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 December 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. 7,379,639 Shares of Beneficial Interest, $3 par value, outstanding on February 10, 2002 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 --- ---
Part 1 - FINANCIAL INFORMATION Item 1. Financial Statements <TABLE> <CAPTION> BRT REALTY TRUST AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Amounts In Thousands) December 31, September 30, 2001 2001 ---- ---- (Unaudited) (Audited) ASSETS <S> <C> <C> Real estate loans - Note 3: Earning interest, including $3,425 from related parties at each date $ 57,442 $ 67,513 Not earning interest 415 415 --- --- 57,857 67,928 Allowance for possible losses (1,381) (1,381) ------ ------ 56,476 66,547 Real estate assets: Real estate properties net 6,727 6,777 Investment in unconsolidated real estate ventures at equity 7,134 6,931 ----- ----- 13,861 13,708 Valuation allowance (325) (325) ---- ---- 13,536 13,383 ------ ------ Cash and cash equivalents 11,070 4,106 Securities available-for-sale at market - Note 4 27,383 24,030 Real estate loans held for sale - Note 3 4,110 - Other assets 2,011 1,950 ----- ----- Total Assets $114,586 $110,016 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities: Borrowed funds - Note 5 $ - $ 2,101 Mortgage payable 2,790 2,804 Accounts payable and accrued liabilities, including deposits of $1,208 and $1,620 2,826 3,239 Dividend payable 1,771 - ----- ----- Total Liabilities 7,387 8,144 ----- ----- 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 - 8,883 shares at each date 26,650 26,650 Additional paid-in capital 80,878 81,008 Accumulated other comprehensive income - net unrealized gain on available-for-sale securities 8,631 5,278 Retained earnings 3,998 2,313 ----- ----- 120,157 115,249 Cost of 1,504 and 1,552 treasury shares of beneficial interest at each date (12,958) (13,377) ------- ------- Total Shareholders' Equity 107,199 101,872 Total Liabilities and Shareholders' Equity $114,586 $110,016 ======== ======== See Accompanying Notes to Consolidated Financial Statements. </TABLE>
<TABLE> <CAPTION> BRT REALTY TRUST AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (Unaudited) (Amounts In Thousands except for Per Share Data) Three Months Ended December 31, 2001 2000 ---- ---- <S> <C> <C> Revenues: Interest and fees on real estate loans including $97 and $24 from related parties $ 3,515 $ 2,732 Operating income from real estate properties 531 307 Equity in earnings of unconsolidated ventures 292 162 Other, primarily investment income 647 1,267 --- ----- Total Revenues 4,985 4,468 ----- ----- Expenses: Interest-notes payable and loans payable 20 17 Advisor's fee 211 168 General and administrative 756 790 Other taxes 151 60 Operating expenses relating to real estate properties including interest on mortgages of $67 and $59 297 208 Amortization and depreciation 84 139 -- --- Total Expenses 1,519 1,382 ----- ----- Income before gain on sale of real estate loans and real estate properties and available-for-sale securities 3,466 3,086 Net realized gain on available-for-sale securities - 15 ----- ---- Income before minority interest 3,466 3,101 Minority interest (10) - --- ---- Net Income $ 3,456 $ 3,101 ========== ========= Income per share of Beneficial Interest: Basic earnings per share $ .47 $ .43 ========== ========= Diluted earnings per share $ .46 $ .43 ========== ========= Cash distributions per common share $ .24 $ - ========== ========= See Accompanying Notes to Consolidated Financial Statements. </TABLE>
<TABLE> <CAPTION> BRT REALTY TRUST AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Unaudited) (Amounts In Thousands) Accumulated Shares of Additional Other Com- Beneficial Paid-In prehensive Retained Treasury Interest Capital Income Earnings Shares Total -------- ------- ------ -------- ------ ----- <S> <C> <C> <C> <C> <C> <C> Balances, September 30, 2001 $26,650 $81,008 $5,278 $2,313 $(13,377) $101,872 Distributions - common share ($.24 per share) - - - (1,771) - (1,771) Exercise of stock options - (130) - - 419 289 Net income - - - 3,456 - 3,456 Other comprehensive income - net unrealized gain on available-for-sale securities - - 3,353 - - 3,353 ----- Comprehensive income - - - - - 6,809 --------------------------------------------------------------------------------- Balances, December 31, 2001 $26,650 $80,878 $ 8,631 $3,998 $(12,958) $107,199 ================================================================================= See Accompanying Notes to Consolidated Financial Statements. </TABLE>
<TABLE> <CAPTION> BRT REALTY TRUST AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (Amounts In Thousands) Three Months Ended December 31, 2001 2000 ---- ---- <S> <C> <C> Cash flow from operating activities: Net income $ 3,456 $ 3,101 Adjustments to reconcile net income to net cash provided by operating activities: Amortization and depreciation 84 139 Gain on sale of available-for-sale securities - (15) Equity in earnings of unconsolidated ventures (292) (162) Increase in interest and dividends receivable (27) (172) Decrease (Increase) in prepaid expenses 11 (93) (Increase) Decrease in accounts payable and accrued liabilities (44) 143 (Decrease) Increase in deferred revenues (111) 189 (Decrease) Increase in escrow deposits (251) 135 Increase in deferred costs - (59) Other (65) (45) --- --- Net cash provided by operating activities 2,761 3,161 ----- ----- Cash flows from investing activities: Collections from real estate loans 13,711 10,335 Additions to real estate loans (7,750) (18,470) Net costs capitalized to real estate assets (8) (1) (Decrease) Increase in deposits payable (12) 129 Sales of marketable securities - 495 Partnership distributions 88 40 -- -- Net cash provided by (used in) investing activities 6,029 (7,472) ----- ------ Cash flow from financing activities: Increase in mortgage payable - 2,850 Decrease in borrowed funds (2,101) - Payoff/paydown of loan and mortgages payable (14) (4) Proceeds from note payable - credit facility - 17 Exercise of stock options 289 60 --- -- Net cash (used in) provided by financing activities (1,826) 2,923 ------ ----- Net increase (decrease) in cash and cash equivalents 6,964 (1,388) Cash and cash equivalents at beginning of period 4,106 16,221 ----- ------ Cash and cash equivalents at end of period $ 11,070 $ 14,833 ========= ========= Supplemental disclosure of cash flow information: Cash paid during the period for interest expense $ 84 $ 31 ========= ========= See Accompanying Notes to Consolidated Financial Statements. </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 December 31, 2001 and for the three months ended December 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 months ended December 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, 2001. 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 Distributions During the quarter ended December 31, 2001 BRT declared a cash distribution to shareholders of $.24 per share. This distribution totaled $1,771,000 and was payable January 3, 2002. Stock Options During the quarter ended December 31, 2001, 48,625 previously issued options were exercised. Proceeds from these options totaled $289,000. Note 2 - Shareholders' Equity (Continued) 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 7,341,332 and 7,170,698 for the three month periods ended December 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 months ended December 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 7,445,042 and 7,255,542 respectively. Note 3 - Real Estate Loans If all loans classified as non-earning were earning interest at their contractual rates for the three months ended December 31, 2001 and 2000, interest income would have increased by approximately $11,000 in each period. At December 31, 2001 BRT had outstanding $3,425,000 in loans to joint ventures. In each of these ventures BRT and its joint venture partner each have a 50% interest. As part of these venture agreements BRT makes a capital contribution in addition to making a mortgage loan. For the three months ended December 31, 2001 and 2000 interest income on these loans was $97,000 and $24,000. Real estate loans held for sale are carried at the lower of cost or estimated fair value. At December 31, 2001 real estate loans held for sale totaled $4,110,000. The cost of these loans approximated estimated fair value. Fair value was determined based on contractual commitments from third parties to purchase the loans. During January 2002, loans with a fair value of $2,213,000 were sold to a financial institution and $1,897,000 remain available for sale. Profits and losses relating to the sale of real estate loans are recognized when all indications of legal control pass to the buyer and the sales price is collected.
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 December 31, 2001 of $26,231,000. The shares held by the Trust represent approximately 9.16% of the outstanding shares of Entertainment Properties Trust as of December 31, 2001. Note 5 -Borrowed Funds On July 25, 2001 BRT entered into a revolving credit agreement with North Fork Bank. Borrowings under the facility are secured by specific receivables and the agreement provides that that the amount borrowed will not exceed 60% of the collateral pledged. As of December 31, 2001 BRT had provided collateral, as defined, that would permit BRT to borrow up to approximately $10,300,000 under the facility. Interest is charged on the outstanding balance at prime plus 1/4% or under certain circumstances at prime. At December 31, 2001 there was no outstanding balance on this facility. In addition to its credit facility, BRT has the ability to borrow funds through a margin account. At December 31, 2001 there was no outstanding balance. Marketable securities with a fair value of $26,231,000 were pledged as collateral. 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 months ended December 31, 2001 accumulated other comprehensive income, which is solely comprised of the net unrealized gain on available-for-sale securities, increased to $8,631,000 from $5,278,000. For the three month period ended December 31, 2000 accumulated other comprehensive income, which is comprised solely of unrealized loss on available-for-sale securities decreased to $2,672,000 from $3,133,000. 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 enterprises 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. 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 $42,508,000 are due during the twelve months ending December 31, 2002, including $4,059,000 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 July 25, 2001 BRT entered into a revolving credit agreement with North Fork Bank. Borrowings under the facility are secured by specific receivables and the agreement provides that the amount borrowed will not exceed 60% of the collateral pledged. As of December 31, 2001 BRT had provided collateral, as defined, that would permit BRT to borrow up to approximately $10,300,000 under the facility. At the end of January, 2002 BRT sold several loans which reduced the amount of collateral pledged, thereby reducing the availability under the facility to $8,500,000. Interest is charged on the outstanding balance at prime plus 1/4% or under certain circumstances at prime. The facility matures August 1, 2004 and may be extended for two one year terms. At December 31, 2001 there was no outstanding balance on this facility.
During the three months ended December 31, 2001, the Trust generated cash of $2,761,000 from operations and $13,711,000 from collections from real estate loans. These funds, in addition to cash on hand, were used primarily to fund real estate loan originations of $7,750,000 and to repay outstanding borrowed funds of $2,101,000. BRT's cash and cash equivalents were $11,070,000 at December 31, 2001. BRT will satisfy its liquidity needs from cash and liquid investments on hand, the credit facility with North Fork Bank, interest and principal payments received on outstanding real estate loans and net cash flow generated from the operation and sale of real estate loans. BRT also has the ability to borrow on margin, using the shares it owns in Entertainment Properties Trust as collateral. As of December 31, 2001 marketable securities with a fair market value of $26,231,000 were pledged as collateral, permitting the Trust to borrow approximately $10,000,000. Results of Operations Interest and fees on loans increased by $783,000 to $3,515,000 for the three months ended December 31, 2001 as compared to $2,732,000 for the three months ended December 31, 2000. During the current quarter two participating loans were paid off resulting in additional interest and fees of $1,182,000. The average balance of loans outstanding increased $18,000,000 from the prior years quarter resulting in an increase in interest income of $551,000 and $117,000 of additional fee income. These increases were offset by a 35 basis point reduction in the interest rate earned on the portfolio from 12.55% to 12.20%, which caused a reduction in interest of $45,000. The prior years quarter contained $844,000 of additional interest, recognized from a loan that was paid off, in addition a loan that was previously non-performing was returned to performing status and $170,000 of delinquent interest was recorded. Operating income on real estate properties increased to $531,000 in the three months ended December 31, 2001 from $307,000 in the quarter ended December 31, 2000, an increase of $224,000. The increase of $124,000 is primarily attributable to rents generated from a leasehold interest purchased by a consolidated joint venture in the prior year. Equity in earnings of unconsolidated ventures increased $130,000 in the quarter ended December 31, 2001 to $292,000 from $162,000 in the quarter ended December 31, 2000. During the current quarter, one of the joint ventures recorded a gain on the sale of a parcel of land. This accounted for approximately $193,000 of the increase in earnings. This was offset by a loss of $95,000 recorded on the operations of a joint venture that was entered into during the second half of the prior fiscal year. The remaining $32,000 was attributable to increases in income of the remaining ventures. Other revenues, primarily investment income decreased to $647,000 in the quarter ended December 31, 2001, from $1,267,000 in the same quarter in 2000, a decrease of $620,000. During the prior years quarter 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 decrease of $182,000 is the result of a decrease in invested balances and decreased rates earned on those balances. The average balance of invested assets decreased $3,200,000 causing interest to decrease $105,000. The remaining $77,000 was the result of reduced rates being earned on the invested balances. The average rate on invested balances declined from 10.29% in the prior years quarter to 8.93% in the current quarter. The Advisor's fee, which is calculated based on invested assets, increased $43,000 in the quarter ended December 31, 2001 to $211,000 from $168,000 in the quarter ended December 31, 2000. In the current quarter the Trust experienced a higher outstanding balance of invested assets, primarily loans, thereby causing an increase in the fee. Other taxes increased $91,000 from $60,000 in the quarter ended December 31, 2000 to $151,000 in the quarter ended December 31, 2001. The prior years expense represents the payment of federal alternative minimum tax. The current years expense is the payment of federal excise taxes. Operating expenses relating to real estate increased $89,000 in the quarter ended December 31, 2001 to $297,000 from $208,000 in the quarter ended December 31, 2000. BRT recognized increased expenses related to its purchase of a leasehold interest in the prior year and its other operating properties. These increases were partially offset by a reduction in legal and other professional expenses that were incurred in connection with a litigation related to a property sold by BRT in which BRT was involved as a defendant. Amortization and depreciation decreased from $139,000 in the quarter ended December 31, 2000 to $84,000 in the quarter ended December 31, 2001. This decrease of $55,000 is the result of reduced amortization on deferred expenses associated with BRT's current facility.
Item 3. Quantitative and Qualitative Disclosures About Market Risks BRT's primary component of market risk is interest rate sensitivity. BRT's interest income and to a lesser extent its interest expense are subject to changes in interest rates. BRT seeks to minimize these risks by originating loans that are indexed to the prime rate, with a stated minimum interest rate, and borrowing, when necessary, from its available credit line which is also indexed to the prime rate. At December 31, 2001 approximately 63% of the portfolio was variable rate based primarily on the prime rate. Any changes in the prime interest rate could have a positive or negative effect on the net interest income of BRT. When determining interest rate sensitivity BRT assumes that any change in interest rates is immediate and that the interest rate sensitive assets and liabilities existing at the beginning of the period remain constant over the period being measured. BRT has assessed the market risk for its variable rate mortgage receivables and variable rate debt and believes that a one percent increase in interest rates would have approximately a $390,000 positive effect on income before taxes and a one percent decline in interest rates would have approximately a $155,000 negative effect on income before taxes. In addition, BRT originates loans with short maturities and maintains a strong capital position. At December 31, 2001 BRT's loan portfolio was primarily secured by properties located in the New York metropolitan area, New Jersey and Connecticut and in Florida and it is therefore subject to risks associated with the economies of these localities. PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K None 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 February 14, 2001 /s/ Jeffrey Gould - ------------------ ----------------- Date Jeffrey Gould, President February 14, 2001 /s/ George Zweier - ----------------- ----------------- Date George Zweier, Vice President and Chief Financial Officer