SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the quarterly period ended March 31, 1996
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Commission File Number 1-7172
BRT REALTY TRUST
(Exact name of registrant as specified in its charter)
Massachusetts 13-2755856
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
60 Cutter Mill Road, Great Neck, NY 11021
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:(516) 466-3100
Indicate the number of shares outstanding of each of the issuer's
classes of stock, as of the latest practicable date.
7,707,324 Shares of Beneficial Interest,
$3 par value, and 1,030,000 shares of Series A
cumulative convertible preferred stock, $1 par
value outstanding on May 8, 1996
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______
Part 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
BRT REALTY TRUST AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands)
March 31, September 30,
1996 1995
--------- ---------
(Unaudited) (Audited)
Assets:
Real estate loans - Note 3:
Earning interest,
less unearned income $ 42,335 $ 44,136
Not earning interest 6,360 7,154
-------- --------
48,695 51,290
Less allowance for possible losses 7,798 9,084
-------- --------
40,897 42,206
-------- --------
Real estate owned - Note 4:
Foreclosed properties held for sale 50,441 52,029
Less valuation allowance 2,216 2,460
-------- --------
48,225 49,569
-------- --------
Cash and cash equivalents 5,984 7,385
Restricted cash 301 558
Interest receivable 434 594
Other assets 4,437 4,203
-------- --------
Total assets $100,278 $104,515
======== ========
Liabilities and Shareholders' Equity
Liabilities:
Notes payable $ 13,000 $ 22,900
Loans and mortgages payable,
nonrecourse 25,161 20,756
Accounts payable and accrued
liabilities, including deposits
of $1,693 and $1,967 2,581 3,131
------- -------
Total liabilities 40,742 46,787
Shareholders' Equity - Note 2:
Preferred shares - $1 par value:
Authorized 10,000 shares,
Issued - 1,030 shares 1,030 1,030
Shares of beneficial interest,
$3 par value:
Authorized number of shares -
unlimited
Issued - 7,899 shares 23,696 22,614
Additional paid-in capital net of
distributions of $5,103 and $4,968 83,960 83,914
Accumulated deficit (46,815) (47,495)
------- -------
61,871 60,063
Cost of 192 treasury shares of
beneficial interest (2,335) (2,335)
------- -------
Total shareholders' equity 59,536 57,728
Total liabilities and ------- -------
shareholders' equity $100,278 $104,515
======= =======
See Accompanying Notes to Consolidated Financial Statements.
BRT REALTY TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In Thousands except for Per Share Data)
Three Months Ended Six Months Ended
March 31, March 31,
1996 1995 1996 1995
----------------- ---------------
Revenues:
Interest and fees
on real estate loans $ 1,178 $ 2,532 $ 2,489 $4,176
Operating income on real
estate owned 2,181 1,999 4,227 4,186
Other, primarily
investment income 73 141 156 254
------ ------ ------ ------
Total revenues 3,432 4,672 6,872 8,616
------ ------ ------ ------
Expenses:
Interest-notes payable
and loans payable 346 1,416 840 2,982
Provision for possible
loan losses - - - 1,021
Provision for valuation
adjustment - 178 - 178
Advisor's fee 164 201 329 426
General and administrative 856 871 1,452 1,598
Operating expenses relating
to real estate owned
including interest
on mortgages of $510 and
$87 for the three month
and $956 and $184 for the
six month periods,
respectively 1,917 1,474 3,598 3,232
Depreciation and
amortization 59 154 200 309
------ ------ ------ ------
Total expenses 3,342 4,294 6,419 9,746
------ ------ ------ ------
Income (loss) before gain
on sale of foreclosed
properties held for sale 90 378 453 (1,130)
Gain on sale of foreclosed
properties held for sale - 342 227 2,868
------ ------ ------ ------
Net income $ 90 $ 720 $ 680 $1,738
====== ====== ====== ======
Calculation of net income
applicable to common
shareholders:
Net income $ 90 $ 720 $ 680 $1,738
Less: distribution on
preferred stock 68 68 135 135
------ ------ ------ ------
Net income applicable
to common
shareholders $ 22 $ 652 $ 545 $1,603
====== ====== ====== ======
Earnings per share of Beneficial
Interest - Note 2:
Primary
Income (loss) before gain on
sale of foreclosed properties
held for sale applicable to
common shareholders $0.00 $0.04 $0.04 $($0.17)
Gain on sale of foreclosed
properties held for sale - 0.05 0.03 0.39
------ ------ ------ ------
Net income applicable to
common shareholders $0.00 $0.09 $0.07 $0.22
====== ====== ====== ======
Fully Diluted $0.00 $0.09 $0.07 $0.21
====== ====== ====== ======
Weighted average number
of common shares
outstanding - Note 2:
Primary 7,457,609 7,346,624 7,401,813 7,346,624
========= ========= ========= =========
Fully Diluted 7,457,609 8,410,167 7,401,813 8,412,499
========= ========= ========= =========
STATEMENT OF ACCUMULATED DEFICIT
Accumulated deficit,
beginning of period $(46,905) $(49,451) $(47,495)$(50,469)
Net income 90 720 680 1,738
Accumulated deficit, ------ ------ ------ ------
end of period $(46,815) $(48,731) $(46,815)$(48,731)
====== ====== ====== ======
See Accompanying Notes to Consolidated Financial Statements.
BRT REALTY TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In Thousands)
Six Months Ended
March 31,
-----------------
1996 1995
---- ----
Cash flow from operating activities:
Net income $ 680 $1,738
Adjustments to reconcile net income
to net cash provided by
operating activities:
Provision for possible loan losses - 1,021
Provision for valuation adjustment - 178
Amortization and depreciation 200 309
Gain on sale of foreclosed properties (227) (2,868)
Decrease in interest receivable 160 761
Decrease (increase) in prepaid expenses 103 (224)
(Decrease)increase in accounts payable
and accrued liabilities (258) 116
Decrease (increase) in rent and other
receivables (69) 26
(Increase) decrease in escrow deposits (187) 468
Increase in deferred costs (281) (10)
Other 112 (99)
Net cash provided by ------ ------
operating activities 233 1,416
------ ------
Cash flows from investing activities:
Collections from real estate loans 1,533 12,753
Proceeds from participating lenders 125 -
Additions to real estate loans (108) (166)
Repayments to participating lenders - (5,205)
Net costs capitalized to real estate owned (803) (5,935)
Proceeds from real estate owned 1,987 10,797
Decrease in deposits payable (274) (387)
Decrease in investment in U.S.
Government obligations - 1,979
Other 36 (497)
------ ------
Net cash provided by investing activities 2,496 13,339
------ ------
Cash flow from financing activities:
Bank repayments (9,900) (13,867)
Payoff/paydown of loan and mortgages
payable (395) (603)
Proceeds from mortgages payables 4,800 -
Exercise of stock options 1,262 -
Decrease in restricted cash 257 4,688
Other (154) (138)
------ ------
Net cash used in financing activities (4,130) (9,920)
------ ------
Net increase (decrease) in cash
and cash equivalents (1,401) 4,835
Cash and cash equivalents at
beginning of period 7,385 1,174
Cash and cash equivalents at ------ ------
end of period $5,984 $6,009
====== ======
BRT REALTY TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
(Unaudited)
(In Thousands)
Six Months Ended
March 31,
---------------
1996 1995
---- ----
Supplemental disclosure of cash
flow information:
Cash paid during the period for
interest expense $ 1,947 $ 3,333
======= =======
Supplemental schedule of noncash
investing and financing activities:
Transfer of nonearning real estate
loans to foreclosed properties at
fair market value $ 34 $ 2,310
Recognition of allowance for previously
provided loan losses 1,286 866
Recognition of valuation allowance
upon sale of real estate owned 244 -
Purchase money mortgages from sale of
real estate owned (net of a $850 wrap
mortgage in the prior period) 273 3,933
Write-off of nonrecourse mortgage payable
upon relinquishment of real estate owned - 1,005
Recognition of valuation allowance upon
relinquishment of real estate owned - 436
See Accompanying Notes to Consolidated Financial Statements.
BRT REALTY TRUST AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 1 - Basis of Preparation
The accompanying interim unaudited consolidated financial
statements as of March 31, 1996 and for the three and six months
ended March 31, 1996 and 1995 reflect all normal recurring
adjustments which are, in the opinion of management, necessary
for a fair statement of the results for such interim periods. The
results of operations for the three and six months ended March
31, 1996 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. For financial
statement and economic purposes, the majority-owned real estate
entity is wholly-owned and presented accordingly. Material
intercompany items and transactions have been eliminated. Many
of the wholly-owned subsidiaries were organized to take title to
various properties acquired by BRT Realty Trust. BRT Realty
Trust and its subsidiaries are hereinafter referred to as the
"Trust".
These statements should be read in conjunction with the
consolidated financial statements and related notes which are
included in the Trust's Annual Report on Form 10-K for the year
ended September 30, 1995.
Note 2 - Shareholders' Equity
Per Share Data
Primary earnings per share of beneficial interest is based
upon the weighted average number of common shares and the assumed
equivalent shares outstanding during each period, after giving
effect to dividends relating to the Trust's preferred stock. The
preferred stock issued on September 14, 1993, is not considered a
common stock equivalent for the purpose of computing primary
earnings per share. The assumed exercise of outstanding share
options, using the treasury stock method, is not materially
dilutive for the primary earnings per share computation for the
three and six months ended March 31, 1996 and 1995, respectively.
Fully diluted earnings per share of beneficial interest
amounts are based on an increased number of common shares that
would be outstanding assuming the exercise of common share
options and the conversion of preferred stock to shares of
beneficial interest at the period end market price. The fully
diluted per share computation for the three and six months ended
March 31, 1995 is dilutive with the addition of 1,030,000 shares
upon conversion of the preferred stock and 33,543 and 35,875
shares, respectively, upon exercise of the common share options.
The fully diluted computation is not materially dilutive or
anti-dilutive for the three and six months ended March 31, 1996.
Stock Options
On March 4, 1991, 407,000 options to purchase shares of
beneficial interest were granted to a number of officers and
employees of the Trust, under the 1988 Stock Option Plan. On
March 4, 1996, 360,700 of the options were exercised at $3.50 per
share, increasing shareholders' equity by $1,262,450. The
remaining 46,300 options not exercised expired on such date.
Note 3 - Real Estate Loans
If all loans classified as non-earning were earning interest
at their contractual rates for the three and six month periods
ended March 31, 1996 and 1995, interest income would have
increased by approximately $212,000 and $401,000 in the
respective periods in 1996, and $358,000 and $705,000 in the
respective periods in 1995.
Note 4 - Real Estate Owned
The Trust has elected to adopt Statement of Financial Accounting
Standards No. 121 ("FASB 121"), "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of".
The adoption of FASB 121 did not have a material effect on the
financial statements presented herein.
In April 1993, pursuant to a plan of reorganization confirmed by
the Federal Bankruptcy Court, a mixed use property located in
Philadelphia, Pennsylvania, which secured a real estate loan made
by the Trust, was conveyed to a newly organized limited
partnership, consolidated herein, in which a wholly-owned
subsidiary of the Trust is the sole general partner and the Trust
a limited partner. The Trust, pursuant to the Limited
Partnership Agreement, has all of the economic interest in said
partnership and the partnership is deemed wholly owned for
financial statement purposes.
At the time of transfer, the property was recorded as real estate
owned at its estimated fair value, and depreciated since it was
being held long term for the production of income. Further, in
accordance with the partnership agreement, the Trust could not
sell the property prior to January 1996.
In 1994, the Trust became aware of certain construction defects
at the property and commenced a lawsuit against various
defendants, including the structural designer and manufacturer.
The Trust remediated the construction defects and expensed the
remediation costs incurred during Fiscal 1995 and a portion of
Fiscal 1996 as there was no future benefit added to the property
as a result of the expenditures, and the property has declined in
value as a result thereof.
During the second quarter of the fiscal year ended September 30,
1996 ("Fiscal 1996") the Trust accepted a portion of a settlement
with the structural designer and manufacturer of approximately
$860,000. Litigation is continuing against the general
contractor and others. Also during the second quarter of Fiscal
1996, since the repairs have been made to the property, the
settlement referred to above concluded and the sales restriction
no longer in effect, the Trust classified the property as held
for sale and no longer for the production of income. Accordingly,
the property is now carried at the lower of cost or fair value,
less cost to sell, and will no longer be depreciated. Since the
decline in the value of the property approximates the net
settlement amount received by the Trust, the carrying amount of
the asset will be reduced by the net settlement to bring the
property to its estimated fair value, less costs to sell.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Liquidity and Capital Resources
The Trust was engaged in the business of making and
participating in short term senior and junior real estate
mortgages, secured by income producing property and to a lesser
extent by unimproved real property. Repayments of real estate
loans in the amount of $21,263,000 are due during the twelve
months ending March 31, 1997, including $10,756,000 which is
due on demand. There presently is a more favorable environment
for obtaining mortgage financing secured by real estate and for
selling real estate, but the Trust cannot project the portion of
loans maturing during the twelve months ending March 31, 1997
which will be paid or the portion which will be extended for a
fixed term or on a month to month basis.
In September, 1992, the Trust entered into an Amended and
Restated Credit Agreement ("Restated Credit Agreement") with five
banks and extended the maturity date to June 30, 1996, with the
right to extend for an additional one year term. The Restated
Credit Agreement precludes the Trust from engaging in any lending
activities except for purchase money mortgages in connection with
the sale of real estate. The Trust is in compliance with its
covenants under the Restated Credit Agreement.
Under the Restated Credit Agreement the Trust is required
to apply a minimum of 75% of capital event proceeds (proceeds
from the sale of real property, proceeds from mortgage financing
secured by real estate owned and proceeds from payoffs or
paydowns of mortgages receivable) to reduce the principal balance
due to the banks, and the balance of 25% is deposited in a cash
collateral account maintained with the agent bank. The Trust
maintains its own operating accounts, and to the extent the
operating accounts exceed $500,000 at the end of any month, the
excess is deposited into the cash collateral account. At
March 31, 1996 the Trust maintained approximately $5,343,000
in the cash collateral account, which management deems sufficient
to satisfy the Trust's short term liquidity needs.
During the six months ended March 31, 1996, the Trust
had an increase in cash provided by investing activities, as a
result of collections from real estate loans of $1,533,000 and
proceeds from real estate owned of $1,987,000, not including
purchase money mortgages of $273,000. The cash provided by
investing activities of $2,496,000, proceeds of $4,800,000 from
the financing of real estate owned and the receipt of
approximately $1,262,000 from the exercise of employee stock
options was used to reduce bank debt by $9,900,000. The Trust
intends to satisfy its short term liquidity needs from interest
received on outstanding real estate loans, net cash flow
generated from the operation of properties, cash derived from
financing of real estate owned, and from the funds in the cash
collateral account.
Results of Operations
The Trust's loan portfolio at March 31, 1996, before
giving effect to the allowance for possible losses, was
$48,695,000, of which $6,360,000 (13% of total real estate loans)
is categorized as non-earning, as compared to $51,290,000 at
September 30, 1995, of which $7,154,000 (14% of total real
estate loans) is categorized as non-earning. The $2,595,000
decrease in the loan portfolio since September 30, 1995 is
primarily due to the payoff of three real estate loans in the
amount of approximately $1,140,000 and partial recovery of a
fully reserved mortgage receivable having a book balance of
approximately $1,286,000 prior to allowance for possible losses.
Interest and fees on real estate loans decreased to
$2,489,000 and $1,178,000 for the six and three months ended
March 31,1996 as compared to $4,176,000 and $2,532,000 for the
six and three months ended March 31,1995. These decreases of
$1,687,000 and $1,354,000 were a result of the receipt of
additional interest of approximately $1,000,000 during the
quarter ended March 31,1995 upon payoff of a real estate loan
secured by a property located in the Texas marketplace, a
decrease in earning real estate loans as a result of payoffs,
and a property securing a real estate loan becoming real estate
owned. This decrease was offset in part by the recognition of
interest earned of approximately $119,000 during the first
quarter of Fiscal 1996 from a fully reserved mortgage receivable
and interest earned from purchase money mortgages originated by
the Trust in connection with the sale of properties.
Operating income on real estate owned increased slightly by
$41,000 and $182,000 to $4,227,000 and $2,181,000 for the six and
three months ended March 31, 1996 as compared to $4,186,000 and
$1,999,000 for the comparable six and three month periods in the
prior fiscal year. These increases were principally the result
of income generated from an office building in Fairway, Kansas,
acquired in October 1995 and an increase in rental income at the
Dover, Delaware property, as a result of the process of
converting this property from a regional mall to an office park
offset in part by the sale of a number of properties.
Other income, primarily investment income, decreased to
$156,000 and $73,000 for the six and three months ended March
31,1996 from $254,000 and $141,000 for the six and three months
ended March 31, 1995. These decreases of $98,000 and 68,000 are
primarily due to a decrease in cash available to invest.
Interest expense decreased by $2,142,000 and $1,070,000 to
$840,000 and $346,000 for the six and three months ended March
31, 1996 from $2,982,000 and $1,416,000 for the six and three
months ended March 31, 1995 due to a continuing decrease in the
outstanding bank debt and during the quarter ended March 31, 1996
a decrease in the average prime interest rate.
The expenses for the six months ended March 31, 1995 include
provisions for possible loan losses of $1,021,000 and provisions
for valuation adjustments of $178,000 ($178,000 of which was
taken during the quarter ended March 31,1995) with no comparable
provisions during the six and three months ended March 31, 1996.
Management determined that no additional provisions for possible
loan losses or valuation adjustments were required for the three
and six month periods ended March 31, 1996.
The Advisor's fee decreased by $97,000 from $426,000 for
the six months ended March 31, 1995 to $329,000 for the six
months ended March 31, 1996 and by $37,000 from $201,000 for the
three months ended March 31,1995 to $164,000 for the comparable
period in Fiscal 1996. These decreases were a result of a
decrease in total invested assets, the basis on which the
advisory fee is calculated.
General and administrative expenses decreased to $1,452,000
and $856,000 for the six and three months ended March 31, 1996
from $1,598,000 and $871,000 for the prior year comparable
periods, a decrease of $146,000 and $15,000, respectively. These
decreases are primarily the result of a decrease in the Trust's
executive compensation and related expenses due to a reduction of
staff. These decreases were offset in part by the recognition
during the quarter ended March 31, 1996 of approximately $187,000
of additional legal, accounting and investment banking expenses
incurred in connection with a potential acquisition which did not
proceed beyond the negotiation stage and which has been
terminated.
Operating expenses relating to real estate owned increased
by $366,000 and $443,000 from $3,232,000 and $1,474,000 for the
six and three months ended March 31, 1995 to $3,598,000 and
$1,917,000 for the six and three months ended March 31, 1996.
These increases were primarily due to an increase in interest on
mortgages secured by real estate owned to $956,000 and $510,000
for the six and three months ended March 31, 1996 from $184,000
and $87,000 for the comparable periods in 1995 and the Trust
acquiring an office building in October 1995, by deed-in-lieu of
foreclosure. These increases were offset in part by a
combination of the sale of real estate owned and the completion
of extensive repairs at a mixed use property during the fiscal
year ended September 30, 1995.
Depreciation and amortization decreased by $109,000 and
$95,000 for the six and three month periods ended March 31, 1996
from the comparable periods ended March 31, 1995. This a result
of the classification of a mixed use property located in
Philadelphia, Pennsylvania from an asset held for the production
of income to an asset held for sale, thereby no longer being
depreciated. (See Note 4 of the Notes to Consolidated Financial
Statements)
Gain on sale of foreclosed properties for the six months
ended March 31, 1996 was $227,000 as compared to $2,868,000 for
the six months ended March 31, 1995 and $342,000 for the three
months ended March 31, 1995 with no comparable gain in the
current three month period. It is the policy of the Trust to
offer for sale all real estate owned at prices which management
believes represents fair value in the geographic area in which
the property is located.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
The Trust did not file any reports on Form 8-K during the quarter
ended March 31, 1996.
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
5/14/96 /s/ Jeffrey Gould
- ------- ------------------------------
Date Jeffrey Gould, President and
Chief Operating Officer
5/14/96 /s/ David W. Kalish
- ------- -------------------------------
Date David W. Kalish, Vice President
and Chief Financial Officer