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 June 30, 2003 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 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 is an accelerated filer (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. 7,498,377 Shares of Beneficial Interest, $3 par value, outstanding on August 10, 2003
Part 1 - FINANCIAL INFORMATION Item 1. Financial Statements <TABLE> <CAPTION> BRT REALTY TRUST AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Amounts In Thousands) June 30, September 30, 2003 2002 ---- ---- (Unaudited) (Audited) ASSETS <S> <C> <C> Real estate loans - Note 3: Earning interest, including $7,390 and $8,129 from related parties $ 59,757 $ 84,112 Not earning interest 650 415 --- --- 60,407 84,527 Allowance for possible losses (881) (881) ---- ---- 59,526 83,646 Real estate assets - Note 4: Real estate properties net of accumulated depreciation of $1,403 and $1,227 6,461 6,573 Investment in unconsolidated real estate ventures at equity 7,105 6,956 ----- ----- 13,566 13,529 Valuation allowance (325) (325) ---- ---- 13,241 13,204 ------ ------ Cash and cash equivalents 19,972 4,688 Securities available-for-sale at market - Note 5 37,536 31,178 Other assets 2,116 2,215 ----- ----- Total Assets $132,391 $134,931 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities: Borrowed funds - Note 6 $ - $ 14,745 Mortgage payable 2,697 2,745 Accounts payable and accrued liabilities, including deposits of $696 and $1,265 2,522 3,150 Dividends payable 2,559 - ----- Total Liabilities 7,778 20,640 ----- ------ 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 80,895 80,864 Accumulated other comprehensive income - net unrealized gain on available-for-sale securities 19,196 12,426 Unearned compensation (414) - Retained earnings 9,978 7,218 ----- ----- 136,305 127,158 Cost of 1,357 and 1,493 treasury shares of beneficial interest at each date (11,692) (12,867) ------- ------- Total Shareholders' Equity 124,613 114,291 ------- ------- Total Liabilities and Shareholders' Equity $132,391 $134,931 ======== ======== 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 Nine Months Ended June 30, June 30, 2003 2002 2003 2002 ---- ---- ---- ---- <S> <C> <C> <C> <C> Revenues: Interest and fees on real estate loans, including interest from related parties of $178 and $196 for the three month periods, respectively, and $550 and $408 for the nine month periods, respectively $ 2,479 $ 2,342 $ 7,611 $ 7,989 Operating income on real estate owned 656 622 1,770 1,739 Reversal of previously provided provision - - - 500 Other, primarily investment income 630 694 2,028 2,054 --- --- ----- ----- Total revenues 3,765 3,658 11,409 12,282 ----- ----- ------ ------ Expenses: Interest on borrowed funds 72 40 206 83 Advisor's fee 220 265 640 695 General and administrative 814 715 2,234 2,186 Other taxes 122 133 367 341 Operating expenses relating to real estate owned, including interest on mortgages of $65 and $66 for the three month periods, respectively, and $195 and $199 for the nine month periods, respectively 354 346 982 949 Amortization and depreciation 75 85 246 255 -- -- --- --- Total expenses 1,657 1,584 4,675 4,509 ----- ----- ----- ----- Income before equity in earnings of unconsolidated joint ventures and gain on sale 2,108 2,074 6,734 7,773 Equity in earnings of unconsolidated entities (7) 58 87 571 Net gain on sale of real estate assets 200 - 395 607 Net realized gain on sale of available-for -sale securities 2,468 - 2,614 - ----- ----- Income before minority interest 4,769 2,132 9,830 8,951 Minority interest (15) (10) (35) (30) --- --- --- --- Net income $ 4,754 $ 2,122 $ 9,795 $ 8,921 ======= ======= ======= ======= Income per share of beneficial interest: Basic earnings per share $ .64 $ .29 $ 1.32 $ 1.21 ======= ======= ======= ======= Diluted earnings per share $ .63 $ .28 $ 1.29 $ 1.19 ======= ======= ======= ======= Cash distributions per common share $ .34 $ .26 $ .94 $ .76 ======= ======= ======= ======= Weighted average number of common shares outstanding: Basic 7,469,257 7,383.282 7,445,382 7,368,063 ========= ========= ========= ========= Diluted 7,599,922 7,530,756 7,569,255 7,497,900 ========= ========= ========= ========= </TABLE> See Accompanying Notes to Consolidated Financial Statements.
<TABLE> <CAPTION> BRT REALTY TRUST AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Unaudited) (Amounts In Thousands except for Per Share Data) Accumulated Shares of Additional Other Com- Unearned Beneficial Paid-In prehensive Retained Compen- Treasury Interest Capital Income Earnings sation Shares Total <S> <C> <C> <C> <C> <C> <C> <C> Balances, September 30, 2002 $26,650 $80,864 $12,426 $7,218 $ - $(12,867) $114,291 Distributions - common share ($.94 per share) - - - (7,035) - - (7,035) Exercise of stock options - (155) - - - 933 778 Issuance of restricted stock - 428 - - (428) - - Compensation expense - restricted stock - - - - 14 - 14 Net income - - - 9,795 - - 9,795 Other comprehensive income - net unrealized gain on available-for-sale securities (net of reclassi- fication adjustment for gains included in net income of $2,468) - - 6,770 - - - 6,770 ----- Comprehensive income - - - - - - 16,565 -------------------------------------------------------------------------------------- Balances, June 30, 2003 $26,650 $81,137 $19,196 $9,978 $(414) $(11,934) $124,613 ====================================================================================== See Accompanying Notes to Consolidated Financial Statements. </TABLE>
<TABLE> <CAPTION> BRT REALTY TRUST AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (Amounts In Thousands) Nine Months Ended June 30, -------- 2003 2002 ---- ---- <S> <C> <C> Cash flow from operating activities: Net income $ 9,795 $ 8,921 Adjustments to reconcile net income to net cash provided by operating activities: Amortization and depreciation 246 255 Reversal of previously provided allowances - (500) Restricted stock expense 14 - Net gain on sale of real estate loans and properties (395) (607) Net gain on sale of available-for-sale securities (2,614) - Equity in earnings of unconsolidated real estate ventures (87) (571) Increase in straight line rent (115) (115) Decrease in interest and dividends receivable 211 123 Decrease in prepaid expenses 28 11 (Decrease) Increase in accounts payable and accrued liabilities (218) 89 Decrease in deferred revenues (169) (62) Decrease in escrow deposits (181) (346) (Increase) Decrease in deferred costs (75) 21 Other (11) (25) --- --- Net cash provided by operating activities 6,429 7,244 ----- ----- Cash flows from investing activities: Collections from real estate loans 68,145 25,848 Proceeds from sale of loans - 4,097 Additions to real estate loans (44,026) (34,383) Additions to real estate loans - BRT joint ventures - (7,123) Net costs capitalized to real estate assets (101) (35) Proceeds from the sale of real estate 432 607 Investment in real estate ventures (214) (275) Purchase of available-for-sale securities (2,027) - Sales of available-for-sale securities 5,052 - (Decrease) Increase in deposits payable (68) 141 Partnership distributions 153 747 --- --- Net cash provided by (used in) investing activities 27,346 (10,376) ------ ------- Cash flow from financing activities: Repayment of borrowed funds - credit facility (14,745) - Net change in borrowed funds - margin account - 7,669 Payoff/paydown of loan and mortgages payable (48) (44) Cash distribution - common shares (4,476) (3,690) Exercise of stock options 778 366 --- --- Net cash (used in) provided by financing activities (18,491) 4,301 ------- ----- Net increase in cash and cash equivalents 15,284 1,169 Cash and cash equivalents at beginning of period 4,688 4,106 ----- ----- Cash and cash equivalents at end of period $ 19,972 $ 5,275 ======== ======== Supplemental disclosure of cash flow information: Cash paid during the period for interest $ 411 $ 259 ======== ======== Non cash investing and financing activity: Accrued distributions $ 2,559 $ - ======== ======== 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 June 30, 2003 and for the three and nine months ended June 30, 2003 and 2002 reflect all normal recurring adjustments which are, in the opinion of management, necessary for a fair statement of the results for such interim periods. The results of operations for the three and nine months ended June 30, 2003 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, 2002. 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 June 30, 2003, BRT declared a cash distribution to shareholders of $.34 per share. This distribution totaled $2,559,000 and was payable July 2, 2003 to shareholders of record on June 20, 2003. Stock Options During the quarter ended June 30, 2003, 37,875 previously issued options were exercised. Proceeds from these options totaled $285,000. The Trust adopted Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees ("APB 25), and related interpretations in accounting for its employee stock options. Under APB 25, no compensation expense is recognized because the exercise price of the Trust's employee stock options equals the market price of the underlying stock on the date of grant. Note 2 - Shareholders' Equity (Continued) Pro forma information regarding net income and earnings per share is required by FAS No. 123, and has been determined as if the Trust had accounted for its employee stock options under the fair value method. The fair value for these options was estimated at the date of the grant using the Black-Scholes option pricing model with the following weighted-average assumptions for both 2003 and 2002: risk free interest rate of 4.62%, volatility factor of the expected market price of the Company's common stock based on historical results of .205, dividend yield of 3.1% and an expected option life of six years. Pro forma net income and earnings per share calculated using the Black-Scholes option valuation model is as follows: <TABLE> <CAPTION> Three Months Ended Six Months Ended June 30, June 30, -------- -------- 2003 2002 2003 2002 ---- ---- ---- ---- <S> <C> <C> <C> <C> Net income to common shareholders as reported $4,754 $2,122 $9,795 $8,921 Less: Total stock-based employee compensation expense determined under fair value based methods for all awards 31 31 93 93 -- -- -- -- Pro forma net income $4,723 $2,091 $9,702 $8,828 ====== ====== ====== ====== Pro forma earnings per share of beneficial interest Basic $ .63 $ .29 $ 1.30 $ 1.20 Diluted $ .62 $ .28 $ 1.28 $ 1.18 </TABLE> The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options, which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including expected stock price volatility. Because the Trust's employee stock options have characteristics significantly different from those of traded options, and changes in the subjective input assumptions can materially affect the fair value estimated, management believes the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options. Restricted Stock During the quarter ended June 30, 2003, the Company issued 28,050 shares of restricted stock under its 2003 Incentive Plan which was approved by BRT's shareholders in March of 2003. The total number of shares allocated to this Plan is 350,000. The shares issued vest five years from the date of issuance and under certain circumstances may vest earlier. The Company records compensation expense under APB 25 over the vesting period, measuring the compensation cost based upon the market value of the shares on the date of grant. For the quarter and year to date ended June 30, 2003, the Trust recorded $14,000 of compensation expense.
Note 2 - Shareholders' Equity (Continued) Per Share Data Basic earnings per share was determined by dividing net income for the period by the weighted average number of shares of common stock outstanding during each period. 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. The following table sets forth the computation of basic and diluted shares: <TABLE> <CAPTION> For the three months ended For the nine months ended June 30, June 30, -------- -------- 2003 2002 2003 2002 ---- ---- ---- ---- <S> <C> <C> <C> <C> Basic 7,469,257 7,383,282 7,445,382 7,368,063 Effect of dilutive securities 130,665 147,474 123,873 129,837 Diluted 7,599,922 7,530,756 7,569,255 7,497,900 </TABLE> Note 3 - Real Estate Loans Management evaluates the adequacy of the allowance for possible losses periodically and believes that the allowance for losses is adequate to absorb probable losses on the existing portfolio. If all loans classified as non-earning were earning interest at their contractual rates for the three months ended June 30, 2003 and 2002, interest income would have increased by approximately $21,000 and $11,000, respectively. For the nine month period ended June 30, 2003 and 2002 the increase would have been $63,000 and $34,000, respectively. Included in real estate loans are four second mortgages and two first mortgages to ventures in which the Trust (through wholly owned subsidiaries) holds a 50% interest. At June 30, 2003, the aggregate balance of these mortgage loans was $7,390,000. Interest earned on these loans totaled $179,000 and $196,000 for the three months ended June 30, 2003 and June 30, 2002, respectively. For the nine month periods ended June 30, 2003 and June 30, 2002 interest earned on these loans totaled $550,000 and $408,000, respectively.
Note 4 - Investment in Unconsolidated Joint Ventures at Equity We are a partner in seven unconsolidated joint ventures which own and operate seven properties. In addition to making an equity contribution, we may hold a first or second mortgage on the property owned by the venture. Unaudited condensed financial information for the two most significant joint ventures is shown below. <TABLE> <CAPTION> Blue Hen Venture June 30, September 30, 2003 2002 ---- ---- <S> <C> <C> Condensed Balance Sheet Cash and cash equivalents $ 979 $ 1,040 Real estate investments, net 15,945 15,921 Other assets 193 314 Total assets $ 17,117 $ 17,275 Mortgages payable $ 3,415 $ 4,154 Other liabilities 136 118 Equity 13,566 13,003 Total liabilities and equity $ 17,117 $ 17,275 Trust's equity investment $ 5,459 $ 5,207 </TABLE> <TABLE> <CAPTION> Three Months Ended Nine Months Ended March 31, June 30, --------- -------- 2003 2002 2003 2002 ---- ---- ---- ---- <S> <C> <C> <C> <C> Condensed Statement of Operations Revenues, primarily rental income $ 772 $ 752 $ 2,214 $ 2,293 Operating expenses 352 287 1,062 901 Depreciation 122 111 359 334 Interest expense 72 91 231 290 Total expenses 546 489 1,652 1,525 Income before gain 226 263 562 768 Gain on sale - - - 385 Net income attributable to members $ 226 $ 263 $ 562 $ 1,153 Trust's share of net income $ 113 $ 131 $ 281 $ 577 Amount recorded in income statement $ 84 $ 131 $ 252 $ 748 </TABLE> The unamortized excess of the Trust's share of the net equity over its investment in the Blue Hen joint venture that is attributable to building and improvements is being amortized over the life of the related property.
Note 4 - Investment in Unconsolidated Joint Ventures at Equity (Continued) <TABLE> <CAPTION> Rutherford Glen June 30, September 30, 2003 2002 ---- ---- <S> <C> <C> Condensed Balance Sheet Cash and cash equivalents $ 260 $ 110 Real estate investments, net 18,814 19,360 Other assets 300 268 --- --- Total assets $ 19,374 $ 19,738 ======== ======== Mortgages payable $ 19,012 $ 19,147 Other liabilities 536 435 Equity (174) 156 ---- --- Total liabilities and equity $ 19,374 $ 19,738 ======== ======== Trust's equity investment $ (50) $ 78 ======== ======== </TABLE> <TABLE> <CAPTION> Three Months Ended Nine Months Ended June 30, June 30, -------- -------- 2003 2002 2003 2002 ---- ---- ---- ---- <S> <C> <C> Condensed Statement of Operations Revenues, primarily rental income $ 550 $ 588 $ 1,725 $ 1,867 ------- ------- ------- ------- Operating expenses 276 296 767 862 Depreciation 182 182 546 546 Interest expense 364 367 1,095 1,110 --- --- ----- ----- Total expenses 822 845 2,408 2,518 --- --- ----- ----- Net income attributable to members $ (272) $ (257) $ (683) $ (651) ======= ======= ======= ======= Trust's share of net income $ (136) $ (128) $ (341) $ (326) ======= ======= ======= ======= Amount recorded in income statement $ (136) $ (128) $ (341) $ (326) ======= ======= ======= ======= </TABLE> Note 5 - Available-For-Sale Securities Included in available-for-sale securities are 1,191,900 shares of Entertainment Properties Trust (NYSE:EPR), which have a cost basis of $15,656,000 and a fair value at June 30, 2003 of $34,267,000. The shares held by the Trust represent approximately 6.91% of the outstanding shares of Entertainment Properties Trust as of May 1, 2003. During the quarter ended June 30, 2003 the Trust sold 163,000 shares of EPR. These shares, which had a cost basis of $2,150,000, were sold for $4,618,000 resulting in a gain of $2,468,000. Also included in available-for-sale securities are 133,950 shares of Atlantic Liberty Financial Corp. (NASDAQ:ALFC), which have a cost basis of $2,034,000 and a fair market value of $2,431,000. The shares held by the Trust represent approximately 7.83% of the outstanding shares of Atlantic Liberty as of June 13, 2003. Note 6 -Borrowed Funds On June 6, 2003 the Trust amended it's existing $15 million credit line with North Fork Bank, primarily to increase the maximum borrowing to $30 million. In addition, the maturity date of the facility was extended from August 1, 2004 to June 1, 2006. A fee of $75,000 was paid to North Fork Bank in connection with this amendment. The Trust also may extend the term of the facility for two one year periods for a fee of $75,000 each year. Borrowings under the facility are secured by specific receivables and the credit agreement provides that the amount borrowed will not exceed 65% (increased from 60%) of the collateral pledged. As of June 30, 2003, BRT had provided collateral, as defined under the credit agreement, that would permit BRT to borrow up to approximately $20,500,000 under the facility. Interest charged on the outstanding balance is at prime plus 1/2%. At June 30, 2003, there was no outstanding balance on this facility. In addition to our credit facility we have the ability to borrow funds through a margin account. At June 30, 2003, there was no outstanding balance on this margin facility. Interest expense for the three months ended June 30, 2003 was $72,000, which included the fees charged to maintain the margin account. At June 30, 2003, marketable securities with a fair value of $34,267,000 were pledged as collateral. Note 7 - Comprehensive Income <TABLE> <CAPTION> Comprehensive income for the three and six month periods as follows: Three Months Ended Nine Months Ended June 30, June 30, -------- -------- 2003 2002 2003 2002 ---- ---- ---- ---- <S> <C> <C> <C> <C> Net income $ 4,754 $ 2,122 $ 9,795 $ 8,921 Other comprehensive income - Unrealized gain on available - for-sale securities 974 2,823 6,770 10,687 --- ----- ----- ------ Comprehensive income $ 5,728 $ 4,945 $16,565 $19,608 ======= ======= ======= ======= </TABLE> Accumulated other comprehensive income, which is solely comprised of the net unrealized gain on available-for-sale securities was $19,196,000 and $15,965,000 at June 30, 2003 and 2002, respectively. Note 8 - Recent Accounting Pronouncements Accounting for Stock-Based Compensation The Financial Accounting Standards Board issued Statement No. 148 to amend Statement No. 123, "Accounting for Stock-Based Compensation," to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, Statement No. 148 amends the disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. However, the Company has Note 8 - Recent Accounting Pronouncements (Continued) continued to account for options in accordance with the provision of APB Opinio No. 25, "Accounting for Stock Issued to Employees" and related interpretations. See Note 2 for pro forma net income information. Consolidation of Variable Interest Entities In January 2003, the Financial Accounting Standards Board issued Interpretation No. 46, "Consolidation of Variable Interest Entities", which explains how to identify variable interest entities ("VIE") and how to assess whether to consolidate such entities. The provisions of this interpretation are immediately effective for VIE's formed after January 31, 2003. For VIEs formed prior to January 31, 2003, the provisions of this interpretation apply to the first fiscal year or interim period beginning after June 15, 2003. Management has not yet determined whether any of its unconsolidated joint ventures represent variable interest entities pursuant to interpretation. Such determination could result in a change in the Trust's consolidation policy related to such entities. Accounting for Long-Lived Assets The Financial Accounting Standards Board issued Statement No. 144 "Accounting for the Impairment of Long-Lived Assets" which supersedes FASB Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of". The new statement retains the fundamental provisions of the superseded statement related to the recognition and measurement of the impairment of long-lived assets to be "held and used". In addition, Statement No. 144 provides more guidance on estimating cash flows when performing a recoverability test, requires that a long-lived asset or asset group to be disposed of other than by sale (e.g. abandoned) be classified as "held and used" until it is disposed of, and establishes more restrictive criteria to classify an asset or asset group as "held for sale". The Trust adopted Statement 144 at the beginning of the current fiscal year. The adoption of this statement did not have an effect on the earnings or the financial position of the Trust.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Forward-Looking Statements With the exception of historical information, this report on Form 10-Q contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933. We intend such forward-looking statements to be covered by the safe harbor provision for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995 and include this statement for purposes of complying with these safe harbor provisions. Forward-looking statements, which are based on certain assumptions and describe our future plans, strategies and expectations, are generally identifiable by use of the words "may", "will", "believe", "expect", "intend", "anticipate", "estimate", "project", or similar expressions or variations thereof. Forward-looking statements should not be relied on since they involve known and unknown risks, uncertainties and other factors which are, in some cases, beyond our control and which could materially affect actual results, performance or achievements. Investors are cautioned not to place undue reliance on any forward-looking statements. Liquidity and Capital Resources We are primarily engaged in the business of originating and holding for investment senior and junior real estate mortgages secured by income producing property. Our investment policy emphasizes short-term mortgage loans. We also purchase senior and junior participations in short term mortgage loans and originate participating mortgage loans and loans to joint ventures in which we are an equity participant. Repayments of real estate loans in the amount of $49,537,000 are due and payable to us during the twelve months ending June 30, 2004, including $650,000, currently not earning interest, due on demand. The availability of mortgage financing secured by real property and the market for selling real estate is cyclical. Since these are the principal sources for the generation of funds by our borrowers to repay our outstanding real estate loans, we 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. We maintain a $30,000,000 revolving credit facility with North Fork Bank. Borrowings under the facility are secured by specific receivables and the agreement provides that the amount borrowed will not exceed 65% of qualified first mortgage loans pledged to North Fork Bank. As of June 30, 2003, we had provided collateral that would permit us to borrow up to approximately $20,500,000 under the facility. Interest is charged on the outstanding balance at prime plus 1/2% (currently 4 1/2% per annum). The facility matures June 1, 2006 and may be extended, at our option, for two one year terms. At June 30, 2003, there was no outstanding balance on this facility. We also have the ability to borrow on margin, using the shares we own in Entertainment Properties Trust as collateral. At June 30, 2003 there was approximately $14,606,000 available under this facility and there was no outstanding balance. The amount available under the facility will be reduced if the market value of the stock of Entertainment Properties Trust declines. During the nine months ended June 30, 2003, we generated cash of $6,429,000 from operations, $68,145,000 from real estate loan collections and $5,052,000 from the sale of securities. These funds, in addition to cash on hand, were used primarily to fund real estate loan originations of $44,026,000, repay outstanding borrowed funds of $14,745,000, purchase securities of $2,027,000 and pay shareholder dividends of $4,476,000. Our cash and cash equivalents were $19,972,000 at June 30, 2003. We will satisfy our liquidity needs from cash and liquid investments on hand, the credit facility with North Fork Bank, the availability in our margin account collateralized by shares of Entertainment Properties Trust, interest and principal payments 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 real estate loans increased by $137,000, or 6%, to $2,479,000 for the three months ended June 30, 2003 from $2,342,000 for the three months ended June 30, 2002. During the current quarter the average balance of loans outstanding increased by $1.7 million accounting for an increase of $49,000. A decrease in the average rate earned on the portfolio to 11.75% in the three months ended June 30, 2003 from 11.79% in the three months ended June 30, 2002 caused a $6,000 decrease. A $94,000 increase in fee income was realized in the three months ended June 30, 2003 as a result of increased amortization due to early payoffs and expired commitments, and to increased extension fee income. For the nine months ended June 30, 2003, interest and fees on loans declined $378,000, or 5%, from $7,989,000 to $7,611,000. In the nine month period ended June 30, 2002 two participating loans were repaid resulting in additional interest and fees of $1,182,000, as compared to $105,000 recognized in the nine month period ended June 30, 2003 upon the payoff in full of a previously non-earning loan. Additional interest on participating loans is "non recurring" in nature. The decline in interest and fee income was offset in part by a $4.5 million increase in the average balance of loans outstanding resulting in a $398,000 increase in interest income. In addition, during the nine month period ended June 30, 2003, fee income increased by $305,000 primarily as a result of increased amortization due to the early payoff of loans, an increase in extension fees paid and a $90,000 exit fee received in the current period on the payoff of a loan. Reversal of previously provided provisions decreased to $-0- from $500,000 for the nine month period ended June 30, 2003. During the nine month period ended June 30, 2002 we reduced our loan loss allowance as a loan which was previously considered impaired, was paid in full. Other revenues, primarily investment income, decreased to $630,000 in the three months ended June 30, 2003, from $694,000 in the three months ended June 30, 2002, a decrease of $64,000, or 9%. The decline was due to a decline in the average interest rate earned on our money market and Treasury investments from 1.98% to .77%. We also experienced a decline in dividend income due to the sale of some securities. For the nine months ended June 30, 2003 other revenues, primarily investment income, decreased by $26,000, or 1%, from $2,054,000 to $2,028,000. During the nine month period the average interest rate on our money market and Treasury investments declined from 2.24% to 1.08% causing a $54,000 decline in investment income. This was partially offset by a $27,000 increase in dividend income received on our investment in shares of Entertainment Properties Trust and a $1.4 million increase in the average balance of money market and Treasury investments. Interest expense on borrowed funds increased to $72,000 in the three months ended June 30, 2003 from $40,000 in the three months ended June 30, 2002. The increase of $32,000, or 82%, is due to an increase in the average balance of borrowings outstanding of $3.6 million. Interest expense on borrowed funds increased to $206,000 in the nine months ended June 30, 2003 from $83,000 in the nine months ended June 30, 2002. This increase of $123,000, or 148%, is due to an increase of $3.0 million in the average amount of borrowings outstanding in the current nine month period as compared to the prior six month period. At June 30, 2003 all amounts outstanding under our credit facility and margin account had been paid down to zero from principal payments received on outstanding loans. The Advisor's fee, which is calculated based on invested assets, decreased $45,000, or 17%, in the three months ended June 30, 2003 to $220,000 from $265,000 in the three months ended June 30, 2002. In the nine months ended June 30, 2003 the fee decreased $55,000, or 8%, from $695,000 in the nine months ended June 30, 2002 to $640,000. During both of these periods, we experienced a decline in the outstanding balance of invested assets, the basis upon which the fee is calculated, thereby causing a decrease in the fee. General and administrative expenses increased $99,000, or 14%, from $715,000 in the three months ended June 30, 2002 to $814,000 in the three months ended June 30, 2002. An increase of $27,000 was related to allocated expenses, primarily salary expense, which is determined pursuant to our Shared Services Agreement. The Trust also recorded a $28,000 increase in travel and advertising expense as the Trust has increased these expenditures in order to generate additional business. The remainder of the increases was in legal fees, compensation expense and restricted stock expense. For the nine months ended June 30, 2003 general and administrative expenses increased $48,000, or 2%, from $2,186,000 to $2,234,000 in the nine months ended June 30, 2003 primarily due to increases in salary and other compensation related expenses. Other taxes decreased $11,000, or 8%, in the three months ended June 30, 2003 from $133,000 to $122,000. The amounts in the current period represents federal and state income on undistributed income and federal excise tax on income generated but not yet distributed. The prior period amount represents federal excise tax and alternative minimum tax which the Trust was responsible for while it was utilizing its net operating loss carryforwards. For the nine months ended June 30, 2003 other taxes increased $26,000, or 8%, to $367,000 from $341,000. The increase primarily represents an increase in the amount of federal excise tax recorded. Operating expenses relating to real estate increased $8,000, or 2%, from $346,000 in the three months ended June 30, 2002 to $354,000. For the nine months ended June 30, 2003 operating expenses related to real estate increased $33,000, or 3%, from $949,000 to $982,000. The increase in both periods is due to modest increases in certain operating expenses associated with our operating properties. Equity in earnings of unconsolidated ventures decreased $65,000, or 112%, in the three months ended June 30, 2003 to ($7,000) from $58,000 in the three months ended June 30, 2002. The decline was due to an increase in operating expenses at several of the Trust joint venture properties. For the nine months ended June 30, 2003 equity in earnings of unconsolidated ventures decreased $484,000, or 85%, from $571,000 to $87,000. The decline in the nine month period is primarily the result of a gain recorded by one of the joint ventures in the nine month period ended June 30, 2002 from the sale of a parcel of land. Gain on the sale of real estate assets increased $200,000 in the three months ended June 30, 2003 from $-0- in the three month period ended June 30, 2002. This resulted from the sale of one cooperative apartment unit in the current period. For the nine month period ended June 30, 2003 gain on sale of real estate assets declined from $607,000 in the period ended June 30, 2002 to $395,000 in the nine months ended June 30, 2003. In the current nine month period the gain resulted from the sale of two cooperative apartment units. In the prior year nine month period the gain resulted from the sale of an unimproved parcel of land we previously acquired in foreclosure. Gain on sale of available-for-sale securities increased to $2,468,000 in the three month period ended June 30, 2003 from $-0- in the three month period ended June 30, 2002 and increased to $2,614,000 in the nine month period ended June 30, 2003 from $-0- in the nine month period ended June 30, 2002. The gain in both the current three and nine month periods resulted from the sale of real estate investment trust securities, including the sale of 163,700 shares of Entertainment Properties Trust for a gain of $2,468,000. Item 3. Quantitative and Qualitative Disclosures About Market Risks Our primary component of market risk is interest rate sensitivity. Our interest income and to a lesser extent our interest expense is subject to changes in interest rates. We seek 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 our available credit line which is also indexed to the prime rate. At June 30, 2003, approximately 62% of our loan 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 our net interest income. When determining interest rate sensitivity, we assume 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. We assessed the market risk for our variable rate mortgage receivables and variable rate debt and believe that a one percent increase in interest rates would have approximately a $253,000 positive effect on income before taxes and a one percent decline in interest rates would have approximately a $104,000 negative effect on income before taxes. In addition, we originate loans with short maturities and maintain a strong capital position. At June 30, 2003 our loan portfolio was primarily secured by properties located in the New York metropolitan area, New Jersey, California and Delaware and it is therefore, subject to risks associated with the economies of these localities. Item 4. Controls and Procedures Our president and chief executive officer, senior vice president-finance and vice president and chief financial officer have participated in the design and implementation of our disclosure controls and procedures and have evaluated the Company's disclosure controls and procedures as of the end of the period covered by this quarterly report on Form 10-Q. Based on their evaluation they have concluded that the controls and procedures are effective. There were no significant changes in our internal controls or in other factors that could significantly affect internal controls subsequent to the date of the evaluation. No significant deficiencies or material weaknesses were detected in our internal controls and therefore no corrective actions were taken. PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) Exhibits Exhibit 99.1 (Exhibit 31.1) Certification of President and Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Exhibit 99.2 (Exhibit 31.2) Certification of Senior Vice President-Finance pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Exhibit 99.3 (Exhibit 31.3) Certification of Vice President and Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Exhibit 99.4 (Exhibit 31.4) Certification of President and Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Exhibit 99.5 (Exhibit 31.5) Certification of Senior Vice President-Finance pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Exhibit 99.6 (Exhibit 31.6) Certification of Vice President and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (b) Reports on Form 8-K On May 14, 2003 BRT filed an 8-K attaching a copy of its press release reporting its results of operations for the quarter and six months ended March 31, 2003. On June 11, 2003 BRT filed an 8-K reporting that on June 6, 2003 BRT amended its $15 million credit facility with North Fork Bank.
SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. BRT REALTY TRUST Registrant August 12, 2003 /s/ Jeffrey Gould - ----------------- ----------------- Date Jeffrey Gould, President August 12, 2003 /s/ George Zweier - --------------- ----------------- Date George Zweier, Vice President and Chief Financial Officer (principal financial officer)
EXHIBIT 31.1 CERTIFICATION (filed as Edgar Exhibit 99.1) I, Jeffrey Gould, President and Chief Executive Officer of BRT Realty Trust, certify that: 1. I have reviewed this Quarterly Report on Form 10-Q for the quarter ended June 30, 2003 of BRT Realty Trust; 2. Based on my knowledge, this Quarterly Report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this Quarterly Report; 3. Based on my knowledge, the financial statements, and other financial information included in this Quarterly Report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this Quarterly Report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this Quarterly Report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting. 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: August 12, 2003 /s/ Jeffrey Gould ----------------- Jeffrey Gould President and Chief Executive Officer
EXHIBIT 31.2 CERTIFICATION (filed as Edgar Exhibit 99.2) I, David W. Kalish, Senior Vice President-Finance of BRT Realty Trust, certify that: 1. I have reviewed this Quarterly Report on Form 10-Q for the quarter ended June 30, 2003 of BRT Realty Trust; 2. Based on my knowledge, this Quarterly Report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this Quarterly Report; 3. Based on my knowledge, the financial statements, and other financial information included in this Quarterly Report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this Quarterly Report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this Quarterly Report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting. 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): c) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and d) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: August 12, 2003 /s/ David W. Kalish --------------------- David W. Kalish Senior Vice President-Finance
EXHIBIT 31.3 CERTIFICATION (filed as Edgar Exhibit 99.3) I, George Zweier, Vice President and Chief Financial Officer of BRT Realty Trust, certify that: 1. I have reviewed this Quarterly Report on Form 10-Q for the quarter ended June 30, 2003 of BRT Realty Trust; 2. Based on my knowledge, this Quarterly Report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this Quarterly Report; 3. Based on my knowledge, the financial statements, and other financial information included in this Quarterly Report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this Quarterly Report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this Quarterly Report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting. 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): e) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and f) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: August 12, 2003 /s/ George Zweier ------------------------ George Zweier Vice President and Chief Financial Officer
EXHIBIT 32.1 (furnished as Edgar Exhibit 99.4) CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER PURSUANT TO 18 U.S.C. SECTION 1350 (SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002) The undersigned, Jeffrey Gould, the Chief Executive Officer of BRT Realty Trust, (the "Registrant"), does hereby certify, pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge, based upon a review of the Quarterly Report on Form 10-Q for the quarter ended June 30, 2003 of the Registrant, as filed with the Securities and Exchange Commission on the date hereof (the "Report"): (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant. Date: August 12, 2003 /s/ Jeffrey Gould -------------------- Jeffrey Gould Chief Executive Officer
EXHIBIT 32.2 (furnished as Edgar Exhibit 99.5) CERTIFICATION OF SENIOR VICE PRESIDENT-FINANCE PURSUANT TO 18 U.S.C. SECTION 1350 (SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002) The undersigned, David W. Kalish, Senior Vice President-Finance of BRT Realty Trust, (the "Registrant"), does hereby certify, pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge, based upon a review of the Quarterly Report on Form 10-Q for the quarter ended June 30, 2003 of the Registrant, as filed with the Securities and Exchange Commission on the date hereof (the "Report"): (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant. Date: August 12, 2003 /s/ David W. Kalish ------------------------ David W. Kalish Senior Vice President-Finance
EXHIBIT 32.3 (furnished as Edgar Exhibit 99.6) CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER PURSUANT TO 18 U.S.C. SECTION 1350 (SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002) The undersigned, George Zweier, the Chief Financial Officer of BRT Realty Trust, (the "Registrant"), does hereby certify, pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge, based upon a review of the Quarterly Report on Form 10-Q for the quarter ended June 30, 2003 of the Registrant, as filed with the Securities and Exchange Commission on the date hereof (the "Report"): (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant. Date: August 12, 2003 /s/ George Zweier ------------------------- George Zweier Chief Financial Officer