SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________________
FORM 10-K
________________________
[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, 1994
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
- - ---------------------------------------
(State or other jurisdiction 13-2755856
of incorporation or organization) ---------------
(I.R.S. employer
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:
Name of each exchange
Title of each class 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 $19,075,000 as of December 1, 1994.
As of December 1, 1994 the registrant had 7,346,624 Shares of
Beneficial Interest issued and outstanding.
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 30, 1995,
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.
Commencing in 1983 its primary business activity was investing in senior and
junior real estate mortgages secured by income producing real property and to a
limited extent in senior real estate loans secured by undeveloped real property.
BRT did not finance new construction. For the reasons described under the
subcaption "Recent History and Background" below, particularly the Trust's
agreement with the Banks who were parties to the Original Credit Agreement
(defined below) not to engage in lending activities except in specified
situations, the Trust's lending activities have been very limited since 1991 and
in the fiscal year ending September 30, 1994 ("Fiscal 1994") the only lending
activity in which the Trust engaged was purchase money first mortgages provided
to purchasers of real estate from the Trust.
In Fiscal 1994 the Trust's business activities involved primarily managing
the Trust's loan portfolio, continuing mortgage foreclosure actions against
delinquent borrowers, negotiating workouts prior to, during and in lieu of
litigation, supervising the refurbishing and maintenance of real estate owned
and negotiating and supervising negotiations with respect to leasing and sale of
real estate owned held for sale. It is not expected that the activities of the
Trust will change in any material respect in the fiscal year ending September
30, 1995 ("Fiscal 1995"). At September 30, 1994, the fiscal year end, the Trust
had an outstanding loan portfolio (net of allowances) of $64,686,000,or 49.2% of
total assets, of which 15.9% of the loan portfolio (7.9% of total assets) is
categorized as non-earning. This compares to an outstanding loan portfolio, net
of allowances, of $99,466,000 (61.3% of total assets) at September 30, 1993, of
which 26.9% of the loan portfolio (16.5% of total assets) were categorized as
non-earning. Approximately 39.6% of the Trust's total assets at September 30,
1994, or an aggregate of $52,076,000 (after valuation allowances), represents
real property acquired by the Trust in foreclosure or deed in lieu of foreclo-
sure, compared to $47,933,000 or 29.5% of total assets at September 30, 1993.
RECENT HISTORY AND BACKGROUND
Commencing in the fiscal year ending September 30, 1990 ("Fiscal 1990")
and continuing through the fiscal years ending September 30, 1991 ("Fiscal
1991") and 1992 ("Fiscal 1992"), difficulties in the real estate markets where
the Trust had outstanding loans (primarily the greater New York metropolitan
area) and a severe lack of liquidity in the real estate industry generally,
resulted in the Trust experiencing increasing delinquencies from its borrowers.
Non-earning loans
increased from $5,330,000, representing 3% of a total loan portfolio of
$192,520,000 at September 30, 1989, to $46,260,000 or 23% of a total loan
portfolio of $200,894,000 at September 30, 1990, and $71,166,000 or 39% of a
total loan portfolio of $182,541,000 at September 30, 1991. As a reaction to the
increase in non-earning loans, the Trust commenced and 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. Another major reason for
aggressively pursuing foreclosure actions was protection of the operating cash
flow from a property through a court appointed receiver or a negotiated third
party management arrangement. Due to the backlog in the courts (primarily in
New York City) and further delays caused by bankruptcy filings of borrowers, the
foreclosure process as to a particular property could take as much as two years
(or more) and invariably took more than one year. As a result of the actions
taken by BRT against delinquent borrowers, non-earning loans decreased to
$44,250,000 (29% of a loan portfolio of $151,821,000) at September 30, 1992 to
$26,750,000 (22% of a loan portfolio of $122,103,000) at September 30, 1993 and
to $10,268,000 (13% of a loan portfolio of $78,007,000) at September 30, 1994.
From September 30, 1994 to December 1, 1994 non-earning loans decreased by an
additional $577,000.
As a corollary to the decrease in non-earning loans, the Trusts' portfolio
of real estate owned increased even after taking into account sales of real
estate owned. At September 30, 1994, 1993 and 1992 the Trust owned $52,076,000,
$47,933,000 and $35,574,000, respectively, of foreclosed property held for sale
(except for approximately $14,260,000 at September 30, 1994 and $14,157,000 at
September 30, 1993 (net of accumulated depreciation) which is held long term for
the production of income), net of valuation allowances. At September 30, 1994,
1993 and 1992 foreclosed properties held for sale (net of valuation allowances
and accumulated depreciation) accounted for 39%, 30% and 20%, respectively, of
total assets. From September 30, 1994 to December 1, 1994 the Trust added an
additional $2,300,000 to real estate owned and sold $3,285,000 (book value) of
real estate owned for a gain on sale of foreclosed properties held for sale of
approximately $2,500,000, resulting in a net decrease of real estate owned of
$985,000.
During Fiscal 1991, in negotiations with the banks ("Banks") which were
parties to the Original Credit Agreement (hereafter defined), the Trust agreed
that while negotiations were pending to restructure the Original Credit
Agreement it would not engage in any lending activities, except for funding
outstanding commitments. This agreement is contained in the Restated Credit
Agreement entered into between BRT and the Banks as of September 23, 1992 (see
"Restated Credit Agreement" below). The Trust does not have any outstanding
funding commitments and did not have any outstanding funding commitments at the
beginning of Fiscal 1994. Except for purchase money first mortgages taken back
in connection with the sale
of real estate owned (which pursuant to the Restated Credit Agreement cannot
exceed 90% of the purchase price) and purchase money senior financing taken back
in connection with the sale of cooperative units (which pursuant to the Restated
Agreement cannot exceed 95% of the purchase price) the Trust did not engage in
any lending activities in the fiscal year ending September 30, 1994. Except for
purchase money financing permitted by the Restated Credit Agreement or with the
prior approval of the Banks, BRT will not engage in lending activities until the
earlier of the expiration of the Restated Credit Agreement (as extended pursuant
to its terms) or repayment of the principal balance due to the Banks.
As a result of the provisions of the Restated Credit Agreement (which
essentially precludes lending activities) the business of the Trust in Fiscal
1994, as stated above, involved primarily managing the Trust's loan portfolio,
continuing actions against delinquent borrowers (all of which are now
substantially completed), negotiating workouts prior to, during and in lieu of
litigation, supervising the refurbishing and maintenance of real estate owned
and negotiating or supervising negotiations with respect to the leasing and sale
of real estate owned. In Fiscal 1995 the Trust's primary focus will be on real
estate operations, the disposition of real estate owned and the realization of
the principal balance of mortgages receivable in the Trusts' loan portfolio.
As a direct consequence of the provisions of the Restated Credit Agreement
and the strict limitation on the Trusts' lending activities, the assets of the
Trust decreased from $176,594,000 at September 30, 1992 to $162,217,000 at
September 30, 1993 and $131,467,000 at September 30, 1994. In this regard it
should be noted that (i) real estate loans, net of allowances, decreased by
$34,780,000 in Fiscal 1994 primarily due to principal payoffs or reductions of
$22,562,000, net of repayments to participating lenders, and reclassification of
$17,132,000 principal amount of loans to real estate owned, offset in part by
the issuance of $6,242,000 of purchase money mortgages in connection with the
sale of real estate owned and (ii) real estate owned, net of valuation
allowances and accumulated depreciation, and after giving effect to real estate
sales in Fiscal 1994 aggregating a book value of $12,896,000, increased by
$4,143,000 at September 30, 1994 as compared to September 30, 1993. Under the
terms of the Restated Credit Agreement, the Trust has applied a major portion of
the proceeds derived from loan repayments and real property sales to reduction
of bank debt. During the year ended September 30, 1994 bank debt was reduced
by $26,593,000 to $66,192,000. From September 30, 1994 to December 1, 1994 the
bank debt was reduced by an additional $3,042,000 to $63,150,000.
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
substantially all such real estate at prices which management believes
represents fair value in the geographic area in which the property is located.
In many instances, the Trust,
through an independent contractor, renovates a property and engages in leasing
activities, and within the limitations contained in the Restated Credit Agree-
ment may provide 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
1994 the Trust disposed of real estate having an aggregate net book value of
$12,896,000, for an aggregate consideration of $14,214,000. Additionally,
during Fiscal 1994 the Trust sold shares in cooperative apartments, resulting in
net proceeds of approximately $334,000 (net of purchase money mortgages of
$700,000).
MORTGAGE PORTFOLIO
At September 30, 1994 the Trust's mortgage portfolio consisted of 84
mortgage loans totalling $78,007,000 in aggregate principal amount, of which
$10,268,000, or 13%, was non-earning. Of the principal amount of mortgage loans
outstanding at September 30, 1994, 70% represented first mortgage loans and 30%
represented junior mortgage and wraparound loans. In Fiscal 1994 the Trust's
only lending activities consisted of $6,242,000 in 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 short term basis (2 to 5 years) and to purchasers of cooperative apartments
on a long term basis (20 to 30 years).
At the time the Trust was actively engaged in mortgage lending, its
investment policy emphasized primarily investments in short-term senior and
junior real estate mortgage loans, secured by income producing real property,
located primarily in the greater New York metropolitan area. Junior mortgage
loans are subordinate to one or more prior liens. Some of the junior mortgage
loans were wraparound loans which are mortgages subject to prior underlying
mortgage indebtedness. The Trust also invested in short-term senior mortgages
secured by properties being converted to condominium or cooperative ownership or
by condominium units or unsold shares (and related proprietary leases).
Typically the condominium units or unsold shares (and related proprietary
leases) were released against payment of a minimum release price.
In 1989 and 1990 the Trust began investing in longer term senior
participating mortgage loans, secured by garden apartment developments located
in Dallas/Fort Worth, Houston, and Austin, Texas. At September 30, 1994
mortgage loans in this category aggregated $16,767,000 all of which are
categorized as earning. In Fiscal 1994 $9,332,000 of participating mortgage
loans was repaid. With respect to the participating mortgage portfolio, the
Trust receives a floating rate of interest related to prime, and additional
interest based on the increase in value (if any)
of the property which secures the mortgage, either upon sale, maturity,
refinancing or early repayment. The additional interest is based upon the
amount by which the sales price or appraised value at maturity or prepayment
exceeds an agreed upon base amount.
The Trust never invested in mortgages secured by property located outside
the United States, Puerto Rico and Canada. Investments in mortgage loans
secured by properties located in Puerto Rico and Canada were made on a limited
basis.
The mortgage loans in which the Trust invested were not insured. In the
event of a default by the borrower, the Trust was required to foreclose its
mortgage or protect its investment through negotiations with the borrower and/or
other interested parties, which in certain situations involved cash outlays.
The mortgages securing the Trust's mortgage loans, in certain circumstances,
were subordinate to mechanics' liens or governmental liens and, in instances in
which the Trust invested in junior mortgage loans or wraparound loans, to liens
of senior mortgages. In the event the underlying asset value proved to be
insufficient to satisfy both the senior and junior lienholder, the Trust lost a
portion or all of its investment. In certain situations in order to protect its
investment, the Trust has made payments to maintain the current status of prior
liens (including real estate taxes) or purchased the prior lien. These payments
were not significant in Fiscal 1994. It is possible that the total amount which
may be recovered by the Trust upon the ultimate sale of a property will differ
from the total investment less the allowance for possible losses.
As a result of a difficult real estate market (other than the Texas market
which has not been affected in recent years) and the overall attitude of lenders
towards real estate loans, many of the Trust's borrowers were not able to obtain
financing from a third party or arrange a sale at an acceptable price at the
time the Trust's loan matured and sales of cooperative apartments did not occur
as contemplated at the time of the original loan. In addition to foreclosing on
a number of properties, the Trust restructured loans, which include in most
cases extending the maturity date. The Trust analyzes each loan separately to
determine the appropriateness of restructuring and extending a loan. In
analyzing each situation, management examines many aspects of a loan receivable,
including the value of the collateral, the financial strength of the borrower,
past payment history and plans of the owner for the property. Management
believes that in Fiscal 1994 there was a more favorable environment for
obtaining financing secured by real property and in selling real property assets
but sales of cooperative units has continued to be very slow. Management
anticipates that extensions for an additional period of time may be granted for
loans maturing during 1995.
The Trust did not have a policy or limitation upon the amount or
percentage of
its assets which could have been invested in a single mortgage loan. However,
the Revolving Credit Agreement dated as of July l, 1987 ("Original Credit
Agreement") among BRT and Bankers Trust Company, individually and as agent for
five banks, contained limitations on loans to one (or affiliated) borrower(s).
These prohibitions are not contained in the Restated Credit Agreement in view of
the preclusion therein against BRT engaging in lending activities, except in
specified situations.
CURRENT LOAN STATUS
As of September 30, 1994 the Trust had 84 mortgage loans in its mortgage
portfolio, totaling $78,007,000 in aggregate principal amount (including non-
earning loans) and $64,686,000 after allowances for possible losses. In Fiscal
1994 $22,562,000 of outstanding loans (net of repayments to participating
lenders) was repaid and $17,137,000 was converted from outstanding loans to real
estate owned. The five largest mortgage loans outstanding after allowances for
possible loans represent 7.1%, 6.3%, 4.7%, 2.7%, and 2.3% 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, 1994:
(Amounts in thousands)
Not No.
Earning Earning Prior of
Total Interest Interest Liens Loans
----- -------- -------- ----- -----
First Mortgage Loans:
Long-term:
Residential $ 1,603 $ 1,603 $ - $ - 31
Short-term:
Shopping centers/
retail 3,679 3,679 - - 7
Industrial buildings 4,249 4,249 - - 3
Office buildings 7,969 7,969 - - 3
Residential (multiple
family units) 33,614 33,037 577 - 20
Hotels 1,339 1,339 - - 1
Miscellaneous 2,289 2,289 - - 1
Second Mortgage Loans:
Shopping centers/
retail 3,331 187 3,144 8,612 4
Office buildings 691 691 - 2,377 1
Residential (multiple
family units) 17,196 12,104 5,092 194,799 9
Hotel 1,000 - 1,000 12,000 1
Wraparound mortgages 1,063 608 455 4,709 3
--------- -------- ------- -------- ----
78,023 67,755 10,268 222,497 84
----
Unearned income ( 16) ( 16) - -
--------- -------- ------- --------
$ 78,007 $ 67,739 $10,268 $222,497
--------- -------- ------- --------
Prior liens on mortgage loans include senior participation of $23,945.
At September 30, 1994 the Trust had an allowance for possible losses on
its real estate loans of $13,321,000 compared to an allowance of $22,637,000 at
September 30, 1993. 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
estimated holding period and estimated sales value computed by applying an ex-
pected 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. 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 other legal action as is necessary to protect
its investment. In negotiated workouts the Trust seeks to acquire title to a
property or properties and in certain cases affords the borrower the opportunity
to reacquire the property or properties at a fixed price over a specified period
of time. All foreclosed property is held for sale (except for Abbotts Square,
as described below) to recover the Trust's investment; the negotiation of a sale
may involve further expenditures.
REAL ESTATE OWNED
The real estate owned by the Trust consists primarily of foreclosed
properties held for sale, with the exception of Abbotts Square, which is held
long term for the production of income. The real estate owned consists
primarily of the following as of September 30, 1994:
ABBOTTS SQUARE, PHILADELPHIA, PENNSYLVANIA - A mixed use property,
containing 63,000 square feet of street level commercial space (16 retail
stores), a 400 car parking garage and 88 residential condominium units, owned
and operated by a limited partnership in which a wholly owned BRT subsidiary is
sole general partner and BRT is a limited partner. The property was acquired by
the owning partnership in April, 1993 under a plan of reorganization confirmed
by the bankruptcy court. The partnership agreement and first mortgage on the
property held by BRT provide 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 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
approximately $17,580,000, after which BRT will receive 50% of such distribu-
tions. The retail space was 93% occupied at September 30, 1994 and the
residential units 100% occupied at that date. A capital repair and improvement
program has been undertaken at this property at a cost to the Trust of
approximately $1,000,000.
DOVER, DELAWARE - A 474,000 square foot enclosed mall 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. In addition to the enclosed mall there are 5 free
standing buildings on the property (two of which are vacant). The Trust is
converting the "anchor" locations at this center to office space and has
entered into a 10 year lease (with options to renew) with a major insurance
company for approximately 68,600 square feet of space, with provisions for
expansion, and a 10 year lease (with option to renew) with a major bank for
79,000 square feet of space, with provisions for expansion. The Trust's cost
for converting the anchor stores to office use and for common area improvements,
will approximate $7.0 million. The renovation for the insurance company was
substantially completed in December 1994, and for the banking entity is expected
to be substantially completed in May, 1995. The retail space at this center was
approximately 75% occupied at September 30, 1994 (both anchor stores being
vacant) and the office space (considering the two anchors as office space)
approximately 20% occupied. The Trust owns this property subject to a first
mortgage in the principal amount of $1,312,787 which matures on December, 1995.
At maturity there will be approximately $1,100,000 due and owing on this
mortgage.
ROCK SPRINGS, WYOMING - A 152,691 square foot shopping center, consisting
of 138,191 square feet of retail space (30 retail stores), 14,500 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, 1995 and provides for interest at the rate
of 9 1/4% per annum. At September 30, 1994 there was a principal balance of
$1,803,644 due on the leasehold mortgage and at maturity approximately
$1,621,000 will be due and owing. The retail space was approximately 90%
occupied and the office space was approximately 95% occupied at September 30,
1994.
BROOKLYN, NEW YORK - A three story retail and office building containing
six grade level stores having 12,792 square feet of rentable space and second
and third floor office space totalling 23,106 square feet of rentable area. The
Trust owns this property free and clear of mortgages. The retail space was 100%
occupied and the office space approximately 45% occupied at September 30, 1994.
The Trust has entered into a contract to sell this property for a consideration
of $1,850,000 of which $1,260,000 will be represented by a 4 year purchase money
first mortgage. It is expected that this sale will be consummated in December,
1994 or January, 1995.
KANSAS CITY, MISSOURI - A 37,908 square foot office building . The
property was owned free and clear of mortgages. This property was sold by the
Trust on November 1, 1994 at a loss of approximately $30,000.
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. The property is owned free and clear of mortgages. At September 30,
1994 100% of the retail space and approximately 73% of the office space was
occupied.
NEW YORK, NEW YORK - A one story building located on upper Broadway in
Manhattan, New York containing an 8,500 square foot movie theater and 9,675
square feet of retail space. The property is owned subject to a mortgage due in
July 1997. The principal balance outstanding on this mortgage is $1,078,000.
This property was 100% occupied at September 30, 1994. The Trust has entered
into a contract to sell this property for a consideration of $2,150,000 of which
$1,550,000 will be represented by a 5 year purchase money first mortgage. The
Trust expects this transaction to be consummated in January, 1995.
NEW YORK, NEW YORK - A 50% interest in an 11,620 square foot parcel of
undeveloped land located on East 14th Street in Manhattan, New York. This
property is owned free and clear of mortgages. The property is net leased to a
parking lot operator under a 5 year lease. The lease contains provisions for
early termination if the property is sold for development purposes.
NEW YORK, NEW YORK - A 50% interest in a 10,065 square foot site located
on East 72nd Street in Manhattan, New York. The property is owned free and
clear of mortgages. The owner of the other 50% interest in this property, who
is unaffiliated with the Trust, has agreed in an arms-length negotiation with
the Trust, to acquire the Trust's 50% interest for a consideration of
$3,250,000. This transaction, is expected to close in January, 1995.
ELMONT, NEW YORK - A three story office building containing approximately
17,000 square feet of office space. The property is owned free and clear of
mortgages. At September 30, 1994 approximately 64% of the space was occupied.
HOBOKEN, NEW JERSEY - A 32,500 square foot parcel of undeveloped land.
This property is owned free and clear of mortgages. 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.
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.
BROOKLYN, NEW YORK - A two story building located on Montague Street in
downtown Brooklyn, containing 4 grade level retail stores with 8,000 square feet
of rentable space and 6,500 square feet of second story office space. The Trust
owns fee title to this property free and clear of mortgages. A contract has
been entered into to sell this property for a consideration of $2,530,000 of
which $1,771,000 will be represented by a 3 year purchase money first mortgage.
The transaction is expected to close in January, 1995.
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.
NEW YORK, NEW YORK - A 20 story residential building on First Avenue in
mid Manhattan, containing 167 apartments and grade level retail space. The
Trust owned the property subject to a net lease which expires in 2060. The
Trust sold its interest in this property in November 1994 for a gain of ap-
proximately $2,500,000.
The Trust owns 656 cooperative apartment units in 7 separate projects, 2
of which containing 175 units are owned by BRT and located in Nassau County, New
York, 3 containing 198 units are owned by BRT and located in Manhattan, 1
containing 266 units are owned by BRT and located in Queens, New York and 1
containing 17 units owned by BRT in the Bronx, New York. Since the market for
the sale of cooperative apartment units in New York City and Long Island is very
competitive and there is an apparent oversupply of cooperative apartments being
offered for sale, the Trust's policy is to lease the units owned by it with a
number of selective units at each location being held vacant for sale. At
September 30, 1994 90% of the units were occupied.
RESTATED CREDIT AGREEMENT
On September 23, 1992, an Amended and Restated Credit Agreement ("Restated
Credit Agreement") was executed between BRT and the Banks. Pursuant to the
Restated Credit Agreement, BRT and its wholly-owned subsidiaries granted the
banks a lien on all existing and future mortgages receivable, BRT pledged the
stock held by it in each existing subsidiary and each future subsidiary as
collateral for the loan and
BRT caused each of its subsidiaries (and will cause any subsidiary organized by
it), all of which are formed primarily to own real estate acquired by
foreclosure and specific mortgages receivable, to guaranty repayment of the
loans due to the Banks.
The principal balance outstanding under the Restated Credit Agreement
bears interest at 1% in excess of the agent bank's (Bankers Trust Company) prime
lending rate and in addition, the agent bank receives an annual fee equal to the
lesser of 1/8 of 1% of the aggregate outstanding principal balance, or $100,000.
BRT cannot make any borrowings under the Restated Credit Agreement and once a
principal payment is made by the Trust to the Banks it cannot be reborrowed.
The Restated Credit Agreement extends the maturity date of the loan to
June 30, 1995. If, however, the Trust satisfies certain conditions, primarily
making the mandatory prepayments (described below) and meeting certain ratio
tests, the Restated Credit Agreement may be extended by the Trust to June 30,
1996 and June 30, 1997, respectively. The Trust is required to make the
following prepayments of principal under the Restated Credit Agreement: (i)
$5,000,000 no later than June 30, 1993; (ii) $10,000,000 no later than June 30,
1994 with no more than $5,000,000 of such $10,000,000 having been paid prior to
June 30, 1993; (iii) if the maturity date has been extended to June 30, 1996 an
additional $10,000,000 no later than June 30, 1995, with no more than $5,000,000
of such $10,000,000 having been paid between June 30, 1993 and June 30, 1994;
and (iv) if the maturity date has been extended to June 30, 1997 an additional
$20,000,000 no later than June 30, 1996, with no more than $10,000,000 of such
$20,000,000 having been paid between June 30, 1994 and June 30, 1995. To the
extent that in any July 1 to June 30 year, the Trust makes payments in excess of
the mandatory repayment for such year plus 50% of the mandatory repayment due in
the next succeeding year, the excess shall be applied to the reduction of the
principal payment due at maturity. The outstanding principal balance due under
the Restated Credit Agreement was reduced from $92,785,000 outstanding on
September 30, 1993 to $66,192,000 at September 30, 1994 and at December 1, 1994,
it has been further reduced to $63,150,000. The mandatory repayment schedule
has been met to date. The Trust has made the mandatory repayment due on June
30, 1995 and 47% of the mandatory repayment due on or before June 30, 1996. The
Trust intends to extend the maturity date of the loan to June 30, 1996 and will
likely extend the loan to June 30, 1997 and believes that it will satisfy all
conditions required for the loan to be extended.
Upon execution and delivery of the Restated Credit Agreement, the Banks
and BRT entered into a Cash Collateral Agreement under which a cash collateral
account was established with Bankers Trust Company. This account is the
repository of a portion of capital event proceeds (proceeds from the sale of
real estate and mortgages and from mortgage loan reductions and payoffs) and the
Trust's excess operating cash flow. The funds in the cash collateral account
are available to BRT for business
purposes, including interest payments under the Restated Credit Agreement,
capital improvements to real estate owned, protection of mortgages receivable
and funding operating deficits. The agent bank is required to disburse funds
(in an amount not greater than an approved budget) from the cash collateral
account upon requisition by BRT as long as there is no monetary default under
the Restated Credit Agreement. The budget for the budget period June 30,1994
was $9,000,000 and for the period July 1, 1994 to June 30, 1995 (as revised) is
$12,500,000. To the extent the cash collateral account exceeds $9,000,000 at
the end of any month or $10,000,000 within a month, the excess is applied to
reduce principal. To the extent the cash collateral account is reduced below
$9,000,000, BRT can utilize a portion of capital event proceeds and excess
operating cash flow to build the account up to $9,000,000. The Restated Credit
Agreement also requires a segregated interest reserve account as part of the
$9,000,000 cash collateral account, amounting to approximately three months
interest payments ($1,448,000 at September 30, 1994). The banks have a security
interest in the cash collateral account.
Under the Restated Credit Agreement and the Cash Collateral Agreement the
Trust is authorized to maintain operating bank accounts. To the extent cash in
the operating accounts exceeds $500,000 at the end of any month, such excess is
to be deposited in the cash collateral account.
Under the terms of the Restated Credit Agreement, 75% of capital event
proceeds are to be applied to reduce the principal balance of the loan. The
balance of capital event proceeds are to be deposited by the Trust in the cash
collateral account. In October, 1994 the Banks agreed to reduce the 75%
requirement to 50% on the next $6,000,000 of capital event proceeds so that the
Trust could reestablish the cash collateral account up to $9,000,000. The cash
collateral account has been or will be significantly depleted due to the
expenditure of the funds required in the renovation of the Dover, Delaware mall
(see "Business - Real Estate Owned") and for capital repairs and improvements at
other properties owned.
The Restated Credit Agreement precludes the Trust from making any mortgage
loans except for purchase money mortgage loans issued in connection with the
sale of properties (with limitations as to percentage of sales price, rates of
interest and term). There are also specified limitations on extending loans and
reducing interest rates on mortgages receivable, on obtaining financing on real
estate owned and on selling real estate owned and subsidiary stock.
Under the Restated Credit Agreement the Trust covenanted, among other
covenants, (i) to provide the banks with periodic and annual financial
statements, and periodic financial and other information and budgets, (ii) to
maintain tangible net worth at the lesser of $55,000,000 or 55% (increasing to
60% on July 1, 1995) of
total bank debt plus nonrecourse indebtedness for borrowed money (at September
30, 1994 the net worth requirement was $36,406,000) and (iii) not to permit
total liabilities (excluding subordinated debt and nonrecourse indebtedness
existing on September 23, 1992 or assumed in connection with a foreclosure but
including all other indebtedness) to exceed two times tangible net worth plus
subordinated debt.
In the opinion of Management of the Trust, the Restated Credit Agreement
and the Cash Collateral Agreement provide adequate funds for the Trust to
operate its business in the ordinary course, to protect its receivables, to
maintain and improve real estate owned and to dispose of assets in the ordinary
course of business.
REIT QUALIFICATION
The Trust qualifies as a real estate investment trust under the Internal
Revenue Code ("Code"). Since qualification as a REIT under the Code requires the
Trust to be passive in its real estate activities by managing its foreclosed
properties through independent contractors, adhering to holding period
requirements and qualified income rules, the Trust is precluded from taking
certain actions a real estate company not seeking to qualify as a REIT might
take to protect an investment.
COMPETITION
Since the Trust is not actively engaged in lending activities it is not
competing for mortgage loans. With respect to the real estate acquired by
foreclosure and held for sale, the Trust will compete for tenants and potential
purchasers of such properties with other owners of comparable real property in
the area in which the property is located. With respect to the cooperative
units owned by the Trust, there is a great deal of competition for purchasers
and, pending significant 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 satisfactory.
EMPLOYEES
The Trust has 9 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 investment portfolio, supervises foreclosure
actions, 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 and leasing and/or sale of real estate owned by the
Trust. 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 1993 and 1994, 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, maintenance, contractor negotiation,
construction management and sales and leasing. 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 30,
1995.
NAME OFFICE
Fredric H. Gould Chairman of the Board
Marshall Rose Vice Chairman of the Board
Israel Rosenzweig President and Chief Executive
Officer; Trustee
Jeffrey A. Gould Executive Vice President
Simeon Brinberg Senior Vice President; Secretary
Eugene J. Keely Vice President
Nathan Kupin Vice President; Trustee
Matthew J. Gould Senior Vice President
David W. Kalish Vice President; Chief Financial
Officer
Jeffrey A. Gould (age 29) has been a Vice President of the Trust since
January, 1988 and became Executive Vice President in March 1994. In June, 1989
he became a Vice President of One Liberty Properties, Inc. He is also a Vice
President of Georgetown Partners, Inc., managing general partner of Gould
Investors L.P.
Simeon Brinberg (age 61), 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 59) has been a Vice President of the Trust since May
1983.
Matthew J. Gould (age 35) has been President and Chief Operating Officer
of One Liberty Properties, Inc. since June, 1989 and Vice President of
Georgetown OLP Corp. advisor to One Liberty Properties, Inc. since May, 1989.
He has been a Vice President of the Trust since 1986 and became Senior Vice
President in March 1993. He has also been a Vice President since 1986 of
Georgetown Partners, Inc., Managing General Partner of Gould Investors L.P.,
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 47) 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.
Item 2. PROPERTIES.
The Trust's executive offices are located at 60 Cutter Mill Road, Great
Neck, New York, where it occupies approximately 14,500 square feet with Gould
Investors L.P., REIT Management Corp., One Liberty Properties, Inc. and other
related entities. The building in which the executive offices are located is
owned by an affiliate of Gould Investors L.P. The Trust contributed $156,654 to
the annual rent in Fiscal 1994.
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
1993
----
First Quarter 3 3/8 2 1/4
Second Quarter 4 3 1/8
Third Quarter 4 1/4 3 1/8
Fourth Quarter 4 1/8 3 5/8
1994
----
First Quarter 4 3/4 3 3/4
Second Quarter 4 3/8 3 5/8
Third Quarter 4 5/8 3 1/2
Fourth Quarter 4 7/8 4
As of December 1, 1994 there were approximately 2,900 holders of record of
the Trust's Beneficial Shares.
The Trust did not declare any cash distributions to shareholders during
the years ended September 30, 1993 and 1994.
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 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 Restated Credit Agreement precludes payment of cash
dividends on Beneficial
Shares unless required in order for the Trust to maintain its real estate
investment trust status.
Item 6. SELECTED FINANCIAL INFORMATION
The following table, not covered by the report of independent certified
public accountants, sets forth selected historical financial data of the Trust
for each of the fiscal periods in the five years ended September 30, 1994. 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,
-----------------------------------------------
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
(In thousands except for per share amounts)
Operating statement data:
Total revenues (1) $ 22,037 $ 18,189 $ 15,200 $ 20,631 $ 31,472
Provision for possible
loan losses 4,340 3,111 7,940 12,391 34,577
Provision for valuation
adjustment 993 3,388 - - -
Net income (loss)(2) 195 (4,068) ( 8,395) (10,405) ( 21,406)
Calculation of net income (loss)
applicable to common shareholders:
Net income (loss) 195 (4,068) ( 8,395) (10,405) ( 21,406)
Less: distributions on
preferred stock 270 12 - - -
Net loss applicable to
common shareholders ( 75) (4,080) ( 8,395) (10,405) ( 21,406)
Loss per beneficial share ( .01) ( .56) ( 1.14) ( 1.42) ( 2.91)
Balance sheet data:
Total assets 131,467 162,217 176,594 195,970 213,616
Earning real estate
loans (3) 67,739 95,353 107,571 111,375 154,634
Non-earning real estate
loans (3) 10,268 26,750 44,250 71,166 46,260
Real estate owned (3) 54,793 51,162 35,574 26,851 26,407
Notes payable-banks 66,192 92,785 105,000 114,800 114,800
Subordinated note, less
unamortized discount - - 3,135 6,056 5,936
Loans and mortgages
payable, nonrecourse 6,671 10,308 8,626 6,751 11,535
Shareholders' equity 55,024 55,099 55,804 64,199 74,604
- - -------------------------
<FN>
(1) The year ended September 30, 1993 includes a gain on the sale of
marketable securities of $115,000. The years ended September 30, 1992,
1991 and 1990 include a net loss of $43,000, $141,000 and $118,000 on
marketable securities, respectively.
(2) The year ended September 30, 1992, includes an extraordinary gain of
$969,000.
(3) Earning and non-earning loans and real estate owned are presented
without deduction of the related allowance for possible losses, valuation
allowance, or accumulated depreciation.
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 $48,513,000 are due during the twelve months ending September 30,
1995 ("Fiscal 1995"), including $18,255,000 which is due on demand. Although
there has been improvement in the real estate environment, it is still diffi-
cult to refinance existing commercial mortgages and, accordingly the Trust
anticipates that a large portion of loans maturing in Fiscal 1995 will be
extended for a fixed term or on a month to month basis. The Trust cannot
estimate the principal amount of loans which will be paid down and/or paid off
over the next twelve months.
Effective September 23, 1992, the Trust entered into an Amended and
Restated
Credit Agreement ("Restated Credit Agreement") with five banks. The Restated
Credit Agreement extended the maturity date of the loan to June 30, 1995, with
the Trust having the right to extend for two additional one year terms if it
satisfies certain conditions, principally making certain mandatory repayments
and meeting certain ratios. The Trust intends to extend the maturity date of
the Restated Credit Agreement to June 30, 1996 and, as of December 1, 1994 the
Trust had made all mandatory repayments required by June 30, 1995 and 47% of the
mandatory repayment due by June 30, 1996 and meets the required ratios. The
Restated Credit Agreement precludes the Trust from engaging in any lending
activities except for taking back purchase money mortgages in connection with
the sale of real estate.
Under the Restated Credit Agreement the Trust is required to apply 75% of
capital event proceeds (proceeds from the sale of real property and mortgages
receivable and from pay downs or payoffs of real estate loans) to reduce the
principal balance due to the banks, and the balance of 25% is deposited in a
cash collateral account maintained with the agent bank. The agent bank is
required to disburse funds to the Trust from the cash collateral account upon
requisition by the Trust, provided there is no monetary default under the
Restated Credit Agreement. To the extent the cash collateral account exceeds
$9,000,000 at the end of any month or $10,000,000 within a month, such excess is
to be applied to reduce principal. To the extent the cash collateral account is
reduced below $9,000,000, the Trust can utilize 25% of capital event proceeds
and excess operating cash flow to build the account up to $9,000,000. In
October, 1994, the Banks agreed to reduce the 75% requirement to 50% on the next
$6,000,000 of capital event proceeds so the Trust can reestablish the cash
collateral account to $9,000,000, as the Trust's requirement for funds for
capital expenditures at properties owned exceeded the budget established for
Fiscal 1994 by about $3,500,000. The increase in capital expenditures is due in
large measure to the renovation of a shopping mall in Dover, Delaware from a
retail mall to an office park at a cost of approximately $7,000,000. The
Restated Credit Agreement also requires a segregated interest reserve account as
part of the $9,000,000 cash collateral account, amounting to approximately three
months interest payments ($1,448,000 at September 30, 1994). In addition, the
Trust maintains its own operating accounts, into which all operating revenues
are deposited and from which all operating expenses are paid, and to the extent
the operating accounts exceed $500,000 at the end of any month, the excess is
deposited into the cash collateral account.
During the twelve months ended September 30, 1994 ("Fiscal 1994"), the
Trust had an increase in cash provided by investing activities, as a result of
collections from real estate loans of $22,562,000 (net of repayments to
participating lenders of $5,479,000) and proceeds from the sale of real estate
owned of $8,980,000, net of purchase money mortgages of $6,242,000. The cash
provided by investing activities was used in part to reduce the bank debt
outstanding to $66,192,000 at
September 30, 1994, a reduction of $26,593,000 from the prior year end. The
Trust also paid off loans and mortgages payable in the amount of $4,822,000,
$4,237,000 of which was satisfied in conjunction with two sales of real estate
owned.
The Trust intends to satisfy its short term liquidity needs from cash flow
generated from interest on outstanding real estate loans, net cash flow
generated from the operation of properties (all of which were acquired as a
result of foreclosure, deed in lieu of foreclosure, or a confirmed plan of
reorganization) and from the funds in the cash collateral account. In the
opinion of Management, the Restated Credit Agreement by its terms, and the
mechanics of the cash collateral account, provide adequate funds for the Trust
to operate its business in the ordinary course, to protect its receivables and
to operate its real estate (which includes making necessary capital
improvements) and sufficient time to dispose of assets and apply the net
proceeds therefrom to reduce the amounts outstanding under the Restated Credit
Agreement.
During Fiscal 1994, the Trust entered into a project to convert one of its
properties held for sale, a regional mall located in Dover, Delaware, into an
office park. The Trust has entered into a lease with a major insurance company,
requiring the Trust to segregate the funds required for the improvements
required under the lease (approximately $5,650,000) into a separate account.
The aforementioned segregated funds were deemed restricted at September 30,
1994. A modification to the existing Restated Credit Agreement has been
provided by the banks, allowing the Trust to exceed its $9,000,000 budget by
$1,000,000, in order to pay for the aforementioned improvements, in addition to
its other operational requirements. A further modification was permitted by the
banks for the Trust to exceed its $10,000,000 budget, as amended, by an
additional $2,500,000. These additional funds will allow the Trust to complete
the improvements required under a lease entered into with a bank at the office
park, in addition to required expenditures at other real estate owned. In order
for the Trust to replenish its cash collateral account, the banks have also
agreed to modify the allocation on the next $6,000,000 of capital event proceeds
(effective October 28, 1994) and will permit the Trust to retain 50% of such
proceeds as opposed to the 25% provided in the Restated Credit Agreement.
RESULTS OF OPERATIONS
1994 VS 1993
The Trust's loan portfolio at September 30, 1994, before giving effect to
the allowance for possible losses was $78,007,000 of which $10,268,000 (13% of
total real estate loans) is categorized as nonearning, as compared to
$122,103,000 at September 30, 1993, of which $26,750,000 (22% of total real
estate loans) is
categorized as nonearning. The $44,096,000 decrease in the loan portfolio is
due to a combination of repayments of principal on real estate loans (net of
repayments to participating lenders), an increase in real estate owned as a
result of completion of foreclosure actions and receipt of deeds in lieu of
foreclosure, and a settlement with the holder of a first mortgage for $161,000
which represented the net book value on a real estate loan on which the Trust
had reserved approximately $10,000,000 in the quarter ended September 30, 1990.
This is offset in part by $6,242,000 of purchase money mortgages issued by the
Trust in connection with the sale of real estate.
Real estate owned (prior to a valuation allowance of $2,717,000) increased
to $54,793,000 at September 30, 1994 from $51,162,000 (prior to a valuation
allowance of $3,229,000) at September 30, 1993. The increase of $3,631,000 in
real estate owned is primarily a result of real estate acquired by foreclosure
or deed in lieu of foreclosure at the aggregate estimated fair value of
approximately $17,745,000, offset by the sale of real estate owned, with an
aggregate cost basis of approximately $14,401,000 (prior to a valuation
allowance of $1,505,000).
Interest and fees on real estate loans decreased to $10,999,000 for Fiscal
1994 as compared to $12,395,000 for the twelve months ended September 30, 1993
("Fiscal 1993"). This decrease of $1,396,000 was a result of a number of events
which occurred during Fiscal 1993, including receipt of past due and accumulated
interest of $440,000 upon refinancing by a borrower, collection of approximately
$586,000 from court appointed receivers who operated properties securing certain
loans, receipt of an $800,000 fee from a borrower as part of a workout and
additional interest of $325,000 received upon repayment of two participating
real estate loans secured by properties located in Texas. Interest and fees on
real estate loans was also reduced in Fiscal 1994 as compared to Fiscal 1993 due
to a decrease in earning real estate loans, as a result of payoffs and
properties securing real estate loans becoming real estate owned. This decrease
was offset in part by receipt of additional interest of approximately $1,100,000
upon payoff of a real estate loan secured by a property located in the Texas
marketplace, recognition of an unamortized discount of $565,000 upon early
payoff of a real estate loan, collection of approximately $480,000 from court
appointed receivers who operated properties securing certain loans and the
accrual of deferred interest of approximately $745,000 on another real estate
loan secured by properties located in the Texas area.
Operating income on real estate owned increased during Fiscal 1994 by
$4,007,000 to $9,175,000 from $5,168,000 in Fiscal 1993. This increase was a
result of an increase in the number of properties acquired in foreclosure or by
deed in lieu of foreclosure, as well as the leasing of certain of the
properties.
Gain on sale of foreclosed properties held for sale for the twelve months
ended September 30, 1994, was $1,507,000, as compared to $186,000 for the twelve
months ended September 30, 1993. 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.
Fiscal 1993 includes a gain on the sale of marketable securities of
$115,000. There was no comparable gain during Fiscal 1994.
Interest expense decreased by $1,015,000 in 1994 as compared to 1993 due
to a decrease throughout the year of outstanding bank debt, offset by an
increase in the average prime interest rate.
The expenses for the twelve months ended September 30, 1994 include a
provision for possible loan losses of $4,340,000 as compared to $3,111,000 for
Fiscal 1993. A majority, or $2,950,000, of the provision was taken during the
fourth quarter of Fiscal 1994, with respect to a real estate loan in which the
Trust has a subordinate position in a securitized mortgage portfolio which,
although interest is current, went into default in October 1994. Fiscal 1994
also includes a provision for valuation adjustment of $993,000 as compared to
$3,388,000 for the prior fiscal year. Of the total valuation allowance taken
during the fiscal year ended September 30, 1994, $900,000 was taken with respect
to unsold shares and related proprietary leases in three cooperative apartment
buildings.
Advisor's fee decreased to $1,052,000 for the twelve months ended
September 30, 1994 from $1,295,000 for the prior years comparative period. This
decrease of $243,000 is a result of a decrease in total invested assets, the
basis on which the advisory fee is calculated. There was a decrease in the real
estate loan portion (a 1% fee is paid on real estate loans) offset by a slight
increase in the real estate owned portion (a 1/2 of 1% fee is paid on real
estate owned).
Operating expenses relating to real estate owned increased in Fiscal 1994
to $5,112,000 from $3,016,000 for Fiscal 1993. The increase is a direct result
of an increase in the number of properties acquired in foreclosure or by deed in
lieu of foreclosure.
1993 VS 1992
The Trust's loan portfolio at September 30, 1993, before giving effect to
the allowance for possible losses, was $122,103,000, of which $26,750,000 (22%
of total real estate loans) is categorized as non-earning, as compared to
$151,821,000 at September 30, 1992, of which $44,250,000 (29% of total real
estate loans) is
categorized as non-earning. The $29,718,000 decrease in the loan portfolio is
due to a combination of repayments of principal on real estate loans (net of
repayments to participating lenders) and an increase in real estate owned as a
result of either completion of foreclosure actions, delivery of deeds in lieu of
foreclosure, or conveyances of property as a result of consummation of
reorganization plans confirmed by the Bankruptcy Court.
Real estate owned (prior to a valuation allowance of $3,229,000) increased
to $51,162,000 at September 30, 1993 from $35,574,000 at September 30, 1992.
The increase in real estate owned is primarily a result of real estate acquired
by foreclosure, deed in lieu of foreclosure and conveyance of real estate as a
result of confirmation and consummation of plans of reorganization, at the
aggregate estimated fair value of approximately $19,532,000, and the
capitalization of improvements on real estate owned. This increase was offset
in part by the sale of a shopping center, a retail/office building, and an
office building with an aggregate cost basis of $3,697,000, as well as the sale
of unsold shares in cooperative apartments resulting in net proceeds of
approximately $693,000 (net of purchase money mortgages of $970,000).
Interest and fees on real estate loans increased to $12,395,000 for Fiscal
1993 as compared to $11,781,000 for Fiscal 1992. This increase was a result of
a number of events, including receipt of past due and accumulated interest of
$440,000 upon refinancing by a borrower, collection of approximately $586,000
from court appointed receivers who operated properties securing certain loans,
receipt of $800,000 from a borrower as part of a workout, a receipt of addi-
tional interest of $325,000 upon repayment of participating real estate loans
secured by properties located in Texas, and commencement of receipt of interest
on a loan from a borrower who reorganized under Chapter XI of the Bankruptcy
Act. These increases were offset by payoffs and paydowns of earning real estate
loans from $107,571,000 at September 30, 1992 to $95,353,000 at September 30,
1993, in addition to a slight decrease in the average prime interest rate.
Operating income on real estate owned increased during the twelve months
ended September 30, 1993 by $2,777,000 to $5,168,000 from $2,391,000 for the
comparable prior fiscal year. This increase is a result of an increase in the
number of properties acquired in foreclosure, deed in lieu of foreclosure, and
under confirmed plans of reorganization, offset in part by the sale of an
apartment building in Queens, New York in the last quarter of the fiscal year
ended September 30, 1992, and a shopping center in Dayton, Ohio, during the
first quarter of the current fiscal year.
Fiscal 1993 includes a gain on the sale of marketable securities of
$115,000 which took place during the first quarter of the fiscal year. There
was no
comparable gain during the fiscal year ended September 30, 1992, but rather a
net loss on marketable securities of $43,000.
Other income, primarily investment income, decreased by $428,000 for the
fiscal year ended September 30, 1993, as compared to the prior fiscal year.
This decrease was primarily due to a decrease in the average cash available to
invest, in addition to a decrease in interest rates.
Interest expense decreased for Fiscal 1993 to $7,630,000 from $9,963,000
for Fiscal 1992, as a result of a decrease in notes payable and subordinated
debt, as well as a slight decrease in the average prime interest rate.
The twelve months ended September 30, 1993 include a provision for
possible loan losses of $3,111,000 as compared to a provision of $7,940,000 for
the prior comparable twelve month period. Two events resulted in the majority
of the provision taken during Fiscal 1993. A provision of approximately
$1,500,000 was taken during the first quarter of the current fiscal year,
relating to three loans to entities controlled by one borrower, as a result of a
refinancing by this borrower during the following quarter. During the fourth
quarter of Fiscal 1993 a provision of approximately $800,000 was taken in order
to record an impaired loan at the fair value of its underlying collateral. This
property was recorded as real estate owned during the first quarter of the
fiscal year ended September 30, 1994, when physical possession was obtained.
The fiscal year ended September 30, 1993 also includes a provision for valuation
adjustment of $3,388,000 with no comparable adjustment for the fiscal year ended
September 30, 1992. Approximately 50% of the valuation adjustment was taken
during the quarter ended March 31, 1993, as a result of a possible bulk sale of
the shares in a cooperative apartment building located in Suffolk County in
which the Trust was the holder of unsold shares. The bulk sale which was being
discussed was contemplated to be at a discount from book value, and as a result
the aforementioned provision was recorded. The bulk sale was consummated
subsequent to the year ended September 30, 1993 at its recorded fair value as of
September 30, 1993. Other valuation adjustments taken during Fiscal 1993 were
as follows: (i) A strip shopping center located in Suffolk County being
foreclosed upon by the holder of the first mortgage and accordingly the Trust
reserved its entire position, and (ii) three properties located in New York City
where there has been a decrease in value since foreclosure.
General and administrative expenses decreased by $607,000 for the twelve
months ended September 30, 1993 as compared to the prior fiscal year. These
reductions are primarily due to a reduction of professional fees, in addition to
a reimbursement of professional fees of approximately $232,000 from a borrower
with whom a workout was in process, and a settlement with a previous borrower.
These reductions were offset in part by an increase in other general and
administrative
costs.
Operating expenses relating to real estate owned increased for Fiscal 1993
to $3,016,000 from $1,384,000 for Fiscal 1992. This increase of $1,632,000 is a
direct result of an increase in the number of properties owned.
The fiscal year ended September 30, 1993 includes depreciation and
amortization of $544,000 as compared to $157,000 for the fiscal year ended
September 30, 1992. On September 14, 1993, upon conversion of a subordinated
note in the principal amount of $3,375,000 to cumulative preferred stock, the
remaining unamortized discount relating to the subordinated note (approximately
$240,000) was recognized. The remaining increase is due to depreciation on a
property held long term for the production of income rather than for sale.
During the year ended September 30, 1993, the Trust sold a shopping center
and an office building with an aggregate cost basis of $2,335,000, at a gain of
approximately $152,000, and unsold shares in cooperative corporations resulting
in a net gain of $34,000. Also during Fiscal 1993 a retail/office building
located in New York City with a cost basis of $1,362,000 was sold. Simultaneous
with this sale an additional valuation adjustment was recognized in the amount
of approximately $91,000. Fiscal year ended September 30, 1992 includes a gain
on sale of real estate owned of $318,000, primarily from the sale of an
apartment complex in Queens, New York.
The fiscal year ended September 30, 1992 includes an extraordinary gain of
$969,000 resulting from the transfer by the Trust of its junior participation
interest in a real estate loan of approximately $2,000,000 (after an allowance
for losses of $2,000,000) to the Resolution Trust Corporation in exchange for
which the RTC transferred to the Trust a Subordinated Note held by it. There
was no extraordinary item in Fiscal 1993.
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 30, 1995.
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).
4. Statement of Rights of Preferred Stock. Incorporated by
reference to Exhibit 4 to Form 10-K for the year ended
September 30, 1993.
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). Amended and Restated Credit Agreement dated
September 23, 1992. Incorporated by reference to
Exhibit 1 to Form 8-K filed on October 8, 1992.
10(c). Amendment Number 1 to Amended and Restated Credit Agreement.
Incorporated by reference to Exhibit 10(c) to Form 10-K for the
year ended September 30, 1993.
10(d). Amendment Number 2 to Amended and Restated Credit Agreement.
Incorporated by reference to Exhibit 10(c) to Form 10-K for the
year ended September 30, 1993.
10(e). Cash Collateral Agreement dated September 23, 1992.
Incorporated by reference to Exhibit 2 to Form 8-K
filed on October 8, 1992.
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:
There were no reports on Form 8-K filed in the fourth quarter of
Fiscal 1994.
(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 23, 1994 By: s/Israel Rosenzweig
-------------------
Israel Rosenzweig
President and Trustee
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 23, 1994
- - ------------------
Fredric H. Gould
s/Israel Rosenzweig President (Principal December 23, 1994
- - ------------------- Executive Officer)
Israel Rosenzweig and Trustee
s/Patrick J. Callan Trustee December 23, 1994
- - -------------------
Patrick J. Callan
_________________ Trustee December __, 1994
Stuart S. Gould
s/Arthur Hurand Trustee December 23, 1994
- - ---------------
Arthur Hurand
s/Gary Hurand Trustee December 23, 1994
- - -------------
Gary Hurand
s/Nathan Kupin Trustee December 23, 1994
- - --------------
Nathan Kupin
s/Herbert C. Lust II Trustee December 23, 1994
- - --------------------
Herbert C. Lust II
s/Marshall Rose Trustee December 23, 1994
- - ---------------
Marshall Rose
s/David W. Kalish Vice President December 23, 1994
- - ----------------- (Principal Financial
David W. Kalish and Accounting Officer)
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, 1994
The following consolidated financial statements of BRT Realty Trust are included
in Item 8:
PAGE NO.
Independent Auditors' Report F-1
Consolidated Balance Sheets as of September 30, 1994 and 1993 F-2
Consolidated Statements of Operations for the three years ended
September 30, 1994, 1993 and 1992 F-3
Consolidated Statements of Shareholders' Equity for the three
years ended September 30, 1994, 1993 and 1992 F-4
Consolidated Statements of Cash Flows for the three years ended
September 30, 1994, 1993 and 1992 F-5-6
Notes to Consolidated Financial Statements F-7-22
Schedules for the year ended September 30, 1994
XI - Real Estate and Accumulated Depreciation F-23-24
XII - Mortgage Loans on Real Estate F-25-26
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.
INDEPENDENT AUDITORS' REPORT
----------------------------
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, 1994 and 1993, and the related consolidated
statements of operations, shareholders' equity, and cash flows for each of the
three years in the period ended September 30, 1994 and the consolidated
schedules listed in the accompanying index. 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 financial position of BRT Realty Trust as
of September 30, 1994 and 1993, and the results of their operations and their
cash flows for each of the three years in the period ended September 30, 1994,
in conformity with generally accepted accounting principles. Further, in our
opinion the consolidated schedules referred to above, when considered in
relation to the consolidated financial statements taken as a whole, present
fairly, in all material respects, the information set forth therein.
Kenneth Leventhal & Company
New York, New York
December 9, 1994
F-1
BRT REALTY TRUST
CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS)
ASSETS
SEPTEMBER 30,
--------------------------
1994 1993
----------- -----------
Real estate loans - Notes 2, 4 and 5:
Earning interest, less unearned income $ 67,739 $ 95,353
Not earning interest 10,268 26,750
----------- -----------
78,007 122,103
Less allowance for possible losses 13,321 22,637
----------- -----------
64,686 99,466
----------- -----------
Real estate owned - Notes 3, 4 and 5:
Foreclosed properties held for sale (except for $14,725, and
$14,303, less accumulated depreciation of $465, and $146
which is held long term for the production of income) 54,793 51,162
Less valuation allowance 2,717 3,229
----------- -----------
52,076 47,933
----------- -----------
Cash and cash equivalents - Note 5 1,174 1,962
Investment in U.S. Government obligations at cost,
which approximates market 1,979 7,094
Restricted cash - Notes 3 and 5 7,098 1,709
Interest receivable 1,319 893
Other assets 3,135 3,160
----------- -----------
TOTAL ASSETS $ 131,467 $ 162,217
----------- -----------
----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Notes payable - Note 5 $ 66,192 $ 92,785
Loans and mortgages payable, nonrecourse - Notes 3 and 5 6,671 10,308
Accounts payable and accrued liabilities including deposits
of $2,205 and $2,331 3,580 4,025
----------- -----------
Total liabilities 76,443 107,118
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 - 1,030 shares 1,030 1,030
Shares of beneficial interest, $3 par value:
Authorized number of shares, unlimited, issued
- 7,538 shares 22,614 22,614
Additional paid-in capital, net of distributions of $4,698
and $4,428 84,184 84,454
Accumulated deficit (50,469) (50,664)
----------- -----------
57,359 57,434
Cost of 192 treasury shares of beneficial interest (2,335) (2,335)
----------- -----------
Total shareholders' equity 55,024 55,099
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 131,467 $ 162,217
----------- -----------
----------- -----------
See accompanying notes to consolidated financial statements.
F-2
BRT REALTY TRUST
CONSOLIDATED STATEMENTS OF OPERATIONS
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
YEAR ENDED SEPTEMBER 30,
-----------------------------------------
1994 1993 1992
----------- ----------- -----------
Revenues:
Interest and fees on real estate loans - Note 2 $ 10,999 $ 12,395 $ 11,781
Operating income on real estate owned 9,175 5,168 2,391
Net gain on sale of foreclosed properties held for sale 1,507 186 318
Net gain (loss) on marketable securities - 115 (43)
Other, primarily investment income 356 325 753
----------- ----------- -----------
Total Revenues 22,037 18,189 15,200
----------- ----------- -----------
Expenses:
Interest - notes payable, loans payable,
and subordinated notes - Note 5 6,615 7,630 9,963
Provision for possible loan losses - Note 4 4,340 3,111 7,940
Provision for valuation adjustment - Note 4 993 3,388 -
Advisor's fees - Note 8 1,052 1,295 1,240
General and administrative - Note 8 3,224 3,273 3,880
Operating expenses relating to real estate owned
including interest on mortgages of $427, $291,
and $235 5,112 3,016 1,384
Depreciation and amortization 506 544 157
----------- ----------- -----------
Total Expenses 21,842 22,257 24,564
----------- ----------- -----------
Income (loss) before extraordinary gain 195 (4,068) (9,364)
Extraordinary gain - Note 5 - - 969
----------- ----------- -----------
Net income (loss) $ 195 $ (4,068) $ (8,395)
----------- ----------- -----------
----------- ----------- -----------
Calculation of net loss applicable to common shareholders:
Net income (loss) $ 195 $ (4,068) $ (8,395)
Less: distributions on preferred stock 270 12 -
----------- ----------- -----------
Net loss applicable to common shareholders $ (75) $ (4,080) $ (8,395)
----------- ----------- -----------
----------- ----------- -----------
Loss Per Share of Beneficial Interest:
Loss before extraordinary gain $ (.01) $ (.56) $ (1.27)
Extraordinary gain - - .13
----------- ----------- -----------
Net loss $ (.01) $ (.56) $ (1.14)
----------- ----------- -----------
----------- ----------- -----------
Weighted average number of
common shares outstanding 7,346,624 7,346,624 7,346,624
----------- ----------- -----------
----------- ----------- -----------
See accompanying notes to consolidated financial statements.
F-3
BRT REALTY TRUST
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED SEPTEMBER 30, 1992, 1993, AND 1994
(AMOUNTS IN THOUSANDS)
SHARES OF ADDITIONAL
PREFERRED BENEFICIAL PAID-IN ACCUMULATED
STOCK INTEREST CAPITAL DEFICIT
------------ ------------- --------------- -------------
Balances, September 30, 1991 $ - $ 22,614 $ 82,121 $ (38,201)
Net loss - - - (8,395)
------------ ------------- --------------- -------------
Balances, September 30, 1992 - 22,614 82,121 (46,596)
Conversion of debt to equity with
the issuance of 1,030 shares
of preferred stock 1,030 - 2,345 -
Distributions - Preferred Stock - - (12) -
Net loss - - - (4,068)
------------ ------------- --------------- -------------
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)
------------ ------------- --------------- -------------
------------ ------------- --------------- -------------
See accompanying notes to consolidated financial statements.
F-4
BRT REALTY TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
YEAR ENDED SEPTEMBER 30,
-----------------------------------------
1994 1993 1992
----------- ----------- -----------
Cash flows from operating activities:
Net income (loss) $ 195 $ (4,068) $ (8,395)
Adjustments to reconcile net loss to net cash provided
by (used in) operating activities:
Provision for possible loan losses 4,340 3,111 7,940
Provision for valuation adjustment 993 3,388 -
Amortization and depreciation 506 544 157
Extraordinary gain on settlement of debt - - (969)
Recognition of discount upon premature payoff
of real estate loans (565) - (90)
Net gain on sale of real estate and foreclosed property (1,507) (186) (318)
Net (gain) loss on marketable securities - (115) 43
Capitalization of earned interest income to loan
balance in accordance with agreements (13) (24) (648)
(Increase) decrease in interest receivable (426) 879 20
(Decrease) increase in accounts payable and
accrued liabilities (302) 460 (554)
(Decrease) increase in deferred revenues (81) (260) 54
(Increase) decrease in rent receivable (48) 234 (397)
Decrease (increase) in escrow deposits 12 466 (198)
Increase in deferred costs - (74) (332)
Other (76) (281) (215)
----------- ----------- -----------
Net cash provided by (used in) operating activities 3,028 4,074 (3,902)
----------- ----------- -----------
Cash flows from investing activities:
Collections from real estate loans 28,041 26,709 8,631
Proceeds from participating lenders - 172 115
Additions to real estate loans (944) (2,779) (2,434)
Repayments to participating lenders (5,479) (13,572) (3,645)
Net costs capitalized to real estate owned (1,663) (1,710) (3,010)
Net costs applied to previously established allowances - - (600)
Proceeds from sale of real estate owned 8,980 3,529 4,731
(Decrease) increase in deposits payable (126) (189) 471
Decrease (increase) in investments
in U.S. Government obligations 5,115 (5,108) 2,216
Sale of marketable securities - 345 -
Other (48) 38 (91)
----------- ----------- -----------
Net cash provided by investing activities 33,876 7,435 6,384
----------- ----------- -----------
Cash flows from financing activities:
Bank repayments (26,593) (12,215) (9,800)
Proceeds from loans payable - - 1,838
Payoff/paydown of loan and mortgages payable (5,503) (337) (123)
(Increase) decrease in restricted cash (5,389) 149 (1,858)
Other (207) (28) (105)
----------- ----------- -----------
Net cash used in financing activities (37,692) (12,431) (10,048)
----------- ----------- -----------
Net decrease in cash and cash equivalents (788) (922) (7,566)
Cash and cash equivalents at beginning of year 1,962 2,884 10,450
----------- ----------- -----------
Cash and cash equivalents at end of year $ 1,174 $ 1,962 $ 2,884
----------- ----------- -----------
----------- ----------- -----------
See accompanying notes to consolidated financial statements.
F-5
BRT REALTY TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS
(CONTINUED)
(AMOUNTS IN THOUSANDS)
YEAR ENDED SEPTEMBER 30,
-----------------------------------------
1994 1993 1992
----------- ----------- -----------
Supplemental disclosures of cash flow information:
Cash paid during the year for interest expense $ 7,493 $ 7,834 $ 11,514
----------- ----------- -----------
----------- ----------- -----------
Supplemental schedule of noncash investing and financing activities:
Transfer of nonearning real estate loans
to foreclosed properties at fair value,
including in-substance foreclosures $ 17,745 $ 19,532 $ 18,045
Nonrecourse mortgage obligations relating
to properties acquired through foreclosure,
including in-substance foreclosure 609 1,005 2,318
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 - -
Loan payable incurred in conjunction with partial
funding of outstanding commitment - 2,000 -
Conveyance of real estate owned at fair value - - 2,165
Termination of nonrecourse mortgage payable
upon conveyance of real estate owned - - 2,159
Recognition of valuation allowance upon sale of
real estate owned 1,505 - -
Recognition of allowance for previously
provided losses 13,656 3,716 10,628
Recognition of allowance for previously provided
losses upon adoption of new accounting policy - - 5,909
Exchange of real estate loan at fair value, as
consideration for repayment of subordinated debt - - 2,053
Purchase money mortgages from sale of real
estate owned 6,242 1,030 -
Conversion of subordinated debt to 1,030 shares
of preferred stock - 3,375 -
See accompanying notes to consolidated financial statements.
F-6
BRT REALTY TRUST
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. 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. It
is the present intention of the Trustees to operate the Trust as a
qualifying real estate investment trust.
INCOME RECOGNITION
Effective for the year ended September 30, 1994, the Trust elected
early adoption of Statement of Financial Accounting Standards No. 118
("FASB 118"), "Accounting by Creditors for Impairment of a Loan-Income
Recognition and Disclosures", which would be effective for the Trust's
fiscal year ending September 30, 1996. FASB 118 amends FASB 114 (see
Allowance for Possible Losses), by eliminating the provisions that
describe how creditors should report income on impaired loans, thereby
allowing creditors to use existing methods for recognizing interest
income on impaired loans. In addition, FASB 118 amends the disclosure
requirements in FASB 114 to require information about the recorded
investment in certain impaired loans and the creditor's recognition of
interest income related to those impaired loans. (See Note 2).
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. (See Allowance for Possible Losses and Valuation
Allowance on Real Estate Owned).
F-7
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (Continued)
INCOME RECOGNITION (Continued)
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. If a committed loan is not taken by
the borrower, the unamortized commitment fee is recognized as income
at that time.
DEBT DISCOUNT
Debt discount is amortized over the life of the related debt
obligation using the constant interest method.
ALLOWANCE FOR POSSIBLE LOSSES
Effective for the year ended September 30, 1993, the Trust elected
early adoption of Statement of Financial Accounting Standards No. 114
("FASB 114"), "Accounting by Creditors for Impairment of a Loan",
which would be effective for the Trust's fiscal year ending September
30, 1996. FASB 114 defines impairment as the probability that all
amounts due under a loan agreement will not be collected according to
the contractual terms, and requires the valuation of impaired loans
based on either the present value of expected future cash flows
discounted at the loan's effective interest rate or the fair value of
the collateral if the loan is collateral dependent. 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 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.
Since the Trust had previously evaluated impaired loans at the lower
of recorded investment or fair value, the adoption of FASB 114 did not
have a material impact on the Trust's financial statements.
VALUATION ALLOWANCE ON REAL ESTATE OWNED
Real estate owned assets held for sale are valued at the lower of cost
or fair value, 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, the
F-8
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (Continued)
VALUATION ALLOWANCE ON REAL ESTATE OWNED (Continued)
reduction will be recognized as a valuation allowance. If the value
of the property subsequently increases, the valuation allowance will
be reduced.
Effective September 30, 1992, the Trust elected early adoption of
Statement of Position 92-3 ("SOP 92-3") "Accounting for Foreclosed
Assets", which would have been effective for the fiscal year ending
September 30, 1993 ("Fiscal 1993"). Since the Trust evaluated
foreclosed assets at the lower of cost or fair value, the adoption of
SOP 92-3 did not have a material impact on the Trust's financial
statements.
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 in
the previous paragraph; 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 are 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.
FAIR VALUE OF FINANCIAL INSTRUMENTS
In December 1991, the Financial Accounting Standards Board issued
Statement No. 107, "Disclosures about Fair Value of Financial
Instruments," effective for fiscal years ending after December 15,
1992. The statement requires disclosure about fair value for all
financial instruments for which it is practicable to estimate that
value. 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.
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, 1994 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 them 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 amount and fair value.
F-9
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (Continued)
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 in Fiscal 1994.
The assumed exercise of outstanding share options, using the treasury
stock method, is antidilutive for the primary earnings per share
computation for the years ended September 30, 1994, 1993 and 1992.
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. Since fully diluted earnings per share of
beneficial interest amounts are antidilutive, such amounts are not
presented.
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.
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.
F-10
NOTE 2 - REAL ESTATE LOANS
At September 30, 1994, information as to real estate loans is
summarized as follows:
Not
Earning Earning
Total Interest Interest
----------- ----------- -----------
First mortgage loans:
Long-term:
Residential $ 1,603 $ 1,603 $ -
Short-term (five years or less):
Shopping centers/retail 3,679 3,679 -
Industrial buildings 4,249 4,249 -
Office buildings 7,969 7,969 -
Residential (multiple family units) 33,614 33,037 577
Hotels 1,339 1,339 -
Miscellaneous 2,289 2,289 -
Second mortgage loans:
Shopping centers/retail 3,331 187 3,144
Office buildings 691 691 -
Residential (multiple family units) 17,196 12,104 5,092
Hotel 1,000 - 1,000
Wraparound mortgages 1,063 608 455
----------- ----------- -----------
78,023 67,755 10,268
Unearned income (16) (16) -
----------- ----------- -----------
$ 78,007 $ 67,739 $ 10,268
----------- ----------- -----------
----------- ----------- -----------
A summary of loans at September 30, 1993 is as follows:
First mortgage loans $ 81,533 $ 75,423 $ 6,110
Second mortgage loans 39,844 19,204 20,640
Wraparound mortgages 1,315 1,315 -
----------- ----------- -----------
122,692 95,942 26,750
Unearned income (589) (589) -
----------- ----------- -----------
$ 122,103 $ 95,353 $ 26,750
----------- ----------- -----------
----------- ----------- -----------
Of the real estate loans not earning interest at September 30, 1994
and 1993, $10,268 and $26,750, respectively were deemed impaired (as
defined in FASB 114) 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 $577 and $5,445 at
September 30, 1994 and 1993, respectively. Of the real estate loans
earning interest at September 30, 1994 and 1993, $11,009 and $11,279,
respectively, were deemed impaired and all are subject to allowances
for possible losses.
For the years ended September 30, 1994, 1993 and 1992, respectively,
an average $29,653, $47,656 and $70,287 of real estate loans were
deemed impaired, on which $1,733, $2,146 and $2,264 of interest income
was recognized.
F-11
NOTE 2 - REAL ESTATE LOANS (Continued)
The Trust's earning loans generally provided for interest rates which
were 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
9.51% and 10.63% at September 30, 1994 and 1993, 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
-------------------------- ----------
1995 . . . . . . . . . . . . . . . . . . . . . $ 48,513
1996 . . . . . . . . . . . . . . . . . . . . . 4,768
1997 . . . . . . . . . . . . . . . . . . . . . 7,203
1998 . . . . . . . . . . . . . . . . . . . . . 4,252
1999 . . . . . . . . . . . . . . . . . . . . . 413
2000 and thereafter. . . . . . . . . . . . . . 12,874
----------
Total before unearned income 78,023
Unearned income (16)
----------
Total $ 78,007
----------
----------
The Trust's portfolio consists of (i) senior and junior mortgage
loans, secured by residential and commercial property, 59% of which
are located principally in the New York metropolitan area, and (ii)
21% by participating senior mortgage loans, secured by garden
apartment developments in the Dallas/Fort Worth, Houston and Austin,
Texas areas.
Although there has been some improvement in real estate lending by
institutional lenders, it is still difficult to refinance existing
commercial mortgages and sell properties. 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
attributes of the loan receivable, including the value of the
collateral, the financial strength of the borrower and past payment
history. Management anticipates that similar conditions will continue
for a period of time with respect to the availability of financing
from lenders and sales of cooperative units. Accordingly, extensions
are expected to be granted for a significant portion of those loans
maturing during Fiscal 1995. Of the $48,513 of real estate loans
receivable which mature in Fiscal 1995, $23,576 were extended during
the fiscal year ended September 30, 1994. The Trust received $21 in
extension fees.
Over the past three 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
$25,700, are insignificant as compared to what the Trust would have
otherwise received for the year ended September 30, 1994. If all
loans classified as nonearning were earning interest at their
contractual rates for the years ended September 30, 1994, 1993 and
1992, interest income would have increased by $748, $2,157 and $4,371,
respectively.
The Trust's interests in wraparound mortgages are subject to
underlying mortgages aggregating $3,919 at September 30, 1994. Senior
participations in the Trust's loans at September 30, 1994 and 1993
amounted to approximately $24,000 and $26,000, respectively.
F-12
NOTE 2 - REAL ESTATE LOANS (Continued)
At September 30, 1994 there are loans to various partnerships and
corporate entities with common principals. The two largest
relationships had aggregate principal balances outstanding of
approximately $14,500 (net of senior participations of approximately
$5,000) and $9,400, respectively. Of the total interest and fees
earned on real estate loans during the fiscal year ended September 30,
1994, 21% and 5% related to these relationships, respectively.
NOTE 3 - REAL ESTATE OWNED
A summary of real estate owned, for the year ended September 30, 1994
is as follows:
September 30, September 30,
1993 Collections/ 1994
Properties Additions Costs Sales/Other Gain Properties
---------- --------- ----------- on ----------
No. Amount No. Amount Capitalized No. Amount Sale No. Amount
--- ------ --- ------ ----------- --- ------ ---- --- ------
Residential units-shares of
cooperative corporations (b) 12 $14,114 1 $ 4,944 $621 (8) $(13,499) $876 5 $ 7,056
Shopping centers/retail (c) 6 22,069 6 8,840 884 (3) (3,424) 631 9 29,000
Office 4 9,223 - - 98 - (42) - 4 9,279
Improved land 1 1,135 2 3,961 - - - - 3 5,096
Unimproved land 5 4767 - - 60 (1) - - 4 4,827
--- -------- --- -------- ------ --- --------- ------ -- ---------
28 51,308 9 17,745 1,663 (12) (16,965) 1,507 25 55,258
Less: Valuation Allowance - 3,229 - 993 - (1,505) - 2,717
Depreciation - 146 - 319 - - - - 465
--- -------- --- -------- ------ --- --------- ------ -- ---------
28 $47,933 9 $16,433 $1,663 (12) $(15,460) $1,507 25 $ 52,076
--- -------- --- -------- ------ --- --------- ------ -- ---------
--- -------- --- -------- ------ --- --------- ------ -- ---------
(a)
<FN>
(a) The additions to real estate owned were acquired through either
foreclosure or dead in lieu of foreclosure. One of the shopping
centers acquired is subject to a non-recourse mortgage payable of
$1,495.
(b) During the fiscal year ended September 30, 1994, two
apartment/retail buildings located in midtown Manhattan were sold
to One Liberty Properties, Inc. ("One Liberty"), a related party,
for a consideration of $5,525. This property was encumbered by a
non-recourse mortgage of approximately $2,637. The transaction
and sales price were approved by the Board of Trustees of the
Trust, including the independent trustees, subject to the receipt
of an independent appraisal. After receipt of the independent
appraisal substantiating the purchase price of $5,525, the
transaction was completed, resulting in a gain to the Trust of
approximately $625. Simultaneous with the consummation of the
transaction, the mortgage of approximately $2,637 was satisfied.
The property was sold subject to a long-term lease with a current
annual rent of $550, which annual rent increases by $50 every
five years (the next increase will be in 1999). For a period of
ten years from closing, the Trust will receive fifty percent of
any premium which One Liberty receives under the lease as a
result of a conversion of the leasehold position to cooperative
ownership.
One Liberty owns 203,767 shares of beneficial interest and
1,030,000 shares of preferred stock of the Trust, and has
approximately 14.7% of the total voting power of the Trust.
F-13
NOTE 3 - REAL ESTATE OWNED (Continued)
Another significant sale was of unsold shares and related proprietary
leases in a cooperative apartment building located in Suffolk County,
New York, in which the Trust had a net book value of approximately
$2,897 (net of a valuation allowance of $1,250). The "cooperative
apartments" were sold in bulk, to one purchaser, for a net sales price
of approximately $2,698 including a purchase money mortgage of $2,150.
This property was encumbered with a non-recourse loan payable of
approximately $1,838 which was satisfied at closing at a discount of
$238. This transaction resulted in a gain of approximately $39.
(c) During Fiscal 1994, the Trust acquired by deed in lieu of foreclosure
a regional mall located in Dover, Delaware which secured a real estate
loan. This property was recorded at its estimated fair value at time
of foreclosure of approximately $4,034 (subject to a non-recourse
mortgage payable of $1,495). During the latter part of Fiscal 1994,
the Trust began the conversion of the mall into a corporate center. A
lease was entered into with a major insurance company, requiring the
Trust to segregate funds for improvements (approximately $5,650 which
is included in restricted cash) into a separate escrow account.
Subsequent to the year ended September 30, 1994, a second lease was
entered into with a bank, requiring additional funds for improvements
under said lease. See Note 5 regarding funding of the aforementioned
improvements.
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, 1994 are as follows:
Years Ending September 30, . . . . . . . . . . Amount
-------------------------- -------
1995 . . . . . . . . . . . . . . . . . . . . . $ 4,879
1996 . . . . . . . . . . . . . . . . . . . . . 4,317
1997 . . . . . . . . . . . . . . . . . . . . . 3,978
1998 . . . . . . . . . . . . . . . . . . . . . 3,670
1999 . . . . . . . . . . . . . . . . . . . . . 2,798
F-14
NOTE 4 - ALLOWANCE FOR POSSIBLE LOSSES AND VALUATION ALLOWANCE ON REAL ESTATE
OWNED
As discussed in Note 1, the Trust adopted SOP 92-3 effective September
30, 1992, "Accounting for Foreclosed Assets." Upon adoption of this
accounting policy, each real estate owned asset is valued at the lower
of cost or fair value, whereby any previously provided allowance prior
to adoption is recognized. If future evaluations result in a
diminution in the value of the property, the reduction should be
recognized as a valuation allowance. If the value of the property
subsequently increases, the valuation allowance should be reduced.
Further, as discussed in Note 1, the Trust adopted FASB 114 during the
fiscal year ended September 30, 1993. FASB 114 requires the valuation
of impaired loans based on either the present value of expected future
cash flows or the fair value of the underlying collateral. 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 Trust has also assumed that it will not be required to liquidate
assets other than in the ordinary course of business, in order to
repay debt (see Note 5). 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.
In view of the fact that difficulties in the real estate market
existed during the three years ended September 30, 1994, particularly
in the New York metropolitan area, the primary real estate market
served by the Trust as discussed in Note 2, and the continued general
lack of liquidity in the real estate industry, the Trust recorded
provisions for possible losses aggregating $4,340, $3,111 and $7,940
($4,120 relating to real estate loans and $3,820 to real estate owned)
during the years ended September 30, 1994, 1993 and 1992,
respectively. A majority, or $2,950,000, of the provision for
possible loan losses recorded during the year ended September 30,
1994, was taken against a real estate loan in which the Trust has a
subordinate position in a securitized mortgage portfolio which,
although interest is current, went into default in October 1994.
The Trust recorded provisions for valuation adjustment of $993 and
$3,388 for the years ended September 30, 1994 and 1993, respectively.
There was no valuation allowance at September 30, 1992.
F-15
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,
-----------------------------------------
1994 1993 1992
----------- ----------- -----------
Balance at beginning of year $ 22,637 $ 23,242 $ 32,674
Provision for possible loan losses 4,340 3,111 7,940
Costs applied to previously established allowances - - (600)
Write-off of allowances (13,656) (3,716) (10,863)
Recognition of allowance upon adoption
of new accounting policy (Note 3) - - (5,909)
----------- ----------- -----------
Balance at end of year $ 13,321 $ 22,637 $ 23,242
----------- ----------- -----------
----------- ----------- -----------
The allowance for possible losses applies to assets aggregating
$20,700 at September 30, 1994, $32,583 at September 30, 1993 and
$50,000 at September 30, 1992.
The allowance for possible losses consists of the following
components:
YEAR ENDED SEPTEMBER 30,
-----------------------------------------
1994 1993 1992
----------- ----------- -----------
Excess of carrying value plus estimated cost
to complete and market, over estimated
selling price $ 3,003 $ 2,792 $ 2,362
Valuation adjustment 9,464 19,675 19,624
Estimated holding period costs 854 170 1,256
----------- ----------- -----------
$ 13,321 $ 22,637 $ 23,242
----------- ----------- -----------
----------- ----------- -----------
An analysis of the valuation allowance is as follows:
YEAR ENDED SEPTEMBER 30,
-----------------------------------------
1994 1993 1992
----------- ----------- -----------
Balance at beginning of year $ 3,229 $ - $ -
Provision for valuation adjustment 993 3,388 -
Write-off of valuation adjustment
upon sale of real estate owned (1,505) (159) -
----------- ----------- -----------
Balance at end of year $ 2,717 $ 3,229 $ -
----------- ----------- -----------
----------- ----------- -----------
The valuation allowance applies to assets aggregating $13,917 at
September 30, 1994 and $16,678 at September 30, 1993.
F-16
NOTE 5 - DEBT OBLIGATIONS
Debt obligations consist of the following:
September 30,
--------------------------
1994 1993
----------- -----------
Notes payable, credit agreement $ 66,192 $ 92,785
----------- -----------
----------- -----------
Loans and mortgages payable, nonrecourse $ 6,671 $ 10,308
----------- -----------
----------- -----------
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. Simultaneously with the
execution, the Trust reduced the principal amount outstanding to
$105,000 by paying $9,800 to the banks. 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, to the banks. 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, purchased approximately 29% of the 17% portion of the
indebtedness purchased at a public sale by an unrelated entity.
The principal balance bears interest at the prime lending rate plus
1%, and in addition, the "Agent Bank", which represents the five banks
involved in the Agreement, receives an annual fee equal to the lesser
of 1/8 of 1% of the aggregate outstanding principal balance or $100.
The Trust is precluded from making any mortgage loans except for
specified unfunded commitments and purchase money mortgage loans in
connection with the sale of properties (with limitations as to
percentage of sale price, rates of interest and term). The Trust must
maintain tangible net worth at the lesser of $55,000 or 55% (60%
starting July 1, 1995) of the sum of total bank debt plus the
aggregate amount of all nonrecourse indebtedness incurred for borrowed
money (as defined). Total liabilities (excluding subordinated debt
and any nonrecourse indebtedness existing as of the date of the
Agreement, or assumed in connection with the exercise of remedies
under a mortgage loan) can not exceed two times the sum of tangible
net worth plus subordinated debt. The Agreement extends the maturity
date to June 30, 1995 with two, one year options based on satisfying
certain ratios and principal payments. The Trust is required to make
mandatory principal payments of $10,000 no later than June 30, 1995,
and $20,000 no later than June 30, 1996. Once a principal payment is
made by the Trust to the banks it may not be re-borrowed. To the
extent that in any July 1 to June 30 year, the Trust makes payments in
excess of the mandatory repayment due for such year plus 50% of the
mandatory repayment due in the next succeeding year, the excess shall
be applied to the reduction of the principal payment due at maturity.
The requirements through June 30, 1995 have been satisfied and
assuming the Trust exercises its right to extend for the first, one
year term, as of December 1, 1994 approximately $9,369 has been paid
towards the required $20,000 June 30, 1996 principal payment.
Upon execution of the Agreement, the Trust entered into a Cash
Collateral Agreement which establishes a cash collateral account with
the Agent Bank. This account is the repository of a portion of all
defined capital event proceeds and excess operating cash flow. The
funds in the cash collateral account are available to the Trust for
specific business purposes, including interest
F-17
NOTE 5 - DEBT OBLIGATIONS (Continued)
payments, capital improvements to real estate owned, protection of
mortgages receivable and funding operating deficits. The cash
collateral account which the banks have a security interest in, is not
restricted as to use other than an amount equal to three months
interest totaling $1,448 at September 30, 1994. The Agent Bank is
required to disburse funds (in an amount not greater than an approved
budget) from the cash collateral account on requisition by the Trust
as long as there is no monetary default. The budget, for the budget
period July 1, 1993 to June 30, 1994 was $9,000 and for the period
July 1, 1994 to June 30, 1995 (as revised), is $12,500. To the extent
the cash collateral account exceeds $9,000 at the end of any month, or
$10,000 within a month, the Agent Bank may apply such excess to reduce
principal. Under the terms of the Agreement, 75% of capital event
proceeds (as defined) is to be applied to reduce principal. The
balance of capital event proceeds is to be deposited into the cash
collateral account. The Agreement also authorizes the Trust to
maintain cash in operating accounts up to $500. Any excess is to be
deposited into the cash collateral account at the end of each month.
During the fourth quarter of Fiscal 1994, a modification to the
Agreement has been permitted by the banks, allowing the Trust to
exceed its $9,000 budget by $1,000 in order to pay for the
improvements required under the lease entered into with a major
insurance company at the corporate center in Dover, Delaware (see Note
3). Further modification was permitted by the banks, subsequent to
September 30, 1994, for the Trust to exceed its budget by another
$2,500, bringing the total permitted excess to $3,500. The additional
funds will allow the Trust to complete improvements required under the
lease entered into with a bank, at the Delaware Corporate Center, in
addition to expenditures anticipated for real estate which is held
long term for the production of income. In addition, in order for the
Trust to replenish its cash collateral account, the banks have also
agreed to modify the split of the next $6,000 of capital event
proceeds (effective October 28, 1994) and will permit the Trust to
retain 50% of such proceeds as opposed to the 25% which is currently
provided in the Agreement.
In 1986 the Trust issued a floating rate subordinated note to a
financial institution. This note provided for monthly payments of
interest at prime plus 2% with the entire principal due in 1996. The
financial institution which purchased and owned the subordinated note
was taken over by the Resolution Trust Corporation ("RTC"). The same
institution also participated, as a senior participant in an
approximately $81,000 mortgage receivable secured by 108 properties
located in the metropolitan New York City area. The Trust's junior
participation in this loan had a carrying amount (which approximated
fair value) of $2,053 on September 23, 1992 at which time, after
extensive negotiations, the Trust transferred its junior participation
to the RTC, and One Liberty paid cash of $2,250 to the RTC, in
exchange for which the RTC transferred $3,266 of the principal amount
with a carrying amount of $3,022 of the subordinated note to the Trust
and $3,375 of the principal amount to One Liberty, who thereupon
extended the subordinated note to December 31, 1997 and was given a
first mortgage lien on certain real estate owned by the Trust. During
the year ended September 30, 1992, the Trust recorded an extraordinary
gain of $969 on the transfer of the participation in settlement of the
subordinated debt obligation.
On September 14, 1993, 1,030 $1.00 par value shares of newly issued,
Series A cumulative convertible preferred stock of the Trust were
issued to One Liberty in exchange for the cancellation of the
subordinated note with a principal amount of $3,375. On December 4,
1992 the Trust's independent directors approved the exchange of this
subordinated note for the preferred shares of the Trust, and on April
30, 1993, this exchange was approved by the Trust's shareholders. The
preferred shares provide for cumulative annual dividends of $.2622 per
share, payable quarterly and are convertible into shares of beneficial
interest on a one-for-one basis,
F-18
NOTE 5 - DEBT OBLIGATIONS (Continued)
and have one vote per share. In addition, the preferred shares may be
redeemed in whole or in part by the Trust, at its option, at prices
ranging from $3.57 per share in 1994 to $3.28 per share after July 1,
2001. The Trust has agreed with the banks that it will not redeem
such shares prior to December 31, 1997.
During the first quarter of Fiscal 1993, the Trust funded one of its
unfunded commitments, as specified in the Agreement, which consisted
of a $3,000 real estate loan receivable with a $2,000 loan payable.
The loan payable bears interest at prime +1% with monthly principal
amortization of $28, maturing in January 1996. The balance at
September 30, 1993 and 1994 is $1,805 and $1,472 respectively. The
underlying collateral for the said loan receivable consists of a 50%
partnership interest in which the Chairman and Vice Chairman of the
Board of Trustees of the Trust hold the other 50% partnership
interest. As of September 30, 1993, $2,637 is included in loans and
mortgages payable representing an amount borrowed from a financial
institution to pay off a senior participation. This loan which was
paid in full in Fiscal 1994 was nonrecourse and was secured by the
senior participation interest reacquired by the Trust. Additionally,
the Trust has non-recourse mortgages payable on foreclosed property as
of September 30, 1994 and 1993 of $5,200 and $5,866, respectively.
These loans and mortgages payable bear interest at rates ranging from
8.75% to 11.25% per annum, and mature November, 1995 to June, 1997,
although $1,005 is currently due on demand.
NOTE 6 - FEDERAL INCOME TAXES
Cumulative taxable loss since inception is less than 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 approximately $621 less than the
financial statement income during Calendar 1994.
At December 31, 1993, the Trust had available tax operating loss
carryforwards of $33,000 of which $2,469 will expire in 2005, $2,638
will expire in 2006, $13,605 will expire in 2007 and $14,288 will
expire in 2008.
F-19
NOTE 7 - SHAREHOLDERS' EQUITY
DISTRIBUTIONS
There were no distributions on the Trust's shares of beneficial
interest declared during the years ended September 30, 1992, 1993, and
1994.
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. A maximum of 500,000 shares of beneficial interest
were reserved for issuance under the 1988 Stock Option Plan, of which
38,000 remain available at September 30, 1994. At September 30, 1994
options to purchase 449,500 shares are exercisable.
On May 22, 1984 the Board of Trustees adopted a stock option plan. A
maximum of 300,000 shares of beneficial interest were reserved for
issuance, of which 31,581 remain available for grant, to the Trust's
officers and employees. Options are granted at per share amounts at
least equal to their fair market value at the date of grant. The
options are cumulatively exercisable at the rate of 20% per annum,
commencing after one year, and expire five and one-half years after
granting. During the fiscal year ended September 30, 1994 no options
were granted and no options remain unexercised.
Changes in the number of shares under all option arrangements are
summarized as follows:
Year Ended September 30,
-----------------------------------------
1994 1993 1992
-------- -------- --------
Outstanding at beginning of period 462,000 462,000 462,000
Granted - - -
Option price per share granted - - -
Exercisable at end of period 449,500 334,000 218,500
Expired - - -
Outstanding at end of period 462,000 462,000 462,000
Option prices per share outstanding $3.50-$3.63 $3.50-$3.63 $3.50 - $3.63
F-20
NOTE 8 - ADVISOR'S COMPENSATION AND CERTAIN TRANSACTIONS
Certain of the Trust's officers and trustees are also officers,
directors and shareholders 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, 1998,
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 $1,052,
$1,295, and $1,240 for the years ended September 30, 1994, 1993 and
1992, respectively. REIT reduced its advisory fees by 20% for the
year ended September 30, 1992. Commencing in the year ended September
30, 1993, such 20% reduction was discontinued.
The borrower may pay fees to REIT for services rendered in arranging
and restructuring significant loans by the Trust. These fees, which
are allowed by the advisory agreement, on loans arranged on behalf of
the Trust and which are paid directly by the borrower to REIT. There
were no such fees paid to REIT during the three years ended September
30, 1994.
A company with the same shareholders as REIT manages certain
foreclosed properties for the Trust under renewable year-to-year
agreements. Management fees and leasing/selling commissions incurred
for the years ended September 30, 1994, 1993 and 1992 aggregated $617,
$706, and $547, respectively.
A law firm in which the partners are officers of the Trust, received
fees directly from borrowers of the Trust totalling approximately $67
and $95, for the years ended September 30, 1994 and 1993,
respectively.
The Chairman and Vice Chairman of the Board of Trustees of the Trust
hold similar positions in One Liberty (Notes 3 and 5) and are
executive officers of the managing general partner and are general
partners of Gould Investors L.P. During the years ended September
30, 1994, 1993 and 1992, allocated general and administrative expenses
charged to the Trust by Gould Investors L.P. aggregated $1,264,
$1,283, and $1,205, 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 $100, $113, and $92 during the years ended September 30,
1994, 1993 and 1992, respectively.
F-21
NOTE 10 - QUARTERLY FINANCIAL DATA (UNAUDITED)
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Total
Oct.-Dec. Jan.-March April-June July-Sept. For Year
--------- ---------- ---------- ---------- --------
1994
-------------------------------------------------------------------------
Revenues $ 4,546 $ 5,633 $ 5,983 $ 5,875 $ 22,037
Provision for
possible loan losses $ 438 $ 952 $ - $ 2,950 $ 4,340
Provision for valuation
adjustment $ - $ - $ 993 $ - $ 993
Net income ( loss) $ (2) $ 424 $ 793 $ (1,020) $ 195
Per share $ (.01) $ .05 $ .10 $ (.15) $ (.01)(a)
1993
-------------------------------------------------------------------------
Revenues $ 4,458 $ 4,987 $ 4,828 $ 3,916 $ 18,189
Provision for
possible loan losses $ 1,500 $ - $ 211 $ 1,400 $ 3,111
Provision for valuation
adjustment $ - $ 1,725 $ 1,413 $ 250 $ 3,388
Net loss $ (1,006) $ (618) $ (649) $ (1,795) $ (4,068)
Per share $ (.14) $ (.08) $ (.09) $ (.25) $ (.56)(a)
<FN>
Per share earnings represent primary earnings per beneficial share.
(a) Calculated on weighted average shares outstanding for the fiscal year.
F-22
BRT REALTY TRUST
SCHEDULE XI - REAL ESTATE AND ACCUMULATED DEPRECIATION
SEPTEMBER 30, 1994
(Amounts in Thousands)
Cost Capitalized
Initial Cost to Company Subsequent to Acquisition
Building and Carrying
Description Encumbrances Land Improvements Improvements Costs
- - --------------------------------------------------------------------------------------------------
Residential
Manhattan, NY $ --- $ 607 $ 2,853 $ 858 $ 91
Miscellaneous --- 515 2,061 64 7
Shopping Centers/Retail
Rock Springs, WY 1,804 600 2,483 58 28
Philadelphia, PA --- 3,075 11,160 490 ---
Dover, DE 1,313 775 3,195 335 ---
Miscellaneous 2,083 3,717 2,877 102 105
Office
Manhattan, NY --- 987 3,948 242 33
Miscellaneous --- 648 3,035 350 36
Improved Land
Miscellaneous --- 5,096 --- --- ---
Unimproved Land
Miscellaneous --- 4,642 --- --- 185
---------------------------------------------------------------------
TOTAL $ 5,200 $ 20,662 $ 31,612 $ 2,499 $ 485
---------------------------------------------------------------------
---------------------------------------------------------------------
(a)
Gross Amount at Which Carried at
September 30, 1994 Depreciation
Life for
Building and Accumulated Date of Date Latest Income
Land Improvements Total Depreciation Construction Acquired Statement
- - ------------------------------------------------------------------------------------------------------------------------------
Residential
Manhattan, NY $ 607 $ 3,802 $ 4,409 --- Apr-90 ---
Miscellaneous 515 2,132 2,647 --- Various ---
Shopping Centers/Retail
Rock Springs, WY 600 2,569 3,169 --- Jan-92 ---
Philadelphia, PA 3,075 11,650 14,725 465 Apr-93 40 Years
Dover, DE 775 3,530 4,305 --- Oct-93 ---
Miscellaneous 3,717 3,084 6,801 --- Various ---
Office
Manhattan, NY 987 4,223 5,210 --- Sep-92 ---
Miscellaneous 648 3,421 4,069 --- Various ---
Improved Land
Miscellaneous 5,096 --- 5,096 --- Various ---
Unimproved Land
Miscellaneous 4,827 --- 4,827 --- Various ---
-----------------------------------------------------
TOTAL $ 20,847 $ 34,411 $ 55,258 $465
-----------------------------------------------------
-----------------------------------------------------
(b) (c) (d)
F-23
BRT REALTY TRUST
SCHEDULE XI - REAL ESTATE AND ACCUMULATED DEPRECIATION
SEPTEMBER 30, 1994
(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
the other operating properties, all operating income and expenses are
reflected in the consolidated Statement of Operations.
(b) Total foreclosed properties $ 55,258 (1)
Less: Accumulated depreciation 465
Valuation allowance 2,717
--------
Net foreclosed properties $ 52,076
--------
--------
(1) For Federal income tax purposes, the aggregate cost of foreclosed
properties is approximately $43,000.
(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.
(d) Information not readily obtainable.
(e) A reconciliation of real estate owned, including in-substance foreclosures
is as follows:
Years Ended September 30,
1994 1993 1992
----------------------------------
Balance at beginning of year $ 47,933 $ 35,574 $ 23,924
Additions:
Foreclosures, including in-substance
foreclosures 17,745 19,532 18,045
Improvements 1,102 987 609
Carrying costs 562 723 3,001
Recognition of valuation allowance
upon sale of property 1,505 --- ---
Repayments to participants --- --- 354
Other --- 5 33
----------------------------------
68,847 56,821 45,966
----------------------------------
Deductions:
Sales/conveyances 15,459 5,513 6,778
Allowances for possible losses --- --- 3,614
Provision for valuation adjustment 993 3,229 ---
Depreciation 319 146 ---
----------------------------------
16,771 8,888 10,392
----------------------------------
Balance at end of year $ 52,076 $ 47,933 $ 35,574
----------------------------------
----------------------------------
F-24
BRT REALTY TRUST
SCHEDULE XII - MORTGAGE LOANS ON REAL ESTATE
SEPTEMBER 30, 1994
(Amounts in Thousands)
Principal
Amount of Loans
Subject to
Final Carrying Delinquent
# of Maturity Prior Face Amount Amount of Principal
Description Loans Interest Rate Date Periodic Payment Terms Liens of Mortgages Mortgages of Interest
- - ------------------------------------------------------------------------------------------------------------------------------------
First mortgage loans:
Long Term:
Miscellaneous
$0-$589 31 $ -- $ 1,603 $ 1,536 $ --
Short Term:
Cooperative Apartments - 1 8.0% Oct-96 Interest monthly, -- 2,150 2,150 --
Islip, NY principal at maturity
Secured Loan - 1 Libor + 1.5% Sep-96 Interest monthly, -- 2,289 1,789 --
Kansas City, MO principal at maturity
Garden Apartments - 1 Prime + 2.1% Oct-94 Interest monthly, -- 2,310 2,310 --
Spring Valley, NY principal at maturity
Underlying Mortgage - 1 6.0% Jan-2000 Interest monthly, -- 2,835 2,835 --
Bronx, NY principal at maturity
Office Building - 1 Prime + 1.0% Jun-98 Interest monthly, -- 2,900 2,900 --
Brooklyn, NY principal at maturity
Industrial Building - 1 10.5% Apr-95 Interest and principal -- 3,556 3,556 --
Queens, NY monthly
Office Building - 1 Prime + 2.5% Jun-95 Interest monthly @ a -- 4,750 3,000 --
Fairway, KS minimum of 9% ,
principal at maturity
Garden Apartments - 1 Prime + 2% May-95 Interest monthly @ -- 8,321 8,321 --
Carrolton, TX 9.5% plus portion of
cash flow, principal
at maturity
Underlying Mortgage - 1 9.0% Aug-2002 Interest monthly, -- 9,371 9,371 --
Queens, NY principal at maturity
Miscellaneous
$0-$399 12 -- 3,189 2,769 --
$400-$999 11 -- 7,214 7,214 577
$1,000-$1,749 3 -- 4,255 3,349 --
Junior mortgage loans:
Shopping centers:
Miscellaneous
$0-$1,859 4 8,612 3,331 997 3,144
Office:
Miscellaneous
$0-$699 1 2,377 691 691 --
Residential:
Garden Apts. - 1 10% Mar-95 Interest monthly @ 3,255 2,263 2,263 --
Bedford, TX 10.0% plus portion of
cash flow, principal
at maturity
Garden Apts., NJ 1 10.8% Demand Interest monthly, 129,322 4,210 1,106 4,210
principal at maturity
Garden Apts. - 1 Prime + 2% Jan-95 Interest monthly @ 5,190 6,182 6,182 --
Arlington, TX 9.5% plus portion of
cash flow, principal
at maturity
Miscellaneous
$0-$499 4 16,063 883 -- 882
$500-$1,919 2 40,969 3,657 1,739 --
Hotel:
Miscellaneous 1 12,000 1,000 -- 1,000
Wraparound mortgages:
Miscellaneous
$0-$549 3 4,709 1,063 608 455
------ ---------------------------------------------------
84 $222,497 $78,023 $64,686 $10,268
------ ---------------------------------------------------
------ ---------------------------------------------------
F-25
BRT REALTY TRUST
SCHEDULE XII - MORTGAGE LOANS ON REAL ESTATE
SEPTEMBER 30, 1994
(Amounts in Thousands)
Notes to the schedule:
(a) The following summary reconciles mortgages receivable at their carrying
values:
September 30,
-----------------------------------
1994 1993 1992
-----------------------------------
Balance at beginning of year $ 99,466 $ 128,579 $ 152,794
Additions:
Advances under real estate loans 944 2,779 2,434
Repayments to participating lenders 5,479 13,572 3,290
Capitalization of earned interest
income to loan balance in accor-
dance with agreements 13 24 648
Recognition of discount upon
premature payoff of real estate loans 565 --- 90
Purchase money mortgages from
sale of real estate owned 6,242 1,030 ---
Loan payable in conjunction with
partial funding of outstanding
commitment --- 2,000 ---
Other --- 1 ---
-----------------------------------
112,709 147,985 159,256
-----------------------------------
Deductions:
Collections of principal 28,041 26,709 8,631
Proceeds from participating lenders --- 172 115
Provision for possible loan losses 4,340 3,111 4,115
Investments transferred to
foreclosed properties, including in-
substance foreclosures, net 15,642 18,527 15,727
Release of M/R as consideration for
forgiveness of subordinated debt --- --- 2,053
Partial write off of real estate loans
upon foreclosure --- --- 30
Other --- --- 6
-----------------------------------
48,023 48,519 30,677
-----------------------------------
Balance at end of year $ 64,686 $ 99,466 $ 128,579
-----------------------------------
-----------------------------------
(b) The aggregate cost of investments in mortgage loans is the same for
financial reporting purposes and Federal income tax purposes.
F-26