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, 2001 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 ------------------------------------------------------ (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. 7,180,263 Shares of Beneficial Interest, $3 par value, outstanding on May 10, 2001 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 ----- -----
<TABLE> <CAPTION> Part 1 - FINANCIAL INFORMATION Item 1. Financial Statements BRT REALTY TRUST AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Amounts In Thousands) March 31, September 30, 2001 2000 ---- ---- (Unaudited) (Audited) ASSETS <S> <C> <C> Real estate loans - Note 3: Earning interest, including $710 and $850 from related parties $ 49,397 $ 40,413 Not earning interest 415 3,250 -------- -------- 49,812 43,663 Less allowance for possible losses 1,381 1,381 -------- -------- 48,431 42,282 -------- -------- Real estate assets: Real estate properties net, including $2,822 and $2,944 held for sale 6,828 6,944 Investment in unconsolidated real estate ventures at equity 5,885 5,381 -------- -------- 12,713 12,325 Less valuation allowance 349 349 -------- -------- 12,364 11,976 -------- -------- Cash and cash equivalents 18,862 16,221 Securities available-for-sale at market - Note 4 20,687 16,310 Other assets 1,843 1,667 -------- -------- Total Assets $102,187 $ 88,456 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities: Note payable - Credit facility - Note 5 $ - $ 88 Mortgage payable 2,832 - Accounts payable and accrued liabilities, including deposits of $1,567 and $1,550 3,260 3,221 -------- -------- Total Liabilities 6,092 3,309 -------- -------- 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 81,473 81,499 Accumulated other comprehensive income(loss) - net unrealized gain (loss) on available-for-sale securities 1,725 (3,133) Accumulated earnings (deficit) 983 (5,047) -------- -------- 110,846 99,984 Cost of 1,708 and 1,718 treasury shares of beneficial interest at each date (14,751) (14,837) -------- -------- Total Shareholders' Equity 96,095 85,147 -------- -------- Total Liabilities and Shareholders' Equity $102,187 $ 88,456 ======== ======== See Accompanying Notes to Consolidated Financial Statements. </TABLE>
<TABLE> <CAPTION> BRT REALTY TRUST AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (Unaudited) (In Thousands except for Per Share Data) Three Months Ended Six Months Ended March 31, March 31 2001 2000 2001 2000 ---- ---- ---- ---- <S> <C> <C> <C> <C> Revenues: Interest and fees on real estate loans $ 1,851 $ 1,462 $ 4,583 $ 2,983 Operating income on real estate owned 381 230 688 418 Equity in earnings in unconsolidated entities 284 159 446 273 Other, primarily investment income 809 928 2,076 1,430 ------- ------- ------- ------- Total Revenues 3,325 2,779 7,793 5,104 ------- ------- ------- ------- Expenses: Interest-notes payable and loans payable 3 18 20 40 Advisor's fee 169 140 337 272 General and administrative 694 757 1,484 1,538 Other taxes 110 62 170 97 Expense related to investment income 301 - 301 - Operating expenses relating to real estate owned including interest on mortgages of $68 and $-0- for the three-month periods 246 184 454 347 and $127 and $15 for the six-month periods, respectively Amortization and depreciation 84 97 223 194 ------- ------- ------- ------ Total Expenses 1,607 1,258 2,989 2,488 ------- ------- ------- ------ Income before gain on sale of real estate assets, foreclosed properties and available-for-sale securities 1,718 1,521 4,804 2,616 Net gain on sale of real estates assets and foreclosed properties held for sale 1,475 360 1,475 1,092 Net realized gain on sale of available-for -sale securities - 94 15 94 ------- ------- ------- ------ Income before extraordinary item 3,193 1,975 6,294 3,802 Extraordinary item - loss on early extinguishment of debt 264 - 264 - ------- ------- ------- ------- Net Income $ 2,929 $ 1,975 $ 6,030 $ 3,802 ======= ======= ======= ======= Income per share of Beneficial Interest: Basic earnings per share Income before extraordinary item $ .45 $ .28 $ .88 $ .53 Extraordinary item (.04) - (.04) - ------- ------- ------- ------- Net earnings per common share $ .41 $ .28 $ .84 $ .53 ======= ======= ======= ======= Diluted earnings per share Income before extraordinary item $ .44 $ .27 $ .87 $ .52 Extraordinary item (.04) - (.04) - ------- ------- ------- ------- Net earnings per common share $ .40 $ .27 $ .83 $ .52 ======= ======= ======= ======= </TABLE>
<TABLE> <CAPTION> BRT REALTY TRUST AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Unaudited) (Amounts In Thousands) Accumulated Shares of Additional Other Accum- Beneficial Paid-In Comprehensive ulated Treasury Interest Capital Income Deficit Shares Total --------- -------- ------ ------- ------ ----- <S> <C> <C> <C> <C> <C> <C> Balances, September 30, 2000 $26,665 $81,499 $(3,133) $(5,047) $(14,837) $85,147 Exercise of stock options - (26) - - 86 60 Net income - - - 6,030 - 6,030 Other comprehensive gain - net unrealized gain on available-for-sale securities (net of reclassification adjust- ment for gains included in net income of $15) - - 4,858 - - 4,858 ----- Comprehensive income - - - - - 10,888 --------------------------------- ----------------------------------------------- Balances, March 31, 2001 $26,665 $81,473 $ 1,725 $983 $(14,751) $96,095 ================================================================================= </TABLE> See Accompanying Notes to Consolidated Financial Statements.
<TABLE> <CAPTION> BRT REALTY TRUST AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (In Thousands) Six Months Ended March 31, 2001 2000 ---- ---- <S> <C> <C> Cash flow from operating activities: Net income $ 6,030 $ 3,802 Adjustments to reconcile net income to net cash provided by operating activities: Extraordinary item - loss on early extinguishment of debt 264 - Amortization and depreciation 223 194 Net gain on sale of foreclosed properties held for sale (1,475) (1,092) Net gain on sale of available-for-sale securities (15) (94) Equity in earnings of unconsolidated entities (446) (273) Increase in interest and dividends receivable (230) (413) (Increase) Decrease in prepaid expenses (74) 24 Decrease in accounts payable and accrued liabilities (145) (704) Increase in deferred revenues 123 72 Increase (Decrease) in escrow deposits 53 (79) Increase in deferred costs (124) (18) Decrease in due from venture - 4,620 Net change in other assets (79) 245 -------- -------- Net cash provided by operating activities 4,105 6,284 -------- -------- Cash flows from investing activities: Collections from real estate loans 14,238 23,724 Additions to real estate loans (20,387) (21,416) Net costs capitalized to real estate owned (34) (162) Proceeds from sale of real estate assets 1,475 1,230 Decrease in deposits payable 17 84 Purchase of marketable securities - (18,899) Sales of marketable securities 495 977 Capital contributions to unconsolidated entities (137) (250) Partnership distributions 65 - -------- -------- Net cash used in investing activities (4,268) (14,712) -------- -------- Cash flow from financing activities: Increase in mortgage payable 2,850 - Payoff/paydown of loan and mortgages payable (18) (841) Repayment of note payable - credit facility (88) (203) Exercise of stock options 60 - -------- -------- Net cash provided by (used in) financing activities 2,804 (1,044) -------- -------- Net increase (decrease) in cash and cash equivalents 2,641 (9,472) Cash and cash equivalents at beginning of period 16,221 28,757 -------- -------- Cash and cash equivalents at end of period $ 18,862 $ 19,285 ======== ======== Supplemental disclosure of cash flow information: Cash paid during the period for interest expense $ 109 $ 68 ======== ======== </TABLE>
BRT REALTY TRUST AND SUBSIDIARIES Notes to Consolidated Financial Statements Note 1 - Basis of Preparation The accompanying interim unaudited consolidated financial statements as of March 31, 2001 and for the three and six months ended March 31, 2001 and 2000 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 six months ended March 31, 2001 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. 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, 2000. 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 2 - Shareholders' Equity Per Share Data 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 was 7,180,263 and 7,165,263 and 7,175,481 and 7,165,263 for the three and six month periods ended March 31, 2001 and 2000, 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. For the three and six months ended March 31, 2001 and 2000 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 the BRT's outstanding options using the treasury stock method which aggregated 7,291,144 and 7,253,541 and 7,273,282 and 7,251,627 and, respectively.
Note 3 - Real Estate Loans If all loans classified as non-earning were earning interest at their contractual rates for the three and six months ended March 31, 2001 and 2000, interest income would have increased by approximately $11,000 and $23,000 and $59,000 and $98,000 respectively. During the quarter ended March 31, 2001, a loan with a principal balance of $7,800,000 was restructured. Pursuant to a settlement agreement, the borrower will make monthly payments at a lower amount than required under the original terms of the loan. Any shortfall in interest is due at the maturity of the loan. On May 2,2001 $400,000 was received from the borrower, of which $175,000 was applied to legal fees, $48,000 to required escrows and the balance of $177,000 to interest income (which was accrued at March 31, 2001). It is anticipated that all amounts due under this agreement will be received at maturity. Interest income of $ 277,000 was recognized on this loan in the quarter ended March 31, 2001 Note 4 - Available-For-Sale Securities Included in available-for-sale securities are 1,355,600 shares of Entertainment Properties Trust (NYSE:EPR), which have a cost basis of $17,806,000 and a fair value at March 31, 2001 of $19,304,000. At May 9, 2001 the fair value of these shares was $21,800,000. During the quarter ended March 31, 2001 the Trust incurred legal, printing and other expenses of $301,000 related to the solicitation of proxies to vote in favor of BRT's nominee to the Board of Trustees of Entertainment Properties Trust. The shares held by the Trust represent approximately 9.24% of the outstanding shares of Entertainment Properties Trust. Note 5 -Note Payable - Credit Facility On January 11, 2001 BRT terminated its revolving credit facility with TransAmerica Business Credit Corporation ("TransAmerica"). BRT has applied for a $15,000,000 credit facility from a different lender. For the quarter ended March 31, 2001 unamortized deferred fees in the amount of $264,000 associated with the terminated credit facility were written off as an extraordinary item. Note 6 - Comprehensive Income 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. During the three and six months ended March 31, 2001 accumulated other comprehensive income (loss), which is solely comprised of the net unrealized gain (loss) on available-for-sale securities, increased $4,397,000 to $1,725,000 from ($2,672,000) and increased $4,858,000 from ($3,133,000) to $1,725,000. For the three and six months ended March 31, 2000 it increased $91,000 to $187,000 from $96,000 and increased $187,000 from $-0- to $187,000 respectively.
Note 7 - Segment Reporting Effective October 1, 1998, the Trust adopted the Financial Accounting Standards Board's Statement of Financial Accounting Standards No. 131, Disclosure About Segments of an Enterprise and Related Information. Statement 131 superseded FASB Statement No. 14 Financial Reporting for Segments of a Business Enterprise. Statement No. 131 establishes standards for the way that public business enterprises report information about operating segments in annual financial statements and requires that those entities report selected information about operating segments in interim financial reports. Statement No. 131 also establishes standards for related disclosures about products and services, geographical areas, and major customers. The adoption of Statement No. 131 did not affect results of operations or financial position. As the Trust operates predominantly in one industry segment, it has determined that it has one reportable segment and operates primarily in one geographic location. Management believes it is in compliance with the standards established by Statement No. 131. Note 8 - Derivative Instruments and Hedging Activities In June 1999, The Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 137, amending Statement of Financial Accounting Standards No. 133. "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"), which extended the required date of adoption to fiscal years beginning after June 15, 2000. SFAS 133 establishes accounting and reporting standards requiring that every derivative instrument (including certain derivative instruments embedded in other contracts) be recorded on the balance sheet as either an asset or liability measured at its fair value. SFAS 133 requires that changes in the derivative's fair value be recognized currently in earnings unless specific hedge accounting criteria are met. The Trust adopted SFAS 133 on October 1, 2000 and the impact is immaterial due to the Trust's limited derivative activity.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Liquidity and Capital Resources - ------------------------------- BRT's primary business activity is originating and holding for investment senior real estate mortgages, secured by income producing property. To a lesser extent BRT originates and holds for investment junior real estate mortgage loans secured by income producing property and senior mortgage loans secured by unimproved real property. Its investment policy emphasizes short-term mortgage loans. Repayments of real estate loans in the amount of $28,609,000 are due during the twelve months ending March 31, 2002, including $1,702,000 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 of loans which will be extended for a fixed term or on a month to month basis. On January 11, 2001 BRT terminated its revolving credit line with TransAmerica. The outstanding balance and all accrued interest was paid at termination. BRT has applied for a new $15,000,000 credit facility from a different lender. As of May 10, 2001, a new credit facility was not in place. During the six months ended March 31, 2001, the Trust generated cash of $4,105,000 from operations, $14,238,000 from collections from real estate loans, $2,850,000 from the placement of a first mortgage on a leasehold position in commercial real property, $495,000 from the sale of marketable securities and $1,475,000 from the sale of a real estate asset. These funds, in addition to cash on hand, were used primarily to fund real estate loan originations of $20,387,000. BRT's cash and cash equivalents were $18,862,000 at March 31, 2001. The Trust will satisfy its liquidity needs from cash and liquid investments on hand, interest received on outstanding real estate loans and net cash flow generated from the operation and sale of real estate assets.
Results of Operations - --------------------- Interest and fees on loans increased by $389,000 to $1,851,000 for the three months ended March 31, 2001 as compared to $1,462,000 for the three months ended March 31, 2000. During the current quarter the average balance of loans increased by approximately $11,500,000 accounting for an increase in interest income of $348,000. In addition a 97 basis point increase in the interest rate earned on the portfolio to 12.60% from 11.63%, resulted in an increase in interest income of $115,000. Offsetting these increases was a lower level of fee income. The decline of $83,000 in fee income was primarily the result of an increased level of fee income received in the prior years quarter from the early payoff of loans. For the six months ended March 31, 2001, interest and fees on loans increased $1,600,000 from $2,983,000 to $4,583,000. During the current year a participating loan was paid off resulting in "additional interest" and fees of $844,000. Also a loan that was previously non performing was returned to performing status and $170,000 of delinquent interest was received. In addition to these one time items , the average balance of loans increased $8,300,000 resulting in an increase to interest income of $514,000. An increase in the interest rate earned on the portfolio from 12.15% to 12.58% also caused income to increase by $99,000 Operating income on real estate properties increased to $381,000 in the three months ended March 31, 2001 from $230,000 in the quarter ended March 31, 2000, an increase of $151,000. For the six months ended March 31, 2001 operating income on real estate owned increased $270,000 from $ 418,000 to $688,000. For both periods, this increase, primarily rental income, is attributable to BRT's purchase of a leasehold interest in commercial real property in the last quarter of the prior fiscal year. Equity in earnings of unconsolidated ventures increased $125,000 in the quarter ended March 31, 2001 to $284,000 from $159,000 in the quarter ended March 31, 2000. For the six months ended March 31, 2001 income from unconsolidated ventures increased $173,000 from $273,000 to $446,000. The increase in both periods is primarily the result of income earned on new ventures entered into since March 31, 2000. Other revenues, primarily investment income, declined to $809,000 in the quarter ended March 31, 2001, from $928,000 in the same quarter in 2000, a decline of $119,000. A decline in the average balance of invested assets of $4,200,000 caused the decline in interest income. For the six months ended March 31, 2001 this category increased $646,000 from $1,430,000 to $2,076,000 During the current six months BRT received $438,000 from a residual interest it holds in a venture. This residual interest resulted from the sale of a partnership interest in a prior year. The remaining increase of $208,000 is the result of increased rates earned on invested balances. Over the last several quarters the Trust has invested a portion of its available cash in higher yielding REIT securities rather than treasury securities and other money market products, causing the average rate earned to increase from 8.71% in the prior year's first six months to 10.21% in the current six months. The Advisor's fee, which is calculated based on invested assets, increased $29,000 in the quarter ended March 31, 2001 to $169,000 from $140,000 in the quarter ended March 31, 2000. In the six months ended March 31, 2001 the fee increased $65,000 from $272,000 in the prior six months to $337,000 in the six months ended March 31, 2001. During both of these periods, the Trust experienced a higher outstanding balance of invested assets thereby causing an increase in the fee. Other taxes increased $48,000 from $62,000 in the quarter ended March 31,2000 to $110,000 for the three months ended March 31, 2001 and increased $73,000 from $97,000 for the six months March 31, 2000 to $170,000 This is the result of an increase in the amount of state and federal alternative minimum tax the Trust paid in the current quarter and six month periods. Expenses related to investment income was $301,000 for both the three and six months ended March 31, 2001. The prior three and six month periods contained no such expense. During the current quarter the Trust incurred legal, printing and other expenses related to the solicitation of proxies to vote in favor of BRT's nominee to the Board of Trustees of Entertainment Properties Trust (NYSE:EPR). BRT owns 9.24% of the outstanding shares of Entertainment Properties Trust and is its largest shareholder. Operating expenses relating to real estate increased $62,000 in the quarter ended March 31, 2001 to $246,000 from $184,000 in the quarter ended March 31, 2000. For the six months ended March 31, 2001 operating expenses on real estate owned increased $107,000 to $454,000 from $347,000. The increase in both periods represents operating expenses on a leasehold that the Trust purchased at the end of the prior fiscal year. Gain on the sale of real estate assets and foreclosed properties increased $1,115,000 in the quarter ended March 31, 2001 to $ $1,475,000 from $360,000. In the six months ended March 31, 2001 gain on the sale of real estate assets and foreclosed properties increased $383,000 to $1,475,000 from $1,092,000. The gain in the three and six month period ended March 31,2001 resulted from the sale of a residual interest in a partnership. The gains in the three and six months ended March 31, 2000 represent the sale of individual cooperative units that were previously acquired in foreclosure. PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K On January 18, 2001 BRT filed an 8-K reporting that on January 11, 2001 BRT terminated its $45,000,000 revolving credit facility with Transamerica Business Credit Corporation.
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 May 11, 2001 /s/ Jeffrey Gould - ------------ ------------------------------- Date Jeffrey Gould, President May 11, 2001 /s/ George Zweier - ------------ -------------------------------- Date George Zweier, Vice President and Chief Financial Officer