BRT

Business Context and Reporting Period

Company: BRT Realty Trust (filing on behalf of BRT Apartments Corp. subsidiary)
Filing Type: Form 8-K (Current Report)
Date of Report: June 2, 2011
Event: Entry into a Material Definitive Agreement involving a joint venture with an affiliate of Torchlight Investors, LLC.

Key Financial Metrics and Transaction Terms

This filing details a strategic joint venture rather than periodic financial results. Key financial terms include:

• Capital Contributions: BRT Subsidiary to contribute up to $20 million; Torchlight affiliate (the "Fund") to contribute up to $80 million.
• Investment Period: Initial five-year term with two optional one-year extensions.
• Origination Fees: BRT and REIT Management Corp. retain 0.25% of the principal amount of loans acquired by the joint venture.
• Servicing Fees: Joint venture pays BRT 0.5% annualized on performing loans and 1.0% annualized on non-performing loans.
• Warrant Issuance: Fund affiliate received a warrant for 100,000 shares of BRT Realty Trust beneficial interest at an exercise price of $9.00 per share.

Material Changes and Distribution Structure

The joint venture establishes a tiered distribution waterfall based on the Fund's annual return (non-compounded):

1. Tier 1 (Up to 8% return): 80% to Fund, 20% to BRT.
2. Tier 2 (8% to 11% return): 70% to Fund, 29% to BRT, 1% to REIT Management.
3. Tier 3 (11% to 13% return): 60% to Fund, 38% to BRT, 2% to REIT Management.
4. Tier 4 (Above 13% return): 50% to Fund, 47% to BRT, 3% to REIT Management.

Reserve Requirements: BRT must deposit loan workout reserves from promote income equal to the greater of $250,000 or 1% of maximum outstanding loan balances, plus an amount equal to the principal of all non-performing loans.

Guidance, Outlook, and Risks

Purpose: The transaction is designed to enhance BRT's capital resource position by allowing the joint venture to purchase loans originated by BRT at face value.

Risks and Contingencies:

• Clawback Provision: BRT must return excess promote income to the Fund if the liquidation value of assets is lower than calculated, secured by a Parent guaranty and pledge of ownership interest.
• Warrant Conditions: The warrant is exercisable only after the later of June 1, 2012, or the Fund funding at least $40 million in capital contributions. It expires June 1, 2018.
• Termination: Either party may terminate the investment period with 60 days' prior written notice.

Investor Verification Checklist

• Verify the actual capital contribution amounts funded by the Fund against the $80 million maximum.
• Confirm the status of the warrant exercise conditions (specifically the $40 million funding threshold).
• Review the volume of loans originated and acquired by the joint venture to assess the impact on BRT's balance sheet.
• Monitor the performance of loans held in the joint venture to evaluate potential reserve deposit obligations.
• Check for any subsequent filings regarding the termination or extension of the five-year investment period.