Unassociated Document
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
DC 20549
FORM
10-Q
x
Quarterly
Report
Pursuant to Section 13 or 15(d) of
the
Securities Exchange Act of 1934
For
the
quarterly period ended March 31, 2007
OR
o
Transition
Report
Pursuant to Section 13 or 15(d) of
the
Securities Exchange Act of 1934
Commission
File Number 001-07172
BRT
REALTY TRUST
(Exact
name of Registrant as specified in its charter)
Massachusetts
|
13-2755856
|
(State
or other jurisdiction of
|
(I.R.S.
Employer
|
incorporation
or organization)
|
Identification
No.)
|
60
Cutter Mill Road, Great Neck, NY
|
11021
|
(Address
of principal executive offices)
|
(Zip
Code)
|
516-466-3100
(Registrant’s
telephone number, including area code)
Indicate
by check mark whether the Registrant (1) has filed all reports required to
be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the
preceding 12 months (or for such shorter period that the Registrant was required
to file such reports), and (2) has been subject to such filing requirements
for
the past 90 days.
Yes
x No
o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of “accelerated
filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check
one):
Large
Accelerated Filer o
Accelerated Filer x Non-Accelerated
Filer o
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). (Check one):
Yes
o
No x
Indicate
the number of shares outstanding of each of the issuer's classes of stock,
as of
the latest practicable date.
11,090,818 Shares
of
Beneficial Interest,
$3
par
value, outstanding on May 4, 2007
Part
1 - FINANCIAL INFORMATION
Item
1. Financial Statements
BRT
REALTY TRUST AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS
(Amounts
in thousands)
|
|
March
31,
|
|
September
30,
|
|
|
|
2007
|
|
2006
|
|
|
|
(Unaudited)
|
|
(Audited)
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
Real
estate loans:
|
|
|
|
|
|
Earning
interest, including $-0- and $550 from related parties
|
|
$
|
274,633
|
|
$
|
283,282
|
|
Not
earning interest
|
|
|
16,593
|
|
|
1,346
|
|
|
|
|
291,226
|
|
|
284,628
|
|
Allowance
for possible losses
|
|
|
(669
|
)
|
|
(669
|
)
|
|
|
|
290,557
|
|
|
283,959
|
|
|
|
|
|
|
|
|
|
Real
estate properties, net of accumulated
|
|
|
|
|
|
|
|
depreciation
of $781 and $725
|
|
|
3,328
|
|
|
3,342
|
|
Investment
in unconsolidated ventures at equity
|
|
|
12,315
|
|
|
9,608
|
|
Cash
and cash equivalents
|
|
|
12,565
|
|
|
8,393
|
|
Available-for-sale
securities at market
|
|
|
46,403
|
|
|
53,252
|
|
Real
estate property held for sale
|
|
|
-
|
|
|
2,833
|
|
Other
assets
|
|
|
10,550
|
|
|
9,655
|
|
|
|
|
|
|
|
|
|
Total
Assets
|
|
$
|
375,718
|
|
$
|
371,042
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND SHAREHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
Borrowed
funds
|
|
$
|
53,000
|
|
$
|
141,464
|
|
Junior
subordinated notes
|
|
|
56,702
|
|
|
56,702
|
|
Mortgage
payable
|
|
|
2,433
|
|
|
2,471
|
|
Accounts
payable and accrued liabilities, including deposits payable of $3,510
and
$5,061
|
|
|
7,852
|
|
|
11,479
|
|
Dividends
payable
|
|
|
6,868
|
|
|
4,491
|
|
Total
Liabilities
|
|
|
126,855
|
|
|
216,607
|
|
|
|
|
|
|
|
|
|
Commitments
and contingencies
|
|
|
|
|
|
|
|
Shareholders'
Equity:
|
|
|
|
|
|
|
|
Preferred
shares, $1 par value:
|
|
|
|
|
|
|
|
Authorized
10,000 shares, none issued
|
|
|
-
|
|
|
-
|
|
Shares
of beneficial interest, $3 par value:
|
|
|
|
|
|
|
|
Authorized
number of shares, unlimited, issued 12,078 and 9,065
shares
|
|
|
36,233
|
|
|
27,194
|
|
Additional
paid-in capital
|
|
|
156,214
|
|
|
85,498
|
|
Accumulated
other comprehensive income - net unrealized gain on available-for-sale
securities
|
|
|
35,328
|
|
|
38,319
|
|
Retained
earnings
|
|
|
31,120
|
|
|
13,510
|
|
Cost
of 1,164 and 1,171 treasury shares of beneficial interest,
respectively
|
|
|
(10,032
|
)
|
|
(10,086
|
)
|
Total
Shareholders' Equity
|
|
|
248,863
|
|
|
154,435
|
|
|
|
|
|
|
|
|
|
Total
Liabilities and Shareholders' Equity
|
|
$
|
375,718
|
|
$
|
371,042
|
|
See
Accompanying Notes to Consolidated Financial Statements.
BRT
REALTY TRUST AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF INCOME
(Unaudited)
(Dollar
amounts in thousands except per share amounts)
|
|
Three
Months Ended
|
|
Six
Months Ended
|
|
|
|
March
31,
|
|
March
31,
|
|
|
|
2007
|
|
2006
|
|
2007
|
|
2006
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
Interest
and fees on real estate loans, including $-0- and $17 from related
parties
for the three month periods, respectively, and $15 and $76 for the
six
month periods, respectively.
|
|
$
|
9,969
|
|
$
|
7,119
|
|
$
|
21,556
|
|
$
|
13,543
|
|
Operating
income from real estate properties
|
|
|
385
|
|
|
251
|
|
|
750
|
|
|
544
|
|
Other,
primarily investment income
|
|
|
640
|
|
|
751
|
|
|
1,433
|
|
|
1,434
|
|
Total
Revenues
|
|
|
10,994
|
|
|
8,121
|
|
|
23,739
|
|
|
15,521
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
- borrowed funds
|
|
|
2,382
|
|
|
2,006
|
|
|
6,237
|
|
|
3,776
|
|
Advisor's
fees, related party
|
|
|
534
|
|
|
629
|
|
|
1,358
|
|
|
1,165
|
|
General
and administrative - including $198 and $216 to related parties for
the
three month periods, respectively, and $456 and $448 for the six
month
periods, respectively.
|
|
|
1,791
|
|
|
1,468
|
|
|
3,350
|
|
|
3,073
|
|
Other
taxes
|
|
|
556
|
|
|
134
|
|
|
785
|
|
|
248
|
|
Operating
expenses relating to real estate properties including interest on
mortgages payable of $38 and $39 for the three month periods,
respectively, and $77 and $80 for the six month periods,
respectively
|
|
|
202
|
|
|
197
|
|
|
403
|
|
|
404
|
|
Amortization
and depreciation
|
|
|
45
|
|
|
34
|
|
|
78
|
|
|
71
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Expenses
|
|
|
5,510
|
|
|
4,468
|
|
|
12,211
|
|
|
8,737
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
before equity in earnings (loss) of unconsolidated joint ventures,
minority interest and discontinued operations
|
|
|
5,484
|
|
|
3,653
|
|
|
11,528
|
|
|
6,784
|
|
Equity
in earnings (loss) of unconsolidated joint ventures
|
|
|
99
|
|
|
127
|
|
|
181
|
|
|
(750
|
)
|
Gain
on disposition of real estate related to unconsolidated
venture
|
|
|
-
|
|
|
-
|
|
|
1,819
|
|
|
2,531
|
|
Income
before gain on sale of available-for sale securities, minority interest
and discontinued operations
|
|
|
5,583
|
|
|
3,780
|
|
|
13,528
|
|
|
8,565
|
|
Gain
on sale of available-for-sale securities
|
|
|
15,298
|
|
|
-
|
|
|
15,298
|
|
|
-
|
|
Minority
interest
|
|
|
(17
|
)
|
|
(6
|
)
|
|
(31
|
)
|
|
(14
|
)
|
Income
before discontinued operations
|
|
|
20,864
|
|
|
3,774
|
|
|
28,795
|
|
|
8,551
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued
Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) from operations
|
|
|
-
|
|
|
30
|
|
|
6
|
|
|
(32
|
)
|
Gain
on sale of real estate assets
|
|
|
-
|
|
|
315
|
|
|
352
|
|
|
315
|
|
Income
from discontinued operations
|
|
|
-
|
|
|
345
|
|
|
358
|
|
|
283
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
20,864
|
|
$
|
4,119
|
|
$
|
29,153
|
|
$
|
8,834
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
per share of beneficial interest:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations
|
|
$
|
1.88
|
|
$
|
.48
|
|
$
|
2.91
|
|
$
|
1.09
|
|
Income
from discontinued operations
|
|
|
-
|
|
|
.04
|
|
|
.04
|
|
|
.03
|
|
Basic
earnings per share
|
|
$
|
1.88
|
|
$
|
.52
|
|
$
|
2
.95
|
|
$
|
1.12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations
|
|
$
|
1.88
|
|
$
|
.48
|
|
$
|
2.91
|
|
$
|
1.09
|
|
Income
(loss) from discontinued operations
|
|
|
-
|
|
|
.04
|
|
|
.04
|
|
|
.03
|
|
Diluted
earnings per share
|
|
$
|
1.88
|
|
$
|
.52
|
|
$
|
2.95
|
|
$
|
1.12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
distributions per common share
|
|
$
|
.62
|
|
$
|
.52
|
|
$
|
1.20
|
|
$
|
1.04
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average number of common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
11,051,977
|
|
|
7,920,760
|
|
|
9,853,295
|
|
|
7,874,877
|
|
Diluted
|
|
|
11,069,901
|
|
|
7,945,242
|
|
|
9,871,381
|
|
|
7,910,922
|
|
See
Accompanying Notes to Consolidated Financial Statements.
BRT
REALTY TRUST AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF SHAREHOLDERS' EQUITY
(Unaudited)
(Amounts
in thousands except for per share data and number of
shares)
|
|
Shares
of Beneficial Interest
|
|
Additional
Paid-In Capital
|
|
Accumulated
Other Com- prehensive Income
|
|
Retained
Earnings
|
|
Treasury
Shares
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances,
September 30, 2006
|
|
$
|
27,194
|
|
$
|
85,498
|
|
$
|
38,319
|
|
$
|
13,510
|
|
$
|
(10,086
|
)
|
$
|
154,435
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
issued - Dividend reinvestment and stock purchase plan (80,334
shares)
|
|
|
241
|
|
|
2,037
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
2,278
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
issued - underwritten public offering (2,932,500 shares)
|
|
|
8,798
|
|
|
68,296
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
77,094
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions
- common share ($1.20 per share)
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(11,543
|
)
|
|
-
|
|
|
(11,543
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise
of stock options
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
11
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted
stock vesting
|
|
|
|
|
|
(43
|
)
|
|
|
|
|
|
|
|
43
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation
expense - restricted stock
|
|
|
-
|
|
|
427
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
427
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
29,153
|
|
|
-
|
|
|
29,153
|
|
Other
comprehensive
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
- net unrealized loss on available-for-sale securities (net of
reclassification adjustment for gains included in net income of
$15,298)
|
|
|
-
|
|
|
-
|
|
|
(2,991
|
)
|
|
-
|
|
|
-
|
|
|
(2,991
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
income
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
26,162
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances,
March 31, 2007
|
|
$
|
36,233
|
|
$
|
156,214
|
|
$
|
35,328
|
|
$
|
31,120
|
|
$
|
(10,032
|
)
|
$
|
248,863
|
|
See
Accompanying Notes to Consolidated Financial Statements
BRT
REALTY TRUST AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(Unaudited)
(Amounts
in Thousands)
|
|
Six
Months Ended
|
|
|
|
March
31,
|
|
|
|
2007
|
|
2006
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
Net
income
|
|
$
|
29,153
|
|
$
|
8,834
|
|
Adjustments
to reconcile net income to net cash provided by operating
activities:
|
|
|
|
|
|
|
|
Amortization
and depreciation
|
|
|
537
|
|
|
239
|
|
Amortization
of restricted stock and stock options
|
|
|
427
|
|
|
234
|
|
Net
gain on sale of real estate assets from discontinued
operations
|
|
|
(352
|
)
|
|
(315
|
)
|
Gain
on sale of available-for-sale securities
|
|
|
(15,298
|
)
|
|
-
|
|
Equity
in (earnings) loss of unconsolidated real estate ventures
|
|
|
(181
|
)
|
|
750
|
|
Gain
on disposition of real estate related to unconsolidated real estate
venture
|
|
|
(1,819
|
)
|
|
(2,531
|
)
|
Distribution
of earnings of unconsolidated joint ventures
|
|
|
4,536
|
|
|
91
|
|
Increase
in straight line rent
|
|
|
(120
|
)
|
|
(33
|
)
|
Increases
and decreases from changes in other assets and liabilities
|
|
|
|
|
|
|
|
Increase
in interest and dividends receivable
|
|
|
(157
|
)
|
|
(377
|
)
|
(Increase)
decrease in prepaid expenses
|
|
|
(626
|
)
|
|
32
|
|
(Decrease)
increase in accounts payable and accrued liabilities
|
|
|
(3,659
|
)
|
|
1,218
|
|
Increase
in deferred costs
|
|
|
(309
|
)
|
|
(1,572
|
)
|
Other
|
|
|
(136
|
)
|
|
(867
|
)
|
Net
cash provided by operating activities
|
|
|
11,996
|
|
|
5,703
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
Collections
from real estate loans
|
|
|
54,663
|
|
|
82,534
|
|
Sale
of participation interests
|
|
|
569
|
|
|
37,800
|
|
Additions
to real estate loans
|
|
|
(59,271
|
)
|
|
(142,559
|
)
|
Net
costs capitalized to real estate assets
|
|
|
(41
|
)
|
|
(191
|
)
|
Proceeds
from sale of real estate owned
|
|
|
625
|
|
|
337
|
|
Purchase
of available-for-sale securities
|
|
|
(49
|
)
|
|
-
|
|
Sale
of available-for-sale securities
|
|
|
19,203
|
|
|
-
|
|
Contributions
to unconsolidated joint ventures
|
|
|
(10,071
|
)
|
|
(30
|
)
|
Distributions
of capital of unconsolidated joint ventures
|
|
|
4,831
|
|
|
876
|
|
Net
cash provided by (used in) investing activities
|
|
|
10,459
|
|
|
(21,233
|
)
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
Proceeds
from borrowed funds
|
|
|
72,000
|
|
|
83,000
|
|
Repayment
of borrowed funds
|
|
|
(160,464
|
)
|
|
(83,858
|
)
|
Proceeds
from sale of junior subordinated notes
|
|
|
-
|
|
|
25,000
|
|
Mortgage
amortization
|
|
|
(38
|
)
|
|
(36
|
)
|
Cash
distribution - common shares
|
|
|
(9,163
|
)
|
|
(7,996
|
)
|
Exercise
of stock options
|
|
|
10
|
|
|
453
|
|
Issuance
of shares - dividend reinvestment and stock purchase plan
|
|
|
2,278
|
|
|
1,143
|
|
Net
proceeds from secondary offering
|
|
|
77,094
|
|
|
-
|
|
Net
cash (used in) provided by financing activities
|
|
|
(18,283
|
)
|
|
17,706
|
|
|
|
|
|
|
|
|
|
Net
increase in cash and cash equivalents
|
|
|
4,172
|
|
|
2,176
|
|
Cash
and cash equivalents at beginning of period
|
|
|
8,393
|
|
|
5,709
|
|
Cash
and cash equivalents at end of period
|
|
$
|
12,565
|
|
$
|
7,885
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosure of cash flow information:
|
|
|
|
|
|
|
|
Cash
paid during the period for interest
|
|
$
|
6,461
|
|
$
|
3,598
|
|
Non
cash investing and financing activity:
|
|
|
|
|
|
|
|
Seller
financing provided for sale of real estate
|
|
$
|
2,560
|
|
$
|
-
|
|
Reclassification
of real asset to real estate property held for sale
|
|
|
-
|
|
|
2,787
|
|
Accrued
distributions
|
|
|
6,868
|
|
|
4,135
|
|
Purchase
of common shares of statutory trust
|
|
|
-
|
|
|
774
|
|
See
Accompanying Notes to Consolidated Financial Statements
BRT
REALTY TRUST AND SUBSIDIARIES
Notes
to Consolidated Financial Statements
Note
1 - Organization and Background
BRT
Realty Trust is a real estate investment trust organized as a business trust
in
1972 under the laws of the Commonwealth of Massachusetts. Our principal business
activity is to generate income by originating and holding for investment, for
our own account, senior and junior real estate mortgage loans secured by real
property. The Trust may also participate as both an equity investor in, and
as a
mortgage lender to, joint ventures which acquire income producing properties.
Note
2 - Basis of Preparation
The
accompanying interim unaudited consolidated financial statements as of March
31,
2007 and for the three and six months ended March 31, 2007 and March 31, 2006
reflect all normal recurring adjustments which are, in the opinion of
management, necessary for a fair presentation of the results for such interim
periods. The results of operations for the three and six months ended March
31,
2007 are not necessarily indicative of the results for the full
year.
Certain
items on the consolidated financial statements for the preceding period have
been reclassified to conform with the current consolidated financial
statements.
The
consolidated financial statements include the accounts and operations of BRT
Realty Trust, its wholly owned subsidiaries and its majority-owned or controlled
real estate entities. With respect to its unconsolidated joint ventures, as
the
Company (i) is primarily the managing member but does not exercise substantial
operating control over these entities pursuant to EITF 04-05, and (ii) such
entities are not variable-interest entities pursuant to FASB Interpretation
No.
46, “Consolidation of Variable Interest Entities”, it has determined that such
joint ventures should be accounted for under the equity method of accounting
for
financial statement purposes. Material intercompany items and transactions
have
been eliminated. BRT Realty Trust and its subsidiaries are hereinafter referred
to as "BRT" or the "Trust."
These
statements should be read in conjunction with the consolidated financial
statements and related notes which are included in BRT’s Annual Report on Form
10-K for the year ended September 30, 2006.
The
preparation of the financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the amounts reported in the financial statements.
Actual results could differ from those estimates.
Note
3 - Shareholders' Equity
Distributions
During
the quarter ended March 31, 2007, BRT declared a cash distribution to
shareholders of $.62 per share. This distribution totaled $6,868,000 and was
paid April 4, 2007 to shareholders of record on March 23, 2007.
Stock
Options
As
of
March 31, 2007, there were 25,000 stock options outstanding. All of these
options are exercisable. During the quarter ended March 31, 2007, 1,250 options
were exercised. Proceeds from these options totaled $10,000.
Note
3 - Shareholders' Equity (Continued)
Restricted
Shares
As
of
March 31, 2007, 174,735 restricted shares were issued under the Trust’s 2003
incentive plan, of which 10,500 are fully vested. The total number of shares
allocated to this plan is 350,000. The shares issued vest five years from the
date of issuance and under certain circumstances may vest earlier. For
accounting purposes, the restricted stock is not included in the outstanding
shares shown on the balance sheet until they vest, but is included in the
earnings per share computation. In
2006,
the Trust adopted the provisions of Financial Accounting Standards Board
(“FASB”) No. 123 (R), “Share-Based Payment (revised 2004)”. These provisions
require that the estimated fair value of restricted stock at the date of grant
be amortized ratably into expense over the appropriate vesting
period.
For the
three months ended March 31, 2007 and March 31, 2006, the Trust recorded
$287,000 and $123,000 of compensation expense, respectively, and for the six
months ended March 31, 2007 and 2006, recorded $427,000 and $217,000 of
compensation expense, respectively as a result of the outstanding restricted
shares. At March 31, 2007, $2,695,000 has been deferred as unearned compensation
and will be charged to expense over the remaining
vesting period. The weighted average vesting period is approximately 3.2
years.
Per
Share Data
Basic
earnings per share were determined by dividing net income for the period by
the
weighted average number of common shares outstanding during each
period.
Diluted
earnings per share reflect the potential dilution that could occur if securities
or other contracts to issue common shares were exercised or converted into
common shares or resulted in the issuance of common shares that then shared
in
the earnings of the Trust.
The
following table sets forth the computation of basic and diluted
shares:
|
|
Three
Months Ended March 31,
|
|
Six
Months Ended March 31,
|
|
|
|
2007
|
|
2006
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
11,051,977
|
|
|
7,920,760
|
|
|
9,853,295
|
|
|
7,874,877
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect
of dilutive securities
|
|
|
17,924
|
|
|
24,482
|
|
|
18,086
|
|
|
36,045
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
11,069,901
|
|
|
7,945,242
|
|
|
9,871,381
|
|
|
7,910,922
|
|
Note
4 - Real Estate Loans
At
March
31, 2007, three non earning loans having an aggregate principal balance of
$16,593,000 were outstanding to three separate unrelated borrowers, representing
5.70% of total net loans and 4.42% of total assets.
Included
is a loan, reclassified to non-earning at March 31, 2007, which has an
outstanding balance of $4,996,000. This loan is secured by first and second
mortgages on 14 commercial properties located in New Jersey. The two other
loans, classified as non earning in prior periods, have outstanding balances
of
$10,250,000 and $1,347,000, respectively. None of these three non performing
loans is deemed impaired and no allowance has been established for
them.
The
existing loan loss allowance of $669,000 relates to one loan which is deemed
impaired and has an outstanding balance of $ 25,988,000 at March 31, 2007.
This
loan is performing through March 31, 2007. At April 30, 2007 the loan balance
has been reduced to $ 22,611,000 through pay downs of principal that resulted
from the sale of condominium units at the property which secures the
loan.
Management
evaluates the adequacy of the allowance for possible losses periodically and
believes that the allowance for losses is adequate to absorb any probable losses
on the existing loan portfolio.
Note
4 - Real Estate Loans (Continued)
If
all
loans classified as non-earning were earning interest at their contractual
rates
for the three months ended March 31, 2007 and 2006, interest income would have
increased by approximately $573,000 and $66,000 respectively. For the six month
period ended March 31, 2007 and March 31, 2006, the increase would have been
$791,000 and $132,000, respectively.
At
March
31, 2007, four separate unaffiliated borrowers had loans outstanding in excess
of 6% of the total portfolio. Information regarding these loans is set forth
in
the table below:
|
|
#
OF
LOANS
|
|
%
OF GROSS
LOANS
|
|
%
OF
ASSETS
|
|
TYPE
/ (NUMBER)
|
|
STATE
/ (NUMBER)
|
|
|
|
|
|
|
|
|
|
|
|
$43,147,000
|
|
7
|
|
14.82
|
|
11.48
|
|
Multi
family (6) / residential (1)
|
|
TN
(6) NY (1)
|
25,988,000
|
|
1
|
|
8.92
|
|
6.92
|
|
Multi
family, condo redevelopment
|
|
FL
|
|
|
1
|
|
8.60
|
|
6.67
|
|
Multi
family, condo redevelopment
|
|
NY
|
19,439,000
|
|
8
|
|
6.67
|
|
5.17
|
|
Retail
with office (8)
|
|
NJ
(8)
|
No
other
borrower or single loan accounted for more than 6% of the Trust’s loan portfolio
or 5% of the Trust’s assets.
Note
5 - Real Estate Properties
On
November 1, 2006, BRT sold a property that was previously acquired in
foreclosure. This property, which was classified as held for sale, was sold
for
$3,200,000. BRT recorded a gain on the sale of $352,000. In connection with
the
sale BRT provided a purchase money mortgage in the amount of
$2,560,000.
Note
6 - Investment in Unconsolidated Joint Ventures at Equity
BRT
Funding LLC
On
November 2, 2006, BRT Joint Venture I LLC, a wholly owned subsidiary of the
Trust (which is referred to as the BRT member), entered into a joint venture
agreement with and among (1) CIT Capital USA, Inc., which is referred to herein
as the CIT member and which is a wholly owned subsidiary of CIT Group, Inc.
and
(2) BRT Funding LLC, a limited liability company formed under the laws of the
State of Delaware, which is referred to as the joint venture. The joint venture
engages in the business of investing in short-term commercial real estate loans
for terms of six months to three years, commonly referred to as bridge loans.
The BRT member is the managing member of the joint venture. The initial
capitalization of the joint venture will be up to $100 million of which 25%
is
being funded by the BRT member and 75% is being funded by the CIT
member.
The
Trust
manages the joint venture and receives a management allocation calculated as
1%
of the loan portfolio amount, annualized, and payable quarterly. Origination
fees up to 2% of the principal amount of a loan are distributed 37.5% to the
CIT
member and 62.5% to the BRT member. Any amount of origination fees in excess
of
2% of the principal amount of a loan, but not exceeding 3% of the principal
amount of the loan, are paid to REIT Management Corp., BRT’s advisor and a
related party. Any amounts of the joint venture’s origination fees which exceed
3% of the principal amount of a loan are paid 37.5% to the CIT member and 62.5%
to the BRT member. The joint venture will distribute net available cash to
its
two members on a pro-rata basis until the CIT member receives a return of 9%
(inclusive of origination fees), annualized on its outstanding advances. If
the
joint venture is able to provide the CIT member with an annualized 9% return,
thereafter, additional available net cash will be distributed, 37.5% to the
CIT
member and 62.5% to the BRT member.
Note
6 - Investment in Unconsolidated Joint Ventures at Equity
(Continued)
The
Trust
agreed to present all loan proposals received to the joint venture for its
consideration on a first refusal basis, under procedures set forth in the joint
venture agreement, until the joint venture originates loans with an aggregate
principal amount of $100 million (or, in the event that a line of credit at
the
maximum level is obtained, $150 million). After the venture has closed $50
million in loan originations, the remaining loan originations up to the $100
million level will be participated on a 50/50 basis between BRT and the joint
venture.
The
BRT
member is also responsible for the payment of a fee to a Merchant Bank for
arranging the transaction and securing capital from the CIT member. The fee,
which will total $3 million provided that the CIT member contributes their
entire $75 million in capital, is being amortized over five years. The CIT
member has contributed $29,912,000 in capital as of March 31, 2007 and a fee
of
$1,382,000 has been paid. Amortization of the fee totaled $75,000 for both
the
three month and six month period ended March 31, 2007 and is showing as a
reduction in equity in earnings of unconsolidated joint ventures.
Unaudited
condensed financial information regarding the joint venture is shown
below.
|
|
(Dollar
Amounts in Thousands)
March
31, 2007
|
|
Condensed
Balance Sheet
|
|
|
|
|
|
|
|
Cash
|
|
$
|
1,110
|
|
Real
estate loans
|
|
|
40,463
|
|
Other
assets
|
|
|
109
|
|
Total
assets
|
|
$
|
41,682
|
|
|
|
|
|
|
Deferred
fees
|
|
$
|
821
|
|
Other
liabilities
|
|
|
295
|
|
Equity
|
|
|
40,566
|
|
Total
liabilities and equity
|
|
$
|
41,682
|
|
|
|
Three
Months Ended
|
|
Six
Months Ended
|
|
|
|
March
31, 2007
|
|
March
31, 2007
|
|
Condensed
Statement of Operations
|
|
|
|
|
|
Interest
and fees on loans
|
|
$
|
669
|
|
$
|
683
|
|
Total
revenues
|
|
|
669
|
|
$
|
683
|
|
|
|
|
|
|
|
|
|
Operating
expenses
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Net
income attributable to members
|
|
$
|
669
|
|
$
|
683
|
|
|
|
|
|
|
|
|
|
Company
share of net income
|
|
$
|
204
|
|
$
|
213
|
|
|
|
|
|
|
|
|
|
Amount
recorded in income statement (1)
|
|
$
|
129
|
|
$
|
138
|
|
(1)
The
amount recorded in the income statement is net of amortization of the fee that
the Trust paid to a merchant bank for arranging the transaction and securing
the
capital from the CIT member and is being amortized over five
years.
Note
6 - Investment in Unconsolidated Joint Ventures at Equity
(Continued)
Real
Estate Ventures
The
Trust
is also a partner in eight unconsolidated joint ventures which own and operate
six properties.
The
real
estate ventures contributed ($30,000) and $127,000 in equity (losses) earnings
for the three months ended March 31, 2007 and 2006, respectively, and $43,000
and ($750,000) for the six months ended March 31, 2007 and 2006, respectively.
The loss in the six month period ended March 31, 2006 includes the Trust’s 50%
share of interest expense of $882,000 from the prepayment of the first mortgage
upon the sale of a 248 unit garden apartment complex in the Atlanta, Georgia
area that was sold in December 2005.
Note
7 - Available-For-Sale Securities
Included
in available-for-sale securities are 714,800 shares of Entertainment Properties
Trust (NYSE:EPR), which have a cost basis of $9,389,000 and a fair market value
at March 31, 2007 of $43,067,000.
During
the quarter ended March 31, 2007, BRT sold 294,800 shares of Entertainment
Properties Trust and other securities for $19,203,000. The book basis of these
securities was $3,905,000. Accordingly, the Trust recognized a gain from these
sales of $15,298,000.
Note
8 -Borrowed Funds
The
Trust
has a $185 million revolving credit facility with North Fork Bank, VNB New
York
Corp., Signature Bank and Manufacturers and Traders Trust Company. The credit
facility matures on February 1, 2008 and may be extended for two one-year
periods for a fee of $462,500 for each extension. Under the credit facility,
the
Trust is required to maintain cash or marketable securities at all times of
not
less than $15 million. Borrowings under the credit facility are secured by
specific receivables and the facility provides that the amount borrowed will
not
exceed 65% of first mortgages, plus 50% of second mortgages and certain owned
real estate pledged to the participating banks which may not exceed 15% of
the
borrowing base. At March 31, 2007, $131 million was available to be drawn by
us
based on the lending formula under the credit facility of which $53 million
was
outstanding. At May 4, 2007 the outstanding balance on the credit facility
was $
24 million.
The
average outstanding balances on our credit facility for the three months ended
March 31, 2007 and March 31, 2006 were $49,778,000 and $86,889,000,
respectively, and the average interest rate paid was 8.89% and 7.38%,
respectively. Interest expense for the quarters ended March 31, 2007 and March
31, 2006 was $1,107,000 and $1,604,000, respectively. For the six months ended
March 31, 2007 and 2006 the average outstanding balances on our credit facility
was $80,753,000 and $78,882,000, respectively, and the average interest rate
paid was 8.35% and 7.51%, respectively. Interest expense for the six months
ended March 31, 2007 and 2006 was $3,410,000 and $2,994,000, respectively.
In
addition to its credit facility, the Trust has the ability to borrow funds
through two margin accounts. In order to maintain one of the accounts, the
Trust
pays an annual fee equal to .3% of the market value of the pledged securities;
this fee is included in interest expense. At March 31, 2007, there was no
outstanding balance on either of the margin accounts. Marketable securities,
with a fair market value at March 31, 2007 of $46,356,000, are available to
be
pledged as collateral. There was no average outstanding balance on the margin
account in the quarter ended March 31, 2007 and the average outstanding balance
on the margin facilities for the quarter ended March 31, 2006 was $19,994,000,
and the average interest rate paid was 6.93%. Interest expense on the margin
accounts for the quarters ended March 31, 2007 and 2006 was $45,000 and
$346,000, respectively. The
average outstanding balances on the margin accounts for the six months ended
March 31, 2007 and 2006 were $7,402,000 and $20,369,000, respectively, and
the
interest rate paid was 9.74% and 7.05%, respectively. Interest expense on the
margin accounts for the six months ended March 31,2007 and 2006 was $365,000
and
$726,000.
Note
9 - Junior Subordinated Notes
On
April
27, 2006, BRT issued $30,928,000 principal amount 30-year subordinated notes
to
BRT Realty Trust Statutory Trust II, an unconsolidated affiliate of BRT.
Statutory Trust II was formed to issue $928,000 worth of common securities
(all
of Statutory Trust II’s common securities) to BRT and to sell $30 million of
preferred securities to third party investors. The notes pay interest quarterly
at a fixed rate of 8.49% per annum for ten years at which time they convert
to a
floating rate of LIBOR plus 290 basis points. Statutory Trust II remits
dividends to the common and preferred security holders under the same terms
as
the subordinated notes. The notes and preferred securities mature in April
2036
and may be redeemed in whole or in part anytime after five years, without
penalty, at BRT’s option. To the extent BRT redeems notes, Statutory Trust II is
required to redeem a corresponding amount of preferred securities. Issuance
costs of $944,500 were incurred in connection with this transaction and are
included in other assets. These costs are being amortized over the intended
10-year holding period of the notes. Interest expense for the three months
ended
March 31, 2007 and 2006 was $680,000 and $-0- respectively. For the six months
ended March 31, 2007 and 2006, interest expense was $1,360,000 and $-0-
respectively.
On
March
21, 2006, BRT issued $25,774,000 principal amount 30-year subordinated notes
to
BRT Realty Trust Statutory Trust I, an unconsolidated affiliate of BRT.
Statutory Trust I was formed to issue $774,000 worth of common securities (all
of Statutory Trust I’s common securities) to BRT and to sell $25 million of
preferred securities to third party investors. The notes pay interest quarterly
at a fixed rate of 8.23% per annum for ten years at which time they convert
to a
floating rate of LIBOR plus 300 basis points. Statutory Trust I remits dividends
to the common and preferred security holders under the same terms as the
subordinated notes. The notes and preferred securities mature in April 2036
and
may be redeemed in whole or in part anytime after five years, without penalty,
at BRT’s option. To the extent BRT redeems notes, Statutory Trust I is required
to redeem a corresponding amount of preferred securities. Issuance costs of
$822,000 were incurred in connection with this transaction and are included
in
other assets. These costs are being amortized over the intended 10- year holding
period of the notes. Interest expense for the three months ended March 31,
2007
and 2006 was $551,000 and $55,000 respectively. For the six months ended March
31, 2007 and 2006 interest expense was $1,102,000 and $55,000.
BRT
Realty Trust Statutory Trusts I and II are variable interest entities under
FIN
46R. Under the provisions of FIN 46R, BRT has determined that the holders of
the
preferred securities are the primary beneficiaries of the two Statutory Trusts.
Accordingly, BRT does not consolidate the Statutory Trusts and has reflected
the
obligations of the Statutory Trusts under the caption “Junior Subordinated
Notes.” The investment in the common securities of the Statutory Trusts is
reflected in other assets and is accounted under the equity method of
accounting.
Note
10 - Comprehensive Income
Comprehensive
income for the three and six month periods was as follows:
|
|
Three
Months Ended
|
|
Six
Months Ended
|
|
|
|
March
31,
|
|
March
31,
|
|
|
|
2007
|
|
2006
|
|
2007
|
|
2006
|
|
|
|
(Dollar
Amounts in Thousands)
|
|
Net
income
|
|
$
|
20,864
|
|
$
|
4,119
|
|
$
|
29,153
|
|
$
|
8,834
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
comprehensive income -
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
gain (loss) on
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(12,219
|
)
|
|
1,428
|
|
|
(2,991
|
)
|
|
(2,782
|
)
|
Comprehensive
income
|
|
$
|
8,645
|
|
$
|
5,547
|
|
$
|
26,162
|
|
$
|
6,052
|
|
Note
11 - New Accounting Pronouncements
In
July
2006, the FASB issued Interpretation No. 48, “Accounting
for Uncertainty in Income Taxes”
(“FIN
48”). This interpretation, among other things, creates a two step approach for
evaluating uncertain tax positions. Recognition (step one) occurs when an
enterprise concludes that a tax position, based solely on its technical merits,
is more-likely-than-not to be sustained upon examination. Measurement (step
two)
determines the amount of benefit that more-likely-than-not will be realized
upon
settlement. Derecognition of a tax position that was previously recognized
would
occur when a company subsequently determines that a tax position no longer
meets
the more-likely-than-not threshold of being sustained. FIN 48 specifically
prohibits the use of a valuation allowance as a substitute for derecognition
of
tax positions, and it has expanded disclosure requirements. FIN 48 is effective
for fiscal years beginning after December 15, 2006, in which the impact of
adoption should be accounted for as a cumulative-effect adjustment to the
beginning balance of retained earnings. The Trust is in the process of assessing
the impact, if any, this pronouncement will have on the consolidated financial
statements of the Trust.
In
September 2006, the FASB issued Statement No. 157, “Fair
Value Measurements” (“SFAS
No. 157”). SFAS No. 157 provides guidance for using fair value to measure assets
and liabilities. This statement clarifies the principle that fair value should
be based on the assumptions that market participants would use when pricing
the
asset or liability. SFAS No.157 establishes a fair value hierarchy, giving
the
highest priority to quoted prices in active markets and the lowest priority
to
unobservable data. SFAS No. 157 applies whenever other standards require assets
or liabilities to be measured at fair value. This statement is effective in
fiscal years beginning after November 15, 2007. The Trust believes that the
adoption of this standard on October 1, 2008 will not have a material effect
on
the consolidated financial statements.
In
September 2006, the Securities and Exchange Commission issued Staff Accounting
Bulletin No. 108 (“SAB 108”), which became effective beginning on January 1,
2007. SAB 108 provides guidance on the consideration of the effects of prior
period misstatements in quantifying current year misstatements for the purpose
of a materiality assessment. SAB108 provides for the quantification of the
impact of correcting all misstatements, including both the carryover and
reversing effects of prior year misstatements, on the current year financial
statements. If a misstatement is material to the current year financial
statements, the prior year financial statements should also be corrected, even
though such revision was, and continues to be, immaterial to the prior year
financial statements. Correcting prior year financial statements for immaterial
errors would not require previously filed reports to be amended. Such correction
should be made in the current period filings. The Trust has adopted this
standard and it did not have a material effect on the Trust’s consolidated
financial statements.
Note
12 - Subsequent Events
As
of May
4, 2007, the Trust sold 23,800 shares of Entertainment Properties Trust for
$1,488,000. The book basis of these shares is $313,000. Accordingly the Trust
will recognize a gain from the sale of these shares of approximately $1,175,000
in the quarter ended June 30, 2007
Item
2. Management's Discussion and Analysis of Financial Condition and Results
of
Operations
Forward-Looking
Statements
With
the
exception of historical information, this report on Form 10-Q contains certain
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended. We intend such forward-looking statements to be covered
by the safe harbor provision for forward-looking statements contained in the
Private Securities Litigation Reform Act of 1995 and include this statement
for
purposes of complying with these safe harbor provisions. Forward-looking
statements, which are based on certain assumptions and describe our future
plans, strategies and expectations, are generally identifiable by use of the
words "may", "will", "believe", "expect", "intend", "anticipate", "estimate",
"project", or similar expressions or variations thereof. Forward-looking
statements involve known and unknown risks, uncertainties and other factors
which are, in some cases, beyond our control and which could materially affect
actual results, performance or achievements. Investors are cautioned not to
place undue reliance on any forward-looking statements.
Overview
We
are a
real estate investment trust, also known as a REIT, organized as a business
trust in 1972 under the laws of the Commonwealth of Massachusetts. We are
primarily engaged in originating and holding for investment senior and junior
commercial mortgage loans secured by real property in the United States. From
time to time, we also participate as both an equity investor in, and as a
mortgage lender to, joint ventures which acquire income-producing real property.
We have originated in the past, and will consider in the future, loans to
entities which own real property collateralized by pledges of some or all of
the
ownership interests that directly or indirectly control such real property
(commonly referred to as mezzanine financing).
Liquidity
and Capital Resources
Our
focus
is to originate loans secured by real property, which generally have high yields
and are short term or bridge loans, with an average duration ranging from six
months to three years. Repayments of real estate loans in the amount of
$281,057,000 (representing 96% of our mortgage portfolio at March 31, 2007)
are
due during the twelve months ending March 31, 2008, including $16,593,000 not
earning interest and due on demand. The availability of mortgage financing
secured by real property and the market for buying and selling real estate
is
cyclical. Since these are the principal sources for the generation of funds
by
our borrowers to repay our outstanding real estate loans, we cannot project
the
portion of loans maturing during the next twelve months which will be paid
or
the portion of loans which will be extended for a fixed term or on a month
to
month basis.
We
have a
$185 million revolving credit facility with a group of banks consisting of
North
Fork Bank, VNB New York Corp., Signature Bank and Manufacturers and Traders
Trust Company. This facility matures on February 1, 2008 and may be extended
for
two one-year terms. The maximum amount which can be outstanding under the
facility is the lesser of 65% of the first mortgages plus 50% of the second
mortgages and certain owned real estate pledged which may not exceed 15% of
the
borrowing base or $185 million. At March 31, 2007, $131 million was available
to
be drawn based on the lending formula, of which $53 million was
outstanding.
We
also
have the ability to borrow under margin lines of credit maintained with national
brokerage firms, secured by the common shares we own in EPR and other investment
securities. Under the terms of the margin lines of credit, we may borrow up
to
50% of the market value of the shares we own. At March 31, 2007, $23.1 million
was available under the margin lines of credit, of which there was no
outstanding balance. If the value of the EPR shares (our principal securities
investment) were to decline, the available funds under the margin lines of
credit would decline and we could be required to repay a portion or all of
any
outstanding margin loans.
During
the six months ended March 31, 2007, we generated cash of $11,996,000 from
operations, $54,663,000 from real estate loan collections, $ 19,203,000 from
the
sale of securities, and $77,094,000 from the issuance of 2.9 million shares
of
beneficial interest in connection with an underwritten public offering. The
proceeds we received from the underwritten public offering were used to pay
down
our revolving credit facility by $58,000,000 and to pay off the outstanding
balance of $19,000,000 on our margin line. The cash generated from our
operations, from real estate loan collections, and securities sales were used
primarily to fund real estate loan originations of $59,271,000, pay shareholder
dividends of $9,163,000, fund our joint ventures with $10,071,000, and to
further reduce our indebtedness under our credit line. Our cash and cash
equivalents were $12,565,000 at March 31, 2007.
We
will
satisfy our liquidity needs from cash and liquid investments on hand, our credit
facility, the availability in our margin account collateralized by our
available-for-sale securities and where appropriate the sale of these
securities, interest and principal payments received on outstanding real estate
loans and net cash flow generated from the operation and sale of real estate
assets.
Results
of Operations
Interest
and fees on loans increased by $2,850,000 or 40%, to $9,969,000 for the three
months ended March 31, 2007 from $7,119,000 for the three months ended March
31,
2006. During the current quarter the average balance of loans outstanding
increased by approximately $97.7 million, resulting in an increase in interest
income of $3,183,000. The average interest rate on the loan portfolio declined
to 12.23% for the three month period ended March 31, 2007 from 13.18% for the
three months ended March 31, 2006, which caused interest income to decline
by
$652,000. The
decline in the average interest rate is due in part to the increase in non
performing loans and in part to a change in the mix of the portfolio. We
also realized an increase in fee income of $319,000, primarily as the result
of
increased income from extension fee amortization. Comparison
of fee income period versus period is not consistent with loan originations
as
fees are amortized over the original loan term and are accelerated upon an
early
loan payoff.
For
the
six months ended March 31, 2007, interest and fees on loans increased
$8,013,000, or 59%, from $13,543,000 to $21,556,000. During the six months
ended
March 31, 2007, the average balance of loans outstanding increased by
approximately $113.0 million resulting in an increase in interest income of
$7,536,000. The average interest rate on the portfolio increased to 12.80%
for
the six month period ended March 31, 2007 from 13.14% for the six month period
ended March 31, 2006, which caused interest income to decline by $608,000.
The
decline in the average interest rate is due primarily to the increase in non
performing loans. We also realized an increase in fee income of
$1,085,000, primarily as the result of the amortization of fees on the larger
loan portfolio and increased extension fees. Offsetting these increases was
a
decline in interest income of $659,000 due to an increase in non performing
loans.
Operating
income on real estate owned increased by $134,000, or 54%, for the three months
ended March 31, 2007 to $385,000 from $251,000 for the three month period ended
March 31, 2006. For the six month period ended March 31, 2007, operating income
from real estate owned increased by $206,000, or 38%, to $750,000 from $544,000
for the six month period ended March 31, 2006. For both the three and six month
periods, the increase was the result of increased rental income from our Yonkers
property due to the reletting of vacant space at the property.
Other
revenues, primarily investment income, declined to $640,000 for the three months
ended March 31, 2007, from $751,000 for the three months ended March 31, 2006,
a
decrease of $111,000, or 15%. For the three month period ended March 31, 2007,
we recognized a decline of $203,000 in dividend income resulting from our sale
of 294,800 shares of Entertainment Properties Trust. This decline was offset
by
a $92,000 increase that resulted from an increase in our invested balances
and
an increase in the dividend paid on the remaining shares of EPR that we own.
Interest
expense on borrowed funds increased to $2,382,000 for the three months ended
March 31, 2007, from $2,006,000 for the three months ended March 31, 2006,
an
increase of $376,000, or 19%. Interest expense on borrowed funds increased
to
$6,237,000 for the six month period ended March 31, 2007 from $3,776,000 for
the
six month period ended March 31, 2006, an increase of $2,461,000, or 65%. For
the three month period ended March 31, 2007, the average outstanding balance
on
borrowed funds declined from $109.4 million for the three months ended March
31,
2006 to $106.5 million, accounting for a decrease in interest expense of $58,000
and the overall interest rate paid increased from 7.34% to 9.01% causing an
increase in interest expense of $434,000. For the six month period ended March
31, 2007, the average outstanding balance increased from $100.5 million for
the
six months ended March 31, 2006 to $144.8 million, accounting for an increase
in
interest expense of $1,998,000 and the overall interest rate on all borrowings
paid increased from 7.43% to 8.58% causing an increase in interest expense
of
$463,000.
The
Advisor’s fee, which is calculated based on invested assets and was amended
effective January 1, 2007 to provide for a reduction in the fee paid by the
Trust, decreased $95,000, or 15%, for the three months ended March 31, 2007,
to
$534,000 from $629,000 for the three months ended March 31, 2006. For the six
months ended March 31, 2007, the Advisor’s fee increased $193,000 or 17% from
$1,165,000 in the six-month period ended March 31, 2006 to $1,358,000 in the
six-month period ended March 31, 2007. This was primarily the result of an
increased level of invested assets on which the fee is based. Since the amended
advisory agreement was not effective until January 1, 2007, the full effect
of
the reduction of the fee has not been recognized in the current six-month
period.
General
and administrative expense increased $323,000, or 22%, to $1,791,000 for the
three months ended March 31, 2007 from $1,468,000 for the three months ended
March 31, 2006. In the current three month period the Trust incurred increased
legal and professional expenses of $192,000 due to expenses related to increased
foreclosure and loan workout activity and fees of an independent compensation
consultant retained by the Compensation Committee of our Board of Trustees.
Additionally we recognized increased compensation costs of $126,000 resulting
primarily from our restricted stock program and from the accelerated
amortization of restricted shares due to the retirement of one of the members
of
our Board of Trustees.
For
the
six months ended March 31, 2007 general and administrative expense increased
$277,000, or 9%, to $3,350,000 from $3,073,000 in the six month period ended
March 31, 2006. The increase was the result of several factors. In the six
months ended March 31, 2007 we incurred increased legal and professional
expenses of $237,000 due to expenses related to foreclosure and loan workout
activity and expenses associated with the renegotiation of our advisory
agreement. We also recognized increased payroll and related expenses of $291,000
due to increased staffing, salaries, and amortization from the issuance of
restricted shares in January 2007 and accelerated amortization of restricted
shares due to the retirement of one of the members of our Board of Trustees.
Advertising and promotional expense also increased $50,000 as we continue to
increase our marketing efforts. Offsetting these increased expenses was the
payment in the prior years six month period of $316,000 of legal, professional
and printing expenses related to a contemplated public offering of preferred
securities which was cancelled due to adverse market conditions.
Other
taxes increased by $422,000, or 317%, to $556,000 in the three months ended
March 31, 2007 from $134,000 in the three months ended March 31, 2006. For
the
six months ended March 31, 2007 other taxes increased by $537,000, or 217%,
to
$785,000 in the six months ended March 31, 2007 from $248,000 in the three
months ended March 31, 2006. For both the three and six month periods, the
increase was the result of an increase in the amount of federal excise tax
which
is based on taxable income generated during the current fiscal year but not
yet
distributed.
Equity
in
earnings (loss) of unconsolidated joint ventures decreased $28,000 for the
three
months ended March 31, 2007 to $99,000 from $127,000 for the three month period
ended March 31, 2006. For the six months ended March 31, 2007 equity in earnings
(loss) of unconsolidated joint ventures increased $931,000 from a loss of
$750,000 for the six months ended March 31, 2006 to $181,000 in the six month
period ended March 31, 2007. For the three month period, the decrease was caused
by $204,000 of earnings from the operations of our joint venture with the CIT
Group, offset by amortization of $75,000 relating to the fee paid by the Trust
to a merchant bank for arranging the transaction and securing the capital from
the CIT member and increased operating expenses at one of our Connecticut
properties resulting from a prepayment penalty on a mortgage refinance and
by
the loss in income from a property in Dover, Delaware that was sold in November
2006. For the six month period, the increase was caused by $213,000 of earnings
from the operations of our joint venture with the CIT Group and the reflection
in the prior six month period of a loss of $995,000 from the operations of
the
joint venture which owned the Atlanta property that was sold in December 2005.
This loss was the result of an increase in interest expense of $882,000
resulting from the prepayment of the first mortgage upon the sale of the
property.
Gain
on
disposal of real estate related to unconsolidated venture decreased $ 712,000
in
the six month period ended March 31, 2007 from $2,531,000 in the six months
ended March 31, 2006 to $1,819,000 in the six month period ended March 31,
2007.
In the current six month period our Blue Hen joint venture sold a corporate
center and retail mall in Dover, Delaware. The Trust recognized a gain on the
sale of $1,819,000, representing its share of the gain. During the prior six
month period we realized a gain on disposition of real estate related to
unconsolidated real estate ventures of $2,531,000, the result of the sale of
the
property by our Rutherford Glen joint venture. The venture owned and operated
a
multi-family apartment complex in the Atlanta, Georgia area.
In
the
three and six month periods ended March 31, 2007, the Trust recognized a gain
of
$15,298,000 on the sale of 294,800 shares of Entertainment Properties Trust
and
other REIT shares. These shares, with a cost basis of $3,905,000, were sold
for
$19,203,000.
Income
from discontinued operations declined $345,000 in the three month period ended
March 31, 2007 to $0 in the three month period ended March 31, 2006. For the
six
month period ended March 31, 2007 income from discontinued operations increased
$75,000 to $358,000 from $283,000 in the six months ended March 31, 2006. The
discontinued operations in the prior three and six month periods reflect the
operations of a property acquired in foreclosure in January 2005, and the gain
on sale of $315,000 is from the sale of a cooperative unit in New York.
Item
3. Quantitative and Qualitative Disclosures about Market
Risks
Our
primary component of market risk is interest rate sensitivity. Our interest
income and our interest expense are subject to changes in interest rates. We
seek to minimize these risks by originating loans that are indexed to the prime
rate, with a stated minimum interest rate, and borrowing, when necessary, from
our available credit line which is adjustable and is indexed to LIBOR. At March
31, 2007, approximately 96% of our loan portfolio was variable rate based
primarily on the prime rate. Accordingly, changes in the prime interest rate
would have an effect on our net interest income. When determining interest
rate
sensitivity, we assume that any change in interest rates is immediate and that
the interest rate sensitive assets and liabilities existing at the beginning
of
the period remain constant over the period being measured. We assessed the
market risk for our variable rate mortgage receivables and variable rate debt
and believe that a one percent increase in interest rates would have a positive
effect of approximately $1,654,000 on income before taxes and a one percent
decline in interest rates would have a negative effect of approximately
$1,022,000 on income before taxes. In addition, we originate loans with short
maturities and maintain a strong capital position. At March 31, 2007, our loan
portfolio was primarily secured by properties located in the New York
metropolitan area, New Jersey, Florida and Tennessee, and it is subject to
risks
associated with the economies of these localities.
Item
4. Controls and Procedures
As
required under Rules 13a-15 (e) and 15d-15 (e) under the Securities Exchange
Act
of 1934, as amended, we carried out an evaluation under the supervision and
with
the participation of our management, including our Chief Executive Officer,
Senior Vice President-Finance and Chief Financial Officer, of the effectiveness
of the design and operation of our disclosure controls and procedures as of
March 31, 2007. Based upon that evaluation, the Chief Executive Officer, Senior
Vice President-Finance and Chief Financial Officer concluded that our disclosure
controls and procedures as of March 31, 2007 are effective.
There
have been no changes in our internal control over financial reporting during
the
quarter ended March 31, 2007 that have materially affected, or are reasonably
likely to materially affect, our internal control over financial reporting
or in
other factors that could significantly affect these controls subsequent to
the
date of their evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
PART
II - OTHER INFORMATION
Item
6. Exhibits
Exhibit
31.1 Certification
of President and Chief Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
Exhibit
31.2 Certification
of Senior Vice President-Finance pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.
Exhibit
31.3 Certification
of Vice President and Chief Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
Exhibit
32.1 Certification
of President and Chief Executive Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
Exhibit
32.2 Certification
of Senior Vice President-Finance pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
Exhibit
32.3 Certification
of Vice President and Chief Financial Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, as amended, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
|
|
|
|
BRT
REALTY TRUST
(Registrant)
|
|
|
|
Date
May
9, 2007
|
|
/s/
Jeffrey A. Gould
|
|
Jeffrey
A. Gould, President and
|
|
Chief
Executive Officer
|
|
|
|
|
|
|
Date
May
9, 2007
|
|
|
|
George
Zweier, Vice President
and
Chief Financial Officer
|
|
(principal
financial officer)
|