SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the quarterly period ended June 30, 1998
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Commission File Number 1-7172
BRT REALTY TRUST
(Exact name of registrant as specified in its charter)
Massachusetts 13-2755856
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
60 Cutter Mill Road, Great Neck, NY 11021
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (516) 466-3100
Indicate the number of shares outstanding of each of the issuer's classes of
stock, as of the latest practicable date.
7,162,863 Shares of Beneficial Interest,
$3 par value, outstanding on August 10, 1998
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
Part 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
BRT REALTY TRUST AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands)
June 30, September, 30
1998 1997
---- ----
(Unaudited) (Audited)
Assets:
Real estate loans - Note 3:
Earning interest $ 37,374 $ 40,030
Not earning interest 1,919 3,835
---------- ----------
39,293 43,865
Less allowance for possible losses 4,041 5,956
---------- ----------
35,252 37,909
--------- --------
Real estate assets:
Foreclosed properties held for sale 20,948 23,160
Investment in real estate venture 2,177 1,546
---------- ----------
23,125 24,706
Less valuation allowance 349 349
----------- -----------
22,776 24,357
--------- ---------
Cash and cash equivalents 19,700 10,152
Securities available-for-sale at market 6,686 5,382
Other assets 2,116 2,515
---------- ---------
Total Assets $86,530 $80,315
======= =======
Liabilities and Shareholders' Equity
Liabilities:
Loans and mortgages payable $10,795 $11,562
Accounts payable and accrued liabilities,
including deposits of $938 and $1,085 1,456 2,216
--------- --------
Total Liabilities 12,251 13,778
-------- -------
Shareholders' Equity - Note 2:
Preferred shares, $1 par value:
Authorized 10,000 shares, none issued - -
Shares of beneficial interest, $3 par value:
Authorized number of shares - unlimited,
issued - 8,886 shares at each date 26,657 26,657
Additional paid-in capital, net of
distributions of $5,171 81,528 81,517
Accumulated other comprehensive income - net
unrealized gain on available-for-sale securities 2,108 726
Accumulated deficit (28,860) (37,916)
--------- --------
81,433 70,984
Cost of 858 and 518 treasury shares of
beneficial interest (7,154) (4,447)
---------- --------
Total Shareholders' Equity 74,279 66,537
-------- -------
Total Liabilities and Shareholders' Equity $86,530 $80,315
======= =======
See Accompanying Notes to Consolidated Financial Statements.
BRT REALTY TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
AND ACCUMULATED DEFICIT
(Unaudited)
(In Thousands except for Per Share Data)
Three Months Ended Nine Months Ended
June 30, June 30,
1998 1997 1998 1997
---- ---- ---- ----
Revenues:
Interest and fees on real estate loans $ 1,312 $ 1,148 $ 3,715 $ 3,567
Operating income on real estate owned 1,003 2,282 3,106 6,777
Reversal of previously provided allowances - - - 1,300
Other, primarily investment income 224 32 668 231
----------- ------------ ----------- -----------
Total Revenues 2,539 3,462 7,489 11,875
---------- ---------- ---------- ----------
Expenses:
Interest-notes payable and loans payable 25 85 75 97
Advisor's fee 126 151 370 425
General and administrative 671 541 1,888 1,707
Operating expenses relating to real estate
owned including interest on mortgages
of $229 and $501 for the three-month
periods and $710 and $1,505 for the nine -
month periods, respectively 611 1,552 1,828 4,992
Amortization and depreciation 86 138 258 412
------------ ----------- ----------- -----------
Total Expenses 1,519 2,467 4,419 7,633
---------- ---------- ---------- ----------
Income before gain on sale of foreclosed
properties and investments available-for-sale 1,020 995 3,070 4,242
Gain on sale of foreclosed properties and
investments available-for-sale 1,275 - 5,986 -
----------- ------------- ----------- --------------
Net Income $ 2,295 $ 995 $ 9,056 $ 4,242
========== =========== ========== ==========
Income per share of Beneficial Interest:
Basic earnings per share $ 0.28 $ .012 $ 1.11 $ 0.50
=========== =========== =========== ===========
Diluted earnings per share $ 0.28 $ .012 $ 1.10 $ 0.50
=========== =========== =========== ===========
Accumulated deficit, beginning of period $ (31,155) $ (42,002) $ (37,916) $ (45,249)
Net income 2,295 995 9,056 4,242
----------- ----------- ----------- -----------
Accumulated deficit, end of period $ (28,860) $ (41,007) $ (28,860) $ (41,007)
========== =========== ========== ==========
See Accompanying Notes to Consolidated Financial Statements.
BRT REALTY TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In Thousands)
Nine Months Ended
June 30,
1998 1997
---- ----
Cash flow from operating activities:
Net income $9,056 $4,242
Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization and depreciation 258 412
Reversal of previously provided allowances - (1,300)
Gain on sale of real estate and foreclosed properties (5,777) -
Gain on sale of available-for-sale securities (209) -
(Increase) in interest receivable (166) (45)
Decrease (increase) in prepaid expenses 54 (150)
(Decrease) increase in accounts payable
and accrued liabilities (845) 199
(Decrease) in deferred revenues (134) -
Decrease in rent receivables 124 38
(Decrease) in escrow deposits (179) 201
Increase in deferred costs (5) (274)
Other 225 33
---------- ----------
Net cash provided by operating activities 2,402 3,356
--------- --------
Cash flows from investing activities:
Collections from real estate loans 12,214 10,355
Additions to real estate loans (9,556) (11,891)
Repayments to participating lenders - (1,000)
Net costs capitalized to real estate owned (554) (786)
Proceeds from sale of real estate owned 8,450 518
Increase in deposits payable 398 62
Purchase of marketable securities (347) (677)
Sales of marketable securities 635
Decrease in investments in US Government obligations - 986
Increase in investment in partnership interest (631)
Other - (25)
---------- ---------
Net cash provided by investing activities 10,609 2,538
------- -------
Cash flow from financing activities:
Payoff/paydown of loan and mortgages payable (767) (1,744)
Repurchase of shares of beneficial interest, a portion of
which were cancelled (2,707) (2,265)
Other 11 (28)
---------- ----------
Net cash used in financing activities (3,463) (4,037)
-------- -------
Net increase in cash and cash equivalents 9,548 (3,219)
Cash and cash equivalents at beginning of period 10,152 6,209
------ -----
Cash and cash equivalents at end of period $19,700 $ 2,990
======= =======
Supplemental disclosure of cash flow information:
Cash paid during the period for interest expense $ 802 $ 1,123
========= =======
Supplemental schedule of non-cash investing and financing activities:
Transfer of foreclosed property to an investment
in a real estate venture $ - $ 1,552
See Accompanying Notes to Consolidated Financial Statements.
BRT REALTY TRUST AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 1 - Basis of Preparation
The accompanying interim unaudited consolidated financial statements as of June
30, 1998 and for the three and nine months ended June 30, 1998 and 1997 reflect
all normal recurring adjustments which are, in the opinion of management,
necessary for a fair statement of the results for such interim periods. The
results of operations for the three and nine months ended June 30, 1998 are not
necessarily indicative of the results for the full year.
Certain items on the consolidated financial statements for the preceding periods
have been reclassified to conform with the current consolidated financial
statements.
The consolidated financial statements include the accounts of BRT Realty Trust,
its wholly-owned subsidiaries, and its majority-owned or controlled real estate
entities. For financial statement and economic purposes, the majority-owned real
estate entity is wholly-owned and presented accordingly. Investments in less
than majority-owned entities have been accounted for using the equity method.
Material intercompany items and transactions have been eliminated. Many of the
wholly-owned subsidiaries were organized to take title to various properties
acquired by BRT Realty Trust. BRT Realty Trust and its subsidiaries are
hereinafter referred to as the "Trust".
These statements should be read in conjunction with the consolidated financial
statements and related notes which are included in the Trust's Annual Report on
Form 10-K for the year ended September 30, 1997.
Note 2 - Shareholders' Equity
Per Share Data
In 1997, the Financial Accounting Standards Board issued Statement No. 128,
Earnings Per Share. Statement No. 128 replaced the calculation of primary and
fully diluted earnings per share with basic and diluted earnings per share.
Unlike primary earnings per share, basic earnings per share excludes any
dilutive effects of options, warrants and convertible securities. Diluted
earnings per share is very similar to the previously reported fully diluted
earnings per share. All earnings per share amounts for all periods have been
presented, and where appropriate, restated to conform to the Statement No. 128
requirements.
Basic earnings per share were determined by dividing net income for the period
by the weighted average number of shares of common stock outstanding during each
period which were 8,048,832 and 8,126,746 for the three and nine month periods
ended June 30, 1998 and 8,461,477 and 8,573,111 for the three and nine month
periods ended June 30, 1997, respectively. Diluted earnings per share reflects
the potential dilution that could occur if securities or other contracts to
issue common stock were exercised or converted into common stock or resulted in
the issuance of common stock that then shared in the earnings of the Trust. For
the three and nine months ended June 30,
Note 2 - Shareholders' Equity - Continued
1998 and 1997 diluted earnings per share was determined by dividing net income
for the period by the total of the weighted average number of shares of common
stock outstanding plus the dilutive effect of the Trust's outstanding options
using the treasury stock method which aggregated 8,083,069 and 8,169,639 and
8,495,557 and 8,601,149, respectively.
Note 3 - Real Estate Loans
If all loans classified as non-earning were earning interest at their
contractual rates for the three and nine months ended June 30, 1998 and 1997,
interest income would have increased by approximately $65,000 and $366,000 and
$182,000 and $499,000, respectively.
Note 4 - Comprehensive Income
In June 1997, the Financial Accounting Standards Board issued Statement No. 130,
Reporting Comprehensive Income, which is effective for fiscal years beginning
after December 15, 1997. Statement No. 130 establishes standards for reporting
comprehensive income and its components in a full set of general-purpose
financial statements and requires that all components of comprehensive income be
reported in a financial statement that is displayed with the same prominence as
other financial statements. The Trust elected early adoption of Statement No.
130 as of October 1, 1997. During the nine months ended June 30, 1998,
accumulated other comprehensive income, which is solely composed of the net
unrealized gain on available-for-sale securities, increased $1,382 from $726 to
$2,108.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Liquidity and Capital Resources
The Trust engages in the business of originating and holding for investment
senior real estate mortgages, secured by income producing property and to a
lesser extent junior real estate mortgage loans secured by income producing
property. Repayments of real estate loans in the amount of $30,756,000 are due
during the twelve months ending June 30, 1999, including $6,687,000 due on
demand. There presently exists a favorable environment for obtaining mortgage
financing secured by real property and for selling real estate. Accordingly,
prior to or at maturity, borrowers should be able to refinance and repay the
indebtedness due to the Trust. However, the Trust cannot project the portion of
loans maturing during the next twelve months which will be paid or the portion
of loans which will be extended for a fixed term or on a month to month basis.
In October 1996 the Trust entered into a $25,000,000 credit facility with Credit
Suisse First Boston Mortgage Capital LLC (formerly CS First Boston Mortgage
Capital Corp.) ("First Boston"). The facility, a revolving credit facility,
permits the Trust to borrow, repay and borrow again. Interest is charged on the
outstanding principal balance at the lower of prime plus 1% or Libor plus 3%,
adjusted monthly and matures on October 17, 1998. The Trust has the right to
extend the facility for two additional six-month periods for a fee of .25% with
each extension. The Trust can use funds borrowed under this facility for any
corporate purpose, the primary of which is lending. Borrowings under the credit
facility are secured by specific receivables and real estate assets held by the
Trust, and the credit agreement provides that the loan amount will never exceed
75% of the agreed value of the collateral. There was no balance outstanding
under the credit facility at June 30, 1998. As of August 10, 1998 the balance
outstanding under the facility is $4,500,000.
During the nine months ended June 30, 1998, the Trust generated cash of
$8,450,000 from the sale of real estate owned and $12,214,000 from collections
from real estate loans. These funds in addition to cash on hand, were used
primarily to fund real estate loans of $9,556,000 and purchase 340,266 shares of
beneficial interest of the Trust at an approximate aggregate cost of $2,707,000.
Cash and cash equivalents were $19,700,000 at June 30, 1998.
The Trust's Board of Trustees authorized the purchase from time to time of up to
1,250,000 shares of beneficial interest of the Trust. Through June 30, 1998,
749,657 shares have been purchased at an approximate aggregate cost of
$5,406,000. Subsequently the Trust's Board of Trustees authorized exceeding its
previous authorization to accommodate the purchase of an additional 364,280
shares. From July 1, 1998 through August 10, 1998 an additional 864,623 shares
have been purchased at an aggregate cost of $7,726,000.
Liquidity and Capital Resources - Continued
There will be no effect on the Trust's liquidity relating to the year 2000 issue
because during the last quarter of the 1997 fiscal year the Trust acquired
computer hardware and software to handle the Trust's accounting and real estate
management. The computer software is capable of handling all issues relating to
the year 2000. Non-compliance with the year 2000 issue by third parties with
whom the Trust has a relation will not have a material effect on the Trust's
business, financial condition or results of operations.
The Trust will 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 and sale of
real estate assets.
Results of Operations
Interest and fees on real estate loans increased by $164,000 to $1,312,000 for
the three months ended June 30, 1998 as compared to $1,148,000 for the
corresponding period in 1997. This category increased by $148,000 to $3,715,000
for the nine months ended June 30, 1998 as compared to $3,567,000 for the
corresponding period in 1997. The increases in both periods were primarily due
to a higher average balance of earning real estate loans and an increase in
discount income resulting from the prepayment of discounted loans during the
three and nine month periods.
Operating income on real estate owned decreased by $1,279,000 to $1,003,000 for
the three months ended June 30, 1998 as compared to $2,282,000 for the
corresponding period in 1997. This category decreased by $3,671,000 to
$3,106,000 for the nine months ended June 30, 1998 as compared to $6,777,000 for
the corresponding period in 1997. The decreases in both the three and six month
periods were primarily the result of the loss of rental income associated with
the sale of foreclosed properties.
During the nine month period ended June 30, 1997, there was a reversal of
previously provided allowances of $1,300,000. There was no such reversal in the
nine month period ended June 30, 1998.
Other revenues, primarily investment income increased by $192,000 to $224,000
for the three months ended June 30, 1998 as compared to $32,000 for the
corresponding period in 1997. This category increased by $437,000 to $668,000
for the nine months ended June 30, 1998 as compared to $231,000 for the
corresponding period in 1997. The increases in both the three and six month
periods were primarily the result of increased interest and dividends on higher
average balances of cash and investments.
Interest expense on notes and loans payable decreased by $60,000 to $25,000 for
the three months ended June 30, 1998 as compared to $85,000 for the
corresponding period in 1997. This category decreased by $22,000 to $75,000 for
the nine month period ended June 30, 1998 as compared to $97,000 for the
corresponding period in 1997. The decrease in both periods was the reduction and
payoff of outstanding debt under the revolving credit facility with First
Boston.
The Advisor's fee decreased by $25,000 to $126,000 for the three-month period
ended June 30, 1998 as compared to $151,000 for the corresponding period in
1997. This category decreased by $55,000 to $370,000 for the nine months ended
June 30, 1998 as compared to $425,000 for the corresponding period in 1997. The
decreases in both periods were a result of a decline in total invested assets,
the basis on which the fee is calculated.
Results of Operations - Continued
General and administrative expenses increased by $130,000 to $671,000 for the
three months ended June 30, 1998 as compared to $541,000 for the corresponding
period in 1997. This category increased by $181,000 to $1,888,000 for the nine
months ended June 30, 1998 as compared to $1,707,000 for the corresponding
period in 1997. The increases in each of the periods were primarily the result
of increased expenses, primarily salaries, rent and associated with the Trust's
expansion of staff and marketing efforts in order to generate new business.
Operating expenses relating to real estate assets decreased by $941,000 to
$611,000 for the three months ended June 30, 1998 as compared to $1,552,000 for
the corresponding period in 1997. This category decreased by $3,164,000 to
$1,828,000 for the nine months ended June 30, 1998 as compared to $4,992,000 for
the corresponding period in 1997. The decreases in both the three and six month
periods were primarily the result of the sale of foreclosed properties.
Amortization and depreciation decreased by $52,000 to $86,000 for the three
months ended June 30, 1998 as compared to $138,000 for the corresponding period
in 1997. This category decreased by $154,000 to $258,000 for the nine months
ended June 30, 1998 as compared to $412,000 for the corresponding period in
1997. The decrease is primarily the result of lower deferred mortgage costs to
be amortized as a result of the sale of various real estate assets and the
payoff of the underlying debt.
Gain on sale of foreclosed properties and available-for-sale investments was
$1,275,000 and $5,986,000 for the three and six-month periods ended June 30,
1998, respectively. There were no comparable gains in either period in 1997. It
is the policy of the Trust to offer for sale all foreclosed property at prices
that management believes represent fair value.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
The Trust did not file any reports on Form 8-K during the quarter ended June 30,
1998, except for an 8-K dated July 20, 1998 which reported the purchase by the
Trust of shares of beneficial interest of the Trust.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BRT REALTY TRUST
Registrant
08/13/98 /s/ Jeffrey Gould
----------------------------
Date Jeffrey Gould, President
08/13/98 /s/ David W. Kalish
-----------------------------
Date David W. Kalish, Senior Vice President - Finance