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 June 30, 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.
11,175,805
Shares
of
Beneficial Interest,
$3
par
value, outstanding on August 3, 2007
Part
1 - FINANCIAL INFORMATION
Item
1. Financial Statements
BRT
REALTY TRUST AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS
(Amounts
in thousands)
ASSETS
|
|
|
|
|
|
|
|
June
30,
|
|
September
30,
|
|
|
|
2007
|
|
2006
|
|
|
|
(Unaudited)
|
|
(Audited)
|
|
Real
estate loans:
|
|
|
|
|
|
Earning
interest, including $-0- and $550 from related parties
|
|
$
|
237,791
|
|
$
|
283,282
|
|
Not
earning interest
|
|
|
23,375
|
|
|
1,346
|
|
|
|
|
261,166
|
|
|
284,628
|
|
Allowance
for possible losses
|
|
|
(1,669
|
)
|
|
(669
|
)
|
|
|
|
259,497
|
|
|
283,959
|
|
|
|
|
|
|
|
|
|
Real
estate properties, net of accumulated depreciation of $754 and
$725
|
|
|
3,319
|
|
|
3,342
|
|
Investment
in unconsolidated ventures at equity
|
|
|
13,642
|
|
|
9,608
|
|
Cash
and cash equivalents
|
|
|
11,517
|
|
|
8,393
|
|
Available-for-sale
securities at market
|
|
|
36,769
|
|
|
53,252
|
|
Real
estate property held for sale
|
|
|
—
|
|
|
2,833
|
|
Other
assets
|
|
|
10,077
|
|
|
9,655
|
|
Total
Assets
|
|
$
|
334,821
|
|
$
|
371,042
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND SHAREHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
Borrowed
funds
|
|
$
|
17,000
|
|
$
|
141,464
|
|
Junior
subordinated notes
|
|
|
56,702
|
|
|
56,702
|
|
Mortgage
payable
|
|
|
2,414
|
|
|
2,471
|
|
Accounts
payable and accrued liabilities, including deposits payable of $3,024
and
$5,061
|
|
|
7,526
|
|
|
11,479
|
|
Dividends
payable
|
|
|
6,891
|
|
|
4,491
|
|
Total
Liabilities
|
|
|
90,533
|
|
|
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 12,119 and 9,065 shares
|
|
|
36,356
|
|
|
27,194
|
|
Additional
paid-in capital
|
|
|
157,441
|
|
|
85,498
|
|
Accumulated
other comprehensive income - net unrealized gain on available-for-sale
securities
|
|
|
26,876
|
|
|
38,319
|
|
Retained
earnings
|
|
|
33,636
|
|
|
13,510
|
|
Cost
of 1,163 and 1,171 treasury shares of beneficial interest
|
|
|
(10,021
|
)
|
|
(10,086
|
)
|
Total
Shareholders' Equity
|
|
|
244,288
|
|
|
154,435
|
|
Total
Liabilities and Shareholders' Equity
|
|
$
|
334,821
|
|
$
|
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
|
|
Nine
Months Ended
|
|
|
|
June
30,
|
|
June
30,
|
|
|
|
2007
|
|
2006
|
|
2007
|
|
2006
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
Interest
on real estate loans, including $-0- and $17 from related parties
for the
three month periods, respectively, and $15 and $92 for the nine month
periods, respectively
|
|
$
|
8,310
|
|
$
|
8,081
|
|
$
|
27,237
|
|
$
|
20,080
|
|
Loan
fee income
|
|
|
1,280
|
|
|
922
|
|
|
3,909
|
|
|
2,466
|
|
Operating
income from real estate properties
|
|
|
362
|
|
|
323
|
|
|
1,112
|
|
|
867
|
|
Other,
primarily investment income
|
|
|
592
|
|
|
780
|
|
|
2,025
|
|
|
2,214
|
|
Total
Revenues
|
|
|
10,544
|
|
|
10,106
|
|
|
34,283
|
|
|
25,627
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
- borrowed funds
|
|
|
1,953
|
|
|
3,290
|
|
|
8,190
|
|
|
7,066
|
|
Advisor's
fees, related party
|
|
|
477
|
|
|
708
|
|
|
1,835
|
|
|
1,873
|
|
Provision
for loan loss
|
|
|
1,000
|
|
|
—
|
|
|
1,000
|
|
|
—
|
|
General
and administrative - including $203 and $163 to
related party for
the three month periods, respectively, and $659 and $610 for the
nine
month periods, respectively.
|
|
|
1,605
|
|
|
1,464
|
|
|
4,955
|
|
|
4,537
|
|
Other
taxes
|
|
|
446
|
|
|
110
|
|
|
1,231
|
|
|
358
|
|
Operating
expenses relating to real estate properties including interest on
mortgages payable of $38 and $39 for the three month periods,
respectively, and $115 and $119 for the nine month periods,
respectively
|
|
|
190
|
|
|
160
|
|
|
593
|
|
|
564
|
|
Amortization
and depreciation
|
|
|
43
|
|
|
38
|
|
|
121
|
|
|
109
|
|
Total
Expenses
|
|
|
5,714
|
|
|
5,770
|
|
|
17,925
|
|
|
14,507
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
before equity in earnings (loss) of unconsolidated joint ventures,
minority interest and discontinued operations
|
|
|
4,830
|
|
|
4,336
|
|
|
16,358
|
|
|
11,120
|
|
Equity
in earnings (loss) of unconsolidated joint ventures
|
|
|
470
|
|
|
570
|
|
|
651
|
|
|
(180
|
)
|
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
|
|
|
5,300
|
|
|
4,906
|
|
|
18,828
|
|
|
13,471
|
|
Gain
on sale of available-for-sale securities
|
|
|
4,121
|
|
|
—
|
|
|
19,419
|
|
|
—
|
|
Minority
interest
|
|
|
(15
|
)
|
|
(4
|
)
|
|
(46
|
)
|
|
(18
|
)
|
Income
before discontinued operations
|
|
|
9,406
|
|
|
4,902
|
|
|
38,201
|
|
|
13,453
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued
Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from operations
|
|
|
—
|
|
|
48
|
|
|
6
|
|
|
16
|
|
Gain
on sale of real estate assets
|
|
|
—
|
|
|
—
|
|
|
352
|
|
|
315
|
|
Income
from discontinued operations
|
|
|
—
|
|
|
48
|
|
|
358
|
|
|
331
|
|
Net
income
|
|
$
|
9,406
|
|
$
|
4,950
|
|
$
|
38,559
|
|
$
|
13,784
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
per share of beneficial interest:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations
|
|
$
|
.85
|
|
$
|
.61
|
|
$
|
3.72
|
|
$
|
1.70
|
|
Income
from discontinued operations
|
|
|
—
|
|
|
.01
|
|
|
.03
|
|
|
.04
|
|
Basic
earnings per share $
.85
|
|
$
|
.62
|
|
$
|
3.75
|
|
$
|
1.74
|
|
$
|
1.12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations
|
|
$
|
.85
|
|
$
|
.61
|
|
$
|
3.72
|
|
$
|
1.70
|
|
Income
from discontinued operations
|
|
|
—
|
|
|
.01
|
|
|
.03
|
|
|
.04
|
|
Diluted
earnings per share
|
|
$
|
.85
|
|
$
|
.62
|
|
$
|
3.75
|
|
$
|
1.74
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
distributions per common share
|
|
$
|
.62
|
|
$
|
.54
|
|
$
|
1.82
|
|
$
|
1.58
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average number of common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
11,107,212
|
|
|
7,968,994
|
|
|
10,271,267
|
|
|
7,906,249
|
|
Diluted
|
|
|
11,124,022
|
|
|
7,990,162
|
|
|
10,288,928
|
|
|
7,937,336
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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)
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
Shares
of
|
|
Additional
|
|
Other
Com-
|
|
|
|
|
|
|
|
|
|
Beneficial
|
|
Paid-In
|
|
prehensive
|
|
Retained
|
|
Treasury
|
|
|
|
|
|
Interest
|
|
Capital
|
|
Income
|
|
Earnings
|
|
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 (121,568
shares)
|
|
|
364
|
|
|
3,116
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
3,480
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
issued - underwritten public offering (2,932,500 shares)
|
|
|
8,798
|
|
|
68,296
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
77,094
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions
- common share ($1.82 per share)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(18,433
|
)
|
|
—
|
|
|
(18,433
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise
of stock options
|
|
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
22
|
|
|
20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted
stock vesting
|
|
|
|
|
|
|
|
|
(43
|
)
|
|
|
|
|
43
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation
expense - restricted stock
|
|
|
—
|
|
|
576
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
576
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
38,559
|
|
|
—
|
|
|
38,559
|
|
Other
comprehensive
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
- net unrealized loss on available-for-sale securities (net of
reclassification adjustment for gains of $19,419 included in net
income)
|
|
|
—
|
|
|
—
|
|
|
(11,443
|
)
|
|
—
|
|
|
—
|
|
|
(11,443
|
)
|
Comprehensive
income
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
27,116
|
|
Balances,
June 30, 2007
|
|
$
|
36,356
|
|
$
|
157,441
|
|
$
|
26,876
|
|
$
|
33,636
|
|
$
|
(10,021
|
)
|
$
|
244,288
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See
Accompanying Notes to Consolidated Financial Statements
BRT
REALTY TRUST AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(Unaudited)
(Amounts
in Thousands)
|
|
Nine
Months Ended
|
|
|
|
June
30,
|
|
|
|
2007
|
|
2006
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
Net
income
|
|
$
|
38,559
|
|
$
|
13,784
|
|
Adjustments
to reconcile net income to net cash provided by operating
activities:
|
|
|
|
|
|
|
|
Provision
for loan loss
|
|
|
1,000
|
|
|
—
|
|
Amortization
and depreciation
|
|
|
822
|
|
|
420
|
|
Amortization
of restricted stock and stock options
|
|
|
576
|
|
|
448
|
|
Net
gain on sale of real estate assets from discontinued
operations
|
|
|
(352
|
)
|
|
(315
|
)
|
Gain
on sale of available-for-sale securities
|
|
|
(19,419
|
)
|
|
—
|
|
Equity
in (earnings) loss of unconsolidated real estate ventures
|
|
|
(651
|
)
|
|
180
|
|
Gain
on disposition of real estate related to unconsolidated real estate
venture
|
|
|
(1,819
|
)
|
|
(2,531
|
)
|
Distribution
of earnings of unconsolidated joint ventures
|
|
|
5,334
|
|
|
133
|
|
Increase
in straight line rent
|
|
|
(124
|
)
|
|
(35
|
)
|
Increases
and decreases from changes in other assets and liabilities
|
|
|
|
|
|
|
|
Decrease
(increase) in interest and dividends receivable
|
|
|
817
|
|
|
(917
|
)
|
Increase
in prepaid expenses
|
|
|
(1,524
|
)
|
|
(31
|
)
|
(Decrease)
increase in accounts payable and accrued liabilities
|
|
|
(3,999
|
)
|
|
4,345
|
|
Increase
in deferred costs
|
|
|
(309
|
)
|
|
(2,523
|
)
|
Other
|
|
|
(32
|
)
|
|
(137
|
)
|
Net
cash provided by operating activities
|
|
|
18,879
|
|
|
12,821
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
Collections
from real estate loans
|
|
|
116,338
|
|
|
108,726
|
|
Sale
of participation interests
|
|
|
635
|
|
|
37,831
|
|
Repurchase of participation interests |
|
|
(5,750 |
)
|
|
—
|
|
Additions
to real estate loans
|
|
|
(85,200
|
)
|
|
(200,204
|
)
|
Net
costs capitalized to real estate assets
|
|
|
(60
|
)
|
|
(231
|
)
|
Proceeds
from sale of real estate owned
|
|
|
625
|
|
|
337
|
|
Purchase
of available-for-sale securities
|
|
|
(49
|
)
|
|
—
|
|
Sale
of available-for-sale securities
|
|
|
24,506
|
|
|
—
|
|
Contributions
to unconsolidated joint ventures
|
|
|
(12,238
|
)
|
|
(40
|
)
|
Distributions
of capital of unconsolidated joint ventures
|
|
|
5,397
|
|
|
984
|
|
Net
cash provided by (used in) investing activities
|
|
|
44,204
|
|
|
(52,597
|
)
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
Proceeds
from borrowed funds
|
|
|
103,000
|
|
|
171,000
|
|
Repayment
of borrowed funds
|
|
|
(227,464
|
)
|
|
(172,176
|
)
|
Proceeds
from sale of junior subordinated notes
|
|
|
—
|
|
|
55,000
|
|
Mortgage
amortization
|
|
|
(57
|
)
|
|
(53
|
)
|
Cash
distribution - common shares
|
|
|
(16,032
|
)
|
|
(12,131
|
)
|
Exercise
of stock options
|
|
|
20
|
|
|
453
|
|
Issuance
of shares - dividend reinvestment and stock purchase plan
|
|
|
3,480
|
|
|
1,827
|
|
Net
proceeds from secondary offering
|
|
|
77,094
|
|
|
—
|
|
Net
cash (used in) provided by financing activities
|
|
|
(59,959
|
)
|
|
43,920
|
|
|
|
|
|
|
|
|
|
Net
increase in cash and cash equivalents
|
|
|
3,124
|
|
|
4,144
|
|
Cash
and cash equivalents at beginning of period
|
|
|
8,393
|
|
|
5,709
|
|
Cash
and cash equivalents at end of period
|
|
$
|
11,517
|
|
$
|
9,853
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosure of cash flow information:
|
|
|
|
|
|
|
|
Cash
paid during the period for interest
|
|
$
|
8,398
|
|
$
|
6,023
|
|
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
|
|
|
6,891
|
|
|
4,308
|
|
Purchase
of common shares of statutory trust
|
|
|
—
|
|
|
1,702
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 June
30,
2007 and for the three and nine months ended June 30, 2007 and June 30, 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 nine months ended June
30,
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 June 30, 2007, BRT declared a cash distribution to
shareholders of $.62 per share. This distribution totaled $6,891,000 and was
paid July 2, 2007 to shareholders of record on June 22, 2007.
Stock
Options
As
of
June 30, 2007, there were 23,750 stock options outstanding. All of these options
are exercisable. During the quarter ended June 30, 2007, 1,250 options were
exercised. Proceeds from these options totaled $10,000.
Note
3 - Shareholders' Equity (Continued)
Restricted
Shares
As
of
June 30, 2007, 168,535 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 June 30, 2007 and June 30, 2006, the Trust recorded $148,000
and $215,000 of compensation expense, respectively, and for the nine months
ended June 30, 2007 and 2006, recorded $576,000 and $431,000 of compensation
expense, respectively as a result of the outstanding restricted shares. At
June
30, 2007, $2,394,000 has been deferred as unearned compensation and will be
charged to expense over the remaining
vesting periods. The weighted average vesting period is approximately 2.97
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
|
|
Nine
Months Ended
|
|
|
|
June
30,
|
|
June
30,
|
|
|
|
2007
|
|
2006
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
11,107,212
|
|
|
7,968,994
|
|
|
10,271,267
|
|
|
7,906,249
|
|
Effect
of dilutive securities
|
|
|
16,810
|
|
|
21,168
|
|
|
17,661
|
|
|
31,087
|
|
Diluted
|
|
|
11,124,022
|
|
|
7,990,162
|
|
|
10,288,928
|
|
|
7,937,336
|
|
Note
4 - Real Estate Loans
At
June
30, 2007, four non earning loans having an aggregate principal balance of
$22,375,000, which is net of a loan loss allowance of $1,000,000, were
outstanding to four separate borrowers, representing 8.62% of total net loans
and 6.68% of total assets.
Included
is a loan, reclassified to non-earning at June 30, 2007, which has an
outstanding balance of $6,863,000. This loan is secured by a first mortgage
on
land in the process of development to multifamily condominiums located in
Manhattan, New York and marketable securities with a fair market value of
approximately $750,000. The remaining three loans, which were classified as
non
earning in prior periods, have outstanding balances before any loan allowance
of
$1,347,000, $10,250,000 and $4,915,000, respectively.
A
loan
reclassified as non earning in the March 31, 2007 quarter which had an
outstanding balance of $10,250,000, is deemed impaired and an allowance of
$1,000,000 has been established in the quarter ended June 30, 2007. The
collateral for this loan is a retail center with an adjacent, vacant out parcel
located in Stuart, Florida and second mortgage liens on condominium units and
vacant land in Wildwood, New Jersey. The Stuart, Florida property was acquired
by the Trust by deed in lieu of foreclosure on July 17, 2007.
The
remaining allowance of $669,000 relates to one loan which, while it is
performing, is deemed impaired.
Note
4 - Real Estate Loans (Continued)
This
loan
which has an outstanding balance of $ 21,346,000 at June 30, 2007 and is
collateralized by a garden apartment complex near Orlando, Florida has been
converted to condominium ownership.
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.
If
all
loans classified as non-earning were earning interest at their contractual
rates
for the three months ended June 30, 2007 and 2006, interest income would have
increased by approximately $670,000 and $363,000 respectively. For the nine
month period ended June 30, 2007 and June 30, 2006, the increase would have
been
$1,461,000 and $494,000, respectively.
At
June
30, 2007, five separate unaffiliated borrowers had loans outstanding in excess
of 6% of the total loan portfolio. Information regarding these loans is set
forth in the table below:
GROSS
|
|
|
|
|
|
|
|
|
|
|
LOAN
|
|
#
OF
|
|
%
OF GROSS
|
|
%
OF
|
|
|
|
|
BALANCE
|
|
LOANS
|
|
LOANS
|
|
ASSETS
|
|
TYPE
/ (NUMBER)
|
|
STATE
/ (NUMBER)
|
|
|
|
|
|
|
|
|
|
|
|
$38,668,000
|
|
5
|
|
14.81
|
|
11.58
|
|
Multi
family (4) / residential (1)
|
|
TN
(4) NY (1)
|
25,462,000
|
|
1
|
|
9.75
|
|
7.60
|
|
Existing
office/condo conversion
|
|
NY
(1)
|
24,576,000
|
|
11
|
|
9.41
|
|
7.34
|
|
Existing
office with retail/assemblage (11)
|
|
NJ(11)
|
21,346,000
|
|
1
|
|
8.17
|
|
6.38
|
|
Existing
multi family/condo conversion
|
|
FL
(1)
|
16,000,000
|
|
1
|
|
6.13
|
|
4.78
|
|
Land
|
|
FL(1)
|
No
other
borrower or single loan accounted for more than 6% of the Trust’s loan portfolio
or 5% of the Trust’s assets.
At
June
30, 2007, information as to real estate loans is summarized as follows (dollar
amounts in thousands):
|
|
TOTAL
|
|
EARNING
INTEREST
|
|
NOT
EARNING
INTEREST
|
|
|
|
|
|
|
|
|
|
First
Mortgage Loans
|
|
|
|
|
|
|
|
Multi
Family Residential
|
|
$
|
67,584
|
|
$
|
67,584
|
|
$
|
—
|
|
Condominium
Units (Existing Rental Multi Family Units)
|
|
|
53,244
|
|
|
53,244
|
|
|
—
|
|
Hotel
Condominium Units
|
|
|
5,800
|
|
|
5,800
|
|
|
—
|
|
Land
|
|
|
42,402
|
|
|
35,539
|
|
|
6,863
|
(1)
|
Shopping
Center/Retail
|
|
|
43,908
|
|
|
33,658
|
|
|
10,250
|
|
Office
|
|
|
27,462
|
|
|
27,462
|
|
|
—
|
|
Industrial
|
|
|
1,347
|
|
|
—
|
|
|
1,347
|
|
Residential
|
|
|
8,580
|
|
|
8,580
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Second
Mortgage Loans
|
|
|
|
|
|
|
|
|
|
|
Multi
Family Residential
|
|
|
5,924
|
|
|
5,924
|
|
|
—
|
|
Shopping
Center/Retail
|
|
|
4,915
|
|
|
—
|
|
|
4,915
|
|
|
|
$
|
261,166
|
|
$
|
237,791
|
|
$
|
23,375
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Includes
Multifamily Condominium units under
development.
|
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, which
has been repaid in full.
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
BRT
member is 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 its entire $75
million in capital, is being amortized over five years. The CIT member has
contributed $34,443,000 in capital as of June 30, 2007 and a fee of $1,382,000
has been paid. Amortization of the fee totaled $54,000 for the three month
period and $129,000 for the nine month period ended June 30, 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)
|
|
|
|
June
30, 2007
|
|
|
|
|
|
Condensed
Balance Sheet
|
|
|
|
Cash
|
|
$
|
607
|
|
Real
estate loans
|
|
|
47,132
|
|
Other
assets
|
|
|
527
|
|
Total
assets
|
|
$
|
48,266
|
|
|
|
|
|
|
Deferred
fees
|
|
$
|
745
|
|
Other
liabilities
|
|
|
292
|
|
Equity
|
|
|
47,229
|
|
Total
liabilities and equity
|
|
$
|
48,266
|
|
Note
6 - Investment in Unconsolidated Joint Ventures at Equity
(Continued)
|
|
Three
Months Ended
|
|
Nine
Months Ended
|
|
|
|
June
30, 2007
|
|
June
30, 2007
|
|
Condensed
Statement of Operations
|
|
|
|
|
|
Interest
and fees on loans
|
|
$
|
1,624
|
|
$
|
2,307
|
|
Operating
expenses
|
|
|
(1
|
) |
|
(1
|
)
|
Net
income attributable to members
|
|
$
|
1,623
|
|
$
|
2,306
|
|
|
|
|
|
|
|
|
|
Company
share of net income
|
|
$
|
509
|
|
$
|
722
|
|
|
|
|
|
|
|
|
|
Amount
recorded in income statement (1)
|
|
$
|
455
|
|
$
|
593
|
|
|
|
|
|
|
|
|
|
(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 the amount being paid to the Merchant Bank is being amortized
over
five years.
|
Real
Estate Ventures
The
Trust
is also a partner in unconsolidated joint ventures which own and operate six
properties. These real estate ventures contributed $15,000 and $570,000 in
equity earnings (loss) for the three months ended June 30, 2007 and 2006,
respectively, and $58,000 and ($180,000) for the nine months ended June 30,
2007
and 2006, respectively.
Note
7 - Available-For-Sale Securities
Included
in available-for-sale securities are 624,800 shares of Entertainment Properties
Trust (NYSE:EPR), which have a cost basis of $8,207,000 and a fair market value
at June 30, 2007 of $33,602,000. As of August 6, 2007 the fair market value
of
these shares was
$27,273,000.
During
the quarter ended June 30, 2007, BRT sold 90,000 shares of Entertainment
Properties Trust for $5,303,000. The book basis of these securities was
$1,182,000. Accordingly, the Trust recognized a gain from these sales of
$4,121,000. For the nine month period ended June 30, 2007 BRT sold 384,800
shares of Entertainment Properties Trust and other securities for a gain of
$19,419,000.
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. At June 30, 2007, $138 million
was available to be drawn by us based on the lending formula under the credit
facility of which $17 million was outstanding.
The
average outstanding balances on our credit facility for the three months ended
June 30, 2007 and June 30, 2006 were $26,747,000 and $97,868,000, respectively,
and the average interest rate paid was 7.58% and 7.25%, respectively, which
excludes deferred fee amortization. Interest expense for the quarters ended
June
30, 2007 and June 30, 2006 was $689,000 and $1,904,000, respectively, and
includes fee amortization of $175,000 and $113,000, respectively. For the nine
months ended June 30, 2007 and 2006 the average outstanding balances on our
credit facility was $62,751,000 and $85,211,000, respectively, and the average
interest rate paid was 7.56% and 7.17%, respectively, which excludes deferred
fee amortization. Interest expense for the nine months ended June 30, 2007
and
2006 was $4,099,000 and $4,899,000, respectively, and
includes fee amortization of $502,000 and $268,000, respectively.
Note
8 -Borrowed Funds (Continued)
In
addition to the 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 June 30, 2007, there was no
outstanding balance on either of the margin accounts. Marketable securities,
with a fair market value at June 30, 2007 of $36,769,000, are available to
be
pledged as collateral. At August 6, 2007 the fair market value of these
securities was $30,206,000.
There
was no average outstanding balance on the margin accounts in the quarter ended
June 30, 2007 and the average outstanding balance on the margin facilities
for
the quarter ended June 30, 2006 was $19,668,000, and the average interest rate
paid was 7.14% and excludes maintenance fees. Interest expense on the margin
accounts for the quarters ended June 30, 2007 and 2006 was $33,000 and $358,000,
respectively. The average outstanding balances on the margin accounts for the
nine months ended June 30, 2007 and 2006 were $4,935,000 and $20,135,000,
respectively, and the interest rate paid was 7.51% and 6.68%, respectively,
and
excludes maintenance fees. Interest expense on the margin accounts for the
nine
months ended June 30, 2007 and 2006 was $398,000 and $1,084,000.
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
June 30, 2007 and 2006 was $680,000 and $477,000, respectively. For the nine
months ended June 30, 2007 and 2006, interest expense was $2,041,000 and
$477,000, 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 both the three months ended June
30,
2007 and 2006 was $551,000. For the nine months ended June 30, 2007 and 2006
interest expense was $1,652,000 and $606,000, respectively.
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 nine month periods was as follows:
|
|
(Dollar
Amounts in Thousands)
|
|
|
|
Three
Months Ended
|
|
Nine
Months Ended
|
|
|
|
June
30,
|
|
June
30,
|
|
|
|
2007
|
|
2006
|
|
2007
|
|
2006
|
|
Net
income
|
|
$
|
9,406
|
|
$
|
4,950
|
|
$
|
38,559
|
|
$
|
13,784
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
comprehensive income -
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
(loss) gain on available - for-sale securities (1)
|
|
|
(8,452
|
)
|
|
1,209
|
|
|
(11,443
|
)
|
|
(1,573
|
)
|
Comprehensive
income
|
|
$
|
954
|
|
$
|
6,159
|
|
$
|
27,116
|
|
$
|
12,211
|
|
(1) |
Net
of reclassification adjustment for realized
gains.
|
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
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 Standard’s objective 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.
SFAS No. 159 is effective as of the beginning of an entity’s first fiscal year
beginning after November 15, 2007. Early adoption is permitted as of the
beginning of the previous fiscal year provided that the entity makes that choice
in the first 120 days of that fiscal year and also elects to apply the
provisions of SFAS No. 157. The Trust is in the process of assessing the impact,
if any, this pronouncement will have on the consolidated financial statements
of
the Trust.
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. At
June
30, 2007 approximately 96% of our total mortgage portfolio of $261,166,000
or
$250,327,000 (before allowances) were first mortgage liens. 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
$257,991,000 (representing 99% of our mortgage portfolio at June 30, 2007)
are
due during the twelve months ending June 30, 2008, including $23,374,000 not
earning interest and due on demand (of which a loan with a balance of
$10,250,000 was acquired by a deed in lieu of foreclosure on July 17, 2007.)
The
availability of mortgage financing secured by real property and the market
for
buying and selling real estate is cyclical. The current mortgage lending
environment appears to be causing mortgage financing to be more expensive and
difficult to obtain. This could have an adverse effect on the ability of our
borrowers to refinance or sell their properties. Accordingly, 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. 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 June 30, 2007, $138 million was available to be drawn based on the lending
formula, of which $17 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 June 30, 2007, $18.3 million
($15.0 at August 6, 2007) 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 nine months ended June 30, 2007, we generated cash of $18,879,000 from
operations, $116,338,000 from real estate loan collections, $24,506,000 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 $19,464,000 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 $85,200,000, pay shareholder
dividends of $16,032,000, fund our joint ventures with $12,238,000, and to
further reduce our indebtedness under our credit line. Our cash and cash
equivalents were $11,517,000 at June 30, 2007.
We
will
satisfy our liquidity needs from cash and liquid investments on hand, our credit
facility, the availability in our margin accounts 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
on loans increased by $229,000 or 3%, to $8,310,000 for the three months ended
June 30, 2007 from $8,081,000 for the three months ended June 30, 2006. During
the current quarter the average balance of loans outstanding increased by
approximately $21.9 million from $245 million to $266.9 million , resulting
in
an increase in interest income of $740,000. The average interest rate on the
earning loan portfolio declined to 13.46% for the three month period ended
June
30, 2007 from 13.78% for the three months ended June 30, 2006, which caused
interest income to decline by $204,000. An increase in non performing loans
during the current quarter when compared to the prior year’s quarter caused a
$307,000 decline in interest income.
For
the
nine months ended June 30 2007, interest on loans increased by $7,157,000,
or
36%, from $20,080,000 to $27,237,000. During the nine months ended June 30,
2007, the average balance of loans outstanding increased by approximately $82.6
million from $203.5 million to $286.1 million resulting in an increase in
interest income of $8,290,000. The average interest rate on the earning loan
portfolio declined to 13.37% for the nine month period ended June 30, 2007
from
13.48% for the nine month period ended June 30, 2006, which caused interest
income to decline by $167,000. An increase in non performing loans in the
current nine month period when compared to the prior’s year nine month period
caused a decline in interest income of $966,000.
Fee
income increased by $358,000 or 39% to $1,280,000 for the three months ended
June 30, 2007 from $922,000 for the three months ended June 30, 2006. During
the
current quarter BRT recognized an increase in extension and other fee income
of
$408,000. Commitment fee income declined by $50,000 as a result of $263,000
of
decreased amortization on the loan portfolio as our origination volume has
recently declined. This decline was offset by an increase of $76,000 on loans
that did not close, and a $137,000 from accelerated amortization from the early
payoff of loans. Comparison of fee income, period versus period, is not
consistent with loan originations as fees are amortized over the original term
and are accelerated upon an loan prepayments.
Fee
income increased by $1,443,000 or 59% to $3,909,000 for the nine months ended
June 30, 2007 from $2,466,000 for the nine months ended June 30, 2006. During
the current nine month period BRT recognized an increase in extension and other
fee income of $859,000 which accounted for a significant portion of the
increase. Commitment fee income also increased by $584,000, resulting from
$386,000 increased amortization on the loan portfolio, $53,000 from loans that
did not close, and $145,000 of accelerated amortization from the early payoff
of
loans. Comparison of fee income period versus period is not consistent with
loan
originations as fees are amortized over the original term and are accelerated
upon loan prepayments.
Operating
income on real estate owned increased by $39,000, or 12%, for the three months
ended June 30, 2007 to $362,000 from $323,000 for the three month period ended
June 30, 2006. In the current three month period the increase is the result
of
increased rental income at our Yonkers property which in the prior three month
period had a vacancy. This space was re-leased at a rent comparable to that
paid
by the prior tenant. Offsetting this increase is a reduction of income of
$78,000 that was received in the prior period related to a real estate tax
refund from a property that was previously sold. For the nine month period
ended
June 30, 2007, operating income from real estate owned increased by $245,000,
or
28%, to $1,112,000 from $867,000. For the nine month period ended June 30,
2006,
the increase was primarily the result of increased rental income from our
Yonkers property due to the reletting of vacant space at the
property.
Other,
primarily investment income, declined to $592,000 for the three months ended
June 30, 2007, from $780,000 for the three months
ended June 30, 2006, a decrease of $188,000, or 24%. For the three month period
ended June 30, 2007, we recognized a decline of $265,000 in dividend income
resulting from our sale of 384,800 shares of Entertainment Properties Trust
in
the current fiscal year. This decline was offset by $77,000 due to an increase
in our invested balances and an increase in the dividend paid on the remaining
shares of EPR that we own. For the nine month period ended June 30, 2007
other income declined $189,000 from $2,214,000 in the prior nine month
period to $2,025,000 in the current nine month period. This was the result
of a
decrease of dividend income of $467,000 due to the sale of shares of
Entertainment Properties Trust. This decline was offset by an increase in
investment income of $278,000 resulting from an increase in our invested
balances and an increase in the dividend rate paid on the remaining shares
of
EPR that we own.
Interest
expense on borrowed funds decreased to $1,953,000 for the three months ended
June 30, 2007, from $3,290,000 for the three months ended June 30, 2006, a
decline of $1,337,000, or 41%. For the three month period ended June 30, 2007,
the average outstanding balance of borrowed funds declined from $165 million
for
the three months ended June 30, 2006 to $83.4 million, accounting for a decrease
in interest expense of $1,835,000, the interest rate paid (excluding fee
amortization) increased from 7.52% to 8.06% causing an increase in interest
expense of $398,000, and the amortization of borrowing costs increased $100,000
accounting for the remaining increase. Interest expense on borrowed funds
increased to $8,190,000 for the nine month period ended June 30, 2007 from
$7,066,000 for the nine month period ended June 30, 2006, an increase of
$1,124,000, or 16%. For the nine month period ended June 30, 2007, the average
outstanding balance increased from $122.0 million for the nine months ended
June
30, 2006 to $124.4 million, accounting for an increase in interest expense
of
$398,000 and the interest rate on all borrowings paid (excluding fee
amortization) increased from 7.23% to 7.89% causing an increase in interest
expense of $346,000. The amortization of borrowing costs increased $380,000
accounting for the remaining increase in the current nine month
period.
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 by $231,000, or 33%, for the three months ended June 30, 2007,
to $477,000 from $708,000 for the three months ended June 30, 2006. This decline
was a direct result of the amended agreement. For the nine months ended June
30,
2007, the Advisor’s fee decreased $38,000 or 2% from $1,873,000 in the nine
month period ended June 30, 2006 to $1,835,000 in the nine month period ended
June 30, 2007. This was primarily the result of the reduced fee resulting from
the amended agreement offset by 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 for the entire nine month period ended June 30, 2007
Provision
for loan loss totaled $1,000,000 in both the three and nine month periods ended
June 30, 2007 compared to -0- in the three and nine month period ended June
30,
2006. In the current three and nine month periods we recorded a loan loss
provision to reflect a decrease in the value of the collateral securing a
$10,250,000 loan. The collateral for this loan is a retail center with
an adjacent vacant out parcel located in Stuart, Florida and second
mortgage positions on condominium units and vacant land located in Wildwood,
New
Jersey. The Stuart, Florida property was acquired by the Trust by a deed in
lieu
of foreclosure subsequent to June 30, 2007.
General
and administrative expense increased $141,000 or 10%, to $1,605,000 for the
three months ended June 30, 2007 from $1,464,000 for the three months ended
June
30, 2006. In the current three month period the Trust incurred increased legal
and professional expenses of $80,000 due to increased foreclosure and loan
workout activity and increased travel and advertising expense of $104,000 as
we
continue to seek loan origination opportunities nationally. Offsetting these
increases was a reduction of direct and allocated payroll and payroll related
expenses of $74,000 resulting from decreased commissions paid to loan
originators and a decline in restricted stock amortization. The remaining
increase of $31,000 relates to several categories, none of which is significant.
For
the
nine months ended June 30, 2007 general and administrative expense increased
$418,000, or 9%, to $4,955,000 from $4,537,000 in the nine month period ended
June 30, 2006. The increase was the result of several factors. We incurred
increased legal and professional expenses of $296,000 due to increased
foreclosure and loan workout activity, the renegotiation of our advisory
agreement, and an independent compensation consultant retained by the
Compensation Committee of the Board of Trustees. We also recognized increased
payroll and related expenses of $185,000 due to increased staffing, salaries,
amortization of restricted shares issued in January 2007, and accelerated
amortization of restricted shares due to the retirement of one of the members
of
our Board of Trustees. Advertising, promotional, and travel expense also
increased by $139,000 as we continue to increase our marketing efforts and
seek
loan origination opportunities nationally. Offsetting these increased expenses
was the payment in the prior years nine month period of $296,000 of legal,
professional and printing expenses related to a contemplated public offering
of
preferred securities which was cancelled due to adverse market conditions.
The
remaining increase of $94,000 was related to several expense categories none
of
which is significant.
Other
taxes increased by $336,000, or 305%, to $446,000 in the three months ended
June
30, 2007 from $110,000 in the three months ended June 30, 2006. For the nine
months ended June 30, 2007 other taxes increased by $873,000, or 244%, to
$1,231,000 in the nine months ended June 30, 2007 from $358,000 in the
nine months
ended June 30, 2006. For both the three and nine 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 $100,000 for the
three months ended June 30, 2007 to $470,000 from $570,000 for the three month
period ended June 30, 2006. This was caused by a decline in income of $538,000
at our Blue Hen joint venture. In the prior year’s quarter this venture
recognized income upon the lease buyout of a tenant. There is no corresponding
income in the current quarter from this property as it was sold in November
2006. Offsetting this decline was increased income of $454,000 from our joint
venture with the CIT Group which began operations in December 2006. For the
nine
months ended June 30, 2007 equity in earnings (loss) of unconsolidated joint
ventures increased $831,000 from a loss of $180,000 for the nine months ended
June 30, 2006 to $651,000 in the nine month period ended June 30, 2007. For
the
nine month period, the increase was caused by $593,000 of earnings from the
operations of our joint venture with the CIT Group and the recognition in the
prior nine month period of a loss of $999,000 from the operations of the joint
venture which owned a property located in Atlanta, Georgia 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. This was offset by a decline in earnings at our Blue Hen venture
of $663,000 due to the lease buyout of a tenant in the prior year period and
the
subsequent sale of the property.
Gain
on
disposition of real estate related to unconsolidated venture decreased $712,000
in the nine month period ended June 30, 2007 from $2,531,000 in the nine months
ended June 30, 2006 to $1,819,000 in the nine month period ended June 30, 2007.
In the current nine month period our Blue Hen joint venture sold a corporate
center and retail mall located in Dover, Delaware. The Trust recognized its
share of the gain on the sale of $1,819,000. During the prior nine month period
we recognized 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 month period ended June 30, 2007, the Trust recognized a gain of
$4,121,000 on the sale of 90,000 shares of Entertainment Properties Trust.
These
shares with a cost basis of $1,182,000 were sold for $5,303,000. In the nine
month period ended June 30, 2007, the Trust recognized a gain of $19,419,000
on
the sale of 384,800 shares of Entertainment Properties Trust and other REIT
shares. These shares, with a cost basis of $5,087,000, were sold for
$24,506,000.
Income
from discontinued operations was -0- in the three month period ended June 30,
2007 and $48,000 in the three month period ended June 30, 2006. For the nine
month period ended June 30, 2007 income from discontinued operations increased
$27,000 to $358,000 from $331,000 in the nine months ended June 30, 2006. The
discontinued operations in the prior three and nine month periods reflect the
operations of a property acquired in foreclosure in January 2005 and sold in
November 2006, and the gain on sale of $315,000 results 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 June
30, 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 $1,844,000 on income before taxes and a one percent
decline in interest rates would have a negative effect of approximately
$1,120,000 on income before taxes. In addition, we originate loans with short
maturities and maintain a strong capital position. At June 30, 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 Vice President-Chief Financial Officer, of
the
effectiveness of the design and operation of our disclosure controls and
procedures as of June 30, 2007. Based upon that evaluation, the Chief Executive
Officer, Senior Vice President-Finance and Vice President-Chief Financial
Officer concluded that our disclosure controls and procedures as of June 30,
2007 are effective.
There
have been no changes in our internal control over financial reporting during
the
quarter ended June 30, 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)
August
8, 2007
|
/s/
Jeffrey A. Gould
|
Date
|
Jeffrey
A. Gould, President and Chief Executive
Officer
|
August
8, 2007
|
/s/
George Zweier
|
Date
|
George
Zweier, Vice President and Chief Financial
Officer
|
|
(principal
financial officer)
|