BRT

Business Context and Reporting Period

Company: BRT Realty Trust (BRT Apartments Corp.)
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: June 30, 2005
Business Overview: BRT is primarily engaged in originating and holding senior and junior real estate mortgages secured by income-producing properties. The company also participates in joint ventures and holds available-for-sale securities. As of June 30, 2005, the Trust had 7,789,897 shares of beneficial interest outstanding.

Key Financial Metrics

Loan Portfolio: Real estate loans totaled $157.7 million (earning interest) at June 30, 2005. The average interest rate earned on the portfolio was 12.49% for the quarter and 12.35% for the nine-month period.

Material Changes vs. Prior Period

• Revenue Growth: Total revenues increased 30% ($1.48 million) for the quarter and 40% ($5.29 million) for the nine months compared to the prior year periods. This was driven primarily by a 37% increase in interest and fees on real estate loans.
• Profitability: Net income rose 38% ($878,000) for the quarter and 19% ($1.68 million) for the nine months. Diluted EPS increased from $0.30 to $0.41 (quarter) and $1.14 to $1.35 (nine months).
• Expense Increases: Interest expense on borrowed funds surged 170% for the quarter and 205% for the nine months due to higher borrowing levels ($61.3M average balance vs. $30.1M) and increased interest rates (6.49% vs. 4.88%).
• Asset Expansion: Total assets grew from $198.0 million (Sept 2004) to $235.4 million (June 2005), reflecting a significant expansion in the loan portfolio and securities holdings.
• One-Time Items: Operating expenses relating to real estate properties declined significantly ($655,000 for the quarter) due to the absence of $779,000 in legal fees related to litigation that concluded in the prior year.

Outlook, Risks, and Management Commentary

• Liquidity: BRT maintains an $85 million revolving credit facility (maturity Feb 2007), with $63.55 million outstanding at June 30, 2005. Additionally, a margin account secured by Entertainment Properties Trust stock had $18.6 million outstanding with $23.2 million available.
• Concentration Risk: Four loans to a single borrower totaled $36.5 million, representing 23% of the loan portfolio and 16% of total assets. These are secured by multi-family properties in Tennessee, Alabama, and Florida.
• Interest Rate Sensitivity: Approximately 92% of the loan portfolio is variable-rate. Management estimates a 1% increase in rates would positively impact pre-tax income by ~$595,000, while a 1% decline would negatively impact it by ~$126,000.
• Investment Portfolio: The Trust holds significant available-for-sale securities, including 1,009,600 shares of Entertainment Properties Trust (market value ~$46.4 million) and shares of Atlantic Liberty Financial Corp. Unrealized gains on these securities contributed $8.6 million to comprehensive income for the nine-month period.
• Dividends: A cash distribution of $0.50 per share was declared for the quarter, totaling $3.9 million.

Investor Verification Checklist

• Single Borrower Concentration: Verify the creditworthiness of the borrower holding 23% of the loan portfolio ($36.5M).
• Interest Rate Exposure: Assess the impact of potential prime rate fluctuations on net interest margins, given 92% variable-rate assets and variable-rate debt.
• Collateral Valuation: Review the market value of Entertainment Properties Trust shares, which serve as collateral for the margin account and represent a significant portion of available-for-sale securities.
• Loan Maturities: Confirm repayment schedules for the $146.1 million in loans due within the next 12 months.
• Related Party Transactions: Review the $166,000 (quarter) and $523,000 (nine months) in interest income from related parties and the associated advisor fees.