SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ________________________ FORM 10-K ________________________ [x ] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [Fee Required] For the fiscal year ended September 30, 1995 __________________ or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [No Fee Required] Commission file number 1-7172 BRT REALTY TRUST _________________________________________ (Exact name of registrant as specified in its charter) Massachusetts 13-2755856 _________________________________________________________________ (State or other jurisdiction (I.R.S. employer of incorporation or organization) identification no.) 60 Cutter Mill Road, Great Neck, New York 11021 _________________________________________________________________ (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code 516-466-3100 Securities registered pursuant to Section 12(b) of the Act: Name of each exchange Title of each class on which registered ___________________ ________________________ Shares of Beneficial New York Stock Exchange Interest, $3.00 Par Value
Securities registered pursuant to Section 12(g) of the Act: NONE (Title of Class) Indicate by check mark whether the registrant (l) 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in PART III of this Form 10-K or any amendment to this Form 10-K [ ] The aggregate market value of voting stock of the registrant held by non-affiliates was approximately $21,930,000 as of December 1, 1995. As of December 1, 1995 the registrant had 7,346,624 Shares of Beneficial Interest issued and outstanding. Documents Incorporated By Reference PART III Item 10 - Directors and Executive Officers To be included in of the Registrant the Proxy Statement to be filed pursuant Item 11 - Executive Compensation to Regulation 14A not later than Item 12 - Security Ownership of Certain January 29, 1996, Beneficial Owners and Management except for information concerning executive Item 13 - Certain Relationships and Related officers, which is 1
Transactions included in Part I. PART IV - See Item 14. PART I Item l. Business. General BRT Realty Trust ("BRT" or the "Trust"), is a real estate investment trust organized in 1972 under the laws of the Commonwealth of Massachusetts. Its primary business activity has been investing in senior and junior real estate mortgages secured by income producing real property and to a limited extent in senior real estate mortgages secured by undeveloped real property. BRT did not finance new construction. For the reasons described under the subcaption "Background" below, particularly the Trust's agreement, as set forth in the Restated Credit Agreement (defined below) not to engage in lending activities except in specified situations, the Trust's lending activities have been very limited and in the fiscal years ending September 30, 1995 ("Fiscal 1995") and September 30, 1994 ("Fiscal 1994") the only lending activity in which the Trust engaged was purchase money first mortgages provided to purchasers of real estate from the Trust. In Fiscal 1995 the Trust's business activities involved primarily managing the Trust's loan portfolio, supervising, refurbishing and maintaining real estate owned by the Trust, arranging, negotiating and closing first mortgage loans secured by real estate owned, supervising and negotiating with respect to leasing and selling real estate owned, pursuing mortgage foreclosure actions against borrowers and negotiating workouts with delinquent borrowers. At September 30, 1995, the fiscal year end, the Trust had an outstanding loan portfolio (net of allowances) of $42,206,000 or 40.4% of total assets, of which 3.9% of the net loan portfolio (1.6% of total assets) is categorized as non-earning. This compares to an outstanding loan portfolio, net of allowances, of $64,686,000 (49.2% of total assets) at September 30, 1994, of which 3.9% of the net loan portfolio (1.9% of total assets) were categorized as non-earning. Approximately 47.5% of the Trust's total assets at September 30, 1995, or an aggregate of $49,569,000 (after valuation allowances, depreciation and amortization), represents real property acquired by the Trust in foreclosure or deed in lieu of foreclosure and capitalized improvements to such real properties, compared to $52,076,000 or 39.6% of total assets at September 30, 1994. Approximately 25% of the Trust's net 2
investment assets (either mortgages or real estate owned) related to cooperative apartments. The Trust's loan portfolio has been decreasing over the past number of fiscal years, both absolutely and as a percentage of total assets, as outstanding loans have been paid off and paid down and lending activities have been limited to first mortgages taken back in connection with the sale of real estate owned. Real Estate owned has increased as a percentage of assets and has remained relatively constant in an absolute sense from Fiscal 1994 to Fiscal 1995, as real estate has been acquired in foreclosure or by deed in lieu of foreclosure and funds have been expended to improve real property assets, offset by the sale of real estate owned. In compliance with the Restated Credit Agreement described below, the Trust has applied the proceeds derived from loan payoffs and paydowns, sale of real estate owned and financing real estate owned to the repayment of indebtedness due under the Restated Credit Agreement. Total assets decreased from $131,467,000 in Fiscal 1994 to $104,428,000 in Fiscal 1995 and total indebtedness decreased from $72,863,000 to $43,656,000 (indebtedness due under the Restated Credit Agreement decreased from $66,192,000 to $22,900,000) between Fiscal 1994 and Fiscal 1995. Background Commencing in the fiscal year ending September 30, 1990 ("Fiscal 1990") and continuing through the fiscal year ending September 30, 1992 ("Fiscal 1992"), difficulties in the real estate markets and a severe lack of liquidity in the real estate industry resulted in the Trust experiencing increasing delinquencies from its borrowers. As a reaction to the increase in non-earning loans, the Trust commenced and aggressively pursued foreclosure actions and other legal procedures against delinquent borrowers, seeking to acquire title to the asset (generally income producing real property) securing a delinquent loan as quickly as possible. By aggressively pursuing foreclosure actions, the Trust was able to protect the operating cash flow from a property through a court appointed receiver or a negotiated third party management arrangement. As a result of the actions taken by BRT against delinquent borrowers, non-earning loans decreased from year to year and at September 30, 1995 non-earning loans amounted to $7,154,000, $1,632,000 net of allowances (as compared to $10,268,000, $2,493,000 net of allowances at September 30, 1994). As a corollary to the decrease in non-earning loans, the Trusts' portfolio of real estate owned increased as a percentage 3
of total assets. At September 30, 1995 and 1994 the Trust owned, net of valuation allowances, depreciation and amortization, $49,569,000 and $52,076,000, respectively, of foreclosed property held for sale (except for approximately $13,915,000 at September 30, 1995 and $14,260,000 at September 30, 1994, net of accumulated depreciation) which is held long term for the production of income). At September 30, 1995 and 1994 foreclosed properties held for sale (net of valuation allowances and accumulated depreciation and amortization) accounted for 47% and 40%, respectively, of total assets. The Restated Credit Agreement dated as of September 23, 1992 entered into between BRT and five lending institutions (the "Banks") which were parties to the Original Credit Agreement (see "Restated Credit Agreement" below) provides that the Trust will not engage in any lending activities except for funding outstanding commitments and purchase money financing taken back in connection with the sale of real estate owned. The Trust did not have any outstanding funding commitments in Fiscal 1995 or Fiscal 1994. Accordingly, except for purchase money mortgages taken back in connection with the sale of real estate owned (which pursuant to the Restated Credit Agreement cannot exceed 90% of the purchase price) and purchase money senior financing taken back in connection with the sale of cooperative units (which pursuant to the Restated Credit Agreement cannot exceed 95% of the purchase price) the Trust did not engage in any lending activities in the fiscal years ending September 30, 1995 and 1994. Except for purchase money financing permitted by the Restated Credit Agreement, BRT does not expect to engage in any lending activities until the repayment in full of the principal balance due under the Restated Credit Agreement. As a result of the provisions of the Restated Credit Agreement (which essentially precludes lending activities) the business of the Trust in Fiscal 1995, as stated above, involved managing the Trust's loan portfolio, supervising, refurbishing and maintaining real estate owned, arranging, negotiating and completing first mortgage loans secured by real estate owned, supervising and negotiating the leasing and selling of real estate owned, pursuing foreclosure actions against delinquent borrowers and negotiating workouts with delinquent borrowers. In Fiscal 1996 the Trust will continue to focus on real estate operations, the disposition of real estate owned, arranging first mortgage financing on real estate owned, and realization of the principal balance of mortgages receivable in the Trusts' loan portfolio. As a direct consequence of the provisions of the Restated Credit Agreement and the strict limitation on the Trusts' lending 4
activities, the assets of the Trust decreased from $162,217,000 at September 30, 1993 and $131,467,000 at September 30, 1994 to $104,428,000 at September 30, 1995. In this regard it should be noted that (i) real estate loans, net of allowances, decreased by $22,480,000 in Fiscal 1995 primarily due to principal payoffs or reductions of $20,840,000, net of repayments to participating lenders, and reclassification of $5,310,000 principal amount of loans to real estate owned, offset by the issuance of $4,313,000 of purchase money mortgages in connection with the sale of real estate owned and (ii) real estate owned, net of valuation allowances and accumulated depreciation and amortization, and after giving effect to capitalized improvements aggregating $7,275,000 offset by real estate sales in Fiscal 1995 aggregating a book value of $13,918,000, decreased by $2,507,000 at September 30, 1995 as compared to September 30, 1994. Under the terms of the Restated Credit Agreement, the Trust has applied a major portion of the proceeds derived from loan repayments, real property sales and first mortgage loans secured by real estate owned to the reduction of bank debt. During the year ended September 30, 1995 bank debt was reduced by $43,292,000 to $22,900,000. From September 30, 1995 to December 1, 1995 the bank debt was reduced by an additional $4,125,000 to $18,775,000. With respect to the real estate which BRT has taken back in foreclosure or deed in lieu thereof, it is the policy of the Trust to offer for sale substantially all such real estate at prices which management believes represents fair value in the geographic area in which the property is located. If the Trust's management determines that it will not, in the near term, be able to sell a specific parcel of real estate at an acceptable price, management will seek first mortgage financing secured by the specific parcel of real property. In many instances, the Trust, through an independent contractor, renovates a property acquired by foreclosure or deed in lieu, engages in leasing activities, negotiates and completes the sale of real estate owned if the selling price is deemed acceptable by management, and within the limitations contained in the Restated Credit Agreement provides purchase money financing in connection with the sale of real estate owned. It has been the experience of the Trust's management that in connection with the sale of cooperative apartments it is usually necessary for the Trust to provide purchase money financing on a competitive basis. In Fiscal 1995 the Trust disposed of real estate other than cooperative apartments having an aggregate net book value of $13,458,000, for an aggregate consideration of $16,868,000 and took back purchase money financing in connection with such sales aggregating $4,876,000. In addition, in Fiscal 1995 the Trust derived proceeds of $19,250,000 from first mortgage financing secured by real estate owned by the Trust. From September 30, 5
1995 to December 1, 1995, the Trust derived gross proceeds of $1,600,000 from such first mortgage financing. During Fiscal 1995 the Trust sold shares in cooperative apartments, resulting in net proceeds of approximately $329,000 (net of purchase money mortgages of $217,000). MORTGAGE PORTFOLIO At September 30, 1995 the Trust's mortgage portfolio consisted of 82 mortgage loans totalling $51,290,000 in aggregate principal amount, of which $7,154,000, or 14%, was non-earning. Of the principal amount of mortgage loans outstanding at September 30, 1995, 79% represented first mortgage loans and 21% represented junior mortgage and wraparound loans. In Fiscal 1995 the Trust's only lending activities consisted of $4,313,000 in first priorirty purchase money financing provided to purchasers of real estate owned, including cooperative apartments. Purchase money financing provided to purchasers of real estate owned is usually on a short term basis (2 to 5 years) and to purchasers of cooperative apartments on a long term basis (20 to 30 years). The Trust has never invested in mortgages secured by property located outside the United States, Puerto Rico and Canada. The mortgage loans held by the Trust are not insured. In the event of a default by a borrower, the Trust is required to foreclose its mortgage or protect its investment through negotiations with the borrower and/or other interested parties, which in certain situations may involve cash outlays. If the Trust holds a junior mortgage loan or wraparound loan, its position is subordinate to liens of senior mortgages. In the event the underlying asset value proves to be insufficient to satisfy both the senior and junior lienholder, the Trust will lose a portion or all of its investment. In certain situations in order to protect its investment, the Trust has made payments to maintain the current status of prior liens (including real estate taxes) or purchased the prior lien. These payments were not significant in Fiscal 1995. It is possible that the total amount which may be recovered by the Trust upon the ultimate sale of a property will differ from the total investment less the allowance for possible losses. As a result of the difficult real estate market which existed in the years 1990-1994 and the resulting attitude of lenders towards real estate loans, many of the Trust's borrowers were not able to obtain financing from third parties or arrange a sale at an acceptable price at the time the Trust's loan matured 6
and sales of cooperative apartments did not occur as contemplated at the time the original loan was made. In addition to foreclosing on a number of properties, the Trust restructured loans, which included in most cases extending the maturity date and on occasion adjusting the interest rate. The Trust analyzes each loan separately to determine the appropriateness of restructuring and/or extending a loan. In analyzing each situation, management examines many aspects of a loan receivable, including the value of the collateral, the financial strength of the borrower, past payment history and plans of the owner for the property. In Fiscal 1995 there was a more favorable environment for obtaining financing secured by real property and in selling real property assets, and as loans matured, borrowers of the Trust in many cases were able to refinance or sell their properties and repay the indebtedness due to the Trust. However, sales of cooperative units has continued to be slow. Management anticipates that extensions for an additional period of time may be granted for loans maturing during 1996, but expects the need for borrowers to seek extensions and other accommodations to be reduced. The Trust did not have a policy or limitation on the amount or percentage of its assets which could have been invested in a single mortgage loan. 7
CURRENT LOAN STATUS As of September 30, 1995 the Trust had 82 mortgage loans in its mortgage portfolio, totaling $51,290,000 in aggregate principal amount (including $7,154,000 of non-earning loans) and $42,206,000 after allowances for possible losses. In Fiscal 1995 $20,840,000 of outstanding loans (net of repayments to participating lenders) was repaid and $5,310,000 (net of allowance for possible losses) was converted from outstanding loans to real estate owned. The three largest mortgage loans outstanding after allowances for possible loans represent 8.8%, 2.7%, and 2.7%, respectively of the Trust's total assets. (See Note 2 to the financial statements relating to significant relationships.) Information regarding the Trust's mortgage loans outstanding at September 30, 1995: (Amounts in thousands) <TABLE> <CAPTION> Not No. Earning Earning Prior of Total Interest Interest Liens Loans <S> <C> <C> <C> <C> <C> First Mortgage Loans: Long-term: Residential $ 1,832 $ 1,832 $ - $ - 38 Short-term: Shopping centers/ retail 7,289 7,289 - - 10 Industrial buildings 4,051 4,051 - - 3 Office buildings 4,140 4,140 - - 2 Residential (multiple family units) 19,576 18,928 648 - 14 Hotel 1,259 1,259 - - 1 Misc. 2,608 2,608 - - 2 Second Mortgage Loans: Shopping 8
centers/ retail 3,349 216 3,133 8,611 3 Office building 679 679 - 2,377 1 Residential (multiple family units) 3,658 1,740 1,918 49,969 3 Hotel 1,000 - 1,000 12,000 1 Wraparound mortgages 1,849 1,394 455 5,449 4 ______ ______ ______ _______ __ $ 51,290 $ 44,136 $ 7,154 $78,406 82 ________ ________ _______ ________ __ </TABLE> * Prior liens on mortgage loans include senior participation of $15,500,000. At September 30, 1995 the Trust had an allowance for possible losses on its real estate loans of $9,084,000 compared to an allowance of $13,321,000 at September 30, 1994. In determining the allowance for possible loan losses, the Trust takes into account numerous factors including a market evaluation of the underlying collateral, the underlying property's estimated cash flow during the projected holding period and estimated sales value computed by applying an expected capitalization rate to the stabilized net operating income of the specific property, less estimated selling costs. The Trust also takes into account the extent of liquidity in the real estate industry, particularly in the New York metropolitan area, where approximately 80% of the portfolio is located. Management reviews the loan portfolio on a quarterly basis to determine if additional allowances are needed. When a mortgage loan is in default, the Trust may acquire the underlying property through foreclosure or other legal action as is necessary to protect its investment. In negotiated workouts the Trust seeks to acquire title to a property and in certain cases affords the borrower the opportunity to reacquire the property at a fixed price over a specified period of time. Real Estate Owned The real estate owned by the Trust consists primarily of foreclosed properties held for sale, with the exception of Abbotts Square, which is held long term for the production of income. The real estate owned consists primarily of the following as of September 30, 1995: 9
Abbotts Square, Philadelphia, Pennsylvania - A mixed use property, containing 63,000 square feet of commercial space (16 retail stores), a 400 car parking garage and 88 residential condominium units, owned and operated by a limited partnership in which a wholly owned BRT subsidiary is the sole general partner and BRT is a limited partner. The property was acquired by the owning partnership in April, 1993 under a plan of reorganization confirmed by the bankruptcy court. The partnership agreement provides that there are to be no cash distributions of operating cash flow to partners, other than BRT, until BRT has received a specified cumulative return and after BRT has received payment currently of its specified return, then BRT will receive 50% of all operating cash flow and the other partners the other 50%. The partnership agreement provides further that there are to be no distributions of sale or refinancing proceeds to partners other than BRT until all required cash distributions to BRT from operations, including accumulated arrears, have been paid currently, and BRT receives full payment of the principal amount owed to it plus the specified cumulative return, after which BRT will receive 50% of such distributions. The retail space was 90% occupied at September 30, 1995 and the residential units 98% occupied at that date. Extensive repairs were completed at this property in Fiscal 1995 at a cost of approximately $1,594,000. On September 28, 1995 a loan of $10,000,000 was closed with respect to the Abbotts Square property, secured by a first mortgage on the retail and garage component and the 88 condominium units. The loan matures in five years, with a right granted to the borrower to extend for an additional five years (subject to satisfaction of certain conditions), provides for interest at either a fixed rate related to the mortgagee's prime, a floating rate related to comparable United States treasury bills or a floating rate related to LIBOR, or a combination of any two at the option of the borrower, and provides for monthly amortization based on a 25 year amortization schedule. The borrower locked in an interest rate of 7.83% per annum (related to one year treasury bills) for the first year the loan is outstanding. Dover, Delaware - A 474,000 square foot enclosed facility containing approximately 249,000 square feet of retail space and 225,000 square feet of office space located on approximately 58 acres. The total site contains approximately 90 acres. In addition to the enclosed (former shopping mall) facility there are 5 free standing buildings on the property (two of which are vacant) containing approximately 55,000 square feet of rentable space. The Trust has converted the "anchor" locations at this 10
center to office space and has entered into a 10 year lease (with options to renew) with a major insurance company for approximately 68,600 square feet of space, and a 10 year lease (with options to renew) with a major bank for 79,000 square feet of space. The renovation for the insurance company was substantially completed in December, 1994, and for the banking entity in May, 1995. Each of the two tenants at the "anchor" locations has options to expand their space and a right to early termination. If the insurance company exercises its early termination right, which it can do so at any time, the tenant must pay to BRT, an amount equal to the rentals due to the lease termination date, discounted to present value. The bank has an early termination right, during its sixth lease year only. The Trust has been converting this facility to an office park, with some retail to service the office tenants, and as opportunities arise, the Trust is renting former retail space to office users. This facility was approximately 62% occupied at September 30, 1995. In July 1995 two separate loans aggregating $9,250,000 were closed with respect to this property; one loan in principal amount of $6,000,000 is collateralized by a first mortgage on the insurance company's building (an additional $1,000,000 can be drawn down for tenant improvements if the insurance company exercises any of its expansion options) and the other loan in the principal amount of $3,250,000 is collateralized by the bank's facility. Both loans are cross collateralized and are secured by a negative pledge on the balance of the property and a mortgage on the balance of the mall. The loans are for ten years, provide for a fixed interest rate of 8.07% and provide an amortization schedule intended to amortize the loan over the ten year period. Rock Springs, Wyoming - A 151,105 square foot shopping center, consisting of 138,191 square feet of retail space (30 retail stores), 12,914 square feet of office space, a free standing restaurant and a free standing film kiosk. The Trust holds a leasehold interest in this property subject to a first leasehold mortgage which matured on November 1, 1995 and provides for interest at the rate of 9 1/4% per annum. At September 30, 1995 there was a principal balance of $1,649,000 due on the leasehold mortgage. The mortgagee has agreed to renew this mortgage for a term expiring November 1, 2000, at an interest rate of 8.44%, but is requiring monthly payments at the same level as required under the existing mortgage, resulting in quicker amortization of the principal balance due on the mortgage. Pending execution of the renewal documents (which will require the signature of the fee owner of the property) the loan has been extended on a month to month basis. The retail space was approximately 92% occupied and the office space was approximately 100% occupied at September 30, 1995. 11
New York, New York - A twelve story office building located on lower Madison Avenue in Manhattan, New York containing approximately 5,000 square feet of grade level retail space and approximately 55,000 square feet of office space. The property is owned free and clear of mortgages. At September 30, 1995 50% of the retail space and approximately 96% of the office space was occupied. Kansas City, Kansas - A three story office building located on Shawnee Mission Parkway, Fairway, Kansas, an active suburban office market in the greater Kansas City area. This property acquired by deed in lieu of foreclosure on October 25, 1995 contains approximately 103,500 square feet of rentable space and parking capacity for 393 vehicles. The property was 63% occupied on the date acquired by the Trust. Elmont, New York - A three story office building containing approximately 18,000 square feet of office space. The property is owned free and clear of mortgages. At September 30, 1995 approximately 68% of the space was occupied. The Trust has entered into a contract to sell this property for a consideration $735,000, of which, at the option of the purchaser, up to $510,000 may be represented by a five year purchase money first mortgage. The Trust expects this transaction to be consummated in January 1996. Spring Valley, New York - This property consists of four two story garden apartment buildings containing 86 apartment units and parking facilities for 144 vehicles. Spring Valley is about 27 miles north of New York City. At September 30, 1995 the property was 100% occupied. On November 3, 1995 a first mortgage loan in the principal amount of $1,600,000 was closed with respect to this property. The mortgage matures on December 1, 2010, provides for interest at 8.75% for the first five years and 250 basis points above five year treasuries for each of the remaining five year terms and amortization over a 30 year period. Hoboken, New Jersey - A 32,500 square foot parcel of undeveloped land. This property is owned free and clear of mortgages. The property is leased to a parking lot operator under a 10 year lease. The lease contains provisions for early termination if the property is sold for development purposes. Montreal, Canada - The Trust owns fee title to a parcel of land in downtown Montreal, free and clear of mortgages. The property, which is improved with a 23 story office building, is net leased for a term expiring in 2061. 12
New York, New York - Two six story residential buildings located on West 172nd Street in Manhattan, New York, containing 82 apartments and 13 grade level retail stores with 9,264 square feet of rentable space. This property, which is owned free and clear of any fee mortgage, is leased under a net lease which expires in 2015. The Trust owns 619 cooperative apartment units in 6 separate projects, 2 of which containing 160 units are located in Nassau County, New York, 2 containing 193 units are located in Manhattan, 1 containing 251 units located in Queens, New York and 1 containing 15 units in the Bronx, New York. Since the market for the sale of cooperative apartment units in New York City and Long Island is very competitive and there is an apparent oversupply of cooperative apartments being offered for sale, the Trust's policy is to lease the units owned by it with a number of selective units at some locations being held vacant for sale. At September 30, 1995 91% of the units were occupied. Restated Credit Agreement On September 23, 1992, an Amended and Restated Credit Agreement ("Restated Credit Agreement") was executed between BRT and the Banks. Pursuant to the Restated Credit Agreement, BRT and its wholly-owned subsidiaries granted the banks a lien on all existing and future mortgages receivable; BRT pledged the stock held by it in each subsidiary as collateral for the loan and caused each of its subsidiaries, all of which are formed primarily to own real estate acquired by foreclosure and specific mortgages receivable, to guaranty repayment of the loan due to the Banks. The principal balance outstanding under the Restated Credit Agreement bears interest at 1% in excess of the agent bank's (Bankers Trust Company) prime lending rate and in addition, the agent bank receives an annual fee equal to 1/8 of 1% of the aggregate outstanding principal balance. BRT cannot make any borrowings under the Restated Credit Agreement and once a principal payment is made by the Trust to the Banks it cannot be reborrowed. The maturity date of the Restated Credit Agreement originally June 30, 1995, has been extended to June 30, 1996. If, the Trust satisfies certain conditions, primarily making the mandatory repayments (described below) and meeting certain ratio tests, the Restated Credit Agreement may be extended by the Trust to June 30, 1997. The Trust has to date, made all repayments of principal required by the Restated Credit Agreement. If the Trust elects to extend the maturity date to June 30, 1997 13
$20,000,000 must be repaid no later than June 30, 1996. The Trust has already satisfied this repayment requirement. The outstanding principal balance due under the Restated Credit Agreement was reduced from $66,192,000 outstanding on September 30, 1994 to $22,900,000 at September 30, 1995 and at December 1, 1995, it has been further reduced to $18,775,000. If the loan has not been paid in full by June 30, 1996 the Trust will extend the maturity date of the loan to June 30, 1997 and believes that it will satisfy all conditions required for the loan to be extended. Upon execution and delivery of the Restated Credit Agreement, the Banks and BRT entered into a Cash Collateral Agreement under which a cash collateral account was established with Bankers Trust Company. This account is the repository of a portion of capital event proceeds (proceeds from the sale of real estate, proceeds from mortgages obtained secured by real estate owned and proceeds from mortgage loan reductions and payoffs) and the Trust's excess operating cash flow. The funds in the cash collateral account are available to BRT for business purposes, including interest payments under the Restated Credit Agreement, capital improvements to real estate owned, protection of mortgages receivable and funding operating expenses. The agent bank is required to disburse funds (in an amount not greater than an approved budget) from the cash collateral account upon requisition by BRT as long as there is no monetary default under the Restated Credit Agreement. To the extent the cash collateral account exceeds $9,000,000 at the end of any month or $10,000,000 within a month, the excess is applied to reduce principal. To the extent the cash collateral account is reduced below $9,000,000, BRT can utilize a portion of capital event proceeds and excess operating cash flow to build the account up to $9,000,000. The Restated Credit Agreement also requires a segregated interest reserve account as part of the cash collateral account, amounting to three months interest payments (approximately $558,000 at September 30, 1995). The banks have a security interest in the cash collateral account. Under the Restated Credit Agreement and the Cash Collateral Agreement the Trust is authorized to maintain operating bank accounts. To the extent cash in the operating accounts exceeds $500,000 at the end of any month, such excess is to be deposited in the cash collateral account. Under the terms of the Restated Credit Agreement, a minimum of 75% of capital event proceeds must be applied to reduce the principal balance of the loan. The balance of capital event proceeds are deposited by the Trust in the cash collateral account. In October, 1994 the Banks agreed to reduce the 75% requirement to 50% on the next $6,000,000 of capital event 14
proceeds so that the Trust could reestablish the cash collateral account up to $9,000,000. The cash collateral account was significantly depleted due to the expenditure of the funds required in the renovation of the Dover, Delaware property (see "Business - Real Estate Owned") and for extensive repairs and improvements at other properties owned. The cash collateral account totalled approximately $7,134,000 at September 30, 1995. The Restated Credit Agreement precludes the Trust from making any mortgage loans except for purchase money mortgage loans issued in connection with the sale of properties (with limitations as to percentage of sales price, rates of interest and term). There are also specific limitations on extending loans and reducing interest rates on mortgages receivable, on obtaining financing on real estate owned and on selling real estate owned and subsidiary stock. Under the Restated Credit Agreement the Trust covenanted, among other covenants, (i) to provide the banks with periodic and annual financial statements, and periodic financial and other information and budgets, (ii) to maintain tangible net worth at the lesser of $55,000,000 or 60% of total bank debt plus nonrecourse indebtedness for borrowed money (at September 30, 1995 the net worth requirement was $25,204,800) and (iii) not to permit total liabilities (excluding subordinated debt and nonrecourse indebtedness existing on September 23, 1992 or assumed in connection with a foreclosure but including all other indebtedness) to exceed two times tangible net worth plus subordinated debt. In the opinion of Management of the Trust, the Restated Credit Agreement and the Cash Collateral Agreement has provided the Trust with adequate funds to operate its business, to protect its receivables, to maintain and improve real estate owned and to dispose of assets in the ordinary course of business. REIT Qualification The Trust qualifies as a real estate investment trust under the Internal Revenue Code ("Code"). Since qualification as a REIT under the Code requires the Trust to be passive in its real estate activities by managing its foreclosed properties through independent contractors, adhering to holding period requirements and meeting qualified income and asset tests, the Trust is precluded from taking certain actions a real estate company not seeking to qualify as a REIT might take to protect an investment. 15
Competition Since the Trust is not actively engaged in lending activities it is not competing for mortgage loans. With respect to the real estate acquired by foreclosure and held for sale, the Trust will compete for tenants and potential purchasers of such properties with owners of comparable real property in the area in which the property is located. With respect to the cooperative units owned by the Trust, there is a great deal of competition for purchasers and, pending significant improvement in the market for the sale of cooperative units, the Trust intends to rent out substantially all the units for terms of up to two years. At present the apartment rental market in the areas in which the Trust owns cooperative apartments is satisfactory. Employees The Trust has 9 full-time employees. In addition, it has entered into an agreement with REIT Management Corp. ("REIT") pursuant to which REIT acts as its advisor. At the present time, REIT, subject to supervision of the Board of Trustees, administers the Trust's portfolio of mortgages receivable, supervises foreclosure actions, engages in negotiations in workout situations with respect to non-earning loans and supervises and provides support services in litigation activities. REIT also supervises the maintenance, leasing, sale and/or financing of real estate owned by the Trust. Reference is made to the Trust's Proxy Statement to be filed pursuant to Regulation 14A for information concerning the amount and method of computing REIT's fee. In Fiscal 1994 and 1995, the Trust engaged entities, including entities affiliated with REIT, to manage properties acquired by the Trust in foreclosure or deed in lieu of foreclosure. The management services include, among other things, rent billing and collection, accounting, maintenance, contractor negotiation, construction management, sales and leasing and mortgage brokerage. In management's judgment the fees paid to REIT and entities affiliated with REIT are competitive with or less than fees that would be charged for comparable services by unrelated entities. 16
EXECUTIVE OFFICERS OF REGISTRANT The following sets forth the executive officers of the Trust. The business history of officers who are also Trustees will be provided in the Trust's proxy statement to be filed pursuant to Regulation 14A not later than January 29, 1996. Name Office Fredric H. Gould Chairman of the Board and Chief Executive Officer Marshall Rose Vice Chairman of the Board Israel Rosenzweig President; Trustee Jeffrey A. Gould Executive Vice President and Chief Operating Officer Simeon Brinberg Senior Vice President; Secretary Eugene J. Keely Vice President Nathan Kupin Vice President; Trustee Matthew J. Gould Senior Vice President David W. Kalish Vice President; Chief Financial Officer Karen A. Till Vice President, Financial Jeffrey A. Gould (age 30) has been a Vice President of the Trust since January, 1988 and became Executive Vice President and Chief Operating Officer in March 1994. In June, 1989 he became a Vice President of One Liberty Properties, Inc. He is also a Vice President of Georgetown Partners, Inc., managing general partner of Gould Investors L.P. Simeon Brinberg (age 62), has been Secretary of the Trust since February, 1983 and Senior Vice President since November, 1988. From 1961 to September, 1988 he was a partner in the law firm of Bachner, Tally, Polevoy, Misher & Brinberg and its predecessor. In October, 1988 Mr. Brinberg became an officer of BRT and a Vice President of Georgetown Partners, Inc. In June, 1989 he became a Vice President of One Liberty Properties, Inc. Mr. Brinberg is a director of Witco Corporation. 17
Eugene J. Keely (age 60) has been a Vice President of the Trust since May 1983. Matthew J. Gould (age 36) has been President and Chief Operating Officer of One Liberty Properties, Inc. since June, 1989. He has been a Vice President of the Trust since 1986 and became Senior Vice President in March 1993. He has also been a Vice President since 1986 of Georgetown Partners, Inc., Managing General Partner of Gould Investors L.P., Vice President of REIT since 1986, and a Vice President of Majestic Property Management Corp. and related entities engaged in real property management and leasing since 1986. David W. Kalish (age 48) has been a Vice President and Chief Financial Officer of the Trust since June, 1990. He has also been Vice President and Chief Financial Officer of One Liberty Properties, Inc. and Georgetown Partners, Inc. since June, 1990. For more than five years prior thereto, Mr. Kalish, a certified public accountant, was a partner of Buchbinder Tunick & Company, and its predecessors. Karen A. Till (age 33) has been a Vice President of the Trust since March 1994. For more than four years prior thereto, Ms. Till, a certified public accountant, was employed by Gould Investors L.P. in an accounting capacity. 18
Item 2. Properties. The Trust's executive offices are located at 60 Cutter Mill Road, Great Neck, New York, where it occupies approximately 14,500 square feet with Gould Investors L.P., REIT Management Corp., One Liberty Properties, Inc. and other related entities. The building in which the executive offices are located is owned by an affiliate of Gould Investors L.P. The Trust contributed $171,000 to the annual rent in Fiscal 1994. For a description of the real estate acquired by the Trust in foreclosure, see Item 1, Business; Real Estate Owned. Item 3. Legal Proceedings. The Trust is not a defendant in any material pending legal proceedings. Item 4. Submission of Matters to a Vote of Security Holders. There were no matters submitted during the fourth quarter of the fiscal year to a vote of the Trust's security holders. 19
PART II Item 5. Market for the Registrant's Common Equity and Related Matters The Trust's shares of Beneficial Interest ("Beneficial Shares") are listed on the New York Stock Exchange. The following table shows for the quarters indicated, the high and low sales prices of the Trust's Beneficial Shares on the New York Stock Exchange as reported on the Composite Tape. Fiscal Year Ended September 30, High Low 1994 ____ First Quarter 4 3/4 3 3/4 Second Quarter 4 3/8 3 5/8 Third Quarter 4 5/8 3 1/2 Fourth Quarter 4 7/8 4 1995 ____ First Quarter 4 3/8 3 Second Quarter 4 3 1/2 Third Quarter 4 3/4 3 1/4 Fourth Quarter 4 3/4 3 7/8 As of December 1, 1995 there were approximately 2,700 holders of record of the Trust's Beneficial Shares. The Trust did not declare any cash distributions to common shareholders during the years ended September 30, 1994 and 1995. In each of the years ended September 30, 1994 and 1995 the Trust paid $270,000 or $.2622 per share on its outstanding preferred stock. The preferred stock is owned by Gould Investors L.P., a related party. The Trust qualifies as a real estate investment trust for Federal income tax purposes. In order to maintain that status, it is required to distribute to its shareholders at least 95% of its annual taxable income. Management believes that as a result of accumulated tax losses the Trust will not be required to make cash distributions for a number of years to maintain its real estate investment trust status. The resumption of cash 20
distributions and the amount and timing of future distributions, if any, will be at the discretion of the Board of Trustees and will depend upon the Trust's financial condition, earnings, cash flow and other factors. The Restated Credit Agreement precludes payment of cash dividends on Beneficial Shares unless required in order for the Trust to maintain its real estate investment trust status. Item 6. Selected Financial Information The following table, not covered by the report of independent certified public accountants, sets forth selected historical financial data of the Trust for each of the fiscal periods in the five years ended September 30, 1995. This table should be read in conjunction with the detailed information and financial statements of the Trust appearing elsewhere herein. <TABLE> <CAPTION> Fiscal Years Ended September 30, _________________________________________________ 1995 1994 1993 1992 1991 ____ ____ ____ ____ ____ (In thousands except for per share amounts) <S> <C> <C> <C> <C> <C> Operating statement data: Total revenues $20,133 $22,037 $18,189 $15,200 $20,631 Provision for possible loan losses 1,021 4,340 3,111 7,940 12,391 Provision for valuation adjustment 178 993 3,388 - - Net income (loss)(1) 2,974 195 ( 4,068)( 8,395)(10,405) Calculation of net income (loss) applicable to common shareholders: Net income (loss) 2,974 195 ( 4,068)( 8,395)(10,405) Less: distributions on Preferred stock 270 270 12 - - 21
Net income (loss) applicable to common shareholders 2,704 ( 75)( 4,080)( 8,395)(10,405) Income (Loss) per beneficial share- primary .37 ( .01) ( .56) ( 1.14) ( 1.42) Fully diluted .35 ( .01) ( .56) ( 1.14) ( 1.42) Balance sheet data: Total assets 104,428 131,467 162,217 176,594 195,970 Earning real estate loans (2) 44,136 67,739 95,353 107,571 111,375 Non-earning real estate loans (2) 7,154 10,268 26,750 44,250 71,166 Real estate owned (2) 52,029 54,793 51,162 35,574 26,851 Notes payable- banks 22,900 66,192 92,785 105,000 114,800 Subordinated note, less unamortized discount - - - 3,135 6,056 Loans and mortgages payable 20,756 6,671 10,308 8,626 6,751 Shareholders' equity 57,728 55,024 55,099 55,804 64,199 </TABLE> (1) The year ended September 30, 1992, includes an extraordinary gain of $969,000. (2) Earning and non-earning loans and real estate owned are presented without deduction of the related allowance for possible losses, valuation allowance, or accumulated depreciation and amortization. 22
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Liquidity and Capital Resources The Trust was engaged in the business of making and participating in senior and junior real estate mortgages, secured by income producing property and to a lesser extent by unimproved real property. The Trust's investment policy emphasized short-term mortgage loans. Repayments of real estate loans in the amount of $19,445,000 are due during the twelve months ending September 30, 1996 ("Fiscal 1996"), including $11,406,000 which is due on demand. There presently is a more favorable environment for obtaining mortgage financing secured by real estate and for selling real estate, but the Trust cannot project the portion of loans maturing in Fiscal 1996 which will be paid or the portion of loans maturing in Fiscal 1996 which will be extended for a fixed term or on a month to month basis. Effective September 23, 1992, the Trust entered into an Amended and Restated Credit Agreement ("Restated Credit Agreement") with five banks. The maturity date under the Restated Credit Agreement has been extended to June 30, 1996, with the Trust having the right to extend for an additional one year term if it satisfies certain conditions, principally making certain mandatory repayments and meeting certain ratios. If necessary the Trust will extend the maturity date of the Restated Credit Agreement to June 30, 1997. As of December 1, 1995 the Trust had made all mandatory repayments required by June 30, 1996 and meets the required ratios. Under the Restated Credit Agreement the Trust is required to apply a minimum of 75% of capital event proceeds (proceeds from the sale of real property, proceeds from mortgage financing secured by real estate owned and proceeds from payoffs or paydowns of mortgages receivable) to reduce the principal balance due to the banks, and the balance of 25% is deposited in a cash collateral account maintained with the agent bank. The agent bank is required to disburse funds to the Trust from the cash collateral account upon requisition by the Trust, provided there is no monetary default under the Restated Credit Agreement. To the extent the cash collateral account exceeds $9,000,000 at the end of any month or $10,000,000 within a month, such excess is applied to reduce principal. To the extent the cash collateral account is reduced below $9,000,000, the Trust can utilize 25% of capital event proceeds and excess operating cash flow to build the account up to $9,000,000. In October, 1994, the Banks agreed to reduce the 75% requirement to 50% on the next $6,000,000 of capital event proceeds so the Trust could reestablish the cash collateral account to $9,000,000, as the 23
Trust's requirement for funds for capital expenditures at properties owned exceeded the budget established for Fiscal 1994 by about $3,500,000. The increase in capital expenditures in late 1994 and early 1995 was due in large measure to the conversion of a shopping mall in Dover, Delaware from a retail mall to an office park at a cost of approximately $6,600,000. In addition, the Trust maintains its own operating accounts, into which all operating revenues are deposited and from which all operating expenses are paid, and to the extent operating accounts exceed $500,000 at the end of any month, the excess is deposited into the cash collateral account. During Fiscal 1994, the Trust entered into a project to convert one of its properties, a regional mall located in Dover, Delaware, into an office park. The Trust entered into a lease with a major insurance company, requiring the Trust to segregate the funds required for the improvements required under the lease (approximately $5,650,000) into a separate account. The aforementioned segregated funds were deemed restricted at September 30, 1994. A modification to the Restated Credit Agreement was provided by the banks, allowing the Trust to exceed its $9,000,000 budget by $1,000,000, in order to pay for the aforementioned improvements, in addition to its other operational requirements. A further modification was permitted by the banks for the Trust to exceed its $10,000,000 budget, as amended, by an additional $2,500,000. These additional funds allowed the Trust to complete the improvements required under a lease entered into with a bank at the office park, in addition to required expenditures at other real estate owned. In order for the Trust to replenish its cash collateral account, the banks also agreed to modify the allocation on the next $6,000,000 of capital event proceeds (effective October 28, 1994) and permitted the Trust to retain 50% of such proceeds as opposed to the 25% provided in the Restated Credit Agreement. At September 30, 1995 the Trust maintained approximately $7,134,000 in the Cash Collateral Account, which management deems sufficient to satisfy the Trust's short term liquidity needs. During the twelve months ended September 30, 1995 ("Fiscal 1995"), the Trust had an increase in cash provided by investing activities, as a result of collections from real estate loans of $20,840,000 (net of repayments to participating lenders of $8,445,000) and proceeds from the sale of real estate owned of $12,320,000, net of purchase money mortgages of $4,313,000. The cash provided by investing activities and proceeds of $19,250,000 from refinancing real estate owned was used to reduce bank debt by $43,292,000 in Fiscal 1995. The Trust also paid off or paid down loans and mortgages payable in the amount of $3,310,000. The Trust intends to satisfy its short term liquidity 24
needs from interest received on outstanding real estate loans, net cash flow generated from the operation of properties, cash derived from financing real estate owned, and from the funds in the cash collateral account. In the opinion of Management, the Restated Credit Agreement by its terms, and the mechanics of the cash collateral account, provide adequate funds for the Trust to operate its business, to protect its receivables and to operate its real estate (which includes making necessary capital improvements) and sufficient time to dispose of assets and apply the net proceeds therefrom to reduce the amounts outstanding under the Restated Credit Agreement. Results of Operations 1995 vs 1994 The Trust's loan portfolio at September 30, 1995, before giving effect to the allowance for possible losses, was $51,290,000, of which $7,154,000 (14% of total real estate loans) is categorized as non-earning, as compared to $78,007,000 at September 30, 1994, of which $10,268,000 (13% of total real estate loans) is categorized as non-earning. The $26,717,000 decrease in the loan portfolio since September 30, 1994 is primarily due to the payoff of three real estate loans secured by garden apartments located in the Texas market place in the amount of approximately $16,767,000 (net of repayments to senior participating lenders aggregating $8,445,000) . The portfolio was further reduced by the Trust taking title to two properties by deed-in-lieu of foreclosure at an estimated fair value aggregating $5,310,000 (net of an allowance for possible losses of $1,750,000), as well as the settlement, after litigation, of a junior interest in a pool of mortgages having a book balance of approximately $4,300,000 prior to allowance for possible losses of approximately $2,600,000. These decreases were offset in part by purchase money mortgages taken back in connection with the sale of real estate owned. Real estate owned (prior to valuation allowances of $2,460,000) decreased to $52,029,000 at September 30, 1995 from $54,793,000 (prior to valuation allowances of $2,717,000) at September 30, 1994. The decrease of $2,764,000 is due to the sale of various real estate owned with a basis aggregating approximately $13,918,000 offset in part by real estate acquired by deed-in-lieu of foreclosure at an estimated fair value of $5,310,000 and approximately $7,300,000 in improvements of which approximately $6,600,000 was expended at the Dover, Delaware property. 25
Interest and fees on real estate loans decreased to $7,914,000 for Fiscal 1995 as compared to $10,999,000 for Fiscal 1994. This decrease of $3,085,000 was a result of a decrease in earning real estate loans, as a result of payoffs, and various events which occurred during Fiscal 1994, including receipt of additional interest of approximately $1,100,000 upon payoff of a real estate loan secured by a property located in Texas, recognition of an unamortized discount of $565,000 upon early payoff of a real estate loan, and collection of approximately $480,000 from court appointed receivers who operated properties securing certain loans. These decreases were offset in part by the receipt of additional interest of approximately $1,410,000 (net of $745,000 of deferred interest accrued during Fiscal 1994) upon payoff of two real estate loans secured by garden apartments located in Texas, recognition of interest earned of approximately $400,000 upon settlement, after litigation, of a junior interest in a pool of mortgages and interest earned from purchase money mortgages originated by the Trust in connection with properties sold. Operating income on real estate owned decreased by $1,013,000 to $8,162,000 for the year ended September 30, 1995 as compared to $9,175,000 for the prior fiscal year. This decrease was principally a result of the sale of a number of properties offset in part by the income generated from a garden apartment complex in Spring Valley, New York and an increase in rental income at the Dover, Delaware property, as a result of conversion of this property from a regional mall to an office park. Gain on sale of foreclosed properties for Fiscal 1995 was $3,496,000 as compared to $1,507,000 in Fiscal 1994. The current years gain was a result of various transactions totalling $12,320,000, net of purchase money mortgages of $4,313,000 (net of a $850,000 wrap mortgage). It is the policy of the Trust to offer for sale all real estate owned at prices which management believes represents fair value in the geographic area in which the property is located. Other income, primarily investment income, increased by $205,000 for the year ended September 30, 1995 from $356,000 for Fiscal 1994 to $561,000 for Fiscal 1995. This increase is primarily due to an increase in the average yield on investments. Interest expense decreased by $1,429,000 in Fiscal 1995 as compared to Fiscal 1994 due to a decrease throughout the year of the outstanding bank debt and the payoff of a mortgage payable, offset in part by an increase in the average prime interest rate. The expenses for the twelve months ended September 30, 1995 include provisions for possible loan losses and valuation 26
adjustments of $1,199,000 as compared to $5,333,000 for the comparable period in 1994. This decrease is a result of a more favorable environment for obtaining financing secured by real property and in selling real property assets. The Advisor's fee decreased by $275,000 from $1,052,000 for the year ended September 30, 1994 to $777,000 for the year ended September 30, 1995. This decrease was a result of a decrease in total invested assets, the basis on which the advisory fee is calculated. General and administrative expenses decreased to $2,971,000 in Fiscal 1995 from $3,224,000 in Fiscal 1994, a decrease of $253,000. This decrease is primarily the result of decreased professional fees as foreclosure and bankruptcy proceedings are finalized as well as a decrease in other general and administrative expenses. Operating expenses relating to real estate owned increased to $6,402,000 for the year ended September 30, 1995 from $5,112,000 for the year ended September 30, 1994. This increase was primarily due to extensive repairs completed at a mixed use property and the Trust acquiring an apartment building by deed-in-lieu of foreclosure, offset in part by the sale of real estate owned. 1994 vs 1993 The Trust's loan portfolio at September 30, 1994, before giving effect to the allowance for possible losses was $78,007,000 of which $10,268,000 (13% of total real estate loans) is categorized as nonearning, as compared to $122,103,000 at September 30, 1993, of which $26,750,000 (22% of total real estate loans) is categorized as nonearning. The $44,096,000 decrease in the loan portfolio is due to a combination of repayments of principal on real estate loans (net of repayments to participating lenders), an increase in real estate owned as a result of completion of foreclosure actions and receipt of deeds in lieu of foreclosure, and a settlement with the holder of a first mortgage for $161,000 which represented the net book value on a real estate loan on which the Trust had reserved approximately $10,000,000 in the quarter ended September 30, 1990. This is offset in part by $6,242,000 of purchase money mortgages issued by the Trust in connection with the sale of real estate. Real estate owned (prior to a valuation allowance of 27
$2,717,000) increased to $54,793,000 at September 30, 1994 from $51,162,000 (prior to a valuation allowance of $3,229,000) at September 30, 1993. The increase of $3,631,000 in real estate owned is primarily a result of real estate acquired by foreclosure or deed in lieu of foreclosure at the aggregate estimated fair value of approximately $17,745,000, offset by the sale of real estate owned, with an aggregate cost basis of approximately $14,401,000 (prior to a valuation allowance of $1,505,000). Interest and fees on real estate loans decreased to $10,999,000 for Fiscal 1994 as compared to $12,395,000 for the twelve months ended September 30, 1993 ("Fiscal 1993"). This decrease of $1,396,000 was a result of a number of events which occurred during Fiscal 1993, including receipt of past due and accumulated interest of $440,000 upon refinancing by a borrower, collection of approximately $586,000 from court appointed receivers who operated properties securing certain loans, receipt of an $800,000 fee from a borrower as part of a workout and additional interest of $325,000 received upon repayment of two participating real estate loans secured by properties located in Texas. Interest and fees on real estate loans also declined in Fiscal 1994 as compared to Fiscal 1993 due to a decrease in earning real estate loans, as a result of payoffs and properties securing real estate loans becoming real estate owned. This decrease was offset in part by receipt of additional interest of approximately $1,100,000 upon payoff of a real estate loan secured by a property located in the Texas marketplace, recognition of an unamortized discount of $565,000 upon early payoff of a real estate loan, collection of approximately $480,000 from court appointed receivers who operated properties securing certain loans and the accrual of deferred interest of approximately $745,000 on another real estate loan secured by properties located in the Texas area. Operating income on real estate owned increased during Fiscal 1994 by $4,007,000 to $9,175,000 from $5,168,000 in Fiscal 1993. This increase was a result of an increase in the number of properties acquired in foreclosure or by deed in lieu of foreclosure, as well as the leasing of certain of the properties. Gain on sale of foreclosed properties held for sale for the twelve months ended September 30, 1994, was $1,507,000, as compared to $186,000 for the twelve months ended September 30, 1993. It is the policy of the Trust to offer for sale all real estate owned at prices which management believes represents fair value in the geographic area in which the property is located. Interest expense decreased by $1,015,000 in 1994 as 28
compared to 1993 due to a decrease throughout the year of outstanding bank debt, offset by an increase in the average prime interest rate. The expenses for the twelve months ended September 30, 1994 include a provision for possible loan losses of $4,340,000 as compared to $3,111,000 for Fiscal 1993. A majority, or $2,950,000 of the provision was taken during the fourth quarter of Fiscal 1994 with respect to a real estate loan in which the Trust held a subordinate position in a securitized mortgage portfolio which, although interest was current, went into default in October 1994. Fiscal 1994 also includes a provision for valuation adjustment of $993,000 as compared to $3,388,000 for the prior fiscal year. Of the total valuation allowance taken during the fiscal year ended September 30, 1994, $900,000 was taken with respect to unsold shares and related proprietary leases in three cooperative apartment buildings. Advisor's fee decreased to $1,052,000 for the twelve months ended September 30, 1994 from $1,295,000 for the prior years comparative period. This decrease of $243,000 is a result of a decrease in total invested assets, the basis on which the advisory fee is calculated. There was a decrease in the real estate loan portion (a 1% fee is paid on real estate loans) offset by a slight increase in the real estate owned portion (a 1/2 of 1% fee is paid on real estate owned). Operating expenses relating to real estate owned increased in Fiscal 1994 to $5,112,000 from $3,016,000 for Fiscal 1993. The increase is a direct result of an increase in the number of properties acquired in foreclosure or by deed in lieu of foreclosure. 29
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA This information appears in a separate section of this report following Part IV. Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III Items 10, 11, 12 and 13 will be included in the Trust's proxy statement to be filed pursuant to Regulation 14A not later than January 29, 1996. 30
PART IV Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) 1. Financial Statements - The response is submitted in a separate section of this report following Part IV. 2. Financial Statement Schedules - The response is submitted in a separate section of this report following Part IV. 3. Exhibits: 3(a). Second Amended and Restated Declaration of Trust dated June 13, 1972. Incorporated by reference to Exhibit 3A to Form 10-K for the year ended September 30, 1984. 3(b). First Amendment to Second Amended and Restated Declaration of Trust dated August 20, 1986. Incorporated by reference to the Trust's Registration Statement on Form S-2 (No. 33-8125). 3(c). Second Amendment to Second Amended and Restated Declaration of Trust dated March 2, 1987. Incorporated by reference to the Trust's Registration Statement on Form S-2 (No. 33-12172). 3(d). Third Amendment to Second Amended and Restated Declaration of Trust dated March 2, 1988. Incorporated by reference to Exhibit 3D to Form 10-K for the year ended September 30, 1988. 3(e). By-laws - Incorporated by reference to the Trust's Registration Statement on Form S-2 (No. 33-8125). 4. Statement of Rights of Preferred Stock. Incorporated by reference to Exhibit 4 to Form 10-K for the year ended September 30, 1993. 10(a). Advisory Agreement dated February 7, 1983 between the Trust and REIT Management Corp. Incorporated by reference to the Trust's Registration Statement on Form S-2 (No. 33-8125). 31
10(b). Amended and Restated Credit Agreement dated September 23, 1992. Incorporated by reference to Exhibit 1 to Form 8-K filed on October 8, 1992. 10(c). Amendment Number 1 to Amended and Restated Credit Agreement. Incorporated by reference to Exhibit 10(c) to Form 10-K for the year ended September 30, 1993. 10(d). Amendment Number 2 to Amended and Restated Credit Agreement. Incorporated by reference to Exhibit 10(c) to Form 10-K for the year ended September 30, 1993. 10(e). Cash Collateral Agreement dated September 23, 1992. Incorporated by reference to Exhibit 2 to Form 8-K filed on October 8, 1992. 21. Subsidiaries - Each subsidiary is 100% owned by the Trust. Filed with this Form 10-K. 27. Financial Data Schedule - Filed with electronic filing. (b) Reports on Form 8-K: There were no reports on Form 8-K filed in the fourth quarter of Fiscal 1995. (c) Exhibits - See Item 14(a) 3., above. (d) See Item 14(a) 2., above. EXHIBIT 21 SUBSIDIARIES COMPANY STATE OF INCORPORATION Hoboken Front Corp. New Jersey Huntington-Park Corporation New York Forest Green Corporation New York Realty 49 Corp. New York TRB No. 1 Corp. New York TRB No. 2 Corp. New York TRB Ft. Wright Corp. New York 32
TRB Cutter Mill Corp. New York TRB Huntington Corp. New York White Plains Realty Corp. New York Kew Gardens Realty Corp. New York Blue Realty Corp. Delaware 140 East 14th Street Realty Corp. New York 3581 Broadway Realty Corp. New York 620 West 172nd Street Realty Corp. New York Multiple Property Realty Corp. New York 119 Madison Avenue Realty Corp. New York TRB No. 3 Owners Corp. Wyoming 2042 Amsterdam Avenue Realty Corp. New York 2190 Boston Post Road Realty Corp. New York TRB 96th Street Corp. New York Remson Point Realty Corp. New York TRB 13 Eighth Avenue Corp. New York Fairmont Wrap Holding Corp. New York Community Wrap Holding Corp. Florida Casa Wrap Holding Corp. Florida 901 Merrick Road Realty Corp. New York 730 Franklin Avenue Realty Corp. New York 2002 Avenue U Realty Corp. New York TRB Valley Corp. New York 76 Madison Avenue Realty Corp. New York 2211 Church Avenue Realty Corp. New York Soundview Apartment Holding Corp. New York TRB Hilltop Corp. New Jersey TRB Cruger Avenue Corp. New York 570 Elmont Road Realty Corp. New York TRB Fairway Office Center Corp. Kansas TRB East 33rd Street Corp. New York TRB 261-65 First Avenue Corp. New York TRB Abbotts Corp. Pennsylvania TRB Greenpoint Avenue Realty Corp. New York 728 Eighth Avenue Realty Corp. New York 174 Lexington Avenue Realty Corp. New York 1199 First Avenue Realty Corp. New York 302 East 72nd Street Realty Corp. New York 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 Date: December 19, 1995 By: /s/Israel Rosenzweig -------------------- 33
President and Trustee Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated. Signature Title Date s/Fredric H. Gould Chairman of the Board December 19, 1995 (Principal Executive Officer) s/Israel Rosenzweig Trustee December 19, 1995 s/Patrick J. Callan Trustee December 19, 1995 s/Arthur Hurand Trustee December 19, 1995 s/Gary Hurand Trustee December 19, 1995 Nathan Kupin Trustee December , 1995 Herbert C. Lust II Trustee December , 1995 s/Marshall Rose Trustee December 19, 1995 s/David W. Kalish Vice President December 19, 1995 (Principal Financial and Accounting Officer) 34
Annual Report on Form 10-K Item 8, Item 14(a)(1) and (2) Index to Consolidated Financial Statements and Consolidated Financial Statement Schedules September 30, 1995 The following consolidated financial statements of BRT Realty Trust are included in Item 8: Page No. Independent Auditors' Report F-1 Consolidated Balance Sheets as of September 30, 1995 and 1994 F-2 Consolidated Statements of Operations for the three years ended September 30, 1995, 1994 and 1993 F-3 Consolidated Statements of Shareholders' Equity for the three years ended September 30, 1995, 1994 and 1993 F-4 Consolidated Statements of Cash Flows for the three years ended September 30, 1995, 1994 and 1993 F-5-6 Notes to Consolidated Financial Statements F-7 Consolidated Financial Statement Schedules for the year ended September 30, 1995 XI - Real Estate and Accumulated Depreciation S-1 to S-2 XII - Mortgage Loans on Real Estate S-3 to S-4 All other schedules are omitted because they are not applicable or the required information is shown in the consolidated financial statements or the notes thereto. 35
INDEPENDENT AUDITORS' REPORT To the Trustees and Shareholders BRT Realty Trust We have audited the accompanying consolidated balance sheets of BRT Realty Trust (the "Trust") as of September 30, 1995 and 1994, and the related consolidated statements of operations, shareholders' equity, and cash flows for each of the three years in the period ended September 30, 1995. Our audits also included the consolidated financial statement schedules listed in the Index as Item 14(a). These consolidated financial statements and consolidated schedules are the responsibility of the Trust's management. Our responsibility is to express an opinion on these consolidated financial statements and consolidated schedules based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of BRT Realty Trust as of September 30, 1995 and 1994, and the consolidated results of their operations and their cash flows for each of the three years in the period ended September 30, 1995, in conformity with generally accepted accounting principles. Also, in our opinion the related consolidated financial statement schedules, when considered in relation to the consolidated financial statements taken as a whole, present fairly in all material respects the information set forth therein. New York, New York Ernst & Young LLP November 22, 1995 (successor to Kenneth Leventhal & Company) F-1
BRT REALTY TRUST CONSOLIDATED BALANCE SHEETS (AMOUNTS IN THOUSANDS) <TABLE> <CAPTION> ASSETS SEPTEMBER 30, -------------------------- 1995 1994 ----------- ----------- <S> <C> <C> Real estate loans - Notes 2, 4 and 5: Earning interest, less unearned income $ 44,136 $ 67,739 Not earning interest 7,154 10,268 ----------- ----------- 51,290 78,007 Less allowance for possible losses 9,084 13,321 ----------- ----------- 42,206 64,686 ----------- ----------- Real estate owned - Notes 3, 4 and 5: Foreclosed properties held for sale (except for $13,915, and $14,260, net of accumulated depreciation which is held long term for the production of income) 52,029 54,793 Less valuation allowance 2,460 2,717 ----------- ----------- 49,569 52,076 ----------- ----------- Cash and cash equivalents - Note 5 7,385 1,174 Investment in U.S. Government obligations at cost, which approximates market - 1,979 Restricted cash - Note 5 558 7,098 Interest receivable 507 1,319 Other assets 4,203 3,135 ----------- ----------- TOTAL ASSETS $ 104,428 $ 131,467 ----------- ----------- ----------- ----------- LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities: Notes payable - Note 5 $ 22,900 $ 66,192 Loans and mortgages payable - Note 5 20,756 6,671 Accounts payable and accrued liabilities including deposits of $1,967 and $2,205 3,044 3,580 ----------- ----------- Total liabilities 46,700 76,443 Commitments and contingencies - Notes 2, 3, 4, 5, 8 and 9 - - Shareholders' equity - Note 7: Preferred shares, $1 par value: Authorized 10,000 shares, issued - 1,030 shares 1,030 1,030 Shares of beneficial interest, $3 par value: Authorized number of shares, unlimited, issued - 7,538 shares 22,614 22,614 Additional paid-in capital, net of distributions of $4,968 and $4,698 83,914 84,184 Accumulated deficit (47,495) (50,469) ----------- ----------- 60,063 57,359 Cost of 192 treasury shares of beneficial interest (2,335) (2,335) ----------- ----------- Total shareholders' equity 57,728 55,024 ----------- ----------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 104,428 $ 131,467 ----------- ----------- ----------- ----------- </TABLE> See accompanying notes to consolidated financial statements. F-2
BRT REALTY TRUST CONSOLIDATED STATEMENTS OF OPERATIONS (AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS) <TABLE> <CAPTION> YEAR ENDED SEPTEMBER 30, ---------------------------------------- 1995 1994 1993 ---------- ---------- ---------- <S> <C> <C> <C> Revenues: Interest and fees on real estate loans - Note 2 $ 7,914 $ 10,999 $ 12,395 Operating income on real estate owned 8,162 9,175 5,168 Net gain on sale of foreclosed properties held for sale 3,496 1,507 186 Other, primarily investment income 561 356 440 ---------- ---------- ---------- Total Revenues 20,133 22,037 18,189 ---------- ---------- ---------- Expenses: Interest - notes payable, loans payable, and subordinated notes - Note 5 5,186 6,615 7,630 Provision for possible loan losses - Note 4 1,021 4,340 3,111 Provision for valuation adjustment - Note 4 178 993 3,388 Advisor's fees - Note 8 777 1,052 1,295 General and administrative - Note 8 2,971 3,224 3,273 Operating expenses relating to real estate owned including interest on mortgages of $441, $427, and $291 6,402 5,112 3,016 Depreciation and amortization 624 506 544 ---------- ---------- ---------- Total Expenses 17,159 21,842 22,257 ---------- ---------- ---------- Net Income (Loss) $ 2,974 $ 195 $ (4,068) ---------- ---------- ---------- ---------- ---------- ---------- Calculation of net income (loss) applicable to common shareholders: Net income (loss) $ 2,974 $ 195 $ (4,068) Less: distributions on preferred stock 270 270 12 ---------- ---------- ---------- Net income (loss) applicable to common shareholders $ 2,704 $ (75) $ (4,080) ---------- ---------- ---------- ---------- ---------- ---------- Income (Loss) Per Share of Beneficial Interest: Primary $ .37 $ (.01) $ (.56) ---------- ---------- ---------- ---------- ---------- ---------- Fully Diluted $ .35 $ (.01) $ (.56) ---------- ---------- ---------- ---------- ---------- ---------- Weighted average number of common shares outstanding: Primary 7,346,624 7,346,624 7,346,624 ---------- ---------- ---------- ---------- ---------- ---------- Fully Diluted 8,443,139 7,346,624 7,346,624 ---------- ---------- ---------- ---------- ---------- ---------- </TABLE> See accompanying notes to consolidated financial statements. F-3
BRT REALTY TRUST CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY FOR THE YEARS ENDED SEPTEMBER 30, 1993, 1994, AND 1995 (AMOUNTS IN THOUSANDS) <TABLE> <CAPTION> SHARES OF ADDITIONAL PREFERRED BENEFICIAL PAID-IN ACCUMULATED STOCK INTEREST CAPITAL DEFICIT ---------- ---------- ---------- --------- <S> <C> <C> <C> <C> Balances, September 30, 1992 $ - $ 22,614 $ 82,121 $ (46,596) Conversion of debt to equity with the issuance of 1,030 shares of preferred stock 1,030 - 2,345 - Distributions - Preferred Stock - - (12) - Net loss - - - (4,068) ---------- ---------- ---------- --------- Balances, September 30, 1993 1,030 22,614 84,454 (50,664) Distributions - Preferred Stock - - (270) - Net income - - - 195 ---------- ---------- ---------- --------- Balances, September 30, 1994 1,030 22,614 84,184 (50,469) Distributions - Preferred Stock - - (270) - Net income - - - 2,974 ---------- ---------- ---------- --------- Balances, September 30, 1995 $ 1,030 $ 22,614 $ 83,914 $ (47,495) ---------- ---------- ---------- --------- ---------- ---------- ---------- --------- </TABLE> See accompanying notes to consolidated financial statements. F-4
BRT REALTY TRUST CONSOLIDATED STATEMENTS OF CASH FLOWS (AMOUNTS IN THOUSANDS) <TABLE> <CAPTION> YEAR ENDED SEPTEMBER 30, ------------------------------------------------ 1995 1994 1993 -------- -------- -------- <S> <C> <C> <C> Cash flows from operating activities: Net income (loss) $ 2,974 $ 195 $ (4,068) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Provision for possible loan losses 1,021 4,340 3,111 Provision for valuation adjustment 178 993 3,388 Amortization and depreciation 624 506 544 Recognition of discount upon premature payoff of real estate loans - (565) - Net gain on sale of real estate and foreclosed property (3,496) (1,507) (186) Decrease (increase) in interest receivable 812 (426) 879 Increase in prepaid expenses (630) (248) (185) (Decrease) increase in accounts payable and accrued liabilities (282) (302) 460 Decrease in deferred revenues (10) (81) (260) Decrease (increase) in rent receivable 144 (48) 234 Decrease in escrow deposits 384 12 466 Increase in deferred costs (469) - (74) Other (509) 159 (235) -------- -------- -------- Net cash provided by operating activities 741 3,028 4,074 -------- -------- -------- Cash flows from investing activities: Collections from real estate loans 29,285 28,041 26,709 Proceeds from participating lenders 50 - 172 Additions to real estate loans (498) (944) (2,779) Repayments to participating lenders (8,445) (5,479) (13,572) Net costs capitalized to real estate owned (7,762) (1,663) (1,710) Proceeds from sale of real estate owned 12,320 8,980 3,529 Decrease in deposits payable (238) (126) (189) Decrease (increase) in investments in U.S. Government obligations 1,979 5,115 (5,108) Other (133) (48) 383 -------- -------- -------- Net cash provided by investing activities 26,558 33,876 7,435 -------- -------- -------- Cash flows from financing activities: Bank repayments (43,292) (26,593) (12,215) Proceeds from mortgages payable 19,250 - - Payoff/paydown of loan and mortgages payable (3,310) (5,503) (337) Decrease (increase) in restricted cash 6,540 (5,389) 149 Other (276) (207) (28) -------- -------- -------- Net cash used in financing activities (21,088) (37,692) (12,431) -------- -------- -------- Net increase (decrease) in cash and cash equivalents 6,211 (788) (922) Cash and cash equivalents at beginning of year 1,174 1,962 2,884 -------- -------- -------- Cash and cash equivalents at end of year $ 7,385 $ 1,174 $ 1,962 -------- -------- -------- -------- -------- -------- </TABLE> See accompanying notes to consolidated financial statements. F-5
BRT REALTY TRUST CONSOLIDATED STATEMENTS OF CASH FLOWS (AMOUNTS IN THOUSANDS) (CONTINUED) <TABLE> <CAPTION> YEAR ENDED SEPTEMBER 30, ---------------------------------------- 1995 1994 1993 ---------- ---------- ---------- <S> <C> <C> <C> Supplemental disclosures of cash flow information: Cash paid during the year for interest expense $ 5,987 $ 7,493 $ 7,834 ---------- ---------- ---------- ---------- ---------- ---------- Supplemental schedule of noncash investing and financing activities: Transfer of nonearning real estate loans to foreclosed properties at fair value $ 5,310 $ 17,745 $ 19,532 Nonrecourse mortgage obligations relating to properties acquired through foreclosure - 609 1,005 Transfer of third-party senior participating interest in a real estate loan to a mortgage payable upon acquisition of a property through foreclosure - 1,495 - Loan payable incurred in conjunction with partial funding of outstanding commitment - - 2,000 Recognition of valuation allowance upon sale of real estate owned - 1,505 - Recognition of allowance for previously provided losses 5,258 13,656 3,716 Purchase money mortgages from sale of real estate owned (net of an $850 wrap mortgage in the current period) 4,313 6,242 1,030 Write-off of nonrecourse mortgage payable upon relinquishment of real estate owned 1,005 - - Recognition of valuation allowance upon 435 - - relinquishment of real estate owned Conversion of subordinated debt to 1,030 shares of preferred stock - - 3,375 </TABLE> See accompanying notes to consolidated financial statements. F-6
BRT REALTY TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (AMOUNTS IN THOUSANDS EXCEPT SHARE DATA) NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION; BASIS OF PREPARATION The consolidated financial statements include the accounts of BRT Realty Trust, its wholly-owned subsidiaries, and its majority-owned or controlled real estate entities. Material intercompany items and transactions have been eliminated. Many of the wholly-owned subsidiaries were organized to take title to various properties acquired by BRT Realty Trust. BRT Realty Trust and its subsidiaries are hereinafter referred to as the Trust. INCOME TAX STATUS The Trust qualifies as a real estate investment trust under Sections 856-860 of the Internal Revenue Code. The Trustees may, at their option, elect to operate the Trust as a business trust not qualifying as a real estate investment trust. INCOME RECOGNITION Income and expenses are recorded on the accrual basis of accounting for both financial reporting and income tax purposes. The Trust does not accrue interest or rental income on impaired loans or real estate owned where, in the judgment of management and the Trustees, collection of interest or rent according to the contractual terms is considered doubtful. Among the factors the Trust considers in making an evaluation of the collectibility of interest or rent are, the status of the loan or property, the financial condition of the borrower or tenant and anticipated future events. Loan discounts are amortized over the life of the real estate loan using the constant interest method. Loan commitment and extension fee income is deferred and recorded as income over the life of the commitment and loan. If a loan subsequently becomes nonearning, the unamortized portion of the fee is offset against the loan balance. DEBT DISCOUNT Debt discount is amortized over the life of the related debt obligation using the constant interest method. ALLOWANCE FOR POSSIBLE LOSSES The Trust measures the impairment of its real estate loans based upon the fair value of the underlying collateral which is determined on an individual loan basis. In arriving at the fair value of the collateral, numerous factors are considered, including, market evaluations of the underlying collateral, operating cash flow from the property during the projected holding period, and estimated sales value computed by applying an expected capitalization rate to the stabilized net operating income of the specific property, less selling costs, discounted at market discount F-7
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (Continued) ALLOWANCE FOR POSSIBLE LOSSES (CONTINUED) rates. If upon completion of the valuations, the fair value of the underlying collateral securing the impaired real estate loan is less than the recorded investment in the loan, an allowance is created with a corresponding charge to expense. The adequacy of the allowance is predicated on the assumption that the Trust will be able to hold assets and dispose of, or realize, the assets in the ordinary course of business. Adjustments may be necessary in the event that effective interest rates, rent-up periods, future economic conditions including the terms and availability of long term permanent financing for the property, or other relevant factors vary significantly from those assumed in estimating the allowance for possible losses. The existing allowances will be either increased or decreased based upon future valuations, with a corresponding increase or reduction in the provision for loan losses. REAL ESTATE OWNED Foreclosed properties (real estate acquired by foreclosure or by a deed in lieu of foreclosure) are recorded at estimated fair value, net of foreclosure costs, at the time of foreclosure. In subsequent periods, individual foreclosed assets held for sale are valued at the lower of the recorded cost or estimated fair value, as described below, and if required, a valuation allowance is recognized. Assets acquired through foreclosure and held for sale, are not depreciated, while assets held long-term for the production of income are depreciated over their estimated useful lives. Costs incurred in connection with the foreclosure of the properties collateralizing the real estate loans and costs incurred to extend the life or improve the assets subsequent to foreclosure are capitalized. With respect to the operating properties, operating income and expenses are reflected in the statement of operations. For residential apartment units acquired through foreclosure which are subject to an offering for the sale of units or cooperative shares, the net effect of income and expenses is applied to the basis of the asset to the extent that fair value is not exceeded. VALUATION ALLOWANCE ON REAL ESTATE OWNED Real estate owned assets held for sale are valued at the lower of cost or fair value, on an individual asset basis. Upon evaluating the property, many indicators of value are considered, including current and expected operating cash flow from the property during the projected holding period, costs necessary to extend the life or improve the asset, expected capitalization rates, projected stabilized net operating income, selling costs, and the ability to hold and dispose of such real estate owned in the ordinary course of business. Valuation adjustments may be necessary in the event that effective interest rates, rent-up periods, future economic conditions, and other relevant factors vary significantly from those assumed in valuing the property at the time of foreclosure. If future evaluations result in a diminution in the value of the property, the reduction will be recognized as a valuation allowance. If the value of the property subsequently increases, the valuation allowance will be reduced. FAIR VALUE OF FINANCIAL INSTRUMENTS The following methods and assumptions were used to estimate the fair value of each class of financial instruments: Cash and short term investments: The carrying amounts reported in the balance sheet for these instruments approximate their fair values. F-8
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (Continued) FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED) Real estate loans: The earning mortgage loans of the Trust have either variable interest rate provisions, which are based upon a margin over the prime rate, or are currently fixed at effective interest rates which approximate market. At September 30, 1995 these interest rates are reflective of current market conditions for these loans. Accordingly, the carrying amounts of the earning, non-impaired mortgage loans approximate their fair values. For earning loans which are impaired and non-earning loans, the Trust has valued them based upon the fair value of the underlying collateral. Accordingly, their carrying amounts are recorded at fair value. Notes, loans and mortgages payable: The Trust determined the estimated fair value of its debt by discounting future cash payments at their effective rates of interest, which approximate current market rates of interest for similar loans. Accordingly, there is no material difference between their carrying amount and fair value. PER SHARE DATA Primary earnings per share of beneficial interest is based upon the weighted average number of common shares and the assumed equivalent shares outstanding during each year, after giving effect to dividends relating to the Trust's preferred stock. The preferred stock, issued on September 14, 1993, is not considered a common stock equivalent for the purpose of computing primary earnings per share. The assumed exercise of outstanding share options, using the treasury stock method, is not materially dilutive for the primary earnings per share computation for the year ended September 30, 1995, and is anti-dilutive for the years ended September 30, 1994 and 1993. Fully diluted earnings per share of beneficial interest amounts are based on an increased number of common shares that would be outstanding assuming the exercise of common share options and the conversion of preferred stock to shares of beneficial interest at the year end market price. The fully diluted per share computation for the year ended September 30, 1995 is dilutive with the addition of 1,030,000 shares upon conversion of the preferred stock and 66,515 shares upon exercise of common share options. As for the years ended September 30, 1994 and 1993, the fully diluted per share computation is anti-dilutive, and therefore not presented. CASH EQUIVALENTS Cash equivalents consist of highly liquid investments, primarily money market type U.S. Government obligations, with maturities of three months or less when purchased. RECLASSIFICATION OF FINANCIAL STATEMENTS Certain amounts reported in previous financial statements have been reclassified in the accompanying financial statements to conform to the current year's presentation. F-9
NOTE 2 - REAL ESTATE LOANS At September 30, 1995, information as to real estate loans is summarized as follows: <TABLE> <CAPTION> Not Earning Earning Total Interest Interest --------------- --------------- ----------------- <S> <C> <C> <C> First mortgage loans: Long-term: Residential $ 1,832 $ 1,832 $ - Short-term (five years or less): Shopping centers/retail 7,289 7,289 - Industrial buildings 4,051 4,051 - Office buildings 4,140 4,140 - Residential (multiple family units) 19,576 18,928 648 Hotel 1,259 1,259 - Miscellaneous 2,608 2,608 - Second mortgage loans: Shopping centers/retail 3,349 216 3,133 Office building 679 679 - Residential (multiple family units) 3,658 1,740 1,918 Hotel 1,000 - 1,000 Wraparound mortgages 1,849 1,394 455 ----------- ------------ ----------- $ 51,290 $ 44,136 $ 7,154 ----------- ------------ ----------- ----------- ------------ ----------- A summary of loans at September 30, 1994 is as follows: First mortgage loans $ 54,742 $ 54,165 $ 577 Second mortgage loans 22,218 12,982 9,236 Wraparound mortgages 1,063 608 455 ----------- ------------ ----------- 78,023 67,755 10,268 Unearned income (16) (16) - ----------- ------------ ----------- $ 78,007 $ 67,739 $ 10,268 ----------- ------------ ----------- ----------- ------------ ----------- </TABLE> Of the real estate loans not earning interest at September 30, 1995 and 1994, $7,154 and $10,268, respectively were deemed impaired as it is probable that the Trust will be unable to collect all amounts due according to the contractual terms. Allowances for possible losses were provided for all such non-earning loans, with the exception of loans in the amount of $648 and $577 at September 30, 1995 and 1994, respectively. Of the real estate loans earning interest at September 30, 1995 and 1994, $12,268 and $11,009, respectively, were deemed impaired and all are subject to allowances for possible losses. For the years ended September 30, 1995, 1994 and 1993, respectively, an average $20,350, $29,653 and $47,656 of real estate loans were deemed impaired, on which $2,524, $1,733 and $2,146 of interest income was recognized. F-10
NOTE 2 - REAL ESTATE LOANS (Continued) The Trust's earning loans generally provide for interest rates which are related to the prime rate, whereas the new purchase money mortgages have fixed interest rates, with incremental annual increases. The weighted average interest rate on earning loans was 9.75% and 9.51% at September 30, 1995 and 1994, respectively. Annual maturities of real estate loans receivable during the next five years, reflect revised maturities as a result of debt restructurings and are summarized as follows: <TABLE> <CAPTION> Years Ending September 30,..... Amount ------------------------- ----------- <S> <C> 1996........................... $ 19,445 1997........................... 9,496 1998........................... 5,460 1999........................... 1,737 2000........................... 3,684 2001 and thereafter............ 11,468 ----------- Total $ 51,290 ----------- ----------- </TABLE> The Trust's portfolio consists primarily of senior and junior mortgage loans, secured by residential and commercial property, 80% of which are located principally in the New York metropolitan area. In Fiscal 1995 there was a more favorable environment for obtaining financing secured by real property and in selling real property assets. As loans matured, borrowers of the Trust in many cases were able to refinance or sell their properties and repay the indebtedness due to the Trust. Management anticipates that extensions for an additional period of time may be granted for loans maturing during 1996. If a loan is not repaid at maturity, in addition to foreclosing on the property, the Trust may either extend the loan or consider the loan past due. The Trust analyzes each loan separately to determine the appropriateness of an extension. In analyzing each situation, management examines many aspects of the loan receivable, including the value of the collateral, the financial strength of the borrower, past payment history and plans of the owner of the property. Of the $19,445 of real estate loans receivable which mature in Fiscal 1996, $17,162 were extended during the fiscal year ended September 30, 1995. The Trust received $14 in extension fees. Over the past number of years, the Trust has restructured certain loans. Although maturities were extended and interest rates were reduced, principal remained unchanged. The effects of interest rate reductions which were applicable to real estate loans aggregating approximately $20,400, are insignificant as compared to what the Trust would have otherwise received for the year ended September 30, 1995. If all loans classified as non-earning were earning interest at their contractual rates for the years ended September 30, 1995, 1994 and 1993, interest income would have increased by $719, $979 and $2,157, respectively. The Trust's interests in wraparound mortgages are subject to underlying mortgages aggregating $4,659 at September 30, 1995. Senior participations in the Trust's loans at September 30, 1995 and 1994 amounted to approximately $15,500 and $24,000, respectively. F-11
NOTE 2 - REAL ESTATE LOANS (Continued) At September 30, 1995 the two largest real estate loans had principal balances outstanding of approximately $9,200 and $3,400, respectively. Of the total interest and fees earned on real estate loans during the fiscal year ended September 30, 1995, 8% and 5% related to these loans, respectively. Included in the Trust's portfolio, is a real estate loan collateralized by a 50% partnership interest in which the Chairman and Vice-Chairman of the Board of Trustees of the Trust hold the other 50% partnership interest. The balance of the loan at September 30, 1995 and 1994 is $2,850 and $2,900, respectively. NOTE 3 - REAL ESTATE OWNED A summary of real estate owned, for the year ended September 30, 1995 is as follows: <TABLE> <CAPTION> September 30, September 30, 1994 Collections/ 1995 Properties Additions Sales/Other Gain Properties ---------- --------- Costs ----------- on ---------- No. Amount No. Amount Capitalized No. Amount Sale No. Amount --- ------ --- ------ ----------- --- ------ ---- --- ------ <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> Residential units-shares of cooperative corporations 5 $ 7,056 1 $ 2,310 $ 355 (1) $ (546) $ 86 5 $ 9,261 Shopping centers/retail 8 24,695 - - 356 (4) (6,383) (159) 4 18,509 Office 5 13,584 1 3,000 6,969 (2) (3,299) 12 4 20,266 Improved land 3 5,096 - - - (1) (4,168) 2,514 2 3,442 Unimproved land 4 4,827 - - 82 (2) (4,458) 1,043 2 1,494 --- ------ --- ------ ----------- --- ------ ----- -- ------ 25 55,258 2 5,310 7,762 (10) (18,854) 3,496 17 52,972 Less: Valuation Allowance - 2,717 - 178 - - (435) - - 2,460 Depreciation/Amortization - 465 - 478 - - - - - 943 --- ------ --- ------ ----------- --- ------ ----- -- ------ 25 $52,076 2 $ 4,654 $7,762 (10) $(18,419) $ 3,496 17 $49,569 --- ------ --- ------ ----------- --- ------ ----- -- ------ --- ------ --- ------ ----------- --- ------ ----- -- ------ (a) (b) (c) </TABLE> (a) The additions to real estate owned were acquired by deed in lieu of foreclosure and recorded at their estimated fair value. (b) A majority of the costs capitalized to real estate owned, approximately $6,567, related to the conversion of a regional mall located in Dover, Delaware, into a new corporate center. (c) The three most significant sales during the fiscal year ended September 30, 1995 were as follows: (i) land under a retail/apartment building in Manhattan, New York, with a net book value of $1,654, was sold for a net price of $4,168, resulting in a gain of approximately $2,514, (ii) and two separate parcels of unimproved land, both located in Manhattan, New York, with an aggregate net book value of $3,346, was sold at an aggregate net price of $4,389 resulting in an aggregate gain of approximately $1,043. F-12
NOTE 3 - REAL ESTATE OWNED (Continued) Future minimum rentals to be received by the Trust, pursuant to noncancellable operating leases in excess of one year, from properties on which the Trust has title at September 30, 1995 are as follows: Years Ending September 30,..... Amount -------------------------- --------- 1996........................... $ 4,411 1997........................... 4,018 1998........................... 3,659 1999........................... 3,420 2000........................... 3,311 NOTE 4 - ALLOWANCE FOR POSSIBLE LOSSES AND VALUATION ALLOWANCE ON REAL ESTATE OWNED The Trust measures the impairment of its real estate loans based upon the fair value of the underlying collateral which is determined on an individual loan basis. If the valuation is less than the recorded investment in the loan an allowance is created with a corresponding charge to expense. The existing allowance will be either increased or decreased based upon future valuations with a corresponding increase or reduction in the provision for loan losses. The Trust evaluates its portfolio of mortgage loans and real estate owned held for sale on an individual asset basis, comparing the amount at which the asset is carried to its estimated fair value, as applicable. In making its evaluations, the Trust considers many indicators of asset impairment and value including current and expected operating income and expected capitalization rates. The Trust has assumed that it will be able to acquire property collateralizing mortgage loans by foreclosure if deemed appropriate, and hold and dispose of such assets and real estate currently owned in the ordinary course of business, to maximize the return to the Trust. The Trust has also assumed that it will not be required to liquidate assets other than in the ordinary course of business, in order to repay debt (see Note 5). The evaluations and related assumptions are dependent upon current estimates of future operations, proceeds, costs, events, and general market and economic conditions, all of which are influenced by many unpredictable factors. Accordingly, the ultimate realizations of the Trust's assets, including future income, may differ from amounts presently estimated. As a result of the difficulties in the real estate market during the four years ended September 30, 1994, particularly in the New York metropolitan area, the primary real estate market served by the Trust, as discussed in Note 2, and the general lack of liquidity in the real estate industry, the Trust recorded provisions for possible losses aggregating $4,340 and $3,111 during the years ended September 30, 1994 and 1993, respectively. In Fiscal 1995 there was a more favorable environment for obtaining financing secured by real property and in selling real property assets, therefore resulting in the Trust recording provisions of $1,021 during the year ended September 30, 1995. The Trust recorded provisions for valuation adjustment of $178, $993 and $3,388 for the years ended September 30, 1995, 1994 and 1993, respectively. F-13
NOTE 4 - ALLOWANCE FOR POSSIBLE LOSSES AND VALUATION ALLOWANCE ON REAL ESTATE OWNED (Continued) An analysis of the allowance for possible losses is as follows: <TABLE> <CAPTION> Year Ended September 30, --------------------------------------------------- 1995 1994 1993 ------------- ------------ ----------- <S> <C> <C> <C> Balance at beginning of year $ 13,321 $ 22,637 $ 23,242 Provision for possible loan losses 1,021 4,340 3,111 Write-off of allowances (5,258) (13,656) (3,716) ----------- ------------ ----------- Balance at end of year $ 9,084 $ 13,321 $ 22,637 ----------- ------------ ----------- ----------- ------------ ----------- </TABLE> The allowance for possible losses applies to assets aggregating $18,774 at September 30, 1995, $20,700 at September 30, 1994 and $32,583 at September 30, 1993. The allowance for possible losses consists of the following components: <TABLE> <CAPTION> Year Ended September 30, --------------------------------------------------- 1995 1994 1993 ------------- ------------ ----------- <S> <C> <C> <C> Excess of carrying value plus estimated cost to complete and market, over estimated selling price $ 2,720 $ 3,003 $ 2,792 Valuation adjustment 6,141 9,464 19,675 Estimated holding period costs 223 854 170 ----------- ------------ ----------- $ 9,084 $ 13,321 $ 22,637 ----------- ------------ ----------- ----------- ------------ ----------- </TABLE> An analysis of the valuation allowance is as follows: <TABLE> <CAPTION> Year Ended September 30, --------------------------------------------------- 1995 1994 1993 ------------- ------------ ----------- <S> <C> <C> <C> Balance at beginning of year $ 2,717 $ 3,229 $ - Provision for valuation adjustment 178 993 3,388 Write-off of valuation adjustment upon sale or relinquishment of real estate owned (435) (1,505) (159) ----------- ------------ ----------- Balance at end of year $ 2,460 $ 2,717 $ 3,229 ----------- ------------ ----------- ----------- ------------ ----------- </TABLE> The valuation allowance applies to assets aggregating $12,742 at September 30, 1995, $13,917 at September 30, 1994 and $16,678 at September 30, 1993. F-14
NOTE 5 - DEBT OBLIGATIONS Debt obligations consist of the following: <TABLE> <CAPTION> September 30, ------------------------- 1995 1994 ----------- ---------- <S> <C> <C> Notes payable, credit agreement $ 22,900 $ 66,192 ----------- ---------- ----------- ---------- Loans and mortgages payable $ 20,756 $ 6,671 ----------- ---------- ----------- ---------- </TABLE> On September 23, 1992 an Amended and Restated Credit Agreement (the "Agreement") was executed between the Trust and five banks, which were parties to an existing credit agreement. Simultaneously with the execution, the Trust reduced the principal amount outstanding to $105,000 by paying $9,800 to the banks. Pursuant to the Agreement, the Trust granted the banks a lien on all mortgages receivable and pledged the stock of its wholly-owned subsidiaries, which own all of the Trust's real estate, to the banks. During the fiscal year ended September 30, 1993 the interest held by a governmental agency in the Agreement (approximately 17% of the Trust's indebtedness) was sold at a public auction. Subsequently, an entity related to the Trust, One Liberty, purchased approximately 29% of the 17% portion of the indebtedness purchased at a public sale by an unrelated entity. The principal balance bears interest at the prime lending rate plus 1%, and in addition, the "Agent Bank", which represents the five banks involved in the Agreement, receives an annual fee equal to 1/8 of 1% of the aggregate outstanding principal balance. The Trust is precluded from making any mortgage loans except for purchase money mortgage loans in connection with the sale of properties (with limitations as to percentage of sale price, rates of interest and term). The Trust must maintain tangible net worth at the lesser of $55,000 or 60% of the sum of total bank debt plus the aggregate amount of all nonrecourse indebtedness incurred for borrowed money (as defined). Total liabilities (excluding subordinated debt and any nonrecourse indebtedness existing as of the date of the Agreement, or assumed in connection with the exercise of remedies under a mortgage loan) can not exceed two times the sum of tangible net worth plus subordinated debt. The Agreement which matured on June 30, 1995 with two, one year options based on satisfying certain ratios and principal payments was extended by the Trust to June 30, 1996. The Trust is required to make mandatory principal payments of $20,000 no later than June 30, 1996. As of September 30, 1995, the June 30, 1996 requirement has been satisfied. Upon execution of the Agreement, the Trust entered into a Cash Collateral Agreement which establishes a cash collateral account with the Agent Bank. This account is the repository of a portion of all defined capital event proceeds and excess operating cash flow. The funds in the cash collateral account are available to the Trust for specific business purposes, including interest payments, capital improvements to real estate owned, protection of mortgages receivable and funding operating deficits. The cash collateral account which the banks have a security interest in, is not restricted as to use other than an amount equal to three months interest totaling $558 at September 30, 1995. The Agent Bank is required to disburse funds (in an amount not greater than an approved budget) from F-15
NOTE 5 - DEBT OBLIGATIONS (Continued) the cash collateral account on requisition by the Trust as long as there is no monetary default. To the extent the cash collateral account exceeds $9,000 at the end of any month, or $10,000 within a month, the Agent Bank may apply such excess to reduce principal. Under the terms of the Agreement, 75% of capital event proceeds (as defined) is to be applied to reduce principal. The balance of capital event proceeds is to be deposited into the cash collateral account. The Agreement also authorizes the Trust to maintain cash in operating accounts up to $500. Any excess is to be deposited into the cash collateral account at the end of each month. During the latter part of Fiscal 1994, certain modifications were permitted by the banks increasing the cash collateral account balance in order to pay for the improvements required at the corporate center in Dover, Delaware (see Note 3). On December 4, 1992 the Trust's independent directors approved the exchange of 1,030 $1.00 par value shares of newly issued, Series A cumulative convertible preferred stock of the Trust to One Liberty Properties, Inc. ("One Liberty"), a related party, for the cancellation of a subordinated note with a remaining principal balance of $3,375. On April 30, 1993, this exchange was approved by the Trust's shareholders and on September 14, 1993 the exchange took place. The preferred shares provide for cumulative annual dividends of $.2622 per share, payable quarterly and are convertible into shares of beneficial interest on a one-for-one basis, and have one vote per share. In addition, the preferred shares may be redeemed in whole or in part by the Trust, at its option, at prices ranging from $3.57 per share in 1995 to $3.28 per share after July 1, 2001. The Trust has agreed with the banks that it will not redeem such shares prior to December 31, 1997. On January 19, 1995, One Liberty transferred the 1,030 shares of the convertible preferred stock of the Trust to Gould Investors L.P. ("Gould"), a related party, as partial consideration in a real estate transaction. During the fiscal year ended September 30,1995, the Trust financed two real estate owned properties, one of which is being held long term for the production of income. The Trust borrowed an aggregate amount of $19,250, $19,108 of which remained outstanding at September 30, 1995. These mortgages payable bear interest at rates ranging from 7.83% to 8.07% per annum and mature October, 2000 to July, 2005. These mortgages are secured by said real estate. Additionally, the Trust has non-recourse mortgages payable on foreclosed property as of September 30, 1995 and 1994 of $1,648 and $5,200, respectively. The remaining non-recourse mortgage payable bears interest at a rate of 8.44% per annum, and matures November, 2000. NOTE 6 - FEDERAL INCOME TAXES Cumulative taxable loss since inception is less than cumulative loss reported for financial statement purposes principally because a substantial portion of the allowance for possible losses has not yet been deducted for tax purposes. The taxable loss is expected to be approximately $3,979 less than the financial statement income during Calendar 1995. F-16
NOTE 6 - FEDERAL INCOME TAXES (CONTINUED) At December 31, 1994, the Trust had available tax operating loss carryforwards of $34,634 of which $2,469 will expire in 2005, $2,638 will expire in 2006, $13,605 will expire in 2007, $14,288 will expire in 2008 and $1,634 will expire in 2009. NOTE 7 - SHAREHOLDERS' EQUITY DISTRIBUTIONS There were no distributions on the Trust's shares of beneficial interest declared during the years ended September 30, 1993, 1994 and 1995. STOCK OPTIONS On March 4, 1991 the Board of Trustees granted, under the 1988 Stock Option Plan (Incentive/Nonstatutory Stock Option Plan) options to purchase a total of 412,000 shares of beneficial interest at $3.50 per share to a number of officers and employees of the Trust. On May 20, 1991 the Board of Trustees granted, also under the 1988 Stock Option Plan, options to purchase a total of 50,000 shares of beneficial interest at $3.625 per share to certain trustees of the Trust. Options are exercisable at per share amounts at least equal to the fair market value of the Trust's beneficial shares at the date of grant. The options are cumulatively exercisable at the rate of 25% per annum, commencing after six months, and expire five years after the date of grant. A maximum of 500,000 shares of beneficial interest were reserved for issuance under the 1988 Stock Option Plan, of which 53,000 remain available at September 30, 1995. At September 30, 1995 options to purchase 447,000 shares are exercisable. Changes in the number of shares under all option arrangements are summarized as follows: <TABLE> <CAPTION> Year Ended September 30, ---------------------------- 1995 1994 1993 ------- -------- ------- <S> <C> <C> <C> Outstanding at beginning of period 462,000 462,000 462,000 Granted - - - Option price per share granted - - - Cancelled 15,000 - - Exercisable at end of period 447,000 449,500 334,000 Outstanding at end of period 447,000 462,000 462,000 Option prices per share outstanding $3.50-$3.63 $3.50-$3.63 $3.50-$3.63 </TABLE> F-17
NOTE 8 - ADVISOR'S COMPENSATION AND CERTAIN TRANSACTIONS Certain of the Trust's officers and trustees are also officers, directors and shareholders of REIT Management Corp. ("REIT"), to which the Trust pays advisory fees for administrative services and investment advice. The agreement, which expires on December 31, 1999, provides that directors and officers of REIT may serve as trustees, officers and employees of the Trust, but shall not be compensated for services rendered in such latter capacities. Advisory fees are charged to operations at a rate of 1% on real estate loans and 1/2 of 1% on other invested assets. Advisory fees amounted to $777, $1,052 and $1,295 for the years ended September 30, 1995, 1994 and 1993, respectively. A company with the same shareholders as REIT manages certain foreclosed properties for the Trust under renewable year-to-year agreements. Management fees and leasing, selling and financing commissions incurred for the years ended September 30, 1995, 1994 and 1993 aggregated $1,016, $617, and $706, respectively. A law firm in which the partners are officers of the Trust, received fees directly from borrowers of the Trust totalling approximately $17, $67 and $95, for the years ended September 30, 1995, 1994 and 1993, respectively. The Chairman and Vice Chairman of the Board of Trustees of the Trust hold similar positions in One Liberty and are executive officers of the managing general partner and are general partners of Gould (Note 5). During the years ended September 30, 1995, 1994 and 1993, allocated general and administrative expenses charged to the Trust by Gould aggregated $1,338, $1,264 and $1,283, respectively. NOTE 9 - COMMITMENT In August 1984, the Board of Trustees approved a non-contributory pension plan covering eligible employees and officers. Contributions by the Trust are made through a money purchase plan, based upon a percent of qualified employees' total salaries. Pension expense approximated $101, $100 and $113 during the years ended September 30, 1995, 1994 and 1993, respectively. F-18
NOTE 10 - QUARTERLY FINANCIAL DATA (UNAUDITED) <TABLE> <CAPTION> 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Total Oct.-Dec. Jan.-March April-June July-Sept. For Year --------- ---------- ---------- ---------- -------- 1995 ---------------------------------------------------------------- <S> <C> <C> <C> <C> <C> Revenues $ 6,470 $ 5,014 $ 4,237 $ 4,412 $ 20,133 Provision for possible loan losses $ 1,021 $ - $ - $ - $ 1,021 Provision for valuation adjustment $ - $ 178 $ - $ - $ 178 Net income $ 1,018 $ 720 $ 193 $ 1,043 $ 2,974 Per share $ .13 $ .09 $ .02 $ .13 $ .37(a) 1994 ----------------------------------------------------------------- Revenues $ 4,546 $ 5,633 $ 5,983 $ 5,875 $ 22,037 Provision for possible loan losses $ 438 $ 952 $ - $ 2,950 $ 4,340 Provision for valuation adjustment $ - $ - $ 993 $ - $ 993 Net income (loss) $ (2) $ 424 $ 793 $(1,020) $ 195 Per share $ (.01) $ .05 $ .10 $ (.15) $ (.01)(a) </TABLE> Per share earnings represent primary earnings per beneficial share. (a) Calculated on weighted average shares outstanding for the fiscal year. F-19
BRT REALTY TRUST SCHEDULE XI - REAL ESTATE AND ACCUMULATED DEPRECIATION SEPTEMBER 30, 1995 (Amounts in Thousands) <TABLE> <CAPTION> Cost Capitalized Subsequent Initial Cost to Company to Acquisition ------------------------------ ----------------------------- Building and Carrying Description Encumbrances Land Improvements Improvements Costs - --------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> Residential Manhattan, NY $ 607 $ 2,853 $ 983 $ 86 Miscellaneous 929 3,714 89 0 Shopping Centers/Retail Rock Springs, WY 1,648 600 2,483 137 28 Philadelphia, PA 10,000 3,075 11,160 510 Miscellaneous 418 33 25 40 Office Manhattan, NY 987 3,948 644 33 Dover, DE 9,108 775 3,195 6,901 Fairway, Kansas 387 2,613 Miscellaneous 180 405 198 Improved Land Miscellaneous 3,442 Unimproved Land Miscellaneous 1,318 176 --------------------------------------------------------------------- TOTAL $ 20,756 $ 12,718 $ 30,404 $ 9,487 $ 363 --------------------------------------------------------------------- --------------------------------------------------------------------- (a) <CAPTION> Gross Amount at Which Carried at September 30, 1995 Building and Description Land Improvements Total - ------------------------------------------------------------------- <S> <C> <C> <C> Residential Manhattan, NY $ 607 $ 3,922 $ 4,529 Miscellaneous 929 3,803 4,732 Shopping Centers/Retail Rock Springs, WY 600 2,648 3,248 Philadelphia, PA 3,075 11,670 14,745 Miscellaneous 418 98 516 Office Manhattan, NY 987 4,625 5,612 Dover, DE 775 10,096 10,871 Fairway, Kansas 387 2,613 3,000 Miscellaneous 180 603 783 Improved Land Miscellaneous 3,442 3,442 Unimproved Land Miscellaneous 1,494 1,494 -------------------------------------- TOTAL $ 12,894 $ 40,078 $ 52,972 -------------------------------------- -------------------------------------- (b) <CAPTION> Depreciation Accumulated Life for Latest Depreciation/ Date of Date Income Description Amortization Construction Acquired Statement - ----------------------------------------------------------------------------------- <S> <C> <C> <C> <C> Residential Manhattan, NY --- --- Apr-90 --- Miscellaneous --- --- Various --- Shopping Centers/Retail Rock Springs, WY 113 --- Jan-92 21-35 Years Philadelphia, PA 830 --- Apr-93 40 Years Miscellaneous --- --- Various --- Office Manhattan, NY --- --- Sept-92 --- Dover, DE --- --- Oct-93 --- Fairway, Kansas --- --- Oct-95 --- Miscellaneous --- --- Various --- Improved Land Miscellaneous --- --- Various --- Unimproved Land Miscellaneous --- --- Various --- ---------- TOTAL $ 943 ---------- ---------- (c) (d) </TABLE> S-1
BRT REALTY TRUST SCHEDULE XI - REAL ESTATE AND ACCUMULATED DEPRECIATION SEPTEMBER 30, 1995 (Amounts in Thousands) Notes to the schedule: (a) With respect to residential apartment units acquired through foreclosure which are subject to an offering for sale of units or cooperative shares, the net effect of income and expenses is applied to the basis of the asset to the extent that the realizable value is not exceeded. With respect to the other operating properties, all operating income and expenses are reflected in the consolidated Statement of Operations. (b) Total foreclosed properties $ 52,972 (1) Less: Accumulated depreciation/amortization 943 Valuation allowance 2,460 ----------- Net foreclosed properties $ 49,569 ----------- ----------- (1) For Federal income tax purposes, the aggregate cost of foreclosed properties is approximately $40,000. (c) Assets acquired through foreclosure which are held long term for the production of income are depreciated, while those held for sale are not depreciated. (d) Information not readily obtainable. (e) A reconciliation of real estate owned is as follows: <TABLE> <CAPTION> Years Ended September 30, 1995 1994 1993 ---------------------------- <S> <C> <C> <C> Balance at beginning of year $52,076 $47,933 $35,574 Additions: Foreclosures 5,310 17,745 19,532 Improvements 7,275 1,102 987 Carrying costs 487 562 723 Recognition of valuation allowance upon sale of property 0 1,505 0 Recognition of valuation allowance upon relinquishment of property 436 0 0 Other 0 0 5 ---------------------------- 65,584 68,847 56,821 ---------------------------- Deductions: Sales/conveyances 13,918 15,459 5,513 Relinquishment of real estate owned 1,441 0 0 Provision for valuation adjustment 178 993 3,229 Depreciation/amortization 478 319 146 ---------------------------- 16,015 16,771 8,888 ---------------------------- Balance at end of year $49,569 $52,076 $47,933 ---------------------------- ---------------------------- </TABLE> S-2
BRT REALTY TRUST SCHEDULE XII - MORTGAGE LOANS ON REAL ESTATE SEPTEMBER 30, 1995 (Amounts in Thousands) <TABLE> <CAPTION> Maturity Description # of Loans Interest Rate Date Periodic Payment Terms - ---------------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> First mortgage loans: Long Term: Miscellaneous $0-$699 38 Short Term: Office Building - Brooklyn, NY 1 9.5% Dec-98 Interest monthly, principal at maturity Retail - New York, NY 1 Prime + 2.0% Aug-96 Interest monthly, principal at maturity Retail - Brooklyn, NY 1 9.0% Jan-98 Interest and principal monthly Cooperative Apartments - Islip, NY 1 9.0% Oct-96 Interest monthly, principal at maturity Secured Loan - Kansas City, MO 1 LIBOR + 1.5% Sept-96 Interest monthly, principal at maturity Underlying Mortgage - Bronx, NY 1 6.0% Jan-2000 Interest monthly, principal at maturity Office Building - Brooklyn, NY 1 Prime + 1.0% Jun-98 Interest monthly, principal at maturity Industrial Building - Queens, NY 1 10.5% April - 97 Interest and principal monthly Underlying Mortgage - Queens, NY 1 9.0% Aug-2002 Interest monthly, principal at maturity Miscellaneous $0-$399 12 $400-$999 9 $1,000-$1,276 2 Junior mortgage loans: Shopping centers: Retail - Garden City, NY 1 9.0% Open Interest monthly, principal at maturity Shopping Center - Seattle, WA 1 Prime + 5.0% Open Interest monthly, principal at maturity Miscellaneous $0-$299 1 Office: Miscellaneous $0-$699 1 Residential: Garden Apts. - Arlington, TX 1 Prime + 7.0% Oct-95 Interest monthly, principal at maturity Garden Apts. - NJ 1 Prime + 5.0% Open Interest monthly, principal at maturity Miscellaneous $0-$1 1 Hotel: Miscellaneous 1 Wraparound mortgages: Miscellaneous $0-$699 4 --------- 82 --------- --------- <CAPTION> Principal Amount of Carrying Loans Subject to Face Amount Amount of Delinquent Principal Prior Liens of Mortgages Mortgages and Interest - -------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> First mortgage loans: Long Term: Miscellaneous $0-$699 Short Term: $ -- $1,832 $1,821 $ -- Office Building - Brooklyn, NY -- 1,290 1,290 -- Retail - New York, NY -- 1,574 1,574 -- Retail - Brooklyn, NY -- 1,760 1,760 -- Cooperative Apartments - Islip, NY -- 2,150 2,150 -- Secured Loan - Kansas City, MO -- 2,288 1,788 -- Underlying Mortgage - Bronx, NY -- 2,835 2,200 -- Office Building - Brooklyn, NY -- 2,850 2,850 -- Industrial Building - Queens, NY -- 3,428 2,800 -- Underlying Mortgage - Queens, NY -- 9,236 9,236 -- Miscellaneous $0-$399 -- 3,114 2,695 -- $400-$999 -- 5,976 5,550 648 $1,000-$1,276 -- 2,422 1,480 -- Junior mortgage loans: Shopping centers: Retail - Garden City, NY 3,500 1,286 0 1,286 Shopping Center - Seattle, WA 3,102 1,847 983 1,847 Miscellaneous $0-$299 2,009 216 216 -- Office: Miscellaneous $0-$699 2,377 679 679 -- Residential: Garden Apts. - Arlington, TX 2,450 1,739 1,739 -- Garden Apts. - NJ 38,519 1,918 0 1,918 Miscellaneous $0-$1 9,000 1 1 -- Hotel: Miscellaneous 12,000 1,000 0 1,000 Wraparound mortgages: Miscellaneous $0-$699 5,449 1,849 1,394 455 ---------------------------------------------------------------- $78,406 $51,290 $42,206 $7,154 ---------------------------------------------------------------- ---------------------------------------------------------------- </TABLE> S-3
BRT REALTY TRUST SCHEDULE XII - MORTGAGE LOANS ON REAL ESTATE SEPTEMBER 30, 1995 (Amounts in Thousands) Notes to the schedule: (a) The following summary reconciles mortgages receivable at their carrying values: <TABLE> <CAPTION> September 30, --------------------------------- 1995 1994 1993 --------------------------------- <S> <C> <C> <C> Balance at beginning of year $64,686 $99,466 $128,579 Additions: Advances under real estate loans 498 944 2,779 Repayments to participating lenders 8,445 5,479 13,572 Capitalization of earned interest income to loan balance in accordance with agreements --- 13 24 Recognition of discount upon premature payoff of real estate loans --- 565 --- Purchase money mortgages from sale of real estate owned 4,243 6,242 1,030 Loan payable in conjunction with partial funding of outstanding commitment --- --- 2,000 Other --- --- 1 --------------------------------- 77,872 112,709 147,985 --------------------------------- Deductions: Collections of principal 29,285 28,041 26,709 Proceeds from participating lenders 50 --- 172 Provision for possible loan losses 1,021 4,340 3,111 Investments transferred to foreclosed properties, including in-substance foreclosures, net 5,310 15,642 18,527 --------------------------------- 35,666 48,023 48,519 --------------------------------- Balance at end of year $42,206 $64,686 $99,466 --------------------------------- --------------------------------- </TABLE> (b) The aggregate cost of investments in mortgage loans is the same for financial reporting purposes and Federal income tax purposes. S-4