SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the quarterly period ended December 31, 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.
7,165,263 Shares of Beneficial Interest,
$3 par value, outstanding on February 10, 1999
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
(Amounts In Thousands)
December 31, September 30,
1998 1998
(Unaudited) (Audited)
ASSETS
Real estate loans - Note 3:
Earning interest $ 53,899 $ 51,175
Less allowance for possible losses 2,041 2,041
---------- ----------
51,858 49,134
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Real estate assets:
Foreclosed properties held for sale 16,263 16,622
Investment in real estate venture 613 613
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16,876 17,235
Less valuation allowance 349 349
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16,527 16,886
--------- ----------
Cash and cash equivalents 15,670 13,949
Securities available-for-sale at market 2,743 3,364
Other assets 1,813 2,488
---------- ----------
Total Assets $ 88,611 $ 85,821
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Note payable - Credit facility $ 5,500 $ 5,500
Loans and mortgages payable 8,277 8,494
Accounts payable and accrued liabilities,
including deposits of $1,234 and $1,253 2,090 2,080
--------- --------
Total Liabilities 15,867 16,074
-------- -------
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 - 8,888 shares at each date 26,665 26,665
Additional paid-in capital, net of
distributions of $5,171 81,521 81,521
Accumulated other comprehensive income - net
unrealized gain on available-for-sale securities 840 769
Accumulated deficit (21,402) (24,328)
--------- --------
87,624 84,627
Cost of 1,723 treasury shares of
beneficial interest at each date (14,880) (14,880)
--------- ---------
Total Shareholders' Equity 72,744 69,747
--------- ---------
Total Liabilities and Shareholders' Equity $ 88,611 $ 85,821
========= =========
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
December 31,
1998 1997
---- ----
Revenues:
Interest and fees on real estate loans $ 2,099 $ 1,282
Operating income on real estate owned 939 984
Other, primarily investment income 155 180
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Total Revenues 3,193 2,446
---------- ----------
Expenses:
Interest-notes payable and loans payable 144 25
Advisor's fee 154 121
General and administrative 686 572
Operating expenses relating to real estate
owned including interest on mortgages
of $155 and $235 617 643
Amortization and depreciation 85 86
---------- -----------
Total Expenses 1,686 1,447
---------- ----------
Income before gain on sale of foreclosed
properties and investments available-for-sale 1,507 999
Net gain on sale of real estate loans and
foreclosed properties held for sale 986 2,154
Net realized gain on available-for-sale securities 433 -
--------- --------------
Net Income $ 2,926 $ 3,153
=========== ===========
Income per share of Beneficial Interest:
Basic and diluted earnings per share $ .41 $ .38
========== ============
Accumulated deficit, beginning of period $ (24,328) $ (37,916)
Net income 2,926 3,153
--------- -----------
Accumulated deficit, end of period $ (21,402) $ (34,763)
========= ==========
See Accompanying Notes to Consolidated Financial Statements.
BRT REALTY TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In Thousands)
Three Months Ended
December 31,
1998 1997
---- ----
Cash flow from operating activities:
Net income $2,926 $3,153
Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization and depreciation 85 86
Gain on sale of real estate and foreclosed properties (986) (2,154)
Gain on sale of available-for-sale securities (433) -
Capitalization of earned interest income to loan
balance in accordance with agreement - (154)
Increase in interest receivable (6) (71)
Increase in prepaid expenses (37) (9)
(Increase) Decrease in accounts payable
and accrued liabilities 102 (332)
Decrease in deferred revenues (53) (40)
Decrease in rent receivables - 46
Decrease in escrow deposits 55 298
Increase in deferred costs (34) (5)
Net change in other assets 668 (114)
---------- ----------
Net cash provided by operating activities 2,287 704
--------- ----------
Cash flows from investing activities:
Collections from real estate loans 9,787 6,134
Additions to real estate loans (11,612) (1,414)
Net costs capitalized to real estate owned (162) (75)
Proceeds from sale of real estate owned 607 3,655
Decrease in deposits payable (93) (397)
Purchase of marketable securities - (347)
Sales of marketable securities 1,124
Other - (151)
----------- ---------
Net cash (used in) provided by investing activities (349) 7,405
--------- ---------
Cash flow from financing activities:
Payoff/paydown of loan and mortgages payable (217) (210)
Repurchase of shares of beneficial interest, a portion of
which were cancelled - (1,944)
Other - (19)
----------- ----------
Net cash used in financing activities (217) (2,173)
--------- ---------
Net increase in cash and cash equivalents 1,721 5,936
Cash and cash equivalents at beginning of period 13,949 10,152
------- --------
Cash and cash equivalents at end of period $15,670 $16,088
======= =======
Supplemental disclosure of cash flow information:
Cash paid during the period for interest expense $ 314 $ 286
========= =========
See Accompanying Notes to Consolidated Financial Statements.
BRT REALTY TRUST AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 1 - Basis of Preparation
The accompanying interim unaudited consolidated financial statements as of
December 31, 1998 and for the three months ended December 31, 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 months ended December 31, 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. 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 "BRT".
These statements should be read in conjunction with the consolidated financial
statements and related notes which are included in BRT's Annual Report on Form
10-K for the year ended September 30, 1998.
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. Actual
results could differ from those estimates.
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.
Note 2 - Shareholders' Equity - Continued
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 7,165,263 for the three month periods ended December 31, 1998
and 8,240,248 for the three month periods ended December 31, 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 BRT. For the three months ended December 31, 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 BRT's outstanding options using the
treasury stock method which aggregated 7,178,668 and 8,288,853 respectively.
Note 3 - Real Estate Loans
If all loans classified as non-earning were earning interest at their
contractual rates for the three months ended December 31, 1997, interest income
would have increased by approximately $148,000. During the three month period
ended December 31, 1998 there were no non-interest earning loans.
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. BRT elected early adoption of Statement No. 130 as
of October 1, 1997. During the three months ended December 31, 1998, accumulated
other comprehensive income, which is solely composed of the net unrealized gain
on available-for-sale securities, increased $71,000 from $769,000 to $840,000.
Note 5 - Segment Reporting
In June 1997 the Financial Accounting Standards Board issued Statement No. 131,
Disclosure About Segments of an Enterprise and Related Information, which is
effective for financial statements issued for periods beginning after December
15, 1997. Statement No. 131 requires disclosures about segments of an enterprise
and related information regarding the different types of business activities in
which an enterprise engages and the different economic environments in which it
operates. The Trust does not believe that the implementation of Statement No.
131 will have a material impact on its financial statements.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Liquidity and Capital Resources
BRT 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 $33,475,000 are due during the
twelve months ending December 31, 1999, including $3,194,000 due on demand. The
availablity of mortgage financing secured by real property and the market for
selling real estate is cyclical. Presently the mortgage market is in an
uncertain state and the market for selling real estate does not appear to be as
active or as positive as it was in the prior year or two. Accordingly, BRT
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 revolving credit facility
with Credit Suisse First Boston Mortgage Capital LLC. Interest is charged on the
outstanding principal balance at the lower of prime plus 1% or Libor plus 3%,
adjusted monthly. The facility matured on October 17, 1998. BRT extended the
facility with the payment of a $62,500 fee and has the right to extend the
facility to October 17, 1999 with the payment of an additional fee of .25%. BRT
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 BRT, and the credit
agreement provides that the loan amount will never exceed 75% of the agreed
value of the collateral. At December 31, 1997 there was no balance outstanding
under the credit facility. At December 31, 1998 there was an outstanding balance
of $5,500,000.
During the three months ended December 31, 1998, the Trust generated cash of
$607,000 from the sale of real estate owned and $9,787,000 from collections from
real estate loans. These funds in addition to cash on hand, were used primarily
to fund real estate loan originations of $11,612,000. BRT is currently
negotiating a new secured credit facility, but there can be no assurance that
such a facility will be concluded. If a new credit facility is not concluded,
BRT intends to repay the amount due under the current credit facility from a
combination of cash generated from operations, loan repayments, and if
necessary, from the sale of mortgage receivables, and secured or unsecured
borrowings. BRT's cash and cash equivalents were $15,670,000 at December 31,
1998 which was more than adequate to repay the outstanding balance.
There will be no effect on BRT's liquidity relating to the year 2000 issue
because during the last quarter of the 1997 fiscal year the Trust acquired new
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. BRT has also reviewed the impact of the failure of its tenants,
borrowers or suppliers to be year 2000 compliant. Based upon its review and the
nature of BRT's business, the inability of its tenants, borrowers and/or
suppliers to be year 2000 compliant will not have a material adverse effect on
BRT's business.
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 $817,000 to $2,099,000 for
the three months ended December 31, 1998 as compared to $1,282,000 for the
corresponding period in 1997. The increase was primarily due to a higher average
balance of earning real estate loans and the payoff in full (principal and
interest) of a loan that was previously deemed uncollectable.
Operating income on real estate owned decreased by $45,000 to $939,000 for the
three months ended December 31, 1998 as compared to $984,000 for the
corresponding period in 1997. The decrease is primarily the result of reduced
rental income associated with the sale of foreclosed properties.
Other revenues, primarily investment income decreased by $25,000 to $155,000 for
the three months ended December 31, 1998 as compared to $180,000 for the
corresponding period in 1997. The decrease is primarily the result of decreased
interest and dividends on lower average balances of cash and investments.
Interest expense on notes and loans payable increased by $119,000 to $144,000
for the three months ended December 31, 1998 as compared to $25,000 for the
corresponding period in 1997. The increase was due to a higher average
outstanding balance under the credit facility with First Boston.
The Advisor's fee increased by $33,000 to $154,000 for the three-month period
ended December 31, 1998 as compared to $121,000 for the corresponding period in
1997. The increase was the result of a increase in total invested assets, the
basis on which the fee is calculated.
General and administrative expenses increased by $114,000 to $686,000 for the
three months ended December 31, 1998 as compared to $572,000 for the
corresponding period in 1997. The increase was primarily the result of increased
expenses, primarily salaries, rent and costs 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 $26,000 to
$617,000 for the three months ended December 31, 1998 as compared to $643,000
for the corresponding period in 1997. The decrease was primarily the result of
the sale of foreclosed properties.
Gain on sale of foreclosed properties and available-for-sale investments was
$1,419,000 for the three months ended December 31, 1998 as compared to
$2,154,000 for the comparable period in 1997. It is the policy of BRT 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 December
31, 1998.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BRT REALTY TRUST
Registrant
February 10, 1999 /s/ Jeffrey Gould
- ---------------- ------------------
Date Jeffrey Gould, President
February 10, 1999 /s/ George Zweier
- ----------------- -----------------
Date George Zweier, Vice President
and Chief Financial Officer