SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d)
OF THE
SECURITIES EXCHANGE ACT OF 1934
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended September 30, 1998
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE
ACT OF 1934
Commission file number 1-7172
BRT REALTY TRUST
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(Exact name of registrant as specified in its charter)
Massachusetts 13-2755856
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(State or other jurisdiction (I.R.S. employer
of incorporation or organization) identification no.)
60 Cutter Mill Road, Great Neck, New York 11021
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(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:
Title of each class Name of each exchange on which registered
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Shares of Beneficial New York Stock Exchange
Interest, $3.00 Par Value
Securities registered pursuant to Section 12(g) of the Act:
NONE
(Title of Class)
Indicate by check mark whether the registrant (l) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in PART III of this Form 10-K or any
amendment to this Form 10-K [ ]
The aggregate market value of voting stock of the registrant held by
non-affiliates was approximately $21,205,000 as of December 1, 1998.
As of December 1, 1998 the registrant had 7,165,263 Shares of
Beneficial Interest outstanding (excluding treasury shares).
<PAGE>
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 28, 1999,
Beneficial Owners and Management except for
information
concerning executive
Item 13 - Certain Relationships and Related officers, which is
Transactions included in Part I.
PART IV - See Item 14.
<PAGE>
PART I
Item l. Business.
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General
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BRT Realty Trust ("BRT") is a real estate investment trust organized in
1972 under the laws of the Commonwealth of Massachusetts. Its primary business
activity is to originate and hold for investment for its own account, senior
real estate mortgage loans secured by income producing real property and, to a
lesser extent, junior real estate mortgage loans secured by income producing
real property and senior mortgage loans secured by undeveloped real property.
BRT emphasizes loans with terms ranging from six months to three years to
persons requiring short term funds for the acquisition of a property, for the
purchase (normally at a discount) of a mortgage applicable to a property owned
by the borrower, for rehabilitating a property or for converting a commercial
property to residential use. BRT does not finance new construction.
At September 30, 1998 BRT had $51,175,000 principal amount of loans
outstanding, 79% of which were secured by properties located in New York City,
Nassau, Suffolk and Westchester (New York) counties.
The major portion of the mortgage loans originated and held by BRT bear
interest at a floating rate related to the prime rate and the interest rate
adjusts when the prime rate changes. Since borrowings BRT makes under its
outstanding Credit Agreement (discussed below under the caption "Investment
Policy") are related to prime or Libor, BRT minimizes interest rate fluctuation
risks. Interest on mortgage loans held by BRT is payable monthly and BRT usually
holds escrows, also paid monthly, for real estate taxes. BRT receives an
origination fee on all mortgage loans it originates and an extension fee in
connection with the extension of most loans. These fees are paid at the time a
loan is funded or extended. Origination and extension fees are taken into income
over the life of the commitment and/or the loan. If a loan is not taken by the
borrower, the fee is recognized at the expiration of the commitment. A
non-refundable processing fee is received on substantially all commitments.
Commencing in April, 1998, BRT through BRT Funding Corp. (a
wholly-owned subsidiary) started originating longer term senior real estate
mortgage loans secured by income producing real property, primarily multi-family
properties. These loans provide for a fixed rate of interest, have an initial
five-year term and provide for amortization of principal over 20 to 25 years.
The borrower is usually afforded the option to extend the loan for an additional
five years. BRT Funding Corp. receives an origination fee and an additional fee
when the loan is extended. BRT is exploring certain options among which are
selling senior participations in these loans, or selling these loans entirely to
other institutions. At September 30, 1998 $8,156,000 principal amount of these
"conventional type" loans was outstanding representing approximately 16% of the
outstanding loan balance.
At September 30, 1998 BRT's mortgage portfolio consisted of 49 mortgage
loans totaling $49,134,000 in aggregate principal amount (net of allowances of
$2,041,000), representing 57% of BRT's total assets. At September 30, 1998 all
outstanding loans were on an earning basis. Of the principal amount of loans
outstanding at September 30, 1998, 96% represented first mortgage loans and 4%
(2 loans) represented second mortgage and wrap-around loans. Substantially all
of the mortgage loans originated by BRT in the year ended September 30, 1998
were first mortgage loans.
<PAGE>
In the year ended September 30, 1998, in addition to originating
mortgage loans, BRT was engaged in managing its loan portfolio, supervising and
maintaining real estate owned by BRT (real estate acquired by BRT in foreclosure
actions or by deed in lieu of foreclosure) and leasing and selling real estate
owned. Approximately, 20% of BRT's total assets at year ended September 30, 1998
or an aggregate of $16,886,000 (after valuation allowances) was represented by
real estate assets. Approximately 15% of the BRT's net investment assets (either
mortgages or real estate assets) related to cooperative apartments at September
30, 1998.
With respect to real estate which BRT has taken back in foreclosure or
deed in lieu thereof, it is BRT's policy to offer for sale all such real estate
at prices which management believes represents fair value in the geographical
area in which the property is located. If BRT'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 may seek first mortgage financing secured by
that specific parcel of real estate. In many instances, BRT, through an
independent contractor, has caused a property to be renovated, engaged in
leasing activities, negotiated and completed the sale of real estate owned, (if
the selling price is deemed acceptable by management) and provided purchase
money financing in connection with the sale of real estate owned.
In the year ended September 30, 1998 BRT disposed of real estate, other
than cooperative apartments, having an aggregate net book value of $3,442,000,
for an aggregate consideration of $5,809,000 resulting in a gain on sale of
$2,367,000. During the year ended September 30, 1998 BRT sold shares (and
assigned the related proprietary leases) in cooperative apartments resulting in
net proceeds of approximately $2,279,000. In the year ended September 30, 1998,
BRT sold to an unrelated lending institution, on a non-recourse basis, its
portfolio of mortgages receivable taken back in connection with the sale of
cooperative apartments. The sale of these mortgages receivable, aggregating
$1,542,000, resulted in a gain to BRT of $49,000.
Investment Policy
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BRT's current investment policy emphasizes short-term senior real
estate mortgage loans secured by first liens on income producing real property.
Commencing in April, 1998, BRT expanded its investment policy by originating
conventional senior real estate loans secured by income producing real property,
primarily multi-family residential properties. From time-to-time, BRT will make
a junior real estate loan secured by income producing real property and senior
real estate mortgage loans secured by undeveloped real property. Junior mortgage
loans are subordinate to one or more prior liens. Junior mortgage loans may be
wrap-around loans which are subject to prior underlying mortgage indebtedness.
In the case of a wrap-around mortgage loan, the principal amount on which
interest payable is calculated is the outstanding balance under the prior
existing mortgage loan plus the amount actually advanced under the wrap-around
loan. The terms of a wrap-around loan normally requires that a borrower make
principal and interest payments directly to BRT and BRT in turn pays the holder
of the prior mortgage loan. It is not the present intent of BRT's management to
cause BRT to invest in any mortgages secured by property located outside the
United States and Puerto Rico.
<PAGE>
BRT has no fixed policy or limitation upon the amount or percentage of
its assets which it may invest in a single mortgage loan. However, as a general
business practice, BRT does not make loans to one borrower where the amount
involved exceeds 10% of BRT's total assets. During the year ended September 30,
1998 the average loan originated was approximately $1,300,000.
Loan approvals are based on a review of a loan application that is
prepared and submitted by the borrower, site visits to the property by at least
one of the officers of BRT or BRT Funding Corp., a title review of the
underlying property, in-house property appraisals, a review of the financial
statements of a prospective borrower, an engineering inspection, a Phase I
environmental report, and final approval by a loan committee made up of the
executive officers of BRT. BRT does not require a property appraisal by an
independent appraiser.
BRT uses its own capital for investing in mortgage loans. In addition
it has arranged a credit facility to make funds available for real estate
mortgage lending. In October 1996 BRT entered into a revolving credit facility
with Credit Suisse First Boston Mortgage Capital LLC., which provides that BRT
may borrow a maximum of $25,000,000 on a revolving basis, i.e., funds can be
borrowed, repaid and borrowed again. The credit facility matured October 17,
1998 and BRT pursuant to the terms of the Credit Agreement extended the loan for
a six month period, upon the payment of a 1/4 of 1% ($62,500) extension fee. BRT
has the right to extend the Credit Agreement for an additional six months on
30-days prior notice and the payment of an additional extension fee of 1/4 of
1%. No new borrowings may be made during the second extension period. BRT has
the right to reduce the availability under the Credit Agreement to $15,000,000
and First Boston has the right to lower the commitment to $20,000,000 under
limited circumstances.
BRT pays a commitment fee under the credit facility of 1/2 of 1% of the
difference between the daily average outstanding loan balance and the commitment
amount. If the loan balance is less than $14,000,000, $2,084 per month is added
to the commitment fee. Borrowings under the Credit Agreement bear interest at
the lower of Libor plus 3% or prime plus 1%, adjusted monthly. The loan is
collateralized by specific receivables and BRT's equity in specific real
property and the loan amount can never exceed 75% of the agreed upon collateral
amount. At any time, BRT can substitute collateral for pledged collateral. The
loan amount available at September 30, 1998 was $19,500,000. Most of BRT's
subsidiaries have guaranteed the loan. BRT is required to maintain a $50,000,000
tangible net worth and the Credit Agreement also provides that its net worth
minus the net worth of any non-guaranteeing subsidiary must exceed $40,000,000.
The Credit Agreement prohibits BRT from obtaining recourse financing but it is
permitted to obtain non-recourse mortgage financing.
As of September 30, 1998 there was $5,500,000 outstanding under the
Credit Agreement.
<PAGE>
The mortgage loans which BRT originates are not ordinarily insured or
guaranteed. BRT will obtain a guarantee or "walk-away guarantee" from the
principal or principals of the borrower for most loans originated. A "walk-away
guarantee" provides in substance that the guarantee of the guarantor terminates
if the borrower conveys the property to BRT, provided that at the time of
conveyance interest and amortization payments to BRT are current, real estate
taxes are current and outstanding bills related to the property's operations are
current. The "walk-away guarantee" is intended to provide an incentive to the
principal of a borrower to deed a property to BRT, thereby eliminating the need
for a foreclosure, in situations in which the borrower is not financially able
or capable of operating the property and runs the risk of losing the property in
a foreclosure.
In the event of a default by the borrower on a mortgage loan, BRT will
have to foreclose the mortgage or protect its investment through negotiations
with the borrower and or other interested parties which may involve further cash
outlays. During a mortgage foreclosure proceeding BRT will usually not receive
interest payments under its mortgage. Foreclosure proceedings in certain
jurisdictions, including New York State, can take a considerable period of time
(up to two years in many instances). In addition, if the borrower files for
protection under the federal bankruptcy laws during the foreclosure process,
delays may be greater than two years. In the usual foreclosure proceeding, BRT
will seek to have a receiver appointed by the Court to preserve the rental
income stream and the maintenance of the property. At the conclusion of the
foreclosure process (after the property is sold at auction to a third party
purchaser or acquired by BRT) the amounts collected by the receiver, less costs
and expenses of operating the property and the receiver's fees, are paid over to
BRT. During the year ended September 30, 1998 there were no foreclosure
proceedings commenced or pending.
The mortgages securing BRT's mortgage loans may in certain
circumstances be subordinate to mechanics' liens or governmental liens and in
instances in which BRT invests in junior mortgage loans or wrap-around loans to
liens of senior mortgages. At September 30, 1998 approximately 4% of BRT's real
estate mortgages were represented by junior or wrap-around mortgage loans. In
the event the underlying asset value is not sufficient to satisfy both the
senior and junior lienholder, the junior lienholder could lose all or a portion
of its investment. In certain cases, BRT may find it advisable to make
additional payments in order to maintain the current status of prior liens or to
discharge them entirely or to make working capital advances to support current
operations. It is possible that the total amount which may be recovered in cases
in which BRT holds a junior lien may be less than its total investment less
allowances for possible losses.
Current Loan Status
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As of September 30, 1998 BRT had 49 mortgage loans in its mortgage portfolio,
totaling $51,175,000 in aggregate principal amount and $49,134,000 after
allowances for possible losses. During the year ended September 30, 1998
$31,716,000 of mortgage loans were originated and $20,491,000 of outstanding
loans were repaid. The three largest mortgage loans outstanding, at September
30, 1998 represent 3.7%, 3.6%, and 3.6%, respectively of the BRT's total assets.
No other mortgage loan accounted for more than 3% of BRT's total assets at
September 30, 1998.
<PAGE>
Information regarding BRT's mortgage loans outstanding at September 30, 1998:
No.
Prior of
Total(1) Liens Loans
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(Amounts in thousands)
First Mortgage Loans:
Long-term:
Residential 11,117 14
Shopping centers 3,487 4
Hotel 750 1
Short-term (five years or less):
Shopping centers/retail 8,856 9
Industrial buildings 7,593 3
Office buildings 7,351 4
Residential 8,756 10
(multiple family units)
Hotel 1,008 1
Miscellaneous 242 1
Second Mortgage Loans
and wraparound mortgages 2,015 9,334 2
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51,175 9,334 49
(1) All loans outstanding at September 30, 1998 were earning interest.
At the year ended September 30, 1998 BRT had an allowance for possible
losses on its real estate mortgage loans of $2,041,000 compared to an allowance
of $5,956,000 at September 30, 1997. In determining the allowance for possible
loan losses, BRT 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. BRT also takes
into account the extent of liquidity in the real estate industry, particularly
in the New York metropolitan area, where approximately 79% of the portfolio is
located. Management reviews the loan portfolio on a quarterly basis to determine
if allowances are needed.
When a mortgage loan is in default, BRT may acquire the underlying
property through foreclosure or may take other legal action as is necessary to
protect its investment. In negotiated workouts BRT 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 Assets
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The only significant real property owned by BRT (significant meaning a
property with a book value amounting to 10% or more of total assets) at
September 30, 1998 was the following property located in Dover, Delaware:
A 474,000 square foot enclosed facility (formerly a shopping mall)
owned in fee, containing a combination of both office and retail space located
on approximately 58 acres. The total site contains approximately 90 acres. The
property is located on Route 113 approximately two miles from the Delaware state
capital complex. In addition to the enclosed facility there are five free
standing buildings on the property containing approximately 55,000 square feet
of rentable space. BRT has converted the two "anchor" locations at this center
to office space and has entered into a 10 year lease expiring December 31, 2004
(with options to renew totaling ten years) with a major insurance company for
approximately 68,613 square feet of space, and a 10 year lease expiring March
31, 2005 (with options to renew totaling ten years) with a major bank for 79,000
square feet of space. Each of the two tenants at the "anchor" locations has an
option to expand their space and a right to early termination. If the insurance
company exercises its early termination right, which it can do at any time, the
tenant must pay to BRT an amount equal to the rentals due to the lease
expiration date, discounted to present value. The bank has an early termination
right, during its sixth lease year. If the bank exercises its early termination
right, it must pay to BRT a specified termination fee. No other tenant occupies
ten percent or more of the rentable space at this facility. Although BRT does
not have any specific proposal or plans to renovate, improve or develop the
property, it will construct a new building on the property or renovate mall
space at the property in order to lease to a qualified tenant. Tenants occupying
outparcels at the property include an automotive center, a day care center, the
Delaware National Guard and a credit union. There is no major retail tenant at
the property.
In the opinion of management the property is adequately covered by
insurance.
The occupancy rate of this property (including the five free standing
buildings) since BRT acquired title in October 1993 and the effective annual
rental per square foot is as follows:
Fiscal Year End Base Rental per
September 30, Occupancy Rate square foot occupied
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1994 (from Oct. 1993) 38% $5.07
1995 53% $5.08
1996 63% $6.38
1997 66% $5.61
1998 63% $6.56
The schedule of lease expirations for each of the next ten fiscal years
for this property (including the five outparcels) is as follows:
Fiscal year ended # of Tenants whose Total Area Annual Base %of Gross Annual
September 30, leases expire* Covered Rental Base Rental
------------- -------------- ------- ------ -----------
1999 18 42,997 $276,322 15.1
2000 12 42,016 528,771 28.9
2001 3 6,025 67,708 3.7
2002 2 3,700 20,000 1.1
2003 3 26,919 142,297 7.8
2004 1 4,990 58,028 3.2
2005 2 147,613 699,589 38.2
2006 0 - - -
2007 0 - - -
2008 0 - - -
*All information provided assumes that the two major anchor tenants who
occupy a total of 147,613 square feet do not exercise their right to terminate
prior to lease expiration. The fiscal year ended September 30, 1999 includes all
month to month tenants and tenants occupying space under short term leases. BRT
has converted many tenants to month to month tenancies and entered into short
term leases to provide it with the flexibility to assemble large blocks of space
for larger users of space.
BRT is actively marketing this property and has signed an exclusive
agreement with a national real estate brokerage firm to sell this property.
Accordingly, this property is held for sale and is not being depreciated for
accounting purposes.
The realty tax rate in Dover is based on applying four mil rates to the
assessed valuation. Real estate taxes with respect to this property were
$135,000 for the last tax year.
In July 1995 two separate but related 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 building occupied by the insurance
company (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 facility leased
to the bank. Both loans are cross collateralized and are secured by a mortgage
on the balance of the enclosed portion of the property. The loans mature on July
1, 2005, provide for a fixed interest rate of 8.07% and provide an amortization
schedule intended to fully amortize the loan over the ten year period. The
principal balance due on these mortgages at September 30, 1998 was $7,424,000.
BRT may prepay this mortgage loan, in full or in part at any time provided that
BRT pays a prepayment premium calculated to give the Lender a specified yield to
maturity (discounted to present value).
The following sets forth information concerning other real estate owned
by BRT (such real estate not being significant) as of September 30, 1998:
Rock Springs, Wyoming
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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. BRT holds a leasehold
interest in this property subject to a first leasehold mortgage which matures on
November 1, 2000 and provides for interest at the rate of 8.44% per annum. At
September 30, 1998 there was a principal balance of $1,070,000 due on the
leasehold mortgage and on the maturity date there will be $548,000 due thereon.
The retail space was approximately 99% occupied and the office space was
approximately 77% occupied at September 30, 1998.
Cooperative Apartment Units
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At September 30, 1998, BRT owned 106 cooperative apartment units having
a book value of $1,769,000 in 3 separate projects: one containing 5 units
located in Nassau County, one containing 100 units located in Manhattan, and 1
unit located in Suffolk County, New York. Since the market for the sale of
cooperative apartment units in New York City and Long Island has been very
competitive, BRT's policy has been to lease the units owned by it with a number
of selective units being held vacant for sale. At September 30, 1998, 93% of the
units were occupied. During the year ended September 30, 1998 the sales market
for cooperative units in the New York metropolitan area improved significantly
and in the year ended September 30, 1998 BRT sold 413 cooperative apartment
units, including the sale in bulk of 386 units.
<PAGE>
Competition
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With respect to it's real estate lending activities, BRT competes for
acceptable investments with other REITs, commercial banks, savings and loan
associations, conduits, pension funds and mortgage banking firms. Competition
for mortgage loans is highly competitive, with lenders competing on rate, fees,
term and service. With respect to real estate acquired by foreclosure and held
for sale, BRT competes for tenants and potential purchasers of such properties
with owners of comparable real property in the areas in which the properties are
located. With respect to the cooperative units owned by BRT, there is a great
deal of competition for purchasers and, pending the sale of cooperative units,
substantially all the units are rented for terms of up to two years, although it
is noted that the market for sale of cooperative apartment units improved
significantly in 1998. At present, the apartment rental market in the areas in
which BRT owns cooperative apartments is satisfactory.
Employees
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BRT has 10 full-time employees, of which seven are engaged primarily in
loan origination activities. In addition, it has entered into an agreement with
REIT Management Corp. pursuant to which REIT Management acts as its advisor. At
the present time, REIT Management, subject to supervision of BRT's Board of
Trustees, administers BRT's portfolio of mortgages receivables, engages in
negotiations in workout situations with respect to non-earning and delinquent
loans and supervises and provides support services in litigation activities.
REIT Management also supervises the maintenance, leasing, sale and/or financing
of real estate owned by BRT. In addition, REIT Management participates in
originating, investigating and evaluating investment opportunities. Reference is
made to BRT's Proxy Statement to be filed pursuant to Regulation 14A for
information concerning the amount and method of computing REIT Management's fee.
In the years ended September 30, 1998 and 1997, BRT engaged entities,
including entities affiliated with REIT Management, to manage properties
acquired by BRT 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
Management and entities affiliated with REIT Management are competitive with or
less than fees that would be charged for comparable services by unrelated
entities. The management services diminished significantly from the fiscal year
ended September 30, 1997 to the fiscal year ended September 30, 1998 as BRT
disposed of properties and cooperative apartments that it acquired in
foreclosure or by deed in lieu of foreclosure during the years 1990 to 1993.
<PAGE>
EXECUTIVE OFFICERS OF REGISTRANT
--------------------------------
The following sets forth the executive officers of BRT. The business
history of officers who are also Trustees will be provided in BRT's proxy
statement to be filed pursuant to Regulation 14A not later than January 28,
1999.
Name Office
- ---- ------
Fredric H. Gould (*) Chairman of the Board and
Chief Executive Officer
Jeffrey A. Gould (*) President
Simeon Brinberg Senior Vice President;
Secretary
Eugene J. Keely Vice President
Matthew J. Gould (*) Senior Vice President
David W. Kalish Senior Vice President, Finance
George E. Zweier Vice President, Chief Financial Officer
Mark H. Lundy Vice President
Joshua D. Gleiber Vice President
Seth Kobay Vice President; Treasurer
(*)Fredric H. Gould is Jeffrey A. and Matthew J. Gould's father.
Simeon Brinberg (age 65), has been Secretary of BRT 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., the managing general
partner of Gould Investors L.P. Gould Investors L.P. is primarily engaged in the
ownership and operation of real estate properties held for investment. In June,
1989 he became a Vice President of One Liberty Properties, Inc., a real estate
investment trust engaged in the ownership of "net leased" real property. Mr.
Brinberg is a director of Witco Corporation.
Eugene J. Keely (age 63) has been a Vice President of BRT since May
1983.
<PAGE>
Matthew J. Gould (age 39) has been President and Chief Operating
Officer of One Liberty Properties, Inc. since June, 1989. He has been a Vice
President of BRT since 1986 and became a Senior Vice President in March 1993. He
is President of Georgetown Partners, Inc. since March 1996 and was a Vice
President from 1986 to 1996. In addition, Mr Gould has been a Vice President of
REIT Management Corp., BRT's advisor, 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 51) was Vice President and Chief Financial Officer of
BRT from June, 1990 until August, 1998. Since August, 1998, Mr. Kalish has been
Senior Vice President, Finance of BRT. 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 to June, 1990, Mr. Kalish, a
certified public accountant, was a partner of Buchbinder Tunick & Company, and
its predecessors.
George E. Zweier (age 34) has been employed by BRT since June 1998 and
was elected Vice President, Chief Financial Officer in August, 1998. For
approximately five years prior to joining BRT, Mr. Zweier, a certified public
accountant, was an accounting officer with the Bank of Tokyo - Mitsubishi
Limited, in New York and for more than five years prior hereto he was an
accounting and audit officer with the Dime Savings Bank of New York, Uniondale,
New York.
Mark H. Lundy (age 36) has been a Vice President of BRT since 1993. He has
been Secretary of One Liberty Properties, Inc. since June, 1993 and a Vice
President of Georgetown Partners, Inc. since July, 1990. Mr. Lundy is a member
of the bars of New York and Washington, D.C.
Joshua D. Gleiber (age 31) has been a Vice President of BRT since March
1996. From October 1991 to February 1996 Mr. Gleiber was employed by Euram
Management Inc., a subsidiary of ABN AMRO Bank N.V., engaged in asset management
of its commercial real estate owned portfolio.
Seth Kobay (age 44) has been Vice President and Treasurer of BRT since
March 1994. In addition, Mr. Kobay, a certified public accountant, has been the
Vice President of Operations of Georgetown Partners, Inc. for more than the past
five years.
<PAGE>
Item 2. Properties.
-----------
BRT's executive offices are located at 60 Cutter Mill Road, Great Neck,
New York, where it currently occupies approximately 12,000 square feet with
Gould Investors L.P., REIT Management Corp., One Liberty Properties, Inc. and
other related entities and an additional 1,762 square feet which is occupied by
BRT Funding Corp., BRT's wholly-owned subsidiary. The building is owned by an
affiliate of Gould Investors L.P. BRT contributed $71,000 to the annual rent of
$287,000 paid by Gould Investors L.P., REIT Management Corp., One Liberty
Properties, Inc., and related entities in the year ended September 30, 1998 and
paid direct rental of $33,000 on the additional 1,762 square feet BRT Funding
Corp. occupied from April 1, 1998 to the September 30, 1998.
For a description of real estate acquired by BRT in foreclosure, see
Item 1, Business; Real Estate Assets.
Item 3. Legal Proceedings.
------------------
BRT 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 year
ended September 30, 1998 to a vote of BRT's security holders.
<PAGE>
PART II
Item 5. Market for the Registrant's Common Equity and Related Matters
-------------------------------------------------------------
The shares of Beneficial Interest ("Beneficial Shares") of BRT are
listed on the New York Stock Exchange. The following table shows for the
quarters indicated, the high and low sales prices of the Beneficial Shares on
the New York Stock Exchange as reported on the Composite Tape.
Fiscal Year Ended September 30, High Low
------------------------------- ---- ---
1998
----
First Quarter 9 1/8 7 11/16
Second Quarter 8 5/8 7 5/8
Third Quarter 7 7/8 6 13/16
Fourth Quarter 8 3/8 5 13/16
1997
----
First Quarter 6 5/8 5 7/8
Second Quarter 7 7/8 6 3/8
Third Quarter 7 3/4 6 5/8
Fourth Quarter 9 3/16 7 1/8
As of December 1, 1998 there were approximately 1,303 holders of record
of BRT's Beneficial Shares.
BRT did not declare any cash distributions to common shareholders
during the years ended September 30, 1997 and 1998.
BRT 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 BRT will not be required to make cash
distributions to maintain its real estate investment trust status until its
accumulated tax losses have been fully used or shall expire. Management does not
expect that accumulated tax losses ($30,893 at December 31, 1997 and estimated
to be $21,800 at December 31, 1998) will be fully used prior to the fiscal year
ended September 30, 2000 and they do not begin to expire until 2006. The
resumption of cash distributions and the amount and timing of future
distributions, if any, will be at the discretion of the Board of Trustees and
will depend upon BRT's financial condition, earnings, business plan, cash flow
and other factors. The credit agreement with First Boston provides that prior to
payment of cash distributions on Beneficial Shares advance notice must be given
to First Boston and BRT must certify that payment of such distributions will not
breach BRT's net worth covenant.
<PAGE>
Item 6. Selected Financial Information
------------------------------
The following table, not covered by the report of the independent
auditors, sets forth selected historical financial data of BRT for each of the
fiscal periods in the five years ended September 30, 1998. This table should be
read in conjunction with the detailed information and financial statements of
BRT appearing elsewhere herein.
<TABLE>
<CAPTION>
Fiscal Years Ended
September 30,
--------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
(In thousands, except for per share amounts)
<S> <C> <C> <C> <C> <C>
Operating statement data:
Total revenues $10,197 $17,155 $13,556 $16,637 $20,530
Provision for possible
loan losses - - - 1,021 4,340
Provision for
valuation adjustment - - - 178 993
Income (loss) before
gain on sale of foreclosed
properties held for sale and
available-for-sale securities 4,241 6,646 1,776 (522) (1,312)
Net income 13,588 7,333 2,246 2,974 195
Calculation of net income
applicable to common
shareholders:
Net income 13,588 7,333 2,246 2,974 195
Less: distributions
on preferred shares - - 203 270 270
Net income (loss)
applicable to common
shareholders 13,588 7,333 2,043 2,704 (75)
Income (loss) per
beneficial share:
Basic 1.72 .86 .26 .37 (.01)
Diluted 1.71 .86 .26 .35 (.01)
Balance sheet data:
Total assets 85,821 80,315 89,613 104,515 131,467
Earning real
estate loans (1) 51,175 40,030 32,813 43,456 67,156
Non-earning real
estate loans (1) - 3,835 5,905 7,154 10,268
Real estate assets (1) 17,235 24,706 48,438 53,389 55,376
Notes payable-credit
facility 5,500 - - 22,900 66,192
Loans and mortgages
Payable 8,494 11,562 25,391 20,756 6,671
Shareholders' equity 69,747 66,537 60,892 57,728 55,024
(1) Earning and non-earning loans and real estate owned are presented without
deduction of the related allowance for possible losses or valuation allowance.
</TABLE>
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Liquidity and Capital Resources
BRT engages in the business of originating and holding for
investment senior real estate mortgages, secured by income producing property
and to a lesser extent junior real estate mortgage loans secured by income
producing property and senior mortgage loans secured by unimproved real
property. It's investment policy emphasizes short-term mortgage loans.
Repayments of real estate loans in the amount of $33,314,000 are due during the
twelve months ending September 30, 1999, including $3,070,000 of which is due on
demand. The availability of mortgage financing secured by real property and the
market for selling real estate is cyclical and presently the mortgage market is
in an uncertain state and the market for selling real estate does not appear to
be as active or as positive as it was in the prior year or two. Accordingly, BRT
cannot project the portion of loans maturing during the next twelve months which
will be paid or the portion of loans which will be extended for a fixed term or
on a month to month basis.
In October 1996 BRT entered into a $25,000,000 revolving credit
facility with Credit Suisse First Boston Mortgage Capital LLC. Interest is
charged on the outstanding principal balance at the lower of prime plus 1% or
Libor plus 3% adjusted monthly and matured on October 17, 1998. BRT extended the
facility to April 17, 1999, with a payment of $62,500, and has the right to
extend the facility for one additional six-month period for a fee of .25%. BRT
intends to extend the credit facility to October 17, 1999. The funds borrowed
under this facility can be used for any corporate purpose, the primary of which
is lending. Borrowings under the credit facility are secured by specific
receivables and real estate assets held by BRT, and the credit agreement
provides that the loan amount will never exceed 75% of the agreed value of the
collateral. There was $5,500,000 outstanding under the credit facility at
September 30, 1998. BRT intends to repay the amount due under the credit
agreement on October 17, 1999 from a combination of cash generated from
operations, loan repayments and if necessary, from the sale of mortgage
receivables, and unsecured or secured borrowings. BRT's cash position at
September 30, 1998 was more than adequate to repay the outstanding balance.
During the twelve months ended September 30, 1998, BRT generated
cash of $3,821,000 from operating activities, $11,385,000 from the sale of real
estate owned, $24,233,000 from collections from real estate loans and $5,500,000
from borrowings under the First Boston credit facility. These funds in addition
to cash on hand, were used primarily to fund real estate loans of $31,716,000,
to payoff mortgages payable on real estate sold of $3,068,000, and to purchase
1,205,000 shares of beneficial interest of BRT at an approximate aggregate cost
of $10,433,000.
There will be no effect on BRT's liquidity relating to the year 2000
issue because during the last quarter of the 1997 fiscal year BRT acquired
computer hardware and software to process its accounting and real estate
management information. This computer software is capable of handling all issues
relating to the year 2000. BRT has also reviewed the impact of the failure of
its tenants or suppliers to be year 2000 compliant. Based upon its review and
the nature of BRT's business, the inability of its tenants and/or suppliers to
be year 2000 compliant will not have a material, adverse effect on BRT's
business.
BRT will satisfy its liquidity needs in the year ended September 30,
1999 from cash and liquid investments on hand, the credit facility with First
Boston, interest and principal payments received on outstanding real estate
loans and net cash flow generated from the operation and sale of real estate
assets.
<PAGE>
Results of Operations
- ---------------------
1998 vs. 1997
- -------------
Interest and fees on real estate loans increased to $5,267,000 for
the year ended September 30, 1998 as compared to $4,877,000 for the year ended
September 30, 1997. The increase of $390,000 was a result of interest earned on
the origination of new loans and an increase in fees generated on these new
loans. Payoffs and paydowns of various earning real estate loans offset these
increases
Operating income on real estate assets decreased by $4,486,000 to
$4,104,000 for fiscal 1998 from $8,590,000 in the prior fiscal year. This
decrease was the result of the loss of rental income upon the sale of properties
during the fiscal year. In fiscal 1998 BRT sold three real estate properties.
The 1997 fiscal year was favorably affected by revenues of
$3,405,000 recognized from the recovery of previously provided allowances and
write offs. There were no comparable revenue items in 1998.
Other revenues, primarily investment income increased by $543,000 to
$826,000 for the year ended September 30, 1998. This increase is primarily the
result of higher average balances of cash and investments during the year.
Interest expense on notes and loans payable increased by $27,000
from $150,000 for the year ended September 30, 1997 to $177,000 for fiscal 1998.
This increase was a direct result of the use of the credit facility towards the
end fiscal 1998.
The Advisor's fee decreased to $519,000 for fiscal 1998 from
$559,000 for fiscal 1997, a decrease of $40,000. 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 increased by $273,000 from
$2,256,000 for the fiscal year ended September 30, 1997 to $2,529,000 for the
fiscal year ended September 30, 1998. This increase is primarily the result of
expenses incurred in the operations of the new subsidiary, BRT Funding Corp.,
primarily salaries for new employees.
Operating expenses relating to real estate assets decreased to
$2,374,000 for fiscal 1998 from $6,732,000 for the fiscal year ended September
30, 1997 a decrease of $4,358,000. This decrease was a result of the sale of
foreclosed properties during the 1998 fiscal year.
Depreciation and amortization decreased by $455,000 for the fiscal
year ended September 30, 1998. This decrease was a direct result of the
amortization of the remaining deferred mortgage costs associated with the sale
of various real estate assets in fiscal 1997.
Gain on sale of foreclosed properties and mortgage loans for fiscal
1998 was $8,090,000 as compared to $687,000 during fiscal 1997. It is the policy
of BRT to offer for sale all foreclosed property at prices which management
believes represents fair value in the geographic area in which the property is
located. Gain on sale of available-for-sale securities was $1,257,000 for fiscal
1998. There was no comparable gain in fiscal 1997.
<PAGE>
1997 vs. 1996
- -------------
Interest and fees on real estate loans increased to $4,877,000 for
the year ended September 30, 1997 as compared to $4,516,000 for the year ended
September 30, 1996. The increase of $361,000 was primarily a result of interest
earned on the origination of new loans and the receipt of additional interest
during the first half of fiscal 1997 of approximately $486,000 upon the payoff
of two loans, one of which was non-earning. Payoffs and pay-downs of various
earning real estate loans offset these increases.
Operating income on real estate assets decreased by $95,000 to
$8,590,000 for fiscal 1997 from $8,685,000 for the the prior fiscal year. This
decrease was the result of the loss of rental income upon the sale of properties
offset in part by an increase in occupancy and rental rates at various
properties and the receipt of a real estate tax refund of approximately $106,000
on one property as a result of a successful tax appeal.
During fiscal year ended September 30, 1997 BRT reversed previously
provided allowances of $1,300,000 upon the payoff in full of two real estate
loans and realized $2,105,000 from previously written off provisions. There were
no comparable transactions during Fiscal 1996.
Interest expense on notes and loans payable decreased by $984,000
from $1,134,000 for the year ended September 30, 1996 to $150,000 for fiscal
1997. This decrease was a direct result of the continued reduction and the
eventual payoff in August 1996 of the outstanding debt under a restated credit
agreement.
The Advisor's fee decreased to $559,000 for fiscal 1997 from
$615,000 for fiscal 1996, a decrease of $56,000. 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 by $410,000 from
$2,666,000 for the fiscal year ended September 30, 1996 to $2,256,000 for the
fiscal year ended September 30, 1997. This decrease is primarily the result of
the recognition during fiscal 1996 of approximately $187,000 of additional
legal, accounting and investment-banking expenses incurred in connection with a
potential transaction, which did not proceed beyond the negotiation stage. There
was also a reduction in BRT's general overhead expenses.
Operating expenses relating to real estate assets decreased to
$6,732,000 for fiscal 1997 from $6,937,000 for the fiscal year ended September
30, 1996 a decrease of $205,000. This decrease was primarily a result of the
sale of foreclosed properties.
Depreciation and amortization increased by $384,000 for the fiscal
year ended September 30, 1997. This increase was a direct result of the
amortization of the remaining deferred mortgage costs associated with the sale
of various real estate assets.
Gain on sale of foreclosed properties for fiscal 1997 was $687,000
as compared to $470,000 during fiscal 1996. It is the policy of BRT to offer for
sale all foreclosed property at prices which management believes represents fair
value in the geographic area in which the property is located.
<PAGE>
Accounting Changes
- ------------------
BRT has not completed its assessment of the impact the changes
required under FASB Statement No. 131 will have for disclosing industry
segments, the number of reportable segments or the way existing segments are
defined. BRT does not believe that the implementation of Statement No. 131 will
have a material impact on its financial statements.
Item 7A - Market Risk Disclosure
----------------------
BRT has considered the effects of derivatives and exposures to market
risk relating to interest rate, foreign currency exchange rate, commodity price
and equity price risk. BRT has assessed the market risk for its variable rate
debt and variable rate mortgage receivables and believes that a one-percent
change in interest rates would have a $55,000 and $430,000 effect, respectively
on income before taxes.
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 BRT's proxy statement to be filed
pursuant to Regulation 14A not later than January 28, 1999.
<PAGE>
F-28
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 BRT 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 BRT dated August 20, 1986. Incorporated
by reference to BRT's Registration Statement on Form
S-2 (No. 33-8125).
3(c). Second Amendment to Second Amended and Restated
Declaration of BRT dated March 2, 1987. Incorporated
by reference to the BRT's Registration Statement on
Form S-2 (No.33-12172).
3(d). Third Amendment to Second Amended and Restated
Declaration of BRT 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 BRT's Registration
Statement on Form S-2 (No. 33-8125).
10(a). Advisory Agreement dated February 7, 1983 between the
BRT and REIT Management Corp. Incorporated by reference
to BRT's Registration Sta0tement on Form S-2 (No.
33-8125).
10(b). Credit Agreement with CS First Boston Mortgage Capital
Corp. dated October 17, 1996. Incorporated by reference
to Exhibit 7(c) to Form 8-K filed on October 24, 1996.
21. Subsidiaries - Each subsidiary is 100% owned by BRT.
Exhibit 21 is filed with this Form 10-K.
27. Financial Data Schedule - Filed with electronic filing.
(b) Reports on Form 8-K:
BRT did not file any report on Form 8-K in the quarter
ended September 30, 1998.
(c) Exhibits - See Item 14(a) 3., above.
(d) See Item 14(a) 2., above.
<PAGE>
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 21, 1998 By: (S) Jeffrey A. Gould
----------------------
Jeffrey A. Gould
President
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 21, 1998
- --------------------
Fredric H. Gould (Principal Executive
Officer)
(S) Jeffrey A. Gould President and Trustee December 21, 1998
- ---------------------
Jeffrey A. Gould
(S) Patrick J. Callan Trustee December 21, 1998
- ---------------------
Patrick J. Callan
(S) Arthur Hurand Trustee December 21, 1998
- ----------------
Arthur Hurand
(S) Gary Hurand Trustee December 21,1998
- ---------------
Gary Hurand
(S) David Herold Trustee December 21,1998
- ----------------
David Herold
(S) Herbert C. Lust Trustee December 21,1998
- -------------------
Herbert C. Lust II
- ------------------ Trustee December__, 1998
Marshall Rose
(S) George E. Zweier Vice President December 21,1998
- -------------------
George E. Zweier (Principal Financial
and Accounting Officer)
<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
The following consolidated financial statements of BRT Realty Trust are included
in Item 8:
Page No.
--------
Report of Independent Auditors F-1
Consolidated Balance Sheets as of September 30,
1998 and 1997 F-2
Consolidated Statements of Income for the
three years ended September 30, 1998, 1997 and 1996 F-3
Consolidated Statements of Shareholders' Equity
for the three years ended September 30, 1998,
1997 and 1996 F-4
Consolidated Statements of Cash Flows for the
three years ended September 30, 1998, 1997 and 1996 F-5-6
Notes to Consolidated Financial Statements F-7-20
Consolidated Financial Statement Schedules for
the year ended September 30, 1998:
III - Real Estate and Accumulated Depreciation F-21-22
IV - Mortgage Loans on Real Estate F-23-24
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.
<PAGE>
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 Cutter Mill Corp. New York
Kew Gardens Realty Corp. New York
Blue Realty Corp. Delaware
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
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
Casa Wrap Holding Corp. Florida
TRB Valley Corp. New York
76 Madison Avenue Realty Corp. New York
2211 Church Avenue Realty Corp. New York
TRB Cruger Avenue Corp. New York
TRB Fairway Office Center Corp. Kansas
TRB East 33rd Street Corp. New York
TRB Abbotts Corp. Pennsylvania
TRB Greenpoint Avenue Realty Corp. New York
TRB Seattle Inc. Washington
BRT Funding Corp. New York
REPORT OF INDEPENDENT AUDITORS
To the Trustees and Shareholders
BRT Realty Trust
We have audited the accompanying consolidated balance sheets of BRT Realty Trust
and subsidiaries (the "Trust") as of September 30, 1998 and 1997, and the
related consolidated statements of income, shareholders' equity, and cash flows
for each of the three years in the period ended September 30, 1998. Our audits
also included the consolidated financial statement schedules listed in the Index
at 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 and subsidiaries at September 30, 1998 and 1997, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended September 30, 1998, in conformity with generally
accepted accounting principles. Also, in our opinion, the related consolidated
financial statement schedules, when considered in relation to the basic
consolidated financial statements taken as a whole, present fairly, in all
material respects, the information set forth therein.
ERNST & YOUNG LLP
New York, New York
December 4, 1998
<PAGE>
<TABLE>
<CAPTION>
BRT REALTY TRUST AND SUBSIDIARIES
Consolidated Balance Sheets
(Amounts in thousands)
ASSETS
September 30,
1998 1997
------------- -------------
<S> <C> <C>
Real estate loans - Notes 2, 4 and 5:
Earning interest $ 51,175 $ 40,030
Not earning interest - 3,835
---------- -----------
51,175 43,865
Less allowance for possible losses 2,041 5,956
---------- -----------
49,134 37,909
---------- -----------
Real estate assets - Notes 3 and 5:
Foreclosed properties held for sale 16,622 23,160
Investment in real estate venture 613 1,546
---------- -----------
17,235 24,706
Less valuation allowance 349 349
---------- -----------
16,886 24,357
--------- -----------
Cash and cash equivalents 13,949 10,152
Securities available-for-sale at market 3,364 5,382
Other assets 2,488 2,515
---------- -----------
TOTAL ASSETS $ 85,821 $ 80,315
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Note payable - Credit Facility - Note 5 $ 5,500 $ -
Loans and mortgages payable - Note 5 8,494 11,562
Accounts payable and accrued liabilities including
deposits of $1,085 and $1,524 2,080 2,216
----------- -----------
Total liabilities 16,074 13,778
----------- -----------
Commitments and contingencies - Notes 2, 3, 4, 5, 8 and 9 - -
Shareholders' equity - Note 7: Preferred shares, $1 par value:
Authorized 10,000 shares, none issued - -
Shares of beneficial interest, $3 par value:
Authorized number of shares, unlimited, issued
- 8,888 and 8,886 shares 26,665 26,657
Additional paid-in capital, net of distributions
of $5,171 81,521 81,517
Accumulated other comprehensive income - net
unrealized gain on available-for-sale securities 769 726
Accumulated deficit (24,328) (37,916)
---------- ---------
84,627 70,984
Cost of 1,723 and 518 treasury shares
of beneficial interest (14,880) (4,447)
---------- ----------
Total shareholders' equity 69,747 66,537
---------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 85,821 $ 80,315
========== =========
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
BRT REALTY TRUST AND SUBSIDIARIES
Consolidated Statements of Income
(Amounts in thousands except per share amounts)
Year Ended September 30,
------------------------
1998 1997 1996
------- ------ ------
<S> <C> <C> <C>
Revenues:
Interest and fees on real estate loans - Note 2 $ 5,267 $ 4,877 $ 4,516
Operating income relating to real estate owned 4,104 8,590 8,685
Previously provided allowances and write offs - 3,405 -
Other, primarily investment income 826 283 355
--------- --------- ---------
Total Revenues 10,197 17,155 13,556
------- ------- --------
Expenses:
Interest - note payable and loans payable - Note 5 177 150 1,134
Advisor's fees - Note 8 519 559 615
General and administrative - Note 8 2,529 2,256 2,666
Operating expenses relating to real estate owned
including interest on mortgages payable
of $933, $2,214 and $1,968 2,374 6,732 6,937
Amortization and depreciation 357 812 428
--------- -------- ----------
Total Expenses 5,956 10,509 11,780
-------- ------- -------
Income before gain on sale of foreclosed
properties held for sale and available-for-sale securities 4,241 6,646 1,776
Net gain on sale of real estate loans and
foreclosed properties held for sale 8,090 687 470
Net realized gain on available-for-sale securities 1,257 - -
--------- ----------- ------------
Net Income $13,588 $ 7,333 $ 2,246
======= ======= =======
Calculation of net income applicable to common shareholders:
Net income $13,588 $ 7,333 $ 2,246
Less: distributions on preferred shares - - 203
----------- ---------- --------
Net income applicable to common shareholders $13,588 $ 7,333 $ 2,043
======= ======= =======
Income per share of Beneficial Interest:
Basic earnings per share $ 1.72 $ .86 $ .26
========= ========= =========
Diluted earnings per share $ 1.71 $ .86 $ .26
========= ======== ========
Weighted average number of common shares outstanding:
Basic 7,902,161 8,527,057 7,825,557
========= ========= =========
Diluted 7,941,293 8,557,968 8,640,968
========= ========= =========
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
BRT REALTY TRUST AND SUBSIDIARIES
Consolidated Statements of Shareholders' Equity
For the Years Ended September 30, 1996, 1997, and 1998
(Amounts in thousands)
Accumulated
Shares of Additional Other Accum-
Preferred Beneficial Paid-In Comprehensive ulated
Shares Interest Capital Income Deficit Total
------ -------- ------- ------ ------- -----
<S> <C> <C> <C> <C> <C> <C>
Balances, September 30, 1995 $ 1,030 $22,614 $83,914 $ - $(47,495) $60,063
Exercise of Stock Options - 1,202 206 - - 1,408
Conversion of 1,030 shares of
preferred stock to shares
of beneficial interest (1,030) 3,090 (2,060) - - -
Distributions - Preferred Shares - - (203) - - (203)
Net income - - - - 2,246 2,246
Other comprehensive income -
unrealized gain on available-
for-sale securities - - - 17 - 17
------
Comprehensive income - - - - - 2,263
--------------------------------------------------------------------------------------------
Balances, September 30, 1996 - 26,906 81,857 17 (45,249) 63,531
Cancellation of 83 shares of
beneficial interest - (249) (340) - - (589)
Net income - - - - 7,333 7,333
Other comprehensive income -
unrealized gain on available-
for-sale securities - - - 709 - 709
--------
Comprehensive income - - - - - 8,042
-------------------------------------------------------------------------------------------
Balances, September 30, 1997 - 26,657 81,517 726 (37,916) 70,984
Exercise of Stock Options 8 4 12
Net income 13,588 13,588
Other comprehensive income -
unrealized gain on available-for-
sale securities (net of reclassification
adjustment for gains included in net
income of 1,257) 43 43
--------
Comprehensive income - - - - - 13,631
------------------------------------------------------------------------------------------
Balances, September 30, 1998 $ - $26,665 $81,521 $ 769 $(24,328) $ 84,627
===========================================================================================
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
BRT REALTY TRUST AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Amounts in thousands)
Year Ended September 30,
1998 1997 1996
-------- --------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 13,588 $ 7,333 $ 2,246
Adjustments to reconcile net income to net cash provided
by operating activities:
Amortization and depreciation 357 812 428
Previously provided allowances - (1,300) -
Net gain on sale of real estate and foreclosed property (8,090) (687) (470)
Net gain on sale of available-for-sale securities (1,257) - -
(Increase) decrease in interest receivable (218) (61) 240
Decrease in prepaid expenses 17 287 405
(Decrease) increase in accounts payable and
accrued liabilities (644) 89 (301)
Increase in deferred revenues 108 301 -
Decrease (increase) in rent receivable - 219 (22)
Decrease in escrow deposits 96 552 112
Decrease in deferred costs (107) (275) (613)
Other (29) 99 117
----------- --------- ---------
Net cash provided by operating activities 3,821 7,369 2,142
------------- ------------- -------------
Cash flows from investing activities:
Collections from real estate loans 24,233 11,278 11,148
Proceeds from participating lenders - - 225
Additions to real estate loans (31,716) (15,353) (451)
Repayments to participating lenders - (1,000) -
Net costs capitalized to real estate owned (631) (854) (1,861)
Proceeds from sale of real estate owned 11,385 22,961 5,724
. Decrease (increase) in deposits payable 308 (439) (443)
Decrease (increase) in investments
in U.S. Government obligations - 986 (986)
Purchase of available-for-sale securities (347) (3,682) -
Sale of available-for-sale securities 3,667 - 820
Proceeds from sale of partnership interest 1,679 - -
Purchase of partnership interest (613) - -
Other - (33) 163
---------- --------- --------
Net cash provided by investing activities 7,965 13,864 14,339
---------- ------------- -------------
Cash flows from financing activities:
Bank repayments - - (22,900)
Proceeds from note payable 5,500 - -
Proceeds from mortgages payable - - 7,050
Payoff/paydown of loan and mortgages payable (3,068) (14,859) (3,179)
Exercise of stock options 12 - 1,408
Repurchase of shares of beneficial interest,
a portion of which were cancelled (10,433) (2,397) (304)
Decrease in restricted cash - - 558
Other - (34) (290)
----------- ------------ -----------
Net cash used in financing activities (7,989) (17,290) (17,657)
------------ ----------- -----------
Net increase (decrease) in cash and cash equivalents 3,797 3,943 (1,176)
Cash and cash equivalents at beginning of year 10,152 6,209 7,385
---------- ------------- -------------
Cash and cash equivalents at end of year $ 13,949 $ 10,152 $ 6,209
========== ============ ===========
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
BRT REALTY TRUST AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Amounts in thousands)
(Continued)
Year Ended September 30,
1998 1997 1996
---------- --------- ---------
<S> <C> <C> <C>
Supplemental disclosures of cash flow information:
Cash paid during the year for interest expense $ 1,141 $ 1,521 $ 2,715
========= ========= =========
Supplemental schedule of noncash investing and financing activities:
Transfer of nonearning real estate loans
to foreclosed properties at fair value $ - $ 13 $ 34
Note payable to Gould Investors L.P., a
related party, incurred in connection with
the purchase of marketable securities - - 1,794
Recognition of valuation allowance upon sale
of real estate owned 3,915 1,779 332
Recognition of allowance for previously
provided losses - 516 1,311
Purchase money mortgages from sale of real
estate owned - 425 375
Transfer of foreclosed property to an
investment in a real estate venture - 1,553 -
Conversion of 1,030 shares of preferred stock
to shares of beneficial interest - - 3,090
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
BRT REALTY TRUST AND SUBSIDIARIES
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 and its wholly-owned subsidiaries. Investments in less than majority-owned
entities have been accounted for using the equity method. 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 amount of interest or rent that
are collectable 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.
<PAGE>
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 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. 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 Assets
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 statements of income. 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 Assets
The Trust reviews each real estate asset owned for which indicators of
impairment are present to determine whether the carrying amount of the asset
will be recovered. Recognition of impairment is required if the undiscounted
cash flows estimated to be generated by the assets are less than the assets'
carrying amount. Measurement is based upon the fair value of the asset.
<PAGE>
Real estate assets held for sale are valued at the lower of cost or fair
value, less costs to sell, on an individual asset basis. 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.
Securities available-for-sale: Investment in securities are considered
"available-for-sale", and are reported on the balance sheet based upon quoted
market prices.
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, 1998 and 1997 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
such loans 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
amounts and fair value.
Per Share Data
In 1997, the Financial Accounting Standards Board issued Statement No. 128,
Earnings Per Share. Statement No. 128 replaced the calculation of primary and
fully diluted earnings per share with basic and diluted earnings per share.
Unlike primary earnings per share, basic earnings per share excludes any
dilutive effects of options, warrants and convertible securities. Diluted
earnings per share is very similar to the previously reported fully diluted
earnings per share. All earnings per share amounts for all periods have been
presented, and where appropriate, restated to conform to the Statement No. 128
requirements.
The 1997 and 1996 earnings per share amounts have been restated to comply
with Statement of Financial Accounting Standards No. 128 Earnings Per Share.
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.
Use of Estimates
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Comprehensive Income
In June 1997, the Financial Accounting Standard Board issued Statement No.
130, Reporting Comprehensive Income, which is effective for fiscal years
beginning after December 15, 1997. Statement No. 130 establishes standards for
reporting comprehensive income and its components in a full set of
general-purpose financial statements and requires that all components of
comprehensive income be reported in a financial statement that is displayed with
the same prominence as other financial statements. The Trust elected early
adoption of Statement No. 130 as of April 1, 1998.
Segment Reporting
In June, 1997 the Financial Accounting Standards Board issued Statement No.
131, Disclosure About Segments of an Enterprise and Related Information, which
is effective for financial statements issued for periods beginning after
December 15, 1997. Statement No. 131 requires disclosures about segments of an
enterprise and related information regarding the different types of business
activities in which an enterprise engages and the different economic
environments in which it operates. The Trust does not believe that the
implementation of Statement No. 131 will have a material impact on its financial
statements.
<PAGE>
NOTE 2 - REAL ESTATE LOANS
At September 30, 1998, information as to real estate loans, all of
which are earning interest, is summarized as follows:
First mortgage loans:
Long-term:
Residential $ 11,117
Shopping centers/retail 3,487
Hotel 750
Short-term (five years or less):
Shopping centers/retail 8,856
Industrial buildings 7,593
Office buildings 7,351
Residential (multiple family units) 8,756
Hotel 1,008
Miscellaneous 242
Second mortgage loans
and wraparound mortgages 2,015
-------
$ 51,175
========
A summary of loans at September 30, 1997, all of which are earning
except as noted is as follows:
First mortgage loans $37,490 (of which $3,379 were not earning interest)
Second mortgage loans 3,969 (of which $1 were not earning interest)
Wraparound mortgages 2,406 (of which $455 were not earning interest)
----------
$43,865
At September 30, 1998 the Trust had no non-earning assets. Of the real
estate loans not earning interest at September 30, 1997, $3,835 was deemed
impaired, as it was probable that the Trust would be unable to collect all
amounts due according to the contractual terms. During 1998 the entire amount
was repaid. Allowances for possible losses were provided for all such
non-earning loans. Of the real estate loans earning interest at September 30,
1998 and 1997, $5,489 and $6,248, respectively, were deemed impaired and all are
subject to allowances for possible losses. For the years ended September 30,
1998, 1997 and 1996, respectively, an average $7,786, $15,470 and $18,547 of
real estate loans were deemed impaired, on which $613, $1,827 and $1,464 of
interest income was recognized. Loans originated by the Trust generally provide
for interest rates, which are related to the prime or Treasury rate. The
weighted average interest rate on earning loans was 11.60% and 11.31% at
September 30, 1998 and 1997, respectively.
<PAGE>
Annual maturities of real estate loans receivable during the next five
years reflect revised maturities as a result of debt restructurings and are
summarized as follows:
Years Ending September 30 Amount
- ------------------------- ---------
1999 ................................................ $ 33,314
2000 ................................................ 6,811
2001................................................. 577
2002................................................. 643
2003 ................................................ 2,318
2004 and thereafter.................................. 7,512
-----------
Total $ 51,175
=========
The Trust's portfolio consists primarily of senior mortgage loans, secured
by residential and commercial property, 79% of which are located principally in
the New York metropolitan area.
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 $33,314 of real estate loans receivable which mature in Fiscal 1999, $9,334
were extended during the fiscal year ended September 30, 1998.
If all loans classified as non-earning were earning interest at their
contractual rates for the years ended September 30, 1997 and 1996, interest
income would have increased by $501 and $632 respectively.
The Trust's interests in wraparound mortgages are subject to underlying
mortgages aggregating $334 and $3,285 at September 30, 1998 and 1997
respectively.
At September 30, 1998 the two largest real estate loans had principal
balances outstanding of approximately $3,180 and $3,075, respectively. Of the
total interest and fees earned on real estate loans during the fiscal year ended
September 30, 1998, 1.5% and 8.2% related to these loans, respectively.
Included in the Trust's portfolio, is a real estate loan collateralized by
a 50% interest in a partnership in which the Chairman of the Board of Trustees
of the Trust holds one-half of the other 50% partnership interest. The balance
of the loan at September 30, 1998 and 1997 is $2,075 and $2,575, respectively.
<PAGE>
<TABLE>
<CAPTION>
NOTE 3 - REAL ESTATE ASSETS
A summary of foreclosed properties held for sale, for the year ended
September 30, 1998 is as follows:
Costs Sales
September 30, 1997 Capitalized/ Collections/ Gain on September 30, 1998
# Properties Amount Amortization Other Sale # Properties Amount
<S> <C> <C> <C> <C> <C> <C>
Residential units-shares of
cooperative corporations 4 $5,404 $116 ($5,576) $1,849 3 $1,793
Shopping centers/retail 1 3,379 190 - - 1 3,569
Office 1 11,275 449 - - 1 11,724
Improved land 2 3,442 - (5,809) 2,367 - -
Unimproved land 1 - - - - 1 -
----------------------------------------------------------------------------------------------
9 23,500 755 (11,385) 4,216 6 17,086
Less:Valuation Allowance 349 349
Amortization 340 124 464
-----------------------------------------------------------------------------------------
9 $22,811 $631 $(11,385) $4,216 6 $16,273
===============================================================================================
</TABLE>
During the year ended September 30, 1998 the Trust continued to dispose of its
shares of cooperative apartment units. Sales of these units which had a net
book value totaling $2,279 included its entire interest in an apartment
complex located in Nassau County. Gains of $1,849 were recognized on these
sales. Also during fiscal 1998 the Trust received principal paydowns and sold
its remaining portfolio of cooperative mortgage loans of which $1,448 were
classified as owned real estate.
Two other properties were disposed of during the year ended September 30,
1998. An office building with a book value of $1,135 was sold for a net gain
of $164 and a residential building with a book value of $2,307 was sold for a
gain of $2,203.
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, 1998 are as follows:
Years Ending September 30, Amount
-------------------------- ------
1999 .................................. $ 2,640
2000 .................................. 2,125
2001 .................................. 1,813
2002 .................................. 1,657
2003.................................... 1,546
<PAGE>
NOTE 4 - ALLOWANCE FOR POSSIBLE LOSSES AND VALUATION ALLOWANCE
ON REAL ESTATE OWNED
The Trust was not required to record provisions for possible loan losses
nor valuation adjustments on owned real estate during the years ended September
30, 1998 and 1997. The most recent provisions taken by the Trust were during the
year ended September 30, 1995 in the total amount of $1,199.
An analysis of the allowance for possible losses is as follows:
Year Ended September 30,
------------------------
1998 1997 1996
---- ---- ----
Balance at beginning of year $ 5,956 $ 7,773 $ 9,084
Provision for possible loan losses - - -
Previously provided allowances - (1,300) -
Write-off of allowances (3,915) (517) (1,311)
---------- ----------- ----------
Balance at end of year $ 2,041 $ 5,956 $ 7,773
========== =========== ==========
The allowance for possible losses applies to assets aggregating $5,489 at
September 30, 1998, $10,083 at September 30, 1997 and $17,023 at September 30,
1996.
During the year ended September 30, 1997, $2,105 was realized from
previously written off provisions.
The allowance for possible losses consists of the following
components:
Year Ended September 30,
1998 1997 1996
---- ---- ----
Excess of carrying value plus estimated
cost to complete and market, over
estimated selling price $ 1,404 $ 2,979 $ 1,595
Valuation adjustment 434 2,505 5,775
Estimated holding period costs 203 472 403
----------- ------------ -------------
$ 2,041 $ 5,956 $ 7,773
=========== ============ =============
NOTE 5 - DEBT OBLIGATIONS
Debt obligations consist of the following:
September 30,
-------------
1998 1997
---- ----
Note payable - credit facility $ 5,500 $ -
======== =======
Loans and mortgages payable $ 8,494 $11,562
======== =======
<PAGE>
In October 1996 the Trust entered into a $25,000 revolving credit facility
("Facility") with Credit Suisse First Boston Mortgage Capital LLC. (formerly CS
First Boston Mortgage Capital Corp.). Interest is charged on the outstanding
principal balance at the lower of LIBOR plus 3% or the prime lending rate plus
1%, adjusted monthly. The interest rate at September 30, 1998 was 8.66%. The
Trust paid a commitment fee which amounted to $101 during the year ended
September 30, 1998 and $97 during the year ended September 30, 1997. The
Facility matured on October 17, 1998 with the right to extend for two additional
six-month periods for a fee of .25% of the total facility with each extension.
The first such extension option was exercised in October 1998 with the payment
of a fee of $63. Borrowings under the Facility are secured by specific
receivables and real estate assets held by the Trust. The Facility provides that
the loan amount will never exceed 75% of the agreed value of the collateral. The
Trust is required to maintain tangible net worth (as defined) of $50,000 and
comply with certain other covenants all of which have been met. At September 30,
1998 the outstanding balance on the Facility was $5,500. There was no balance
outstanding at September 30, 1997. Interest expense was $72 for the year ended
September 30, 1998.
At September 30, 1998 there are two outstanding non-recourse mortgages
payable, both of which are secured by individual real estate owned properties
with an aggregate carrying value of $14,829, net of amortization. The mortgages
bear interest at rates of 8.44% and 8.07% and mature in 2000 and 2005,
respectively.
Scheduled principal repayments during the next five years and
thereafter are as follows:
Years Ending September 30,............... Amount
-------------------------- ------
1999.......................... $ 876
2000.......................... 970
2001 ......................... 1,397
2002. ............... ........... 849
2003 ........................... 920
2004 and thereafter.......... 3,482
---------
$ 8,494
=======
NOTE 6 - FEDERAL INCOME TAXES
Cumulative taxable loss since inception is less than the cumulative loss
reported for financial statement purposes principally because a portion of the
allowance for possible losses has not yet been deducted for tax purposes.
The taxable income is expected to be $3,000 less than the financial
statement income during calendar 1998.
At December 31, 1997, the Trust had available tax operating loss
carryforwards of $30,893 of which $768 will expire in 2006, $13,605 will expire
in 2007, $14,288 will expire in 2008, $1,634 will expire in 2009, $527 will
expire in 2010 and $71 will expire in 2011.
<PAGE>
NOTE 7 - SHAREHOLDERS' EQUITY
Distributions
There were no distributions on the Trust's shares of beneficial interest
declared during the years ended September 30, 1998, 1997 and 1996.
Stock Options
On December 8, 1995, the Board of Trustees granted, under the 1988 Stock
Option Plan (Incentive/Nonstatutory Stock Option Plan), options to purchase the
remaining 53,000 shares of beneficial interest available under this plan at
$4.375 per share to various officers and employees of the Trust. The options are
cumulatively exercisable at a rate of 25% per annum, for a period of five years
commencing six months after the date of grant. During the fiscal year ended
September 30, 1998, 2,500 of these options were exercised and another 2,500 were
cancelled and became available for grant at that time. At September 30, 1998
options to purchase 36,000 shares are exercisable, none of which have been
exercised.
On December 6, 1996, the Board of Trustees adopted the BRT 1996 Stock
Option Plan (Incentive/Nonstatutory Stock Option Plan), whereby a maximum of
450,000 shares of beneficial interest are reserved for issuance to the Trust's
officers, employees, trustees and consultants or advisors to the Trust.
Incentive stock options are granted at per share amounts at least equal to the
fair value at the date of grant, whereas for nonstatutory stock options, the
exercise price may be any amount determined by the Board, but not less than the
par value of a share.
Also on December 6, 1996, the Board of Trustees granted, under the 1996
Stock Option Plan options to purchase a total of 82,500 shares of beneficial
interest at $6.00 per share to a number of officers, employees and consultants
to the Trust. The options are cumulatively exercisable at a rate of 25% per
annum, commencing after six months, and expire five years after the date of
grant. During the fiscal year ended September 30, 1998, 5,000 options were
cancelled and became available for grant at that time. At September 30, 1998
options to purchase 38,750 shares are exercisable, none of which have been
exercised.
In March and April 1998 the Board of Trustees granted, under the 1996 Stock
Option Plan options to purchase 50,000 shares of beneficial interest at prices
ranging from $7.3125 to $7.9375 per share to a number of directors, officers and
employees of the Trust. The options are cumulatively exercisable at a rate of
25% per annum, commencing after two years, and expire ten years after the grant
date. During fiscal 1998, 10,000 of these options were cancelled and became
available for grant at that time. At September 30, 1998 none of these options
were exercisable.
<PAGE>
The Trust elected Accounting Principles Board Opinion No. 25, Accounting
for Stock Issued to Employees ("APB 25"), and related Interpretations in
accounting for its employee stock options. Under APB 25, no compensation expense
is recognized because the exercise price of the Trust's employee stock options
equals the market price of the underlying stock on the date of grant. The
alternative fair value accounting provided for under FAS No. 123, "Accounting
for Stock-Based Compensation", is not applicable because it requires use of
option valuation models that were not developed for use in valuing employee
stock options.
Proforma information regarding net income and earnings per share is
required by FAS No. 123, and has been determined as if the Trust had accounted
for its employee stock options under the fair value method. The fair value for
these options was estimated at the date of the grant using the Black-Scholes
option pricing model with the following weighted-average assumptions for the
1998, 1996 and 1995 grants, respectively: risk free interest rate of 5.64%,
6.02% and 5.54%, dividend yield of 0% in all three years, volatility factor of
the expected market price of the Trust's common stock based on historical
results of 0.188, 0.270 and 0.389; and an expected life for each option grant of
5 years.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including expected stock price
volatility. Because the Trust's employee stock options have characteristics
significantly different from those of traded options, and changes in the
subjective input assumptions can materially affect the fair value estimate,
management believes the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options. The Trust has
elected not to present proforma information because the impact on the reported
net income and earnings per share is immaterial.
Changes in the number of shares under all option
arrangements are summarized as follows:
Year Ended September 30,
------------------------
1998 1997 1996
--------------------------
Outstanding at beginning of period 135,500 53,000 447,000
Granted 50,000 82,500 53,000
Option price per share granted 7.3125-7.9375 $6.00 $4.375
Cancelled 17,500 - -
Exercisable at end of period 74,750 47,125 3,250
Exercised 2,500 - 400,700
Expired 17,500 - 46,300
Outstanding at end of period 165,500 135,500 53,000
Option prices per share outstanding $4.375-$7.9375 $4.375-$6.00 $4.375
As of September 30, 1998 the outstanding options had a weighted average
remaining contractual life of approximately 4.9 years and a weighted average
exercise price of $5.92.
<PAGE>
Earnings Per Share
The following table sets forth the computation of basic and
diluted earnings per share:
1998 1997 1996
------- ---- ----
Numerator:
Net income $13,588 $7,333 $2,246
Distributions on preferred shares - - (203)
Numerator for basic earnings
per share - net income applicable _______ ______ ______
to common shareholders 13,588 7,333 2,043
Effect of diluted securities
Preferred stock dividends - - 203
Numerator for diluted earnings
per share - income available
to common shareholders after ______ _____ _____
assumed conversion 13,588 7,333 2,246
Denominator:
Denominator for basic earnings
per share -weighted average shares 7,902,161 8,527,057 7,825,557
Effect of dilutive securites:
Employee stock options 39,132 30,911 42,911
Preferred stock - - 772,500
--------- --------- --------
Dilutive potential common shares 39,132 30,911 815,411
Denominator for diluted earnings
per share - adjusted weighted - average
shares and assumed conversions 7,941,293 8,557,968 8,640,968
Basic earnings per share $ 1.72 $ .86 $ .26
Diluted earnings per share $ 1.71 $ .86 $ .26
Treasury Shares
The Trust's Board of Trustees authorized the purchase from time to time of
up to 1,614,000 shares of beneficial interest of the Trust. During 1998
1,205,000 shares have been purchased at an approximate cost of $10,433. As of
September 30, 1998 the Trust owns 1,723,000 shares of beneficial interest of the
Trust at an aggregate cost of $14,880.
NOTE 8 - ADVISOR'S COMPENSATION AND CERTAIN TRANSACTIONS
Certain of the Trust's officers and trustees are also officers, directors
and the shareholder 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, 2001, 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 $519, $559 and $615 for the
years ended September 30, 1998, 1997, and 1996, respectively.
The borrower may pay fees to REIT for services rendered in arranging and
restructuring loans by the Trust. These fees, which are allowed by the advisory
agreement, on loans arranged on behalf of the Trust and which are paid directly
by the borrower to REIT amounted to $229 for the year ended September 30, 1998
and $155 for the year ended September 30, 1997. There were no such fees paid to
REIT during the year ended September 30, 1996.
REIT arranges for the management of certain foreclosed properties for the
Trust under renewable year-to-year agreements. Management fees, legal fees and
leasing, selling and financing commissions incurred and reimbursed to REIT or an
other affiliated company for the years ended September 30, 1998, 1997 and 1996
aggregated $595, $655 and $776, respectively.
The Chairman of the Board of Trustees of the Trust holds a similar position
in One Liberty, Inc. a related party is an executive officer of the managing
general partner and is a general partner of Gould Investors L.P. a related
party. During the years ended September 30, 1998, 1997 and 1996, allocated
general and administrative expenses charged to the Trust by Gould aggregated
$622, $979 and $1,161, 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 $105, $81 and $60 during the years
ended September 30, 1998, 1997 and 1996, respectively.
<PAGE>
<TABLE>
<CAPTION>
NOTE 10 - QUARTERLY FINANCIAL DATA (Unaudited)
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Total
Oct.-Dec. Jan.-March April-June July-Sept. For Year
--------- ---------- ---------- ---------- --------
1998
<S> <C> <C> <C> <C> <C>
Revenues $ 2,446 $ 2,504 $ 2,539 $ 2,708 $ 10,197
Income before
gain on sale of fore-
closed properties
held for sale $ 999 $ 1,051 $ 1,020 $ 1,171 $ 4.241
Net income $ 3,153 $ 3,608 $ 2,295 $ 4,532 $ 13,588
Per share $ .38 $ .45 $ .28 $ .62 $ 1.72 (a) (b)
1997
Revenues $ 3,936 $ 4,477 $ 3,462 $ 5,280 $17,155
Income before
gain on sale of fore-
closed properties
held for sale $ 1,463 $ 1,784 $ 995 $ 2,404 $ 6,646
Net income $ 1,463 $ 1,784 $ 995 $ 3,091 $ 7,333
Per share $ .17 $ .21 $ .12 $ .37 $ .86 (a) (b)
Per share earnings represent primary earnings per beneficial share.
(a) Calculated on weighted average shares outstanding for the fiscal year.
(b) Balances do not crossfoot due to rounding.
</TABLE>
NOTE 11 - SUBSEQUENT EVENT
Between October 1, 1998 and November 20, 1998 the Trust sold
available-for-sale securities with a book value of $690 for an approximate gain
of $434.
<PAGE>
BRT REALTY TRUST
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
SEPTEMBER 30, 1998
(Amounts in Thousands)
<TABLE>
<CAPTION>
Gross Amount At Which Carried At
Initial Cost To Company September 30, 1998
----------------------- -------------------------
Buildings Costs Capitalized Buildings
Encum- And Subsequent to Acquisition And
Description brances Land Improvements Improvements Carrying Costs Land Improvements Total
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Residential
Manhattann, New York $ - $ - $ 919 $ 834 $ - $ - $1,753 $1,753
Islip, New York - - 40 - - - 40 40
Shopping Center/Retail
Rock Springs, WY 1,070 600 2,483 458 28 600 2,969 3,569
Office
Dover, DE 7,424 775 3,195 7,754 - 775 10,949 11,724
-------------------------------------------------------------------------------------------
TOTAL $ 8,494 $1,375 $6,637 $9,046 $28 $1,375 $15,711 $17,086
===========================================================================================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Depreciation
Life For
Accum. Date Of Date Latest Income
Deprec. Construction Acquired Statement
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Residential
Manhattann, New York $ - - Apr-90 -
Islip, New York - - - -
Shopping Center/Retail
Rock Springs, WY 464 - Jan-92 21-35 Years
Office
Dover, DE - - Oct-93 -
TOTAL $ 464
=========================
(a) (d)
</TABLE>
BRT REALTY TRUST
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
SEPTEMBER 30, 1998
(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 other operating properties, all
operating income and expenses are reflected in the statements of
income.
(b) Total foreclosed properties held for sale $17,086
Less: Accumulated amortization 464
Valuation allowance 349
-------
Net foreclosed properties held for sale $16,273
=======
(c) Amortization of the Trust's leasehold interest is over the terms of the
respective land leases.
(d) Information not readily obtainable.
(e) A reconciliation of real estate owned is as follows:
Year Ended September 30,
1998 1997 1996
---- ---- ----
Balance at beginning of year $22,811 $46,310 $50,248
Additions:
Foreclosures - 13 34
Capitalization of expenses 755 854 1,861
Recognition of valuation allowance upon
sale of property - 1,779 332
Recognition of valuation allowance upon
relinquishment of property - - -
---------- ---------- -----------
23,566 48,956 52,475
---------- ---------- -----------
Deductions:
Sales/conveyances 7,169 26,031 5,961
Relinquishment of real estate owned - - -
Provision for valuation adjustment - - -
Depreciation/amortization 124 114 204
--------- ---------- ------------
7,293 26,145 6,165
-------- -------- ------------
Balance at end of year $16,273 $ 22,811 $46,310
========= ======== ==========
(f) The aggregate cost of investments in real estate assets for federal income
tax purposes approximates book value.
<PAGE>
<TABLE>
<CAPTION>
BRT REALTY TRUST
SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE
SEPTEMBER 30, 1998
(Amounts in Thousands)
FINAL
DESCRIPTION LOANS RATE DATE PERIODIC PAYMENT TERMS PRIOR LEINS
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
First mortgage loans:
Long term:
Cooperative Apartments - Islip, NY 1 9.0% Oct-02 Interest monthly, principal at maturity -
Underlying Mortgage - Bronx, NY 1 Tbill + 2.25% Jan-00 Interest monthly, principal at maturity -
Miscellaneous
$0-$299 7 -
$1,000-1,474 1 -
Short term:
Industrial Building, NY 1 Prime + 5.0% Apr-99 Interest and principal monthly -
Office Building - Brooklyn, NY 1 Prime + 1.0% Mar-98 Interest monthly, principal at maturity -
Condominium Apartments, NY, NY 1 Prime + 5.0% Jun-99 Interest monthly, principal at maturity -
Industrial Building, NJ 1 Prime + 4.0% Jan-99 Interest monthly, principal at maturity -
Industrial Building - Queens, NY 1 10.5% Oct-99 Interest and principal monthly -
Office Building - Bernardsville, NJ 1 Prime + 5.0% Apr-99 Interest and principal monthly -
Retail, Yonkers, NY 1 Prime + 5.0% Feb-99 -
Miscellaneous
$0-$299 3 -
$300-$499 4 -
$500-$999 6 -
$1,000-$1,474 8 -
Junior mortgage loans:
Residential:
Retail Building - New York, NY 1 Prime + 5.0% Mar-99 Interest monthly, principal at maturity 334
====== ======
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT
CARRYING OF LOANS SUBJECT
FACE AMOUNT AMOUNT TO DELINQUENT
DESCRIPTION OF MORTGAGES OF MORTGAGES PRINCIPAL OR INTEREST
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
First mortgage loans:
Long term:
Cooperative Apartments - Islip, NY $2,143 $2,143 $ -
Retail/Apartments, Brooklyn, NY 2,149 2,149 -
Residential/Retail, New York, NY 2,244 2,244 -
Underlying Mortgage - Bronx, NY 2,835 2,200 -
Miscellaneous
$0-$299 490 414 -
$300-499 1,205 1,205 -
$500-998 2,999 2,999 -
$1,000-1,474 1,290 1,290 -
Short term:
Industrial Building, NY 1,922 1,922 -
Office Building - Brooklyn, NY 2,074 2,074 -
Condominium Apartments, NY, NY 2,174 2,174 -
Industrial Building, NJ 2,600 2,600 -
Industrial Building - Queens, NY 3,070 3,070 -
Office Building - Bernardsville, NJ 3,075 3,075 -
Retail, Yonkers, NY 3,180 3,180 -
Miscellaneous
$0-$299 493 105 -
$300-$499 1,451 1,451 -
$500-$999 4,903 4,903 -
$1,000-$1,474 8,863 7,921
Junior mortgage loans:
Residential:
Miscellaneous
$0-$1 1 1 -
Wraparound mortgages:
Retail Building - New York, NY 2,014 2,014 -
------- ------- ---
Miscellaneous
$51,175 $49,134 $ -
======= ======= ====
</TABLE>
<PAGE>
BRT REALTY TRUST
SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE
SEPTEMBER 30, 1998
(Amounts in Thousands)
Notes to the schedule:
(a) The following summary reconciles mortgages receivable at their carrying
values:
Year Ended September 30,
1998 1997 1996
--------- ---------- ----------
Balance at beginning of year $ 37,909 $ 30,945 $ 41,526
Additions:
Advances under real estate loans 31,716 15,353 451
Repayments to participating lenders - 1,000 -
Capitalization of earned interest
income to loan balance in accordance
with agreements - 177 -
Previously provided allowances - 1,300 -
Purchase money mortgages from sale of
real estate owned - 425 375
--------- ---------- ---------
69,625 49,200 42,352
--------- ------------ -----------
Deductions:
Collections of principal 20,491 11,278 11,148
Proceeds from participating lenders - - 225
Provision for possible loan losses - - -
Investments transferred to foreclosed
properties, net - 13 34
--------- ---------- ---------
20,491 11,291 11,407
--------- ---------- ---------
Balance at end of year $ 49,134 $ 37,909 $ 30,945
======== ======== ========
(b) The aggregate cost of investments in mortgage loans is the same for
financial reporting purposes and Federal income tax purposes.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE 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-30-1998
<PERIOD-END> SEP-30-1998
<CASH> 13,949
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 85,821
<CURRENT-LIABILITIES> 0
<BONDS> 13,994
0
0
<COMMON> 26,665
<OTHER-SE> 43,082
<TOTAL-LIABILITY-AND-EQUITY> 85,821
<SALES> 0
<TOTAL-REVENUES> 10,197
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 5,956
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 13,588
<INCOME-TAX> 0
<INCOME-CONTINUING> 13,588
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,588
<EPS-PRIMARY> 1.72
<EPS-DILUTED> 1.71
</TABLE>
