SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d)
OF THE
SECURITIES EXCHANGE ACT OF 1934
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [Fee Required]
For the fiscal year ended September 30, 1996
------------------
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [No Fee Required]
Commission file number 1-7172
BRT REALTY TRUST
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Massachusetts 13-2755856
- --------------------------------------------------------------------------------
(State or other jurisdiction (I.R.S. employer
of incorporation or organization) identification no.)
60 Cutter Mill Road, Great Neck, New York 11021
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 516-466-3100
-------------
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
- --------------------------------------------------------------------------------
Shares of Beneficial New York Stock Exchange
Interest, $3.00 Par Value
Securities registered pursuant to Section 12(g) of the Act:
NONE
- --------------------------------------------------------------------------------
(Title of Class)
Indicate by check mark whether the registrant (l) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in PART III of this Form 10-K or any
amendment to this Form 10-K [ ]
The aggregate market value of voting stock of the registrant held by
non-affiliates was approximately $30,605,000 as of December 2, 1996.
As of December 2, 1996 the registrant had 8,665,972 Shares of
Beneficial Interest issued and outstanding (excluding treasury shares).
Documents Incorporated By Reference
PART III
Item 10 - Directors and Executive Officers To be included in
of the Registrant the Proxy Statement
to be filed pursuant
Item 11 - Executive Compensation to Regulation 14A
not later than
Item 12 - Security Ownership of Certain January 28, 1997,
Beneficial Owners and Management except for
information
concerning executive
Item 13 - Certain Relationships and Related officers, which is
Transactions included in Part I.
PART IV - See Item 14.
PART I
Item l. Business.
---------
General
- -------
BRT Realty Trust ("BRT" or the "Trust") is a real estate investment
trust organized in 1972 under the laws of the Commonwealth of Massachusetts. Its
primary business activity has been investing in senior and junior real estate
loans secured by interests in income producing real property and to a limited
extent in senior real estate mortgages secured by undeveloped real property. For
the reasons described under the subcaption "Background" below, particularly the
Trust's agreement as set forth in the Restated Credit Agreement (defined below)
not to engage in lending activities except in specified situations, the Trust's
lending activities have been very limited and in the fiscal years ending
September 30, 1996 ("Fiscal 1996") and September 30, 1995 ("Fiscal 1995") the
only lending activity in which the Trust engaged was purchase money first
mortgages provided to purchasers of real estate from the Trust.
In August 1996 the Trust repaid in full the balance due under the
Restated Credit Agreement and in October 1996 it consummated a $25,000,000
Revolving Credit Agreement ("Revolving Credit Agreement") with CS First Boston
Mortgage Capital Corp. (see "Proposed Lending Activities and Outstanding
Mortgage Portfolio" below for a description of the material terms of the
Revolving Credit Agreement).
In Fiscal 1996 the Trust's business activities involved primarily
managing the Trust's loan portfolio, supervising, refurbishing and maintaining
real estate owned by the Trust, arranging, negotiating and closing first
mortgage loans secured by real estate owned, and supervising and negotiating
with respect to leasing and selling real estate owned. At September 30, 1996,
the fiscal year end, the Trust had an outstanding loan portfolio (net of
allowances) of $31,970,000 or 35.7% of total assets, of which 5.0% of the net
loan portfolio (1.8% of total assets) is categorized as non-earning. This
compares to an outstanding loan portfolio, net of allowances, of $42,206,000
(40.4% of total assets) at September 30, 1995, of which 3.9% of the net loan
portfolio (1.6% of total assets) were categorized as non-earning. Of the
$5,905,000 of non-earning loans at September 30, 1996, the Trust has provided
for allowances of $4,307,000. Approximately 50.5% of the Trust's total assets at
September 30, 1996, or an aggregate of $45,285,000 (after valuation allowances),
represents real property acquired by the Trust in foreclosure or deed in lieu of
foreclosure and capitalized improvements to such real properties, compared to
$49,569,000 or 47.4% of total assets at September 30, 1995. Approximately 20% of
the Trust's net investment assets (either mortgages or real estate owned)
related to cooperative apartments at September 30, 1996.
The Trust's loan portfolio has been decreasing over the past number of
fiscal years, both absolutely and as a percentage of total assets, as
outstanding loans have been paid off and paid down and lending activities have
been limited due to the prohibitions against lending contained in the Restated
Credit Agreement. Real estate owned has increased as a percentage of assets over
the past number of years, as real estate has been acquired in foreclosure or by
deed in lieu of foreclosure and funds have been expended to improve real
property assets, offset by the sale of real estate owned. In compliance with the
provisions of the Restated Credit Agreement, the Trust applied the proceeds
derived from loan payoffs and paydowns, sale of real estate owned and financing
real estate owned to the repayment of indebtedness due under the Restated Credit
Agreement, until August 1996 when the balance due under the Restated Credit
Agreement was repaid in full. Total assets decreased from $104,515,000 at Fiscal
1995 year end to $89,613,000 at Fiscal 1996 year end and total indebtedness
decreased from $43,656,000 to $26,421,000 (indebtedness due under the Restated
Credit Agreement decreased from $22,900,000 to zero) between Fiscal 1995 year
end and Fiscal 1996 year end.
Background
- ----------
Commencing in the fiscal year ending September 30, 1990 ("Fiscal 1990")
and continuing through the fiscal year ending September 30, 1992 ("Fiscal
1992"), difficulties in the real estate markets and a severe lack of liquidity
in the real estate industry resulted in the Trust experiencing increasing
delinquencies from its borrowers. As a reaction to the increase in non-earning
loans, the Trust aggressively pursued foreclosure actions and other legal
procedures against delinquent borrowers, seeking to acquire title to the asset
(generally income producing real property) securing a delinquent loan as quickly
as possible. By aggressively pursuing foreclosure actions, the Trust was able to
protect the operating cash flow from a property through a court appointed
receiver or a negotiated third party management arrangement. As a result of the
actions taken by BRT against delinquent borrowers, total non-earning loans
before allowances decreased from year to year and at September 30, 1996
non-earning loans amounted to $5,905,000 (as compared to $7,154,000 at September
30, 1995).
As a corollary to the decrease in non-earning loans, the Trusts'
portfolio of real estate owned increased as a percentage of total assets. At
September 30, 1996 and 1995 the Trust owned, net of valuation allowances,
$45,285,000 and $49,569,000, respectively, of foreclosed property held for sale.
At September 30, 1996 and 1995 foreclosed properties held for sale (net of
valuation allowances) accounted for 50.5% and 47.4%, respectively, of total
assets.
A Restated Credit Agreement dated as of September 23, 1992 was entered
into between BRT and five lending institutions (the "Banks") ("Restated Credit
Agreement") amending an unsecured credit agreement which then had a balance of
$114,800,000 outstanding and was in default due to the failure of the Trust to
comply with certain negative covenants (all monetary covenants were being
complied with). The Restated Credit Agreement provided that the Trust would not
engage in any lending activities except for funding outstanding commitments and
purchase money financing taken back in connection with the sale of real estate
owned. The Trust did not have any outstanding funding commitments in Fiscal 1996
or Fiscal 1995. Accordingly, except for purchase money mortgages taken back in
connection with the sale of real estate owned, including the sale of cooperative
units, the Trust did not engage in any lending activities in the fiscal years
ending September 30, 1996 and 1995. The $114,800,000 amount due to the Banks was
fully repaid within the parameters set forth in the Restated Credit Agreement
within four years.
As a result of the restrictive provisions of the Restated Credit
Agreement (which essentially precluded lending activities), the business of the
Trust in Fiscal 1996, as stated above, involved managing the Trust's loan
portfolio, supervising, refurbishing and maintaining real estate owned,
arranging, negotiating and completing first mortgage loans secured by real
estate owned, and supervising and negotiating the leasing and selling of real
estate owned. In August 1996 the Trust fully repaid the balance due under the
Restated Credit Agreement and in October 1996 it consummated a $25,000,000
Revolving Credit Agreement with CS First Boston Mortgage Capital Corp. Using its
capital and funds available under the Revolving Credit Agreement, the Trust
intends to engage in mortgage lending activities in the current fiscal year (see
"Proposed Lending Activities and Outstanding Mortgage Portfolio" below). In
Fiscal 1997 the Trust will also continue to focus on operating the real estate
it owns and on managing the outstanding loan portfolio.
As a direct consequence of the strict limitation on its lending
activities contained in the Restated Credit Agreement, the assets of the Trust
decreased from $131,467,000 at September 30, 1994 to $104,515,000 at September
30, 1995 to $89,613,000 at September 30, 1996. In this regard it should be noted
that in Fiscal 1996 (i) real estate loans, net of allowances, decreased by
$10,236,000 primarily due to principal payoffs or reductions of $11,162,000,
offset by the issuance of $734,000 of purchase money mortgages in connection
with the sale of real estate owned, and (ii) there was a decrease of $4,284,000
in real estate owned, net of valuation allowances and after giving effect to
capitalized
improvements aggregating $1,609,000, offset by real estate sales. In Fiscal 1996
the Trust applied a major portion of the proceeds derived from loan repayments,
real property sales and first mortgage loans secured by real estate owned to the
reduction of bank debt. During the year ended September 30, 1996 bank debt was
reduced by $22,900,000 to zero.
With respect to the real estate which BRT has taken back in foreclosure
or deed in lieu thereof, it is the policy of the Trust to offer for sale all
such real estate at prices which management believes represents fair value in
the geographic area in which the property is located. If the Trust's management
determines that it will not, in the near term, be able to sell a specific parcel
of real estate at an acceptable price, management will seek first mortgage
financing secured by the specific parcel of real property. In many instances,
the Trust, through an independent contractor, renovates a property acquired by
foreclosure or deed in lieu, engages in leasing activities, negotiates and
completes the sale of real estate owned if the selling price is deemed
acceptable by management, and provides purchase money financing in connection
with the sale of real estate owned. It has been the experience of the Trust's
management that in connection with the sale of cooperative apartments it is
usually necessary for the Trust to provide purchase money financing on a
competitive basis. In Fiscal 1996 the Trust disposed of real estate, other than
cooperative apartments, having an aggregate net book value of $3,410,000, for an
aggregate consideration of $3,880,0000. In addition, in Fiscal 1996 the Trust
derived proceeds of $7,050,000 from first mortgage financing secured by real
estate owned by the Trust. During Fiscal 1996 the Trust sold shares in
cooperative apartments, resulting in net proceeds of approximately $948,000 (not
including purchase money mortgages of $734,000).
Proposed Lending Activities and Outstanding Mortgage Portfolio
- --------------------------------------------------------------
In Fiscal 1997 the Trust intends to become active in real estate
lending, emphasizing investments in short term senior and junior loans secured
by income producing real property or interests therein. Junior mortgage loans
are subordinate to one or more prior liens. The Trust will entertain loan
requests relating to real estate located anywhere within the United States and
Puerto Rico, but will not invest in loans secured by real property located
outside the United States and Puerto Rico. The Trust expects that it will invest
in loans secured by real property located primarily in the New York metropolitan
area.
The Trust will emphasize loans ranging from six months to 36 months to
persons requiring short term funds. The Trust will not finance new construction,
but may, to a limited extent, invest in senior mortgage loans secured by
undeveloped property. The Trust may also invest in medium term (up to five
years) participating loans under which the Trust, in addition to receiving a
competitive interest rate, will participate in the incremental value of the real
estate, if any, at the maturity of the loan.
The mortgage loans in which the Trust will invest in most cases will
bear interest at a floating rate related to the prime rate and the interest will
adjust when the prime rate changes. The interest rate under the Revolving Credit
Agreement discussed below, is related to LIBOR or prime. By borrowing and
lending on a floating rate basis the Trust seeks to minimize the interest rate
fluctuation risk. The Trust will receive an origination fee on all loans made by
it. Origination fees will be taken into income on an accrual basis over the life
of the loan. If a loan is not taken by the borrower the fee will be recognized
at the expiration of the commitment.
The Trust has no policy or limitation on the amount or percentage of
its assets which it may invest in a single loan or it may invest with a single
borrower. However, the Trust does not intend that any single loan shall exceed
10% of total assets. Loan approvals will be based on site visits, a check of a
proposed borrower's bank and credit references, a title review of the property,
examination of financial statements related to the property and in house
appraisals. The Trust will not require a property appraisal by an independent
appraiser.
The Trust will use its own capital and has arranged a credit facility
to make funds available for real estate mortgage lending. In October 1996 the
Trust entered into the Revolving Credit Facility with CS First Boston Mortgage
Capital Corp. ("First Boston") which provides that the Trust may borrow a
maximum of $25,000,000 on a revolving basis, i.e. funds can be borrowed, repaid,
and borrowed again. The credit facility matures October 17, 1998 and the Trust
has the right to extend the loan for two additional six month periods upon
thirty days prior notice and payment of a 1/4 of 1% commitment fee. No new
borrowings may be made during the second extension period. The Trust has the
right to reduce the availability under the Revolving Credit Agreement to
$15,000,000 and First Boston has the right to lower the commitment to
$20,000,000 under limited circumstances.
The Trust pays a commitment fee to First Boston of 1/2 of 1% of the
difference between the daily average outstanding loan balance and the commitment
amount. If the loan balance is less than $14,000,000, $2,084 per month is added
to the commitment fee. Borrowings under the Credit Agreement bear interest at
the lower of LIBOR + 3% or prime + 1%, adjusted monthly. The loan is collateral-
ized by specific receivables and the Trust's equity in specific real property,
and the loan amount can never exceed 75% of the agreed upon collateral amount.
The Trust, at any time can substitute collateral for pledged collateral. Most
subsidiaries of the Trust guaranteed the loan. The Trust is required to maintain
a $50,000,000 tangible net worth. The Credit Agreement also provides that the
net worth of the Trust minus net worth of any non-guaranteeing subsidiary must
exceed $40,000,000. The Credit Agreement prohibits the Trust from obtaining
recourse financing, but it is permitted to obtain non-recourse mortgage
financing.
As of this date no advances have been made to the Trust under the
Revolving Credit Agreement.
At September 30, 1996 the Trust's outstanding mortgage portfolio
consisted of 81 mortgage loans totalling $39,743,000 aggregate principal amount,
of which $5,905,000, or 15%, was non-earning. Of the principal amount of
mortgage loans outstanding at September 30, 1996, 73% represented first mortgage
loans and 27% represented junior mortgage and wraparound loans. In Fiscal 1996
the Trust's only lending activities consisted of $734,000 in first priority
purchase money financing provided to purchasers of real estate owned, including
cooperative apartments. Purchase money financing provided to purchasers of real
estate owned is usually on a two to five year basis and to purchasers of
cooperative apartments on a long term basis (20 to 30 years).
The mortgage loans held and to be made by the Trust are not and will
not be insured. In the event of a default by a borrower, the Trust is required
to foreclose its mortgage or protect its investment through negotiations with
the borrower and/or other interested parties, which in certain situations may
involve cash outlays. If the Trust holds a junior mortgage loan or wraparound
loan, its position is subordinate to liens of senior mortgages. In the event the
underlying asset value proves to be insufficient to satisfy both the senior and
junior lienholder, the Trust will lose a portion or all of its investment. In
certain situations in order to protect its investment, the Trust will make a
payment to maintain the current status of prior liens (including real estate
taxes) or purchase the prior lien. These payments were minimal in Fiscal 1996.
It is possible that the total amount which may be recovered by the Trust upon
the ultimate sale of a property acquired in foreclosure or by deed in lieu
thereof will differ from the total investment less the allowance for possible
losses.
Current Loan Status
- -------------------
As of September 30, 1996 the Trust had 81 mortgage loans in its
mortgage portfolio, totaling $39,743,000 in aggregate principal amount
(including $5,905,000 of non-earning loans) and $31,970,000 after allowances for
possible losses. In Fiscal 1996 $11,162,000 of outstanding loans was repaid. The
three largest mortgage loans outstanding, after allowances for possible losses
represent 12.3%, 8.4%, and 8.2%, respectively of the Trust's total assets. (See
Note 2 to the financial statements relating to significant relationships.)
Information regarding the Trust's mortgage loans outstanding at
September 30, 1996:
Not No.
Earning Earning Prior of
Total Interest Interest Liens Loans
----- -------- -------- ----- ------
(Amounts in thousands)
First Mortgage Loans:
Long-term:
Residential ................. $ 1,958 $ 1,958 $ -- $ -- 43
Short-term (five years
or less):
Shopping centers/retail .... 5,637 5,637 -- -- 9
Industrial buildings ...... 3,880 3,880 -- -- 3
Office buildings ........... 3,915 3,915 -- -- 2
Residential
(multiple family units) ... 7,759 6,684 1,075 -- 9
Hotel ...................... 1,191 1,191 -- -- 1
Unimproved Land ............ 1,918 -- 1,918 -- 1
Misc ....................... 2,842 2,842 -- -- 3
Second Mortgage Loans:
Shopping centers/retail .... 2,073 226 1,847 4,640 2
Office building ............ 667 667 -- 2,377 1
Residential
(multiple family units) ... 5,683 5,683 -- 16,509 3
Hotel ...................... 1,000 -- 1,000 12,546 1
Wraparound mortgages ......... 1,220 1,155 65 5,423 3
------- ------- ------- ------- ---
$39,743 $33,838 $ 5,905 $41,495 81
======= ======= ======= ======= ===
At September 30, 1996 the Trust had an allowance for possible losses on
its real estate loans of $7,773,000 compared to an allowance of $9,084,000 at
September 30, 1995. In determining the allowance for possible loan losses, the
Trust takes into account numerous factors including a market evaluation of the
underlying collateral, the underlying property's estimated cash flow during the
projected holding period and estimated sales value computed by applying an
expected capitalization rate to the stabilized net operating income of the
specific property, less estimated selling costs. The Trust also takes into
account the extent of liquidity in the real estate industry, particularly in the
New York metropolitan area, where approximately 77% of the portfolio is located.
Management reviews the loan portfolio on a quarterly basis to determine if
additional allowances are needed.
When a mortgage loan is in default, the Trust may acquire the
underlying property through foreclosure or may take other legal action as is
necessary to protect its investment. In negotiated workouts the Trust seeks to
acquire title to a property and in certain cases affords the borrower the
opportunity to reacquire the property at a fixed price over a specified period
of time.
Real Estate Owned
- -----------------
The real estate owned by the Trust consists of foreclosed properties
held for sale. The materially important real properties owned by the Trust
(materially important meaning property with a book value amounting to 10% or
more of the total assets of the Trust) consists of the following as of September
30, 1996:
Abbotts Square, Philadelphia, Pennsylvania - A mixed use property,
------------------------------------------
containing 60,000 square feet of commercial space (19 retail stores and 6 office
suites), a 324 car parking garage and 88 residential condominium units, owned in
fee and operated by Stobba Associates L.P., a limited partnership in which a
wholly owned BRT subsidiary is the sole general partner and BRT is a limited
partner. There are a total of 162 residential condominium units at the property.
The property, located on South and Second Streets in Philadelphia, Pennsylvania
was acquired by Stobba Associates in April, 1993 under a plan of reorganization
confirmed by the bankruptcy court. The partnership agreement provides that there
are to be no cash distributions of operating cash flow to partners, other than
BRT, until BRT has received a specified cumulative return (including accumulated
arrears) and after BRT has received payment currently of its specified return,
then BRT will receive 50% of all operating cash flow and the other partners the
other 50%. The partnership agreement provides further that there are to be no
distributions of sale or refinancing proceeds to partners other than BRT until
all required cash distributions to BRT from operations, including accumulated
arrears, have been paid currently, and BRT receives full payment of the
principal amount owed to it, plus the specified cumulative return, after which
BRT will receive 50% of such distributions. Extensive repairs were completed at
this property in Fiscal 1995 at a cost of approximately $1,594,000. There are no
programs proposed for the renovation or improvement of this property.
The property is located in an active area of Philadelphia, containing
competitive retail, parking and residential. Competition is keen for commercial
and parking tenants, but not as competitive for residential rental.
In the opinion of management, the property is adequately covered by
insurance.
The occupancy rate at Abbotts Square (expressed as a percentage) for
the commercial space (excluding the parking garage) and the residential units as
of September 30 is set forth below.
Fiscal Year Ending September 30,
1993 1994 1995 1996
---- ---- ---- ----
Commercial Space ............... 93% 93% 90% 90%
Residential Units .............. 98% 100% 98% 99%
There are three (3) tenants who occupy ten percent or more of the
rentable square footage of commercial space at the property. These tenants are
House of Winsome, which operates a furniture store; TGI Fridays, a restaurant
operation; and Chef's Market, an upscale food market. Other retail tenants
include Thrift Drug, Wawa's, Boston Market, a travel agency and a variety of
other retail operations. The three largest tenants referred to above have leases
which expire in June 30, 1999, December 31, 2000 and December 31, 2009,
respectively. The House of Winsome lease which contains approximately 6,200
square feet, was terminated subsequent to fiscal year end.
The average effective base annual rent per square foot for the retail
space and the average annual rental per unit for the residential units since
April 1993, when the partnership acquired title to the property is set forth
below.
Average base rental Average rental per
per square foot-retail unit-residential
---------------------- ----------------
Period
- ------
April 1993 to
September 30, 1993 ........................ $ 12.11 $ 9,598
Fiscal 1994 ............................... $ 14.29 $10,525
Fiscal 1995 ............................... $ 15.95 $10,445
Fiscal 1996 ............................... $ 16.24 $10,603
The schedule of lease expirations for each of the next ten years for
the commercial space is as follows:
Fiscal Year # of Tenants % of Gross
Ending whose leases Total Area Base Annual Annual Base
September 30 expire Covered Rental Rental
- ------------ ------- ---------- ---------- -----------
1997 3 3,331 $ 50,880 5%
1998 6 9,070 $133,745 13%
1999 3 7,998 $181,153 18%
2000 2 2,500 $ 43,313 4%
2001 5 17,762 $301,714 29%
2002 3 6,510 $146,860 14%
2003 - -- -- --
2004 - -- -- --
2005 - -- -- --
2006 and thereafter 1 7,363 $167,480 17%
All residential leases provide for a one year term or less. Accordingly, lease
expiration information is not provided for the residential leases.
Since this property is held for sale no depreciation is being taken.
The 1993 realty tax rate in Philadelphia was $8.264 per 100. The Trust
paid $253,800 in annual real estate taxes for the last tax year, of which
$96,700 was applicable to the 88 residential units it owns.
In September, 1995 a loan of $10,000,000 was closed with respect to the
Abbotts Square property, secured by a first mortgage on the retail and garage
component and the 88 condominium units. The loan matures October 1, 2000, with a
right granted to the borrower to extend for an additional five years (subject to
satisfaction of certain conditions), provides for interest at either a fixed
rate related to the mortgagee's prime, a floating rate related to comparable
United States treasury bills or a floating rate related to LIBOR, or a
combination of any two at the option of the borrower, and provides for monthly
amortization based on a 25 year amortization schedule. The interest rate is
7.725% per annum until January 1, 1997 when the interest rate will be reset by
the borrower. The principal balance due on this mortgage at September 30, 1996
was $9,877,000 and the balance due at maturity in the year 2000 (assuming no
advance payment of principal) will be $9,211,000. The Borrower may prepay this
mortgage at any time without penalty, with the proviso that the Borrower is
responsible for any loss suffered by reason of early redemption of the
instrument associated with a treasury bill or Libor based instrument.
Dover, Delaware - A 474,000 square foot enclosed facility owned in fee,
---------------
containing approximately 249,000 square feet of retail space and 225,000 square
feet of office space located on approximately 58 acres. The total site contains
approximately 90 acres. The property is located on Route 113 approximately two
miles from the state capital complex. In addition to the enclosed (former
shopping mall) facility there are 5 free standing buildings on the property (one
of which containing 24,000 square feet is vacant except for a month to month
tenancy for a small portion of the space) containing approximately 55,000 square
feet of rentable space. The Trust has converted the two "anchor" locations at
this center to office space and has entered into a 10 year lease expiring
December 31, 2004 (with options to renew totalling ten years) with a major
insurance company for approximately 68,613 square feet of space, and a 10 year
lease expiring August 31, 2005 (with options to renew totalling ten years) with
a major bank for 79,000 square feet of space. The renovation for the insurance
company was substantially completed in December, 1994, and for the banking
entity in May, 1995. Each of the two tenants at the "anchor" locations has an
option to expand their space and a right to early termination. If the insurance
company exercises its early termination right, which it can do at any time, the
tenant must pay to BRT an amount equal to the rentals due to the lease
expiration date, discounted to present value. The bank has an early termination
right, during its sixth lease year only. No other tenant occupies ten percent or
more of the rentable space at this facility. The Trust has been converting this
facility to a corporate center and mall. Although the Trust does not have any
proposal or plans to renovate, improve or develop the property, it will
construct a new building on the property or renovate mall space at the Center in
order to lease to a qualified tenant. Tenants occupying outparcels at the
property include a day care center, the National Guard and a credit union. There
is no major retail tenant at the property.
In the opinion of management the property is adequately covered by
insurance.
The occupancy rate of this property (including the five free standing
buildings) since the Trust acquired title to this property in October 1993 and
the effective annual rental per square foot is as follows:
Fiscal Year End Base Rental per
September 30, Occupancy Rate square foot occupied
------------- -------------- --------------------
1994 38% $5.07
1995 53% $5.08
1996 63% $6.38
The schedule of lease expirations for each of the next ten fiscal years
for this property (including the five outparcels) is as follows:
# of Tenants whose Total Area Annual Base % of Gross Annual
leases expire* Covered Rental Base Rental
-------------- ------- ------ -----------
Fiscal 1997 30 127,223 $ 494,387 23%
1998 4 28,496 $ 249,194 12%
1999 1 1,680 $ 26,040 1%
2000 2 6,230 $ 82,957 4%
2001 2 6,000 $ 68,125 3%
2002 - -- -- -
2003 1 18,271 $ 82,318 4%
2004 - -- -- -
2005 2 147,613 $1,113,660 53%
2006 - -- -- -
*All information provided assumes that the two major anchor tenants who
occupy a total of 147,613 square feet do not exercise their right to terminate
prior to lease expiration. Fiscal 1997 includes all month to month tenants and
tenants occupying space under short term leases. Landlord has converted many
tenants to month to month tenancies and entered into short term leases to
provide it with the flexibility to assemble large blocks of space for larger
users of office space.
Since this property is held for sale no depreciation is being taken.
The realty tax rate in Dover is based on applying four mil rates to the
assessed valuation. Real estate taxes with respect to this property were
$153,700 for the last tax year.
In July 1995 two separate loans aggregating $9,250,000 were closed with
respect to this property; one loan in principal amount of $6,000,000 is
collateralized by a first mortgage on the building occupied by the insurance
company (an additional $1,000,000 can be drawn down for tenant improvements if
the insurance company exercises any of its expansion options) and the other loan
in the principal amount of $3,250,000 is collateralized by the facility leased
to the bank. Both loans are cross collateralized and are secured by a negative
pledge on the balance of the property and a mortgage on the balance of the mall.
The loans mature on July 1, 2005, provide for a fixed interest rate of 8.07% and
provide an amortization schedule intended to fully amortize the loan over the
ten year period. The principal balance due on these mortgages at September 30,
1996 was $8,601,000. The Borrower may prepay this mortgage loan, in full or in
part at any time provided that the Borrower pays a prepayment premium calculated
to give the Lender a specified yield to maturity (discounted to present value).
The following sets forth information concerning other real estate owned
by the Trust as of September 30, 1996:
Rock Springs, Wyoming - A 151,105 square foot shopping center,
------------------------
consisting of 138,191 square feet of retail space (30 retail stores), 12,914
square feet of office space, a free standing restaurant and a free standing film
kiosk. The Trust holds a leasehold interest in this property subject to a first
leasehold mortgage which matures on November 1, 2000 and provides for interest
at the rate of 8.44% per annum. At September 30, 1996 there was a principal
balance of $1,490,000 due on the leasehold mortgage and on the maturity date
there will be $548,000 due thereon. The retail space was approximately 99%
occupied and the office space was approximately 82% occupied at September 30,
1996.
New York, New York - A twelve story office building located on lower
-------------------
Madison Avenue in Manhattan, New York containing approximately 5,000 square feet
of grade level retail space and approximately 55,000 square feet of office
space. In December, 1995 a first mortgage loan in the principal amount of
$3,200,000 was closed with respect to this property. The mortgage matures on
December 21, 2000, provides for an interest rate of 8%, and amortization over a
25 year period. At September 30, 1996 there was a principal balance of
$3,175,000 due on this mortgage and at maturity there will be $2,958,000 due
thereon. At September 30, 1996 100% of the retail space and approximately 96% of
the office space was occupied.
Kansas City, Kansas - A three story office building located on Shawnee
--------------------
Mission Parkway, Fairway, Kansas, an active suburban office market in the
greater Kansas City area. This property, acquired by deed in lieu of foreclosure
in October, 1995, contains approximately 103,500 square feet of rentable space
and parking capacity for 393 vehicles. The Trust has expended approximately
$1,381,000 in improving this property since acquisition. The property was
approximately 90% occupied on September 30, 1996. The property is owned free and
clear of mortgages.
Hoboken, New Jersey - A 32,500 square foot parcel of undeveloped land.
--------------------
The property is leased to a parking lot operator under a 10 year lease. The
lease contains provisions for early termination if the property is sold for
development purposes. The property is owned free and clear of mortgages.
Montreal, Canada - The Trust owns fee title to a parcel of land in
-----------------
downtown Montreal, free and clear of mortgages. The property, which is improved
with a 23 story office building, is net leased for a term expiring in 2061. This
property is owned free and clear of mortgages.
New York, New York - Two six story residential buildings located on
-------------------
West 172nd Street in Manhattan, New York, containing 82 apartments and 13 grade
level retail stores with 9,264 square feet of rentable space. This property is
leased under a net lease which expires in 2015. In July, 1996 a $2,250,000 first
mortgage loan secured by the Trust's fee position was closed with respect to
this property. The mortgage matures on August 1, 2001 provides for an interest
rate of 8.75% and amortization over a 25 year period. At September 30, 1996
there was a principal balance of $2,248,000 due on this mortgage and at maturity
there will be $2,093,000 due thereon.
The Trust owns 533 cooperative apartment units in 5 separate projects,
2 of which containing 158 units are located in Nassau County, New York, 1
containing 127 units is located in Manhattan, 1 containing 247 units located in
Queens, New York and 1 unit is located in Suffolk County, New York. Since the
market for the sale of cooperative apartment units in New York City and Long
Island is very competitive, the Trust's policy is to lease the units owned by it
with a number of selective units at some locations being held vacant for sale.
At September 30, 1996 95% of the units were occupied.
Competition
- -----------
As the Trust becomes active in real estate lending it will compete for
acceptable investments with other REIT's, commercial banks, insurance companies,
savings and loan associations, pension funds and mortgage banking firms, most of
which have greater resources with which to compete for desirable mortgage loans.
With respect to the real estate acquired by foreclosure and held for sale, the
Trust competes for tenants and potential purchasers of such properties with
owners of comparable real property in the areas in which the properties are
located. With respect to the cooperative units owned by the Trust, there is a
great deal of competition for purchasers and, pending improvement in the market
for the sale of cooperative units, the Trust intends to rent out substantially
all the units for terms of up to two years. At present, the apartment rental
market in the areas in which the Trust owns cooperative apartments is satisfac
tory.
Employees
- ---------
The Trust has eight full-time employees. In addition, it has entered
into an agreement with REIT Management Corp. ("REIT") pursuant to which REIT
acts as its advisor. At the present time, REIT, subject to supervision of the
Board of Trustees, administers the Trust's portfolio of mortgages receivable,
engages in negotiations in workout situations with respect to non-earning loans
and supervises and provides support services in litigation activities. REIT also
supervises the maintenance, leasing, sale and/or financing of real estate owned
by the Trust. As it becomes more active in lending activities REIT will
participate in originating, investigating and evaluating investment opportuni-
ties. Reference is made to the Trust's Proxy Statement to be filed pursuant to
Regulation 14A for information concerning the amount and method of computing
REIT's fee.
In Fiscal 1995 and 1996, the Trust engaged entities, including entities
affiliated with REIT, to manage properties acquired by the Trust in foreclosure
or deed in lieu of foreclosure. The management services include, among other
things, rent billing and collection, accounting, maintenance, contractor
negotiation, construction management, sales and leasing and mortgage brokerage.
In management's judgment the fees paid to REIT and entities affiliated with REIT
are competitive with or less than fees that would be charged for comparable
services by unrelated entities.
EXECUTIVE OFFICERS OF REGISTRANT
--------------------------------
The following sets forth the executive officers of the Trust. The business
history of officers who are also Trustees will be provided in the Trust's proxy
statement to be filed pursuant to Regulation 14A not later than January 28,
1997.
Name Office
- ---- ------
Fredric H. Gould (*) Chairman of the Board and
Chief Executive Officer
Jeffrey A. Gould (*) President
Simeon Brinberg Senior Vice President;
Secretary
Eugene J. Keely Vice President
Nathan Kupin Senior Vice President; Trustee
Matthew J. Gould (*) Senior Vice President
David W. Kalish Vice President; Chief
Financial Officer
Karen A. Till Vice President, Financial
Joshua Gleiber Vice President
Seth Kobay Vice President; Treasurer
(*)Fredric H. Gould is Jeffrey A. and Matthew J. Gould's father.
Jeffrey A. Gould (age 31) has been President of the Trust since March,
1996 and was Executive Vice President and Chief Operating Officer from March,
1994 to March, 1996. For approximately five years prior to March, 1994 Mr. Gould
was a Vice President of the Trust. In June, 1989 Mr. Gould became a Vice
President of One Liberty Properties, Inc. a real estate investment trust engaged
primarily in the ownership of "net leased" real property. He is also a Senior
Vice President of Georgetown Partners, Inc., managing general partner of Gould
Investors L.P.
Simeon Brinberg (age 63), has been Secretary of the Trust since
February, 1983 and Senior Vice President since November, 1988. From 1961 to
September, 1988 he was a partner in the law firm of Bachner, Tally, Polevoy,
Misher & Brinberg and its predecessor. In October, 1988 Mr. Brinberg became an
officer of BRT and a Vice President of Georgetown Partners, Inc. In June, 1989
he became a Vice President of One Liberty Properties, Inc. Mr. Brinberg is a
director of Witco Corporation.
Eugene J. Keely (age 61) has been a Vice President of the Trust since
May 1983.
Matthew J. Gould (age 37) has been President and Chief Operating
Officer of One Liberty Properties, Inc. since June, 1989. He has been a Vice
President of the Trust since 1986 and became Senior Vice President in March
1993. He is President of Georgetown Partners, Inc. since March 1996 and was a
Vice President from 1986 to 1996. In addition, Mr Gould has been a Vice
President of REIT since 1986, and a Vice President of Majestic Property
Management Corp. and related entities engaged in real property management and
leasing, since 1986.
David W. Kalish (age 49) has been a Vice President and Chief Financial
Officer of the Trust since June, 1990. He has also been Vice President and Chief
Financial Officer of One Liberty Properties, Inc. and Georgetown Partners, Inc.
since June, 1990. For more than five years prior thereto, Mr. Kalish, a
certified public accountant, was a partner of Buchbinder Tunick & Company, and
its predecessors.
Karen A. Till (age 34) has been a Vice President of the Trust since
March 1994. For more than four years prior thereto, Ms. Till, a certified public
accountant, was employed by Gould Investors L.P. in an accounting capacity.
Joshua Gleiber (age 29) has been a Vice President of the Trust since
March 1996. From October 1991 to February 1996 Mr. Gleiber was employed by Euram
Management Inc., a subsidiary of ABN AMRO Bank N.V., engaged in asset management
of the commercial real estate owned portfolio. For two years prior thereto he
was a financial analyst at and acted as a consultant to Riverbank Realty
Company.
Seth Kobay (age 42) has been Vice President and Treasurer of BRT since
March 1994. In addition, Mr. Kobay, a certified public accountant, has been the
Vice President of Operations of Georgetown Partners, Inc.
Item 2. Properties.
----------
The Trust's executive offices are located at 60 Cutter Mill Road, Great
Neck, New York, where it currently occupies approximately 12,000 square feet
with Gould Investors L.P., REIT Management Corp., One Liberty Properties, Inc.
and other related entities. The square footage of the office space commonly
occupied was reduced effective August 1, 1996 from approximately 15,000 square
feet to approximately 12,000 square feet. The building in which the executive
offices are located is owned by an affiliate of Gould Investors L.P. The Trust
contributed $142,000 to the annual rent in Fiscal 1996.
For a description of the real estate acquired by the Trust in
foreclosure, see Item 1, Business; Real Estate Owned.
Item 3. Legal Proceedings.
-----------------
The Trust is not a defendant in any material pending legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders.
---------------------------------------------------
There were no matters submitted during the fourth quarter of the fiscal
year to a vote of the Trust's security holders.
PART II
Item 5. Market for the Registrant's Common Equity and Related Matters
-------------------------------------------------------------
The Trust's shares of Beneficial Interest ("Beneficial Shares") are
listed on the New York Stock Exchange. The following table shows for the
quarters indicated, the high and low sales prices of the Trust's Beneficial
Shares on the New York Stock Exchange as reported on the Composite Tape.
Fiscal Year Ended September 30, High Low
------------------------------- ---- ---
1995
----
First Quarter 4 3/8 3
Second Quarter 4 3 1/2
Third Quarter 4 3/4 3 1/4
Fourth Quarter 4 3/4 3 7/8
1996
----
First Quarter 4 1/2 4 1/8
Second Quarter 5 1/8 4 1/8
Third Quarter 5 1/8 4 3/8
Fourth Quarter 6 1/4 4 7/8
As of December 2, 1996 there were approximately 2,300 holders of record
of the Trust's Beneficial Shares.
The Trust did not declare any cash distributions to common shareholders
during the years ended September 30, 1995 and 1996. In the years ended September
30, 1995 and 1996 the Trust paid $270,000 and $203,000, respectively, on
1,030,000 shares of preferred stock. The preferred stock, owned by Gould
Investors L.P., a related party, was converted into 1,030,000 Beneficial Shares
on July 1, 1996.
The Trust qualifies as a real estate investment trust for Federal
income tax purposes. In order to maintain that status, it is required to
distribute to its shareholders at least 95% of its annual taxable income.
Management believes that as a result of accumulated tax losses the Trust will
not be required to make cash distributions for a number of years to maintain its
real estate investment trust status. The resumption of cash distributions and
the amount and timing of future distributions, if any, will be at the discretion
of the Board of Trustees and will depend upon the Trust's financial condition,
earnings, cash flow and other factors. The Credit Agreement with First Boston
provides that prior to payment of cash distributions on Beneficial Shares the
Trust must give advance notice to First Boston and certify that payment of such
distribution will not breach the Trust's net worth covenant.
Item 6. Selected Financial Information
------------------------------
The following table, not covered by the report of the independent
auditors, sets forth selected historical financial data of the Trust for each of
the fiscal periods in the five years ended September 30, 1996. This table should
be read in conjunction with the detailed information and financial statements of
the Trust appearing elsewhere herein.
Fiscal Years Ended
September 30,
--------------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(In thousands, except for per share amounts)
Operating statement data:
Total revenues ......................... $ 13,556 $ 16,637 $ 20,530 $ 18,003 $ 14,882
Provision for possible
loan losses ........................... -- 1,021 4,340 3,111 7,940
Provision for
valuation adjustment .................. -- 178 993 3,388 --
Income (loss) before
gain on sale of fore-
closed properties held
for sale .............................. 1,776 (522) (1,312) (4,254) (9,682)
Net income (loss)(1) ................... 2,246 2,974 195 (4,068) (8,395)
Calculation of net income
(loss) applicable to common
shareholders:
Net income (loss) ...................... 2,246 2,974 195 (4,068) (8,395)
Less: distributions
on preferred stock .................... 203 270 270 12 --
Net income (loss)
applicable to common
shareholders ......................... 2,043 2,704 (75) (4,080) (8,395)
Income (Loss) per
beneficial share-
Primary ............................. .26 .37 (.01) (.56) (1.14)
Fully diluted ....................... .26 .35 (.01) (.56) (1.14)
Balance sheet data:
Total assets ......................... 89,613 104,515 131,467 162,217 176,594
Earning real
estate loans (2) .................... 33,838 44,136 67,739 95,353 107,571
Non-earning real
estate loans (2) .................... 5,905 7,154 10,268 26,750 44,250
Real estate owned (2) ................ 47,413 52,029 54,793 51,162 35,574
Notes payable- banks ................. -- 22,900 66,192 92,785 105,000
Subordinated note, less
unamortized discount ................ -- -- -- -- 3,135
Loans and mortgages
payable ............................. 25,391 20,756 6,671 10,308 8,626
Shareholders' equity ................. 60,892 57,728 55,024 55,099 55,804
(1) The year ended September 30, 1992, includes an extraordinary gain of
$969,000.
(2) Earning and non-earning loans and real estate owned are presented without
deduction of the related allowance for possible losses or valuation allowance.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
-----------------------------------------------------------------------
of Operations
-------------
Liquidity and Capital Resources
- -------------------------------
The Trust was engaged in the business of making and participating in senior
and junior real estate mortgages, secured by income producing property and to a
lesser extent by unimproved real property. The Trust's investment policy
emphasized short-term mortgage loans. Repayments of real estate loans in the
amount of $19,940,000 are due during the twelve months ending September 30, 1997
("Fiscal 1997"), including $9,358,000 which is due on demand. There presently
exists a favorable environment for obtaining financing secured by real estate
and for selling real estate. Accordingly, as loans mature, borrowers in many
cases are able to refinance and repay the indebtedness due to the Trust.
However, the Trust cannot project the portion of loans maturing in Fiscal 1997
which will be paid or the portion of loans maturing in Fiscal 1997 which will be
extended for a fixed term or on a month to month basis.
Effective September 23, 1992, the Trust entered into an Amended and Restated
Credit Agreement ("Restated Credit Agreement") with five banks. The maturity
date under the Restated Credit Agreement was extended to June 30, 1997. At the
commencement of Fiscal 1996 there was $22,900,000 outstanding under the Restated
Credit Agreement. The loan was reduced from time to time in Fiscal 1996 and was
repaid in full in August 1996.
In October, 1996 the Trust entered into a $25,000,000 credit facility with CS
First Boston Mortgage Capital Corp. ("First Boston") The facility, a revolving
credit facility which permits the Trust to borrow, repay and reborrow, provides
for an interest rate, adjusted monthly, of prime plus 1% or Libor plus 3%,
whichever is lower, and matures October 17, 1998. The Trust has the right to
extend for two additional six month periods. The Trust can use proceeds of
borrowings under this facility for any corporate purpose and intends to borrow
funds for lending purposes as it becomes active in the mortgage lending
business. Borrowings under the credit facility are secured by specified
receivables and real estate owned by the Trust, and the credit agreement
provides that the loan amount will never exceed 75% of the agreed value of the
collateral.
During the twelve months ended September 30, 1996 ("Fiscal 1996"), the Trust
had an increase in cash provided by investing activities, primarily as a result
of collections from real estate loans of $11,162,000 and proceeds from the sale
of real estate owned of $5,710,000 (excluding purchase money mortgages of
$734,000). The cash provided by investing activities, totalling $14,339,000 and
proceeds of $7,050,000 from refinancing real estate owned and $1,408,000
received from the exercise of outstanding stock options was used to reduce bank
debt by $22,900,000 to zero in Fiscal 1996. The Trust also paid off or paid down
loans and mortgages payable in the amount of $3,179,000.
On July 2, 1996, the Trust's Board of Trustees authorized the purchase from
time to time of up to 250,000 shares of beneficial interest of the Trust.
Through September 30, 1996 52,752 shares have been purchased at an approximate
aggregate cost of $304,000. From October 1, 1996 through December 2, 1996 an
additional 58,600 shares have been purchased at an aggregate cost of $356,000.
The Trust intends to satisfy its liquidity needs from cash and liquid
investments on hand, the credit facility with First Boston, interest received on
outstanding real estate loans and net cash flow generated from the operation of
properties.
Results of Operations
- ---------------------
1996 vs 1995
- ------------
The Trust's loan portfolio at September 30, 1996, before giving effect to
the allowance for possible losses, was $39,743,000, of which $5,905,000 (15% 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 $11,547,000 decrease in the loan
portfolio since September 30, 1995 is due to receipt of $5,400,000 from the
refinancing of a portion of a first mortgage held by the Trust on a cooperative
apartment complex in Queens, New York, payoff of real estate loans aggregating
approximately $4,665,000 and partial recovery on 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 $4,586,000 for Fiscal
1996 as compared to $7,914,000 for Fiscal 1995. This decrease of $3,328,000 was
primarily due to a decrease in earning real estate loans as a result of payoffs,
including the payoff in Fiscal 1995 of three loans secured by properties located
in the Texas marketplace, one of which produced additional interest of
approximately $1,000,000, recognition of interest earned of approximately
$400,000 upon settlement, after litigation, of a junior interest in a pool of
mortgages and a property securing a real estate loan becoming real estate owned.
Operating income on real estate owned increased by $453,000 to $8,615,000 for
the year ended September 30, 1996 as compared to $8,162,000 for the comparable
period in the prior fiscal year. This increase was 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 improved occupancy directly attributable to the conversion of this
property from a regional mall to an office park, offset in part by the sale of a
number of properties.
Interest expense decreased by $4,052,000 to $1,134,000 for the year ended
September 30, 1996 from $5,186,000 for the year ended September 30, 1995 due to
the continuing decrease and the eventual payoff of the outstanding bank debt in
August 1996.
The expenses for Fiscal 1995 include provisions for possible loan losses of
$1,021,000 and provisions for valuation adjustments of $178,000 with no
comparable provisions during Fiscal 1996. Management determined that no
additional provisions for possible loan losses or valuation adjustments were
required for Fiscal 1996.
The Advisor's fee decreased to $615,000 for the twelve months ended September
30, 1996 from $777,000 for the comparable twelve month period in the prior year,
a decrease of $162,000. This decrease was a result of a decrease in total
invested assets, the basis on which the advisory fee is calculated.
General and administrative expenses decreased by $305,000 from $2,971,000 for
the year ended September 30, 1995 to $2,666,000 for the year ended September 30,
1996. This decrease is primarily the result of a decrease in the Trust's
executive compensation and related expenses due to a reduction of staff. This
decrease was offset in part by the recognition during Fiscal 1996 of approxi-
mately $187,000 of additional legal, accounting and investment banking expenses
incurred in connection with a potential transaction which did not proceed beyond
the negotiation stage and which has been terminated.
Operating expenses relating to real estate owned increased by $535,000 from
$6,402,000 for Fiscal 1995 to $6,937,000 for Fiscal 1996. This increase was
primarily due to an increase in interest on mortgages secured by real estate
owned to $1,968,000 for the year ended September 30, 1996 from $441,000 for the
comparable period in 1995, and the Trust taking title to an office building in
October 1995, by deed-in-lieu of foreclosure. This increase was 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 $196,000 for the twelve months
ended September 30, 1996 from the comparable period ended September 30, 1995.
This is a result of the reclassification 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, offset in part by an
increase in the amortization of deferred mortgage costs.
Gain on sale of foreclosed properties for the year ended September 30, 1996
was $470,000 as compared to $3,496,000 for the year ended September 30, 1995. 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.
1995 vs 1994
- ------------
The Trust's loan portfolio at September 30, 1995, before giving effect to the
allowance for possible losses, was $51,290,000, of which $7,154,000 (14% of
total real estate loans) is categorized as non-earning, as compared to
$78,007,000 at September 30, 1994, of which $10,268,000 (13% of total real
estate loans) is categorized as non-earning. The $26,717,000 decrease in the
loan portfolio from September 30, 1994 was primarily due to the payoff of three
real estate loans secured by garden apartments located in the Texas market place
in the amount of approximately $16,767,000 (net of repayments to senior
participating lenders aggregating $8,445,000) . The portfolio was further
reduced by the Trust taking title to two properties by deed-in-lieu of
foreclosure at an estimated fair value aggregating $5,310,000 (net of an
allowance for possible losses of $1,750,000), as well as the settlement, after
litigation, of a junior interest in a pool of mortgages having a book balance of
approximately $4,300,000 prior to allowance for possible losses of approximately
$2,600,000. These decreases were offset in part by purchase money mortgages
taken back in connection with the sale of real estate owned.
Real estate owned (prior to valuation allowances of $2,460,000) decreased to
$52,029,000 at September 30, 1995 from $54,793,000 (prior to valuation
allowances of $2,717,000) at September 30, 1994. The decrease of $2,764,000 is
due to the sale of various real estate owned with a basis aggregating
approximately $13,918,000 offset in part by real estate acquired by deed-in-lieu
of foreclosure at an estimated fair value of $5,310,000 and approximately
$7,300,000 in improvements of which approximately $6,600,000 was expended at a
property located in Dover, Delaware, which was converted from a shopping center
to a corporate center and mall.
Interest and fees on real estate loans decreased to $7,914,000 for Fiscal
1995 as compared to $10,999,000 for Fiscal 1994. This decrease of $3,085,000 was
a result of a decrease in earning real estate loans, as a result of payoffs, and
various events which occurred during Fiscal 1994, including receipt of
additional interest of approximately $1,100,000 upon payoff of a real estate
loan secured by a property located in Texas, recognition of an unamortized
discount of $565,000 upon early payoff of a real estate loan, and collection of
approximately $480,000 from court appointed receivers who operated properties
securing certain loans. These decreases were offset in part by the receipt of
additional interest of approximately $1,410,000 (net of $745,000 of deferred
interest accrued during Fiscal 1994) upon payoff of two real estate loans
secured by garden apartments located in Texas, recognition of interest earned of
approximately $400,000 upon settlement, after litigation, of a junior interest
in a pool of mortgages and interest earned from purchase money mortgages
originated by the Trust in connection with properties sold.
Operating income on real estate owned decreased by $1,013,000 to $8,162,000
for the year ended September 30, 1995 as compared to $9,175,000 for the prior
fiscal year. This decrease was principally a result of the sale of a number of
properties offset in part by the income generated from the acquisition of a
garden apartment complex located in Spring Valley, New York and an increase in
rental income at the Dover, Delaware property, as a result of conversion of this
property from a regional mall to a corporate office park and mall.
Other income, primarily investment income, increased by $205,000 for the year
ended September 30, 1995 from $356,000 for Fiscal 1994 to $561,000 for Fiscal
1995. This increase is primarily due to an increase in the average yield on
investments.
Interest expense decreased by $1,429,000 in Fiscal 1995 as compared to Fiscal
1994 due to a decrease throughout the year of the outstanding bank debt and the
payoff of a mortgage payable, offset in part by an increase in the average prime
interest rate.
The expenses for the twelve months ended September 30, 1995 include
provisions for possible loan losses and valuation adjustments of $1,199,000 as
compared to $5,333,000 for the comparable period in 1994. This decrease is a
result of a more favorable environment for obtaining financing secured by real
property and in selling real property assets.
The Advisor's fee decreased by $275,000 from $1,052,000 for the year ended
September 30, 1994 to $777,000 for the year ended September 30, 1995. This
decrease was a result of a decrease in total invested assets, the basis on which
the advisory fee is calculated.
General and administrative expenses decreased to $2,971,000 in Fiscal 1995
from $3,224,000 in Fiscal 1994, a decrease of $253,000. This decrease is
primarily the result of decreased professional fees as foreclosure and
bankruptcy proceedings are finalized as well as a decrease in other general and
administra tive expenses.
Operating expenses relating to real estate owned increased to $6,402,000 for
the year ended September 30, 1995 from $5,112,000 for the year ended September
30, 1994. This increase was primarily due to extensive repairs completed at a
mixed use property and the Trust acquiring an apartment building by deed-in-lieu
of foreclosure, offset in part by the sale of real estate owned.
Gain on sale of foreclosed properties for Fiscal 1995 was $3,496,000 as
compared to $1,507,000 in Fiscal 1994. The Fiscal 1995 gain was a result of
various transactions totalling $12,320,000, net of purchase money mortgages of
$4,313,000 (net of a $850,000 wrap mortgage). 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.
Item 8. Financial Statements and Supplementary Data
-------------------------------------------
This information appears in a separate section of this report following Part
IV.
Item 9.Changes in and Disagreements with Accountants on Accounting and Financial
-------------------------------------------------------------------------
Disclosure
----------
None.
PART III
Items 10, 11, 12 and 13 will be included in the Trust's proxy statement to be
filed pursuant to Regulation 14A not later than January 28, 1997.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) 1. Financial Statements - The response is submitted in a separate section
of this report following Part IV.
2. Financial Statement Schedules - The response is submitted in a separate
section of this report following Part IV.
3. Exhibits:
3(a). Second Amended and Restated Declaration of Trust dated June 13,
1972. Incorporated by reference to Exhibit 3A to Form 10-K for
the year ended September 30, 1984.
3(b). First Amendment to Second Amended and Restated Declaration of
Trust dated August 20, 1986. Incorporated by reference to the
Trust's Registration Statement on Form S-2 (No. 33-8125).
3(c). Second Amendment to Second Amended and Restated Declaration of
Trust dated March 2, 1987. Incorporated by reference to the
Trust's Registration Statement on Form S-2 (No.33-12172).
3(d). Third Amendment to Second Amended and Restated Declaration of
Trust dated March 2, 1988. Incorporated by reference to Exhibit
3D to Form 10-K for the year ended September 30, 1988.
3(e). By-laws - Incorporated by reference to the Trust's Registration
Statement on Form S-2 (No. 33-8125).
10(a). Advisory Agreement dated February 7, 1983 between the Trust and
REIT Management Corp. Incorporated by reference to the Trust's
Registration Statement on Form S-2 (No. 33-8125).
10(b). Credit Agreement with CFS First Boston Mortgage Capital Corp.
dated October 17, 1996. Incorporated by reference to Exhibit
7(c) to Form 8-K filed on October 24, 1996.
21. Subsidiaries - Each subsidiary is 100% owned by the Trust. Filed
with this Form 10-K.
27. Financial Data Schedule - Filed with electronic filing.
(b) Reports on Form 8-K:
A Form 8-K was filed on July 2, 1996 to report the conversion of
1,030,000 shares of Preferred Stock to Beneficial shares . Also
on July 2, 1996, the Trust reported the authorization by the
Board of Trustees to purchase up to 250,000 shares of Beneficial
Interest of the Trust. A Form 8-K was filed on October 24, 1996
to report the Credit Agreement consummated with CS First Boston
Mortgage Capital Corp.
(c) Exhibits - See Item 14(a) 3., above.
(d) See Item 14(a) 2., above.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BRT REALTY TRUST
Date: December 19, 1996 By:/s/Jeffrey A. Gould
-------------------
Jeffrey A. Gould
President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated.
Signature Title Date
- --------- ----- ----
/s/Fredric H. Gould Chairman of the Board December 19, 1996
- ------------------- (Principal Executive
Fredric H. Gould Officer)
/s/Patrick J. Callan
- --------------------
Patrick J. Callan Trustee December 19, 1996
/s/Arthur Hurand
- ----------------
Arthur Hurand Trustee December 19, 1996
/s/Gary Hurand
- --------------
Gary Hurand Trustee December 19, 1996
/s/Nathan Kupin
- ---------------
Nathan Kupin Trustee December 19, 1996
/s/Herbert C. Lust,II
- ---------------------
Herbert C. Lust II Trustee December 19, 1996
/s/Marshall Rose
- ----------------
Marshall Rose Trustee December 19, 1996
/s/David W. Kalish
- ------------------
David W. Kalish Vice President December 19, 1996
(Principal Financial
and Accounting Officer)
EXHIBIT 21
SUBSIDIARIES
COMPANY STATE OF INCORPORATION
- ------- ----------------------
Hoboken Front Corp. New Jersey
Huntington-Park Corporation New York
Forest Green Corporation New York
Realty 49 Corp. New York
TRB No. 1 Corp. New York
TRB No. 2 Corp. New York
TRB Ft. Wright Corp. New York
TRB Cutter Mill Corp. New York
White Plains Realty Corp. New York
Kew Gardens Realty Corp. New York
Blue Realty Corp. Delaware
3581 Broadway Realty Corp. New York
620 West 172nd Street Realty Corp. New York
Multiple Property Realty Corp. New York
119 Madison Avenue Realty Corp. New York
TRB No. 3 Owners Corp. Wyoming
2042 Amsterdam Avenue Realty Corp. New York
2190 Boston Post Road Realty Corp. New York
TRB 96th Street Corp. New York
Remson Point Realty Corp. New York
TRB 13 Eighth Avenue Corp. New York
Community Wrap Holding Corp. Florida
Casa Wrap Holding Corp. Florida
TRB Valley Corp. New York
76 Madison Avenue Realty Corp. New York
2211 Church Avenue Realty Corp. New York
TRB Hilltop Corp. New Jersey
TRB Cruger Avenue Corp. New York
570 Elmont Road Realty Corp. New York
TRB Fairway Office Center Corp. Kansas
TRB East 33rd Street Corp. New York
TRB 261-65 First Avenue Corp. New York
TRB Abbotts Corp. Pennsylvania
TRB Greenpoint Avenue Realty Corp. New York
Annual Report on Form 10-K
Item 8, Item 14(a)(1) and (2)
Index to Consolidated Financial Statements and Consolidated Financial Statement
Schedules
September 30, 1996
The following consolidated financial statements of BRT Realty Trust are included
in Item 8:
Page No.
--------
Report of Independent Auditors F-1
Consolidated Balance Sheets as of September 30,
1996 and 1995 F-2
Consolidated Statements of Operations for the
three years ended September 30, 1996, 1995 and 1994 F-3
Consolidated Statements of Shareholders' Equity
for the three years ended September 30, 1996,
1995 and 1994 F-4
Consolidated Statements of Cash Flows for the
three years ended September 30, 1996, 1995 and
1994 F-5-6
Notes to Consolidated Financial Statements F-7-20
Consolidated Financial Statement Schedules for
the year ended September 30, 1996:
III - Real Estate and Accumulated Depreciation F-21-22
IV - Mortgage Loans on Real Estate F-23-24
All other schedules are omitted because they are not applicable or the required
information is shown in the consolidated financial statements or the notes
thereto.
Report of Independent Auditors
To the Trustees and Shareholders
BRT Realty Trust
We have audited the accompanying consolidated balance sheets of BRT Realty Trust
(the "Trust") as of September 30, 1996 and 1995, and the related consolidated
statements of operations, shareholders' equity, and cash flows for each of the
three years in the period ended September 30, 1996. Our audits also included the
consolidated financial statement schedules listed in the Index as Item 14(a).
These consolidated financial statements and consolidated schedules are the
responsibility of the Trust's management. Our responsibility is to express an
opinion on these consolidated financial statements and consolidated schedules
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of BRT
Realty Trust at September 30, 1996 and 1995, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
September 30, 1996, in conformity with generally accepted accounting principles.
Also, in our opinion, the related consolidated financial statement schedules,
when considered in relation to the basic consolidated financial statements taken
as a whole, present fairly in all material respects the information set forth
therein.
New York, New York Ernst & Young LLP
December 2, 1996
F1
BRT REALTY TRUST AND SUBSIDIARIES
Consolidated Balance Sheets
(Amounts in thousands)
ASSETS
------
September 30,
------------------------------
1996 1995
------------- --------------
Real estate loans - Notes 2, 4 and 5:
Earning interest .............................. $ 33,838 $ 44,136
Not earning interest .......................... 5,905 7,154
-------- --------
39,743 51,290
Less allowance for possible losses ......... 7,773 9,084
-------- --------
31,970 42,206
-------- --------
Real estate owned - Notes 3, 4 and 5:
Foreclosed properties held for sale ........... 47,413 52,029
Less valuation allowance ...................... 2,128 2,460
-------- --------
45,285 49,569
-------- --------
Cash and cash equivalents .......................... 6,209 7,385
Investment in U.S. Government obligations
and securities ................................ 1,977 --
Interest receivable ................................ 354 594
Other assets ....................................... 3,818 4,761
-------- --------
TOTAL ASSETS .................................. $ 89,613 $104,515
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Notes payable - Note 5 ...................... $ -- $ 22,900
Notes payable,Gould(a related party)-Note 5 . 1,030 --
Loans and mortgages payable - Note 5 ........ 25,391 20,756
Accounts payable and accrued liabilities
including deposits of $1,524 and $1,967 2,300 3,131
--------- ---------
Total liabilities ........................... 28,721 46,787
Commitments and contingencies - .................. -- --
Notes 2,3,4,5,8 and 9
Shareholders' equity-Note 7:
Preferred shares, $1 par value:
Authorized 10,000 shares, issued-
0 and 1,030 shares ...................... -- 1,030
Shares of beneficial interest, $3 par value:
Authorized number of shares, unlimited,
issued-8,969 and 7,538 shares ........... 26,906 22,614
Additional paid-in capital, net of
distributions of $5,171 and $4,968 ....... 81,857 83,914
Net unrealized gain on
available-for-sale securities ............ 17 --
Accumulated deficit ......................... (45,249) (47,495)
------- -------
63,531 60,063
Cost of 244 and 192 treasury shares of
beneficial interest .................... (2,639) (2,335)
--------- ---------
Total shareholders' equity .................. 60,892 57,728
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY .. $ 89,613 $ 104,515
========= =========
See accompanying notes to consolidated financial statements
F2
BRT REALTY TRUST AND SUBSIDIARIES
Consolidated Statements of Operations
(Amounts in thousands except per share amounts)
Year Ended September 30,
------------------------
1996 1995 1994
---- ---- ----
Revenues:
Interest and fees on real estate loans-Note 2 $ 4,586 $ 7,914 $ 10,999
Operating income on real estate owned 8,615 8,162 9,175
Other, primarily investment income 355 561 356
----------- ------------ -----------
Total Revenues 13,556 16,637 20,530
----------- ------------ -----------
Expenses:
Interest-notes payable and loans payable-Note 5 1,134 5,186 6,615
Provision for possible loan losses - Note 4 - 1,021 4,340
Provision for valuation adjustment - Note 4 - 178 993
Advisor's fees - Note 8 615 777 1,052
General and administrative - Note 8 2,666 2,971 3,224
Operating expenses relating to real estate
owned including interest on mortgages of
of $1,968, $441 and $427 6,937 6,402 5,112
Depreciation and amortization 428 624 506
----------- ------------ -----------
Total Expenses 11,780 17,159 21,842
----------- ------------ -----------
Income (loss) before gain on sale of foreclosed
properties held for sale 1,776 ( 522) (1,312)
Net gain on sale of foreclosed properties
held for sale 470 3,496 1,507
----------- ------------ -----------
Net Income $ 2,246 $ 2,974 $ 195
=========== ============ ============
Calculation of net income (loss)
applicalbe to common shareholders:
Net income $ 2,246 $ 2,974 $ 195
Less: distributions on preferred stock 203 270 270
----------- ------------ -----------
Net income (loss) applicable to common shareholders $ 2,043 $ 2,704 $ (75)
=========== ============ ===========
Income (loss) per share of Beneficial Interest:
Primary
Income (loss) before gain on sale of foreclosed
properties held for sale applicable to common shareholders $ .20 $ (.11) $ (.22)
Gain on sale of foreclosed properties held for sale .06 $ .48 .21
----------- ------------ -----------
Net income (loss) applicable to common shareholders $ .26 $ .37 $ (.01)
=========== ============ ============
Fully Diluted $ .26 $ .35 $ (.01)
=========== ============ ============
Weighted average number of common shares outstanding:
Primary 7,825,557 7,346,624 7,346,624
========= ========= =========
Fully Diluted 8,688,508 8,443,139 7,346,624
========= ========= =========
See accompanying notes to consolidated financial statements.
F3
BRT REALTY TRUST AND SUBSIDIARIES
Consolidated Statements of Shareholders' Equity
For the Years Ended September 30, 1994, 1995, and 1996
(Amounts in thousands)
Net Unreal-
Shares of Additional ized Gain on
Preferred Beneficial Paid-In Available-For Accumulated
Stock Interest Capital Sale Securities Deficit
--------- --------- ---------- -------------- ------------
Balances, September 30, 1993 $1,030 $22,614 $84,454 - (50,664)
Distributions-preferred stock - - (270) - -
Net income - - - - 195
------- ------- -------- ------ ------------
Balances,September 30, 1994 1,030 22,614 84,184 - (50,469)
Distributions-preferred stock - - (270) - -
Net income - - - - 2,974
------- ------- -------- ------ ------------
Balances, September 30, 1995 1,030 22,614 83,914 - (47,495)
Exercise of Stock Options - 1,202 206 - -
Conversion of 1,030 shares of
preferred stock to shares
of beneficial interest (1,030) 3,090 (2,060) - -
Distributions - Preferred Stock - - (203) - -
Unrealized gain on available-
for-sale securities - - - 17 -
Net income - - - - 2,246
------- ------- -------- ------ ------------
September 30, 1996 $ 0 $26,906 $81,857 $ 17 $ (45,249)
======= ======= ======== ====== ============
See accompanying notes to consolidated financial statements.
F-4
BRT REALTY TRUST AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Amounts in thousands)
Year Ended September 30,
------------------------
1996 1995 1994
------ ------ -----
Cash flows from operating activities:
Net income $2,246 $2,974 $ 195
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for possible loan losses - 1,021 4,340
Provision for valuation adjustment - 178 993
Amortization and depreciation 428 624 506
Recognition of discount upon premature
payoff of real estate loans - - (565)
Net gain on sale of real estate and
foreclosed properties (470) (3,496) (1,507)
Decrease (increase) in interest receivable 240 756 (358)
Decrease (increase) in prepaid expenses 405 (630) (248)
Decrease in accounts payable and
accrued liabilities (301) (226) (370)
Decrease (increase) in rent receivable (22) 144 (48)
Decrease in escrow deposits 112 384 12
Increase in deferred costs (613) (469) -
Other 117 (519) 78
------- -------- -------
Net cash provided by operating activities 2,142 741 3,028
------- ------- -------
Cash flows from investing activities:
Collections from real estate loans 11,162 29,285 28,041
Proceeds from participating lenders 225 50 -
Additions to real estate loans (451) (498) (944)
Repayments to participating lenders - (8,445) (5,479)
Net costs capitalized to real estate owned (1,861) (7,762) (1,663)
Proceeds from sale of real estate owned 5,710 12,320 8,980
Decrease in deposits payable (443) (238) (126)
Decrease (increase) in investments
in U.S. Government obligations (986) 1,979 5,115
Sale of marketable securities 820 - -
Other 163 (133) (48)
------- ------- --------
Net cash provided by investing activities 14,339 26,558 33,876
------- ------- -------
Cash flows from financing activities:
Bank repayments (22,900) (43,292) (26,593)
Proceeds from mortgages payable 7,050 19,250 -
Payoff/paydown of loan and mortgages payable (3,179) (3,310) (5,503)
Exercise of stock options 1,408 - -
Repurchase of shares of beneficial interest (304) - -
Decrease (increase) in restricted cash 558 6,540 (5,389)
Other (290) (276) (207)
-------- ------- -------
Net cash used in financing activities (17,657) (21,088) (37,692)
-------- ------- -------
Net(decrease)increase in cash and cash equivalents (1,176) 6,211 (788)
Cash and cash equivalents at beginning of year 7,385 1,174 1,962
------- ------- -------
Cash and cash equivalents at end of year $6,209 $ 7,385 $ 1,174
======= ======= =======
See accompanying notes to consolidated financial statements.
F5
BRT REALTY TRUST AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Amounts in thousands)
(Continued)
Year Ended September 30,
---------------------------
1996 1995 1994
-------- ------ -------
Supplemental disclosures of cash flow information:
Cash paid during the year for interest expense $2,715 $5,987 $ 7,493
========= ====== =======
Supplemental schedule of noncash investing
and financing activities:
Transfer of nonearning real estate loans
to foreclosed properties at fair value $ 34 $5,310 $17,745
Nonrecourse mortgage obligations relating
to properties acquired through foreclosure - - 609
Transfer of third-party senior participating
interest in a real estate loan to a mortgage
payable upon acquisition of a property
through foreclosure - - 1,495
Note payable to Gould Investors L.P., a
related party, incurred in connection with
the purchase of marketable securities 1,794 - -
Recognition of valuation allowance upon sale
of real estate owned 332 - 1,505
Recognition of allowance for previously
provided losses 1,311 5,258 13,656
Purchase money mortgages from sale of real
estate owned (net of an $850 wrap mortgage
in the 1995 period) 734 4,313 6,242
Write-off of nonrecourse mortgage payable upon
relinquishment of real estate owned - 1,005 -
Recognition of valuation allowance upon
relinquishment of real estate owned - 435 -
Conversion of 1,030 shares of preferred stock
to shares of beneficial interest 3,090 - -
See accompanying notes to consolidated financial statements.
F6
BRT REALTY TRUST AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Amounts in Thousands Except Share Data)
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation; Basis of Preparation
-------------------------------------------------
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 deemed
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.
Income Tax Status
-----------------
The Trust qualifies as a real estate investment trust under Sections
856-860 of the Internal Revenue Code.
The Trustees may, at their option, elect to operate the Trust as a
business trust not qualifying as a real estate investment trust.
Income Recognition
------------------
Income and expenses are recorded on the accrual basis of accounting
for both financial reporting and income tax purposes. The Trust does
not accrue interest or rental income on impaired loans or real estate
owned where, in the judgment of management and the Trustees,
collection of interest or rent according to the contractual terms is
considered doubtful. Among the factors the Trust considers in making
an evaluation of the collectibility of interest or rent are, the
status of the loan or property, the financial condition of the
borrower or tenant and anticipated future events. Loan discounts are
amortized over the life of the real estate loan using the constant
interest method.
Loan commitment and extension fee income is deferred and recorded as
income over the life of the commitment and loan. If a loan
subsequently becomes nonearning, the unamortized portion of the fee
is offset against the loan balance.
Allowance for Possible Losses
-----------------------------
The Trust measures the impairment of its real estate loans based upon
the fair value of the underlying collateral which is determined on an
individual loan basis. In arriving at the fair value of the
collateral, numerous factors are considered, including, market
evaluations of the underlying collateral, operating cash flow from
the property during the projected holding period, and estimated sales
value computed by applying an expected capitalization rate to the
stabilized net operating income of the specific property, less
selling costs, discounted at market discount rates. If upon
completion of the valuations, the fair value of the underlying
collateral securing the impaired real estate loan is less than the
recorded investment in the loan, an allowance is created with a
corresponding charge to expense. The adequacy of the allowance is
predicated on the assumption
F7
NOTE 1 - SIGNIFICANT ACCOUNTING POLICES (Continued)
that the Trust will be able to hold assets and dispose of, or
realize, the assets in the ordinary course of business. Adjustments
may be necessary in the event that effective interest rates, rent-up
periods, future economic conditions including the terms and
availability of long term permanent financing for the property, or
other relevant factors vary significantly from those assumed in
estimating the allowance for possible losses. The existing allowances
will be either increased or decreased based upon future valuations,
with a corresponding increase or reduction in the provision for loan
losses.
Real Estate Owned
-----------------
Foreclosed properties (real estate acquired by foreclosure or by a
deed in lieu of foreclosure) are recorded at estimated fair value,
net of foreclosure costs, at the time of foreclosure. In subsequent
periods, individual foreclosed assets held for sale are valued at the
lower of the recorded cost or estimated fair value, as described
below, and if required, a valuation allowance is recognized. Assets
acquired through foreclosure and held for sale, are not depreciated,
while assets held long-term for the production of income would be
depreciated over their estimated useful lives. Costs incurred in
connection with the foreclosure of the properties collateralizing the
real estate loans and costs incurred to extend the life or improve
the assets subsequent to foreclosure are capitalized. With respect to
the operating properties, operating income and expenses are reflected
in the statement of operations. For residential apartment units
acquired through foreclosure which are subject to an offering for the
sale of units or cooperative shares, the net effect of income and
expenses is applied to the basis of the asset to the extent that fair
value is not exceeded.
Valuation Allowance on Real Estate Owned
----------------------------------------
Effective for the year ended September 30, 1996, the Trust adopted
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". FASB 121 requires the Trust to
make a review of each real estate asset owned for which indicators of
impairment are present and to determine whether the carrying amount
of the asset will be recovered. Recognition of impairment is required
if the undiscounted cash flows estimated to be generated by the
assets are less than the assets' carrying amount. Measurement is
based upon the fair value of the asset. FASB 121 also requires that
long-lived assets that are expected to be disposed of be reported at
the lower of carrying amount or fair value less costs to sell.
Since the Trust had previously evaluated impaired real estate owned
at the lower of the assets carrying amount or fair value, the
adoption of FASB 121 did not have a material effect on the Trust's
financial statements.
Real estate owned assets held for sale are valued at the lower of
cost or fair value, less costs to sell, on an individual asset basis.
Upon evaluating the property, many indicators of value are
considered, including current and expected operating cash flow from
the property during the projected holding period, costs necessary to
extend the life or improve the asset, expected capitalization rates,
projected stabilized net operating income, selling costs, and the
ability to hold and dispose of such real estate owned in the ordinary
course of business. Valuation adjustments may be necessary in the
event that effective interest rates, rent-up periods, future economic
conditions, and other relevant factors vary significantly from those
assumed in valuing the property at the time of foreclosure. If future
evaluations result in a diminution in the value of the property,
F8
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES - (Continued)
the reduction will be recognized as a valuation allowance. If the
value of the property subsequently increases, the valuation allowance
will be reduced.
Fair Value of Financial Instruments
-----------------------------------
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments:
Cash and short term investments: The carrying amounts reported in the
balance sheet for these instruments approximate their fair values.
Investment in U.S. Government obligations and securities: Investment
in U.S. Government obligations are considered to be "held-to-maturity"
and are reported on the balance sheet at cost. Investment in
securities are considered "available-for-sale", and are reported on
the balance sheet based upon quoted market prices.
Real estate loans: The earning mortgage loans of the Trust have either
variable interest rate provisions, which are based upon a margin over
the prime rate, or are currently fixed at effective interest rates
which approximate market. At September 30, 1996 and 1995 these
interest rates are reflective of current market conditions for these
loans. Accordingly, the carrying amounts of the earning, non-impaired
mortgage loans approximate their fair values. For earning loans which
are impaired and non-earning loans, the Trust has valued such loans
based upon the fair value of the underlying collateral. Accordingly,
their carrying amounts are recorded at fair value.
Notes, loans and mortgages payable: The Trust determined the estimated
fair value of its debt by discounting future cash payments at their
effective rates of interest, which approximate current market rates of
interest for similar loans. Accordingly, there is no material
difference between their carrying amounts and fair value.
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 year, 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 preferred
stock was converted to shares of beneficial interest on a one for one
basis on July 1, 1996. 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 years ended
September 30, 1996 and 1995, and is anti-dilutive for the year ended
September 30, 1994.
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
year end market price. The fully diluted per share computation for the
years ended September 30, 1996 and 1995 are dilutive with the addition
of 1,030,000 shares of preferred stock and 91,858 and 66,515 shares,
respectively, upon exercise of common share options. As for the year
ended September 30, 1994, the fully diluted per share computation is
anti-dilutive, and therefore not presented.
F9
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES - (Continued)
Cash Equivalents
----------------
Cash equivalents consist of highly liquid investments, primarily money
market type U.S. Government obligations, with maturities of three
months or less when purchased.
Use of Estimates
----------------
The preparation of the financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the
financial statements and accompanying notes. Actual results could
differ from those estimates.
Reclassification of Financial Statements
----------------------------------------
Certain amounts reported in previous financial statements have been
reclassified in the accompanying financial statements to conform to
the current year's presentation.
F10
NOTE 2- REAL ESTATE LOANS
At September 30, 1996, information as to real estate loans is
summarized as follows:
Not
Earning Earning
Total Interest Interest
------ -------- --------
First mortgage loans:
Long-term:
Residential ........................ $1,958 $1,958 $ -
Short-term (five years or less):
Shopping centers/retail ............ 5,637 5,637 -
Industrial buildings ............... 3,880 3,880 -
Office buildings ................... 3,915 3,915 -
Residential (multiple family units) 7,759 6,684 1,075
Hotel .............................. 1,191 1,191 -
Unimproved land .................... 1,918 - 1,918
Miscellaneous ...................... 2,842 2,842 -
Second mortgage loans:
Shopping centers/retail ............... 2,073 226 1,847
Office building ....................... 667 667 -
Residential (multiple family units) ... 5,683 5,683 -
Hotel ................................. 1,000 - 1,000
Wraparound mortgages .................... 1,220 1,155 65
-------- ------- ------
$39,743 $33,838 $5,905
======== ======= ======
A summary of loans at September 30, 1995 is as follows:
First mortgage loans ................... $40,755 $40,107 $ 648
Second mortgage loans .................. 8,686 2,635 6,051
Wraparound mortgages ................... 1,849 1,394 455
--------- -------- -----
$51,290 $44,136 $7,154
========= ======== =======
Of the real estate loans not earning interest at September 30, 1996
and 1995, $5,905 and $7,154, respectively were deemed impaired as it
is probable that the Trust will be unable to collect all amounts due
according to the contractual terms. Allowances for possible losses
were provided for all such non-earning loans, with the exception of
loans in the amount of $648 at September 30, 1996 and 1995. Of the
real estate loans earning interest at September 30, 1996 and 1995,
$11,766 and $12,268, respectively, were deemed impaired and all are
subject to allowances for possible losses. For the years ended
September 30, 1996, 1995 and 1994, respectively, an average $18,547,
$20,350 and $29,653 of real estate loans were deemed impaired, on
which $1,464, $2,524 and $1,733 of interest income was recognized.
F11
NOTE 2 - REAL ESTATE LOANS (Continued)
The Trust's earning loans generally provide for interest rates which
are related to the prime rate, whereas the new purchase money
mortgages have fixed interest rates, with incremental annual
increases. The weighted average interest rate on earning loans was
9.31% and 9.75% at September 30, 1996 and 1995, respectively.
Annual maturities of real estate loans receivable during the next five
years, reflect revised maturities as a result of debt restructurings
and are summarized as follows:
Years Ending September 30, Amount
-------------------------- -------------
1997 ................................. $ 19,940
1998 ................................. 5,983
1999.................................. 3,992
2000.................................. 3,644
2001 ................................. 394
2002 and thereafter................... 5,790
--------------
Total $ 39,743
==============
The Trust's portfolio consists primarily of senior and junior mortgage
loans, secured by residential and commercial property, 77% of which
are located principally in the New York metropolitan area.
There has been a more favorable environment for obtaining financing
secured by real property and in selling real property assets. As loans
mature, borrowers of the Trust in many cases are able to refinance or
sell their properties and repay the indebtedness due to the Trust.
Management anticipates that extensions for an additional period of
time may be granted for loans maturing during 1997. If a loan is not
repaid at maturity, in addition to foreclosing on the property, the
Trust may either extend the loan or consider the loan past due. The
Trust analyzes each loan separately to determine the appropriateness
of an extension. In analyzing each situation, management examines many
aspects of the loan receivable, including the value of the collateral,
the financial strength of the borrower, past payment history and plans
of the owner of the property. Of the $19,940 of real estate loans
receivable which mature in Fiscal 1997, $14,967 were extended during
the fiscal year ended September 30, 1996. The Trust received $18 in
extension fees.
Over the past number of years, the Trust has restructured certain
loans. Although maturities were extended and interest rates were
reduced, principal remained unchanged. The effects of interest rate
reductions which were applicable to real estate loans aggregating
approximately $13,700, are insignificant as compared to what the Trust
would have otherwise received for the year ended September 30, 1996.
If all loans classified as non-earning were earning interest at their
contractual rates for the years ended September 30, 1996, 1995 and
1994, interest income would have increased by $632, $729 and $979
respectively.
The Trust's interests in wraparound mortgages are subject to
underlying mortgages aggregating $4,632 at September 30, 1996. Senior
participations in the Trust's loans at September 30, 1995 amounted to
approximately $15,500. There were no senior participations in the
Trust's loans at September 30, 1996.
F12
NOTE 2 - REAL ESTATE LOANS (Continued)
At September 30, 1996 the two largest real estate loans had principal
balances outstanding of approximately $3,900 and $3,300, respectively.
Of the total interest and fees earned on real estate loans during the
fiscal year ended September 30, 1996, 12% and 8% related to these
loans, respectively.
Included in the Trust's portfolio, is a real estate loan
collateralized by a 50% interest in a partnership in which the
Chairman of the Board of Trustees of the Trust holds 1/2 of the other
50% partnership interest. The balance of the loan at September 30,
1996 and 1995 is $2,625 and $2,850, respectively.
NOTE 3 - REAL ESTATE OWNED
A summary of real estate owned, for the year ended September 30, 1996
is as follows:
September 30, Collections/
1995 Sales/Other
Properties Additions Costs
No. Amount No. Amount Capitalized No. Amount
-- ------ --- ------ ----------- -- ------
Residential units-shares of
cooperative corporations 5 $ 9,261 1 $34 $ 193 (2) $(4,597)
Shopping centers/retail 4 18,509 - - 73 (1) (1,374)
Office 4 20,266 - - 1,530 (1) (806)
Improved land 2 3,442 - - - - -
Unimproved land 2 1,494 - - 65 - -
---------------------------------------------------
17 52,972 - 34 1,861 (4) (6,777)
---------------------------------------------------
(a)
Less:Valuation Allowance - 2,460 - - - - (332)
Depreciation/Amortization(c)- 943 - 204 - - -
---------------------------------------------------
17 $49,569 1 $(170) $1,861 (4) $(6,445)
===================================================
(b)
September 30,
1996
Gain Properties
on ------------
Sale No. Amount
----- --- --------
Residential units-shares of
cooperative corporations $ 243 4 $ 5,134
Shopping centers/retail 227 3 17,435
Office - 3 20,990
Improved land - 2 3,442
Unimproved land - 2 1,559
------------------------
470 14 48,560
------------------------
Less:Valuation Allowance - - 2,128
Depreciation/Amortization(c) - - 1,147
------------------------
$470 14 $45,285
========================
(a) The addition to real estate owned was acquired through
foreclosure and recorded at its estimated fair value.
(b) A significant portion of the costs capitalized to real estate
owned, approximately $1,088, related to the office building in
Kansas City, Kansas. The property was acquired by deed in lieu
of foreclosure in October, 1995.
(c) During the second quarter of Fiscal 1996, the Trust
reclassified a mixed use property located in Philadelphia,
Pennsylvania, 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 costs to sell, and is
no longer being depreciated.
F13
NOTE 3 - REAL ESTATE OWNED (Continued)
Future minimum rentals to be received by the Trust, pursuant
to noncancellable operating leases in excess of one year, from
properties on which the Trust has title at September 30, 1996
are as follows:
Years Ending September 30, Amount
-------------------------- ------
1997 ................................. $ 5,713
1998 ................................. 4,676
1999 ................................. 4,074
2000 ................................. 3,850
2001.................................. 3,324
NOTE 4 - ALLOWANCE FOR POSSIBLE LOSSES AND VALUATION ALLOWANCE
ON REAL ESTATE OWNED
The Trust measures the impairment of its real estate loans based upon
the fair value of the underlying collateral which is determined on an
individual loan basis. If the valuation is less than the recorded
investment in the loan an allowance is created with a corresponding
charge to expense. The existing allowance will be either increased or
decreased based upon future valuations with a corresponding increase
or reduction in the provision for loan losses.
The Trust evaluates its portfolio of mortgage loans and real estate
owned held for sale on an individual asset basis, comparing the
amount at which the asset is carried to its estimated fair value, as
applicable. In making its evaluations, the Trust considers many
indicators of asset impairment and value including current and
expected operating income and expected capitalization rates. The
Trust has assumed that it will be able to acquire property
collateralizing mortgage loans by foreclosure if deemed appropriate,
and hold and dispose of such assets and real estate currently owned
in the ordinary course of business, to maximize the return to the
Trust. The evaluations and related assumptions are dependent upon
current estimates of future operations, proceeds, costs, events, and
general market and economic conditions, all of which are influenced
by many unpredictable factors. Accordingly, the ultimate realizations
of the Trust's assets, including future income, may differ from
amounts presently estimated.
There has been a continued improvement in the real estate industry
over the past few years as evidenced by an increase in occupancies
and rental rates as well as a more favorable environment for
obtaining financing secured by real property. As a result of this
improvement, the Trust was not required to record provisions for
possible loan losses nor valuation adjustments during the year ended
September 30, 1996. Provisions for possible loan losses aggregated
$1,021 and $4,340 during the years ended September 30, 1995 and 1994,
respectively, and provisions for valuation adjustments aggregated
$178 and $993 also in the respective fiscal years.
F14
NOTE 4 - ALLOWANCE FOR POSSIBLE LOSSES AND VALUATION ALLOWANCE
ON REAL ESTATE OWNED (Continued)
An analysis of the allowance for possible losses is as follows:
Year Ended September 30,
------------------------
1996 1995 1994
------ ------- --------
Balance at beginning of year $9,084 $13,321 $ 22,637
Provision for possible loan losses - 1,021 4,340
Write-off of allowances (1,311) (5,258) (13,656)
------- ------- --------
Balance at end of year $7,773 $9,084 $13,321
======= ======= ========
The allowance for possible losses applies to assets aggregating
$17,023 at September 30, 1996, $18,774 at September 30, 1995 and
$20,700 at September 30, 1994.
The allowance for possible losses consists of the following
components:
Year Ended September 30,
------------------------
1996 1995 1994
----- ---- ----
Excess of carrying value plus estimated cost
to complete and market, over estimated
selling price .......................... $1,595 $2,720 $3,003
Valuation adjustment ..................... 5,775 6,141 9,464
Estimated holding period costs ........... 403 223 854
----- ------ -------
$7,773 $9,084 $13,321
====== ====== =======
An analysis of the valuation allowance is as follows:
Year Ended September 30,
-------------------------
1996 1995 1994
----- ------ ------
Balance at beginning of year $2,460 $2,717 $3,229
Provision for valuation adjustment - 178 993
Write-off of valuation adjustment
upon sale or relinquishment of
real estate owned (332) (435) (1,505)
------- ------- --------
Balance at end of year $2,128 $2,460 $ 2,717
======= ======= ======
The valuation allowance applies to assets aggregating $23,434 at
September 30, 1996, $12,742 at September 30, 1995 and $13,917 at
September 30, 1994.
F15
NOTE 5 - DEBT OBLIGATIONS
Debt obligations consist of the following:
September 30,
---------------------
1996 1995
------ -------
Notes payable, credit agreement $ - $ 22,900
======= ========
Notes payable, Gould (a related party) $ 1,030 $ -
======= ========
Loans and mortgages payable $25,391 $ 20,756
======== ========
On September 23, 1992 an Amended and Restated Credit Agreement (the
"Agreement") was executed between the Trust and five banks, which
were parties to an existing credit agreement. Pursuant to the
Agreement, the Trust granted the banks a lien on all mortgages
receivable and pledged the stock of its wholly-owned subsidiaries,
which own all of the Trust's real estate. During the fiscal year
ended September 30, 1993 the interest held by a governmental agency
in the Agreement (approximately 17% of the Trust's indebtedness) was
sold at a public auction. Subsequently, an entity related to the
Trust, One Liberty Properties, Inc. ("One Liberty"), purchased
approximately 29% of the 17% portion of the indebtedness purchased at
a public sale by an unrelated entity.
The principal balance bore interest at the prime lending rate plus
1%, and in addition, the "Agent Bank", which represented the five
banks involved in the Agreement, received an annual fee equal to 1/8
of 1% of the aggregate outstanding principal balance. The Agreement
which matured on June 30, 1995 with two, one year options based on
satisfying certain ratios and principal payments, all of which were
met, was extended by the Trust to June 30, 1997. In August 1996, the
Trust paid off in full its remaining debt obligation due under the
Agreement.
During August, 1996 the Trust purchased common stock of a local
savings bank from Gould Investors L.P. ("Gould"), a related party.
The Trust purchased these shares at Gould's cost, which approximated
market and executed a Note Payable ("Note") to Gould for the full
amount of the purchase price. The Note bears interest at prime and is
payable in August, 1997. Interest expense on the Note was $16 for the
year ended September 30, 1996. The Note was paid in full in November,
1996. The Trust's investment in the local savings bank amounted to
4.9% at September 30, 1996.
At September 30, 1996 there are five outstanding mortgages payable,
all of which are secured by individual real estate owned properties
with an aggregate carrying value of $34,309, net of valuation
allowance and accumulated depreciation. The mortgages bear interest
at rates ranging from 7.83% to 8.75% and mature between 2000 and
2005.
F16
NOTE 5 - DEBT OBLIGATIONS (Continued)
Scheduled principal repayments during the next five years and
thereafter are as follows:
Years Ending September 30, Amount
-------------------------- ------
1997 ...................................... $ 971
1998 ...................................... 1,060
1999 ...................................... 1,149
2000 ...................................... 1,272
2001....................................... 15,769
2002 and thereafter ....................... 5,170
--------
$25,391
========
NOTE 6 - FEDERAL INCOME TAXES
Cumulative taxable loss since inception is less than the cumulative
loss reported for financial statement purposes principally because a
substantial portion of the allowance for possible losses has not yet
been deducted for tax purposes.
The taxable loss is expected to be $2,779 less than the financial
statement income during Calender 1996.
At December 31, 1995, the Trust had available tax operating loss
carryforwards of $35,161 of which $2,469 will expire in 2005, $2,638
will expire in 2006, $13,605 will expire in 2007, $14,288 will expire
in 2008, $1,634 will expire in 2009 and $527 will expire in 2010.
NOTE 7 - SHAREHOLDERS' EQUITY
Distributions
-------------
There were no distributions on the Trust's shares of beneficial
interest declared during the years ended September 30, 1994, 1995 and
1996.
Stock Options
-------------
On March 4, 1991 the Board of Trustees granted, under the 1988 Stock
Option Plan (Incentive/Nonstatutory Stock Option Plan) options to
purchase a total of 412,000 shares of beneficial interest at $3.50
per share to a number of officers and employees of the Trust. On May
20, 1991 the Board of Trustees granted, also under the 1988 Stock
Option Plan, options to purchase a total of 50,000 shares of
beneficial interest at $3.625 per share to certain trustees of the
Trust. Options are exercisable at per share amounts at least equal to
the fair market value of the Trust's beneficial shares at the date of
grant. The options are cumulatively exercisable at the rate of 25%
per annum, commencing after six months, and expire five years after
the date of grant. During fiscal 1996, various officers, employees
and Trustees of the Trust exercised 400,700 of these options and the
balance of 46,300 expired.
F17
NOTE 7 - SHAREHOLDERS' EQUITY (Continued)
On December 8, 1995, the Board of Trustees granted, under the 1988
Stock Option Plan, options to purchase the remaining 53,000 shares of
beneficial interest available under this plan at $4.375 per share to
various officers and employees of the Trust. The options are
cumulatively exercisable at a rate of 25% per annum, for a period of
five years commencing six months after the date of grant. At
September 30, 1996 options to purchase 13,250 shares are exercisable.
A maximum of 500,000 shares of beneficial interest were reserved for
issuance under the 1988 Stock Option Plan, all of which have been
granted at September 30, 1996.
Effective for the year ended September 30, 1996, the Trust adopted
Statement of Financial Accounting Standards No. 123, ("FASB 123"),
"Accounting for Stock-Based Compensation". In accordance with the
provisions of FASB 123, the Trust applies Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees", and
related interpretations in accounting for its stock option plan and
accordingly, does not recognize compensation expense. Had
compensation expense for the Trust's stock option plan been
determined based upon the fair value at the grant date for awards
under the plan consistent with the methodology prescribed under FASB
123, the effect on reported net income and earnings per share would
have been immaterial.
Changes in the number of shares under all option arrangements are
summarized as follows:
Year Ended September 30,
-----------------------------
1996 1995 1994
------ ------ ------
Outstanding at beginning of period 447,000 462,000 462,000
Granted 53,000 - -
Option price per share granted $4.375 - -
Cancelled - 15,000 -
Exercisable at end of period 13,250 447,000 449,500
Exercised 400,700 - -
Expired 46,300 - -
Outstanding at end of period 53,000 447,000 462,000
Option prices per share outstanding $4.375 $3.50-$3.63$3.50-$3.63
Preferred Shares
----------------
During the year ended September 30, 1993 the Trust's independent
directors approved the exchange of 1,030,000 $1.00 par value shares
of newly issued, Series A cumulative convertible preferred stock of
the Trust to One Liberty, a related party, for the cancellation of a
subordinated note with a remaining principal balance of $3,375. This
exchange was approved by the Trust's shareholders. The preferred
shares provided for cumulative annual dividends of $.2622 per share,
payable quarterly, all of which were paid, and are convertible into
shares of beneficial interest on a one-for-one basis, with one vote
per share. On January 19, 1995, One Liberty transferred the
1,030,000 shares of the convertible preferred stock of the Trust to
F18
NOTE 7 - SHAREHOLDERS' EQUITY (Continued)
Gould, a related party, as partial consideration in a real estate
transaction. On July 1, 1996 Gould converted the 1,030,000 preferred
shares into 1,030,000 shares of beneficial interest.
Treasury Shares
---------------
On July 2, 1996, the Trust's Board of Trustees authorized the
purchase from time to time of up to 250,000 shares of beneficial
interest of the Trust, of which 52,752 shares have been purchased
through September 30, 1996 at an approximate aggregate cost of $304.
From October 1, 1996 through December 2, 1996 an additional 58,600
shares have been purchased at an aggregate cost of $356. At
September 30, 1996, the Trust owns 244,000 shares of beneficial
interest of the Trust at an aggregate cost of $2,639.
NOTE 8 - ADVISOR'S COMPENSATION AND CERTAIN TRANSACTIONS
Certain of the Trust's officers and trustees are also officers,
directors and the shareholder of REIT Management Corp. ("REIT"), to
which the Trust pays advisory fees for administrative services and
investment advice. The agreement, which expires on December 31, 2000,
provides that directors and officers of REIT may serve as trustees,
officers and employees of the Trust, but shall not be compensated for
services rendered in such latter capacities. Advisory fees are
charged to operations at a rate of 1% on real estate loans and 1/2 of
1% on other invested assets. Advisory fees amounted to $615, $777 and
$1,052 for the years ended September 30, 1996, 1995, and 1994,
respectively.
A company with the same shareholder as REIT manages certain
foreclosed properties for the Trust under renewable year-to-year
agreements. Management fees and leasing, selling and financing
commissions incurred for the years ended September 30, 1996, 1995 and
1994 aggregated $755, $1,016 and $617, respectively.
A law firm in which the partners are officers of the Trust, received
fees directly from borrowers of the Trust totalling approximately
$21, $17 and $67 for the years ended September 30, 1996, 1995 and
1994, respectively. The Chairman of the Board of Trustees of the
Trust holds a similar position in One Liberty and is an executive
officer of the managing general partner and is a general partner of
Gould (Note 5). During the years ended September 30, 1996, 1995 and
1994, allocated general and administrative expenses charged to the
Trust by Gould aggregated $1,161, $1,338 and $1,264, respectively.
NOTE 9 - COMMITMENT
In August 1984, the Board of Trustees approved a non-contributory
pension plan covering eligible employees and officers. Contributions
by the Trust are made through a money purchase plan, based upon a
percent of qualified employees' total salaries. Pension expense
approximated $60, $101 and $100 during the years ended September 30,
1996, 1995 and 1994, respectively.
F19
NOTE 10 - QUARTERLY FINANCIAL DATA (Unaudited)
1st Quarter 2nd Quarter 3rd Quarter
Oct.-Dec. Jan.-March April-June
---------- ---------- ------------
1996
-------------------------------------------
Revenues $ 3,440 $ 3,432 $ 3,347
Provision for
possible loan losses $ - $ - $ -
Provision for valuation
adjustment $ - $ - $ -
Income before
gain on sale of fore-
closed properties
held for sale $ 363 $ 90 $ 600
Net income $ 590 $ 90 $ 600
Per share $ .07 $ - $ .07
1995
------------------------------------------
Revenues $ 3,943 $ 4,672 $ 4,237
Provision for
possible loan losses $ 1,021 $ - $ -
Provision for valuation
adjustment $ - $ 178 $ -
Income (loss) before
gain on sale of fore-
closed properties
held for sale $(1,509) $ 378 $ 193
Net income $ 1,018 $ 720 $ 193
Per share $ .13 $ .09 $ .02
4th Quarter Total
July-Sept. For Year.
------------ ----------
Revenues $ 3,337 $ 13,556
Provision for
possible loan losses $ - $ -
Provision for valuation
adjustment $ - $ -
Income before
gain on sale of fore
closed properties
held for sale $ 723 $ 1,776
Net income $ 966 $ 2,246
Per share $ .11 $ .26(a)
Revenues $ 3,785 $ 16,637
Provision for
possible loan losses $ - $ 1,021
Provision for valuation
adjustment $ - $ 178
Income (loss) before
gain on sale of fore
closed properties
held for sale $ 416 $ (522)
Net income $ 1,043 $ 2,974
Per share $ .13 $ .37
Per share earnings represent primary earnings per beneficial share.
(a) Calculated on weighted average shares outstanding for the fiscal
year.
NOTE 11 - SUBSEQUENT EVENT
On October 17, 1996 the Trust entered into a $25 million revolving
credit agreement ("Credit Agreement") with CS First Boston Mortgage
Capital Corp. ("First Boston"). Portions of borrowings under the
Credit Agreement will be used to provide the Trust with funds to
become active in mortgage lending. The Credit Agreement will mature
on October 17, 1998 with the right for the Trust to extend the Credit
Agreement for two additional six month periods. Interest will be
charged on the outstanding principal balance at the lower of LIBOR
plus 3% or the prime lending rate plus 1%, adjusted monthly. As
collateral for any advances to be made by First Boston under the
Credit Agreement, the Trust has pledged certain mortgages receivable
and real estate owned, and the stock of all but two of its
subsidiaries.
As of September 30, 1996 through December 2, 1996, the Trust has not
drawn down any funds under the Credit Agreement.
F20
BRT REALTY TRUST
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
SEPTEMBER 30, 1996
(Amounts in Thousands)
Initial Cost To Company
-----------------------
Buildings
Encum- And
Description brances Land Improvements
- ----------- ------- ----- ------------
Residential
Manhattan, New York........... $ - $ 513 $ 2,413
Miscellaneous ................... - 255 1,027
Shopping Center/Retail
Rock Springs, WY ............. 1,490 600 2,483
Philadelphia, PA ............. 9,877 2,897 10,512
Miscellaneous ................ - 184 20
Office
Manhattan, New York .......... 3,175 987 3,948
Dover, DE .................... 8,601 775 3,195
Fairway, Kansas - 387 2,613
Improved Land
Miscellaneous ................ 2,248 3,442 -
Unimproved Land
Miscellaneous ................ - 1,318 -
------- ------- -------
TOTAL $25,391 $11,358 $26,211
======= ======= =======
Costs Capitalized
Subsequent To Acquisiton
------------------------
Description Improvements Carrying Costs
- ----------- ------------ --------------
Residential
Manhattan, New York .................. $897 -
Miscellaneous ........................ 29 -
Shopping Center/Retail
Rock Springs, WY ..................... 142 28
Philadelphia, PA ..................... 540 -
Miscellaneous ........................ 29 -
Office
Manhattan, New York .................. 695 32
Dover, DE ............................ 7,293 -
Fairway, Kansas ...................... 897 168
Improved Land
Miscellaneous ........................ - -
Unimproved Land
Miscellaneous ........................ - 241
-------- -----
TOTAL $10,522 $469
======== =====
(a)
Gross Amount At Which Carried At
September 30, 1996
--------------------------------
Buildings
and Accum.
Description Land Improvements Total Deprec.
- ----------- ---- ------------ --------- ------
Residential
Manhattan, New York ...... $513 $3,310 $3,823 $ -
Miscellaneous ............ 255 1,056 1,311 -
Shopping Center/Retail
Rock Springs, WY ......... 600 2,653 3,253 226
Philadelphia, PA ......... 2,897 11,052 13,949 921
Miscellaneous ............ 184 49 233 -
Office
Manhattan, New York ...... 987 4,675 5,662 -
Dover, DE ................ 775 10,488 11,263 -
Fairway, Kansas .......... 387 3,678 4,065 -
Improved Land
Miscellaneous ............ 3,442 - 3,442 -
Unimproved Land
Miscellaneous ............ 1,559 - 1,559 -
------- ------- ------- ------
TOTAL $11,599 $36,961 $48,560 $1,147
======= ======= ======= ======
(b) (c)
Depreciation
Life For
Date Of Date Latest Income
Description Construction Acquired Statement
- ----------- ------------- -------- -------------
Residential
Manhattan, New York ...... - Apr-90 -
Miscellaneous ............ - Various -
Shopping Center/Retail
Rock Springs, WY ......... - Jan-92 21-35 Years
Philadelphia, PA ......... - Apr-93 -
Miscellaneous ............ - Various -
Office
Manhattan, New York ...... - Sept-92 -
Dover, DE ................ - Oct-93 -
Fairway, Kansas .......... - Sept-95 -
Improved Land
Miscellaneous ............ - Various -
Unimproved Land
Miscellaneous ............ - Various -
(d)
BRT REALTY TRUST
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
SEPTEMBER 30, 1996
(Amounts in Thousands)
Notes to the schedule:
(a) With respect to residential apartment units acquired through
foreclosure which are subject to an offering for sale of units
or cooperative shares, the net effect of income and expenses
is applied to the basis of the asset to the extent that the
realizable value is not exceeded. With respect to other
operating properties, all operating income and expenses are
reflected in the Statement of Operations.
(b) Total foreclosed properties $48,560(1)
Less: Accumulated depreciation/amortization 1,147
Valuation allowance 2,128
------
Net foreclosed properties $45,285
======
(1)For federal income tax purposes, the net aggregate cost of
foreclosed properties is approximately $37,000.
(c) Assets acquired through foreclosure which are held long term for the
production of income are depreciated, while those held for sale are not
depreciated. During the second quarter of Fiscal 1996, the property
located in Philadelphia, Pennsylvania, was reclassified 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 no longer being depreciated.
(d) Information not readily obtainable.
(e) A reconciliation of real estate owned is as follows:
Year Ended September 30,
------------------------------
1996 1995 1994
------- ------ ------
Balance at beginning of year .......... $ 49,569 $ 52,076 $47,933
Additions:
Foreclosures .......................... 34 5,310 17,745
Improvements .......................... 1,609 7,275 1,102
Carrying costs ........................ 252 487 562
Recognition of valuation allowance upon
sale of property .................... 332 - 1,505
Recognition of valuation allowance upon
relinquishment of property .......... - 436 -
-------- -------- -------
51,796 65,584 68,847
-------- -------- -------
Deductions:
Sales/conveyances ..................... 6,307 13,918 15,459
Relinquishment of real estate owned ... - 1,441 -
Provision for valuation adjustment .... - 178 993
Depreciation and amortization ......... 204 478 319
-------- -------- -------
Total Expenses 6,511 16,015 16,771
-------- -------- -------
Balance at end of year $45,285 $49,569 $ 52,076
======== ======== =======
BRT REALTY TRUST
SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE
SEPTEMBER 30, 1996
(Amounts in Thousands)
FINAL
# OF INTEREST MATURITY
DESCRIPTION LOANS RATE DATE
- ----------- ---------- -------- -----------
First mortgage loans:
Long term:
Miscellaneous
$0-$899 ......................... 43
Short term:
Shopping Center - Marion, IN .... 1 Prime + 5.0% On Demand
Hotel, Stamford, CT ............. 1 8.75% Feb-97
Office Building - Brooklyn, NY .. 1 9.75% Dec-98
Retail - Brooklyn, NY ........... 1 9.5% Jan-98
Vacant Land -Lynewood Gardens,PA 1 Prime + 5.0% Open
Cooperative Apartments-Islip, NY 1 9.0% Oct-98
Unsecured Loan - Kansas City, MO 1 LIBOR + 1.5% Dec-96
Office Building - Brooklyn, NY .. 1 Prime + 1.0% Jun-98
Underlying Mortgage - Bronx, NY . 1 Tbill + 2.25% Jan-2000
Industrial Building - Queens, NY 1 10.5% Apr-97
Miscellaneous
$0-$299 .......................... 7
$300-$599 ........................ 7
$600-$899 ........................ 4
Junior mortgage loans:
Shopping centers:
Shopping center - Seattle, WA .... 1 Prime + 5.0% Open
Miscellaneous
$0-$299 .......................... 1
Office
Miscellaneous
$0-$699 .......................... 1
Residential:
Garden Apartments - Arlington, TX 1 Prime + 7.0% Oct-96
Underlying Mortgage - Queens, NY . 1 9.0% Aug-2002
Miscellaneous
$0-$1 ............................ 1
Hotel:
Hotel - Chicago, IL .............. 1 8.0% Open
Wraparound mortgages:
Miscellaneous .................... 3
-------
81
========
DESCRIPTION PERIODIC PAYMENT TERMS
- ----------- -------------------------------------------------
First mortgage loans:
Long term:
Miscellaneous
$0-$899
Short term:
Shopping Center - Marion, IN .... Interest monthly, principal at maturity
Hotel, Stamford, CT ............. Interest and principal amount
Office Building - Brooklyn, NY .. Interest monthly, principal at maturity
Retail - Brooklyn, NY ........... Interest and prinicpal monthly
Vacant Land -Lynewood Gardens,PA Interest monthly, principal at maturity
Cooperative Apartments-Islip, NY Interest monthly, principal at maturity
Unsecured Loan - Kansas City, MO Interest monthly, principal at maturity
Office Building - Brooklyn, NY .. Interest monthly, principal at maturity
Underlying Mortgage - Bronx, NY . Interest monthly, principal at maturity
Industrial Building - Queens, NY Interest and principal monthly
Miscellaneous
$0-$299
$300-$599
$600-$899
Junior mortgage loans:
Shopping centers:
Shopping center - Seattle, WA .... Interest monthly, principal at maturity
Miscellaneous
$0-$299
Office
Miscellaneous
$0-$699
Residential:
Garden Apartments - Arlington, TX Interest monthly, principal at maturity
Underlying Mortgage - Queens, NY . Interest monthly, principal at maturity
Miscellaneous
$0-$1
Hotel:
Hotel - Chicago, IL .............. Interest monthly, principal at maturity
Wraparound mortgages:
Miscellaneous
CARRYING
FACE AMOUNT AMOUNT
DESCRIPTION PRIOR LEINS OF MORTGAGES OF MORTGAGES
- ----------- -------------------------------------------------
First mortgage loans:
Long term:
Miscellaneous
$0-$899 ......................... $ - $ 1,958 $1,947
Short term:
Shopping Center - Marion, IN .... - 1,149 886
Hotel, Stamford, CT ............. - 1,191 512
Office Building - Brooklyn, NY .. - 1,290 1,290
Retail - Brooklyn, NY ........... - 1,740 1,740
Vacant Land -Lynewood Gardens,PA - 1,918 -
Cooperative Apartments-Islip, NY - 2,143 2,143
Unsecured Loan - Kansas City, MO - 2,289 1,789
Office Building - Brooklyn, NY .. - 2,625 2,625
Underlying Mortgage - Bronx, NY . - 2,835 2,200
Industrial Building - Queens, NY - 3,320 2,692
Miscellaneous
$0-$299 .......................... - 1,286 1,246
$300-$599 ........................ - 2,650 1,969
$600-$899 ........................ - 2,706 2,706
Junior mortgage loans:
Shopping centers:
Shopping center - Seattle, WA .... 3,102 1,847 949
Miscellaneous
$0-$299 .......................... 1,538 226 226
Office
Miscellaneous
$0-$699 .......................... 2,377 667 667
Residential:
Garden Apartments - Arlington, TX 2,109 1,739 1,739
Underlying Mortgage - Queens, NY . 5,400 3,943 3,943
Miscellaneous
$0-$1 ............................ 9,000 1 1
Hotel:
Hotel - Chicago, IL .............. 12,546 1,000 -
Wraparound mortgages:
Miscellaneous .................... 5,423 1,220 700
------------------------------------------
$ 41,495 $39,743 $31,970
==========================================
PRINCIPAL AMOUNT
OF LOANS SUBJECT
TO DELINQUENT
DESCRIPTION PRINCIPAL OR INTEREST
- ----------- ----------------------
First mortgage loans:
Long term:
Miscellaneous
$0-$899 ............................... $ -
Short term:
Shopping Center - Marion, IN .......... -
Hotel, Stamford, CT ................... -
Office Building - Brooklyn, NY ........ -
Retail - Brooklyn, NY ................. -
Vacant Land -Lynewood Gardens, ........ 1,918
Cooperative Apartments-Islip, ......... -
Unsecured Loan - Kansas City, ......... -
Office Building - Brooklyn, NY ........ -
Underlying Mortgage - Bronx, N ........ -
Industrial Building - Queens, ......... -
Miscellaneous
$0-$299 ................................ -
$300-$599 .............................. 426
$600-$899 .............................. 649
Junior mortgage loans:
Shopping centers:
Shopping center - Seattle, WA .......... 1,847
Miscellaneous
$0-$299 ................................ -
Office
Miscellaneous
$0-$699 ................................ -
Residential:
Garden Apartments - Arlington, ......... -
Underlying Mortgage - Queens, NY........ -
Miscellaneous
$0-$1 .................................. -
Hotel:
Hotel - Chicago, IL .................... 1,000
Wraparound mortgages:
Miscellaneous .......................... 65
----------
$5,905
==========
BRT REALTY TRUST
SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE
SEPTEMBER 30, 1996
(Amounts in Thousands)
Notes to the schedule:
Year Ended September 30,
------------------------------
1996 1995 1994
-------- ------- --------
Balance at beginning of year ......... $42,206 $64,686 $ 99,466
Additions:
Advances under real estate loans ..... 451 498 944
Repayments to participating lenders .. - 8,445 5,479
Capitalization of earned interest
income to loan balance in accordance
with agreements ..................... - - 13
Recognition of discount upon premature
payoff of real estate loans ......... - - 565
Purchase money mortgages from sale of
real estate owned ................... 734 4,243 6,242
-------- --------- ----------
43,391 77,872 112,709
-------- --------- ----------
Deductions:
Collections of principal ............. 11,162 29,285 28,041
Proceeds from participating lenders .. 225 50 -
Provision for possible loan losses ... - 1,021 4,340
Investments transferred to foreclosed
properties, net ..................... 34 5,310 15,642
-------- --------- ---------
11,421 35,666 48,023
-------- --------- ---------
Balance at end of year ............... $31,970 $42,206 $64,686
======== ========= =========
(b) The aggregate cost of investments in mortgage loans is the same for
financial reporting purposes and Federal income tax purposes.