SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the quarterly period ended June 30, 1999
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
(Exact name of registrant as specified in its charter)
Massachusetts 13-2755856
----------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
60 Cutter Mill Road, Great Neck, NY 11021
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (516) 466-3100
Indicate the number of shares outstanding of each of the issuer's classes of
stock, as of the latest practicable date.
7,165,263 Shares of Beneficial Interest,
$3 par value, outstanding on August 10,1999
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
<PAGE>
Part 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
<CAPTION>
BRT REALTY TRUST AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Amounts In Thousands)
June 30, September 30,
1999 1998
---- ----
(Unaudited) (Audited)
<S> <C> <C>
ASSETS
Real estate loans - Note 3
Earning interest $ 47,798 $ 51,175
Less allowance for possible losses 2,041 2,041
---------- ----------
45,757 49,134
--------- ---------
Real estate assets:
Foreclosed properties held for sale 15,005 16,622
Investment in real estate venture 613 613
---------- -----------
15,618 17,235
Less valuation allowance 349 349
----------- -----------
15,269 16,886
--------- ----------
Cash and cash equivalents 25,055 13,949
Securities available-for-sale at market - 3,364
Other assets 2,075 2,488
---------- ----------
Total Assets $ 88,156 $ 85,821
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Note payable - Credit facility - Note 5 $ 2,365 $ 5,500
Loans and mortgages payable 7,829 8,494
Accounts payable and accrued liabilities,
including deposits of $1,143 and $1,253 2,102 2,080
--------- --------
Total Liabilities 12,296 16,074
-------- -------
Shareholders' Equity - Note 2:
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 shares at each date 26,665 26,665
Additional paid-in capital, net of
distributions of $5,171 81,521 81,521
Accumulated other comprehensive income - net
unrealized gain on available-for-sale securities - 769
Accumulated deficit (17,446) (24,328)
--------- --------
90,740 84,627
Cost of 1,723 treasury shares of
beneficial interest at each date (14,880) (14,880)
--------- ---------
Total Shareholders' Equity 75,860 69,747
--------- ---------
Total Liabilities and Shareholders' Equity $ 88,156 $ 85,821
========= =========
See Accompanying Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
BRT REALTY TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
AND ACCUMULATED DEFICIT
(Unaudited)
(In Thousands except for Per Share Data)
Three Months Ended Nine Months Ended
June 30, June 30,
1999 1998 1999 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues:
Interest and fees on real estate loans $ 1,744 $ 1,312 $ 5,770 $ 3,715
Operating income on real estate owned 943 1,003 2,795 3,106
Other, primarily investment income 237 224 554 668
---------- ---------- --------- ---------
Total Revenues 2,924 2,539 9,119 7,489
Expenses:
Interest-notes payable and loans payable 112 25 391 75
Advisor's fee 134 126 450 370
General and administrative 836 671 2,395 1,888
Operating expenses relating to real estate
owned including interest on mortgages
of $161 and $229 for the three-month periods
and $488 and $710 for the nine-month
periods, respectively 526 611 1,707 1,828
Amortization and depreciation 98 86 266 258
--------- --------- -------- --------
Total Expenses 1,706 1,519 5,209 4,419
------- ------- ------- -------
Income before gain on sale of real estate
Loans and foreclosed properties held for
sale and available-for-sale securities 1,218 1,020 3,910 3,070
Net gain on sale of real estate loans and
foreclosed properties held for sale 326 1,066 2,103 5,777
Net realized gain on available-for-sale securities 229 209 869 209
--------- --------- --------- ---------
Net Income $ 1,773 $ 2,295 $ 6,882 $ 9,056
======== ======== ======== ========
Income per share of Beneficial Interest:
Basic earnings per share $ 0.25 $ 0.28 $ 0.96 $ 1.11
========= ========= ========= =========
Diluted earnings per share $ 0.24 $ 0.28 $ 0.95 $ 1.10
========= ========= ========= =========
Accumulated deficit, beginning of period $(19,219) $(31,155) $(24,328) $(37,916)
Net income 1,773 2,295 6,882 9,056
----------- ---------- --------- -----------
Accumulated deficit, end of period $(17,446) $(28,860) $(17,446) $(28,860)
========= ========= ========= =========
See Accompanying Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
BRT REALTY TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In Thousands)
Nine Months Ended
June 30,
1999 1998
---- ----
<S> <C> <C>
Cash flow from operating activities:
Net income $ 6,882 $ 9,056
Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization and depreciation 266 258
Gain on sale of real estate and foreclosed properties (2,103) (5,777)
Gain on sale of available-for-sale securities (869) (209)
Decrease in interest receivable 118 (166)
Decrease in prepaid expenses 66 54
Increase (decrease) in accounts payable
and accrued liabilities 312 (845)
Decrease in deferred revenues (9) (134)
Decrease in rent receivables - 124
Increase (decrease) in escrow deposits 25 (179)
Increase in deferred costs (661) (5)
Net change in other assets 731 225
----------- ----------
Net cash provided by operating activities 4,758 2,402
---------- ---------
Cash flows from investing activities:
Collections from real estate loans 19,066 12,214
Sale of senior participating interest in loans 7,860 -
Additions to real estate loans (22,649) (9,556)
Costs capitalized to real estate owned (311) (554)
Proceeds from sale of real estate owned 3,024 8,450
(Decrease) Increase in deposits payable (305) 398
Purchase of marketable securities - (347)
Sales of marketable securities 3,463 635
Increase in investment in Partnership interest - (631)
------------ ---------
Net cash (used in) provided by investing activities 10,148 10,609
--------- --------
Cash flow from financing activities:
Payoff/paydown of loan and mortgages payable (665) (767)
Payoff/paydown of credit facility (3,135) -
Repurchase of shares of beneficial interest, a portion of
which were cancelled - (2,707)
Other - 11
------------ -----------
Net cash used in financing activities (3,800) (3,463)
--------- ---------
Net increase in cash and cash equivalents 11,106 9,548
Cash and cash equivalents at beginning of period 13,949 10,152
------- --------
Cash and cash equivalents at end of period $ 25,055 $ 19,700
======== ========
Supplemental disclosure of cash flow information:
Cash paid during the period for interest expense $ 840 $ 802
========= ==========
See Accompanying Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
BRT REALTY TRUST AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 1 - Basis of Preparation
The accompanying interim unaudited consolidated financial statements as of June
30, 1999 and for the three and nine months ended June 30, 1999 and 1998 reflect
all normal recurring adjustments which are, in the opinion of management,
necessary for a fair statement of the results for such interim periods. The
results of operations for the three and nine months ended June 30, 1999 are not
necessarily indicative of the results for the full year.
Certain items on the consolidated financial statements for the preceding periods
have been reclassified to conform with the current consolidated financial
statements.
The consolidated financial statements include the accounts of BRT Realty Trust,
its wholly-owned subsidiaries, and its majority-owned or controlled real estate
entities. 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 "BRT".
These statements should be read in conjunction with the consolidated financial
statements and related notes which are included in BRT's Annual Report on Form
10-K for the year ended September 30, 1998.
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. Actual
results could differ from those estimates.
Note 2 - Shareholders' Equity
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.
Basic earnings per share were determined by dividing net income for the period
by the weighted average number of shares of common stock outstanding during each
period which were 7,165,263 for both the three and nine month periods ended June
30, 1999 and 8,048,832 and 8,126,746 for the three and nine month periods ended
June 30, 1998, respectively. Diluted earnings per share reflects the potential
dilution that could occur if securities or other contracts to issue common stock
were exercised or converted into common stock or resulted in the issuance of
common stock that then shared in the earnings of BRT.
Note 2 - Shareholders' Equity - Continued
For the three and nine months ended June 30, 1999 and 1998 diluted earnings per
share was determined by dividing net income for the period by the total of the
weighted average number of shares of common stock outstanding plus the dilutive
effect of BRT's outstanding options using the treasury stock method which
aggregated 7,241,882 and 7,202,132 and 8,083,069 and 8,169,639 respectively.
Note 3 - Real Estate Loans
If all loans classified as non-earning were earning interest at their
contractual rates for the three and nine months ended June 30, 1998, interest
income would have increased by approximately $65,000 and $366,000, respectively.
During the three and nine month period ended June 30, 1999 there were no
non-interest earning loans.
On May 4, 1999 BRT sold senior participating interest in several real estate
loans to a financial institution. These senior participating interests, which
were classified as held for sale, were sold at cost which approximated estimated
fair value.
Note 4 - Comprehensive Income
In June 1997, the Financial Accounting Standards 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. BRT elected early adoption of Statement No. 130 as
of October 1, 1997. During the three months ended June 30, 1999, accumulated
other comprehensive income, which was solely composed of the net unrealized gain
on available-for-sale securities, decreased $224,000 from $224,000 to $-0-. For
the nine months ended June 30, 1999 accumulated other comprehensive income
decreased $769,000 from $769,000 to $-0- as a result of the sale of the related
securities.
Note 5 - Credit Facility
On May 18, 1999 BRT entered into a $45,000,000 revolving credit facility with
TransAmerica Business Credit Corporation ("TransAmerica"). It replaces a
$25,000,000 facility with Credit Suisse First Boston Mortgage Capital LLC. The
agreement with TransAmerica is a revolving facility, which may be used for
specific purposes, the primary of which is lending. Borrowings under this
facility are secured by specific receivables of BRT and its subsidiary BRT
Funding Corp. and the agreement provides that the amount borrowed will not
exceed 75% of the value of the collateral. BRT paid a non refundable fee of
$337,500 at closing. Interest is charged on the outstanding balance at prime
plus 1/2% or under certain circumstances at LIBOR plus 3 1/4%. The facility
matures on May 17, 2002. Unused line fees are calculated at 1/8% on the
difference between $45,000,000 (the maximum principal debt) and the average
amount outstanding. BRT is required to maintain a minimum tangible net worth (as
defined) of $70,000,000 and meet certain other covenants, all of which have been
met.
Note 6 - 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 establishes standards for the way public business
enterprises report information about operating segments in annual financial
statements and requires that those enterprises report selected information about
operating segments in interim financial reports. It also establishes standards
for related disclosures about products and services, geographic areas, and major
customers. BRT adopted Statement No. 131 as of October 1, 1998. As BRT operates
predominantly in one industry segment, management believes it is in compliance
with the standards established by Statement No. 131.
<PAGE>
Item 2. 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.
BRT from time to time, sells senior participating interests in its loans to
other institutions. During the quarter ended June 30, 1999 BRT sold $7,860,000
of these loans to a financial institution. Repayments of real estate loans in
the amount of $31,995,000 are due during the twelve months ending June 30, 2000,
including $3,819,000 due on demand. The availability of mortgage financing
secured by real property and the market for selling real estate is cyclical.
Accordingly, BRT cannot project the portion of loans maturing during the next
twelve months which will be paid or the portion which will be extended for a
fixed term or on a month to month basis.
On May 18, 1999 BRT entered into a $45,000,000 revolving credit facility with
TransAmerica Business Credit Corporation ("TransAmerica"). This facility
replaces a $25,000,000 facility with Credit Suisse First Boston Mortgage Capital
LLC. The TransAmerica agreement is a revolving facility, which can be used for
specific business purposes, the primary of which is lending. Borrowings under
the facility are secured by specific receivables of BRT and its subsidiary, BRT
Funding and the agreement provides that the amount borrowed will not exceed 75%
of the value of the collateral. Interest is charged on the outstanding balance
at prime plus 1/2% or under certain circumstances at LIBOR + 3 1/4%. The
interest rate at June 30, 1999 was 8.25%. Unused line fees are calculated at
1/8% on the difference between $45,000,000 (the maximum principal debt) and the
average amount outstanding. The facility matures on May 17, 2002. The
outstanding balance at August 10, 1999 was $373,687.
During the nine months ended June 30, 1999, the Trust generated cash of
$3,024,000 from the sale of real estate owned, $19,066,000 from collections from
real estate loans and $7,860,000 from the sale of senior participating interest
in real estate loans. These funds in addition to cash on hand, were used
primarily to fund real estate loan originations of $22,649,000. BRT's cash and
cash equivalents were $25,055,000 at June 30, 1999.
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 the Trust acquired new
computer hardware and software to handle the Trust's accounting and real estate
management. The 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,
borrowers or suppliers to be year 2000 compliant. Based upon its review and the
nature of BRT's business, the inability of its tenants, borrowers 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 from cash and liquid investments on hand,
interest received on outstanding real estate loans, net cash flow generated from
the operation of real estate assets and from time to time the sale of senior
participating interests in its loans.
<PAGE>
Results of Operations
Interest and fees on real estate loans increased by $432,000 to $1,744,000 for
the three months ended June 30, 1999 as compared to $1,312,000 for the
corresponding period in 1998. The increase was due to a higher average balance
of earning real estate loans outstanding during the quarter. This category also
increased by $2,055,000 to $5,770,000 for the nine months ended June 30, 1999 as
compared to $3,715,000 for the corresponding period in 1998. This increase was
also due to a higher average balance of earning real estate loans outstanding
during the current nine month period.
Operating income on real estate owned decreased by $60,000 to $943,000 for the
three months ended June 30, 1999 as compared to $1,003,000 for the corresponding
period in 1998. During the nine month period ended June 30, 1999 this category
decreased $311,000 from $3,106,000 to $2,795,000. The decrease for both periods
is primarily due to the reduction of rental income that has resulted from the
continued sale of foreclosed properties.
Other revenues, primarily investment income, increased by $13,000 to $237,000
for the three months ended June 30, 1999 as compared to $224,000 for the
corresponding period in 1998. This was the result of an increase in the average
balance of cash and cash equivalents during the period. This category decreased
by $114,000 to $554,000 for the nine months ended June 30, 1999 compared to
$668,000 for the corresponding period in 1998. This decrease is the result of
decreased interest rates on invested balances.
Interest expense on notes and loans payable increased by $87,000 to $112,000 for
the three months ended June 30, 1999 as compared to $25,000 for the
corresponding period in 1998. During the nine month period ended June 30, 1999
interest expense increased by $316,000 from $75,000 to $391,000. The increases
in both periods is the result of having a higher outstanding balance under its
credit facility.
The Advisor's fee increased by $8,000 to $134,000 for the three-month period
ended June 30, 1999 as compared to $126,000 for the corresponding period in
1998. For the nine months ended June 30, 1999 the advisor's fees increased by
$80,000 to $450,000 from $370,000. These increases were the result of an
increase in total invested assets, the basis upon which the fee is calculated.
General and administrative expenses increased by $165,000 to $836,000 for the
three months ended June 30, 1999 as compared to $671,000 for the corresponding
period in 1998. This category increased by $507,000 to $2,395,000 for the nine
months ended June 30, 1999 as compared to $1,888,000 for the corresponding
period in 1998. The increases in both periods was primarily the result of
increased expenses, primarily salaries, rent and costs associated with BRT's
expansion of staff and marketing efforts in order to generate new business.
Operating expenses relating to real estate assets decreased by $85,000 to
$526,000 for the three months ended June 30, 1999 as compared to $611,000 for
the corresponding period in 1998. This category decreased by $121,000 to
$1,707,000 for the nine months ended June 30, 1999 as compared to $1,828,000 for
the corresponding period in 1998. These decreases were the result of decreased
interest expense on mortgages and a general decrease in operating expenses on
BRT's commercial real estate assets.
Amortization and depreciation increased by $12,000 to $98,000 for the three
month period ended June 30, 1999 as compared to $86,000 in the corresponding
period in 1998. During the nine month period ended June 30, 1999 amortization
and depreciation increased $8,000 to $266,000 from $258,000 for the
corresponding period in 1998. These increases are the result of amortization of
costs associated with the TransAmerica credit facility completed in May 1999.
Net gains on sale of real estate loans and foreclosed properties and
available-for-sale investments was $555,000 for the three months ended June 30,
1999 as compared to $1,275,000 for the comparable period in 1998. For the nine
month period ended June 30, 1999 net gains on sale of real estate loans and
foreclosed properties and available-for-sale investments was $2,972,000 as
compared to $5,986,000 for the comparable period in 1998. It is the policy of
BRT to offer for sale all foreclosed property at prices that management believes
represent fair value.
Item 3. Quantitative and Qualitative Disclosures About Market Risks
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 not have a material effect on net income.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
On May 25, 1999 BRT filed an 8-K reporting the consummation and material terms
of a $45 million revolving credit facility with TransAmerica Business Credit
Corporation that took place on May 18, 1999.
On June 7, 1999 BRT filed an 8-K reporting a filing with the Office of Thrift
Supervision to establish a de novo federal savings and loan association.
<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
Registrant
August 13, 1999 /s/ Jeffrey Gould
- --------------- -----------------
Date Jeffrey Gould, President
August 13, 1999 /s/ George Zweier
- --------------- -----------------
Date George Zweier, Vice President
and Chief Financial Officer
<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> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> JUN-30-1999
<CASH> 25,055
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 88,156
<CURRENT-LIABILITIES> 0
<BONDS> 10,194
0
0
<COMMON> 26,665
<OTHER-SE> 49,195
<TOTAL-LIABILITY-AND-EQUITY> 88,156
<SALES> 0
<TOTAL-REVENUES> 2,924
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,706
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,773
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,773
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,773
<EPS-BASIC> .25
<EPS-DILUTED> .24
</TABLE>
