SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the quarterly period ended March 31, 1999
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 May 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
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Part 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
BRT REALTY TRUST AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Amounts In Thousands)
March 31, September 30,
1999 1998
---- ----
(Unaudited) (Audited)
ASSETS
Real estate loans - Note 3:
Earning interest $ 49,890 $ 51,175
Less allowance for possible losses 2,041 2,041
---------- ----------
47,849 49,134
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Real estate assets:
Foreclosed properties held for sale 15,788 16,622
Investment in real estate venture 613 613
---------- -----------
16,401 17,235
Less valuation allowance 349 349
----------- -----------
16,052 16,886
--------- ----------
Cash and cash equivalents 15,380 13,949
Securities available-for-sale at market 1,370 3,364
Real estate loans held for sale - Note 3 7,873 -
Other assets 1,862 2,488
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Total Assets $ 90,386 $ 85,821
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Note payable - Credit facility $ 5,500 $ 5,500
Loans and mortgages payable 8,055 8,494
Accounts payable and accrued liabilities,
including deposits of $1,489 and $1,253 2,520 2,080
--------- --------
Total Liabilities 16,075 16,074
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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 224 769
Accumulated deficit (19,219) (24,328)
--------- --------
89,191 84,627
Cost of 1,723 treasury shares of
beneficial interest at each date (14,880) (14,880)
--------- ---------
Total Shareholders' Equity 74,311 69,747
--------- ---------
Total Liabilities and Shareholders' Equity $ 90,386 $ 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 Six months ended
March 31, March 31,
1999 1998 1999 1998
---------- --------- --------- ---------
Revenues:
Interest and fees on real estate loans $ 1,927 $ 1,121 $ 4,026 $ 2,403
Operating income on real estate owned 913 1,119 1,852 2,103
Other, primarily investment income 162 264 317 444
----------- --------- ---------- ----------
Total Revenues 3,002 2,504 6,195 4,950
Expenses:
Interest-notes payable and loans payable 135 25 279 50
Advisor's fee 162 123 316 244
General and administrative 873 645 1,559 1,217
Operating expenses relating to real estate
owned including interest on mortgages
of $172 and $246 for the three-month periods
and $327 and $481 for the six-month
periods, respectively 564 574 1,181 1,217
Amortization and depreciation 83 86 168 172
---------- ---------- ---------- ----------
Total Expenses 1,817 1,453 3,503 2,900
---------- ---------- ---------- ----------
Income before gain on sale of real estate
Loans and foreclosed properties held for
sale and available-for-sale securities 1,185 1,051 2,692 2,050
Net gain on sale of real estate loans and
foreclosed properties held for sale 791 2,557 1,777 4,711
Net realized gain on available-for-sale securities 207 - 640 -
---------- ---------- ---------- ------------
Net Income $ 2,183 $ 3,608 $ 5,109 $ 6,761
========== ========= ========= ===========
Income per share of Beneficial Interest:
Basic earnings per share $ 0.30 $ 0.45 $ 0.71 $ 0.83
========== ========== ========== ==========
Diluted earnings per share $ 0.30 $ 0.44 $ 0.71 $ 0.82
========== ========== ========== ==========
Accumulated deficit, beginning of period $ (21,402) $ (34,764) $ (24,328) $ (37,917)
Net income 2,183 3,608 5,109 6,761
----------- ---------- --------- ---------
Accumulated deficit, end of period $ (19,219) $ (31,156) $ (19,219) $ (31,156)
=========== =========== ========== ==========
See Accompanying Notes to Consolidated Financial Statements.
BRT REALTY TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In Thousands)
Six Months Ended
March 31,
1999 1998
---- ----
Cash flow from operating activities:
Net income $ 5,109 $ 6,761
Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization and depreciation 168 172
Gain on sale of real estate and foreclosed properties (1,777) (4,711)
Gain on sale of available-for-sale securities (640) -
Capitalization of earned interest income to loan
balance in accordance with agreement - (386)
Increase in interest receivable (73) (2)
Decrease in prepaid expenses 18 33
Increase (decrease) in accounts payable
and accrued liabilities 284 (389)
Increase (decrease) in deferred revenues 21 (104)
Decrease in rent receivables - 77
Increase in escrow deposits 321 208
Increase in deferred costs (108) (5)
Net change in other assets 623 (197)
----------- -----------
Net cash provided by operating activities 3,946 1,851
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Cash flows from investing activities:
Collections from real estate loans 11,762 7,801
Additions to real estate loans (17,450) (3,486)
Net costs capitalized to real estate owned (203) (305)
Proceeds from sale of real estate owned 1,913 6,669
Decrease in deposits payable (187) (272)
Purchase of marketable securities - (347)
Sales of marketable securities 2,089
Other - 162
----------- -----------
Net cash (used in) provided by investing activities (2,076) 10,222
----------- ----------
Cash flow from financing activities:
Payoff/paydown of loan and mortgages payable (439) (534)
Repurchase of shares of beneficial interest, a portion of
which were cancelled - (2,425)
Other - (20)
---------- ----------
Net cash used in financing activities (439) (2,979)
---------- ---------
Net increase in cash and cash equivalents 1,431 9,094
Cash and cash equivalents at beginning of period 13,949 10,152
------- --------
Cash and cash equivalents at end of period $ 15,380 $ 19,246
======== ========
Supplemental disclosure of cash flow information:
Cash paid during the period for interest expense $ 616 $ 546
========= ==========
See Accompanying Notes to Consolidated Financial Statements.
BRT REALTY TRUST AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 1 - Basis of Preparation
The accompanying interim unaudited consolidated financial statements as of March
31, 1999 and for the three and six months ended March 31, 1999 and 1998 reflect
all normal recurring adjustments which are, in the opinion of management,
necessary for a fair statement of the results for such interim periods. The
results of operations for the three and six months ended March 31, 1999 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.
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 both the three and six month periods ended March
31, 1999 and 8,089,500 and 8,165,702 for the three and six month periods ended
March 31, 1998, 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 and six months ended March 31, 1999 and 1998 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 BRT's outstanding options using the treasury stock method
which aggregated 7,202,494 and 7,188,374 and 8,134,254 and 8,212,429
respectively.
Note 3 - Real Estate Loans
If all loans classified as non-earning were earning interest at their
contractual rates for the three and six months ended March 31, 1998, interest
income would have increased by approximately $153,000 and $301,000,respectively.
During the three and six month period ended March 31, 1999 there were no
non-interest earning loans.
Real Estate loans held for sale are carried at the lower of cost or estimated
fair value. Unrealized losses are recognized in a valuation allowance by a
charge to operating earnings. At March 31, 1999 real estate loans held for sale
totaled $7,873,000. The cost of these loans approximated estimated fair value.
Market value was determined based on contractual commitments from third parties
to purchase the loans.
Profits and losses relating to the sale of real estate loans are recognized when
all indications of legal control pass to the buyer and the sales price is
collected.
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 March 31, 1999, accumulated
other comprehensive income, which is solely composed of the net unrealized gain
on available-for-sale securities, decreased $616,000 from $840,000 to $224,000.
For the six months ended March 31, 1999 accumulated other comprehensive income
decreased $545,000 from $769,000 to $224,000.
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 establishes standards for the way public
business enterprises report information about operating segments in annual
financial statements and requires that those enterprises report selected
information about operating segments in interim financial reports. It also
establishes standards for related disclosures about products and services,
geographic areas, and major customers. BRT adopted Statement No. 131 as of
October 1, 1998. As BRT operates predominantly in one industry segment,
management believes it is in compliance with the standards established by
Statement No. 131.
Subsequent Event
On May 4, 1999 BRT sold senior participating interests in several real
estate loans. These senior participating interests, which totaled $7,873,000
were classified as held for sale and were sold at cost, which approximated
estimated fair value.
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.
BRT from time to time, will sell senior participating interests in its loans to
other institutions. Repayments of real estate loans in the amount of $37,169,000
are due during the twelve months ending March 31, 2000, including $2,303,000 due
on demand. The availability of mortgage financing secured by real property and
the market for selling real estate is cyclical. 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 to April 17, 1999 with a payment of $62,500 and further extended the
facility to October 17, 1999 with an additional fee of $13,750. There are no
further extension periods after October 17, 1999. During the current extension
period BRT is precluded from borrowing any additional funds under this facility.
Borrowings under the credit facility are secured by specific receivables and
real estate assets held by BRT. At March 31, 1999 and March 31, 1998 there was
an outstanding balance under the credit facility of $5,500,000 and $0
respectively. On May 7, 1999 BRT repaid the entire balance outstanding under the
credit facility.
During the six months ended March 31, 1999, the Trust generated cash of
$1,913,000 from the sale of real estate owned and $11,762,000 from collections
from real estate loans. These funds in addition to cash on hand, were used
primarily to fund real estate loan originations of $17,450,000. 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 $15,380,000 at March 31, 1999
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, interest received on outstanding real estate loans, net cash flow
generated from the operation of real estate assets and from time to time the
sale of senior participating interests in its loans.
Results of Operations
Interest and fees on real estate loans increased by $806,000 to $1,927,000 for
the three months ended March 31, 1999 as compared to $1,121,000 for the
corresponding period in 1998. The increase was due to a higher average balance
of earning real estate loans during the quarter. This category also increased by
$1,623,000 to $4,026,000 for the six months ended March 31, 1999 as compared to
$2,403,000 for the corresponding period in 1998. This increase was also due to a
higher average balance of earning real estate loans during the current six month
period.
Operating income on real estate owned decreased by $206,000 to $913,000 for the
three months ended March 31, 1999 as compared to $1,119,000 for the
corresponding period in 1998. During the six month period ended March 31, 1999
this category decreased $251,000 from $2,103,000 to $1,852,000. The decrease for
both periods is primarily the reduction of rental income that has resulted from
the continued sale of foreclosed properties.
Other revenues, primarily investment income decreased by $102,000 to $162,000
for the three months ended March 31, 1999 as compared to $264,000 for the
corresponding period in 1998. This category also decreased by $127,000 to
$317,000 for the six months ended March 31, 1999 compared to $444,000 for the
corresponding period in 1998. These decreases are the result of decreased
interest and dividends on lower average balances of cash and investments.
Interest expense on notes and loans payable increased by $110,000 to $135,000
for the three months ended March 31, 1999 as compared to $25,000 for the
corresponding period in 1998. During the six month period ended March 31, 1999
interest expense increased by $229,000 from $50,000 to $279,000. The increases
in both periods is the result of having a higher outstanding balance under the
credit facility with First Boston.
The Advisor's fee increased by $39,000 to $162,000 for the three-month period
ended March 31, 1999 as compared to $123,000 for the corresponding period in
1998. For the six months ended March 31, 1999 the advisor's fees increased by
$72,000 to $316,000 from $244,000. These increases were the result of an
increase in total invested assets, the basis on which the fee is calculated.
General and administrative expenses increased by $228,000 to $873,000 for the
three months ended March 31, 1999 as compared to $645,000 for the corresponding
period in 1998. This category increased by $342,000 to $1,559,000 for the six
months ended March 31, 1999 as compared to $1,217,000 for the corresponding
period in 1998. The increases in both periods was primarily the result of
increased expenses, primarily salaries, rent and costs associated with BRT's
expansion of staff and marketing efforts in order to generate new business.
Operating expenses relating to real estate assets decreased by $10,000 to
$564,000 for the three months ended March 31, 1999 as compared to $574,000 for
the corresponding period in 1998. This category decreased by $36,000 to
$1,181,000 for the six months ended March 31, 1999 as compared to $1,217,000 for
the corresponding period in 1998. These slight decreases were the result of
decreased interest expense on mortgages that were offset by a general increase
in operating expenses on BRT's commercial real estate assets.
Net gains on sale of real estate loans and foreclosed properties and
available-for-sale investments was $998,000 for the three months ended March 31,
1999 as compared to $2,557,000 for the comparable period in 1998. For the six
month period net gains on sale of real estate loans and foreclosed properties
and available-for-sale investments was $2,417,000 as compared to $4,711,000 for
the comparable period in 1998. It is the policy of BRT to offer for sale all
foreclosed property at prices that management believes represent fair value.
Item 3. Quantitative and Qualitative Disclosures About Market Risks
BRT has considered the effects of derivatives and exposures to market risk
relating to interest rate, foreign currency exchange rate, commodity price and
equity price risk. BRT has assessed the market risk for its variable rate debt
and variable rate mortgage receivables and believes that a one-percent change in
interest rates would not have a material effect on net income.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
The Trust did not file any reports on Form 8-K during the quarter ended March
31, 1999.
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
May 12, 1999 /s/ Jeffrey Gould
- ------------ ------------------
Date Jeffrey Gould, President
May 12, 1999 /s/ George Zweier
- ------------ -----------------
Date George Zweier, Vice President
and Chief Financial Officer
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.