated real estate ventures (55) (43)
Increase in straight line rent (38) (38)
Increases and decreases from changes in other
assets and liabilities
(Increase) in interest and dividends receivable (66) (305)
Decrease (Increase) in prepaid expenses 35 (65)
(Decrease) Increase in accounts payable and accrued liabilities (108) 174
Increase in deferred costs (15) -
(Decrease) Increase in deferred revenues (131) 246
(Decrease) in escrow deposits (221) (75)
Other 69 (53)
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Net cash provided by operating activities 3,212 1,922
------- -------
Cash flows from investing activities:
Collections from real estate loans 39,294 11,333
Sale of participation interests 16,450 -
Additions to real estate loans (41,876) (34,751)
Net costs capitalized to real estate assets (49) (70)
Proceeds from the sale of real estate - 655
Investment in real estate ventures (303) (82)
Sales of available-for-sale securities 1,051 1,192
(Increase) Decrease in deposits payable (48) 81
Partnership distributions 93 80
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Net cash provided by (used in) investing activities 14,612 (21,562)
------- -------
Cash flows from financing activities:
Proceeds from borrowed funds 41,500 33,620
Repayment of borrowed funds (56,470) (26,500)
Payoff/paydown of loan and mortgages payable (19) (17)
Cash distribution - common shares (3,673) (2,711)
Exercise of stock options 492 520
Issuance of shares - stock purchase plan 128 -
------- -------
Net cash (used in) provided by financing activities (18,042) 4,912
------- -------
Net (decrease) increase in cash and cash equivalents (218) (14,728)
Cash and cash equivalents at beginning of period 5,746 21,694
------- -------
Cash and cash equivalents at end of period $ 5,528 $ 6,966
======= =======
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 697 $ 206
======= =======
Non cash investing and financing activity:
Reclass of loan to real estate upon foreclosure $ 2,446 $ -
======= =======
Accrued distributions $ 3,704 $ 2,888
======= =======
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
December 31, 2004 and for the three months ended December 31, 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 months ended December 31, 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, 2004.
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 December 31, 2004, BRT declared a cash distribution to
shareholders of $.48 per share. This distribution totaled $3,704,000 and was
payable January 3, 2005 to shareholders of record on December 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.
Pro forma net income and earnings per share calculated using the Black-Scholes
option valuation model is as follows:
Three Months Ended
December 31,
2004 2003
---- ----
Net income to common
shareholders as reported $4,311 $3,294
Less: Total stock-based employee
compensation expense
determined under fair value
method for all awards 16 30
------ ------
Pro forma net income $4,295 $3,264
====== ======
Pro forma earnings per share
of beneficial interest
Basic $ .56 $ .43
====== ======
Diluted $ .55 $ .43
====== ======
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options, which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including expected stock price volatility. Because the
Trust's employee stock options have characteristics significantly different from
those of traded options, and changes in the subjective input assumptions can
materially affect the fair value estimated, management believes the existing
models do not necessarily provide a reliable single measure of the fair value of
its employee stock options.
Note 2 - Shareholders' Equity (Continued)
Restricted Stock
As of December 31, 2004, 59,030 restricted shares were issued under the Trust's
2003 incentive 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 months ended December 31, 2004, the Trust recorded $56,000 of
compensation expense.
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
December 31,
2004 2003
---- ----
Basic 7,662,372 7,513,383
Effect of dilutive securities 111,931 158,183
--------- ---------
Diluted 7,774,303 7,671,566
========= =========
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
any 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 December 31, 2004 and 2003,
interest income would have increased by approximately $102,000 and $103,000,
respectively. In January 2005, as a result of a foreclosure action, title was
conveyed on a property that was previously reported as a non-performing loan.
Accordingly, at December 31, 2004 the Trust reclassified this loan, with a
carrying value of $2,446,000 to real estate assets.
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 December 31, 2004, the aggregate balance of these mortgage loans
was $6,824,000. Interest earned on these loans totaled $185,000 and $171,000 for
the three months ended December 31, 2004 and 2003, respectively.
As of December 31, 2004 there were five first mortgage loans outstanding to one
borrower. These loans totaled $39,043,000, which is approximately 33% of the
Trust's loan portfolio and 20% of the Trust's total assets. All five loans are
collateralized by multi-family apartment developments. Two of the loans, with
a balance at December 31, 2004 of $10,300,000, are collateralized by properties
located in Florida. The remaining loans, with a balance at December 31, 2004 of
$28,743,000, are collateralized by properties in Tennessee. All five loans have
adjustable interest rates and a combined loan to value ratio of approximately
82%.
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
----------------
December 31, September 30,
2004 2004
---- ----
Condensed Balance Sheet
-----------------------
Cash and cash equivalents $ 704 $ 327
Real estate investments, net 15,373 15,298
Other assets 414 436
-------- --------
Total assets $ 16,491 $ 16,061
======== ========
Mortgages payable (1) $ 1,796 $ 2,080
Other liabilities 196 190
Equity 14,499 13,791
-------- --------
Total liabilities and equity $ 16,491 $ 16,061
======== ========
Trust's equity investment $ 6,209 $ 5,855
======== ========
Three Months Ended
December 31,
2004 2003
---- ----
Condensed Statement of Operations
---------------------------------
Revenues, primarily rental income $ 815 $ 754
------- -------
Operating expenses (2) 409 362
Depreciation 158 124
Interest expense (1) 40 62
------- -------
Total expenses 607 548
------- -------
Net income attributable to members $ 208 $ 206
======= =======
Trust's share of net income
recorded in income statement $ 104 $ 103
======= =======
(1) Held by the Trust.
(2) Includes $47,000 and $38,000 for the three months ended December 31, 2004
and 2003 to related parties.
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
---------------
Amounts in Thousands
December 31, September 30,
2004 2004
---- ----
Condensed Balance Sheet
-----------------------
Cash and cash equivalents $ 134 $ 214
Real estate investments, net 17,795 17,984
Other assets 316 240
--------- ---------
Total assets $ 18,245 $ 18,438
========= =========
Mortgages payable (1) $ 18,715 $ 18,765
Other liabilities 342 414
Equity (812) (741)
--------- ---------
Total liabilities and equity $ 18,245 $ 18,438
========= =========
Trust's equity investment $ (406) $ (340)
========= =========
Three Months Ended
December 31,
2004 2003
---- ----
Condensed Statement of Operations
---------------------------------
Revenues, primarily rental income $ 590 $ 578
--------- ---------
Operating expenses (2) 256 288
Depreciation 181 182
Interest expense (3) 360 357
--------- ---------
Total expenses 797 827
--------- ---------
Net loss attributable to members $ (207) $ (249)
========= =========
Trust's share of net loss
recorded in income statement $ (103) $ (124)
========= =========
(1) Includes $2,950,000 second mortgage held by the Trust.
(2) Includes $3,000 and $4,000 for the three months ended December 31, 2004
and 2003 to related parties.
(3) Includes $83,000 of interest expense on second mortgage in each period.
The remaining six ventures contributed $54,000 in equity earnings for the three
months ended December 31, 2004.
Note 5 - Available-For-Sale Securities
Included in available-for-sale securities are 1,009,600 shares of Entertainment
Properties Trust (NYSE:EPR), which have a cost basis of $13,262,000 and a fair
value at December 31, 2004 of $44,978,000. The shares held by the Trust
represent approximately 3.97% of the outstanding shares of Entertainment
Properties Trust as of October 14, 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 $1,753,000. The shares held by the Trust represent
approximately 4.48% of the outstanding shares of Atlantic Liberty Financial
Corp. as of September 30, 2004.
Note 6 -Borrowed Funds
BRT maintains a $60 million credit line with North Fork Bank. The facility has a
maturity date of July 1, 2006. 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 real estate loans and the credit agreement
provides that the amount borrowed will not exceed 65% of the collateral pledged.
As of December 31, 2004 we provided collateral that would permit us to borrow
$52,348,000 under the facility. At December 31, 2004 BRT had $29,550,000
outstanding under the facility. Interest charged on the outstanding balance is
at prime plus 1/2% (5.75% at December 31, 2004). For the three months ended
December 31, 2004 and 2003 the average outstanding balance on the credit line
was $35,588,000 and $3,980,000, respectively. As of January 27, 2005 we pledged
collateral that would permit us to borrow the entire $60 million under the
facility, of which $56,550,000 was outstanding.
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 December 31, 2004, there was an outstanding balance under
the facility of $9,342,000. The average outstanding balance for the three months
ended December 31, 2004 and 2003 was $10,242,000 and $8,596,000, respectively,
and the average interest rate paid was 5.50% and 5.57%, respectively. At
December 31, 2004, marketable securities with a fair value of $44,978,000 were
pledged as collateral.
Note 7 - Comprehensive Income
Comprehensive income for the three month period ended was as follows:
Three Months Ended
December 31,
2004 2003
---- ----
Net income $ 4,311 $ 3,294
Other comprehensive income -
Unrealized gain on available -
for-sale securities 6,725 4,526
-------- -------
Comprehensive income $ 11,036 $ 7,820
======== =======
Accumulated other comprehensive income, which is comprised solely of the net
unrealized gain on available-for-sale securities, was $32,887,000 and
$23,808,000 at December 31, 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. We also purchase and hold for investment senior and junior
participations in existing mortgage loans originated by others and sell senior,
junior and pari passu participations in real estate mortgage loans originated by
us. We may also participate as both lender to and an equity participant in joint
ventures which acquire real property. Our investment policy emphasizes
short-term mortgage loans.
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
$111,391,000 are due and payable to us during the twelve months ending December
31, 2005, including $650,000 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.
We maintain a $60 million revolving credit facility with North Fork Bank. The
maturity date of the 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
real estate loans 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 5.75% per
annum). At December 31, 2004 we pledged collateral that would permit us to
borrow $52.3 million under the facility, of which $29,550,000 was outstanding.
As of January 27, 2005 we pledged collateral that would permit us to borrow the
entire $60 million under the facility, of which $56,550,000 was outstanding.
We also have the ability to borrow on margin, using the shares we own in
Entertainment Properties Trust as collateral. At December 31, 2004 there was
approximately $15,700,000 available under this facility, of which $9,342,000 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 three months ended December 31, 2004, we generated cash of $3,212,000
from operations, $39,294,000 from real estate loan collections, $16,450,000 from
the sale of participation interests and $1,051,000 from the sale of securities.
These funds, in addition to cash on hand, were used primarily to fund real
estate loan originations of $41,876,000, repay borrowings of $14,970,000 and pay
shareholder dividends of $3,673,000. Our cash and cash equivalents were
$5,528,000 at December 31, 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 December 31, 2004 there were five loans outstanding to one borrower. These
loans totaled $39,043,000, which is approximately 33% of total loans and 20% of
total assets.
Results of Operations
Interest and fees on loans increased by $2,293,000, or 89%, to $4,863,000 for
the three months ended December 31, 2004 from $2,570,000 for the three months
ended December 31, 2003. During the current quarter the average balance of loans
outstanding increased by approximately $46.6 million accounting for an increase
in interest income of $1,407,000. We also realized an increase in interest
income of $420,000 resulting from the collection of interest in excess of the
stated rate on a loan that went into default the previous fiscal year but was
paid off in full in the current quarter. Recent increases in the prime rate have
caused the average interest rate earned on the loan portfolio to increase to
11.92% in the three months ended December 31, 2004 from 11.15% in the three
months ended December 31, 2003 which caused interest income to increase by
$164,000. We also realized in increase in fee income of $302,000. Approximately
50% of this increase, or $115,000, is the result of fee amortization on the
larger loan portfolio. The remaining increase is primarily the result of
accelerated amortization from the repayment of loans.
Operating income on real estate owned increased $49,000, or 9%, for the three
month period ended December 31, 2004 to $577,000 from $528,000 in the three
month period ended December 31, 2003. The increase was primarily caused by an
increase in rent received in the current three month period due to increased
occupancy and increased percentage rents on a property we own located in Rock
Springs, Wyoming.
Interest expense on borrowed funds increased to $667,000 in the three months
ended December 31, 2004, from $178,000 in the three months ended December 31,
2003, an increase of $489,000, or 276%. The increase is the result of an
increase in the level of borrowings to fund our increased loan portfolio. In the
current three month period ended December 31, 2004, the average balance of
borrowed funds increased from $12.6 million to $45.8 million an increase of
$33.2 million, causing an increase of $414,000 in interest expense. The
remaining increase of $75,000 is the result of higher interest rates paid on our
line of credit and margin account and greater amortization of deferred fees
associated with increases in our credit line availability with North Fork Bank.
Our combined borrowing rate increased from 5.25% in the quarter ended December
31, 2003 to 5.42% for the quarter ended December 31, 2004.
The Advisor's fee, which is calculated based on invested assets, increased
$87,000, or 29%, in the three months ended December 31, 2004 to $385,000 from
$298,000 in the three months ended December 31, 2003. In the three month period
ended December 31, 2004, when compared to the three month period ended December
31, 2003, 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 $170,000, or 21%, from $798,000 in the
three months ended December 31, 2003 to $968,000 in the three months ended
December 31, 2004. The increase was the result of several factors. Payroll and
payroll related expenses increased $112,000, as a result of increased
commissions paid to loan originators and increased restricted stock
amortization. There was also an increase of $24,000 in expenses allocated to us,
primarily legal and accounting expenses, pursuant to a Shared Services Agreement
among us and related entities. In addition, we experienced increased accounting
and audit fees of $40,000 primarily the result of Sarbanes-Oxley compliance work
and an $18,000 increase in insurance costs related to directors and officers
liability insurance. Offsetting these increases was a decline in legal expenses
of $66,000 resulting from the reimbursement of legal costs on two loans that
were previously reported non-performing and which were paid off in full in the
current quarter.
Other taxes increased $36,000, or 50%, in the three months ended December 31,
2004 from $74,000 in the three months ended December 31, 2003 to $110,000. This
increase is primarily the result of an increase in the amount of excise tax
recorded in the current period. The excise tax is based on taxable income that
has been generated but not yet distributed.
Equity in earnings of unconsolidated ventures increased $12,000, or 29%, in the
three months ended December 31, 2004 to $55,000 from a $43,000 in the three
months ended December 31, 2003. During the current period we realized a
reduction in the losses being generated by one of the Trust's joint ventures
which owns and operates a multi-family apartment complex in the Atlanta, Georgia
area.
In the current three month period the Trust sold 23,900 shares of Entertainment
Properties Trust which resulted in net proceeds of $1,043,000 against a cost
basis of $314,000 and a gain on sale of available-for-sale securities of
$729,000. In the prior three month period the Trust sold 35,600 shares of
Entertainment Properties Trust which resulted in net proceeds of $1,188,000 and
had a cost basis of $468,000 and a gain on sale of available-for-sale securities
of $720,000.
In the prior three month period the gain on sale of real estate assets of
$591,000 resulted from the sale of two cooperative apartment units. There were
no sales in the quarter ended December 31, 2004.
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 December 31, 2004, approximately 88% of our loan portfolio was
variable rate based primarily on the prime rate. Changes in the prime interest
rate would have an effect on 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 have approximately a $610,000 positive effect on income before taxes and a
one percent decline in interest rates would have approximately a $328,000
negative effect on income before taxes. In addition, we originate loans with
short maturities and maintain a strong capital position. At December 31, 2004
our loan portfolio was primarily secured by properties located in the New York
metropolitan area, New Jersey, Florida, Tennessee and Indiana and it is 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. Senior
Vice-President-Finance and Chief Financial Officer, of the effectiveness of the
design and operation of our disclosure controls and procedures as of December
31, 2004. Based upon that evaluation, the Chief Executive Officer and Chief
Financial Officer concluded that our disclosure controls and procedures as of
December 31, 2004 are effective.
There has been no changes in our internal control over financial reporting
during the quarter ended December 31, 2004 that has materially affected, or is
reasonably likely to materially affect, our internal control over financial
reporting or in othre 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 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 December 14, 2004 BRT filed an 8-K attaching a copy of its press release
reporting the results of operations for the quarter and year ended September 30,
2004.
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
February 8, 2005 /s/ Jeffrey A. Gould
- --------------- ---------------------------
Date Jeffrey A. Gould, President
February 8, 2005 /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 December 31, 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 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: February 8, 2005
/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 December 31, 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 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: February 8, 2005
/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 December 31, 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 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: February 8, 2005
/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 December 31, 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: February 8, 2005 /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 December 31, 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: February 8, 2005 /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 December 31, 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: February 8, 2005 /s/ George Zweier
-----------------------------------
George Zweier
Chief Financial Officer