Unassociated Document

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC  20549

FORM 10-Q

x Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934

For the quarterly period ended March 31, 2009

OR

¨ Transition Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934

Commission File Number 001-07172

BRT REALTY TRUST
(Exact name of Registrant as specified in its charter)

Massachusetts
13-2755856
(State or other jurisdiction of
(I.R.S. Employer
incorporation or organization)
Identification No.)

60 Cutter Mill Road, Great Neck, NY
11021
(Address of principal executive offices)
(Zip Code)

516-466-3100
(Registrant’s telephone number, including area code)

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes   x         No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulations S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such reports).

Yes  ¨        No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See definition of “large accelerated filer,” “accelerated filer” and “small reporting company” in Rule 12b-2 of the Exchange Act.  (Check one):

Large accelerated filer  ¨
Accelerated filer x
   
Non-accelerated filer ¨ (Do not check if a smaller reporting company)
Smaller reporting company ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ¨       No    x

Indicate the number of shares outstanding of each of the issuer's classes of stock, as of the latest practicable date.

11,644,542 Shares of Beneficial Interest,
$3 par value, outstanding on  May 5, 2009

 
 

 

Part 1 - FINANCIAL INFORMATION
Item 1. Financial Statements

BRT REALTY TRUST AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands except per share amounts)

   
March 31,
2009
(Unaudited)
   
September 30,
2008
(Audited)
 
ASSETS
           
             
Real estate loans
           
Earning interest
  $ 59,258     $ 118,028  
Non-earning interest
    67,647       18,407  
      126,905       136,435  
Deferred fee income
    (501 )     (882 )
Allowance for possible losses
    (16,699 )     (6,710 )
      109,705       128,843  
Real estate properties net of accumulated depreciation of $2,281 and $1,501
    43,284       42,347  
Investment in unconsolidated ventures at equity
    6,245       9,669  
                 
Cash and cash equivalents
    14,089       35,765  
Available-for-sale securities at market
    3,491       10,482  
Real estate properties held for sale
    16,934       34,665  
Other assets including $45 and $168 relating to real estate properties held for sale
    9,074       8,249  
Total assets
  $ 202,822     $ 270,020  
                 
LIABILITIES AND SHAREHOLDERS’ EQUITY
               
                 
Liabilities:
               
Borrowed funds
  $ 6,000     $ 3,000  
Junior subordinated notes
    56,702       56,702  
Mortgage payable
    2,273       2,315  
Accounts payable and accrued liabilities including $177 and $584 relating to real estate properties held for sale
    2,897       3,602  
Deposits payable
    1,365       2,064  
Dividends payable
    -       15,565  
Total liabilities
    69,237       83,248  
                 
Commitments and contingencies
    -       -  
Shareholders’ equity:
               
Preferred shares, $1 par value:
               
Authorized 10,000 shares, none issued
    -       -  
Shares of beneficial interest, $3 par value:
               
Authorized number of shares, unlimited, issued 12,711 shares in both periods
    38,133       38,133  
Additional paid-in capital
    166,654       166,402  
Accumulated other comprehensive income – net unrealized gain on available-for-sale securities
    127       7,126  
Distributions in excess of earnings
    (60,270 )     (14,311 )
Cost of 1,368 and 1,206 treasury shares of beneficial interest
    (11,059 )     (10,578 )
Total shareholders’ equity
    133,585       186,772  
Total liabilities and shareholders’ equity
  $ 202,822     $ 270,020  

 
See Accompanying Notes to Consolidated Financial Statements.

 
2

 

BRT REALTY TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(Amounts in thousands except per share amounts)

   
Three Months Ended
March 31,
   
Six Months Ended
March 31,
 
   
2009
   
2008
   
2009
   
2008
 
Revenues:
                       
Interest on real estate loans
  $ 2,457     $ 3,833     $ 6,305     $ 9,615  
Loan fee income
    123       435       607       1,110  
Income from real estate properties
    1,215       499       2,525       944  
Other, primarily investment income
    162       536       363       1,142  
Total Revenues
    3,957       5,303       9,800       12,811  
                                 
Expenses:
                               
Interest – borrowed funds
    1,403       1,710       2,802       3,445  
Advisor's fees, related party
    295       457       652       921  
Impairment charges
    12,315       -       15,815       -  
Provision for loan loss
    17,530       5,300       17,530       5,300  
Foreclosure related professional fees
    242       487       590       1,226  
General and administrative – including $223 and $258 to related parties for the three month periods, respectively, and  $486 and $518 for the six month periods, respectively
    1,718       1,737       3,390       3,504  
Other taxes
    21       73       17       100  
Expenses relating to real estate properties  including interest on mortgage payable of $36 and $37 for the three  month periods, respectively, and $72 and $75 for the six  month periods, respectively
    2,067       933       4,169       1,328  
Amortization and depreciation
    572       235       851       278  
Total Expenses
    36,163       10,932       45,816       16,102  
                                 
(Loss) before equity in (loss) earnings of unconsolidated joint ventures, gain on sale of joint venture interests and available-for-sale securities, minority interest and discontinued operations
    (32,206 )     (5,629 )     (36,016 )     (3,291 )
Equity in (loss) earnings of unconsolidated joint ventures
    (2,171 )     701       (2,087 )     1,152  
(Loss) before gain on sale of joint venture interests and available-for-sale securities, minority interest and discontinued operations
    (34,377 )     (4,928 )     (38,103 )     (2,139 )
Gain on sale of joint venture interests
    271       -       271          
Gain on sale of available-for-sale securities
    -       3,818       -       3,818  
Minority interest
    (42 )     (39 )     (86 )     (54 )
                                 
(Loss) income from continuing operations
    (34,148 )     (1,149 )     (37,918 )     1,625  
                                 
Discontinued Operations
                               
Income from operations
    218       83       365       145  
Impairment charges
    (8,435 )     -       (8,435 )     -  
Gain on sale of real estate assets
    29       1,052       29       1,446  
(Loss) income from discontinued operations
    (8,188 )     1,135       (8,041 )     1,591  
Net (loss) income
  $ (42,336 )   $ (14 )   $ (45,959 )   $ 3,216  
                                 
(Loss) earnings per share of beneficial interest:
                               
(Loss) income from continuing operations
  $ (2.92 )   $ (.10 )   $ (3.24 )   $ .14  
(Loss) income from discontinued operations
    ( .70 )     .10       (.69 )     .14  
Basic and diluted  (loss) earnings per share
  $ (3.62 )   $ (.00 )   $ (3.93 )   $ .28  
                                 
Cash distributions per common share
  $ -     $ .62     $ -     $ 1.24  
                                 
Weighted average number of common shares outstanding:
                               
Basic
    11,682,037       11,733,741       11,688,473       11,550,843  
Diluted
    11,682,037       11,733,741       11,688,473       11,560,340  
See Accompanying Notes to Consolidated Financial Statements.

 
3

 

BRT REALTY TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
 (Unaudited)
(Dollar amounts in thousands except for per share amounts)

   
Shares of
Beneficial
Interest
   
Additional
Paid-In
Capital
   
Accumulated
Other
Comprehensive
Income
   
Distributions
In Excess of
Earnings
   
Treasury
Shares
   
Total
 
                                     
Balances, September 30, 2008
  $ 38,133     $ 166,402     $ 7,126     $ (14,311 )   $ (10,578 )   $ 186,772  
                                                 
Restricted stock vesting
            (189 )                     189       -  
                                                 
Compensation expense – restricted stock
    -       441       -       -       -       441  
                                                 
Shares repurchased (184,455 shares)
                                    (670 )     (670 )
                                                 
Net loss
    -       -       -       (45,959 )     -       (45,959 )
                                                 
Other comprehensive loss - net unrealized loss on available-for-sale securities
    -       -       (6,999 )     -       -       (6,999 )
                                                 
Comprehensive loss
    -       -       -       -       -       (52,958 )
                                                 
Balances, March 31, 2009
  $ 38,133     $ 166,654     $ 127     $ (60,270 )   $ (11,059 )   $ 133,585  

See Accompanying Notes to Consolidated Financial Statements.

 
4

 

BRT REALTY TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Amounts in Thousands)
   
Six Months Ended
March 31,
 
   
2009
   
2008
 
Cash flows from operating activities:                 
Net (loss) income
  $ (45,959 )   $ 3,216  
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities:
               
Provision for loan losses
    17,530       5,300  
Impairment charges
    24,250       -  
Amortization and depreciation
    1,171       669  
Amortization of deferred fee income
    (541 )     (1,070 )
Amortization of restricted stock
    441       411  
Gain on sale of available-for-sale securities
    -       (3,818 )
Gain on sale of joint venture interests
    (271 )     -  
Net gain on sale of real estate assets from discontinued operations
    (29 )     (1,446 )
Equity in loss (earnings) of unconsolidated joint ventures
    2,087       (1,152 )
Distribution of earnings of unconsolidated joint ventures
    61       910  
Increase in straight line rent
    (8 )     (7 )
Increases and decreases from changes in other assets and liabilities:
               
Decrease in interest and dividends receivable
    646       934  
Decrease (increase) in prepaid expenses
    79       (80 )
Decrease in accounts payable and accrued liabilities
    (1,404 )     (2,208 )
Increase in deferred costs
    -       (463 )
Other
    (517 )     (349 )
Net cash (used in) provided by operating activities
    (2,464 )     847  
                 
Cash flows from investing activities:
               
Collections from real estate loans
    6,074       20,136  
Additions to real estate loans
    (12,726 )     (34,108 )
Loan loss recoveries
    100       -  
Net costs capitalized to real estate owned
    (1,872 )     (706 )
Collection of loan fees
    258       958  
Proceeds from sale of real estate owned
    1,010       3,499  
Proceeds from sale of available-for-sale securities
    -       5,150  
Contributions to unconsolidated ventures
    (143 )     (837 )
Distributions of capital of unconsolidated ventures
    476       406  
Proceeds from the sale of joint venture interests
    1,350       -  
Net cash used in investing activities
    (5,473 )     (5,502 )
                 
Cash flows from financing activities:
               
Proceeds from borrowed funds
    6,000       31,000  
Repayment of borrowed funds
    (3,000 )     (18,000 )
Increase in deferred credit facility costs
    (462 )     -  
Mortgage amortization
    (42 )     (39 )
Cash distribution – common shares
    (15,565 )     (14,040 )
Issuance of shares – dividend reinvestment and stock purchase plan
    -       6,971  
Repurchase of shares
    (670 )     -  
Net cash (used in) provided by financing activities
    (13,739 )     5,892  
                 
Net (decrease) increase in cash and cash equivalents
    (21,676 )     1,237  
Cash and cash equivalents at beginning of period
    35,765       17,103  
Cash and cash equivalents at end of period
  $ 14,089     $ 18,340  
                 
Supplemental disclosure of cash flow information:
               
Cash paid during the period for interest
  $ 2,588     $ 3,132  
Non cash investing and financing activity:
               
Seller financing provided for sale of real estate
  $ 1,478     $ -  
Reclassification of loan to real estate upon foreclosure
  $ 8,970     $ 64,446  
Reclassification of real estate held for sale to real estate properties
  $ 9,924     $ -  
Accrued distributions
  $ -     $ 7,297  

See Accompanying Notes to Consolidated Financial Statements.

 
5

 

BRT REALTY TRUST AND SUBSIDIARIES
Notes to Consolidated Financial Statements

Note 1 – Organization and Background

BRT Realty Trust is a real estate investment trust organized as a business trust in 1972 under the laws of the Commonwealth of Massachusetts.  Our principal business is to generate income by originating and holding for investment, for our own account, senior and junior real estate mortgage loans secured by real property. The Trust may also participate as both an equity investor in, and as a mortgage lender to, joint ventures which acquire income producing properties.

Note 2 - Basis of Preparation

The accompanying interim unaudited consolidated financial statements as of March 31, 2009 and for the three  and six months ended March 31, 2009 and March 31, 2008 reflect all normal recurring adjustments which are, in the opinion of management, necessary for a fair presentation of the results for such interim periods. The results of operations for the three and six months ended March 31, 2009 are not necessarily indicative of the results for the full year.  The balance sheet as of September 30, 2008 has been derived from the audited financial statements at that date but does not include all the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements.

Certain items on the consolidated financial statements for the preceding period have been reclassified to conform with the current consolidated financial statements.

The consolidated financial statements include the accounts and operations of BRT Realty Trust, its wholly owned subsidiaries and its majority-owned or controlled real estate entities.  With respect to its unconsolidated joint ventures, as (i) the Trust is primarily the managing member but does not exercise substantial operating control over these entities pursuant to EITF 04-5 “Determining Whether a General Partner, or the General Partners as a Group Controls a Limited Partnership or Similar Entity When the Limited Partners Have Certain Rights,” and (ii) such entities are not variable-interest entities pursuant to FASB Interpretation No. 46(R), “Consolidation of Variable Interest Entities – an interpretation of ARB No.5,” the Trust has determined that such joint ventures should be accounted for under the equity method of accounting for financial statement purposes. Material intercompany items and transactions have been eliminated. BRT Realty Trust and its subsidiaries are hereinafter referred to as "BRT" or the "Trust."

These statements should be read in conjunction with the consolidated financial statements and related notes which are included in BRT’s Annual Report on Form 10-K for the year ended September 30, 2008.

The preparation of the financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements.  Actual results could differ from those estimates.

Note 3 - Shareholders' Equity

Distributions

During the quarter ended March 31, 2009, BRT did not declare a cash distribution to its shareholders.

 
6

 

Note 3 - Shareholders' Equity (Continued)

Stock Options

As of March 31, 2009, there were 22,500 stock options outstanding.  All of these options are exercisable.  During the quarter ended March 31, 2009, no options were exercised.

Restricted Shares

During the quarter ended March 31, 2009 the Trust issued 118,660 restricted shares of beneficial interest under its 2003 incentive plan.  The total number of shares available for issuance under this plan is 350,000, all of which have been issued as of March 31, 2009.  Since inception of the plan, 55,760 shares have vested. During the quarter ended March 31, 2009, the Trust also issued 7,790 shares of beneficial interest under its 2009 incentive plan which was approved by BRT shareholders in March 2009.  The total number of shares available for issuance under this plan is 500,000.  The shares granted under both plans vest five years from the date of issuance and, under certain circumstances, may vest earlier.  For accounting purposes, the restricted shares are not included in the outstanding shares shown on the balance sheet until they vest, but are included in the earnings per share computation.   The Trust adopted the provisions of Financial Accounting Standards Board (“FASB”) No. 123 (R), “Share-Based Payment (revised 2004).” These provisions require that the estimated fair value of restricted shares at the date of grant be amortized ratably into expense over the appropriate vesting period. For the three and six months ended March 31, 2009 and 2008, the Trust recorded $220,000 and $441,000, and $223,000 and $411,000, respectively, of compensation expense,  as a result of the outstanding restricted shares.   At March 31, 2009, $2,399,000 has been deferred as unearned compensation and will be charged to expense over the remaining weighted average vesting period of approximately 3.5 years.

Per Share Data

Basic (loss) earnings per share were determined by dividing net (loss) income for the period by the weighted average number of common shares outstanding during each period.

Diluted (loss) earnings per share reflect the potential dilution that could occur if securities or other contracts to issue common shares were exercised or converted into common shares or resulted in the issuance of common shares that then shared in the earnings of the Trust.

The following table sets forth the computation of basic and diluted shares:

   
Three Months Ended
March 31,
   
Six Months Ended
March 31,
 
   
2009
   
2008
   
2009
   
2008
 
Basic
    11,682,037       11,733,741       11,688,473       11,550,843  
                                 
Effect of dilutive securities
    -       -       -       9,497  
                                 
Diluted (1)
    11,682,037       11,733,741       11,688,473       11,560,340  

(1) The impact of dilutive securities is not included in the computation of loss per share for the three months ended March 31, 2009 and 2008 and for the six months ended March 31, 2009, as the inclusion of such common share equivalents would be anti-dilutive.
 
7

 
Note 4 - Real Estate Loans

At March 31, 2009, information relating to real estate loans, all of which are short term (three years or less), is summarized as follows (dollar amounts in thousands):

 
First mortgage loans:
 
Earning
Interest
   
Non-Earning
Interest
   
Total
   
Allowance For
Possible Losses (1)
   
Real Estate
Loans, Net
 
                               
Multi-family residential
  $ 4,164     $ 2,164     $ 6,328     $ (849 )   $ 5,479  
Condominium units (existing multi-family and commercial units)
    41,504       -       41,504       -       41,504  
Hotel condominium units
    4,468       -       4,468       -       4,468  
Land and land assemblage
    6,356       8,240       14,596       (2,507 )     12,089  
Retail/office/mixed use
    -       52,531       52,531       (13,343 )     39,188  
Industrial
    2,610       -       2,610       -       2,610  
Hotel
    -       3,283       3,283       -       3,283  
Residential
    156       -       156       -       156  
                                         
Second mortgage loans:
                                       
                                         
Multi-family residential
    -       1,250       1,250       -       1,250  
Retail
    -       179       179       -       179  
      59,258       67,647       126,905       (16,699 )     110,206  
Deferred fee income
    (103 )     (398 )     (501 )     -       (501 )
Real estate loans
  $ 59,155     $ 67,249     $ 126,404     $ (16,699 )   $ 109,705  

(1) All allowance for possible losses relate to non-earning loans.

At March 31, 2009, there were 24 non-earning loans outstanding to 6 separate, unrelated borrowers.  These loans have an aggregate outstanding principal balance of $67,647,000, and represent 53% of total real estate loans and 33% of total assets.  The Trust recognized $67,000 of cash basis interest on non-earning loans in the three and six month periods ended March 31, 2009.

 
8

 

Note 4 - Real Estate Loans (Continued)

Information regarding these non-earning loans is set forth in the table below (dollar amounts in thousands):
 
Location
 
Utica, NY
   
Newark, NJ
   
New Jersey
   
Brooklyn, NY
   
Ft Wayne, IN
   
Manhattan, NY
 
Number of Loans
    1       19       1       1       1       1  
Principal Balance
  $ 2,164     $ 37,804     $ 179     $ 22,967     $ 3,283     $ 1,250  
Accrued Interest
    -     $ 67       -       -       -       -  
Cross collateral or cross default provision
 
No
   
Yes
   
Yes
   
No
   
No
   
No
 
Secured
 
Yes
   
Yes
   
Yes
   
Yes
   
Yes
   
Yes
 
Security
 
Multi-
family
apartment
building
   
Existing
 office, retail,
 parking and
vacant land
   
5 Retail/
office
buildings
   
8 Story
vacant
office w/
retail
   
13 Story
Hotel
   
Multi-family
 
Recourse/non-recourse
 
Recourse
   
Recourse
   
Recourse
   
Recourse
   
Recourse
   
Recourse
 
Impaired
 
Yes
   
Yes
   
No
   
Yes
   
No
   
No
 
Allowance for possible losses
  $ 849     $ 11,500       -     $ 4,350       -       -  
Collateral Dependent
 
Yes
   
Yes
   
Yes
   
Yes
   
Yes
   
Yes
 

A summary of the changes in non-earning loans, before allowance for possible losses of $16,699,000, for the three and six months ended March 31, 2009 is as follows (dollar amounts in thousands):

   
Three Months Ended
March 31, 2009
   
Six Months Ended
March 31, 2009
 
             
Beginning principal balance
  $ 5,384     $ 18,407  
                 
Additions
    67,604       67,604  
Protective advances
    -       -  
Total additions
    67,604       67,604  
                 
Payoffs and paydowns
    (341 )     (704 )
Transferred to owned real estate (a)
    (2,700 )     (15,360 )
Direct charge off (b)
    (2,300 )     (2,300 )
Total reductions
    (5,341 )     (18,364 )
                 
Principal balance at March 31, 2009
  $ 67,647     $ 67,647  

 
(a)
During the quarter ended March 31, 2009, the Trust acquired by foreclosure, title to a residential home located in Purchase, New York.  At December 31, 2008, the gross principal balance of the loan secured by such property, which was reported as non-earning, was $2,700,000, before loan loss allowances of $1,165,000 of which $700,000 was recorded in prior periods.

 
9

 

Note 4 - Real Estate Loans (Continued)

During the quarter ended December 31, 2008, the Trust acquired by foreclosure, title to a development parcel of land located in Manhattan, New York and a 44 unit garden apartment complex in Naples, Florida.  At September 30, 2008, the gross principal balance of the loans, secured by such properties, both of which were reported as non-earning, was $12,660,000, before loan loss allowances of $5,160,000.

(b)
During the quarter ended March 31, 2009, BRT took a direct charge-off of $2,300,000 against a loan due to a fraud committed by the borrower against BRT.  BRT reported the fraud to the criminal authorities, who are currently investigating the matter.  BRT is considering whether to pursue a legal action against a third party service provider.

At March 31, 2009, four separate, unaffiliated borrowers had loans outstanding in excess of 5% of the total portfolio before loan loss allowances. Information regarding the loans outstanding to each of these borrowers is set forth in the table below:

Gross Loan
Balance
 
# of
Loans
   
% of Gross
Loans
   
% of
Assets
 
Type
 
State 
 
Status
$37,804,000
    19       29.8 %     18.7 %   
Existing office, retail, parking  and vacant land
 
NJ
 
Non-Performing
$26,075,000
    1       20.6 %     12.9 %
Office/condo conversion
 
NY
 
Performing
$22,967,000
    1       18.1 %     11.3 %
Vacant office w/retail
 
NY
 
Non-Performing
$  8,700,000
    1       6.9 %     4.3 %
Multi-family, condo units
 
NY
 
Performing

Note 5 - Allowance for Possible Loan Losses

The Trust added an additional $17,530,000 to its existing loan loss allowance in the three and six months ended March 31, 2009.  The total additional allowances are primarily related to 19 loans, collateralized by several land assemblage sites in Newark, NJ (which includes existing office, retail, parking and vacant land), and a loan collateralized by an eight story vacant office building with occupied retail space in Brooklyn, NY, both of which became non-earning during the current quarter.

An analysis of the loan loss allowance for the three and six month period ended March 31, 2009 and March 31, 2008, respectively, is as follows (dollar amounts in thousands):

   
Three Months Ended
March 31,
   
Six Months Ended
March 31,
 
   
2009
   
2008
   
2009
   
2008
 
                         
Balance at beginning of period
  $ 1,550     $ 6,620     $ 6,710     $ 8,917  
Provision for loan loss
    17,530       5,300       17,530       5,300  
Charge-offs
    (3,431 )     (4,050 )     (8,591 )     (6,347 )
Recoveries
    1,050       -       1,050       -  
Balance at end of period
  $ 16,699     $ 7,870     $ 16,699     $ 7,870  

The allowance for possible loan losses applies to 21 loans aggregating $62,935,000 at March 31, 2009, all of which are non-earning, and three loans aggregating $26,049,000 at March 31, 2008, all of which were non-earning.

 
10

 

Note 6 - Real Estate Properties

A summary of real estate properties for the six months ended March 31, 2009 is as follows (dollar amounts in thousands):
 
   
September
30, 2008
Balance
   
 
Additions
   
 
Costs
Capitalized
   
Net
Transfers
from held
for sale
   
 
Sales
   
Depreciation
and
Amortization
   
Impairment
Charges
   
March
31, 2009
Balance
 
                                                 
Retail
  $ 3,159       -       -       -       -     $ (45 )     -     $ 3,114  
Condominium units/coop shares
    19,846       -     $ 186     $ 5,067     $ (245 )     (435 )   $ (6,875 )     17,544  
Multi-family
    8,905     $ 2,960 (a)     333       4,857               (331 )     (7,790 )     8,934  
Land
    10,437       4,419 (b)     (14 )     -    
-
      -       (1,150 )     13,692  
Total real estate properties
  $ 42,347     $ 7,379     $ 505     $ 9,924 (d)   $ (245 )   $ (811 )(c)   $ (15,815 )   $ 43,284  

(a)
During the quarter ended December 31, 2008, the Trust acquired by foreclosure a 44 unit garden apartment complex inNaples, Florida.  At December 31, 2008, this property had a book value of $2,960,000.  This balance is net of loan chargeoffs of $3,515,000.  This property was transferred to real estate properties held for sale and subsequently sold in the quarter ended March 31, 2009.

(b)
During the quarter ended December 31, 2008, the Trust acquired by foreclosure a development parcel located in Manhattan, NewYork.  This property had a book value at December 31, 2008 of $4,419,000.  This balance is net of loan charge offs of $1,645,000.

(c)
Includes catch up depreciation of $217,000 relating to properties previously reported as held for sale.

(d)
Land and building allocation for properties recently transferred from held for sale are preliminary and will be finalized within 12 months of the respective dates of acquisition.

Note 7 – Impairment Charges

The Trust reviews each real estate asset owned, including investments in unconsolidated joint ventures, for which indicators of impairment are present to determine whether the carrying amount of the asset can be recovered.  Measurement is then based upon the fair value of the asset.  Real estate assets held for sale are valued at the lower of cost or fair value, less costs to sell on an individual asset basis.

As a result of the credit crisis and the continued deterioration in the value of real estate where the Trust owns properties, the Trust took additional impairment charges of $20,750,000 and $24,250,000 for the three and six month periods ended March 31, 2009, respectively, against 11 properties, of which $8,435,000 in both periods relates to six properties held for sale and is shown as a component of discontinued operations.

Note 8 – Investment in Unconsolidated Joint Ventures at Equity

BRT Funding LLC

A joint venture between the Trust and CIT Capital USA, Inc. engages in the business of investing in short-term commercial real estate loans for terms of six months to three years, commonly referred to as bridge loans.

 
11

 

Note 8 – Investment in Unconsolidated Joint Ventures at Equity (Continued)

The Trust is the managing member and holds an equity interest of 25% as adjusted, and is responsible for the payment of a fee to a merchant bank for arranging the transaction and securing capital from CIT Capital USA Inc.  Amortization of the remaining portion of the fee totaled $68,000 and $136,000 for the three and six month period ending March 31, 2009, respectively, and is shown as a reduction in equity in (loss) earnings of unconsolidated joint ventures.

The Trust has agreed to present all loan proposals received by it to the joint venture for its consideration on a first refusal basis.  There were no loans originated by the joint venture in the three or six months ended March 31, 2009 or in the three or six months ended March 31, 2008.

Unaudited condensed financial information regarding the joint venture is shown below (dollar amounts in thousands):

Condensed Balance Sheet
 
March 31, 2009
   
September 30, 2008
 
             
Assets
           
Cash
  $ 567     $ 359  
Real estate loans:
               
Earning interest
    6,354       6,323  
Non-earning interest
    -       26,421  
      6,354       32,744  
Deferred fee income
    (22 )     (160 )
Allowance for possible losses
    -       (2,703 )
      6,332       29,881  
Other assets
    48       82  
Real estate property held for sale
    14,368       1,143  
Total assets
  $ 21,315     $ 31,465  
                 
Liabilities and equity
               
Other liabilities
  $ 375     $ 211  
Equity
    20,940       31,254  
Total liabilities and equity
  $ 21,315     $ 31,465  
 
 
12

 

Note 8 – Investment in Unconsolidated Joint Ventures at Equity (Continued)

   
Three Months Ended
   
Six Months Ended
 
   
March 31,
   
March 31,
 
Condensed Statement of
Operations
 
2009
   
2008
   
2009
   
2008
 
Interest and fees on real estate loans
  $ 117     $ 1,028     $ 536     $ 2,880  
Other income
    22       -       61       -  
Total revenues
    139       1,028       597       2,880  
                                 
Provision for loan loss (1)
    8,928       -       8,928       -  
Professional fees
    202       -       274       -  
Real estate operating expenses
    6       -       6       -  
Other expenses
    -       19       38       156  
Total operating expenses
    9,136       19       9,246       156  
                                 
Net (loss) income attributable to members
  $ (8,997 )   $ 1,009     $ (8,649 )   $ 2,724  
                                 
Amount recorded in statements ofoperations related to venture (2)
  $ (2,102 )   $ 681     $ (2,068 )   $ 1,128  

(1)
In the quarter ended March 31, 2009, the venture recorded a provision for loan loss of $8,928,000 on a multi-family apartment complex located in Mesa, Arizona, which was subsequently acquired by the venture in a foreclosure sale.

(2)
This amount is net of $68,000 and $136,000 in the three and six months ended March 31, 2009, respectively  and $78,000 and $154,000, in the three and six months ended March 31, 2008, respectively, of amortization of the fee that the Trust paid to a merchant bank for arranging the transaction and securing the capital from the CIT member.  This amount also includes a management allocation equal to 1% per annum of the loan portfolio, as defined, of $16,000 and $32,000, respectively, in the three and six month period ended March 31, 2009 and $477,000, in the three and six month periods ended March 31, 2008 paid to the BRT member, which includes an out of period adjustment of $268,000 pertaining to the year ended September 30, 2007 and $115,000 pertaining to the three months ended December 31, 2007.

Other Real Estate Ventures

The Trust is also a partner in unconsolidated joint ventures which owned and operated six properties which generated $(69,000) and $20,000 of equity in (loss) earnings for the three months ended March 31, 2009 and 2008, respectively, and $(19,000) and $24,000 in the six months ended March 31, 2009 and 2008, respectively.

In the current quarter, the Trust sold its interest in four of these properties, located in Connecticut, and recognized a gain of $271,000 on the sale. The Trust’s equity in these unconsolidated joint ventures totaled $821,000 and $1,857,000 at March 31, 2009 and September 30, 2008, respectively.

Note 9 – Available-For-Sale Securities

The cost of available-for-sale securities at March 31, 2009 was $3,364,000. The fair value of these securities was $3,491,000 at March 31, 2009. Gross unrealized gains were $654,000 and gross unrealized losses totaled $527,000 at March 31, 2009.  These amounts are reflected as net accumulated other comprehensive income – net unrealized gains on available-for-sale securities in the accompanying consolidated balance sheets.

 
13

 

Note 9 – Available-For-Sale Securities (Continued)
 
The valuation of the Trust’s available-for-sale securities was determined to be a Level 1 financial asset within the valuation hierarchy established by SFAS No. 157, and is based on current market quotes received from financial sources that trade such securities.

Included in available-for-sale securities are 131,289 shares of Entertainment Properties Trust (NYSE:EPR), which have a cost basis of $1,725,000 and a fair market value at March 31, 2009 and September 30, 2008 of $2,069,000 and $7,184,000, respectively.  At May 1, 2009, these securities had a market value of $4,888,000.

Note 10 – Real Estate Properties Held for Sale

A summary of changes in real estate properties held for sale for the six months ended March 31, 2009 is shown below (dollar amounts in thousands):

   
September
30, 2008
Balance
   
 
Additions
   
Net
Transfers
To
Real Estate
Assets
   
 
Improvements
   
 
Impairment
Charges
   
 
Sales
   
 
March 31,
2009
Balance
 
Coop and Condo Units
  $ 5,028       -     $ (5,067 )   $ 64       -       -     $ 25  
Multi-family
    29,637       -       (4,857 )     1,301     $ (8,435 )   $ (2,213 )(b)     15,433  
Single family
 
 
    $ 1,476 (a)     -       -       -       -       1,476  
Total
  $ 34,665     $ 1,476     $ (9,924 )   $ 1,365     $ (8,435 )   $ (2,213 )   $ 16,934  

(a)  During the quarter ended March 31, 2009, the Trust acquired by foreclosure a 6,000 square foot single family residence in Purchase, NY.  At the time of foreclosure, this property had a book value of $1,476,000, which is net of charge offs of $1,165,000.  A contract has been entered into for the sale of the property which will result in proceeds to us approximating our book value.

(b)  In the quarter ended March 31, 2009, the Trust sold a 44 unit multi-family apartment complex located in Naples, Florida.  The property was sold for its approximate book value and no gain or loss was recognized.  The Trust recorded an impairment charge of $760,000 prior to the sale.  In connection with the sale, the Trust provided a purchase money mortgage in the amount of $1,645,000 maturing on March 31, 2011 which provides for a fixed rate of interest at 6.50% per annum.

Note 11 – Debt Obligations

Debt obligations consist of the following (dollar amounts in thousands):

   
March 31, 2009
   
September 30, 2008
 
             
Borrowed funds
  $ 6,000     $ 3,000  
Junior subordinated notes
    56,702       56,702  
Mortgage payable
    2,273       2,315  
Total debt obligations
  $ 64,975     $ 62,017  

 
14

 

Note 11 – Debt Obligations (Continued)

Borrowed Funds

The Trust has a $185 million credit facility with Capital One Bank, VNB New York Corp., Signature Bank and Manufacturers and Traders Trust Company.  The facility bears interest at LIBOR + 225 basis points.  The credit facility matures on February 1, 2010 and there are no extension options.  Under the credit facility, the Trust is required to maintain cash or marketable securities at all times of not less than $15 million.  The amount which can be outstanding under the revolving credit facility may not exceed an amount equal to the sum of (1) 65% of our earning first mortgages, plus (2) 50% of our earning second mortgages and (3) 50% of the fair market value of certain of our owned real estate, all of which are pledged to the lending banks as collateral and the sum of (2) and (3) may not exceed 15% of the borrowing base or $22.5 million.

At March 31, 2009, $27,700,000 was available to be drawn under the credit facility, of which $6,000,000 was outstanding.  The following is summary information relating to the credit facility:

   
For the Three Months Ended
March 31,
   
For the Six Months Ended
March 31,
 
   
2009
   
2008
   
2009
   
2008
 
Average balance
  $ 6,000,000     $ 21,473,000     $ 4,533,000     $ 18,885,000  
Outstanding balance at period end
  $ 6,000,000     $ 33,000,000     $ 6,000,000     $ 33,000,000  
Weighted average interest rate during the period
    2.69 %     5.82 %     3.33 %     6.46 %
Interest rate at period end
    2.75 %     5.36 %     2.75 %     5.36 %

The interest rates do not reflect deferred fee amortization of $116,000 for both the three  months ended March 31, 2009 and 2008, respectively, and $231,000 and $303,000 for the six months ended March 31, 2009 and 2008, respectively, which is a component of interest expense.  These fees are being amortized over the life of the credit facility.  At March 31, 2009, there was $385,000 of unamortized deferred fees, which is included in other assets.

In addition to the credit facility, the Trust has the ability to borrow funds through its two margin accounts. In order to maintain one of the accounts, the company is required to pay an annual fee equal to .3% of the market value of the pledged securities, which is included in interest expense.  Marketable securities with a fair market value at March 31, 2009 of $3,491,000 were pledged as collateral.  At March 31, 2009, there was no outstanding balance.

Junior Subordinated Notes

BRT issued $30,928,000 principal amount 30-year subordinated notes to BRT Realty Trust Statutory Trust II, an unconsolidated affiliate of BRT. Statutory Trust II was formed to issue $928,000 of its common securities to BRT and to sell $30 million of preferred securities to third party investors. The notes pay interest quarterly at a fixed rate of 8.49% per annum for ten years at which time they convert to a floating rate of LIBOR plus 290 basis points. Dividends are paid to the security holders under the same terms as the subordinated notes. The notes and preferred securities mature in April 2036 and may be redeemed in whole or in part anytime after April 2011, without penalty, at BRT’s option.  Issuance costs of $944,500 are being amortized over the intended 10 year holding period of the notes. At March 31, 2009, unamortized issuance costs totaled $668,000.

 
15

 

Note 11 – Debt Obligations (Continued)

BRT issued $25,774,000 principal amount 30-year subordinated notes to BRT Realty Trust Statutory Trust I, an unconsolidated affiliate of BRT. Statutory Trust I was formed to issue $774,000 of its common securities to BRT and to sell $25 million of preferred securities to third party investors. The notes pay interest quarterly at a fixed rate of 8.23% per annum for ten years at which time they convert to a floating rate of LIBOR plus 300 basis points. Dividends are paid to security holders under the same terms as the subordinated notes. The notes and preferred securities mature in April 2036 and may be redeemed in whole or in part anytime after March 2011, without penalty, at BRT’s option. Issuance costs of $822,000 are being amortized over the intended 10 year holding period of the notes. At March 31, 2009, unamortized issuance costs totaled $573,000.

BRT Realty Trust Statutory Trusts I and II are variable interest entities under FIN 46R.  Under the provisions of FIN 46R, BRT has determined that the holders of the preferred securities are the primary beneficiaries of the two Statutory Trusts.  This determination is based on the fact that BRT’s investments in the Statutory Trusts were financed directly by the Statutory Trusts and these investments are not considered to be at risk.  Accordingly, BRT is not considered to be the primary beneficiary and does not consolidate the Statutory Trusts.  The obligations to the Statutory Trusts are recorded under the caption “Junior Subordinated Notes” in the consolidated balance sheets.  The investments in the common securities of the Statutory Trusts are reflected in other assets in the consolidated balance sheets and is accounted for under the equity method of accounting.  BRT has not provided financial or other support during the periods presented to these variable interest entities that is was not contractually required to provide.

The table below provides the classification and carrying amounts of the assets and liabilities that relate to the variable interest entities and the maximum exposure to loss as a result of its involvement with the variable interest entities:

   
Carrying Value
 
Assets:
     
Other Assets- common securities Statutory Trusts
  $ 1,702,000  
         
Liabilities:
       
Junior subordinated notes – BRT
    1,702,000  
Junior subordinated notes – preferred securities third party
    55,000,000  
Net carrying value
  $ 56,702,000  
         
Maximum exposure to loss (a)
  $ 0  

(a) As BRT’s investment in the common securities of the Statutory Trusts was directly financed by the Statutory Trusts, there is no exposure to loss.

Mortgage Payable

The mortgage payable represents a first mortgage on a long term leasehold position on a shopping center owned by a joint venture in which the Trust holds a majority interest. The mortgage, with an original principal balance of $2,850,000, bears interest at a fixed rate of 6.25% for the first five years and has a maturity of October 1, 2011.  There is an option to extend the mortgage to October 1, 2016.  At March 31, 2009, the outstanding balance was $2,273,000.

 
16

 

Note 12 – Comprehensive (loss) income

Comprehensive (loss) income for the three and six month periods was as follows (dollar amounts in thousands):

   
Three Months Ended
March 31,
   
Six Months Ended
March 31,
 
   
2009
   
2008
   
2009
   
2008
 
Net (loss) income
  $ (42,336 )   $ (14 )   $ (45,959 )   $ 3,216  
Other comprehensive loss –
Unrealized loss on available for-
sale securities
    (2,701 )     (1,971 )     (6,999 )     (4,530 )
Comprehensive (loss) income
  $ (45,037 )   $ (1,985 )   $ (52,958 )   $ (1,314 )
 
Note 13 -Segment Reporting

Management has determined that it operates in two reportable segments: (i) a loan and investment segment which includes the origination and servicing of our loan portfolio and investments and (ii) a real estate segment which includes the operation and disposition of our real estate assets.

 
17

 

Note 13 -Segment Reporting

The following table summarizes our segment reporting for the three and six months ended March 31, 2009 (dollar amounts in thousands):

   
Three Months Ended
March 31, 2009
   
Six Months Ended
March 31, 2009
 
   
Loan and 
Investment
   
Real
Estate
   
 
Total
   
Loan and
Investment
   
Real
Estate
   
 
Total
 
Revenues
  $ 2,742     $ 1,215     $ 3,957     $ 7,275     $ 2,525     $ 9,800  
                                                 
Interest expense
    968       435       1,403       1,875       927       2,802  
Impairment charges
    -       12,315       12,315       -       15,815       15,815  
Provision for loan loss
    17,530       -       17,530       17,530       -       17,530  
Other expenses
    1,644       2,699       4,343       3,305       5,513       8,818  
Amortization and depreciation
    -       572       572       -       851       851  
Total expenses
    20,142       16,021       36,163       22,710       23,106       45,816  
                                                 
Loss  before other revenue and expense items
    (17,400 )     (14,806 )     (32,206 )     (15,435 )     (20,581 )     (36,016 )
                                                 
Equity in loss of unconsolidated ventures
    (2,102 )     (69 )     (2,171 )     (2,067 )     (20 )     (2,087 )
Minority interest
    -       (42 )     (42 )     -       (86 )     (86 )
Gain on sale of joint ventureinterests
    -       271       271       -       271       271  
Loss from continuing operations
    (19,502 )     (14,646 )     (34,148 )     (17,502 )     (20,416 )     (37,918 )
                                                 
Discontinued operations:
                                               
Income from operations
    -       218       218       -       365       365  
Impairment charges
    -       (8,435 )     (8,435 )     -       (8,435 )     (8,435 )
Gain on sale of realestate assets
    -       29       29       -       29       29  
Loss from discontinued operations
    -       (8,188 )     (8,188 )             (8,041 )     (8,041 )