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, 2005
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.
7,871,188 Shares of Beneficial Interest,
$3 par value, outstanding on February 6, 2006
Part 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
BRT REALTY TRUST AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Amounts in Thousands)
December 31, September 30,
2005 2005
---- ----
(Unaudited) (Audited)
ASSETS
Real estate loans:
Earning interest, including $550 and
$3,500 from related parties $178,525 $192,012
Not earning interest 1,617 1,617
-------- --------
180,142 193,629
Allowance for possible losses (669) (669)
-------- --------
179,473 192,960
-------- --------
Real estate assets:
Real estate properties net of accumulated
depreciation of $586 and $613 3,447 3,475
Investment in unconsolidated real
estate ventures 9,477 8,713
-------- --------
12,924 12,188
Cash and cash equivalents 6,137 5,709
Securities available-for-sale at fair value 44,225 48,453
Real estate property held for sale 2,787 2,642
Other assets, including $51 and $14 related to
real estate property held for sale 4,108 4,246
-------- --------
Total Assets $249,654 $266,198
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Borrowed funds $ 96,887 $110,932
Mortgage payable 2,524 2,542
Accounts payable and accrued liabilities,
including deposits of $2,380 and $2,606 6,089 6,166
Dividends payable 4,093 3,903
-------- --------
Total Liabilities 109,593 123,543
-------- --------
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 - 8,970 and 8,947 shares respectively 26,911 26,841
Additional paid-in capital 84,200 83,723
Accumulated other comprehensive income - net
unrealized gain on available-for-sale securities 29,293 33,503
Unearned compensation (1,217) (1,311)
Retained earnings 11,087 10,465
-------- --------
150,274 153,221
Cost of 1,185 and 1,226 treasury shares of
beneficial interest, respectively (10,213) (10,566)
-------- --------
Total Shareholders' Equity 140,061 142,655
-------- --------
Total Liabilities and Shareholders' Equity $249,654 $266,198
======== ========
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,
------------
2005 2004
---- ----
Revenues:
Interest and fees on real estate loans, including
$59 and $185 from related parties $ 6,424 $ 4,863
Operating income from real estate properties 293 350
Other, primarily investment income 683 593
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Total Revenues 7,400 5,806
------- -------
Expenses:
Interest - borrowed funds 1,770 667
Advisor's fees, related party 536 385
General and administrative - including $232
and $187 to related parties 1,605 968
Other taxes 114 110
Operating expenses relating to real estate properties
including interest on mortgages payable of $40 and $46 207 211
Amortization and depreciation 37 36
------- -------
Total Expenses 4,269 2,377
------- -------
Income before equity in earnings of unconsolidated real estate ventures, gain
on sale of available-for-sale securities,
minority interest and discontinued operations 3,131 3,429
Equity in (loss) earnings of unconsolidated real estate ventures (877) 55
Gain on disposition of real estate related to unconsolidated
real estate venture 2,531 -
------- -------
Income before gain on sale of available-for-sale securities,
minority interest and discontinued operations 4,785 3,484
Gain on sale of available-for-sale securities - 729
Minority interest (8) (11)
------- -------
Income before discontinued operations 4,777 4,202
Discontinued Operations
(Loss) income from operations (62) 109
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(Loss) income from discontinued operations (62) 109
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Net income $ 4,715 $ 4,311
======= =======
Income per share of beneficial interest:
Income from continuing operations $ .61 $ .55
(Loss) income from discontinued operations (.01) .01
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Basic earnings per share $ .60 $ .56
======= =======
Income from continuing operations $ .61 $ .54
(Loss) income from discontinued operations (.01) .01
------- -------
Diluted earnings per share $ .60 $ .55
======= =======
Cash distributions per common share $ .52 $ .48
======= =======
Weighted average number of common shares outstanding:
Basic 7,829,991 7,662,372
========= =========
Diluted 7,877,349 7,774,303
========= =========
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, 2005 $26,841 $83,723 $33,503 $ (1,311) $ 10,465 $(10,566) $142,655
Shares issued - purchase plan 70 458 - - - - 528
Distributions - common share
($.52 per share) - - - - (4,093) - (4,093)
Exercise of stock options - 2 - - - 353 355
Compensation expense -
stock option and restricted stock - 17 - 94 - - 111
Net income - - - - 4,715 - 4,715
Other comprehensive
(loss) - net unrealized
loss on available-for-sale
securities - - (4,210) - - - (4,210)
------
Comprehensive income - - - - - - 505
-----------------------------------------------------------------------------------
Balances, December 31, 2005 $26,911 $84,200 $29,293 $(1,217) $11,087 $(10,213) $140,061
===================================================================================
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,
2005 2004
---- ----
Cash flows from operating activities:
Net income $ 4,715 $ 4,311
Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization and depreciation 95 100
Amortization of restricted stock and stock options 111 60
Net gain on sale of available-for-sale securities - (729)
Equity in (loss) earnings of unconsolidated real estate ventures 877 (55)
Gain on disposition of real estate related to unconsolidated
real estate venture (2,531) -
Distribution of earnings of unconsolidated joint ventures 47 65
Increase in straight line rent (19) (38)
Increases and decreases from changes in other
assets and liabilities
Decrease (Increase) in interest and dividends receivable 126 (66)
(Increase) Decrease in prepaid expenses (4) 35
Increase (Decrease) in accounts payable and accrued liabilities 342 (108)
Increase in deferred costs (5) (15)
Increase (Decrease) in deferred revenues 250 (131)
(Decrease) in escrow deposits (667) (221)
Other 12 21
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Net cash provided by operating activities 3,349 3,229
------- -------
Cash flows from investing activities:
Collections from real estate loans 57,933 39,294
Sale of participation interests 7,825 16,450
Additions to real estate loans (52,272) (41,876)
Net costs capitalized to real estate assets (167) (49)
Investment in real estate ventures - (303)
Sales of available-for-sale securities - 1,051
Contributions to real estate ventures (20) -
Distributions of capital of unconsolidated entities 863 28
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Net cash provided by investing activities 14,162 14,595
------- -------
Cash flows from financing activities:
Proceeds from borrowed funds 20,500 41,500
Repayment of borrowed funds (34,545) (56,470)
Payoff/paydown of loan and mortgages payable (18) (19)
Cash distribution - common shares (3,903) (3,673)
Exercise of stock options 355 492
Issuance of shares - stock purchase plan 528 128
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Net cash used in financing activities (17,083) (18,042)
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Net increase (decrease) in cash and cash equivalents 428 (218)
Cash and cash equivalents at beginning of period 5,709 5,746
------- -------
Cash and cash equivalents at end of period $ 6,137 $ 5,528
======= =======
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 1,780 $ 697
======= =======
Non cash investing and financing activity:
Reclassification of loan to real estate upon foreclosure $ - $ 2,446
======= =======
Reclassification of real asset to real estate property held for sale 2,787 -
======= =======
Accrued distributions 4,093 3,704
======= =======
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, 2005 and for the three months ended December 31, 2005 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, 2005 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, 2005.
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, 2005, BRT declared a cash distribution to
shareholders of $.52 per share. This distribution totaled $4,093,000 and was
paid January 4, 2006 to shareholders of record on December 23, 2005.
Stock Options
The Trust accounts 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 2005 and 2004: 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.
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.
During the quarter ended December 31, 2005, the Trust recorded $17,000 of
compensation expense related to its remaining unvested options. On December 13,
2005 all outstanding options were fully vested. During the quarter ended
December 31, 2005 40,936 previously issued options were exercised. Proceeds from
these options totaled $355,000.
Note 2 - Shareholders' Equity (Continued)
Restricted Shares
As of December 31, 2005, 88,060 restricted shares were issued of which 86,310
were outstanding 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 shares. For the three months ended December 31, 2005 and
December 31, 2004, the Trust recorded $94,000 and $56,000 of compensation
expense, respectively.
Per Share Data
Basic earnings per share were determined by dividing net income for the period
by the weighted average number of shares of common shares outstanding during
each period.
Diluted earnings per share reflect the potential dilution that could occur if
securities or other contracts to issue common shares were exercised or converted
into common share or resulted in the issuance of common shares that then shared
in the earnings of Trust.
The following table sets forth the computation of basic and diluted shares:
Three Months Ended
December 31,
------------
2005 2004
---- ----
Basic 7,829,991 7,662,372
Effect of dilutive securities 47,358 111,931
--------- ---------
Diluted 7,877,349 7,774,303
========= =========
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 loan portfolio.
If all loans classified as non-earning were earning interest at their
contractual rates for the three months ended December 31, 2005 and 2004,
interest income would have increased by approximately $66,000 and $102,000,
respectively.
Included in real estate loans is one second mortgage to a venture in which the
Trust (through a wholly owned subsidiary) holds a 50% interest. At December 31,
2005, the aggregate balance of this mortgage loan was $550,000. Interest earned
on loans to ventures totaled $59,000 and $185,000 for the three months ended
December 31, 2005 and 2004, respectively.
As of December 31, 2005 there were six first mortgage loans outstanding to one
borrower. These loans totaled $42,201,000, which is approximately 23% of the
Trust's loan portfolio and 17% of the Trust's total assets. Each loan is
collateralized by one multi-family apartment development. Four of the loans,
with a balance at December 31, 2005 of $28,200,000, are collateralized by
properties located in Tennessee. The remaining two loans, with a balance at
December 31, 2005 of $14,001,000, are collateralized by properties located in
Alabama and Arkansas.
Note 4 - Investment in Unconsolidated Joint Ventures at Equity
The Trust is a partner in eight unconsolidated joint ventures which own and
operate seven properties. The Trust holds a second mortgage on one property
owned by one of the ventures.
During the quarter ended December 31, 2005 one of the joint ventures sold a 248
unit garden apartment complex (Rutherford Glen) in the Atlanta area. The joint
venture recognized a gain on the sale of approximately $5,062,000, of which the
Trust recorded its 50% share of approximately $2,531,000. During the quarter the
Trust also received a cash distribution of $842,000 from this joint venture. For
the quarter ended December 31, 2005, the venture recorded a loss of $1,990,000
from the operations of the property which included additional interest expense
of $1,764,000 resulting from the prepayment of the first mortgage upon the sale
of the property. The Trust recorded its 50% share of the loss, or $995,000.
Unaudited condensed financial information for the most significant joint venture
is shown below.
Blue Hen Venture
----------------
(Dollar Amounts in Thousands)
December 31, September 30,
2005 2005
---- ----
Condensed Balance Sheet
-----------------------
Cash and cash equivalents $ 915 $ 573
Real estate investments, net 15,226 15,395
Other assets 478 596
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Total assets $ 16,619 $ 16,564
======== ========
Other liabilities $ 116 $ 268
Equity 16,503 16,296
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Total liabilities and equity $ 16,619 $ 16,564
======== ========
Trust's equity investment $ 7,230 $ 7,126
======== ========
Three Months Ended
December 31,
2005 2004
---- ----
Condensed Statement of Operations
Revenues, primarily rental income $ 778 $ 815
-------- -------
Operating expenses (1) 397 409
Depreciation 174 158
Interest expense - 40
-------- -------
Total expenses 571 607
-------- -------
Net income attributable to members $ 207 $ 208
======== =======
Trust's share of net income
recorded in income statement $ 103 $ 104
======== =======
(1)Includes $50,000 and $47,000 for the three months ended December 31, 2005
and 2004, respsectively, 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)
The remaining six ventures contributed $15,000 in equity earnings for the three
months ended December 31, 2005.
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
market value at December 31, 2005 of $41,121,000.
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 at December 31, 2005 of $1,689,000.
Note 6 -Borrowed Funds
BRT maintained two separate credit facilities with North Fork Bank, Valley
National Bank, Merchants Bank Division and Signature Bank. The first facility of
$85 million had a maturity date of February 16, 2007. The second facility in the
amount of $17 million was consummated on August 17, 2005 and had a maturity date
of February 1, 2006. Borrowings under both facilities were secured by specific
receivables and the facilities provided that the amount borrowed could not
exceed 65% of the collateral pledged. Borrowings under both facilities bore
interest at prime plus 1/2 of 1%. At December 31, 2005, the Trust pledged
collateral that would permit it to borrow $89 million under both facilities, of
which $76.5 million was outstanding.
On January 11, 2006, the Trust consummated a $150 million credit facility with
North Fork Bank, Valley National Bank, Merchants Bank Division, Signature Bank
and Manufacturers and Traders Trust Company. This credit facility replaced both
the $85 million and $17 million credit facilities. This facility matures on
February 1, 2008 and may be extended for two one-year periods for a fee of
$375,000 for each extension. The Trust paid a commitment fee of $650,000 to the
banks which will be amortized over the term of the facility. Borrowings under
the facility are secured by specific receivables and the facility provides that
the amount borrowed will not exceed 65% of first mortgages, or 50% of second
mortgages or owned real estate pledged. Borrowings under the facility bear
interest at 30 day LIBOR plus 225 basis points.
The average outstanding balance on the credit facilities for the quarter ended
December 31, 2005 and December 31, 2004 was $71,049,000 and $35,588,000,
respectively, and the average interest rate paid was 7.66% and 5.75%,
respectively. Interest expense for the quarter ended December 31, 2005 and
December 31, 2004 was $1,390,000 and $523,000. The interest rate at December 31,
2005 was 7.75%.
In addition to its credit facilities, the Trust has the ability to borrow funds
through two margin accounts. In order to maintain one of the accounts the Trust
pays an annual fee equal to .3% of the market value of the pledged securities
which is included in interest expense. At December 31, 2005 there was an
outstanding balance of $20,387,000 on one of the margin accounts and zero
outstanding on the other margin account. The weighted average interest rate at
December 31, 2005 was 7.17%. Marketable securities with a fair market value at
of $44,208,000 were pledged as collateral. The average outstanding balance on
the margin facilities for the quarter ended December 31, 2005 was $20,736,000
and the average interest rate paid was 7.17%. For the quarter ended December 31,
2004, there was an average outstanding balance of $10,241,000 at an average
interest rate of 5.50%. Interest expense for the quarter ended December 31, 2005
and 2004 was $380,000 and $144,000, respectively.
Note 7 - Comprehensive Income
Comprehensive income for the three month period ended was as follows:
(Dollar Amounts in Thousands)
Three Months Ended
December 31,
2005 2004
---- ----
Net income $ 4,715 $ 4,311
Other comprehensive income -
Unrealized (loss) gain on available -
for-sale securities (4,210) 6,725
------- -------
Comprehensive income $ 505 $11,036
======= =======
Accumulated other comprehensive income, which is comprised solely of the net
unrealized gain on available-for-sale securities, was $29,293,000 and
$32,887,000 at December 31, 2005 and 2004, 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, as amended. 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 a real estate investment trust, also known as a REIT, organized
as a business trust in 1972 under the laws of the Commonwealth of Massachusetts.
We are primarily engaged in originating and holding for investment senior and
junior commercial mortgage loans secured by real property in the United States.
From time to time, we also participate as both an equity investor in, and as a
mortgage lender to, joint ventures which acquire income-producing real property.
We have originated in the past, and will consider in the future, loans to
entities which own real property collateralized by pledges of some or all of the
ownership interests that directly or indirectly control such real property
("mezzanine financing"). Our focus is to originate loans secured by real
property, which generally have high yields and are short term or bridge loans,
with an average duration ranging from six months to three years. Our loans to
joint ventures in which we participate as an equity owner may provide for a
longer term.
Liquidity and Capital Resources
- -------------------------------
Our focus is to originate loans secured by real property, which generally have
high yields and are short term or bridge loans, with an average duration ranging
from six months to three years. Repayments of real estate loans in the amount of
$154,648,000 are due during the twelve months ending December 31, 2006,
including $1,617,000 due on demand. The availability of mortgage financing
secured by real property and the market for buying and 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 January 11, 2006 our two existing credit facilities were replaced with a new
$150 million credit facility with a group of banks consisting of North Fork
Bank, Valley National Bank, Merchants Bank Division, Signature Bank and
Manufacturers and Traders Trust Company. This facility, which is used to finance
our real estate mortgage lending, allows us to borrow up to a total of $150
million, on a revolving basis. This facility matures on February 1, 2008 and may
be extended for two one-year terms. The maximum amount which can be outstanding
under the facility is the lesser of 65% of the first mortgages and 50% of the
second mortgages and owned real estate pledged or $150 million. At December 31,
2005, $89 million was available to be drawn based on the lending formula under
the previous facilities and $76.5 million was outstanding.
We also have the ability to borrow under margin lines of credit maintained with
national brokerage firms, secured by the common shares we own in EPR and other
investment securities. Under the terms of the margin lines of credit, we may
borrow up to an amount equal to 50% of the market value of the shares we own. At
December 31, 2005, $22.1 million was available under the margin lines of credit,
of which $20.4 million was outstanding. If the value of the EPR shares (our
principal securities investment) were to decline, the available funds under the
margin lines of credit might decline and we could be required to repay a portion
or all of the margin loans.
During the three months ended December 31, 2005, we generated cash of $3,349,000
from operations, $57,933,000 from real estate loan collections, $7,825,000 from
the sale of participation interests and $863,000 from joint venture
distributions. These funds, in addition to cash on hand, were used primarily to
fund real estate loan originations of $52,272,000, repay borrowings, net of
advances, of $14,045,000 and pay shareholder dividends of $3,903,000. Our cash
and cash equivalents were $6,137,000 at December 31, 2005.
We will satisfy our liquidity needs from cash and liquid investments on hand,
the credit facility with our bank group, the availability in our margin account
collateralized by our available-for-sale securities, interest and principal
payments received on outstanding real estate loans and net cash flow generated
from the operation and sale of real estate assets.
Results of Operations
- ---------------------
Interest and fees on loans increased by $1,561,000, or 32%, to $6,424,000 for
the three months ended December 31, 2005 from $4,863,000 for the three months
ended December 31, 2004. During the current quarter, the average balance of
loans outstanding increased by approximately $46.2 million, accounting for an
increase in interest income of $1,482,000. We also realized a decrease in
interest income of $420,000, quarter vs. quarter, resulting from the collection
of interest in excess of the stated rate on a loan that was in default and was
paid off in full in the prior year's quarter. Recent increases in the prime rate
have caused the average interest rate earned on the loan portfolio to increase
to 13.09% in the three months ended December 31, 2005 from 11.15% in the three
months ended December 31, 2004 which caused interest income to increase by
$403,000. Fee income increased $96,000, quarter vs. quarter. We realized an
increase in fee income of $183,000, as a result of fee amortization on a larger
portfolio and $108,000 of fee income related to expired commitments. Offsetting
these increases was a decline of $195,000 caused by a reduction of amortization
from the early payoff of loans.
Operating income on real estate owned declined $57,000, or 16%, for the three
month period ended December 31, 2005 to $293,000 from $350,000 in the three
month period ended December 31, 2004. This was the result of a decline in rent
received at our Yonkers property due to the Chapter 11 filing of one of our
tenants.
Interest expense on borrowed funds increased to $1,770,000 in the three months
ended December 31, 2005, from $667,000 in the three months ended December 31,
2004, an increase of $1,103,000, or 165%. In the current quarter we increased
our level of borrowings to fund our increased loan portfolio, causing the
average balance of borrowed funds to increase from $45.8 million to $91.7
million, an increase of $45.9 million. This resulted in an increase of $833,000
in interest expense. The remaining increase of $270,000 was the result of higher
interest rates paid on our line of credit and margin accounts. Our combined
borrowing rate increased from 5.69% for the quarter ended December 31, 2004 to
7.55% for the quarter ended December 31, 2005.
The Advisor's fee, which is calculated based on invested assets, increased
$151,000, or 39%, in the three months ended December 31, 2005 to $536,000 from
$385,000 in the three months ended December 31, 2004. In the three month period
ended December 31, 2005, when compared to the three month period ended December
31, 2004, we experienced a large increase in the outstanding balance of invested
assets, primarily loans, the basis upon which the Advisor's fee is calculated.
General and administrative fees increased $637,000, or 66%, from $968,000 in the
three months ended December 31, 2004 to $1,605,000 in the three months ended
December 31, 2005. The increase was the result of several factors. During the
quarter ended December 31, 2005, the Trust incurred $328,000 in legal,
professional and printing expenses related to a contemplated public offering of
preferred securities which was cancelled due to adverse market conditions.
Professional expenses also increased $121,000, of which $55,000 was due to
Sarbanes Oxley compliance costs and $66,000 was due to the reimbursement from a
borrower in the quarter ended December 31, 2004 for legal fees expenses by the
Trust related to a foreclosure action. Payroll and payroll related expenses
increased $119,000 in the current period as the Trust has added staff and
expenses related to restricted stock and stock option amortization has
increased. There was also an increase of $45,000 in expenses allocated to us
pursuant to a Shared Services Agreement among us and related entities for legal
and accounting services. These increased allocations resulted from the
negotiation of the Trust's new credit facility which closed in January 2006 and
for professional services related to the cancelled offering.
Equity in earnings (loss) of unconsolidated ventures decreased $932,000 in the
three months ended December 31, 2005 to ($877,000) from $55,000 in the three
months ended December 31, 2004. During the current quarter, we experienced a
loss of $995,000 from the operations of the joint venture which owns the
Rutherford Glen property (which was sold in the quarter ended December 31,
2005). This loss was the result of an increase in interest expense of $882,000
from the prepayment of the first mortgage upon the sale of the property.
During the current period we realized a gain on disposition of real estate
related to unconsolidated real estate ventures, the result of the sale of the
property by our Rutherford Glen joint venture. The venture owned and operated a
multi-family apartment complex in the Atlanta, Georgia area. The venture
recognized a gain of approximately $5.1 million of which the Trust recorded
$2,531,000 as its share.
In the three month period ended December 31, 2004, 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, a gain on sale of available-for-sale
securities of $729,000. There were no sales of securities in the current period.
Income (loss) from discontinued operations declined $171,000 in the three month
period ended December 31, 2005 to ($62,000) from $109,000 in the three month
period ended December 31, 2004. The discontinued operations in the quarter ended
December 31, 2005, reflect the operations of a property acquired in foreclosure
in January, 2005. The Trust anticipates selling this property in the near
future. On February 2, 2006 a contract of sale was signed relating to this
property. The discontinued operations in the quarter ended December 31, 2004,
reflect earnings from a property in Rock Springs, Wyoming which was sold in July
2005.
Item 3. Quantitative and Qualitative Disclosures About Market Risks
Our primary component of market risk is interest rate sensitivity. Our interest
income and 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,
2005, approximately 98% of our loan portfolio was variable rate based primarily
on the prime rate. Accordingly, changes in the prime interest rate would have an
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 a positive effect of
approximately $788,000 on income before taxes and a one percent decline in
interest rates would have a negative effect of approximately $334,000 on income
before taxes. In addition, we originate loans with short maturities and maintain
a strong capital position. At December 31, 2005, our loan portfolio was
primarily secured by properties located in the New York metropolitan area, New
Jersey, Florida and Tennessee, 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, as amended, 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, 2005. Based upon that evaluation, the Chief Executive Officer and
Chief Financial Officer concluded that our disclosure controls and procedures as
of December 31, 2005 are effective.
There has been no changes in our internal control over financial reporting
during the quarter ended December 31, 2005 that has materially affected, or is
reasonably likely to materially affect, our internal control over financial
reporting or in other factors that could significantly affect these controls
subsequent to the date of their evaluation, including any corrective actions
with regard to significant deficiencies and material weaknesses.
PART II - OTHER INFORMATION
Item 6. 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 32.1 Certification of President and Chief Executive Officer pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.
Exhibit 32.2 Certification of Senior Vice President-Finance pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
Exhibit 32.3 Certification of Vice President and Chief Financial Officer
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BRT REALTY TRUST
Registrant
February 8, 2006 /s/ Jeffrey A. Gould
- ---------------- -------------------------
Date Jeffrey A. Gould, President
February 8, 2006 /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, 2005 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)) and internal
control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) 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) Designed such internal control over financial reporting, or caused such
internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting
principles;
c) Evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
d) 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 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: February 8, 2006
/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, 2005 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)) and internal
control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) 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) Designed such internal control over financial reporting, or caused such
internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting
principles;
c) Evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
d) 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 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: February 8, 2006 /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, 2005 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)) and internal
control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) 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) Designed such internal control over financial reporting, or caused such
internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting
principles;
c) Evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
d) 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 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: February 8, 2006
/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, 2005 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, 2006 /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, 2005 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, 2006 /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, 2005 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, 2006 /s/ George Zweier
-----------------------------------
George Zweier
Chief Financial Officer