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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________________
FORM 10-K
________________________
[x ] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [Fee Required]
For the fiscal year ended September 30, 1995
__________________
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [No Fee Required]
Commission file number 1-7172
BRT REALTY TRUST
_________________________________________
(Exact name of registrant as specified in its charter)
Massachusetts 13-2755856
_________________________________________________________________
(State or other jurisdiction (I.R.S. employer
of incorporation or organization) identification no.)
60 Cutter Mill Road, Great Neck, New York 11021
_________________________________________________________________
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 516-466-3100
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
___________________ ________________________
Shares of Beneficial New York Stock Exchange
Interest, $3.00 Par Value
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Securities registered pursuant to Section 12(g) of the Act:
NONE
(Title of Class)
Indicate by check mark whether the registrant (l) has
filed all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
___ ___
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of registrant's knowledge,
in definitive proxy or information statements incorporated
by reference in PART III of this Form 10-K or any amendment to
this Form 10-K [ ]
The aggregate market value of voting stock of the
registrant held by non-affiliates was approximately $21,930,000
as of December 1, 1995.
As of December 1, 1995 the registrant had 7,346,624
Shares of Beneficial Interest issued and outstanding.
Documents Incorporated By Reference
PART III
Item 10 - Directors and Executive Officers To be included in
of the Registrant the Proxy Statement
to be filed pursuant
Item 11 - Executive Compensation to Regulation 14A
not later than
Item 12 - Security Ownership of Certain January 29, 1996,
Beneficial Owners and Management except for
information
concerning executive
Item 13 - Certain Relationships and Related officers, which is
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Transactions included in Part I.
PART IV - See Item 14.
PART I
Item l. Business.
General
BRT Realty Trust ("BRT" or the "Trust"), is a real estate
investment trust organized in 1972 under the laws of the
Commonwealth of Massachusetts. Its primary business activity has
been investing in senior and junior real estate mortgages secured
by income producing real property and to a limited extent in
senior real estate mortgages secured by undeveloped real
property. BRT did not finance new construction. For the
reasons described under the subcaption "Background" below,
particularly the Trust's agreement, as set forth in the Restated
Credit Agreement (defined below) not to engage in lending
activities except in specified situations, the Trust's lending
activities have been very limited and in the fiscal years ending
September 30, 1995 ("Fiscal 1995") and September 30, 1994
("Fiscal 1994") the only lending activity in which the Trust
engaged was purchase money first mortgages provided to
purchasers of real estate from the Trust.
In Fiscal 1995 the Trust's business activities involved
primarily managing the Trust's loan portfolio, supervising,
refurbishing and maintaining real estate owned by the Trust,
arranging, negotiating and closing first mortgage loans secured
by real estate owned, supervising and negotiating with respect to
leasing and selling real estate owned, pursuing mortgage
foreclosure actions against borrowers and negotiating workouts
with delinquent borrowers. At September 30, 1995, the fiscal
year end, the Trust had an outstanding loan portfolio (net of
allowances) of $42,206,000 or 40.4% of total assets, of which
3.9% of the net loan portfolio (1.6% of total assets) is
categorized as non-earning. This compares to an outstanding loan
portfolio, net of allowances, of $64,686,000 (49.2% of total
assets) at September 30, 1994, of which 3.9% of the net loan
portfolio (1.9% of total assets) were categorized as
non-earning. Approximately 47.5% of the Trust's total assets at
September 30, 1995, or an aggregate of $49,569,000 (after
valuation allowances, depreciation and amortization), represents
real property acquired by the Trust in foreclosure or deed in
lieu of foreclosure and capitalized improvements to such real
properties, compared to $52,076,000 or 39.6% of total assets at
September 30, 1994. Approximately 25% of the Trust's net
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investment assets (either mortgages or real estate owned) related
to cooperative apartments.
The Trust's loan portfolio has been decreasing over the past
number of fiscal years, both absolutely and as a percentage of
total assets, as outstanding loans have been paid off
and paid down and lending activities have been limited to first
mortgages taken back in connection with the sale of real estate
owned. Real Estate owned has increased as a percentage of assets
and has remained relatively constant in an absolute sense from
Fiscal 1994 to Fiscal 1995, as real estate has been acquired in
foreclosure or by deed in lieu of foreclosure and funds have been
expended to improve real property assets, offset by the sale of
real estate owned. In compliance with the Restated Credit
Agreement described below, the Trust has applied the proceeds
derived from loan payoffs and paydowns, sale of real estate owned
and financing real estate owned to the repayment of indebtedness
due under the Restated Credit Agreement. Total assets decreased
from $131,467,000 in Fiscal 1994 to $104,428,000 in Fiscal 1995
and total indebtedness decreased from $72,863,000 to
$43,656,000 (indebtedness due under the Restated Credit Agreement
decreased from $66,192,000 to $22,900,000) between Fiscal 1994
and Fiscal 1995.
Background
Commencing in the fiscal year ending September 30, 1990
("Fiscal 1990") and continuing through the fiscal year ending
September 30, 1992 ("Fiscal 1992"), difficulties in the real
estate markets and a severe lack of liquidity in the real estate
industry resulted in the Trust experiencing increasing
delinquencies from its borrowers. As a reaction to the increase
in non-earning loans, the Trust commenced and aggressively
pursued foreclosure actions and other legal procedures against
delinquent borrowers, seeking to acquire title to the asset
(generally income producing real property) securing a delinquent
loan as quickly as possible. By aggressively pursuing
foreclosure actions, the Trust was able to protect the operating
cash flow from a property through a court appointed receiver or a
negotiated third party management arrangement. As a result of
the actions taken by BRT against delinquent borrowers,
non-earning loans decreased from year to year and at September
30, 1995 non-earning loans amounted to $7,154,000, $1,632,000 net
of allowances (as compared to $10,268,000, $2,493,000 net of
allowances at September 30, 1994).
As a corollary to the decrease in non-earning loans, the
Trusts' portfolio of real estate owned increased as a percentage
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of total assets. At September 30, 1995 and 1994 the Trust owned,
net of valuation allowances, depreciation and amortization,
$49,569,000 and $52,076,000, respectively, of foreclosed property
held for sale (except for approximately $13,915,000 at September
30, 1995 and $14,260,000 at September 30, 1994, net of
accumulated depreciation) which is held long term for the
production of income). At September 30, 1995 and 1994 foreclosed
properties held for sale (net of valuation allowances and
accumulated depreciation and amortization) accounted for
47% and 40%, respectively, of total assets.
The Restated Credit Agreement dated as of September 23, 1992
entered into between BRT and five lending institutions (the
"Banks") which were parties to the Original Credit Agreement (see
"Restated Credit Agreement" below) provides that the Trust will
not engage in any lending activities except for funding
outstanding commitments and purchase money financing taken back
in connection with the sale of real estate owned. The Trust did
not have any outstanding funding commitments in Fiscal 1995 or
Fiscal 1994. Accordingly, except for purchase money mortgages
taken back in connection with the sale of real estate owned
(which pursuant to the Restated Credit Agreement cannot exceed
90% of the purchase price) and purchase money senior financing
taken back in connection with the sale of cooperative units
(which pursuant to the Restated Credit Agreement cannot exceed
95% of the purchase price) the Trust did not engage in any
lending activities in the fiscal years ending September 30, 1995
and 1994. Except for purchase money financing permitted by the
Restated Credit Agreement, BRT does not expect to engage in any
lending activities until the repayment in full of the principal
balance due under the Restated Credit Agreement.
As a result of the provisions of the Restated Credit
Agreement (which essentially precludes lending activities) the
business of the Trust in Fiscal 1995, as stated above, involved
managing the Trust's loan portfolio, supervising, refurbishing
and maintaining real estate owned, arranging, negotiating and
completing first mortgage loans secured by real estate owned,
supervising and negotiating the leasing and selling of real
estate owned, pursuing foreclosure actions against delinquent
borrowers and negotiating workouts with delinquent borrowers. In
Fiscal 1996 the Trust will continue to focus on real estate
operations, the disposition of real estate owned, arranging first
mortgage financing on real estate owned, and realization of the
principal balance of mortgages receivable in the Trusts' loan
portfolio.
As a direct consequence of the provisions of the Restated
Credit Agreement and the strict limitation on the Trusts' lending
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activities, the assets of the Trust decreased from $162,217,000
at September 30, 1993 and $131,467,000 at September 30, 1994 to
$104,428,000 at September 30, 1995. In this regard it should be
noted that (i) real estate loans, net of allowances, decreased by
$22,480,000 in Fiscal 1995 primarily due to principal payoffs or
reductions of $20,840,000, net of repayments to participating
lenders, and reclassification of $5,310,000 principal amount of
loans to real estate owned, offset by the issuance of $4,313,000
of purchase money mortgages in connection with the sale of real
estate owned and (ii) real estate owned, net of valuation
allowances and accumulated depreciation and amortization, and
after giving effect to capitalized improvements aggregating
$7,275,000 offset by real estate sales in Fiscal 1995 aggregating
a book value of $13,918,000, decreased by $2,507,000 at September
30, 1995 as compared to September 30, 1994. Under the terms of
the Restated Credit Agreement, the Trust has applied a major
portion of the proceeds derived from loan repayments, real
property sales and first mortgage loans secured by real estate
owned to the reduction of bank debt. During the year ended
September 30, 1995 bank debt was reduced by $43,292,000 to
$22,900,000. From September 30, 1995 to December 1, 1995
the bank debt was reduced by an additional $4,125,000 to
$18,775,000.
With respect to the real estate which BRT has taken back
in foreclosure or deed in lieu thereof, it is the policy of the
Trust to offer for sale substantially all such real estate at
prices which management believes represents fair value in
the geographic area in which the property is located. If the
Trust's management determines that it will not, in the near term,
be able to sell a specific parcel of real estate at an acceptable
price, management will seek first mortgage financing secured by
the specific parcel of real property. In many instances, the
Trust, through an independent contractor, renovates a property
acquired by foreclosure or deed in lieu, engages in leasing
activities, negotiates and completes the sale of real estate
owned if the selling price is deemed acceptable by management,
and within the limitations contained in the Restated
Credit Agreement provides purchase money financing in connection
with the sale of real estate owned. It has been the experience
of the Trust's management that in connection with the sale of
cooperative apartments it is usually necessary for the Trust to
provide purchase money financing on a competitive basis. In
Fiscal 1995 the Trust disposed of real estate other than
cooperative apartments having an aggregate net book value of
$13,458,000, for an aggregate consideration of $16,868,000 and
took back purchase money financing in connection with such sales
aggregating $4,876,000. In addition, in Fiscal 1995 the Trust
derived proceeds of $19,250,000 from first mortgage financing
secured by real estate owned by the Trust. From September 30,
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1995 to December 1, 1995, the Trust derived gross proceeds of
$1,600,000 from such first mortgage financing. During Fiscal
1995 the Trust sold shares in cooperative apartments, resulting
in net proceeds of approximately $329,000 (net of purchase money
mortgages of $217,000).
MORTGAGE PORTFOLIO
At September 30, 1995 the Trust's mortgage portfolio
consisted of 82 mortgage loans totalling $51,290,000 in aggregate
principal amount, of which $7,154,000, or 14%, was non-earning.
Of the principal amount of mortgage loans outstanding at
September 30, 1995, 79% represented first mortgage loans and 21%
represented junior mortgage and wraparound loans. In Fiscal 1995
the Trust's only lending activities consisted of $4,313,000 in
first priorirty purchase money financing provided to purchasers
of real estate owned, including cooperative apartments. Purchase
money financing provided to purchasers of real estate owned is
usually on a short term basis (2 to 5 years) and to purchasers of
cooperative apartments on a long term basis (20 to 30 years).
The Trust has never invested in mortgages secured by
property located outside the United States, Puerto Rico and
Canada.
The mortgage loans held by the Trust are not insured. In
the event of a default by a borrower, the Trust is required to
foreclose its mortgage or protect its investment through
negotiations with the borrower and/or other interested parties,
which in certain situations may involve cash outlays. If the
Trust holds a junior mortgage loan or wraparound loan, its
position is subordinate to liens of senior mortgages. In the
event the underlying asset value proves to be insufficient to
satisfy both the senior and junior lienholder, the Trust will
lose a portion or all of its investment. In certain situations
in order to protect its investment, the Trust has made payments
to maintain the current status of prior liens (including real
estate taxes) or purchased the prior lien. These payments were
not significant in Fiscal 1995. It is possible that the total
amount which may be recovered by the Trust upon the ultimate sale
of a property will differ from the total investment less the
allowance for possible losses.
As a result of the difficult real estate market which
existed in the years 1990-1994 and the resulting attitude of
lenders towards real estate loans, many of the Trust's borrowers
were not able to obtain financing from third parties or arrange a
sale at an acceptable price at the time the Trust's loan matured
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and sales of cooperative apartments did not occur as contemplated
at the time the original loan was made. In addition to
foreclosing on a number of properties, the Trust restructured
loans, which included in most cases extending the maturity date
and on occasion adjusting the interest rate. The Trust analyzes
each loan separately to determine the appropriateness of
restructuring and/or extending a loan. In analyzing each
situation, management examines many aspects of a loan receivable,
including the value of the collateral, the financial strength of
the borrower, past payment history and plans of the owner for the
property. In Fiscal 1995 there was a more favorable environment
for obtaining financing secured by real property and in selling
real property assets, and as loans matured, borrowers of the
Trust in many cases were able to refinance or sell their
properties and repay the indebtedness due to
the Trust. However, sales of cooperative units has continued to
be slow. Management anticipates that extensions for an
additional period of time may be granted for loans maturing
during 1996, but expects the need for borrowers to seek
extensions and other accommodations to be reduced.
The Trust did not have a policy or limitation on the
amount or percentage of its assets which could have been invested
in a single mortgage loan.
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CURRENT LOAN STATUS
As of September 30, 1995 the Trust had 82 mortgage loans
in its mortgage portfolio, totaling $51,290,000 in aggregate
principal amount (including $7,154,000 of non-earning loans) and
$42,206,000 after allowances for possible losses. In Fiscal 1995
$20,840,000 of outstanding loans (net of repayments to
participating lenders) was repaid and $5,310,000 (net of
allowance for possible losses) was converted from outstanding
loans to real estate owned. The three largest mortgage loans
outstanding after allowances for possible loans represent 8.8%,
2.7%, and 2.7%, respectively of the Trust's total assets. (See
Note 2 to the financial statements relating to significant
relationships.)
Information regarding the Trust's mortgage loans
outstanding at September 30, 1995:
(Amounts in thousands)
<TABLE>
<CAPTION>
Not No.
Earning Earning Prior of
Total Interest Interest Liens Loans
<S> <C> <C> <C> <C> <C>
First
Mortgage
Loans:
Long-term:
Residential $ 1,832 $ 1,832 $ - $ - 38
Short-term:
Shopping
centers/
retail 7,289 7,289 - - 10
Industrial
buildings 4,051 4,051 - - 3
Office
buildings 4,140 4,140 - - 2
Residential
(multiple
family
units) 19,576 18,928 648 - 14
Hotel 1,259 1,259 - - 1
Misc. 2,608 2,608 - - 2
Second
Mortgage
Loans:
Shopping
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centers/
retail 3,349 216 3,133 8,611 3
Office
building 679 679 - 2,377 1
Residential
(multiple
family
units) 3,658 1,740 1,918 49,969 3
Hotel 1,000 - 1,000 12,000 1
Wraparound
mortgages 1,849 1,394 455 5,449 4
______ ______ ______ _______ __
$ 51,290 $ 44,136 $ 7,154 $78,406 82
________ ________ _______ ________ __
</TABLE>
* Prior liens on mortgage loans include senior
participation of $15,500,000.
At September 30, 1995 the Trust had an allowance for possible
losses on its real estate loans of $9,084,000 compared to an
allowance of $13,321,000 at September 30, 1994. In determining
the allowance for possible loan losses, the Trust takes into
account numerous factors including a market evaluation of the
underlying collateral, the underlying property's estimated cash
flow during the projected holding period and estimated sales
value computed by applying an expected capitalization rate to the
stabilized net operating income of the specific property,
less estimated selling costs. The Trust also takes into account
the extent of liquidity in the real estate industry, particularly
in the New York metropolitan area, where approximately 80% of the
portfolio is located. Management reviews the loan portfolio on a
quarterly basis to determine if additional allowances are needed.
When a mortgage loan is in default, the Trust may acquire
the underlying property through foreclosure or other legal action
as is necessary to protect its investment. In negotiated
workouts the Trust seeks to acquire title to a property and in
certain cases affords the borrower the opportunity to reacquire
the property at a fixed price over a specified period of time.
Real Estate Owned
The real estate owned by the Trust consists primarily of
foreclosed properties held for sale, with the exception of
Abbotts Square, which is held long term for the production of
income. The real estate owned consists primarily of the
following as of September 30, 1995:
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Abbotts Square, Philadelphia, Pennsylvania - A mixed use
property, containing 63,000 square feet of commercial space (16
retail stores), a 400 car parking garage and 88 residential
condominium units, owned and operated by a limited partnership in
which a wholly owned BRT subsidiary is the sole general partner
and BRT is a limited partner. The property was acquired by the
owning partnership in April, 1993 under a plan of reorganization
confirmed by the bankruptcy court. The partnership agreement
provides that there are to be no cash distributions of operating
cash flow to partners, other than BRT, until BRT has received a
specified cumulative return and after BRT has received payment
currently of its specified return, then BRT will receive 50% of
all operating cash flow and the other partners the other 50%.
The partnership agreement provides further that there are to be
no distributions of sale or refinancing proceeds to partners
other than BRT until all required cash distributions to BRT from
operations, including accumulated arrears, have been paid
currently, and BRT receives full payment of the principal amount
owed to it plus the specified cumulative return, after which BRT
will receive 50% of such distributions. The retail space was 90%
occupied at September 30, 1995 and the residential units 98%
occupied at that date. Extensive repairs were completed at this
property in Fiscal 1995 at a cost of approximately $1,594,000.
On September 28, 1995 a loan of $10,000,000 was closed
with respect to the Abbotts Square property, secured by a first
mortgage on the retail and garage component and the 88
condominium units. The loan matures in five years, with a right
granted to the borrower to extend for an additional five years
(subject to satisfaction of certain conditions), provides for
interest at either a fixed rate related to the mortgagee's prime,
a floating rate related to comparable United States treasury
bills or a floating rate related to LIBOR, or a combination of
any two at the option of the borrower, and provides for monthly
amortization based on a 25 year amortization schedule. The
borrower locked in an interest rate of 7.83% per annum (related
to one year treasury bills) for the first year the loan is
outstanding.
Dover, Delaware - A 474,000 square foot enclosed facility
containing approximately 249,000 square feet of retail space and
225,000 square feet of office space located on approximately 58
acres. The total site contains approximately 90 acres. In
addition to the enclosed (former shopping mall) facility there
are 5 free standing buildings on the property (two of which are
vacant) containing approximately 55,000 square feet of rentable
space. The Trust has converted the "anchor" locations at this
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center to office space and has entered into a 10 year lease (with
options to renew) with a major insurance company for
approximately 68,600 square feet of space, and a 10 year lease
(with options to renew) with a major bank for 79,000 square feet
of space. The renovation for the insurance company was
substantially completed in December, 1994, and for the banking
entity in May, 1995. Each of the two tenants at the "anchor"
locations has options to expand their space and a right to early
termination. If the insurance company exercises its early
termination right, which it can do so at any time, the tenant
must pay to BRT, an amount equal to the rentals due to the lease
termination date, discounted to present value. The bank has an
early termination right, during its sixth lease year only. The
Trust has been converting this facility to an office park, with
some retail to service the office tenants, and as opportunities
arise, the Trust is renting former retail space to office users.
This facility was approximately 62% occupied at September 30,
1995.
In July 1995 two separate loans aggregating $9,250,000 were
closed with respect to this property; one loan in principal
amount of $6,000,000 is collateralized by a first mortgage on the
insurance company's building (an additional $1,000,000 can be
drawn down for tenant improvements if the insurance company
exercises any of its expansion options) and the other loan in the
principal amount of $3,250,000 is collateralized by the bank's
facility. Both loans are cross collateralized and are secured by
a negative pledge on the balance of the property and a mortgage
on the balance of the mall. The loans are for ten years, provide
for a fixed interest rate of 8.07% and provide an amortization
schedule intended to amortize the loan over the ten year period.
Rock Springs, Wyoming - A 151,105 square foot shopping
center, consisting of 138,191 square feet of retail space (30
retail stores), 12,914 square feet of office space, a free
standing restaurant and a free standing film kiosk.
The Trust holds a leasehold interest in this property subject to
a first leasehold mortgage which matured on November 1, 1995 and
provides for interest at the rate of 9 1/4% per annum. At
September 30, 1995 there was a principal balance of $1,649,000
due on the leasehold mortgage. The mortgagee has agreed to
renew this mortgage for a term expiring November 1, 2000, at an
interest rate of 8.44%, but is requiring monthly payments at the
same level as required under the existing mortgage, resulting in
quicker amortization of the principal balance due on the
mortgage. Pending execution of the renewal documents
(which will require the signature of the fee owner of the
property) the loan has been extended on a month to month basis.
The retail space was approximately 92% occupied and the office
space was approximately 100% occupied at September 30, 1995.
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New York, New York - A twelve story office building
located on lower Madison Avenue in Manhattan, New York containing
approximately 5,000 square feet of grade level retail space and
approximately 55,000 square feet of office space. The property
is owned free and clear of mortgages. At September 30, 1995 50%
of the retail space and approximately 96% of the office space was
occupied.
Kansas City, Kansas - A three story office building located
on Shawnee Mission Parkway, Fairway, Kansas, an active suburban
office market in the greater Kansas City area. This property
acquired by deed in lieu of foreclosure on October 25, 1995
contains approximately 103,500 square feet of rentable space and
parking capacity for 393 vehicles. The property was 63%
occupied on the date acquired by the Trust.
Elmont, New York - A three story office building
containing approximately 18,000 square feet of office space. The
property is owned free and clear of mortgages. At September 30,
1995 approximately 68% of the space was occupied. The Trust has
entered into a contract to sell this property for a
consideration $735,000, of which, at the option of the purchaser,
up to $510,000 may be represented by a five year purchase money
first mortgage. The Trust expects this transaction to be
consummated in January 1996.
Spring Valley, New York - This property consists of four two
story garden apartment buildings containing 86 apartment units
and parking facilities for 144 vehicles. Spring Valley is about
27 miles north of New York City. At September 30, 1995 the
property was 100% occupied.
On November 3, 1995 a first mortgage loan in the principal
amount of $1,600,000 was closed with respect to this property.
The mortgage matures on December 1, 2010, provides for interest
at 8.75% for the first five years and 250 basis points above
five year treasuries for each of the remaining five year terms
and amortization over a 30 year period.
Hoboken, New Jersey - A 32,500 square foot parcel of
undeveloped land. This property is owned free and clear of
mortgages. The property is leased to a parking lot operator
under a 10 year lease. The lease contains provisions for early
termination if the property is sold for development purposes.
Montreal, Canada - The Trust owns fee title to a parcel of
land in downtown Montreal, free and clear of mortgages. The
property, which is improved with a 23 story office building, is
net leased for a term expiring in 2061.
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New York, New York - Two six story residential buildings
located on West 172nd Street in Manhattan, New York, containing
82 apartments and 13 grade level retail stores with 9,264 square
feet of rentable space. This property, which is owned free and
clear of any fee mortgage, is leased under a net lease which
expires in 2015.
The Trust owns 619 cooperative apartment units in 6
separate projects, 2 of which containing 160 units are located in
Nassau County, New York, 2 containing 193 units are located in
Manhattan, 1 containing 251 units located in Queens, New York and
1 containing 15 units in the Bronx, New York. Since
the market for the sale of cooperative apartment units in New
York City and Long Island is very competitive and there is an
apparent oversupply of cooperative apartments being offered for
sale, the Trust's policy is to lease the units owned by it with a
number of selective units at some locations being held vacant for
sale. At September 30, 1995 91% of the units were occupied.
Restated Credit Agreement
On September 23, 1992, an Amended and Restated Credit
Agreement ("Restated Credit Agreement") was executed between BRT
and the Banks. Pursuant to the Restated Credit Agreement, BRT
and its wholly-owned subsidiaries granted the banks a lien on
all existing and future mortgages receivable; BRT pledged the
stock held by it in each subsidiary as collateral for the loan
and caused each of its subsidiaries, all of which are formed
primarily to own real estate acquired by foreclosure and specific
mortgages receivable, to guaranty repayment of the loan due to
the Banks.
The principal balance outstanding under the Restated
Credit Agreement bears interest at 1% in excess of the agent
bank's (Bankers Trust Company) prime lending rate and in
addition, the agent bank receives an annual fee equal to 1/8 of
1% of the aggregate outstanding principal balance. BRT cannot
make any borrowings under the Restated Credit Agreement and once
a principal payment is made by the Trust to the Banks it cannot
be reborrowed.
The maturity date of the Restated Credit Agreement
originally June 30, 1995, has been extended to June 30, 1996.
If, the Trust satisfies certain conditions, primarily making the
mandatory repayments (described below) and meeting certain ratio
tests, the Restated Credit Agreement may be extended by the Trust
to June 30, 1997. The Trust has to date, made all repayments of
principal required by the Restated Credit Agreement. If the
Trust elects to extend the maturity date to June 30, 1997
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$20,000,000 must be repaid no later than June 30, 1996. The
Trust has already satisfied this repayment requirement. The
outstanding principal balance due under the Restated Credit
Agreement was reduced from $66,192,000 outstanding on September
30, 1994 to $22,900,000 at September 30, 1995 and at December 1,
1995, it has been further reduced to $18,775,000. If the loan
has not been paid in full by June 30, 1996 the Trust will extend
the maturity date of the loan to June 30, 1997 and believes that
it will satisfy all conditions required for the loan to be
extended.
Upon execution and delivery of the Restated Credit
Agreement, the Banks and BRT entered into a Cash Collateral
Agreement under which a cash collateral account was established
with Bankers Trust Company. This account is the repository of a
portion of capital event proceeds (proceeds from the sale of real
estate, proceeds from mortgages obtained secured by real estate
owned and proceeds from mortgage loan reductions and payoffs) and
the Trust's excess operating cash flow. The funds in the cash
collateral account are available to BRT for business purposes,
including interest payments under the Restated Credit Agreement,
capital improvements to real estate owned, protection of
mortgages receivable and funding operating expenses. The
agent bank is required to disburse funds (in an amount not
greater than an approved budget) from the cash collateral account
upon requisition by BRT as long as there is no monetary default
under the Restated Credit Agreement. To the extent the cash
collateral account exceeds $9,000,000 at the end of any month or
$10,000,000 within a month, the excess is applied to reduce
principal. To the extent the cash collateral account is reduced
below $9,000,000, BRT can utilize a portion of capital event
proceeds and excess operating cash flow to build the account up
to $9,000,000. The Restated Credit Agreement also requires a
segregated interest reserve account as part of the cash
collateral account, amounting to three months interest payments
(approximately $558,000 at September 30, 1995). The banks
have a security interest in the cash collateral account.
Under the Restated Credit Agreement and the Cash
Collateral Agreement the Trust is authorized to maintain
operating bank accounts. To the extent cash in the operating
accounts exceeds $500,000 at the end of any month, such excess is
to be deposited in the cash collateral account.
Under the terms of the Restated Credit Agreement, a
minimum of 75% of capital event proceeds must be applied to
reduce the principal balance of the loan. The balance of capital
event proceeds are deposited by the Trust in the cash collateral
account. In October, 1994 the Banks agreed to reduce the 75%
requirement to 50% on the next $6,000,000 of capital event
14
<PAGE>
proceeds so that the Trust could reestablish the cash collateral
account up to $9,000,000. The cash collateral account was
significantly depleted due to the expenditure of the funds
required in the renovation of the Dover, Delaware property (see
"Business - Real Estate Owned") and for extensive repairs and
improvements at other properties owned. The cash collateral
account totalled approximately $7,134,000 at September 30, 1995.
The Restated Credit Agreement precludes the Trust from
making any mortgage loans except for purchase money mortgage
loans issued in connection with the sale of properties (with
limitations as to percentage of sales price, rates of interest
and term).
There are also specific limitations on extending loans
and reducing interest rates on mortgages receivable, on obtaining
financing on real estate owned and on selling real estate owned
and subsidiary stock.
Under the Restated Credit Agreement the Trust covenanted,
among other covenants, (i) to provide the banks with periodic and
annual financial statements, and periodic financial and other
information and budgets, (ii) to maintain tangible net worth at
the lesser of $55,000,000 or 60% of total bank debt plus
nonrecourse indebtedness for borrowed money (at September 30,
1995 the net worth requirement was $25,204,800) and (iii) not to
permit total liabilities (excluding subordinated debt and
nonrecourse indebtedness existing on September 23, 1992 or
assumed in connection with a foreclosure but including all other
indebtedness) to exceed two times tangible net worth plus
subordinated debt.
In the opinion of Management of the Trust, the Restated
Credit Agreement and the Cash Collateral Agreement has provided
the Trust with adequate funds to operate its business, to protect
its receivables, to maintain and improve real estate owned and to
dispose of assets in the ordinary course of business.
REIT Qualification
The Trust qualifies as a real estate investment trust
under the Internal Revenue Code ("Code"). Since qualification as
a REIT under the Code requires the Trust to be passive in its
real estate activities by managing its foreclosed properties
through independent contractors, adhering to holding period
requirements and meeting qualified income and asset tests, the
Trust is precluded from taking certain actions a real estate
company not seeking to qualify as a REIT might take to protect an
investment.
15
<PAGE>
Competition
Since the Trust is not actively engaged in lending
activities it is not competing for mortgage loans. With respect
to the real estate acquired by foreclosure and held for sale, the
Trust will compete for tenants and potential purchasers of such
properties with owners of comparable real property in the
area in which the property is located. With respect to the
cooperative units owned by the Trust, there is a great deal of
competition for purchasers and, pending significant improvement
in the market for the sale of cooperative units, the Trust
intends to rent out substantially all the units for terms of up
to two years. At present the apartment rental market in the areas
in which the Trust owns cooperative apartments is satisfactory.
Employees
The Trust has 9 full-time employees. In addition, it has
entered into an agreement with REIT Management Corp. ("REIT")
pursuant to which REIT acts as its advisor. At the present time,
REIT, subject to supervision of the Board of Trustees,
administers the Trust's portfolio of mortgages receivable,
supervises foreclosure actions, engages in negotiations in
workout situations with respect to non-earning loans and
supervises and provides support services in litigation
activities. REIT also supervises the maintenance, leasing, sale
and/or financing of real estate owned by the Trust. Reference is
made to the Trust's Proxy Statement to be filed pursuant to
Regulation 14A for information concerning the amount and method
of computing REIT's fee.
In Fiscal 1994 and 1995, the Trust engaged entities,
including entities affiliated with REIT, to manage properties
acquired by the Trust in foreclosure or deed in lieu of
foreclosure. The management services include, among other
things, rent billing and collection, accounting, maintenance,
contractor negotiation, construction management, sales and
leasing and mortgage brokerage. In management's judgment the
fees paid to REIT and entities affiliated with REIT are
competitive with or less than fees that would be charged for
comparable services by unrelated entities.
16
<PAGE>
EXECUTIVE OFFICERS OF REGISTRANT
The following sets forth the executive officers of the
Trust. The business history of officers who are also Trustees
will be provided in the Trust's proxy statement to be filed
pursuant to Regulation 14A not later than January 29, 1996.
Name Office
Fredric H. Gould Chairman of the Board and
Chief Executive Officer
Marshall Rose Vice Chairman of the Board
Israel Rosenzweig President; Trustee
Jeffrey A. Gould Executive Vice President
and Chief Operating
Officer
Simeon Brinberg Senior Vice President;
Secretary
Eugene J. Keely Vice President
Nathan Kupin Vice President; Trustee
Matthew J. Gould Senior Vice President
David W. Kalish Vice President; Chief
Financial Officer
Karen A. Till Vice President, Financial
Jeffrey A. Gould (age 30) has been a Vice President of the
Trust since January, 1988 and became Executive Vice President and
Chief Operating Officer in March 1994. In June, 1989 he became a
Vice President of One Liberty Properties, Inc. He is also a
Vice President of Georgetown Partners, Inc., managing general
partner of Gould Investors L.P.
Simeon Brinberg (age 62), has been Secretary of the Trust
since February, 1983 and Senior Vice President since November,
1988. From 1961 to September, 1988 he was a partner in the law
firm of Bachner, Tally, Polevoy, Misher & Brinberg and its
predecessor. In October, 1988 Mr. Brinberg became an officer of
BRT and a Vice President of Georgetown Partners, Inc. In June,
1989 he became a Vice President of One Liberty Properties, Inc.
Mr. Brinberg is a director of Witco Corporation.
17
<PAGE>
Eugene J. Keely (age 60) has been a Vice President of the
Trust since May 1983.
Matthew J. Gould (age 36) has been President and Chief
Operating Officer of One Liberty Properties, Inc. since June,
1989. He has been a Vice President of the Trust since 1986 and
became Senior Vice President in March 1993. He has also been a
Vice President since 1986 of Georgetown Partners, Inc., Managing
General Partner of Gould Investors L.P., Vice President of REIT
since 1986, and a Vice President of Majestic Property Management
Corp. and related entities engaged in real property management
and leasing since 1986.
David W. Kalish (age 48) has been a Vice President and
Chief Financial Officer of the Trust since June, 1990. He has
also been Vice President and Chief Financial Officer of One
Liberty Properties, Inc. and Georgetown Partners, Inc. since
June, 1990. For more than five years prior thereto, Mr. Kalish,
a certified public accountant, was a partner of Buchbinder Tunick
& Company, and its predecessors.
Karen A. Till (age 33) has been a Vice President of the
Trust since March 1994. For more than four years prior thereto,
Ms. Till, a certified public accountant, was employed by Gould
Investors L.P. in an accounting capacity.
18
<PAGE>
Item 2. Properties.
The Trust's executive offices are located at 60 Cutter Mill
Road, Great Neck, New York, where it occupies approximately
14,500 square feet with Gould Investors L.P., REIT Management
Corp., One Liberty Properties, Inc. and other related entities.
The building in which the executive offices are located is owned
by an affiliate of Gould Investors L.P. The Trust contributed
$171,000 to the annual rent in Fiscal 1994.
For a description of the real estate acquired by the Trust
in foreclosure, see Item 1, Business; Real Estate Owned.
Item 3. Legal Proceedings.
The Trust is not a defendant in any material pending legal
proceedings.
Item 4. Submission of Matters to a Vote of Security Holders.
There were no matters submitted during the fourth quarter
of the fiscal year to a vote of the Trust's security holders.
19
<PAGE>
PART II
Item 5. Market for the Registrant's Common Equity and Related
Matters
The Trust's shares of Beneficial Interest ("Beneficial
Shares") are listed on the New York Stock Exchange. The following
table shows for the quarters indicated, the high and low sales
prices of the Trust's Beneficial Shares on the New York Stock
Exchange as reported on the Composite Tape.
Fiscal Year Ended September 30, High Low
1994
____
First Quarter 4 3/4 3 3/4
Second Quarter 4 3/8 3 5/8
Third Quarter 4 5/8 3 1/2
Fourth Quarter 4 7/8 4
1995
____
First Quarter 4 3/8 3
Second Quarter 4 3 1/2
Third Quarter 4 3/4 3 1/4
Fourth Quarter 4 3/4 3 7/8
As of December 1, 1995 there were approximately 2,700
holders of record of the Trust's Beneficial Shares.
The Trust did not declare any cash distributions to common
shareholders during the years ended September 30, 1994 and 1995.
In each of the years ended September 30, 1994 and 1995 the Trust
paid $270,000 or $.2622 per share on its outstanding preferred
stock. The preferred stock is owned by Gould Investors L.P., a
related party.
The Trust qualifies as a real estate investment trust for
Federal income tax purposes. In order to maintain that status,
it is required to distribute to its shareholders at least 95% of
its annual taxable income. Management believes that as a result
of accumulated tax losses the Trust will not be required to make
cash distributions for a number of years to maintain its real
estate investment trust status. The resumption of cash
20
<PAGE>
distributions and the amount and timing of future distributions,
if any, will be at the discretion of the Board of Trustees and
will depend upon the Trust's financial condition, earnings, cash
flow and other factors. The Restated Credit Agreement precludes
payment of cash dividends on Beneficial Shares unless required in
order for the Trust to maintain its real estate investment trust
status.
Item 6. Selected Financial Information
The following table, not covered by the report of
independent certified public accountants, sets forth selected
historical financial data of the Trust for each of the fiscal
periods in the five years ended September 30, 1995. This table
should be read in conjunction with the detailed information and
financial statements of the Trust appearing elsewhere herein.
<TABLE>
<CAPTION>
Fiscal Years Ended
September 30,
_________________________________________________
1995 1994 1993 1992 1991
____ ____ ____ ____ ____
(In thousands except for per share amounts)
<S> <C> <C> <C> <C> <C>
Operating
statement
data:
Total
revenues $20,133 $22,037 $18,189 $15,200 $20,631
Provision for
possible
loan losses 1,021 4,340 3,111 7,940 12,391
Provision for
valuation
adjustment 178 993 3,388 - -
Net income
(loss)(1) 2,974 195 ( 4,068)( 8,395)(10,405)
Calculation of
net income (loss)
applicable to common
shareholders:
Net income (loss) 2,974 195 ( 4,068)( 8,395)(10,405)
Less: distributions
on Preferred stock 270 270 12 - -
21
<PAGE>
Net income (loss)
applicable to common
shareholders 2,704 ( 75)( 4,080)( 8,395)(10,405)
Income (Loss) per
beneficial share-
primary .37 ( .01) ( .56) ( 1.14) ( 1.42)
Fully diluted .35 ( .01) ( .56) ( 1.14) ( 1.42)
Balance sheet
data:
Total assets 104,428 131,467 162,217 176,594 195,970
Earning real
estate
loans (2) 44,136 67,739 95,353 107,571 111,375
Non-earning real
estate
loans (2) 7,154 10,268 26,750 44,250 71,166
Real estate
owned (2) 52,029 54,793 51,162 35,574 26,851
Notes payable-
banks 22,900 66,192 92,785 105,000 114,800
Subordinated note,
less unamortized
discount - - - 3,135 6,056
Loans and
mortgages
payable 20,756 6,671 10,308 8,626 6,751
Shareholders'
equity 57,728 55,024 55,099 55,804 64,199
</TABLE>
(1) The year ended September 30, 1992, includes an
extraordinary gain of $969,000.
(2) Earning and non-earning loans and real estate owned are
presented without deduction of the related allowance for possible
losses, valuation allowance, or accumulated depreciation and
amortization.
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<PAGE>
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Liquidity and Capital Resources
The Trust was engaged in the business of making and
participating in senior and junior real estate mortgages, secured
by income producing property and to a lesser extent by unimproved
real property. The Trust's investment policy emphasized
short-term mortgage loans. Repayments of real estate loans in
the amount of $19,445,000 are due during the twelve months ending
September 30, 1996 ("Fiscal 1996"), including $11,406,000 which
is due on demand. There presently is a more favorable
environment for obtaining mortgage financing secured by real
estate and for selling real estate, but the Trust cannot project
the portion of loans maturing in Fiscal 1996 which will be paid
or the portion of loans maturing in Fiscal 1996 which will be
extended for a fixed term or on a month to month basis.
Effective September 23, 1992, the Trust entered into an
Amended and Restated Credit Agreement ("Restated Credit
Agreement") with five banks. The maturity date under the
Restated Credit Agreement has been extended to June 30, 1996,
with the Trust having the right to extend for an additional one
year term if it satisfies certain conditions, principally making
certain mandatory repayments and meeting certain ratios. If
necessary the Trust will extend the maturity date of the Restated
Credit Agreement to June 30, 1997. As of December 1, 1995 the
Trust had made all mandatory repayments required by June 30, 1996
and meets the required ratios.
Under the Restated Credit Agreement the Trust is required
to apply a minimum of 75% of capital event proceeds (proceeds
from the sale of real property, proceeds from mortgage financing
secured by real estate owned and proceeds from payoffs or
paydowns of mortgages receivable) to reduce the principal balance
due to the banks, and the balance of 25% is deposited in a cash
collateral account maintained with the agent bank. The agent
bank is required to disburse funds to the Trust from the cash
collateral account upon requisition by the Trust, provided there
is no monetary default under the Restated Credit Agreement.
To the extent the cash collateral account exceeds $9,000,000 at
the end of any month or $10,000,000 within a month, such excess
is applied to reduce principal. To the extent the cash
collateral account is reduced below $9,000,000, the Trust can
utilize 25% of capital event proceeds and excess operating cash
flow to build the account up to $9,000,000. In October, 1994,
the Banks agreed to reduce the 75% requirement to 50% on the next
$6,000,000 of capital event proceeds so the Trust could
reestablish the cash collateral account to $9,000,000, as the
23
<PAGE>
Trust's requirement for funds for capital expenditures at
properties owned exceeded the budget established for Fiscal 1994
by about $3,500,000. The increase in capital expenditures in
late 1994 and early 1995 was due in large measure to the
conversion of a shopping mall in Dover, Delaware from a retail
mall to an office park at a cost of approximately $6,600,000.
In addition, the Trust maintains its own operating accounts, into
which all operating revenues are deposited and from which all
operating expenses are paid, and to the extent operating accounts
exceed $500,000 at the end of any month, the excess is deposited
into the cash collateral account.
During Fiscal 1994, the Trust entered into a project to
convert one of its properties, a regional mall located in Dover,
Delaware, into an office park. The Trust entered into a lease
with a major insurance company, requiring the Trust to segregate
the funds required for the improvements required under the lease
(approximately $5,650,000) into a separate account. The
aforementioned segregated funds were deemed restricted at
September 30, 1994. A modification to the Restated Credit
Agreement was provided by the banks, allowing the Trust to exceed
its $9,000,000 budget by $1,000,000, in order to pay for the
aforementioned improvements, in addition to its other operational
requirements. A further modification was permitted by the banks
for the Trust to exceed its $10,000,000 budget, as amended, by an
additional $2,500,000. These additional funds allowed the Trust
to complete the improvements required under a lease entered into
with a bank at the office park, in addition to required
expenditures at other real estate owned. In order for the Trust
to replenish its cash collateral account, the banks also agreed
to modify the allocation on the next $6,000,000 of capital event
proceeds (effective October 28, 1994) and permitted the Trust to
retain 50% of such proceeds as opposed to the 25% provided in the
Restated Credit Agreement. At September 30, 1995 the Trust
maintained approximately $7,134,000 in the Cash Collateral
Account, which management deems sufficient to satisfy the Trust's
short term liquidity needs.
During the twelve months ended September 30, 1995 ("Fiscal
1995"), the Trust had an increase in cash provided by investing
activities, as a result of collections from real estate loans of
$20,840,000 (net of repayments to participating lenders of
$8,445,000) and proceeds from the sale of real estate owned of
$12,320,000, net of purchase money mortgages of $4,313,000. The
cash provided by investing activities and proceeds of $19,250,000
from refinancing real estate owned was used to reduce bank debt
by $43,292,000 in Fiscal 1995. The Trust also paid off or paid
down loans and mortgages payable in the amount of $3,310,000.
The Trust intends to satisfy its short term liquidity
24
<PAGE>
needs from interest received on outstanding real estate loans,
net cash flow generated from the operation of properties, cash
derived from financing real estate owned, and from the funds in
the cash collateral account. In the opinion of Management, the
Restated Credit Agreement by its terms, and the mechanics of the
cash collateral account, provide adequate funds for the Trust to
operate its business, to protect its receivables and to operate
its real estate (which includes making necessary capital
improvements) and sufficient time to dispose of assets and apply
the net proceeds therefrom to reduce the amounts outstanding
under the Restated Credit Agreement.
Results of Operations
1995 vs 1994
The Trust's loan portfolio at September 30, 1995, before
giving effect to the allowance for possible losses, was
$51,290,000, of which $7,154,000 (14% of total real estate loans)
is categorized as non-earning, as compared to $78,007,000 at
September 30, 1994, of which $10,268,000 (13% of total real
estate loans) is categorized as non-earning. The $26,717,000
decrease in the loan portfolio since September 30, 1994 is
primarily due to the payoff of three real estate loans secured by
garden apartments located in the Texas market place in the amount
of approximately $16,767,000 (net of repayments to senior
participating lenders aggregating $8,445,000) . The portfolio
was further reduced by the Trust taking title to two properties
by deed-in-lieu of foreclosure at an estimated fair value
aggregating $5,310,000 (net of an allowance for possible losses
of $1,750,000), as well as the settlement, after litigation, of
a junior interest in a pool of mortgages having a book balance of
approximately $4,300,000 prior to allowance for possible losses
of approximately $2,600,000. These decreases were offset in part
by purchase money mortgages taken back in connection with the
sale of real estate owned.
Real estate owned (prior to valuation allowances of
$2,460,000) decreased to $52,029,000 at September 30, 1995 from
$54,793,000 (prior to valuation allowances of $2,717,000) at
September 30, 1994. The decrease of $2,764,000 is due to the
sale of various real estate owned with a basis aggregating
approximately $13,918,000 offset in part by real estate acquired
by deed-in-lieu of foreclosure at an estimated fair value of
$5,310,000 and approximately $7,300,000 in improvements of which
approximately $6,600,000 was expended at the Dover, Delaware
property.
25
<PAGE>
Interest and fees on real estate loans decreased to
$7,914,000 for Fiscal 1995 as compared to $10,999,000 for Fiscal
1994. This decrease of $3,085,000 was a result of a decrease in
earning real estate loans, as a result of payoffs, and various
events which occurred during Fiscal 1994, including receipt of
additional interest of approximately $1,100,000 upon payoff of a
real estate loan secured by a property located in Texas,
recognition of an unamortized discount of $565,000 upon early
payoff of a real estate loan, and collection of approximately
$480,000 from court appointed receivers who operated properties
securing certain loans. These decreases were offset in part by
the receipt of additional interest of approximately $1,410,000
(net of $745,000 of deferred interest accrued during Fiscal 1994)
upon payoff of two real estate loans secured by garden apartments
located in Texas, recognition of interest earned of approximately
$400,000 upon settlement, after litigation, of a junior interest
in a pool of mortgages and interest earned from purchase money
mortgages originated by the Trust in connection with properties
sold.
Operating income on real estate owned decreased by
$1,013,000 to $8,162,000 for the year ended September 30, 1995 as
compared to $9,175,000 for the prior fiscal year. This decrease
was principally a result of the sale of a number of properties
offset in part by the income generated from a garden apartment
complex in Spring Valley, New York and an increase in rental
income at the Dover, Delaware property, as a result of conversion
of this property from a regional mall to an office park.
Gain on sale of foreclosed properties for Fiscal 1995 was
$3,496,000 as compared to $1,507,000 in Fiscal 1994. The current
years gain was a result of various transactions totalling
$12,320,000, net of purchase money mortgages of $4,313,000 (net
of a $850,000 wrap mortgage). It is the policy of the Trust to
offer for sale all real estate owned at prices which management
believes represents fair value in the geographic area in which
the property is located.
Other income, primarily investment income, increased by
$205,000 for the year ended September 30, 1995 from $356,000 for
Fiscal 1994 to $561,000 for Fiscal 1995. This increase is
primarily due to an increase in the average yield on investments.
Interest expense decreased by $1,429,000 in Fiscal 1995 as
compared to Fiscal 1994 due to a decrease throughout the year of
the outstanding bank debt and the payoff of a mortgage payable,
offset in part by an increase in the average prime interest rate.
The expenses for the twelve months ended September 30, 1995
include provisions for possible loan losses and valuation
26
<PAGE>
adjustments of $1,199,000 as compared to $5,333,000 for the
comparable period in 1994. This decrease is a result of a more
favorable environment for obtaining financing secured by real
property and in selling real property assets.
The Advisor's fee decreased by $275,000 from $1,052,000 for
the year ended September 30, 1994 to $777,000 for the year ended
September 30, 1995. This decrease was a result of a decrease in
total invested assets, the basis on which the advisory fee is
calculated.
General and administrative expenses decreased to $2,971,000
in Fiscal 1995 from $3,224,000 in Fiscal 1994, a decrease of
$253,000. This decrease is primarily the result of decreased
professional fees as foreclosure and bankruptcy proceedings are
finalized as well as a decrease in other general and
administrative expenses.
Operating expenses relating to real estate owned increased
to $6,402,000 for the year ended September 30, 1995 from
$5,112,000 for the year ended September 30, 1994. This increase
was primarily due to extensive repairs completed at a mixed
use property and the Trust acquiring an apartment building by
deed-in-lieu of foreclosure, offset in part by the sale of real
estate owned.
1994 vs 1993
The Trust's loan portfolio at September 30, 1994, before
giving effect to the allowance for possible losses was
$78,007,000 of which $10,268,000 (13% of total real estate loans)
is categorized as nonearning, as compared to $122,103,000 at
September 30, 1993, of which $26,750,000 (22% of total real
estate loans) is categorized as nonearning. The $44,096,000
decrease in the loan portfolio is due to a combination of
repayments of principal on real estate loans (net of repayments
to participating lenders), an increase in real estate owned as a
result of completion of foreclosure actions and receipt of deeds
in lieu of foreclosure, and a settlement with the holder of a
first mortgage for $161,000 which represented the net book value
on a real estate loan on which the Trust had reserved
approximately $10,000,000 in the quarter ended September 30,
1990. This is offset in part by $6,242,000 of purchase money
mortgages issued by the Trust in connection with the sale of real
estate.
Real estate owned (prior to a valuation allowance of
27
<PAGE>
$2,717,000) increased to $54,793,000 at September 30, 1994 from
$51,162,000 (prior to a valuation allowance of $3,229,000) at
September 30, 1993. The increase of $3,631,000 in real estate
owned is primarily a result of real estate acquired by
foreclosure or deed in lieu of foreclosure at the aggregate
estimated fair value of approximately $17,745,000, offset by the
sale of real estate owned, with an aggregate cost basis of
approximately $14,401,000 (prior to a valuation allowance of
$1,505,000).
Interest and fees on real estate loans decreased to
$10,999,000 for Fiscal 1994 as compared to $12,395,000 for the
twelve months ended September 30, 1993 ("Fiscal 1993"). This
decrease of $1,396,000 was a result of a number of events
which occurred during Fiscal 1993, including receipt of past due
and accumulated interest of $440,000 upon refinancing by a
borrower, collection of approximately $586,000 from court
appointed receivers who operated properties securing certain
loans, receipt of an $800,000 fee from a borrower as part of a
workout and additional interest of $325,000 received upon
repayment of two participating real estate loans secured by
properties located in Texas. Interest and fees on real
estate loans also declined in Fiscal 1994 as compared to
Fiscal 1993 due to a decrease in earning real estate loans, as a
result of payoffs and properties securing real estate loans
becoming real estate owned. This decrease was offset in
part by receipt of additional interest of approximately
$1,100,000 upon payoff of a real estate loan secured by a
property located in the Texas marketplace, recognition of an
unamortized discount of $565,000 upon early payoff of a real
estate loan, collection of approximately $480,000 from court
appointed receivers who operated properties securing certain
loans and the accrual of deferred interest of approximately
$745,000 on another real estate loan secured by properties
located in the Texas area.
Operating income on real estate owned increased during
Fiscal 1994 by $4,007,000 to $9,175,000 from $5,168,000 in Fiscal
1993. This increase was a result of an increase in the number of
properties acquired in foreclosure or by deed in lieu of
foreclosure, as well as the leasing of certain of the properties.
Gain on sale of foreclosed properties held for sale for
the twelve months ended September 30, 1994, was $1,507,000, as
compared to $186,000 for the twelve months ended September 30,
1993. It is the policy of the Trust to offer for sale all real
estate owned at prices which management believes represents fair
value in the geographic area in which the property is located.
Interest expense decreased by $1,015,000 in 1994 as
28
<PAGE>
compared to 1993 due to a decrease throughout the year of
outstanding bank debt, offset by an increase in the average prime
interest rate.
The expenses for the twelve months ended September 30,
1994 include a provision for possible loan losses of $4,340,000
as compared to $3,111,000 for Fiscal 1993. A majority, or
$2,950,000 of the provision was taken during the fourth quarter
of Fiscal 1994 with respect to a real estate loan in which the
Trust held a subordinate position in a securitized mortgage
portfolio which, although interest was current, went into default
in October 1994. Fiscal 1994 also includes a provision for
valuation adjustment of $993,000 as compared to $3,388,000 for
the prior fiscal year. Of the total valuation allowance taken
during the fiscal year ended September 30, 1994, $900,000 was
taken with respect to unsold shares and related proprietary
leases in three cooperative apartment buildings.
Advisor's fee decreased to $1,052,000 for the twelve
months ended September 30, 1994 from $1,295,000 for the prior
years comparative period. This decrease of $243,000 is a result
of a decrease in total invested assets, the basis on which the
advisory fee is calculated. There was a decrease in the real
estate loan portion (a 1% fee is paid on real estate loans)
offset by a slight increase in the real estate owned portion (a
1/2 of 1% fee is paid on real estate owned).
Operating expenses relating to real estate owned increased
in Fiscal 1994 to $5,112,000 from $3,016,000 for Fiscal 1993.
The increase is a direct result of an increase in the number of
properties acquired in foreclosure or by deed in lieu of
foreclosure.
29
<PAGE>
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
This information appears in a separate section of this
report following Part IV.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
Items 10, 11, 12 and 13 will be included in the Trust's
proxy statement to be filed pursuant to Regulation 14A not later
than January 29, 1996.
30
<PAGE>
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
(a) 1. Financial Statements - The response is submitted in a
separate section of this report following Part IV.
2. Financial Statement Schedules - The response is
submitted in a separate section of this report following
Part IV.
3. Exhibits:
3(a). Second Amended and Restated Declaration of Trust
dated June 13, 1972. Incorporated by reference
to Exhibit 3A to Form 10-K for the year ended
September 30, 1984.
3(b). First Amendment to Second Amended and Restated
Declaration of Trust dated August 20, 1986.
Incorporated by reference to the Trust's
Registration Statement on Form S-2 (No. 33-8125).
3(c). Second Amendment to Second Amended and Restated
Declaration of Trust dated March 2, 1987.
Incorporated by reference to the Trust's
Registration Statement on Form S-2 (No.
33-12172).
3(d). Third Amendment to Second Amended and Restated
Declaration of Trust dated March 2, 1988.
Incorporated by reference to Exhibit 3D to Form
10-K for the year ended September 30, 1988.
3(e). By-laws - Incorporated by reference to the
Trust's Registration Statement on Form S-2 (No.
33-8125).
4. Statement of Rights of Preferred Stock.
Incorporated by reference to Exhibit 4 to Form
10-K for the year ended September 30, 1993.
10(a). Advisory Agreement dated February 7, 1983
between the Trust and REIT Management Corp.
Incorporated by reference to the Trust's
Registration Statement on Form S-2 (No. 33-8125).
31
<PAGE>
10(b). Amended and Restated Credit Agreement dated
September 23, 1992. Incorporated by reference
to Exhibit 1 to Form 8-K filed on October 8,
1992.
10(c). Amendment Number 1 to Amended and Restated
Credit Agreement. Incorporated by reference to
Exhibit 10(c) to Form 10-K for the year ended
September 30, 1993.
10(d). Amendment Number 2 to Amended and Restated
Credit Agreement. Incorporated by reference to
Exhibit 10(c) to Form 10-K for the year ended
September 30, 1993.
10(e). Cash Collateral Agreement dated September 23,
1992. Incorporated by reference to Exhibit 2 to
Form 8-K filed on October 8, 1992.
21. Subsidiaries - Each subsidiary is 100% owned by
the Trust. Filed with this Form 10-K.
27. Financial Data Schedule - Filed with electronic
filing.
(b) Reports on Form 8-K:
There were no reports on Form 8-K filed in the
fourth quarter of Fiscal 1995.
(c) Exhibits - See Item 14(a) 3., above.
(d) See Item 14(a) 2., above.
EXHIBIT 21
SUBSIDIARIES
COMPANY STATE OF INCORPORATION
Hoboken Front Corp. New Jersey
Huntington-Park Corporation New York
Forest Green Corporation New York
Realty 49 Corp. New York
TRB No. 1 Corp. New York
TRB No. 2 Corp. New York
TRB Ft. Wright Corp. New York
32
<PAGE>
TRB Cutter Mill Corp. New York
TRB Huntington Corp. New York
White Plains Realty Corp. New York
Kew Gardens Realty Corp. New York
Blue Realty Corp. Delaware
140 East 14th Street Realty Corp. New York
3581 Broadway Realty Corp. New York
620 West 172nd Street Realty Corp. New York
Multiple Property Realty Corp. New York
119 Madison Avenue Realty Corp. New York
TRB No. 3 Owners Corp. Wyoming
2042 Amsterdam Avenue Realty Corp. New York
2190 Boston Post Road Realty Corp. New York
TRB 96th Street Corp. New York
Remson Point Realty Corp. New York
TRB 13 Eighth Avenue Corp. New York
Fairmont Wrap Holding Corp. New York
Community Wrap Holding Corp. Florida
Casa Wrap Holding Corp. Florida
901 Merrick Road Realty Corp. New York
730 Franklin Avenue Realty Corp. New York
2002 Avenue U Realty Corp. New York
TRB Valley Corp. New York
76 Madison Avenue Realty Corp. New York
2211 Church Avenue Realty Corp. New York
Soundview Apartment Holding Corp. New York
TRB Hilltop Corp. New Jersey
TRB Cruger Avenue Corp. New York
570 Elmont Road Realty Corp. New York
TRB Fairway Office Center Corp. Kansas
TRB East 33rd Street Corp. New York
TRB 261-65 First Avenue Corp. New York
TRB Abbotts Corp. Pennsylvania
TRB Greenpoint Avenue Realty Corp. New York
728 Eighth Avenue Realty Corp. New York
174 Lexington Avenue Realty Corp. New York
1199 First Avenue Realty Corp. New York
302 East 72nd Street Realty Corp. New York
SIGNATURES
Pursuant to the requirements of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned thereunto duly
authorized.
BRT REALTY TRUST
Date: December 19, 1995 By:
/s/Israel Rosenzweig
--------------------
33
<PAGE>
President and Trustee
Pursuant to the requirements of the Securities Exchange
Act of 1934, this report has been signed below by the following
persons on behalf of the Registrant and in the capacities and on
the date indicated.
Signature Title Date
s/Fredric H. Gould Chairman of the Board December 19, 1995
(Principal Executive
Officer)
s/Israel Rosenzweig Trustee December 19, 1995
s/Patrick J. Callan Trustee December 19, 1995
s/Arthur Hurand Trustee December 19, 1995
s/Gary Hurand Trustee December 19, 1995
Nathan Kupin Trustee December , 1995
Herbert C. Lust II Trustee December , 1995
s/Marshall Rose Trustee December 19, 1995
s/David W. Kalish Vice President December 19, 1995
(Principal Financial
and Accounting Officer)
34
<PAGE>
Annual Report on Form 10-K
Item 8, Item 14(a)(1) and (2)
Index to Consolidated Financial Statements and Consolidated
Financial Statement Schedules
September 30, 1995
The following consolidated financial statements of BRT Realty
Trust are included in Item 8:
Page No.
Independent Auditors' Report F-1
Consolidated Balance Sheets as of September 30,
1995 and 1994 F-2
Consolidated Statements of Operations for the
three years ended September 30, 1995, 1994 and 1993 F-3
Consolidated Statements of Shareholders' Equity
for the three years ended September 30, 1995,
1994 and 1993 F-4
Consolidated Statements of Cash Flows for the
three years ended September 30, 1995, 1994 and
1993 F-5-6
Notes to Consolidated Financial Statements F-7
Consolidated Financial Statement Schedules for
the year ended September 30, 1995
XI - Real Estate and Accumulated Depreciation S-1 to S-2
XII - Mortgage Loans on Real Estate S-3 to S-4
All other schedules are omitted because they are not applicable
or the required information is shown in the consolidated
financial statements or the notes thereto.
35
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Trustees and Shareholders
BRT Realty Trust
We have audited the accompanying consolidated balance sheets of BRT Realty Trust
(the "Trust") as of September 30, 1995 and 1994, and the related consolidated
statements of operations, shareholders' equity, and cash flows for each of the
three years in the period ended September 30, 1995. Our audits also included
the consolidated financial statement schedules listed in the Index as Item
14(a). These consolidated financial statements and consolidated schedules are
the responsibility of the Trust's management. Our responsibility is to express
an opinion on these consolidated financial statements and consolidated schedules
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of BRT
Realty Trust as of September 30, 1995 and 1994, and the consolidated results of
their operations and their cash flows for each of the three years in the period
ended September 30, 1995, in conformity with generally accepted accounting
principles. Also, in our opinion the related consolidated financial statement
schedules, when considered in relation to the consolidated financial statements
taken as a whole, present fairly in all material respects the information set
forth therein.
New York, New York Ernst & Young LLP
November 22, 1995 (successor to Kenneth Leventhal & Company)
F-1
<PAGE>
BRT REALTY TRUST
CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
ASSETS
SEPTEMBER 30,
--------------------------
1995 1994
----------- -----------
<S> <C> <C>
Real estate loans - Notes 2, 4 and 5:
Earning interest, less unearned income $ 44,136 $ 67,739
Not earning interest 7,154 10,268
----------- -----------
51,290 78,007
Less allowance for possible losses 9,084 13,321
----------- -----------
42,206 64,686
----------- -----------
Real estate owned - Notes 3, 4 and 5:
Foreclosed properties held for sale (except
for $13,915, and $14,260, net of accumulated
depreciation which is held long term for the
production of income) 52,029 54,793
Less valuation allowance 2,460 2,717
----------- -----------
49,569 52,076
----------- -----------
Cash and cash equivalents - Note 5 7,385 1,174
Investment in U.S. Government obligations at cost,
which approximates market - 1,979
Restricted cash - Note 5 558 7,098
Interest receivable 507 1,319
Other assets 4,203 3,135
----------- -----------
TOTAL ASSETS $ 104,428 $ 131,467
----------- -----------
----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Notes payable - Note 5 $ 22,900 $ 66,192
Loans and mortgages payable - Note 5 20,756 6,671
Accounts payable and accrued liabilities
including deposits of $1,967 and $2,205 3,044 3,580
----------- -----------
Total liabilities 46,700 76,443
Commitments and contingencies - Notes 2, 3, 4, 5, 8 and 9 - -
Shareholders' equity - Note 7:
Preferred shares, $1 par value:
Authorized 10,000 shares, issued - 1,030 shares 1,030 1,030
Shares of beneficial interest, $3 par value:
Authorized number of shares, unlimited, issued
- 7,538 shares 22,614 22,614
Additional paid-in capital, net of distributions
of $4,968 and $4,698 83,914 84,184
Accumulated deficit (47,495) (50,469)
----------- -----------
60,063 57,359
Cost of 192 treasury shares of beneficial interest (2,335) (2,335)
----------- -----------
Total shareholders' equity 57,728 55,024
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 104,428 $ 131,467
----------- -----------
----------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-2
<PAGE>
BRT REALTY TRUST
CONSOLIDATED STATEMENTS OF OPERATIONS
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
----------------------------------------
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Revenues:
Interest and fees on real estate loans - Note 2 $ 7,914 $ 10,999 $ 12,395
Operating income on real estate owned 8,162 9,175 5,168
Net gain on sale of foreclosed properties held for sale 3,496 1,507 186
Other, primarily investment income 561 356 440
---------- ---------- ----------
Total Revenues 20,133 22,037 18,189
---------- ---------- ----------
Expenses:
Interest - notes payable, loans payable,
and subordinated notes - Note 5 5,186 6,615 7,630
Provision for possible loan losses - Note 4 1,021 4,340 3,111
Provision for valuation adjustment - Note 4 178 993 3,388
Advisor's fees - Note 8 777 1,052 1,295
General and administrative - Note 8 2,971 3,224 3,273
Operating expenses relating to real estate owned
including interest on mortgages of $441, $427,
and $291 6,402 5,112 3,016
Depreciation and amortization 624 506 544
---------- ---------- ----------
Total Expenses 17,159 21,842 22,257
---------- ---------- ----------
Net Income (Loss) $ 2,974 $ 195 $ (4,068)
---------- ---------- ----------
---------- ---------- ----------
Calculation of net income (loss) applicable to common
shareholders:
Net income (loss) $ 2,974 $ 195 $ (4,068)
Less: distributions on preferred stock 270 270 12
---------- ---------- ----------
Net income (loss) applicable to common shareholders $ 2,704 $ (75) $ (4,080)
---------- ---------- ----------
---------- ---------- ----------
Income (Loss) Per Share of Beneficial Interest:
Primary $ .37 $ (.01) $ (.56)
---------- ---------- ----------
---------- ---------- ----------
Fully Diluted $ .35 $ (.01) $ (.56)
---------- ---------- ----------
---------- ---------- ----------
Weighted average number of
common shares outstanding:
Primary 7,346,624 7,346,624 7,346,624
---------- ---------- ----------
---------- ---------- ----------
Fully Diluted 8,443,139 7,346,624 7,346,624
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
BRT REALTY TRUST
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED SEPTEMBER 30, 1993, 1994, AND 1995
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
SHARES OF ADDITIONAL
PREFERRED BENEFICIAL PAID-IN ACCUMULATED
STOCK INTEREST CAPITAL DEFICIT
---------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Balances, September 30, 1992 $ - $ 22,614 $ 82,121 $ (46,596)
Conversion of debt to equity with
the issuance of 1,030 shares
of preferred stock 1,030 - 2,345 -
Distributions - Preferred Stock - - (12) -
Net loss - - - (4,068)
---------- ---------- ---------- ---------
Balances, September 30, 1993 1,030 22,614 84,454 (50,664)
Distributions - Preferred Stock - - (270) -
Net income - - - 195
---------- ---------- ---------- ---------
Balances, September 30, 1994 1,030 22,614 84,184 (50,469)
Distributions - Preferred Stock - - (270) -
Net income - - - 2,974
---------- ---------- ---------- ---------
Balances, September 30, 1995 $ 1,030 $ 22,614 $ 83,914 $ (47,495)
---------- ---------- ---------- ---------
---------- ---------- ---------- ---------
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
BRT REALTY TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
------------------------------------------------
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 2,974 $ 195 $ (4,068)
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
Provision for possible loan losses 1,021 4,340 3,111
Provision for valuation adjustment 178 993 3,388
Amortization and depreciation 624 506 544
Recognition of discount upon premature payoff
of real estate loans - (565) -
Net gain on sale of real estate and foreclosed property (3,496) (1,507) (186)
Decrease (increase) in interest receivable 812 (426) 879
Increase in prepaid expenses (630) (248) (185)
(Decrease) increase in accounts payable and
accrued liabilities (282) (302) 460
Decrease in deferred revenues (10) (81) (260)
Decrease (increase) in rent receivable 144 (48) 234
Decrease in escrow deposits 384 12 466
Increase in deferred costs (469) - (74)
Other (509) 159 (235)
-------- -------- --------
Net cash provided by operating activities 741 3,028 4,074
-------- -------- --------
Cash flows from investing activities:
Collections from real estate loans 29,285 28,041 26,709
Proceeds from participating lenders 50 - 172
Additions to real estate loans (498) (944) (2,779)
Repayments to participating lenders (8,445) (5,479) (13,572)
Net costs capitalized to real estate owned (7,762) (1,663) (1,710)
Proceeds from sale of real estate owned 12,320 8,980 3,529
Decrease in deposits payable (238) (126) (189)
Decrease (increase) in investments
in U.S. Government obligations 1,979 5,115 (5,108)
Other (133) (48) 383
-------- -------- --------
Net cash provided by investing activities 26,558 33,876 7,435
-------- -------- --------
Cash flows from financing activities:
Bank repayments (43,292) (26,593) (12,215)
Proceeds from mortgages payable 19,250 - -
Payoff/paydown of loan and mortgages payable (3,310) (5,503) (337)
Decrease (increase) in restricted cash 6,540 (5,389) 149
Other (276) (207) (28)
-------- -------- --------
Net cash used in financing activities (21,088) (37,692) (12,431)
-------- -------- --------
Net increase (decrease) in cash and cash equivalents 6,211 (788) (922)
Cash and cash equivalents at beginning of year 1,174 1,962 2,884
-------- -------- --------
Cash and cash equivalents at end of year $ 7,385 $ 1,174 $ 1,962
-------- -------- --------
-------- -------- --------
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
BRT REALTY TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
(CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
----------------------------------------
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Supplemental disclosures of cash flow information:
Cash paid during the year for interest expense $ 5,987 $ 7,493 $ 7,834
---------- ---------- ----------
---------- ---------- ----------
Supplemental schedule of noncash investing and
financing activities:
Transfer of nonearning real estate loans
to foreclosed properties at fair value $ 5,310 $ 17,745 $ 19,532
Nonrecourse mortgage obligations relating
to properties acquired through foreclosure - 609 1,005
Transfer of third-party senior participating
interest in a real estate loan to a mortgage
payable upon acquisition of a property
through foreclosure - 1,495 -
Loan payable incurred in conjunction with partial
funding of outstanding commitment - - 2,000
Recognition of valuation allowance upon sale of
real estate owned - 1,505 -
Recognition of allowance for previously
provided losses 5,258 13,656 3,716
Purchase money mortgages from sale of real
estate owned (net of an $850 wrap mortgage in
the current period) 4,313 6,242 1,030
Write-off of nonrecourse mortgage payable upon
relinquishment of real estate owned 1,005 - -
Recognition of valuation allowance upon 435 - -
relinquishment of real estate owned
Conversion of subordinated debt to 1,030 shares
of preferred stock - - 3,375
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
BRT REALTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS EXCEPT SHARE DATA)
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION; BASIS OF PREPARATION
The consolidated financial statements include the accounts of BRT
Realty Trust, its wholly-owned subsidiaries, and its majority-owned or
controlled real estate entities. Material intercompany items and
transactions have been eliminated. Many of the wholly-owned
subsidiaries were organized to take title to various properties
acquired by BRT Realty Trust. BRT Realty Trust and its subsidiaries
are hereinafter referred to as the Trust.
INCOME TAX STATUS
The Trust qualifies as a real estate investment trust under Sections
856-860 of the Internal Revenue Code.
The Trustees may, at their option, elect to operate the Trust as a
business trust not qualifying as a real estate investment trust.
INCOME RECOGNITION
Income and expenses are recorded on the accrual basis of accounting
for both financial reporting and income tax purposes. The Trust does
not accrue interest or rental income on impaired loans or real estate
owned where, in the judgment of management and the Trustees,
collection of interest or rent according to the contractual terms is
considered doubtful. Among the factors the Trust considers in making
an evaluation of the collectibility of interest or rent are, the
status of the loan or property, the financial condition of the
borrower or tenant and anticipated future events. Loan discounts are
amortized over the life of the real estate loan using the constant
interest method.
Loan commitment and extension fee income is deferred and recorded as
income over the life of the commitment and loan. If a loan
subsequently becomes nonearning, the unamortized portion of the fee is
offset against the loan balance.
DEBT DISCOUNT
Debt discount is amortized over the life of the related debt
obligation using the constant interest method.
ALLOWANCE FOR POSSIBLE LOSSES
The Trust measures the impairment of its real estate loans based upon
the fair value of the underlying collateral which is determined on an
individual loan basis. In arriving at the fair value of the
collateral, numerous factors are considered, including, market
evaluations of the underlying collateral, operating cash flow from the
property during the projected holding period, and estimated sales
value computed by applying an expected capitalization rate to the
stabilized net operating income of the specific property, less selling
costs, discounted at market discount
F-7
<PAGE>
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (Continued)
ALLOWANCE FOR POSSIBLE LOSSES (CONTINUED)
rates. If upon completion of the valuations, the fair value of the
underlying collateral securing the impaired real estate loan is less
than the recorded investment in the loan, an allowance is created with
a corresponding charge to expense. The adequacy of the allowance is
predicated on the assumption that the Trust will be able to hold
assets and dispose of, or realize, the assets in the ordinary course
of business. Adjustments may be necessary in the event that effective
interest rates, rent-up periods, future economic conditions including
the terms and availability of long term permanent financing for the
property, or other relevant factors vary significantly from those
assumed in estimating the allowance for possible losses. The existing
allowances will be either increased or decreased based upon future
valuations, with a corresponding increase or reduction in the
provision for loan losses.
REAL ESTATE OWNED
Foreclosed properties (real estate acquired by foreclosure or by a
deed in lieu of foreclosure) are recorded at estimated fair value, net
of foreclosure costs, at the time of foreclosure. In subsequent
periods, individual foreclosed assets held for sale are valued at the
lower of the recorded cost or estimated fair value, as described
below, and if required, a valuation allowance is recognized. Assets
acquired through foreclosure and held for sale, are not depreciated,
while assets held long-term for the production of income are
depreciated over their estimated useful lives. Costs incurred in
connection with the foreclosure of the properties collateralizing the
real estate loans and costs incurred to extend the life or improve the
assets subsequent to foreclosure are capitalized. With respect to the
operating properties, operating income and expenses are reflected in
the statement of operations. For residential apartment units acquired
through foreclosure which are subject to an offering for the sale of
units or cooperative shares, the net effect of income and expenses is
applied to the basis of the asset to the extent that fair value is not
exceeded.
VALUATION ALLOWANCE ON REAL ESTATE OWNED
Real estate owned assets held for sale are valued at the lower of cost
or fair value, on an individual asset basis. Upon evaluating the
property, many indicators of value are considered, including current
and expected operating cash flow from the property during the
projected holding period, costs necessary to extend the life or
improve the asset, expected capitalization rates, projected
stabilized net operating income, selling costs, and the ability to
hold and dispose of such real estate owned in the ordinary course of
business. Valuation adjustments may be necessary in the event that
effective interest rates, rent-up periods, future economic conditions,
and other relevant factors vary significantly from those assumed in
valuing the property at the time of foreclosure. If future
evaluations result in a diminution in the value of the property, the
reduction will be recognized as a valuation allowance. If the value
of the property subsequently increases, the valuation allowance will
be reduced.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments:
Cash and short term investments: The carrying amounts reported in the
balance sheet for these instruments approximate their fair values.
F-8
<PAGE>
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (Continued)
FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
Real estate loans: The earning mortgage loans of the Trust have
either variable interest rate provisions, which are based upon a
margin over the prime rate, or are currently fixed at effective
interest rates which approximate market. At September 30, 1995 these
interest rates are reflective of current market conditions for these
loans. Accordingly, the carrying amounts of the earning, non-impaired
mortgage loans approximate their fair values. For earning loans which
are impaired and non-earning loans, the Trust has valued them based
upon the fair value of the underlying collateral. Accordingly, their
carrying amounts are recorded at fair value.
Notes, loans and mortgages payable: The Trust determined the
estimated fair value of its debt by discounting future cash payments
at their effective rates of interest, which approximate current market
rates of interest for similar loans. Accordingly, there is no
material difference between their carrying amount and fair value.
PER SHARE DATA
Primary earnings per share of beneficial interest is based upon the
weighted average number of common shares and the assumed equivalent
shares outstanding during each year, after giving effect to dividends
relating to the Trust's preferred stock. The preferred stock, issued
on September 14, 1993, is not considered a common stock equivalent for
the purpose of computing primary earnings per share. The assumed
exercise of outstanding share options, using the treasury stock
method, is not materially dilutive for the primary earnings per share
computation for the year ended September 30, 1995, and is
anti-dilutive for the years ended September 30, 1994 and 1993.
Fully diluted earnings per share of beneficial interest amounts are
based on an increased number of common shares that would be
outstanding assuming the exercise of common share options and the
conversion of preferred stock to shares of beneficial interest at the
year end market price. The fully diluted per share computation for
the year ended September 30, 1995 is dilutive with the addition of
1,030,000 shares upon conversion of the preferred stock and 66,515
shares upon exercise of common share options. As for the years ended
September 30, 1994 and 1993, the fully diluted per share computation
is anti-dilutive, and therefore not presented.
CASH EQUIVALENTS
Cash equivalents consist of highly liquid investments, primarily money
market type U.S. Government obligations, with maturities of three
months or less when purchased.
RECLASSIFICATION OF FINANCIAL STATEMENTS
Certain amounts reported in previous financial statements have been
reclassified in the accompanying financial statements to conform to
the current year's presentation.
F-9
<PAGE>
NOTE 2 - REAL ESTATE LOANS
At September 30, 1995, information as to real estate loans is
summarized as follows:
<TABLE>
<CAPTION>
Not
Earning Earning
Total Interest Interest
--------------- --------------- -----------------
<S> <C> <C> <C>
First mortgage loans:
Long-term:
Residential $ 1,832 $ 1,832 $ -
Short-term (five years or less):
Shopping centers/retail 7,289 7,289 -
Industrial buildings 4,051 4,051 -
Office buildings 4,140 4,140 -
Residential (multiple family units) 19,576 18,928 648
Hotel 1,259 1,259 -
Miscellaneous 2,608 2,608 -
Second mortgage loans:
Shopping centers/retail 3,349 216 3,133
Office building 679 679 -
Residential (multiple family units) 3,658 1,740 1,918
Hotel 1,000 - 1,000
Wraparound mortgages 1,849 1,394 455
----------- ------------ -----------
$ 51,290 $ 44,136 $ 7,154
----------- ------------ -----------
----------- ------------ -----------
A summary of loans at September 30, 1994 is as follows:
First mortgage loans $ 54,742 $ 54,165 $ 577
Second mortgage loans 22,218 12,982 9,236
Wraparound mortgages 1,063 608 455
----------- ------------ -----------
78,023 67,755 10,268
Unearned income (16) (16) -
----------- ------------ -----------
$ 78,007 $ 67,739 $ 10,268
----------- ------------ -----------
----------- ------------ -----------
</TABLE>
Of the real estate loans not earning interest at September 30, 1995 and
1994, $7,154 and $10,268, respectively were deemed impaired as it is
probable that the Trust will be unable to collect all amounts due according
to the contractual terms. Allowances for possible losses were provided for
all such non-earning loans, with the exception of loans in the amount of
$648 and $577 at September 30, 1995 and 1994, respectively. Of the real
estate loans earning interest at September 30, 1995 and 1994, $12,268 and
$11,009, respectively, were deemed impaired and all are subject to
allowances for possible losses. For the years ended September 30, 1995,
1994 and 1993, respectively, an average $20,350, $29,653 and $47,656 of
real estate loans were deemed impaired, on which $2,524, $1,733 and $2,146
of interest income was recognized.
F-10
<PAGE>
NOTE 2 - REAL ESTATE LOANS (Continued)
The Trust's earning loans generally provide for interest rates which
are related to the prime rate, whereas the new purchase money
mortgages have fixed interest rates, with incremental annual
increases. The weighted average interest rate on earning loans was
9.75% and 9.51% at September 30, 1995 and 1994, respectively.
Annual maturities of real estate loans receivable during the next five
years, reflect revised maturities as a result of debt restructurings
and are summarized as follows:
<TABLE>
<CAPTION>
Years Ending September 30,..... Amount
------------------------- -----------
<S> <C>
1996........................... $ 19,445
1997........................... 9,496
1998........................... 5,460
1999........................... 1,737
2000........................... 3,684
2001 and thereafter............ 11,468
-----------
Total $ 51,290
-----------
-----------
</TABLE>
The Trust's portfolio consists primarily of senior and junior mortgage
loans, secured by residential and commercial property, 80% of which
are located principally in the New York metropolitan area.
In Fiscal 1995 there was a more favorable environment for obtaining
financing secured by real property and in selling real property
assets. As loans matured, borrowers of the Trust in many cases were
able to refinance or sell their properties and repay the indebtedness
due to the Trust. Management anticipates that extensions for an
additional period of time may be granted for loans maturing during
1996. If a loan is not repaid at maturity, in addition to foreclosing
on the property, the Trust may either extend the loan or consider the
loan past due. The Trust analyzes each loan separately to determine
the appropriateness of an extension. In analyzing each situation,
management examines many aspects of the loan receivable, including the
value of the collateral, the financial strength of the borrower, past
payment history and plans of the owner of the property. Of the
$19,445 of real estate loans receivable which mature in Fiscal 1996,
$17,162 were extended during the fiscal year ended September 30, 1995.
The Trust received $14 in extension fees.
Over the past number of years, the Trust has restructured certain
loans. Although maturities were extended and interest rates were
reduced, principal remained unchanged. The effects of interest rate
reductions which were applicable to real estate loans aggregating
approximately $20,400, are insignificant as compared to what the Trust
would have otherwise received for the year ended September 30, 1995.
If all loans classified as non-earning were earning interest at their
contractual rates for the years ended September 30, 1995, 1994 and
1993, interest income would have increased by $719, $979 and $2,157,
respectively.
The Trust's interests in wraparound mortgages are subject to
underlying mortgages aggregating $4,659 at September 30, 1995. Senior
participations in the Trust's loans at September 30, 1995 and 1994
amounted to approximately $15,500 and $24,000, respectively.
F-11
<PAGE>
NOTE 2 - REAL ESTATE LOANS (Continued)
At September 30, 1995 the two largest real estate loans had principal
balances outstanding of approximately $9,200 and $3,400, respectively.
Of the total interest and fees earned on real estate loans during the
fiscal year ended September 30, 1995, 8% and 5% related to these
loans, respectively.
Included in the Trust's portfolio, is a real estate loan
collateralized by a 50% partnership interest in which the Chairman and
Vice-Chairman of the Board of Trustees of the Trust hold the other 50%
partnership interest. The balance of the loan at September 30, 1995
and 1994 is $2,850 and $2,900, respectively.
NOTE 3 - REAL ESTATE OWNED
A summary of real estate owned, for the year ended September 30, 1995
is as follows:
<TABLE>
<CAPTION>
September 30, September 30,
1994 Collections/ 1995
Properties Additions Sales/Other Gain Properties
---------- --------- Costs ----------- on ----------
No. Amount No. Amount Capitalized No. Amount Sale No. Amount
--- ------ --- ------ ----------- --- ------ ---- --- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Residential units-shares of
cooperative corporations 5 $ 7,056 1 $ 2,310 $ 355 (1) $ (546) $ 86 5 $ 9,261
Shopping centers/retail 8 24,695 - - 356 (4) (6,383) (159) 4 18,509
Office 5 13,584 1 3,000 6,969 (2) (3,299) 12 4 20,266
Improved land 3 5,096 - - - (1) (4,168) 2,514 2 3,442
Unimproved land 4 4,827 - - 82 (2) (4,458) 1,043 2 1,494
--- ------ --- ------ ----------- --- ------ ----- -- ------
25 55,258 2 5,310 7,762 (10) (18,854) 3,496 17 52,972
Less: Valuation Allowance - 2,717 - 178 - - (435) - - 2,460
Depreciation/Amortization - 465 - 478 - - - - - 943
--- ------ --- ------ ----------- --- ------ ----- -- ------
25 $52,076 2 $ 4,654 $7,762 (10) $(18,419) $ 3,496 17 $49,569
--- ------ --- ------ ----------- --- ------ ----- -- ------
--- ------ --- ------ ----------- --- ------ ----- -- ------
(a) (b) (c)
</TABLE>
(a) The additions to real estate owned were acquired by deed in
lieu of foreclosure and recorded at their estimated fair
value.
(b) A majority of the costs capitalized to real estate owned,
approximately $6,567, related to the conversion of a
regional mall located in Dover, Delaware, into a new
corporate center.
(c) The three most significant sales during the fiscal year
ended September 30, 1995 were as follows: (i) land under a
retail/apartment building in Manhattan, New York, with a net
book value of $1,654, was sold for a net price of $4,168,
resulting in a gain of approximately $2,514, (ii) and two
separate parcels of unimproved land, both located in
Manhattan, New York, with an aggregate net book value of
$3,346, was sold at an aggregate net price of $4,389
resulting in an aggregate gain of approximately $1,043.
F-12
<PAGE>
NOTE 3 - REAL ESTATE OWNED (Continued)
Future minimum rentals to be received by the Trust, pursuant to
noncancellable operating leases in excess of one year, from properties
on which the Trust has title at September 30, 1995 are as follows:
Years Ending September 30,..... Amount
-------------------------- ---------
1996........................... $ 4,411
1997........................... 4,018
1998........................... 3,659
1999........................... 3,420
2000........................... 3,311
NOTE 4 - ALLOWANCE FOR POSSIBLE LOSSES AND VALUATION ALLOWANCE ON REAL ESTATE
OWNED
The Trust measures the impairment of its real estate loans based upon
the fair value of the underlying collateral which is determined on an
individual loan basis. If the valuation is less than the recorded
investment in the loan an allowance is created with a corresponding
charge to expense. The existing allowance will be either increased or
decreased based upon future valuations with a corresponding increase
or reduction in the provision for loan losses.
The Trust evaluates its portfolio of mortgage loans and real estate
owned held for sale on an individual asset basis, comparing the amount
at which the asset is carried to its estimated fair value, as
applicable. In making its evaluations, the Trust considers many
indicators of asset impairment and value including current and
expected operating income and expected capitalization rates. The
Trust has assumed that it will be able to acquire property
collateralizing mortgage loans by foreclosure if deemed appropriate,
and hold and dispose of such assets and real estate currently owned in
the ordinary course of business, to maximize the return to the Trust.
The Trust has also assumed that it will not be required to liquidate
assets other than in the ordinary course of business, in order to
repay debt (see Note 5). The evaluations and related assumptions are
dependent upon current estimates of future operations, proceeds,
costs, events, and general market and economic conditions, all of
which are influenced by many unpredictable factors. Accordingly, the
ultimate realizations of the Trust's assets, including future income,
may differ from amounts presently estimated.
As a result of the difficulties in the real estate market during the
four years ended September 30, 1994, particularly in the New York
metropolitan area, the primary real estate market served by the Trust,
as discussed in Note 2, and the general lack of liquidity in the real
estate industry, the Trust recorded provisions for possible losses
aggregating $4,340 and $3,111 during the years ended September 30,
1994 and 1993, respectively. In Fiscal 1995 there was a more favorable
environment for obtaining financing secured by real property and in
selling real property assets, therefore resulting in the Trust
recording provisions of $1,021 during the year ended September 30,
1995.
The Trust recorded provisions for valuation adjustment of $178, $993
and $3,388 for the years ended September 30, 1995, 1994 and 1993,
respectively.
F-13
<PAGE>
NOTE 4 - ALLOWANCE FOR POSSIBLE LOSSES AND VALUATION ALLOWANCE ON REAL ESTATE
OWNED (Continued)
An analysis of the allowance for possible losses is as follows:
<TABLE>
<CAPTION>
Year Ended September 30,
---------------------------------------------------
1995 1994 1993
------------- ------------ -----------
<S> <C> <C> <C>
Balance at beginning of year $ 13,321 $ 22,637 $ 23,242
Provision for possible loan losses 1,021 4,340 3,111
Write-off of allowances (5,258) (13,656) (3,716)
----------- ------------ -----------
Balance at end of year $ 9,084 $ 13,321 $ 22,637
----------- ------------ -----------
----------- ------------ -----------
</TABLE>
The allowance for possible losses applies to assets aggregating
$18,774 at September 30, 1995, $20,700 at September 30, 1994 and
$32,583 at September 30, 1993.
The allowance for possible losses consists of the following
components:
<TABLE>
<CAPTION>
Year Ended September 30,
---------------------------------------------------
1995 1994 1993
------------- ------------ -----------
<S> <C> <C> <C>
Excess of carrying value plus estimated cost
to complete and market, over estimated
selling price $ 2,720 $ 3,003 $ 2,792
Valuation adjustment 6,141 9,464 19,675
Estimated holding period costs 223 854 170
----------- ------------ -----------
$ 9,084 $ 13,321 $ 22,637
----------- ------------ -----------
----------- ------------ -----------
</TABLE>
An analysis of the valuation allowance is as follows:
<TABLE>
<CAPTION>
Year Ended September 30,
---------------------------------------------------
1995 1994 1993
------------- ------------ -----------
<S> <C> <C> <C>
Balance at beginning of year $ 2,717 $ 3,229 $ -
Provision for valuation adjustment 178 993 3,388
Write-off of valuation adjustment
upon sale or relinquishment of
real estate owned (435) (1,505) (159)
----------- ------------ -----------
Balance at end of year $ 2,460 $ 2,717 $ 3,229
----------- ------------ -----------
----------- ------------ -----------
</TABLE>
The valuation allowance applies to assets aggregating $12,742 at September
30, 1995, $13,917 at September 30, 1994 and $16,678 at September 30, 1993.
F-14
<PAGE>
NOTE 5 - DEBT OBLIGATIONS
Debt obligations consist of the following:
<TABLE>
<CAPTION>
September 30,
-------------------------
1995 1994
----------- ----------
<S> <C> <C>
Notes payable, credit agreement $ 22,900 $ 66,192
----------- ----------
----------- ----------
Loans and mortgages payable $ 20,756 $ 6,671
----------- ----------
----------- ----------
</TABLE>
On September 23, 1992 an Amended and Restated Credit Agreement (the
"Agreement") was executed between the Trust and five banks, which were
parties to an existing credit agreement. Simultaneously with the
execution, the Trust reduced the principal amount outstanding to
$105,000 by paying $9,800 to the banks. Pursuant to the Agreement,
the Trust granted the banks a lien on all mortgages receivable and
pledged the stock of its wholly-owned subsidiaries, which own all of
the Trust's real estate, to the banks. During the fiscal year ended
September 30, 1993 the interest held by a governmental agency in the
Agreement (approximately 17% of the Trust's indebtedness) was sold at
a public auction. Subsequently, an entity related to the Trust, One
Liberty, purchased approximately 29% of the 17% portion of the
indebtedness purchased at a public sale by an unrelated entity.
The principal balance bears interest at the prime lending rate plus
1%, and in addition, the "Agent Bank", which represents the five banks
involved in the Agreement, receives an annual fee equal to 1/8 of 1%
of the aggregate outstanding principal balance. The Trust is
precluded from making any mortgage loans except for purchase money
mortgage loans in connection with the sale of properties (with
limitations as to percentage of sale price, rates of interest and
term). The Trust must maintain tangible net worth at the lesser of
$55,000 or 60% of the sum of total bank debt plus the aggregate amount
of all nonrecourse indebtedness incurred for borrowed money (as
defined). Total liabilities (excluding subordinated debt and any
nonrecourse indebtedness existing as of the date of the Agreement, or
assumed in connection with the exercise of remedies under a mortgage
loan) can not exceed two times the sum of tangible net worth plus
subordinated debt. The Agreement which matured on June 30, 1995 with
two, one year options based on satisfying certain ratios and principal
payments was extended by the Trust to June 30, 1996. The Trust is
required to make mandatory principal payments of $20,000 no later than
June 30, 1996. As of September 30, 1995, the June 30, 1996
requirement has been satisfied.
Upon execution of the Agreement, the Trust entered into a Cash
Collateral Agreement which establishes a cash collateral account with
the Agent Bank. This account is the repository of a portion of all
defined capital event proceeds and excess operating cash flow. The
funds in the cash collateral account are available to the Trust for
specific business purposes, including interest payments, capital
improvements to real estate owned, protection of mortgages receivable
and funding operating deficits. The cash collateral account which the
banks have a security interest in, is not restricted as to use other
than an amount equal to three months interest totaling $558 at
September 30, 1995. The Agent Bank is required to disburse funds (in
an amount not greater than an approved budget) from
F-15
<PAGE>
NOTE 5 - DEBT OBLIGATIONS (Continued)
the cash collateral account on requisition by the Trust as long as
there is no monetary default. To the extent the cash collateral
account exceeds $9,000 at the end of any month, or $10,000 within a
month, the Agent Bank may apply such excess to reduce principal.
Under the terms of the Agreement, 75% of capital event proceeds (as
defined) is to be applied to reduce principal. The balance of capital
event proceeds is to be deposited into the cash collateral account.
The Agreement also authorizes the Trust to maintain cash in operating
accounts up to $500. Any excess is to be deposited into the cash
collateral account at the end of each month. During the latter part
of Fiscal 1994, certain modifications were permitted by the banks
increasing the cash collateral account balance in order to pay for the
improvements required at the corporate center in Dover, Delaware (see
Note 3).
On December 4, 1992 the Trust's independent directors approved the
exchange of 1,030 $1.00 par value shares of newly issued, Series A
cumulative convertible preferred stock of the Trust to One Liberty
Properties, Inc. ("One Liberty"), a related party, for the
cancellation of a subordinated note with a remaining principal balance
of $3,375. On April 30, 1993, this exchange was approved by the
Trust's shareholders and on September 14, 1993 the exchange took
place. The preferred shares provide for cumulative annual dividends
of $.2622 per share, payable quarterly and are convertible into shares
of beneficial interest on a one-for-one basis, and have one vote per
share. In addition, the preferred shares may be redeemed in whole or
in part by the Trust, at its option, at prices ranging from $3.57 per
share in 1995 to $3.28 per share after July 1, 2001. The Trust has
agreed with the banks that it will not redeem such shares prior to
December 31, 1997. On January 19, 1995, One Liberty transferred the
1,030 shares of the convertible preferred stock of the Trust to Gould
Investors L.P. ("Gould"), a related party, as partial consideration in
a real estate transaction.
During the fiscal year ended September 30,1995, the Trust financed two
real estate owned properties, one of which is being held long term for
the production of income. The Trust borrowed an aggregate amount of
$19,250, $19,108 of which remained outstanding at September 30, 1995.
These mortgages payable bear interest at rates ranging from 7.83% to
8.07% per annum and mature October, 2000 to July, 2005. These
mortgages are secured by said real estate. Additionally, the Trust
has non-recourse mortgages payable on foreclosed property as of
September 30, 1995 and 1994 of $1,648 and $5,200, respectively. The
remaining non-recourse mortgage payable bears interest at a rate of
8.44% per annum, and matures November, 2000.
NOTE 6 - FEDERAL INCOME TAXES
Cumulative taxable loss since inception is less than cumulative loss
reported for financial statement purposes principally because a
substantial portion of the allowance for possible losses has not yet
been deducted for tax purposes.
The taxable loss is expected to be approximately $3,979 less than the
financial statement income during Calendar 1995.
F-16
<PAGE>
NOTE 6 - FEDERAL INCOME TAXES (CONTINUED)
At December 31, 1994, the Trust had available tax operating loss
carryforwards of $34,634 of which $2,469 will expire in 2005, $2,638
will expire in 2006, $13,605 will expire in 2007, $14,288 will expire
in 2008 and $1,634 will expire in 2009.
NOTE 7 - SHAREHOLDERS' EQUITY
DISTRIBUTIONS
There were no distributions on the Trust's shares of beneficial
interest declared during the years ended September 30, 1993, 1994 and
1995.
STOCK OPTIONS
On March 4, 1991 the Board of Trustees granted, under the 1988 Stock
Option Plan (Incentive/Nonstatutory Stock Option Plan) options to
purchase a total of 412,000 shares of beneficial interest at $3.50 per
share to a number of officers and employees of the Trust. On May 20,
1991 the Board of Trustees granted, also under the 1988 Stock Option
Plan, options to purchase a total of 50,000 shares of beneficial
interest at $3.625 per share to certain trustees of the Trust.
Options are exercisable at per share amounts at least equal to the
fair market value of the Trust's beneficial shares at the date of
grant. The options are cumulatively exercisable at the rate of 25%
per annum, commencing after six months, and expire five years after
the date of grant. A maximum of 500,000 shares of beneficial interest
were reserved for issuance under the 1988 Stock Option Plan, of which
53,000 remain available at September 30, 1995. At September 30, 1995
options to purchase 447,000 shares are exercisable.
Changes in the number of shares under all option arrangements are
summarized as follows:
<TABLE>
<CAPTION>
Year Ended September 30,
----------------------------
1995 1994 1993
------- -------- -------
<S> <C> <C> <C>
Outstanding at beginning of period 462,000 462,000 462,000
Granted - - -
Option price per share granted - - -
Cancelled 15,000 - -
Exercisable at end of period 447,000 449,500 334,000
Outstanding at end of period 447,000 462,000 462,000
Option prices per
share outstanding $3.50-$3.63 $3.50-$3.63 $3.50-$3.63
</TABLE>
F-17
<PAGE>
NOTE 8 - ADVISOR'S COMPENSATION AND CERTAIN TRANSACTIONS
Certain of the Trust's officers and trustees are also officers,
directors and shareholders of REIT Management Corp. ("REIT"), to
which the Trust pays advisory fees for administrative services and
investment advice. The agreement, which expires on December 31, 1999,
provides that directors and officers of REIT may serve as trustees,
officers and employees of the Trust, but shall not be compensated for
services rendered in such latter capacities. Advisory fees are
charged to operations at a rate of 1% on real estate loans and 1/2 of
1% on other invested assets. Advisory fees amounted to $777, $1,052
and $1,295 for the years ended September 30, 1995, 1994 and 1993,
respectively.
A company with the same shareholders as REIT manages certain
foreclosed properties for the Trust under renewable year-to-year
agreements. Management fees and leasing, selling and financing
commissions incurred for the years ended September 30, 1995, 1994 and
1993 aggregated $1,016, $617, and $706, respectively.
A law firm in which the partners are officers of the Trust, received
fees directly from borrowers of the Trust totalling approximately $17,
$67 and $95, for the years ended September 30, 1995, 1994 and 1993,
respectively. The Chairman and Vice Chairman of the Board of Trustees
of the Trust hold similar positions in One Liberty and are executive
officers of the managing general partner and are general partners of
Gould (Note 5). During the years ended September 30, 1995, 1994 and
1993, allocated general and administrative expenses charged to the
Trust by Gould aggregated $1,338, $1,264 and $1,283, respectively.
NOTE 9 - COMMITMENT
In August 1984, the Board of Trustees approved a non-contributory
pension plan covering eligible employees and officers. Contributions
by the Trust are made through a money purchase plan, based upon a
percent of qualified employees' total salaries. Pension expense
approximated $101, $100 and $113 during the years ended September 30,
1995, 1994 and 1993, respectively.
F-18
<PAGE>
NOTE 10 - QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Total
Oct.-Dec. Jan.-March April-June July-Sept. For Year
--------- ---------- ---------- ---------- --------
1995
----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues $ 6,470 $ 5,014 $ 4,237 $ 4,412 $ 20,133
Provision for
possible loan losses $ 1,021 $ - $ - $ - $ 1,021
Provision for valuation
adjustment $ - $ 178 $ - $ - $ 178
Net income $ 1,018 $ 720 $ 193 $ 1,043 $ 2,974
Per share $ .13 $ .09 $ .02 $ .13 $ .37(a)
1994
-----------------------------------------------------------------
Revenues $ 4,546 $ 5,633 $ 5,983 $ 5,875 $ 22,037
Provision for
possible loan losses $ 438 $ 952 $ - $ 2,950 $ 4,340
Provision for valuation
adjustment $ - $ - $ 993 $ - $ 993
Net income (loss) $ (2) $ 424 $ 793 $(1,020) $ 195
Per share $ (.01) $ .05 $ .10 $ (.15) $ (.01)(a)
</TABLE>
Per share earnings represent primary earnings per beneficial share.
(a) Calculated on weighted average shares outstanding for the fiscal
year.
F-19
<PAGE>
BRT REALTY TRUST
SCHEDULE XI - REAL ESTATE AND ACCUMULATED DEPRECIATION
SEPTEMBER 30, 1995
(Amounts in Thousands)
<TABLE>
<CAPTION>
Cost Capitalized Subsequent
Initial Cost to Company to Acquisition
------------------------------ -----------------------------
Building and Carrying
Description Encumbrances Land Improvements Improvements Costs
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Residential
Manhattan, NY $ 607 $ 2,853 $ 983 $ 86
Miscellaneous 929 3,714 89 0
Shopping Centers/Retail
Rock Springs, WY 1,648 600 2,483 137 28
Philadelphia, PA 10,000 3,075 11,160 510
Miscellaneous 418 33 25 40
Office
Manhattan, NY 987 3,948 644 33
Dover, DE 9,108 775 3,195 6,901
Fairway, Kansas 387 2,613
Miscellaneous 180 405 198
Improved Land
Miscellaneous 3,442
Unimproved Land
Miscellaneous 1,318 176
---------------------------------------------------------------------
TOTAL $ 20,756 $ 12,718 $ 30,404 $ 9,487 $ 363
---------------------------------------------------------------------
---------------------------------------------------------------------
(a)
<CAPTION>
Gross Amount at Which Carried at
September 30, 1995
Building and
Description Land Improvements Total
- -------------------------------------------------------------------
<S> <C> <C> <C>
Residential
Manhattan, NY $ 607 $ 3,922 $ 4,529
Miscellaneous 929 3,803 4,732
Shopping Centers/Retail
Rock Springs, WY 600 2,648 3,248
Philadelphia, PA 3,075 11,670 14,745
Miscellaneous 418 98 516
Office
Manhattan, NY 987 4,625 5,612
Dover, DE 775 10,096 10,871
Fairway, Kansas 387 2,613 3,000
Miscellaneous 180 603 783
Improved Land
Miscellaneous 3,442 3,442
Unimproved Land
Miscellaneous 1,494 1,494
--------------------------------------
TOTAL $ 12,894 $ 40,078 $ 52,972
--------------------------------------
--------------------------------------
(b)
<CAPTION>
Depreciation
Accumulated Life for Latest
Depreciation/ Date of Date Income
Description Amortization Construction Acquired Statement
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Residential
Manhattan, NY --- --- Apr-90 ---
Miscellaneous --- --- Various ---
Shopping Centers/Retail
Rock Springs, WY 113 --- Jan-92 21-35 Years
Philadelphia, PA 830 --- Apr-93 40 Years
Miscellaneous --- --- Various ---
Office
Manhattan, NY --- --- Sept-92 ---
Dover, DE --- --- Oct-93 ---
Fairway, Kansas --- --- Oct-95 ---
Miscellaneous --- --- Various ---
Improved Land
Miscellaneous --- --- Various ---
Unimproved Land
Miscellaneous --- --- Various ---
----------
TOTAL $ 943
----------
----------
(c) (d)
</TABLE>
S-1
<PAGE>
BRT REALTY TRUST
SCHEDULE XI - REAL ESTATE AND ACCUMULATED DEPRECIATION
SEPTEMBER 30, 1995
(Amounts in Thousands)
Notes to the schedule:
(a) With respect to residential apartment units acquired through foreclosure
which are subject to an offering for sale of units or cooperative shares,
the net effect of income and expenses is applied to the basis of the asset
to the extent that the realizable value is not exceeded. With respect to
the other operating properties, all operating income and expenses are
reflected in the consolidated Statement of Operations.
(b) Total foreclosed properties $ 52,972 (1)
Less: Accumulated depreciation/amortization 943
Valuation allowance 2,460
-----------
Net foreclosed properties $ 49,569
-----------
-----------
(1) For Federal income tax purposes, the aggregate cost of foreclosed
properties is approximately $40,000.
(c) Assets acquired through foreclosure which are held long term for the
production of income are depreciated, while those held for sale are not
depreciated.
(d) Information not readily obtainable.
(e) A reconciliation of real estate owned is as follows:
<TABLE>
<CAPTION>
Years Ended September 30,
1995 1994 1993
----------------------------
<S> <C> <C> <C>
Balance at beginning of year $52,076 $47,933 $35,574
Additions:
Foreclosures 5,310 17,745 19,532
Improvements 7,275 1,102 987
Carrying costs 487 562 723
Recognition of valuation allowance
upon sale of property 0 1,505 0
Recognition of valuation allowance
upon relinquishment of property 436 0 0
Other 0 0 5
----------------------------
65,584 68,847 56,821
----------------------------
Deductions:
Sales/conveyances 13,918 15,459 5,513
Relinquishment of real estate owned 1,441 0 0
Provision for valuation adjustment 178 993 3,229
Depreciation/amortization 478 319 146
----------------------------
16,015 16,771 8,888
----------------------------
Balance at end of year $49,569 $52,076 $47,933
----------------------------
----------------------------
</TABLE>
S-2
<PAGE>
BRT REALTY TRUST
SCHEDULE XII - MORTGAGE LOANS ON REAL ESTATE
SEPTEMBER 30, 1995
(Amounts in Thousands)
<TABLE>
<CAPTION>
Maturity
Description # of Loans Interest Rate Date Periodic Payment Terms
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
First mortgage loans:
Long Term:
Miscellaneous
$0-$699 38
Short Term:
Office Building - Brooklyn, NY 1 9.5% Dec-98 Interest monthly, principal at maturity
Retail - New York, NY 1 Prime + 2.0% Aug-96 Interest monthly, principal at maturity
Retail - Brooklyn, NY 1 9.0% Jan-98 Interest and principal monthly
Cooperative Apartments - Islip, NY 1 9.0% Oct-96 Interest monthly, principal at maturity
Secured Loan - Kansas City, MO 1 LIBOR + 1.5% Sept-96 Interest monthly, principal at maturity
Underlying Mortgage - Bronx, NY 1 6.0% Jan-2000 Interest monthly, principal at maturity
Office Building - Brooklyn, NY 1 Prime + 1.0% Jun-98 Interest monthly, principal at maturity
Industrial Building - Queens, NY 1 10.5% April - 97 Interest and principal monthly
Underlying Mortgage - Queens, NY 1 9.0% Aug-2002 Interest monthly, principal at maturity
Miscellaneous
$0-$399 12
$400-$999 9
$1,000-$1,276 2
Junior mortgage loans:
Shopping centers:
Retail - Garden City, NY 1 9.0% Open Interest monthly, principal at maturity
Shopping Center - Seattle, WA 1 Prime + 5.0% Open Interest monthly, principal at maturity
Miscellaneous
$0-$299 1
Office:
Miscellaneous
$0-$699 1
Residential:
Garden Apts. - Arlington, TX 1 Prime + 7.0% Oct-95 Interest monthly, principal at maturity
Garden Apts. - NJ 1 Prime + 5.0% Open Interest monthly, principal at maturity
Miscellaneous
$0-$1 1
Hotel:
Miscellaneous 1
Wraparound mortgages:
Miscellaneous
$0-$699 4
---------
82
---------
---------
<CAPTION>
Principal Amount of
Carrying Loans Subject to
Face Amount Amount of Delinquent Principal
Prior Liens of Mortgages Mortgages and Interest
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
First mortgage loans:
Long Term:
Miscellaneous
$0-$699
Short Term: $ -- $1,832 $1,821 $ --
Office Building - Brooklyn, NY -- 1,290 1,290 --
Retail - New York, NY -- 1,574 1,574 --
Retail - Brooklyn, NY -- 1,760 1,760 --
Cooperative Apartments - Islip, NY -- 2,150 2,150 --
Secured Loan - Kansas City, MO -- 2,288 1,788 --
Underlying Mortgage - Bronx, NY -- 2,835 2,200 --
Office Building - Brooklyn, NY -- 2,850 2,850 --
Industrial Building - Queens, NY -- 3,428 2,800 --
Underlying Mortgage - Queens, NY -- 9,236 9,236 --
Miscellaneous
$0-$399 -- 3,114 2,695 --
$400-$999 -- 5,976 5,550 648
$1,000-$1,276 -- 2,422 1,480 --
Junior mortgage loans:
Shopping centers:
Retail - Garden City, NY 3,500 1,286 0 1,286
Shopping Center - Seattle, WA 3,102 1,847 983 1,847
Miscellaneous
$0-$299 2,009 216 216 --
Office:
Miscellaneous
$0-$699 2,377 679 679 --
Residential:
Garden Apts. - Arlington, TX 2,450 1,739 1,739 --
Garden Apts. - NJ 38,519 1,918 0 1,918
Miscellaneous
$0-$1 9,000 1 1 --
Hotel:
Miscellaneous 12,000 1,000 0 1,000
Wraparound mortgages:
Miscellaneous
$0-$699 5,449 1,849 1,394 455
----------------------------------------------------------------
$78,406 $51,290 $42,206 $7,154
----------------------------------------------------------------
----------------------------------------------------------------
</TABLE>
S-3
<PAGE>
BRT REALTY TRUST
SCHEDULE XII - MORTGAGE LOANS ON REAL ESTATE
SEPTEMBER 30, 1995
(Amounts in Thousands)
Notes to the schedule:
(a) The following summary reconciles mortgages receivable at their carrying
values:
<TABLE>
<CAPTION>
September 30,
---------------------------------
1995 1994 1993
---------------------------------
<S> <C> <C> <C>
Balance at beginning of year $64,686 $99,466 $128,579
Additions:
Advances under real estate loans 498 944 2,779
Repayments to participating lenders 8,445 5,479 13,572
Capitalization of earned interest
income to loan balance in
accordance with agreements --- 13 24
Recognition of discount upon
premature payoff of real
estate loans --- 565 ---
Purchase money mortgages from
sale of real estate owned 4,243 6,242 1,030
Loan payable in conjunction with
partial funding of outstanding
commitment --- --- 2,000
Other --- --- 1
---------------------------------
77,872 112,709 147,985
---------------------------------
Deductions:
Collections of principal 29,285 28,041 26,709
Proceeds from participating lenders 50 --- 172
Provision for possible loan losses 1,021 4,340 3,111
Investments transferred to
foreclosed properties,
including in-substance
foreclosures, net 5,310 15,642 18,527
---------------------------------
35,666 48,023 48,519
---------------------------------
Balance at end of year $42,206 $64,686 $99,466
---------------------------------
---------------------------------
</TABLE>
(b) The aggregate cost of investments in mortgage loans is the same for
financial reporting purposes and Federal income tax purposes.
S-4
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND STATEMENT OF OPERATIONS AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000014846
<NAME> BRT REALTY TRUST
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-END> SEP-30-1995
<CASH> 7,385
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 104,428
<CURRENT-LIABILITIES> 0
<BONDS> 20,756
<COMMON> 22,614
0
1,030
<OTHER-SE> 34,084
<TOTAL-LIABILITY-AND-EQUITY> 104,428
<SALES> 0
<TOTAL-REVENUES> 20,133
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 17,159
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 2,974
<INCOME-TAX> 0
<INCOME-CONTINUING> 2,974
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,974
<EPS-PRIMARY> .37
<EPS-DILUTED> 0
</TABLE>
