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, 2009
OR
¨ 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
¨
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulations S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such reports).
Yes ¨
No ¨
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company. See definition of “large accelerated filer,” “accelerated
filer” and “small reporting company” in Rule 12b-2 of the Exchange
Act. (Check one):
Large
accelerated filer ¨
|
Accelerated
filer x
|
|
|
Non-accelerated
filer ¨ (Do not check
if a smaller reporting company)
|
Smaller
reporting company ¨
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
Yes ¨ No x
Indicate
the number of shares outstanding of each of the issuer's classes of stock, as of
the latest practicable date.
11,644,542
Shares of Beneficial Interest,
$3 par
value, outstanding on May 5, 2009
Part
1 - FINANCIAL INFORMATION
Item
1. Financial Statements
BRT
REALTY TRUST AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS
(Amounts
in thousands except per share amounts)
|
|
March
31,
2009
(Unaudited)
|
|
|
September
30,
2008
(Audited)
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real
estate loans
|
|
|
|
|
|
|
Earning
interest
|
|
$ |
59,258 |
|
|
$ |
118,028 |
|
Non-earning
interest
|
|
|
67,647 |
|
|
|
18,407 |
|
|
|
|
126,905 |
|
|
|
136,435 |
|
Deferred
fee income
|
|
|
(501 |
) |
|
|
(882 |
) |
Allowance
for possible losses
|
|
|
(16,699 |
) |
|
|
(6,710 |
) |
|
|
|
109,705 |
|
|
|
128,843 |
|
Real
estate properties net of accumulated depreciation of $2,281 and
$1,501
|
|
|
43,284 |
|
|
|
42,347 |
|
Investment
in unconsolidated ventures at equity
|
|
|
6,245 |
|
|
|
9,669 |
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
|
14,089 |
|
|
|
35,765 |
|
Available-for-sale
securities at market
|
|
|
3,491 |
|
|
|
10,482 |
|
Real
estate properties held for sale
|
|
|
16,934 |
|
|
|
34,665 |
|
Other
assets including $45 and $168 relating to real estate properties held for
sale
|
|
|
9,074 |
|
|
|
8,249 |
|
Total
assets
|
|
$ |
202,822 |
|
|
$ |
270,020 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND SHAREHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Borrowed
funds
|
|
$ |
6,000 |
|
|
$ |
3,000 |
|
Junior
subordinated notes
|
|
|
56,702 |
|
|
|
56,702 |
|
Mortgage
payable
|
|
|
2,273 |
|
|
|
2,315 |
|
Accounts
payable and accrued liabilities including $177 and $584 relating to real
estate properties held for sale
|
|
|
2,897 |
|
|
|
3,602 |
|
Deposits
payable
|
|
|
1,365 |
|
|
|
2,064 |
|
Dividends
payable
|
|
|
- |
|
|
|
15,565 |
|
Total
liabilities
|
|
|
69,237 |
|
|
|
83,248 |
|
|
|
|
|
|
|
|
|
|
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 12,711 shares in both
periods
|
|
|
38,133 |
|
|
|
38,133 |
|
Additional
paid-in capital
|
|
|
166,654 |
|
|
|
166,402 |
|
Accumulated
other comprehensive income – net unrealized gain on available-for-sale
securities
|
|
|
127 |
|
|
|
7,126 |
|
Distributions
in excess of earnings
|
|
|
(60,270 |
) |
|
|
(14,311 |
) |
Cost
of 1,368 and 1,206 treasury shares of beneficial interest
|
|
|
(11,059 |
) |
|
|
(10,578 |
) |
Total
shareholders’ equity
|
|
|
133,585 |
|
|
|
186,772 |
|
Total
liabilities and shareholders’ equity
|
|
$ |
202,822 |
|
|
$ |
270,020 |
|
|
See
Accompanying Notes to Consolidated Financial
Statements.
|
BRT
REALTY TRUST AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF OPERATIONS
(Unaudited)
(Amounts
in thousands except per share amounts)
|
|
Three
Months Ended
March 31,
|
|
|
Six
Months Ended
March 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
on real estate loans
|
|
$ |
2,457 |
|
|
$ |
3,833 |
|
|
$ |
6,305 |
|
|
$ |
9,615 |
|
Loan
fee income
|
|
|
123 |
|
|
|
435 |
|
|
|
607 |
|
|
|
1,110 |
|
Income
from real estate properties
|
|
|
1,215 |
|
|
|
499 |
|
|
|
2,525 |
|
|
|
944 |
|
Other,
primarily investment income
|
|
|
162 |
|
|
|
536 |
|
|
|
363 |
|
|
|
1,142 |
|
Total
Revenues
|
|
|
3,957 |
|
|
|
5,303 |
|
|
|
9,800 |
|
|
|
12,811 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
– borrowed funds
|
|
|
1,403 |
|
|
|
1,710 |
|
|
|
2,802 |
|
|
|
3,445 |
|
Advisor's
fees, related party
|
|
|
295 |
|
|
|
457 |
|
|
|
652 |
|
|
|
921 |
|
Impairment
charges
|
|
|
12,315 |
|
|
|
- |
|
|
|
15,815 |
|
|
|
- |
|
Provision
for loan loss
|
|
|
17,530 |
|
|
|
5,300 |
|
|
|
17,530 |
|
|
|
5,300 |
|
Foreclosure
related professional fees
|
|
|
242 |
|
|
|
487 |
|
|
|
590 |
|
|
|
1,226 |
|
General
and administrative – including $223 and $258 to related parties for the
three month periods, respectively, and $486 and $518 for the
six month periods, respectively
|
|
|
1,718 |
|
|
|
1,737 |
|
|
|
3,390 |
|
|
|
3,504 |
|
Other
taxes
|
|
|
21 |
|
|
|
73 |
|
|
|
17 |
|
|
|
100 |
|
Expenses
relating to real estate properties including interest on
mortgage payable of $36 and $37 for the three month periods,
respectively, and $72 and $75 for the six month periods,
respectively
|
|
|
2,067 |
|
|
|
933 |
|
|
|
4,169 |
|
|
|
1,328 |
|
Amortization
and depreciation
|
|
|
572 |
|
|
|
235 |
|
|
|
851 |
|
|
|
278 |
|
Total
Expenses
|
|
|
36,163 |
|
|
|
10,932 |
|
|
|
45,816 |
|
|
|
16,102 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss)
before equity in (loss) earnings of unconsolidated joint ventures, gain on
sale of joint venture interests and available-for-sale securities,
minority interest and discontinued operations
|
|
|
(32,206 |
) |
|
|
(5,629 |
) |
|
|
(36,016 |
) |
|
|
(3,291 |
) |
Equity
in (loss) earnings of unconsolidated joint ventures
|
|
|
(2,171 |
) |
|
|
701 |
|
|
|
(2,087 |
) |
|
|
1,152 |
|
(Loss)
before gain on sale of joint venture interests and available-for-sale
securities, minority interest and discontinued operations
|
|
|
(34,377 |
) |
|
|
(4,928 |
) |
|
|
(38,103 |
) |
|
|
(2,139 |
) |
Gain
on sale of joint venture interests
|
|
|
271 |
|
|
|
- |
|
|
|
271 |
|
|
|
|
|
Gain
on sale of available-for-sale securities
|
|
|
- |
|
|
|
3,818 |
|
|
|
- |
|
|
|
3,818 |
|
Minority
interest
|
|
|
(42 |
) |
|
|
(39 |
) |
|
|
(86 |
) |
|
|
(54 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss)
income from continuing operations
|
|
|
(34,148 |
) |
|
|
(1,149 |
) |
|
|
(37,918 |
) |
|
|
1,625 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued
Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from operations
|
|
|
218 |
|
|
|
83 |
|
|
|
365 |
|
|
|
145 |
|
Impairment
charges
|
|
|
(8,435 |
) |
|
|
- |
|
|
|
(8,435 |
) |
|
|
- |
|
Gain
on sale of real estate assets
|
|
|
29 |
|
|
|
1,052 |
|
|
|
29 |
|
|
|
1,446 |
|
(Loss)
income from discontinued operations
|
|
|
(8,188 |
) |
|
|
1,135 |
|
|
|
(8,041 |
) |
|
|
1,591 |
|
Net
(loss) income
|
|
$ |
(42,336 |
) |
|
$ |
(14 |
) |
|
$ |
(45,959 |
) |
|
$ |
3,216 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss)
earnings per share of beneficial interest:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss)
income from continuing operations
|
|
$ |
(2.92 |
) |
|
$ |
(.10 |
) |
|
$ |
(3.24 |
) |
|
$ |
.14 |
|
(Loss)
income from discontinued operations
|
|
|
( .70 |
) |
|
|
.10 |
|
|
|
(.69 |
) |
|
|
.14 |
|
Basic
and diluted (loss) earnings per share
|
|
$ |
(3.62 |
) |
|
$ |
(.00 |
) |
|
$ |
(3.93 |
) |
|
$ |
.28 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
distributions per common share
|
|
$ |
- |
|
|
$ |
.62 |
|
|
$ |
- |
|
|
$ |
1.24 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average number of common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
11,682,037 |
|
|
|
11,733,741 |
|
|
|
11,688,473 |
|
|
|
11,550,843 |
|
Diluted
|
|
|
11,682,037 |
|
|
|
11,733,741 |
|
|
|
11,688,473 |
|
|
|
11,560,340 |
|
See
Accompanying Notes to Consolidated Financial Statements.
BRT
REALTY TRUST AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF SHAREHOLDERS' EQUITY
(Unaudited)
(Dollar
amounts in thousands except for per share amounts)
|
|
Shares
of
Beneficial
Interest
|
|
|
Additional
Paid-In
Capital
|
|
|
Accumulated
Other
Comprehensive
Income
|
|
|
Distributions
In
Excess of
Earnings
|
|
|
Treasury
Shares
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances,
September 30, 2008
|
|
$ |
38,133 |
|
|
$ |
166,402 |
|
|
$ |
7,126 |
|
|
$ |
(14,311 |
) |
|
$ |
(10,578 |
) |
|
$ |
186,772 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted
stock vesting
|
|
|
|
|
|
|
(189 |
) |
|
|
|
|
|
|
|
|
|
|
189 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation
expense – restricted stock
|
|
|
- |
|
|
|
441 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
441 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
repurchased (184,455 shares)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(670 |
) |
|
|
(670 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(45,959 |
) |
|
|
- |
|
|
|
(45,959 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
comprehensive loss - net unrealized loss on
available-for-sale securities
|
|
|
- |
|
|
|
- |
|
|
|
(6,999 |
) |
|
|
- |
|
|
|
- |
|
|
|
(6,999 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
loss
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(52,958 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances,
March 31, 2009
|
|
$ |
38,133 |
|
|
$ |
166,654 |
|
|
$ |
127 |
|
|
$ |
(60,270 |
) |
|
$ |
(11,059 |
) |
|
$ |
133,585 |
|
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,
|
|
|
|
2009
|
|
|
2008
|
|
Cash
flows from operating activities: |
|
|
|
|
|
|
|
|
Net
(loss) income
|
|
$ |
(45,959 |
) |
|
$ |
3,216 |
|
Adjustments
to reconcile net (loss) income to net cash (used in) provided by operating
activities:
|
|
|
|
|
|
|
|
|
Provision
for loan losses
|
|
|
17,530 |
|
|
|
5,300 |
|
Impairment
charges
|
|
|
24,250 |
|
|
|
- |
|
Amortization
and depreciation
|
|
|
1,171 |
|
|
|
669 |
|
Amortization
of deferred fee income
|
|
|
(541 |
) |
|
|
(1,070 |
) |
Amortization
of restricted stock
|
|
|
441 |
|
|
|
411 |
|
Gain
on sale of available-for-sale securities
|
|
|
- |
|
|
|
(3,818 |
) |
Gain
on sale of joint venture interests
|
|
|
(271 |
) |
|
|
- |
|
Net
gain on sale of real estate assets from discontinued
operations
|
|
|
(29 |
) |
|
|
(1,446 |
) |
Equity
in loss (earnings) of unconsolidated joint ventures
|
|
|
2,087 |
|
|
|
(1,152 |
) |
Distribution
of earnings of unconsolidated joint ventures
|
|
|
61 |
|
|
|
910 |
|
Increase
in straight line rent
|
|
|
(8 |
) |
|
|
(7 |
) |
Increases
and decreases from changes in other assets and
liabilities:
|
|
|
|
|
|
|
|
|
Decrease
in interest and dividends receivable
|
|
|
646 |
|
|
|
934 |
|
Decrease
(increase) in prepaid expenses
|
|
|
79 |
|
|
|
(80 |
) |
Decrease
in accounts payable and accrued liabilities
|
|
|
(1,404 |
) |
|
|
(2,208 |
) |
Increase
in deferred costs
|
|
|
- |
|
|
|
(463 |
) |
Other
|
|
|
(517 |
) |
|
|
(349 |
) |
Net
cash (used in) provided by operating activities
|
|
|
(2,464 |
) |
|
|
847 |
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
Collections
from real estate loans
|
|
|
6,074 |
|
|
|
20,136 |
|
Additions
to real estate loans
|
|
|
(12,726 |
) |
|
|
(34,108 |
) |
Loan
loss recoveries
|
|
|
100 |
|
|
|
- |
|
Net
costs capitalized to real estate owned
|
|
|
(1,872 |
) |
|
|
(706 |
) |
Collection
of loan fees
|
|
|
258 |
|
|
|
958 |
|
Proceeds
from sale of real estate owned
|
|
|
1,010 |
|
|
|
3,499 |
|
Proceeds
from sale of available-for-sale securities
|
|
|
- |
|
|
|
5,150 |
|
Contributions
to unconsolidated ventures
|
|
|
(143 |
) |
|
|
(837 |
) |
Distributions
of capital of unconsolidated ventures
|
|
|
476 |
|
|
|
406 |
|
Proceeds
from the sale of joint venture interests
|
|
|
1,350 |
|
|
|
- |
|
Net
cash used in investing activities
|
|
|
(5,473 |
) |
|
|
(5,502 |
) |
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
Proceeds
from borrowed funds
|
|
|
6,000 |
|
|
|
31,000 |
|
Repayment
of borrowed funds
|
|
|
(3,000 |
) |
|
|
(18,000 |
) |
Increase
in deferred credit facility costs
|
|
|
(462 |
) |
|
|
- |
|
Mortgage
amortization
|
|
|
(42 |
) |
|
|
(39 |
) |
Cash
distribution – common shares
|
|
|
(15,565 |
) |
|
|
(14,040 |
) |
Issuance
of shares – dividend reinvestment and stock purchase plan
|
|
|
- |
|
|
|
6,971 |
|
Repurchase
of shares
|
|
|
(670 |
) |
|
|
- |
|
Net
cash (used in) provided by financing activities
|
|
|
(13,739 |
) |
|
|
5,892 |
|
|
|
|
|
|
|
|
|
|
Net
(decrease) increase in cash and cash equivalents
|
|
|
(21,676 |
) |
|
|
1,237 |
|
Cash
and cash equivalents at beginning of period
|
|
|
35,765 |
|
|
|
17,103 |
|
Cash
and cash equivalents at end of period
|
|
$ |
14,089 |
|
|
$ |
18,340 |
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
Cash
paid during the period for interest
|
|
$ |
2,588 |
|
|
$ |
3,132 |
|
Non
cash investing and financing activity:
|
|
|
|
|
|
|
|
|
Seller
financing provided for sale of real estate
|
|
$ |
1,478 |
|
|
$ |
- |
|
Reclassification
of loan to real estate upon foreclosure
|
|
$ |
8,970 |
|
|
$ |
64,446 |
|
Reclassification
of real estate held for sale to real estate properties
|
|
$ |
9,924 |
|
|
$ |
- |
|
Accrued
distributions
|
|
$ |
- |
|
|
$ |
7,297 |
|
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 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,
2009 and for the three and six months ended March 31, 2009 and March
31, 2008 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,
2009 are not necessarily indicative of the results for the full
year. The balance sheet as of September 30, 2008 has been derived
from the audited financial statements at that date but does not include all the
information and footnotes required by accounting principles generally accepted
in the United States for complete financial statements.
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 (i) the Trust is primarily the managing member but does not
exercise substantial operating control over these entities pursuant to EITF 04-5
“Determining Whether a General Partner, or the General Partners as a Group
Controls a Limited Partnership or Similar Entity When the Limited Partners Have
Certain Rights,” and (ii) such entities are not variable-interest entities
pursuant to FASB Interpretation No. 46(R), “Consolidation of Variable Interest
Entities – an interpretation of ARB No.5,” the Trust 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, 2008.
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, 2009, BRT did not declare a cash distribution to its
shareholders.
Note
3 - Shareholders' Equity (Continued)
Stock
Options
As of
March 31, 2009, there were 22,500 stock options outstanding. All of
these options are exercisable. During the quarter ended March 31,
2009, no options were exercised.
Restricted
Shares
During the quarter ended March 31, 2009
the Trust issued 118,660 restricted shares of beneficial interest under its 2003
incentive plan. The total number of shares available for issuance
under this plan is 350,000, all of which have been issued as of March 31,
2009. Since inception of the plan, 55,760 shares have vested. During
the quarter ended March 31, 2009, the Trust also issued 7,790 shares of
beneficial interest under its 2009 incentive plan which was approved by BRT
shareholders in March 2009. The total number of shares available for
issuance under this plan is 500,000. The shares granted under both
plans vest five years from the date of issuance and, under certain
circumstances, may vest earlier. For accounting purposes, the
restricted shares are not included in the outstanding shares shown on the
balance sheet until they vest, but are included in the earnings per share
computation. 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 shares at the date of grant be amortized ratably into expense over
the appropriate vesting period.
For the three and six months ended March 31, 2009 and 2008, the Trust recorded
$220,000 and $441,000, and $223,000 and $411,000, respectively, of compensation
expense, as a result of the outstanding restricted
shares. At March 31, 2009, $2,399,000 has been deferred as
unearned compensation and will be charged to expense over the remaining
weighted average vesting period of approximately 3.5 years.
Per
Share Data
Basic
(loss) earnings per share were determined by dividing net (loss) income for the
period by the weighted average number of common shares outstanding during each
period.
Diluted
(loss) 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,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
Basic
|
|
|
11,682,037 |
|
|
|
11,733,741 |
|
|
|
11,688,473 |
|
|
|
11,550,843 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect
of dilutive securities
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
9,497 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
(1)
|
|
|
11,682,037 |
|
|
|
11,733,741 |
|
|
|
11,688,473 |
|
|
|
11,560,340 |
|
(1) The
impact of dilutive securities is not included in the computation of loss per
share for the three months ended March 31, 2009 and 2008 and for the six months
ended March 31, 2009, as the inclusion of such common share equivalents would be
anti-dilutive.
Note
4 - Real Estate Loans
At March
31, 2009, information relating to real estate loans, all of which are short term
(three years or less), is summarized as follows (dollar amounts in
thousands):
First mortgage loans:
|
|
Earning
Interest
|
|
|
Non-Earning
Interest
|
|
|
Total
|
|
|
Allowance For
Possible Losses (1)
|
|
|
Real Estate
Loans, Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Multi-family
residential
|
|
$ |
4,164 |
|
|
$ |
2,164 |
|
|
$ |
6,328 |
|
|
$ |
(849 |
) |
|
$ |
5,479 |
|
Condominium
units (existing multi-family and commercial units)
|
|
|
41,504 |
|
|
|
- |
|
|
|
41,504 |
|
|
|
- |
|
|
|
41,504 |
|
Hotel
condominium units
|
|
|
4,468 |
|
|
|
- |
|
|
|
4,468 |
|
|
|
- |
|
|
|
4,468 |
|
Land
and land assemblage
|
|
|
6,356 |
|
|
|
8,240 |
|
|
|
14,596 |
|
|
|
(2,507 |
) |
|
|
12,089 |
|
Retail/office/mixed
use
|
|
|
- |
|
|
|
52,531 |
|
|
|
52,531 |
|
|
|
(13,343 |
) |
|
|
39,188 |
|
Industrial
|
|
|
2,610 |
|
|
|
- |
|
|
|
2,610 |
|
|
|
- |
|
|
|
2,610 |
|
Hotel
|
|
|
- |
|
|
|
3,283 |
|
|
|
3,283 |
|
|
|
- |
|
|
|
3,283 |
|
Residential
|
|
|
156 |
|
|
|
- |
|
|
|
156 |
|
|
|
- |
|
|
|
156 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second
mortgage loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Multi-family
residential
|
|
|
- |
|
|
|
1,250 |
|
|
|
1,250 |
|
|
|
- |
|
|
|
1,250 |
|
Retail
|
|
|
- |
|
|
|
179 |
|
|
|
179 |
|
|
|
- |
|
|
|
179 |
|
|
|
|
59,258 |
|
|
|
67,647 |
|
|
|
126,905 |
|
|
|
(16,699 |
) |
|
|
110,206 |
|
Deferred
fee income
|
|
|
(103 |
) |
|
|
(398 |
) |
|
|
(501 |
) |
|
|
- |
|
|
|
(501 |
) |
Real
estate loans
|
|
$ |
59,155 |
|
|
$ |
67,249 |
|
|
$ |
126,404 |
|
|
$ |
(16,699 |
) |
|
$ |
109,705 |
|
(1) All allowance for possible
losses relate to non-earning loans.
At March
31, 2009, there were 24 non-earning loans outstanding to 6 separate, unrelated
borrowers. These loans have an aggregate outstanding principal
balance of $67,647,000, and represent 53% of total real estate loans and 33% of
total assets. The Trust recognized $67,000 of cash basis interest on
non-earning loans in the three and six month periods ended March 31,
2009.
Note
4 - Real Estate Loans (Continued)
Information
regarding these non-earning loans is set forth in the table below (dollar
amounts in thousands):
Location
|
|
Utica, NY
|
|
|
Newark, NJ
|
|
|
New Jersey
|
|
|
Brooklyn, NY
|
|
|
Ft Wayne, IN
|
|
|
Manhattan, NY
|
|
Number
of Loans
|
|
|
1 |
|
|
|
19 |
|
|
|
1 |
|
|
|
1 |
|
|
|
1 |
|
|
|
1 |
|
Principal
Balance
|
|
$ |
2,164 |
|
|
$ |
37,804 |
|
|
$ |
179 |
|
|
$ |
22,967 |
|
|
$ |
3,283 |
|
|
$ |
1,250 |
|
Accrued
Interest
|
|
|
- |
|
|
$ |
67 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Cross
collateral or cross default provision
|
|
No
|
|
|
Yes
|
|
|
Yes
|
|
|
No
|
|
|
No
|
|
|
No
|
|
Secured
|
|
Yes
|
|
|
Yes
|
|
|
Yes
|
|
|
Yes
|
|
|
Yes
|
|
|
Yes
|
|
Security
|
|
Multi- family
apartment building
|
|
|
Existing
office,
retail,
parking
and
vacant
land
|
|
|
5
Retail/ office buildings
|
|
|
8
Story
vacant
office
w/
retail
|
|
|
13
Story
Hotel
|
|
|
Multi-family
|
|
Recourse/non-recourse
|
|
Recourse
|
|
|
Recourse
|
|
|
Recourse
|
|
|
Recourse
|
|
|
Recourse
|
|
|
Recourse
|
|
Impaired
|
|
Yes
|
|
|
Yes
|
|
|
No
|
|
|
Yes
|
|
|
No
|
|
|
No
|
|
Allowance
for possible losses
|
|
$ |
849 |
|
|
$ |
11,500 |
|
|
|
- |
|
|
$ |
4,350 |
|
|
|
- |
|
|
|
- |
|
Collateral
Dependent
|
|
Yes
|
|
|
Yes
|
|
|
Yes
|
|
|
Yes
|
|
|
Yes
|
|
|
Yes
|
|
A summary
of the changes in non-earning loans, before allowance for possible losses of
$16,699,000, for the three and six months ended March 31, 2009 is as follows
(dollar amounts in thousands):
|
|
Three Months Ended
March 31, 2009
|
|
|
Six Months Ended
March 31, 2009
|
|
|
|
|
|
|
|
|
Beginning
principal balance
|
|
$ |
5,384 |
|
|
$ |
18,407 |
|
|
|
|
|
|
|
|
|
|
Additions
|
|
|
67,604 |
|
|
|
67,604 |
|
Protective
advances
|
|
|
- |
|
|
|
- |
|
Total
additions
|
|
|
67,604 |
|
|
|
67,604 |
|
|
|
|
|
|
|
|
|
|
Payoffs
and paydowns
|
|
|
(341 |
) |
|
|
(704 |
) |
Transferred
to owned real estate (a)
|
|
|
(2,700 |
) |
|
|
(15,360 |
) |
Direct
charge off (b)
|
|
|
(2,300 |
) |
|
|
(2,300 |
) |
Total
reductions
|
|
|
(5,341 |
) |
|
|
(18,364 |
) |
|
|
|
|
|
|
|
|
|
Principal
balance at March 31, 2009
|
|
$ |
67,647 |
|
|
$ |
67,647 |
|
|
(a)
|
During
the quarter ended March 31, 2009, the Trust acquired by foreclosure, title
to a residential home located in Purchase, New York. At
December 31, 2008, the gross principal balance of the loan secured by such
property, which was reported as non-earning, was $2,700,000, before loan
loss allowances of $1,165,000 of which $700,000 was recorded in prior
periods.
|
Note
4 - Real Estate Loans (Continued)
During
the quarter ended December 31, 2008, the Trust acquired by foreclosure, title to
a development parcel of land located in Manhattan, New York and a 44 unit garden
apartment complex in Naples, Florida. At September 30, 2008, the
gross principal balance of the loans, secured by such properties, both of which
were reported as non-earning, was $12,660,000, before loan loss allowances of
$5,160,000.
|
(b)
|
During
the quarter ended March 31, 2009, BRT took a direct charge-off of
$2,300,000 against a loan due to a fraud committed by the borrower
against BRT. BRT reported the fraud to the criminal
authorities, who are currently investigating the matter. BRT is
considering whether to pursue a legal action against a third party service
provider.
|
At March
31, 2009, four separate, unaffiliated borrowers had loans outstanding in excess
of 5% of the total portfolio before loan loss allowances. Information regarding
the loans outstanding to each of these borrowers is set forth in the table
below:
Gross Loan
Balance
|
|
# of
Loans
|
|
|
% of Gross
Loans
|
|
|
% of
Assets
|
|
Type
|
|
State
|
|
Status
|
$37,804,000
|
|
|
19 |
|
|
|
29.8 |
% |
|
|
18.7 |
% |
Existing
office, retail, parking and vacant land
|
|
NJ
|
|
Non-Performing
|
$26,075,000
|
|
|
1 |
|
|
|
20.6 |
% |
|
|
12.9 |
% |
Office/condo
conversion
|
|
NY
|
|
Performing
|
$22,967,000
|
|
|
1 |
|
|
|
18.1 |
% |
|
|
11.3 |
% |
Vacant
office w/retail
|
|
NY
|
|
Non-Performing
|
$ 8,700,000
|
|
|
1 |
|
|
|
6.9 |
% |
|
|
4.3 |
% |
Multi-family,
condo units
|
|
NY
|
|
Performing
|
Note
5 - Allowance for Possible Loan Losses
The Trust
added an additional $17,530,000 to its existing loan loss allowance in the three
and six months ended March 31, 2009. The total additional allowances
are primarily related to 19 loans, collateralized by several land assemblage
sites in Newark, NJ (which includes existing office, retail, parking and vacant
land), and a loan collateralized by an eight story vacant office building with
occupied retail space in Brooklyn, NY, both of which became non-earning during
the current quarter.
An
analysis of the loan loss allowance for the three and six month period ended
March 31, 2009 and March 31, 2008, respectively, is as follows (dollar amounts
in thousands):
|
|
Three Months Ended
March 31,
|
|
|
Six Months Ended
March 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at beginning of period
|
|
$ |
1,550 |
|
|
$ |
6,620 |
|
|
$ |
6,710 |
|
|
$ |
8,917 |
|
Provision
for loan loss
|
|
|
17,530 |
|
|
|
5,300 |
|
|
|
17,530 |
|
|
|
5,300 |
|
Charge-offs
|
|
|
(3,431 |
) |
|
|
(4,050 |
) |
|
|
(8,591 |
) |
|
|
(6,347 |
) |
Recoveries
|
|
|
1,050 |
|
|
|
- |
|
|
|
1,050 |
|
|
|
- |
|
Balance
at end of period
|
|
$ |
16,699 |
|
|
$ |
7,870 |
|
|
$ |
16,699 |
|
|
$ |
7,870 |
|
The
allowance for possible loan losses applies to 21 loans aggregating $62,935,000
at March 31, 2009, all of which are non-earning, and three loans aggregating
$26,049,000 at March 31, 2008, all of which were non-earning.
Note
6 - Real Estate Properties
A summary
of real estate properties for the six months ended March 31, 2009 is as follows
(dollar amounts in thousands):
|
|
September
30, 2008
Balance
|
|
|
Additions
|
|
|
Costs
Capitalized
|
|
|
Net
Transfers
from held
for sale
|
|
|
Sales
|
|
|
Depreciation
and
Amortization
|
|
|
Impairment
Charges
|
|
|
March
31, 2009
Balance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail
|
|
$ |
3,159 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
$ |
(45 |
) |
|
|
- |
|
|
$ |
3,114 |
|
Condominium
units/coop shares
|
|
|
19,846 |
|
|
|
- |
|
|
$ |
186 |
|
|
$ |
5,067 |
|
|
$ |
(245 |
) |
|
|
(435 |
) |
|
$ |
(6,875 |
) |
|
|
17,544 |
|
Multi-family
|
|
|
8,905 |
|
|
$ |
2,960 |
(a) |
|
|
333 |
|
|
|
4,857 |
|
|
|
|
|
|
|
(331 |
) |
|
|
(7,790 |
) |
|
|
8,934 |
|
Land
|
|
|
10,437 |
|
|
|
4,419 |
(b) |
|
|
(14 |
) |
|
|
- |
|
|
-
|
|
|
|
- |
|
|
|
(1,150 |
) |
|
|
13,692 |
|
Total
real estate properties
|
|
$ |
42,347 |
|
|
$ |
7,379 |
|
|
$ |
505 |
|
|
$ |
9,924 |
(d) |
|
$ |
(245 |
) |
|
$ |
(811 |
)(c) |
|
$ |
(15,815 |
) |
|
$ |
43,284 |
|
(a)
|
During
the quarter ended December 31, 2008, the Trust acquired by foreclosure a
44 unit garden apartment complex inNaples, Florida. At December
31, 2008, this property had a book value of $2,960,000. This
balance is net of loan chargeoffs of $3,515,000. This property
was transferred to real estate properties held for sale and subsequently
sold in the quarter ended March 31,
2009.
|
|
During
the quarter ended December 31, 2008, the Trust acquired by foreclosure a
development parcel located in Manhattan, NewYork. This property
had a book value at December 31, 2008 of $4,419,000. This
balance is net of loan charge offs of
$1,645,000.
|
|
Includes
catch up depreciation of $217,000 relating to properties previously
reported as held for sale.
|
|
Land
and building allocation for properties recently transferred from held for
sale are preliminary and will be finalized within 12 months of the
respective dates of
acquisition.
|
Note
7 – Impairment Charges
The Trust
reviews each real estate asset owned, including investments in unconsolidated
joint ventures, for which indicators of impairment are present to determine
whether the carrying amount of the asset can be
recovered. Measurement is then based upon the fair value of the
asset. Real estate assets held for sale are valued at the lower of
cost or fair value, less costs to sell on an individual asset
basis.
As a
result of the credit crisis and the continued deterioration in the value of real
estate where the Trust owns properties, the Trust took additional impairment
charges of $20,750,000 and $24,250,000 for the three and six month periods ended
March 31, 2009, respectively, against 11 properties, of which $8,435,000 in both
periods relates to six properties held for sale and is shown as a component of
discontinued operations.
Note
8 – Investment in Unconsolidated Joint Ventures at Equity
BRT Funding
LLC
A joint
venture between the Trust and CIT Capital USA, Inc. 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.
Note
8 – Investment in Unconsolidated Joint Ventures at Equity
(Continued)
The Trust
is the managing member and holds an equity interest of 25% as adjusted, and is
responsible for the payment of a fee to a merchant bank for arranging the
transaction and securing capital from CIT Capital USA
Inc. Amortization of the remaining portion of the fee totaled $68,000
and $136,000 for the three and six month period ending March 31, 2009,
respectively, and is shown as a reduction in equity in (loss) earnings of
unconsolidated joint ventures.
The Trust
has agreed to present all loan proposals received by it to the joint venture for
its consideration on a first refusal basis. There were no loans
originated by the joint venture in the three or six months ended March 31, 2009
or in the three or six months ended March 31, 2008.
Unaudited
condensed financial information regarding the joint venture is shown below
(dollar amounts in thousands):
Condensed Balance Sheet
|
|
March 31, 2009
|
|
|
September 30, 2008
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
Cash
|
|
$ |
567 |
|
|
$ |
359 |
|
Real
estate loans:
|
|
|
|
|
|
|
|
|
Earning
interest
|
|
|
6,354 |
|
|
|
6,323 |
|
Non-earning
interest
|
|
|
- |
|
|
|
26,421 |
|
|
|
|
6,354 |
|
|
|
32,744 |
|
Deferred
fee income
|
|
|
(22 |
) |
|
|
(160 |
) |
Allowance
for possible losses
|
|
|
- |
|
|
|
(2,703 |
) |
|
|
|
6,332 |
|
|
|
29,881 |
|
Other
assets
|
|
|
48 |
|
|
|
82 |
|
Real
estate property held for sale
|
|
|
14,368 |
|
|
|
1,143 |
|
Total
assets
|
|
$ |
21,315 |
|
|
$ |
31,465 |
|
|
|
|
|
|
|
|
|
|
Liabilities and equity
|
|
|
|
|
|
|
|
|
Other
liabilities
|
|
$ |
375 |
|
|
$ |
211 |
|
Equity
|
|
|
20,940 |
|
|
|
31,254 |
|
Total
liabilities and equity
|
|
$ |
21,315 |
|
|
$ |
31,465 |
|
Note
8 – Investment in Unconsolidated Joint Ventures at Equity
(Continued)
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
March 31,
|
|
|
March 31,
|
|
Condensed Statement of
Operations
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
Interest
and fees on real estate loans
|
|
$ |
117 |
|
|
$ |
1,028 |
|
|
$ |
536 |
|
|
$ |
2,880 |
|
Other
income
|
|
|
22 |
|
|
|
- |
|
|
|
61 |
|
|
|
- |
|
Total
revenues
|
|
|
139 |
|
|
|
1,028 |
|
|
|
597 |
|
|
|
2,880 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision
for loan loss (1)
|
|
|
8,928 |
|
|
|
- |
|
|
|
8,928 |
|
|
|
- |
|
Professional
fees
|
|
|
202 |
|
|
|
- |
|
|
|
274 |
|
|
|
- |
|
Real
estate operating expenses
|
|
|
6 |
|
|
|
- |
|
|
|
6 |
|
|
|
- |
|
Other
expenses
|
|
|
- |
|
|
|
19 |
|
|
|
38 |
|
|
|
156 |
|
Total
operating expenses
|
|
|
9,136 |
|
|
|
19 |
|
|
|
9,246 |
|
|
|
156 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
(loss) income attributable to members
|
|
$ |
(8,997 |
) |
|
$ |
1,009 |
|
|
$ |
(8,649 |
) |
|
$ |
2,724 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount
recorded in statements ofoperations related to venture (2)
|
|
$ |
(2,102 |
) |
|
$ |
681 |
|
|
$ |
(2,068 |
) |
|
$ |
1,128 |
|
(1)
|
In
the quarter ended March 31, 2009, the venture recorded a provision for
loan loss of $8,928,000 on a multi-family apartment complex located in
Mesa, Arizona, which was subsequently acquired by the venture in a
foreclosure sale.
|
(2)
|
This
amount is net of $68,000 and $136,000 in the three and six months ended
March 31, 2009, respectively and $78,000 and $154,000, in the
three and six months ended March 31, 2008, respectively, 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. This amount
also includes a management allocation equal to 1% per annum of the loan
portfolio, as defined, of $16,000 and $32,000, respectively, in the three
and six month period ended March 31, 2009 and $477,000, in the three and
six month periods ended March 31, 2008 paid to the BRT member, which
includes an out of period adjustment of $268,000 pertaining to the year
ended September 30, 2007 and $115,000 pertaining to the three months ended
December 31, 2007.
|
Other Real Estate
Ventures
The Trust
is also a partner in unconsolidated joint ventures which owned and operated six
properties which generated $(69,000) and $20,000 of equity in (loss) earnings
for the three months ended March 31, 2009 and 2008, respectively, and $(19,000)
and $24,000 in the six months ended March 31, 2009 and 2008,
respectively.
In the
current quarter, the Trust sold its interest in four of these properties,
located in Connecticut, and recognized a gain of $271,000 on the sale. The
Trust’s equity in these unconsolidated joint ventures totaled $821,000 and
$1,857,000 at March 31, 2009 and September 30, 2008, respectively.
Note
9 – Available-For-Sale Securities
The cost
of available-for-sale securities at March 31, 2009 was $3,364,000. The fair
value of these securities was $3,491,000 at March 31, 2009. Gross unrealized
gains were $654,000 and gross unrealized losses totaled $527,000
at March 31, 2009. These amounts are reflected as net accumulated
other comprehensive income – net unrealized gains on available-for-sale
securities in the accompanying consolidated balance
sheets.
Note
9 – Available-For-Sale Securities (Continued)
The
valuation of the Trust’s available-for-sale securities was determined to be a
Level 1 financial asset within the valuation hierarchy established by SFAS No.
157, and is based on current market quotes received from financial sources that
trade such securities.
Included
in available-for-sale securities are 131,289 shares of Entertainment Properties
Trust (NYSE:EPR), which have a cost basis of $1,725,000 and a fair market value
at March 31, 2009 and September 30, 2008 of $2,069,000 and $7,184,000,
respectively. At May 1, 2009, these securities had a market
value of $4,888,000.
Note
10 – Real Estate Properties Held for Sale
A summary
of changes in real estate properties held for sale for the six months ended
March 31, 2009 is shown below (dollar amounts in thousands):
|
|
September
30, 2008
Balance
|
|
|
Additions
|
|
|
Net
Transfers
To
Real Estate
Assets
|
|
|
Improvements
|
|
|
Impairment
Charges
|
|
|
Sales
|
|
|
March 31,
2009
Balance
|
|
Coop
and Condo Units
|
|
$ |
5,028 |
|
|
|
- |
|
|
$ |
(5,067 |
) |
|
$ |
64 |
|
|
|
- |
|
|
|
- |
|
|
$ |
25 |
|
Multi-family
|
|
|
29,637 |
|
|
|
- |
|
|
|
(4,857 |
) |
|
|
1,301 |
|
|
$ |
(8,435 |
) |
|
$ |
(2,213 |
)(b) |
|
|
15,433 |
|
Single
family
|
|
|
|
|
$ |
1,476 |
(a) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1,476 |
|
Total
|
|
$ |
34,665 |
|
|
$ |
1,476 |
|
|
$ |
(9,924 |
) |
|
$ |
1,365 |
|
|
$ |
(8,435 |
) |
|
$ |
(2,213 |
) |
|
$ |
16,934 |
|
(a) During
the quarter ended March 31, 2009, the Trust acquired by foreclosure a 6,000
square foot single family residence in Purchase, NY. At the time of
foreclosure, this property had a book value of $1,476,000, which is net of
charge offs of $1,165,000. A contract has been entered into for the
sale of the property which will result in proceeds to us approximating our book
value.
(b) In
the quarter ended March 31, 2009, the Trust sold a 44 unit multi-family
apartment complex located in Naples, Florida. The property was sold
for its approximate book value and no gain or loss was
recognized. The Trust recorded an impairment charge of $760,000 prior
to the sale. In connection with the sale, the Trust provided a
purchase money mortgage in the amount of $1,645,000 maturing on March 31, 2011
which provides for a fixed rate of interest at 6.50% per annum.
Note
11 – Debt Obligations
Debt
obligations consist of the following (dollar amounts in
thousands):
|
|
March 31, 2009
|
|
|
September 30, 2008
|
|
|
|
|
|
|
|
|
Borrowed
funds
|
|
$ |
6,000 |
|
|
$ |
3,000 |
|
Junior
subordinated notes
|
|
|
56,702 |
|
|
|
56,702 |
|
Mortgage
payable
|
|
|
2,273 |
|
|
|
2,315 |
|
Total
debt obligations
|
|
$ |
64,975 |
|
|
$ |
62,017 |
|
Note
11 – Debt Obligations (Continued)
The Trust
has a $185 million credit facility with Capital One Bank, VNB New York Corp.,
Signature Bank and Manufacturers and Traders Trust Company. The
facility bears interest at LIBOR + 225 basis points. The credit
facility matures on February 1, 2010 and there are no extension
options. Under the credit facility, the Trust is required to maintain
cash or marketable securities at all times of not less than $15
million. The amount which can be outstanding under the revolving
credit facility may not exceed an amount equal to the sum of (1) 65% of our
earning first mortgages, plus (2) 50% of our earning second mortgages and (3)
50% of the fair market value of certain of our owned real estate, all of which
are pledged to the lending banks as collateral and the sum of (2) and (3) may
not exceed 15% of the borrowing base or $22.5 million.
At March
31, 2009, $27,700,000 was available to be drawn under the credit facility, of
which $6,000,000 was outstanding. The following is summary
information relating to the credit facility:
|
|
For the Three Months Ended
March 31,
|
|
|
For the Six Months Ended
March 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
Average
balance
|
|
$ |
6,000,000 |
|
|
$ |
21,473,000 |
|
|
$ |
4,533,000 |
|
|
$ |
18,885,000 |
|
Outstanding
balance at period end
|
|
$ |
6,000,000 |
|
|
$ |
33,000,000 |
|
|
$ |
6,000,000 |
|
|
$ |
33,000,000 |
|
Weighted
average interest rate during the period
|
|
|
2.69 |
% |
|
|
5.82 |
% |
|
|
3.33 |
% |
|
|
6.46 |
% |
Interest
rate at period end
|
|
|
2.75 |
% |
|
|
5.36 |
% |
|
|
2.75 |
% |
|
|
5.36 |
% |
The
interest rates do not reflect deferred fee amortization of $116,000 for both the
three months ended March 31, 2009 and 2008, respectively, and
$231,000 and $303,000 for the six months ended March 31, 2009 and 2008,
respectively, which is a component of interest expense. These fees
are being amortized over the life of the credit facility. At March
31, 2009, there was $385,000 of unamortized deferred fees, which is included in
other assets.
In
addition to the credit facility, the Trust has the ability to borrow funds
through its two margin accounts. In order to maintain one of the accounts, the
company is required to pay an annual fee equal to .3% of the market value of the
pledged securities, which is included in interest expense. Marketable
securities with a fair market value at March 31, 2009 of $3,491,000 were pledged
as collateral. At March 31, 2009, there was no outstanding
balance.
Junior Subordinated
Notes
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 of its 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. Dividends are paid to the 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 April 2011, without penalty, at BRT’s option. Issuance costs of
$944,500 are being amortized over the intended 10 year holding period of the
notes. At March 31, 2009, unamortized issuance costs totaled
$668,000.
Note
11 – Debt Obligations (Continued)
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 of its 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. Dividends are paid to
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 March 2011, without penalty, at BRT’s option. Issuance costs
of $822,000 are being amortized over the intended 10 year holding period of the
notes. At March 31, 2009, unamortized issuance costs totaled
$573,000.
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. This determination is based on the fact that BRT’s
investments in the Statutory Trusts were financed directly by the Statutory
Trusts and these investments are not considered to be at
risk. Accordingly, BRT is not considered to be the primary
beneficiary and does not consolidate the Statutory Trusts. The
obligations to the Statutory Trusts are recorded under the caption “Junior
Subordinated Notes” in the consolidated balance sheets. The
investments in the common securities of the Statutory Trusts are reflected in
other assets in the consolidated balance sheets and is accounted for under the
equity method of accounting. BRT has not provided financial or other
support during the periods presented to these variable interest entities that is
was not contractually required to provide.
The table
below provides the classification and carrying amounts of the assets and
liabilities that relate to the variable interest entities and the maximum
exposure to loss as a result of its involvement with the variable interest
entities:
|
|
Carrying Value
|
|
Assets:
|
|
|
|
Other
Assets- common securities Statutory Trusts
|
|
$ |
1,702,000 |
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
Junior
subordinated notes – BRT
|
|
|
1,702,000 |
|
Junior
subordinated notes – preferred securities third party
|
|
|
55,000,000 |
|
Net
carrying value
|
|
$ |
56,702,000 |
|
|
|
|
|
|
Maximum
exposure to loss (a)
|
|
$ |
0 |
|
(a) As
BRT’s investment in the common securities of the Statutory Trusts was directly
financed by the Statutory Trusts, there is no exposure to loss.
Mortgage
Payable
The
mortgage payable represents a first mortgage on a long term leasehold position
on a shopping center owned by a joint venture in which the Trust holds a
majority interest. The mortgage, with an original principal balance of
$2,850,000, bears interest at a fixed rate of 6.25% for the first five years and
has a maturity of October 1, 2011. There is an option to extend the
mortgage to October 1, 2016. At March 31, 2009, the outstanding
balance was $2,273,000.
Note
12 – Comprehensive (loss) income
Comprehensive
(loss) income for the three and six month periods was as follows (dollar amounts in
thousands):
|
|
Three Months Ended
March 31,
|
|
|
Six Months Ended
March 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
Net
(loss) income
|
|
$ |
(42,336 |
) |
|
$ |
(14 |
) |
|
$ |
(45,959 |
) |
|
$ |
3,216 |
|
Other
comprehensive loss – Unrealized
loss on available for- sale
securities
|
|
|
(2,701 |
) |
|
|
(1,971 |
) |
|
|
(6,999 |
) |
|
|
(4,530 |
) |
Comprehensive
(loss) income
|
|
$ |
(45,037 |
) |
|
$ |
(1,985 |
) |
|
$ |
(52,958 |
) |
|
$ |
(1,314 |
) |
Note
13 -Segment Reporting
Management
has determined that it operates in two reportable segments: (i) a loan and
investment segment which includes the origination and servicing of our loan
portfolio and investments and (ii) a real estate segment which includes the
operation and disposition of our real estate assets.
Note
13 -Segment Reporting
The
following table summarizes our segment reporting for the three and six months
ended March 31, 2009 (dollar amounts in thousands):
|
|
Three Months Ended
March 31, 2009
|
|
|
Six Months Ended
March 31, 2009
|
|
|
|
Loan and
Investment
|
|
|
Real
Estate
|
|
|
Total
|
|
|
Loan and
Investment
|
|
|
Real
Estate
|
|
|
Total
|
|
Revenues
|
|
$ |
2,742 |
|
|
$ |
1,215 |
|
|
$ |
3,957 |
|
|
$ |
7,275 |
|
|
$ |
2,525 |
|
|
$ |
9,800 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
968 |
|
|
|
435 |
|
|
|
1,403 |
|
|
|
1,875 |
|
|
|
927 |
|
|
|
2,802 |
|
Impairment
charges
|
|
|
- |
|
|
|
12,315 |
|
|
|
12,315 |
|
|
|
- |
|
|
|
15,815 |
|
|
|
15,815 |
|
Provision
for loan loss
|
|
|
17,530 |
|
|
|
- |
|
|
|
17,530 |
|
|
|
17,530 |
|
|
|
- |
|
|
|
17,530 |
|
Other
expenses
|
|
|
1,644 |
|
|
|
2,699 |
|
|
|
4,343 |
|
|
|
3,305 |
|
|
|
5,513 |
|
|
|
8,818 |
|
Amortization
and depreciation
|
|
|
- |
|
|
|
572 |
|
|
|
572 |
|
|
|
- |
|
|
|
851 |
|
|
|
851 |
|
Total
expenses
|
|
|
20,142 |
|
|
|
16,021 |
|
|
|
36,163 |
|
|
|
22,710 |
|
|
|
23,106 |
|
|
|
45,816 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before
other revenue and expense items
|
|
|
(17,400 |
) |
|
|
(14,806 |
) |
|
|
(32,206 |
) |
|
|
(15,435 |
) |
|
|
(20,581 |
) |
|
|
(36,016 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
in loss of unconsolidated ventures
|
|
|
(2,102 |
) |
|
|
(69 |
) |
|
|
(2,171 |
) |
|
|
(2,067 |
) |
|
|
(20 |
) |
|
|
(2,087 |
) |
Minority
interest
|
|
|
- |
|
|
|
(42 |
) |
|
|
(42 |
) |
|
|
- |
|
|
|
(86 |
) |
|
|
(86 |
) |
Gain
on sale of joint ventureinterests
|
|
|
- |
|
|
|
271 |
|
|
|
271 |
|
|
|
- |
|
|
|
271 |
|
|
|
271 |
|
Loss
from continuing operations
|
|
|
(19,502 |
) |
|
|
(14,646 |
) |
|
|
(34,148 |
) |
|
|
(17,502 |
) |
|
|
(20,416 |
) |
|
|
(37,918 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued
operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from operations
|
|
|
- |
|
|
|
218 |
|
|
|
218 |
|
|
|
- |
|
|
|
365 |
|
|
|
365 |
|
Impairment
charges
|
|
|
- |
|
|
|
(8,435 |
) |
|
|
(8,435 |
) |
|
|
- |
|
|
|
(8,435 |
) |
|
|
(8,435 |
) |
Gain
on sale of realestate assets
|
|
|
- |
|
|
|
29 |
|
|
|
29 |
|
|
|
- |
|
|
|
29 |
|
|
|
29 |
|
Loss
from discontinued operations
|
|
|
- |
|
|
|
(8,188 |
) |
|
|
(8,188 |
) |
|
|
|
|
|
|
(8,041 |
) |
|
|
(8,041 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$ |
(19,502 |
) |
|
$ |
(22,834 |
) |
|
$ |
(42,336 |
) |
|
$ |
(17,502 |
) |
|
$ |
(28,457 |
) |
|
$ |
(45,959 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment
assets
|
|
$ |
139,707 |
|
|
$ |
63,115 |
|
|
$ |
202,822 |
|
|
$ |
139,707 |
|
|
$ |
63,115 |
|
|
$ |
202,822 |
|
Note
13 -Segment Reporting (Continued)
In the
prior fiscal year the Trust operated in a single segment due to the
immateriality of its real estate holdings. Proforma information for
the three and six months ended March 31, 2008 of the Trust if it had operated in
two reportable segments in these periods is as follows:
|
|
Three Months Ended
March 31, 2008
|
|
|
Six Months Ended
March 31, 2008
|
|
|
|
Loan and
Investment
|
|
|
Real Estate
|
|
|
Total
|
|
|
Loan and
Investment
|
|
|
Real
Estate
|
|
|
Total
|
|
Revenues
|
|
$ |
4,804 |
|
|
$ |
499 |
|
|
$ |
5,303 |
|
|
$ |
11,867 |
|
|
$ |
944 |
|
|
$ |
12,811 |
|
Expenses
|
|
|
(8,790 |
) |
|
|
(2,142 |
) |
|
|
(10,932 |
) |
|
|
(13,105 |
) |
|
|
(2,997 |
) |
|
|
(16,102 |
) |
Other
revenue and expense items
|
|
|
4,499 |
|
|
|
(19 |
) |
|
|
4,480 |
|
|
|
4,947 |
|
|
|
(31 |
) |
|
|
4,916 |
|
Discontinued
operations
|
|
|
- |
|
|
|
1,135 |
|
|
|
1,135 |
|
|
|
- |
|
|
|
1,591 |
|
|
|
1,591 |
|
Net
(loss) income
|
|
$ |
513 |
|
|
$ |
(527 |
) |
|
$ |
(14 |
) |
|
$ |
3,709 |
|
|
$ |
(493 |
) |
|
$ |
3,216 |
|
Segment
assets
|
|
$ |
249,829 |
|
|
$ |
81,060 |
|
|
$ |
330,889 |
|
|
$ |
249,829 |
|
|
$ |
81,060 |
|
|
$ |
330,889 |
|
Note
14 – New Accounting Pronouncements
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 certain financial 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. The Trust adopted SFAS No. 157 on October 1, 2008.
The
valuation of the Company’s available-for-sale securities was determined to be a
Level 1 within the valuation hierarchy established by SFAS No. 157, and are
approximated on current market quotes received from financial sources that trade
such securities. Accordingly, the adoption of SFAS No. 157, as it relates
to fair value measurements of financial assets and liabilities, has not had a
material effect on the Trust’s consolidated financial statements.
In
February 2007, the FASB issued Statement No. 159, “The Fair Value Option for Financial
Assets and Financial Liabilities” ("SFAS No. 159"). SFAS No. 159 provides
companies with an option to report selected financial assets and liabilities at
fair value. The objective of SFAS No. 159 is to reduce both complexity in
accounting for financial instruments and the volatility in earnings caused by
measuring related assets and liabilities differently. The FASB believes that
SFAS No. 159 helps to mitigate this type of accounting-induced volatility by
enabling companies to report related assets and liabilities at fair value, which
would likely reduce the need for companies to comply with detailed rules
for hedge
accounting. SFAS No. 159 also establishes presentation and disclosure
requirements designed to facilitate comparisons between companies that choose
different measurement attributes for similar types of assets and liabilities.
The Trust adopted SFAS No. 159 on October 1, 2008 and has elected not
to report
selected financial assets and liabilities at fair value.
Note
14 – New Accounting Pronouncements (Continued)
In
December 2007, the FASB issued SFAS No. 141(R), “Business Combinations – a
replacement of FASB Statement No. 141”, which applies to all transactions or
events in which an entity obtains control of one or more
businesses. SFAS 141(R) (i) establishes the acquisition-date fair
value as the measurement objective for all assets acquired and liabilities
assumed, (ii) requires expensing of most transaction costs, and (iii) requires
the acquirer to disclose to investors and other users all of the information
needed to evaluate and understand the nature and financial effect of the
business combination. SFAS 141(R) is effective for fiscal years
beginning after December 15, 2008 and early adoption is not
permitted. The impact of adopting SFAS 141 (R) on the Trusts
consolidated financial statements will be the requirement to expense most
transaction costs relating to its acquisition activities.
In
December 2007, the FASB issued Statement No. 160 “Non-controlling Interests in
Consolidated Financial Statements an amendment of ARB No 51”. SFAS
160 requires non-controlling interest in a consolidated subsidiary to be
displayed in the statement of financial position as a separate component of
equity and earnings and losses attributable to non-controlling interests are no
longer reported as part of consolidated earnings, rather they are disclosed on
the face of the income statement. This statement is effective in
fiscal years beginning after December 15, 2008. Adoption is
prospective and early adoption is not permitted. The Trust is
currently evaluating the impact that the adoption of FAS 160 will have on its
consolidated financial statements.
In
December 2008, the FASB issued FASB Staff Position ("FSP") FAS 140-4 and FIN
46(R)-8, Disclosures by Public Entities (Enterprises) about Transfers of
Financial Assets and Interests in Variable Interest Entities. The document
increases disclosure requirements for public companies and is effective for
reporting periods (interim and annual) that end after December 15, 2008.
The purpose of this FSP is to promptly improve disclosures by public entities
and enterprises until the pending amendments to FASB Statement No. 140,
Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities, and FASB Interpretation No. 46 (revised December 2003),
Consolidation of Variable Interest Entities, are finalized and approved by the
Board. The FSP amends Statement 140 to require public entities to provide
additional disclosures about transferors' continuing involvements with
transferred financial assets. It also amends Interpretation 46(R) to
require public enterprises, including sponsors that have a variable interest in
a variable interest entity, to provide additional disclosures about their
involvement with variable interest entities. This pronouncement is related to
disclosure only and upon its adoption during the quarter ended December 31,
2008, did not have an impact on our consolidated financial position, results of
operations or cash flows.
In June
2008, the FASB issued FSP No. EITF 03-6-1, ‘‘Determining Whether Instruments
Granted in Share-Based Payment Transactions Are Participating Securities,’’ (FSP
EITF 03-6-1). FSP EITF 03-6-1 states that unvested share-based payment awards
that contain non-forfeitable rights to dividends or dividend equivalents
(whether paid or unpaid) are participating securities and shall be included in
the computation of earnings per share. The Company adopted FSP EITF 03-6-1 on
January 1, 2009 and the adoption had no impact on the Company as the unvested
restricted stock awards were previously included in the per share amounts for
both basic and diluted earnings per share.
In April
2009, the FASB issued FSP No. FAS 107-1and APB 28-1 “Interim Disclosures about
Fair Value of Financial Instruments”. This FSP requires disclosures
about fair value of financial instruments for interim periods of publicly traded
companies as well as in annual statements. FSP 107-1 and APB 28-1 is
effective for periods ending after June 15, 2009. The adoption of
this FSP is not expected to have a significant impact on the consolidated
financial statements.
Note
15 – Subsequent Events
On May 7,
2009 the Trust closed on the sale of a 112 unit multi-family apartment complex
located in Nashville, Tennessee. The net proceeds from the sale were
approximately $3,070,000 which approximates the current book
value. The Trust recorded $1,325,000 of impairment charges related to
this loan, of which $1,250,000 was taken in the current
quarter.
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. Our business is
to originate and hold for investment short-term senior and junior commercial
mortgage loans, and our primary source of revenue is interest and loan fee
income. The continuing crisis in the credit and real estate markets
has had a substantial effect on our lending business by significantly limiting
investments in real estate and substantially reducing demand for short-term
commercial mortgage loans. In addition, in the current credit
environment we have concerns about the ability of potential borrowers to be able
to (i) refinance and repay loans we originate, (ii) sell the underlying
collateral for an amount in excess of a loan we originate or (iii) otherwise
raise funds to repay loans. As a result we only originated one new
loan in the aggregate principal amount of $8,700,000 and advanced funds pursuant
to prior commitments in the aggregate amount of $4,026,000 during the six months
ended March 31, 2009.
In the
fiscal year ending September 30, 2008 and the six months ending March 31, 2009
many of our borrowers defaulted on their monetary obligations to us, which has
required us to focus significant resources on servicing our loan portfolio,
work-out activities, pursuing foreclosure actions and acquiring the underlying
real property by foreclosure or deed in lieu of foreclosure, operating and
stabilizing real property acquired by us (including interfacing with receivers
and local property managers), and engaging in activities related to the sale
process with respect to properties we are attempting to sell. Set
forth below are material effects the crisis in the credit and real estate
markets has had on our business during the three or six months ended March 31,
2009:
·
|
non-earning
loans increased by $49,240,000 to $67,647,000 at March 31, 2009 from
$18,407,000 at September 30, 2008;
|
·
|
during
the three months ended March 31, 2009, 19 loans totaling $37,804,000 to 19
separate entities controlled by the same individual and three other loans
to three separate borrowers totaling $27,500,000, became
non-earning. These loans, totaling $65,304,000, represent
approximately 97% of our non-earning loans, 50% of our total loan
portfolio of $126,905,000 and 31% of our total assets of
$202,822,000. The 19 loans are secured by several land
assemblage sites which include existing office, retail, parking and vacant
land located, in Newark, New Jersey. Another loan in the amount
of $22,967,000 is secured by an existing eight story vacant office
building, with occupied retail, located in Brooklyn, New
York. In view of the accelerating decline in the value of real
estate in which these properties are located we established a loan loss
allowance of $11,500,000 against the Newark assemblage and $4,350,000
against the Brooklyn property. We established additional
allowances of $2,730,000 against two other loans with
aggregate principal balances totaling
$5,000,000;
|
·
|
during
the quarter ending March 31, 2009, we offered properties for sale that we
acquired in foreclosure. In the course of this process, we ascertained
that real estate values in the current recessionary environment, coupled
with the serious difficulties potential purchasers are having in obtaining
mortgage money, has significantly and adversely impacted the market values
of commercial real estate in the geographic areas in which these
properties are located. Accordingly, we took impairment charges
of $12,315,000 against five real estate properties and impairment charges
of $8,435,000 against six properties classified as held for sale. Included
in the charges against real estate properties is $10,720,000 relating to
two separate multi family residential properties and one multi-family
condominium complex consisting of 388, 250 and 162 units, respectively,
located in Ft. Wayne, Indiana, Nashville, Tennessee and Apopka, Florida.
Included in impairment charges against properties held for sale is
$7,075,000 against four multi-family residential properties,
with a total of 484 units, located in Nashville, Tennessee that are under
contracts of sale for a total consideration of $14,150,000 which, after
all costs of sale and impairment charges, we anticipate will result in no
gain or loss. On May 7, 2009 the sale with respect to one of these
properties, with 112 units, was consummated at a contract price of
$3,150,000.
|
·
|
for
the six months ended March 31, 2009, our income from real estate
properties, excluding our real estate properties held for sale, was
$2,525,000 and our operating expenses for these properties was $4,169,000,
resulting in a loss from real estate operations of $1,644,000 as compared
to operating income of $944,000, operating expenses of $1,328,000 and a
net loss from operations of $384,000 in the six months ended March 31,
2008.
|
Until the
credit markets stabilize and credit is made available to real estate owners and
developers, we could experience (i) more borrower defaults, (ii) additional
foreclosure actions (with an increase in direct and indirect expenses in
pursuing such actions), (iii) the acquisition of additional properties in
foreclosure or by deed in lieu of foreclosure, (iv) a continuing decline in real
estate values, and (v) limited origination activity, all of which will result in
a decline in our revenues and net income (or an increase in our net
loss).
Liquidity and Capital
Resources
Our total
available liquidity at March 31, 2009 was approximately $37,534,000, including
$14,089,000 of cash and cash equivalents, $21,700,000 of availability under our
revolving credit facility and $1,715,000 of availability under our margin lines
of credit. We believe that our existing sources of capital will be
adequate for purposes of meeting our short-term and long-term liquidity
needs. In addition, many of the properties we have acquired by
foreclosure are being offered for sale. Consummation of any such
sales will increase our liquidity.
During
the six months ended March 31, 2009, we generated cash of $6,074,000 from real
estate loan collections, and $3,000,000 from net advances from our credit
facility. The cash, along with our cash on hand of
$35,765,000 at September 30, 2008, was used primarily to fund real estate loan
originations of $12,726,000, pay shareholder dividends in October 2008 of
$15,565,000 and fund an operating loss of $2,464,000. If we continue
to incur losses, we may be required to draw down additional amounts under our
credit facility to fund our operations.
We have a
revolving credit facility with a group of banks consisting of Capital One Bank,
VNB New York Corp., Signature Bank and Manufacturers and Traders Trust Company.
Under the revolving credit facility, Capital One Bank, VNB New York Corp.,
Signature Bank and Manufacturers and Traders Trust Company make available to us
up to an aggregate of $185,000,000 on a revolving basis. The credit
facility matures on February 1, 2010 and there are no extension
options. Under the credit facility, we are required to maintain cash
or marketable securities at all times of not less than
$15,000,000. Borrowings under the credit facility are secured by
specific receivables and the facility provides that the amount borrowed will not
exceed (1) 65% of our earning first mortgages, plus (2) 50% of our earning
second mortgages plus (3) 50% of the fair market value of certain owned real
estate, all of which is pledged to the lending banks as collateral and the sum
of (ii) and (iii) may not exceed 15% of the borrowing base or $22,500,000. At
March 31, 2009, $27,700,000 was available to be drawn based on the lending
formula under our credit facility and $6,000,000 was
outstanding.
We also
have the ability to borrow under our 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 pledge. At
March 31, 2009, $1,715,000, was available under the margin lines of credit, of
which zero was outstanding. If the value of the EPR shares (our principal
securities investment) declines, the available funds under the margin lines of
credit would decline.
Cash Distribution
Policy
Our board
of trustees suspended the payment of dividends on our common shares in
December 2008. In view of the problems facing the real
estate industry and the Trust at the present time, and the need to preserve
capital, the board considered it prudent to suspend the payment of
dividends. Our board of trustees reviews the dividend
policy at each regularly scheduled quarterly board meeting. Since we
will likely report a tax loss for the year ended December 31, 2008, no
distributions are likely to be required in 2009 in order for us to retain our
REIT status.
Results of
Operations
Interest
on loans decreased by $1,376,000, or 36%, to $2,457,000 for the three months
ended March 31, 2009 from $3,833,000 for the three months ended March 31,
2008. A decline in the average balance of earning loans outstanding,
due to a combination of payoffs, reduced originations caused by weakness in the
real estate and credit markets, transfers to owned real estate and transfers to
non performing loans, accounted for a decrease in interest income of $1,299,000.
A decrease in the rate earned on the performing loan portfolio of 14 basis
points from 12.50% to 12.36% in the three months ended March 31, 2009 when
compared to March 31, 2008 caused a decrease in interest income of
$77,000.
Interest
on loans decreased by $3,310,000, or 34%, to $6,305,000 for the six months ended
March 31, 2009 from $9,615,000 for the six months ended March 31,
2008. A decline in the average balance of earning loans outstanding
due to a combination of payoffs, reduced originations caused by weakness in the
real estate and credit markets, transfers to owned real estate and transfers to
non performing loans accounted for a decrease in interest income of
$3,033,000. The average interest rate earned on the earning loan
portfolio decreased 24 basis points to 12.49% in the six months ended March 31,
2009 from 12.73% in the six months ended March 31, 2008, which caused interest
income to decrease by $277,000.
Loan fee
income decreased by $312,000, or 72%, to $123,000 for the three months ended
March 31, 2009 from $435,000 for the three months ended March 31,
2008. This category also decreased by $503,000, or 45%, to $607,000
for the six months ended March 31, 2009 from $1,110,000 for the six months ended
March 31, 2008. The decreases in both the three and six month periods
are the result of a decline in our loan originations over the past several
quarters due to the weakness in the real estate and credit markets.
Operating
income from real estate properties increased $716,000, or 143%, for the three
month period ended March 31, 2009 to $1,215,000 from $499,000 in the three month
period ended March 31, 2008. Operating income from real estate
properties increased $1,581,000, or 167%, for the six month period ended March
31, 2009 to $2,525,000 from $944,000 in the six month period ended March 31,
2008. The increase for both the three and six month periods was
primarily the result of rental revenues received from tenants at two
multi-family apartment complexes located in Fort Wayne, Indiana and Nashville,
Tennessee and the rental of condominium units located in Miami Beach,
Florida. The Trust acquired title to these properties by foreclosure
or deed in lieu of foreclosure in the prior fiscal year.
Other,
primarily investment income declined by $374,000, or 70%, to $162,000 in the
three months ended March 31, 2009 from $536,000 in the three months ended March
31, 2008, and declined by $779,000, or 68%, to $363,000 in the six months ended
March 31, 2009 from $1,142,000 in the six months ended March 31,
2008. The decline in both periods was primarily due to reduced
dividend income that resulted from the sale of shares of EPR in the prior fiscal
year.
Interest
expense on borrowed funds decreased to $1,403,000 for the three months ended
March 31, 2009, from $1,710,000 for the three months ended March 31, 2008, a
decline of $307,000, or 18%. For the three month period ended March
31, 2009, the average outstanding balance of borrowed funds declined from $78.2
million for the three months ended March 31, 2008 to $62.7 million, the result
of our paydown of the credit facility with funds from loan
repayments. This decline accounted for a decrease in interest expense
of $158,000. A decline of 313 basis points in the interest rate paid
on the credit facility caused a decrease in interest expense of $118,000. The
remaining decrease of $31,000 was the result of a decline in the amortization of
deferred fees on our credit facility.
Interest
expense on borrowed funds decreased to $2,802,000 for the six months ended March
31, 2009, from $3,445,000 for the six months ended March 31, 2008, a decline of
$643,000, or 19%. For the six month period ended March 31, 2009, the
average outstanding balance of borrowed funds declined from $75.6 million for
the six months ended March 31, 2008 to $61.2 million, the result of our paydown
of the credit facility with funds from loan repayments. This decline accounted
for a decrease in interest expense of $332,000. A decline of 313
basis points in the interest rate paid on the credit facility caused a further
decrease in interest expense of $211,000. The remaining decrease of
$100,000 was the result of a decline in the amortization of deferred fees on our
credit facility.
The
advisor’s fee, which is calculated based on invested assets, decreased by
$162,000, or 35%, for the three months ended March 31, 2009, to $295,000 from
$457,000 for the three months ended March 31, 2008
and decreased by $269,000, or 29%, for the six months ended
March 31, 2009, to $652,000 from $921,000 for the six months ended March 31,
2008. The decline in both periods was the result of a decreased level
of invested assets on which the fee is based, resulting primarily from the
impairment charges taken on our real estate assets.
For the
three months ended March 31, 2009, the Trust recorded $12,315,000 of impairment
charges against its real estate portfolio. Management in
its regular review process, analyzed the real estate portfolio and determined
that the continuing deterioration in the credit markets and in the real estate
markets where the Trust’s properties are located, has made it necessary to
recognize declines in the value of our properties. The impairment
charge was taken against five properties with an aggregate book value of
approximately $30,886,000. For the three months ended March 31, 2008,
there was no comparable expense.
For the
six months ended March 31, 2009, the Trust recorded $15,815,000 of impairment
charges against its real estate portfolio. Management analyzed the
real estate portfolio and determined that the deterioration in the
credit markets and real estate markets where the Trust’s properties are located
has made it necessary to record declines in the value of our properties, which
includes $3,500,000 taken in the quarter ended December 31, 2008. The
impairment charges were taken against five properties with an aggregate book
value of approximately $34,386,000. For the six months ended March
31, 2008 there was no comparable expense.
For the
three and six months ended March 31, 2009, the Trust recorded $17,530,000 in
provisions for loan losses. Management in its regular review process,
analyzed the loan portfolio and the underlying value of the collateral securing
its loans and determined that it was necessary to record this provision to
reflect an accelerated decrease in the value of the collateral securing several
loans due to the continuation of the credit crisis and the national
recession. The provision was taken against 22 loans with an aggregate
outstanding balance of $65,771,000 and includes $2,265,000 taken against a loan
due to a fraud committed by a borrower which has been reported to the criminal
authorities. For the three and six month period ended March 31,
2008, the Trust recorded a $5,300,000 provision for loan losses. The
prior period’s provision was taken against three loans with an aggregate
outstanding balance of $35,410,000.
Professional
fees related to foreclosure activity decreased to $242,000 for the three months
ended March 31, 2009 from $487,000 for the three months ended March 31, 2008, a
decrease of $245,000, or 50%. This category also decreased to
$590,000 for the six months ended March 31, 2009 from $1,226,000 for the six
months ended March 31, 2008, a decline of $636,000, or 52%. These
decreases are primarily the result of reduced legal fees and expenses incurred
in connection with foreclosure actions and workouts.
Other
taxes decreased by $52,000, or 72%, to $21,000 in the three months ended March
31, 2009 from $73,000 in the three months ended March 31, 2008, and decreased by
$83,000, or 83%, to $17,000 in the six months ended March 31, 2009 from $100,000
in the six months ended March 31, 2008. Current period amounts
represent the accrual of state franchise and excise taxes, while the prior
periods include federal excise tax which is based on income generated in the
prior year but not distributed until the current year.
Operating
expenses relating to real estate properties increased $1,134,000, or 122%, from
$933,000 in the three month period ended March 31, 2008 to $2,067,000 in the
three month period ended March 31, 2009. Operating expenses relating
to real estate properties also increased $2,841,000, or 214%, from $1,328,000 in
the six month period ended March 31, 2008 to $4,169,000 in the six month period
ended March 31, 2009. The increase in both periods is the result of
operating expenses relating to four additional properties acquired by
foreclosure or deed in lieu of foreclosure in the current six month period and a
full period of operations at two properties that were acquired by foreclosure in
the fiscal year ended September 30, 2008.
Amortization
and depreciation increased $337,000, or 143%, from $235,000 in the three month
period ended March 31, 2008 to $572,000 in the three month period ended March
31, 2009. For the six month period ended March 31, 2009, amortization
and depreciation increased $573,000, or 206%, to $851,000 from $278,000 in the
six months ended March 31, 2008. The increase in both periods is the
result of depreciation expense relating to properties acquired in foreclosure
and catch up depreciation taken on those properties reclassified from real
estate properties held for sale.
Equity in
(loss) earnings of unconsolidated ventures decreased $2,872,000 in the three
months ended March 31, 2009 to a loss of $2,171,000 from earnings of $701,000 in
the three months ended March 31, 2008. This category also
decreased $3,239,000 in the six months ended March 31, 2009 to a loss of
$2,087,000 from earnings of $1,152,000 in the six months ended March 31,
2008. This decrease in both periods is primarily the result of
a loss recorded by our joint venture with the CIT Group. In the
current three and six month period the venture recorded a loan loss provision to
reflect a decrease in the value of a performing multi-family garden apartment
complex which secured a non performing loan.
Gain on
sale of joint venture interests increased $271,000 for both the three and six
month period ended March 31, 2009 from $-0- in the three and six period ended
March 31, 2008. In the current period the Trust sold its interests in
four of its joint venture properties located in Connecticut. The
proceeds of the sale were $1,350,000 and the Trust recognized a gain on the sale
of $271,000.
Gain on
sale of available-for-sale securities declined from $3,818,000 in both the three
and six month periods ended March 31, 2008 to $-0- in the three and six month
periods ended March 31, 2009. In the prior three and six month
periods the Trust sold 101,400 shares of Entertainment Properties
Trust. These securities, with a cost basis of $1,332,000 were sold
for $5,150,000. There were no sales in the current three or six month
period.
Loss from
discontinued operations was $8,188,000 in the three month period ended March 31,
2009 as compared to income of $1,135,000 in the three month period ended March
31, 2008. Loss from discontinued operations was $8,041,000 in the six
month period ended March 31, 2009 as compared to income of $1,591,000 in the six
month period ended March 31, 2008. The losses in the current three
and six month periods are due to impairment charges of $8,435,000 taken on four
multi-family properties located in Tennessee and one multi-family property
located in Naples, Florida. The Naples Florida property was sold in
the quarter ended March 31, 2009. The impairment charges were taken
to reflect the deterioration in the multi-family real estate market where these
properties are located.
The
discontinued operations in the quarter ended March 31, 2008 reflect income of
$83,000 from the operations of a shopping center in Stuart, Florida and a gain
of $154,000 from the sale of six condominium units, $632,000 from the sale of a
cooperative apartment unit in New York, New York, and $266,000 from the sale of
an industrial property located in South Plainfield, New Jersey. The
discontinued operations in the six month period ended March 31, 2008 reflect
income of $145,000 from the operations of a shopping center in Stuart, Florida
and an industrial building in South Plainfield, New Jersey, a $1,180,000 gain
from the sale of eight condominium and coop units, and a $266,000 gain from the
sale of an industrial property located in South Plainfield, New
Jersey.
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 is 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, 2009, approximately 94% of our loan
portfolio was variable rate based primarily on the prime
rate. Accordingly, changes in the prime interest rate or LIBOR
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 negative annual effect of approximately $60,000 on
income before taxes and a one percent decline in interest rates would have a
positive annual effect of approximately $60,000 on income before
taxes. In addition, we originate loans with short maturities and
maintain a strong capital position. At March 31, 2009, our loan
portfolio was primarily secured by properties located in New York and New Jersey
and it is therefore 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
December 31, 2008. 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, 2009 are
effective.
There
have been no changes in our internal control over financial reporting during the
quarter ended March 31, 2009 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
Item
2. Unregistered Sales of Equity Securities and Use of Proceeds.
On March
10, 2008, our board of trustees authorized a program for us to repurchase up to
1,000,000 of our common shares in the open market from time to time. Set forth
below is a table which provides the purchases we made in the quarter ended March
31, 2009:
Issuer
Purchases of Equity Securities
Period
|
|
Total Number of
Shares (or Units
Purchased)
|
|
|
Average Price
Paid per Share
(or Unit)
|
|
|
Total Number of
Shares (or Units)
Purchased as Part
of Publicly
Announced Plans
or Programs
|
|
|
Maximum Number
(or Approximate
Dollar Value) of
Shares (or Units)
that May Yet Be
Purchased Under
the Plans or
Programs
|
|
January
1, 2009 – January 31, 2009
|
|
|
42,422 |
|
|
$ |
4.20 |
|
|
|
42,422 |
|
|
|
845,520 |
|
February
1, 2009 – February 28, 2009
|
|
|
10,340 |
|
|
$ |
3.91 |
|
|
|
10,340 |
|
|
|
835,180 |
|
March
1, 2009 – March 31, 2009
|
|
|
86,969 |
|
|
$ |
3.25 |
|
|
|
86,969 |
|
|
|
748,211 |
|
Total
|
|
|
139,731 |
|
|
$ |
3.59 |
|
|
|
139,731 |
|
|
|
|
|
Item
4. Submission of Matters to Vote of Security Holders
We held
our annual meeting of shareholders on March 16, 2009. The matters
voted upon and the results of the vote are as follow:
Election
of Trustees
Name
|
|
Votes For
|
|
|
Against
|
|
|
Votes Withheld
|
|
Alan
Ginsburg
|
|
|
9,718,433 |
|
|
|
- |
|
|
|
519,221 |
|
Jeffrey
A. Gould
|
|
|
9,927,551 |
|
|
|
- |
|
|
|
310,103 |
|
Jonathan
H. Simon
|
|
|
9,784,954 |
|
|
|
- |
|
|
|
488,700 |
|
These
individuals will serve on the Board until our annual shareholders’ meeting in
2012 and until their successors are elected and qualified or until their earlier
resignation.
Ratification
of Appointment of Ernst & Young LLP as Independent Registered Public
Accounting Firm for Fiscal 2009
|
|
For
|
|
|
Against
|
|
|
Abstentions
|
|
|
|
|
|
|
|
|
|
|
|
R
Ratification of Ernst & Young LLP
|
|
|
10,125,721 |
|
|
|
73,082 |
|
|
|
38,853 |
|
Approval
of the 2009 Incentive Plan
|
|
For
|
|
|
Against
|
|
|
Abstentions
|
|
|
|
|
|
|
|
|
|
|
|
A
Approval of the 2009 Incentive Plan
|
|
|
6,054,009 |
|
|
|
1,022,802 |
|
|
|
44,039 |
|
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)
|
|
|
|
|
|
May 8, 2009
|
|
/s/ Jeffrey A. Gould
|
|
Date
|
|
Jeffrey
A. Gould, President and
|
|
|
|
Chief
Executive Officer
|
|
|
|
|
|
May 8, 2009
|
|
/s/ George Zweier
|
|
Date
|
|
George
Zweier, Vice President
|
|
|
|
and
Chief Financial Officer
|
|
|
|
(principal
financial officer)
|
|