UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
ý
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 2015
Or
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 001-07172
BRT REALTY TRUST
(Exact name of registrant as specified in its charter)
Massachusetts
(State or other jurisdiction of
incorporation or organization)
60 Cutter Mill Road, Great Neck, New York
(Address of principal executive offices)
13-2755856
(I.R.S. employer
identification no.)
11021
(Zip Code)
516-466-3100
Registrant's telephone number, including area code
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Shares of Beneficial Interest, $3.00 Par Value
Name of each exchange on which registered
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
NONE
(Title of Class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes o No ý
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the
Act. Yes o No ý
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter)
during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such
files). Yes ý No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (Section 229.405 of this
chapter) 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 o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a
smaller reporting company. See definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in
Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer o Accelerated filer ý
Non-accelerated filer o
(Do not check if a smaller reporting company)
Smaller reporting company o
Indicate by check mark whether registrant is a shell company (as defined in Exchange Act Rule 12b-2). Yes o No ý
The aggregate market value of voting and non-voting common equity held by non-affiliates of the registrant was
approximately $58.4 million based on the last sale price of the common equity on March 31, 2015, which is the last business day
of the registrant's most recently completed second quarter.
As of December 1, 2015, the registrant had 14,101,056 Shares of Beneficial Interest outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the proxy statement for the annual meeting of shareholders of BRT Realty Trust to be filed not later than
January 28, 2016 are incorporated by reference into Part III of this Form 10-K.
TABLE OF CONTENTS
Form 10-K
Item No.
PART I
1
1A.
1B.
2
3
4
PART II
5
6
7
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
Selected Financial Data
Management's Discussion and Analysis of Financial Condition and Results of Operations
7A.
Quantitative and Qualitative Disclosures About Market Risk
8
9
9A.
9B.
PART III
10
11
12
13
14
PART IV
Financial Statements and Supplementary Data
Changes In and Disagreements With Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accountant Fees and Services
15
Exhibits and Financial Statement Schedules
Signatures
Page(s)
2
13
20
20
20
20
20
22
24
34
34
34
34
35
36
37
37
37
37
38
43
Forward-Looking Statements
This Annual Report on Form 10-K, together with other statements and information publicly disseminated by us, contains
certain forward looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. We intend such forward-looking statements to be covered by
the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995 and
include this statement for purposes of complying with these safe harbor provisions. Forward-looking statements relate to
expectations, beliefs, projections, future plans and strategies, anticipated events or trends concerning matters that are not
historical facts. Forward looking statements are generally identifiable by use of words such as "may," "will," "will likely result,"
"shall," "should," "could," "believe," "expect," "intend," "anticipate," "estimate," "project" or similar expressions or variations
thereof.
Forward-looking statements contained in this Annual Report on Form 10- K are based on our beliefs, assumptions and
expectations of our future performance taking into account all information currently available to us. These beliefs, assumptions
and expectations can change as a result of many possible events or factors, not all of which are known to us or within our
control, and which could materially affect actual results, performance or achievements. Factors which may cause actual results
to vary from our forward-looking statements include, but are not limited to:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
factors described in this Annual Report on Form 10-K, including those set forth under the captions "Risk Factors" and
"Business";
our acquisition strategy, which may not produce the cash flows or income expected;
competition could adversely affect our ability to acquire properties;
competition could limit our ability to lease apartments or retail space or increase or maintain rental income;
losses from catastrophes may exceed all insurance coverage;
a limited number of multi-family property acquisition opportunities acceptable to us;
national and local economic and business conditions;
general and local real estate property conditions;
the condition of Fannie Mae or Freddie Mac, which could adversely impact us;
our failure to comply with laws, including those requiring access to our properties by disabled persons, which could
result in substantial costs;
insufficient cash flows, which could limit our ability to make required payments on our debt obligations;
an inability to renew, repay, or refinance our outstanding debt;
limitation of credit by institutional lenders;
impairment in the value of real estate property we own;
failure of property managers to properly manage properties;
disagreements with, or misconduct by, joint venture partners;
changes in Federal government policies;
increases in real estate taxes at properties we acquire due to such acquisitions or otherwise;
changes in Federal, state and local governmental laws and regulations;
changes in interest rates; and
the availability of and costs associated with sources of capital and liquidity.
We caution you not to place undue reliance on forward-looking statements, which speak only as of the date of this Annual
Report on Form 10-K. Except to the extent required by applicable law or regulation, we undertake no obligation to update these
forward-looking statements to reflect events or circumstances after the date of the filing of this Annual Report on Form 10-K or
to reflect the occurrence of unanticipated events.
1
Item l. Business.
PART I
General
We are a real estate investment trust, also known as a REIT. During the past three years, we engaged in three principal
business activities: the ownership, operation and development of multi-family properties; the ownership, operation and
development of commercial, mixed use and other real estate assets; and real estate lending. Beginning in March 2012, we
commenced and expanded our multi-family activities, and in 2014, we de-emphasized our real estate lending activities. As of
November 1, 2014, we are no longer engaged in real estate lending and the financial information, including our consolidated
financial statements included herein, have been reclassified to present our real estate lending activities as discontinued
operations. See Note 1 to our consolidated financial statements.
Our multi-family property activities involve the ownership, operation and development, primarily through joint ventures
in which we typically have an 80% equity interest, of such properties. We acquired five multi-family properties with 1,451 units
in 2012, nine multi-family properties with 2,334 units in 2013, 13 multi-family properties with 4,184 units in 2014, four multi-
family properties with 1,560 units in 2015 and, since October 1, 2015, two multi-family properties, with an aggregate of 507
units. During 2015, we sold three multi-family properties with an aggregate of 1,176 units for an aggregate gain of $14.3
million, of which $5.1 million was allocated to our joint venture partners. At September 30, 2015, we own 28 multi-family
properties located in 11 states with an aggregate of 8,300 units and our equity investment in, and the net book value of, these
properties is approximately $113.0 million and $604.9 million, respectively. At December 1, 2015, we own 30 multi-family
properties (four of which are wholly owned) located in 11 states with an aggregate of 8,807 units.
We own, operate and develop various other real estate assets, the most significant of which are properties (including
development properties) located in Newark, New Jersey. Since 2012, the joint venture that owns the Newark assets has
obtained, through three financing phases, an aggregate of $93.1 million in debt financing and an aggregate of $31.4 million in
New Markets Tax Credit proceeds to fund the construction of six buildings with an aggregate of 153,432 square feet of
commercial space and 204 residential units. To date, four buildings have been completed, a fifth building is partially complete,
50% occupied and is expected to be completed in February 2016, and the sixth building is under construction and is expected to
be completed by July 2016. At September 30, 2015, the net book value of the real property included in these other real estate
assets was $152.0 million, including $141.4 million related to our Newark, New Jersey activities. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations-Other Developments" for information regarding the
possible (i) sale by BRT of its equity interest in the Newark Joint Venture and (ii) repayment of $19.5 million in principal
amount of secured mortgage debt owed to BRT eliminated in consolidation.
Our real estate lending activities decreased during the past three years (i.e., $0, $5.5 million and $70.3 million of loan
originations in 2015, 2014 and 2013, respectively) and we are no longer engaged in lending activities.
Information regarding our multi-family property and other real estate assets segments is included in Note 12 to our
consolidated financial statements and is incorporated herein by this reference.
We were organized as a business trust under the laws of the Commonwealth of Massachusetts in June 1972. Our address
is 60 Cutter Mill Road, Suite 303, Great Neck, New York 11021, telephone number 516-466-3100. Our website can be accessed
at www.brtrealty.com, where copies of our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on
Form 8-K and other filings with the Securities and Exchange Commission, or SEC, can be obtained free of charge. These SEC
filings are added to our website as soon as reasonably practicable.
Unless otherwise indicated or the context otherwise requires, all references to (i) "us", "we" or terms of like import refer
to BRT Realty Trust and its consolidated subsidiaries and the term "BRT" refers to BRT Realty Trust and its wholly owned
subsidiaries, (ii) a year (e.g., 2015) refer to the applicable fiscal year ended September 30th and (iii) the multi-family properties
we owned or acquired in 2015 or thereafter and the residential units associated with such properties, include a development
property in Greenville, SC, which contemplates the construction of 360 units (of which 190 units were completed as of
December 1, 2015) and a development property in N. Charleston, SC, which contemplates the construction of 271 units, none
of which, as of December 1, 2015, had been constructed.
2
Our Multi-Family Property Activities
Generally, our multifamily properties are garden apartment, mid rise or town home style properties that provide residents
with amenities, such as a clubhouse, swimming pool, laundry facilities and cable television access. Residential leases are
typically for a one year term and may require security deposits equal to one month's rent. Substantially all of the units at these
properties are leased at market rates and are not subject to rent control or similar requirements. Set forth below is selected
information regarding our multi-family properties. Except as otherwise indicated in the notes to the table below, all of these
properties are owned by joint ventures in which we have an 80% equity interest and our joint venture partner has a 20% equity
interest
Property Name and Location
The Fountains Apartments—Palm Beach Gardens, FL
Waverly Place Apartments—Melbourne, FL
Madison at Schilling Farms—Collierville, TN
Silvana Oaks Apartments—N. Charleston, SC(3)
Grove at Trinity Pointe—Cordova, TN
Avondale Station—Decatur, GA(3)
Spring Valley Apartments—Panama City, FL
Stonecrossing Apartments—Houston, TX(3)
Courtney Station—Pooler, GA
Pathways—Houston, TX(3)
Autumn Brook Apartments—Hixon, TN(3)
Mountain Park Estates—Kennesaw, GA(3)
Ashwood Park — Pasadena, TX(4)
Meadowbrook Apartments—Humble, TX(4)
Parkside Apartments—Humble, TX(4)
Brixworth at Bridge Street—Huntsville, AL
Newbridge Commons—Columbus, OH(3)
Southridge—Greenville, SC(3)(5)
Waterside at Castleton—Indianapolis, IN
Crossings of Bellevue—Nashville, TN(4)
Village Green—Little Rock, AK(4)
Sundance—Wichita, KS(4)
Sandtown Vista—Atlanta, GA
Landmark at Kendall Manor—Houston, TX
Avalon Apartments—Pensacola, FL(3)
Apartments at Venue—Valley, AL(3)
Parkway Falls—San Marcos, TX
Cedar Lakes - Lake St. Louis, MO
Factory at GARCO Park—N. Charleston, SC(6)
Woodland Trails—LaGrange, GA
Average
Monthly
Rental
Rate per
Occupied
Unit 2015
(2)($)
Average
Monthly
Rental
Rate per
Occupied
Unit 2014
(2)($)
Average
Physical
Occupancy
in 2015 (%)
(2)
Average
Physical
Occupancy
in 2014(%)
(2)
Number
of Units
Age
(1)
Investment
Date
3/22/2012
1,169
1,050
542
208
324
208
464
212
160
240
300
144
156
450
144
260
160
208
264
360
400
300
172
496
350
272
276
618
192
420
271
236
44
28
15
5
29
61
28
37
7
36
26
3/30/2012
6/20/2012
10/4/2012
11/15/2012
11/19/2012
1/11/2013
4/19/2013
4/29/2013
6/7/2013
6/25/2013
13-16
9/25/2013
31
33
32
30
16
10/15/2013
10/15/2013
10/15/2013
10/18/2013
11/21/2013
798
939
998
738
852
807
884
971
886
756
996
696
705
734
655
729
N/A
1/14/2014
N/A
32
30
30
16
5
34
7
4
1
29
N/A
6
1/21/2014
4/2/2014
4/2/2014
4/2/2014
6/26/2014
7/8/2014
12/22/2014
7/27/2015
9/10/2015
9/25/2015
10/13/2015
11/18/2015
621
955
552
551
847
796
912
715
625
715
N/A
849
722
940
970
716
766
760
856
935
823
746
918
642
641
669
650
691
N/A
609
907
552
541
817
769
N/A
N/A
N/A
N/A
N/A
N/A
96.3
94.0
96.0
93.6
95.1
97.1
96.9
93.5
94.9
92.6
95.1
94.2
96.5
95.0
95.5
93.7
95.4
N/A
92.1
97.1
94.1
96.3
95.4
94.4
90.9
93.4
95.3
93.4
N/A
96.2
96.6
95.9
94.7
93.4
95.4
96.8
95.2
94.3
93.4
93.7
95.4
93.6
87
94.2
93.8
85.5
90.6
N/A
90.7
97.7
96.7
97
92.8
91.2
N/A
N/A
N/A
N/A
N/A
N/A
Total
8,807
_______________________________________________________________________________
(1) Reflects the approximate age of the property based on the year original construction was completed.
(2) Gives effect to rent concessions. Average physical occupancy and monthly rental rate per unit reflects our period of
ownership.
(3) We own a 91%, 91%, 75%, 50%, 74%, 98% and 61.3% equity interest in the joint ventures which own the Stonecrossing
Apartments, Pathways, Autumn Brooks Apartments, Mountain Park Estates, Southridge, Avalon Apartments and
3
Apartments at Venue, respectively. We are the sole owner of Silvana Oaks Apartments, Avondale Station, Newbridge
Commons and Woodland Trails.
(4) Ashwood Park, Meadowbrook Apartments and Parkside Apartments are owned by one joint venture, Crossings of
Bellevue, Village Green and Sundance are owned by one joint venture, Waverly Place Apartments and The Fountains
Apartments are owned by one joint venture and Stonecrossing Apartments and Pathways are owned by one joint venture.
(5) This joint venture is developing a 360 unit multi-family property with ground floor retail of approximately 10,000 square
feet. As of December 1, 2015, 141 units are occupied and we anticipate the balance of the residential units and the retail
space will be available for occupancy by late January 2016.
(6) This joint venture is developing a 271 unit multi-family property. We anticipate that this project will be completed in
stages from December 2016 to July 2017.
The following table set forth certain information, presented by state, related to our properties as of December 1, 2015
(dollars in thousands):
State
Texas
Georgia
Tennessee
Florida
Kansas
South Carolina(2)
Ohio
Indiana
Alabama
Missouri
Arkansas
Total
Number of
Properties
7
5
4
4
1
3
1
1
2
1
1
30
Number of
Units
1,412
1,548
1,244
1,186
496
839
264
400
826
420
172
8,807
Estimated
2016 Revenue
(1)
17,487
14,488
12,881
11,743
3,406
6,979
2,331
2,988
7,469
4,393
1,122
85,287
$
$
Percent of 2016
Estimated
Revenue
21%
17%
15%
14%
4%
8%
3%
3%
9%
5%
1%
100%
_______________________________________________________________________________
(1) Reflects our estimate of the rental and other revenues to be generated in 2016 by our multi-family properties located in
such state.
(2) Includes our Greenville and N. Charleston, SC development projects.
Joint Venture Arrangements
The arrangements with our multi-family property joint venture partners are deal specific and vary from transaction to
transaction. Generally, these arrangements provide for us and our partner to receive net cash flow available for distribution in
the following order of priority (and in certain cases, we are entitled to these distributions on a senior or preferential basis):
•
•
•
•
a preferred return of 10% on each party's unreturned capital contributions, until such preferred return has been paid in
full,
the return in full of each party's capital contribution,
35% to our partner, and the balance to us, until an internal rate of return of 15% has been achieved by us, and
thereafter, shared equally between us and our venture partner.
Though, as noted above, each joint venture operating agreement contains different terms, such agreements generally
provide for a buy-sell procedure under specified circumstances (including (i) after the passage of time (e.g., two years after the
acquisition), (ii) if the partners are unable to agree on major decisions, (iii) upon a change in control of our subsidiary owning
the interest in the joint venture, or (iv) one or more of the foregoing). Further, these arrangements may also allow us, and in
some cases, our joint venture partner, to force the sale of the property after it has been owned by the joint venture for a specified
period (e.g., four to five years after the acquisition).
Our Acquisition Process and Underwriting Criteria
We identify multi-family property acquisition opportunities primarily through relationships developed over time by our
officers with our former borrowers, current joint venture partners, real estate investors and brokers.
4
Our current goal is to acquire properties with cap rates ranging from 5.25% to 6.25% and that will provide stable risk
adjusted total returns (i.e., operating income plus capital appreciation). In identifying opportunities that will achieve such goal,
we seek acquisitions that will achieve an approximate 6% to 10% annual return on invested cash and an internal rate of return
of approximately 9% to 20%. We have also focused, but have not limited ourselves, to acquiring properties located in the South
and in particular, the Southeast and Southwest United States. Subject to the foregoing, we are opportunistic in pursuing multi-
family property acquisitions and do not mandate any specific acquisition criteria, though we take the following into account in
evaluating an acquisition opportunity: location, size of the target market, property quality, availability and terms and conditions
of long term fixed rate mortgage debt, potential for capital appreciation or recurring income, extent and nature of contemplated
capital improvements and property age. We generally acquire properties with a joint venture partner with knowledge and
experience in owning and operating multi-family properties in the target market as this enhances our understanding of such
market and assists us in managing our risk with respect to a particular acquisition.
Approvals of the acquisition of a multi-family property are based on a review of property information as well as other due
diligence activities undertaken by us and, as applicable, our venture partner. Those activities include a consideration of
economic, demographic and other factors with respect to the target market and sub-market (including the stability of its
population and the potential for population growth, the economic and employment base, presence of and barriers to entry of
alternative housing stock, market prices for comparable properties, the competitive positioning of the proposed acquisition and
the regulatory environment (i.e. applicable rent regulation)), a review of an independent third party property condition report, a
Phase I environmental report with respect to the property, a review of recent and projected results of operations for the property
prepared by the seller, us or our joint venture partner, an assessment of our joint venture partner's knowledge and expertise with
respect to the acquisition and operation of multi-family properties and the relevant market and sub-market, a site visit to the
property and the surrounding area, an inspection of a sample of units at the property, the potential for rent increases and the
possibility of enhancing the property and the costs thereof. To the extent a property to be acquired requires renovations or
improvements, or if we and our joint venture partner believe that improving a property will generate greater rent, funds are
generally set aside by us and our joint venture partner at the time of acquisition to provide the capital needed for such
renovation and improvements. At September 30, 2015, we have approximately $6.5 million to fund improvements at our multi-
family properties.
A key consideration in our acquisition process is the evaluation of the availability of mortgage debt to finance the
acquisition (or the ability to assume the mortgage debt on the property) and the terms and conditions (e.g. interest rate,
amortization and maturity) of such debt. Typically, approximately 25% to 35% of the purchase price is paid in cash and the
balance is financed with mortgage debt. We believe that the use of leverage of up to 75% allows us the ability to earn a greater
return on our investment than we would otherwise earn. Generally, the mortgage debt obtained in connection with an
acquisition matures five to ten years thereafter, is interest only for one to three years after the acquisition, and provides for a
fixed interest rate and for the amortization of the principal of such debt over 30 years.
Before a property is acquired, the acquisition must be reviewed and approved by our investment committee. Approval
occurs after the assent of not less than four of the seven members of this committee, all of whom are our executive officers. The
approval of our board of trustees is required for any single multi-family property acquisition in which our equity investment
exceeds $15 million.
We are partners in two multi-family development opportunities with the same joint venture partner or its affiliates. We
pursue these opportunities when we believe the potential higher returns justify the additional risks. The factors considered in
pursuing these opportunities generally include the factors considered in evaluating a standard acquisition opportunity, and we
place additional emphasis on our joint venture partner's ability to execute a development project. Though we may from time-
to-time pursue other development activities, we do not anticipate they will constitute a significant part of our portfolio.
Property Sales
We monitor our portfolio to identify appropriate disposition candidates. Factors considered in deciding whether to
dispose of a property generally include our evaluation of the current market price of such property compared to projected
economics for such property and adverse changes in the factors considered in acquiring such property. In February 2015, we
sold Water Vista Apartments, Lawrenceville, GA, recognizing a gain of $2.7 million, and in July 2015, we sold our Ivy Ridge
Apartments, Marietta,GA, and The Palms on Westheimer Apartments, Houston, TX, recognizing gains of $7.8 million and $3.8
million, respectively. We have entered into a contract to sell Grove at Trinity Pointe and at September 30, 2015, this property is
reflected on our consolidated balance sheet as held for sale. We estimate that the gain from such sale will be approximately
$6.8 million. and the amount of such gain to be allocated to the non-controlling interest is $2.7 million
5
Property Management
The day-to-day management of our multi-family properties is overseen by property management companies operating in
the market in which the property is located. Some of these management companies are owned by our joint venture partners or
their affiliates. Generally, we can terminate these management companies upon specified notice or for cause, subject to the
approval of the mortgage lender and, in some cases, our joint venture partner. We believe satisfactory replacements for property
managers are available, if required.
Insurance
The multi-family properties are covered by all risk property insurance covering 100% of the replacement cost for each
building and business interruption and rental loss insurance (covering up to twelve months of loss). On a case-by-case basis,
based on an assessment of the likelihood of the risk, availability of insurance, cost of insurance and in accordance with standard
market practice, we obtain earthquake, windstorm, flood, terrorism and boiler and machinery insurance. We carry
comprehensive liability insurance and umbrella policies for each of our properties which provide no less than $5 million of
coverage per incident. We request certain extension of coverage, valuation clauses, and deductibles in accordance with standard
market practice and availability.
Although we may carry insurance for potential losses associated with our multi-family properties, we may still incur
losses due to uninsured risks, deductibles, co-payments or losses in excess of applicable insurance coverage and those losses
may be material. In addition, certain insurance coverage is part of blanket policies in which a loss on an unrelated property
could affect the coverage limits on a joint venture property.
Mortgage Debt
The following table sets forth scheduled principal (including amortization) mortgage payments due for our multi-family
properties as of September 30, 2015:
YEAR
2016
2017
2018
2019
2020
Thereafter
Total
PRINCIPAL
PAYMENTS DUE
(Amounts in
Thousands)
$
$
5,635
7,249
8,027
142,385
43,169
267,181
473,646
As of September 30, 2015, the weighted average annual interest rate of the mortgage debt on our 28 multi-family
properties is 3.99% and the weighted average remaining term of such debt is approximately 6.5 years. The mortgage debt
associated with our multi-family properties is generally non-recourse to (i) the joint venture that owns the property, subject to
standard carve-outs and (ii) to us and our subsidiary acquiring the equity interest in such joint venture. We, at the parent entity
level (i.e., BRT Realty Trust), are the standard carve-out guarantor with respect to the Avalon, Silvana Oaks,Woodland Trails,
Stonecrossing, Pathway and Avondale properties. (The term "standard carve-outs" refers to recourse items to an otherwise non-
recourse mortgage and are customary to mortgage financing. While carve-outs vary from lender to lender and transaction to
transaction, the carve-outs may include, among other things, a voluntary bankruptcy filing, environmental liabilities, the sale,
financing or encumbrance of the property in violation of loan documents, damage to property as a result of intentional
misconduct or gross negligence, failure to pay valid taxes and other claims which could create a lien on a property and the
conversion of security deposits, insurance proceeds or condemnation awards.) At September 30, 2015, the principal amount of
mortgage debt outstanding with respect to the properties at which we are the carve-out guarantor is approximately $66 million.
Our Other Real Estate Assets and Activities
Newark Joint Venture
Other Developments
See "Management's Discussion and Analysis of Financial Condition and Results of Operations-Other Developments" for
information regarding the possible sale by BRT of its equity interest in the Newark Joint Venture and the possible repayment of
$19.5 million in principal amount of secured mortgage debt owed to BRT eliminated in consolidation.
6
Background
Two of our wholly-owned subsidiaries are members of a joint venture, which we refer to as the Newark Joint Venture,
with two members that are not affiliated with us. The Newark Joint Venture owns several properties (including development
sites) in downtown Newark, NJ. The properties are surrounded by a variety of governmental, educational, cultural and
entertainment institutions and facilities. In close proximity to these properties are the Newark campus of Rutgers University, the
New Jersey Institute of Technology, University of Medicine and Dentistry of New Jersey, Essex County College, Seton Hall
Law School, the New Jersey Performing Arts Center, the Prudential Arena (home of the National Hockey League New Jersey
Devils), the Essex County Court Complex, Newark's City Hall and a Federal Courthouse. These properties are within walking
distance of Newark Penn Station, which provides access to Amtrak and New Jersey Transit trains and are accessible to local bus
routes. The properties are served by various highways, including the Garden State Parkway, Interstate-95, Interstate-78 and
Interstate-280.
In 2007, immediately prior to the formation of the Newark Joint Venture, we held loans aggregating approximately
$38 million, secured by substantially all of the properties conveyed to the Newark Joint Venture by our borrowers. We entered
into loan work-out negotiations with our borrowers and, as a result of such negotiations, entered into the Newark Joint Venture.
In connection with the work-out of our loans and the formation of the Newark Joint Venture, our loans were converted into a
consolidated mortgage loan of $27 million with the balance of our loans converted into a $6.9 million preferred capital account
interest and a 50.1% membership interest in the Newark Joint Venture, providing us with a separate capital account of
$3.9 million. The other members caused all the properties secured by our loans, and additional properties (unencumbered by
our loans) and contract rights to acquire additional properties, all located in downtown Newark, NJ, to be contributed to the
Newark Joint Venture for which the other members received a 49.9% membership interest in the Newark Joint Venture (with a
separate capital account of $3.9 million).
The Newark Joint Venture is in the process of redeveloping the Teachers Village site and intends to redevelop all or a
portion of the remaining sites, particularly the Market Street site, with personnel hired by the Newark Joint Venture, with other
development partners (including adjacent property owners that may be interested in redeveloping several of such properties at
the same time) or sell some of its sites to developers or end users. Although we own only a 50.1% membership interest in the
Newark Joint Venture, in accordance with generally accepted accounting principles in the United States, the assets, liabilities
and results of operations of the Newark Joint Venture are consolidated with our financial statements. Accordingly, our
consolidated balance sheets at September 30, 2015, include, as real estate properties, $141.4 million net book value of real
estate owned and being developed by the Newark Joint Venture and, as mortgages payable, mortgage debt of $110.4 million
incurred by the Newark Joint Venture. BRT's $19.5 million mortgage loan to the Newark Joint Venture (which is secured by all
of the real estate assets of the Newark Joint Venture other than the Teachers Village properties and the Broad Street properties),
is eliminated in consolidation and is not recorded on our consolidated balance sheet.
The Newark Joint Venture believes that the properties owned by it have adequate insurance coverage for their current use.
Current Property Information
Except as otherwise noted below, the following table sets forth as of September 30, 2015, information regarding the
properties owned by the Newark Joint Venture (dollars in thousands):
Assemblage or Property
Type of Property
Rentable
Square
Feet
Annual
Real
Estate
Taxes
Projected
2016
Contractual
Rental
Income(1)
Market Street(4)
Office and retail
303,126
$ 492
$
407
Teachers Village(5)
Broad Street
Beaver Street
Lincoln Park
Mixed
School and retail
Retail
Parking
143,358 (6)
47,564
8,160
79,063
334
346
11
55
1,565 (6)
1,058
—
21
_______________________________________________________________________________
(1) Refers to the fixed rental payments payable pursuant to such leases in 2016.
(2) Based on square footage.
Number of
Tenants
Percent
Leased(2)
Mortgage
Debt(3)
16
7 (6)
2
—
2
36%
$
900
66
100
—
100
(6) 103,964
5,508
—
—
7
(3) See note 5 of our consolidated financial statements. Excludes $19.5 million in principal amount mortgage debt payable
to BRT by the Newark Joint Venture which is eliminated in consolidation. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations-Other Developments" for information about the possibility
that such debt will be paid off.
(4) Leases representing substantially all of the leased space of the Market Street development are month-to-month or have
cancellation, relocation or demolition provisions. Many of these leases are at below market rental rates.
(5) Includes five buildings - two buildings with an aggregate of 113,903 square feet of commercial space (25,070 and
88,833 square feet of retail space and school space, respectively) were completed in July 2013 as part of Phase I, two
buildings (one completed in each of September 2014 and December 2014) with an aggregate of 61 residential units
and 13,080 square feet of retail space,constructed as part of Phase II, and a partially completed building with an
aggregate of 62 units (of which 30 units are occupied) and 16,375 square feet of retail space constructed as part of
Phase II. See "—Information and Activities Relating to Development and Other Sites" for a description of Phases I
through III of the Teachers Village project.
(6) Excludes (i) the 123 residential units constructed and to be constructed as part of Phase II, (ii) the building to be
constructed in Phase III and (iii) two parcels aggregating approximately 60,000 square feet that are currently used as
parking lots and may be developed in the future.
The following table sets forth as of September 30, 2015, a schedule of the annual lease expirations of the Newark Joint
Venture's commercial real estate assets and the anticipated contributions to 2016 contractual rental income, assuming that none
of the tenants exercise renewal or cancellation options, if any (dollars in thousands):
Lease Expiration
Month-to-month
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025 and thereafter
Total
Number of
Leases
Expiring(1)
Square
Footage of
Leases
Expiring
13
164,577
2
1
1
—
1
2
—
—
1
6
27
7,890
6,214
5,260
—
5,260
5,485
—
—
1,800
134,283
330,769
Percentage
of Total
Leased
Square
Feet
Projected
2016
Contractual
Rental
Income(1)
Projected %
of 2016
Contractual
Rental
Income(1)
50% $
2
2
2
—
2
2
—
—
—
224
43
144
48
—
68
58
—
—
54
7%
2
4
2
—
2
2
—
—
2
40
100% $
2,412
3,051
79
100%
_______________________________________________________________________________
(1) Assumes all month-to-month tenants remain in occupancy for all of 2016.
Information and Activities Relating to Development and Other Sites
Set forth below is information regarding the Newark Joint Venture's most significant properties.
Teachers Village
The Teachers Village site encompasses an area bounded by Branford Street to the north, Treat Place to the east, Hill Street
to the south and Washington Street to the west, and is adjacent to Halsey Street. From 2012 through 2014, the Newark Joint
Venture obtained, in three phases, financing of approximately $93.1 million, which together with $31.4 million of New Markets
Tax Credit net proceeds is, after payment of transaction expenses and payment of approximately $19.1 million of principal and
accrued interest on debt, has and is being used to construct six buildings.
8
The first financing phase, which we refer to as Phase I, was used to fund the construction of two buildings with an
aggregate of 113,903 rentable square feet—these buildings were completed in August/September 2013. Approximately 88,833
square feet is leased to three charter schools and a day-care center.
The second financing phase, which we refer to as Phase II, will result in, upon completion of construction, three buildings
containing approximately 123 residential rental units and approximately 29,140 square feet of retail space. One building
containing 21 residential units and 3,980 square feet of retail space was completed in August 2014, and the second building,
containing 40 residential units and 9,100 square feet of retail space, was completed in December 2014. (The retail space at these
buildings require build-out. See "Management's Discussion and Analysis of Financial Condition and Results of Operations-
Liquidity and Capital Resources-Newark Joint Venture"). We anticipate the third building, which contains 62 residential units of
which 30 are occupied, will be completed by February 2016.
The third financing phase, which we refer to as Phase III, contemplates the construction of an 82,547 square feet mixed-
use space which will consist of a (i) 48,772 square foot commercial condominium unit including 10,453 square feet of retail
space and 42 residential units, which we refer to as the Commercial Condo, and (ii) 33,775 square feet residential condominium
unit including 39 residential units, which we refer to as the Residential Condo. The Residential Condo is owned by the Newark
Joint Venture and the Commercial Condo is owned by certain indirect members of the Newark Joint Venture other than BRT;
however, the owners of the Commercial Condo have agreed to distribute to the Newark Joint Venture any net distributable
proceeds (i.e., cash flow and residual capital event proceeds after any necessary funds are expended on debt service, reserves
and operating expenses) they receive as owners of the Commercial Condo. It is anticipated that this building will be completed
by July 2016.
Residential Leasing Activity at Teachers Village
At December 1, 2015, the 91 available residential units constructed to date are occupied and we anticipate the remaining
32 units will be completed and leased by February 2016. We estimate that in 2016, the rental income from these 123 units will
be approximately $1.9 million.
Commercial Leasing Activity at Teachers Village
At December 1, 2015, of the approximately 126,983 square feet of commercial space at the four completed buildings,
approximately 95,218 square feet is leased to three charter schools, a day care center and and three retail tenants. In addition,
the Newark Joint Venture has entered into leases with 11 tenants with respect to 18,466 square feet of retail space at these
buildings; however, the tenants' obligations to take possession and pay rent is subject to the achievement of certain conditions,
including the completion of landlord and tenant work and third party financing to fund a portion of such work. We can give no
assurance that these conditions will be satisfied. If these conditions are not achieved by the dates specified in the applicable
leases, certain tenants may be entitled to terminate their leases. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations-Liquidity and Capital Resources-Newark Joint Venture".
Market Street
The Market Street site is an approximately 68,000 square foot site, currently representing approximately 303,000 rentable
square feet. The site is bounded by Market Street, Campbell Street, Washington Street and University Avenue in downtown
Newark, New Jersey. Potential redevelopment opportunities with respect to this site include an office complex with a retail
component, a medical office complex containing offices, research laboratories and other medical related services, a retail center,
a hotel, corporate headquarters, university offices, classrooms and/or dormitories, or a combination of one or more of these
uses. The Newark Joint Venture may redevelop this site for its own account. Alternatively, the Newark Joint Venture may enter
into a joint venture with a development partner or sell all or portions of the site. Although there have been discussions with
various parties concerning the development of the Market Street area, the Newark Joint Venture has not entered into any
material agreements concerning the redevelopment of all or any portion of the site and there is no assurance that it will be able
to conclude any such arrangement or obtain the financing necessary to proceed with any arrangement which it may conclude.
9
Mortgage Debt
The following table sets forth scheduled principal (including amortization) mortgage payments due for the Newark Joint
Venture as of September 30, 2015:
YEAR
2016
2017
2018
2019
2020
Thereafter
Total
PRINCIPAL PAYMENTS DUE
(Amounts in Thousands)
$
$
(1)
1,892
2,522
2,710
23,845
8,537
70,867
110,373
_______________________________________________________________________________
(1) Assumes that if the note holder of the Qualified School Construction Bonds exercises its right, beginning in 2018, to
require the subsidiaries of the Newark Joint Venture to repurchase $22.7 million of principal amount of such debt, such
subsidiaries would refinance such debt on terms substantially equivalent to the terms currently in effect.
At September 30, 2015, the $110.4 million of outstanding debt related to the Newark Joint Venture (of which
approximately $104.0 million is related to Teachers Village), carries a weighted average effective interest rate (after giving
effect to an annual subsidy of $1.0 million from the United States Department of Treasury), of approximately 4.53%, a
weighted average remaining term of 10.5 years and is secured by the Teachers Village, Broad Street and Market Street
properties. This debt is generally non-recourse to (i) BRT and (ii) except as otherwise indicated below, the Newark Joint
Venture. In connection with Phases I through III, the Newark Joint Venture guaranteed, among other things, up to $27 million in
principal amount of mortgage debt, which guarantees generally only expire after satisfaction of performance thresholds relating
to the leasing and occupancy of these facilities within specified periods, losses incurred by the lenders by reason of the
borrower's bad acts (e.g., fraud or misappropriation), the failure to complete construction of the six buildings to be constructed
(four of which have been constructed) and the carrying costs with respect to certain properties. The Newark Joint Venture has
also agreed to provide indemnity with respect to specified environmental matters, violations of the Americans with Disabilities
Act and similar laws and to indemnify the beneficiaries of the New Markets Tax Credits for losses sustained if such credits are
disallowed. We estimate that the New Markets Tax Credit indemnity obligation would not exceed $33 million (exclusive of
interest and penalties) and is subject to reduction to the extent the credits are not disallowed.
Terms of the Newark Joint Venture Operating Agreement
The following is a summary of the material provisions of the amended and restated limited liability company operating
agreement of the Newark Joint Venture:
Membership Interests. We own 50.1% of the membership interests in the Newark Joint Venture, and the other members
(collectively, the "Other Member") own 49.9% of the membership interests in the Newark Joint Venture.
Manager. An affiliate of the Other Member is the manager of the Newark Joint Venture and is responsible for the day-
to-day management activities of the Newark Joint Venture, but our consent is required for all major decisions affecting the
Newark Joint Venture and its properties. Under specified circumstances, we may remove the manager immediately or upon six
months advance written notice.
Mandatory Capital Calls. Members are generally required to make pro rata capital contributions to the Newark Joint
Venture for any projected budget shortfalls.
Buy-Sell. During specified periods and circumstances, either member group may provide the other member group with
written notice setting forth the amount they will pay to purchase all of the assets of the Newark Joint Venture. The member
group which receives such notice has the option to (i) sell their membership interests in the Newark Joint Venture to the other
members for their pro rata portion of the asset purchase price set forth in the written notice, or (ii) purchase the other members'
membership interests in the Newark Joint Venture for their pro rata portion of the asset purchase price set forth in the written
10
notice. If the acquirer is the Other Member, then the Other Member is required to, among other things, pay in full our mortgage
and our preferred equity interest at closing.
Right of First Refusal and Tag-along Rights. At any time, either member group may provide the other member group
with written notice setting forth the sale price at which it desires to sell all or a portion of its membership interests. The member
group which received such notice may purchase the offered membership interests at the price set forth in the notice. If they do
not elect to purchase the membership interest in accordance with the terms of the notice, the offering members may secure
another person to purchase its offered membership interests within 180 days. The group of members which received the sale
notice may tag-along in a sale to such other person and sell their pro rata portion of the membership interests.
Distributions. The Newark Joint Venture may not distribute any cash flow to its members until the $19.5 million
balance due on our loan (eliminated in consolidation on our financial statements) has been fully repaid, including accrued
interest. Once it has been fully repaid, the cash flow of the Newark Joint Venture will generally be distributed as follows:
(i) first, to each member pro rata in an amount equal to their unreturned additional capital contributions, (ii) second, to us, until
we receive a 10% return on our preferred capital contributions, (iii) third, to us until we receive an amount equal to our
preferred capital contributions, (iv) fourth, to each member pro rata until such member receives a 10% return on their additional
capital contributions, (v) fifth, to the members pro rata an amount equal to their common capital contributions, and (vi) the
remainder shall be distributed as follows: (a) 10% to the managing member, and (b) 90% pro rata to the Other Members.
Manager of the Newark Joint Venture
The manager of the Newark Joint Venture is RBH Group LLC; its managing member and President is Ron Beit-
Halachmy. Mr. Beit-Halachmy, 43 years of age, has over 20 years of experience in the real estate industry and has been
involved for more than ten years in acquiring sites in Newark, New Jersey. He was the managing member of the entities which
acquired all of the real property currently owned by the Newark Joint Venture. Mr. Beit-Halachmy earned a BA in Economics
from the University of Wisconsin and a law degree from New York Law School. The Newark Joint Venture carries key man life
insurance on Mr. Beit-Halachmy in the amount of $40 million.
Other Real Estate Assets
We also own the following properties with an aggregate net book value of $10.5 million at September 30, 2015:
•
an 8.7 acre vacant parcel of land in South Daytona Beach, Florida,
17 cooperative apartments, 15 of which are rent controlled or rent stabilized, in two buildings in upper
•
Manhattan, New York, and
a subordinated leasehold interest in a portion (approximately 29% of a 99,000 square foot facility) of a
•
shopping center in Yonkers, NY.
In addition, we have a 50% equity interest in an unconsolidated joint venture that owns an aggregate of 19 cooperative
apartment units located in Lawrence, New York.
Though we are no longer engaged in real estate lending, we present, for historical purposes, the following information
regarding such activities for the periods indicated:
Our Real Estate Lending Activities
(Dollars in Thousands)
Loans originated
Loans repaid
Loan sold
Year Ended September 30,
2015
2014
2013
$
— $
—
2,000
$
5,533
34,045
—
70,300
76,900
—
11
Junior Subordinated Notes
Corporate Level Financing Arrangement
As of September 30, 2015, $37.4 million in principal amount of our junior subordinated notes is outstanding. These notes
mature in April 2036, are redeemable at any time at our option, contain limited covenants and bear interest at the rates set forth
below:
Interest Period
August 1, 2012 through April 29, 2016
April 30, 2016 through April 30, 2036
Interest Rate
4.9%
3 month LIBOR + 2.00%
Competition
We compete to acquire real estate assets and in particular, multi-family properties, with other owners and operators of
such properties including other multi-family REITs, pension and investment funds, real estate developers and private real estate
investors. Competition to acquire such properties is based on price and ability to secure financing on a timely basis and
complete an acquisition. To the extent that a potential joint venture partner introduces us to a multi-family acquisition
opportunity, we compete with other sources of equity capital to participate in such joint venture based on the financial returns
we are willing to offer such potential partner and the other terms and conditions of the joint venture arrangement. We also
compete for tenants at our multi-family properties—such competition depends upon various factors, including alternative
housing options available in the applicable sub-market, rent, amenities provided and proximity to employment and quality of
life venues.
The Newark Joint Venture competes for funding, and in particular, tax credit allocations and financing provided by
governmental and quasi-governmental sources, with other real estate developers. It competes for commercial, retail, residential
and educational tenants with landlords owning properties in Newark, New Jersey and the surrounding area and developers
interested in developing facilities in Newark or the surrounding area.
Many of our competitors possess greater financial and other resources than we possess.
Environmental Regulation
We are subject to regulation at the federal, state and municipal levels and are exposed to potential liability should our
properties or actions result in damage to the environment or to other persons or properties. These conditions include the
presence or growth of mold, potential leakage of underground storage tanks, breakage or leaks from sewer lines and risks
pertaining to waste handling. The potential costs of compliance, property damage restoration and other costs for which we
could be liable or which could occur without regard to our fault or knowledge of such conditions, are unknown and could
potentially be material.
In the course of acquiring and owning multi family properties, we or our joint venture partner engage an independent
environmental consulting firm to perform a level 1 environmental assessment (and if appropriate, a level 2 assessment) to
identify and mitigate these risks as part of the due diligence process. We believe these assessment reports provide a reasonable
basis for discovery of potential hazardous conditions prior to acquisition. Should any potential environmental risks or
conditions be discovered during our due diligence process, the potential costs of remediation will be assessed carefully and
factored into the cost of acquisition, assuming the identified risks and factors are deemed to be manageable and within reason.
Some risks or conditions may be identified that are significant enough to cause us to abandon the possibility of acquiring a
given property. As of the date of this report, we have no knowledge of any material claims made or pending against us with
regard to environmental damage for which we may be found liable, nor are we aware of any potential hazards to the
environment related to any of our properties which could reasonably be expected to result in a material loss.
We share facilities, personnel and other resources with several affiliated entities including, among others, Gould
Investors L.P., a master limited partnership involved primarily in the ownership and operation of a diversified portfolio of real
estate assets, and One Liberty Properties, Inc., an NYSE listed equity REIT. Eight individuals (including Jeffrey A. Gould,
Our Structure
12
Chief Executive Officer and President, Mitchell Gould, Executive Vice President and George Zweier, Chief Financial Officer),
devote substantially all of their business time to our activities, while our other personnel (including several officers) share their
services on a part-time basis with us and other affiliated entities that share our executive offices. (Including our full and part-
time personnel , we estimate that we have the equivalent of 13 full time employees). The allocation of expenses for the shared
facilities, personnel and other resources is computed in accordance with a Shared Services Agreement by and among us and the
affiliated entities. The allocation is based on the estimated time devoted by executive, administrative and clerical personnel to
the affairs of each entity that is a party to this agreement.
In addition, we are party to an Advisory Agreement, as amended, between us and REIT Management Corp., our advisor.
REIT Management is wholly owned by Fredric H. Gould, a member of our Board of Trustees and the former chairman of such
board, and he and certain of our executive officers, including our Chairman of the Board and Chief Executive Officer, receive
compensation from REIT Management. Pursuant to this agreement, REIT Management furnishes advisory and administrative
services with respect to our business, including, without limitation, developing and maintaining banking and financing
relationships, participating in the analysis and approvals of multi-family property acquisitions, providing investment advice and
providing assistance with building inspections.
The Advisory Agreement, as amended, provides that (i) it renews automatically on July 1st of each year, unless earlier
terminated with or without cause, (ii) that the minimum and maximum fees payable in a fiscal year to REIT Management are
$750,000 and $4 million, respectively, subject to adjustment for any fiscal year of less than twelve months, and (iii) we pay
REIT Management the following annual fees, which are paid on a quarterly basis:
•
•
•
•
•
•
0.45% of the average book value of all real estate properties, excluding depreciation;
0.25% of the average amount of the fair market value of marketable securities;
1.0% of the average principal amount of earning loans;
0.35% of the average amount of the fair market value of non-earning loans;
0.15% of the average amount of cash and cash equivalents; and
to the extent loans or real estate are held by joint ventures or other arrangements in which we have an interest,
varying fees based on, among other things, the nature of the asset (i.e. real estate or loans), the nature of our
involvement (i.e. active or passive) and the extent of our equity interests in such arrangement.
We paid fees pursuant to this agreement of $2.4 million and $2 million in 2015 and 2014, respectively. Approximately
$214,000 of the 2014 fees is included in discontinued operations.
Effective as of December 31, 2015, the Advisory Agreement will terminate. In lieu thereof, we will retain personnel,
including related parties, to provide the services previously provided pursuant to such agreement.The aggregate fees in calendar
2016 for the provision of such services may not exceed $1.15 million.
Item 1A. Risk Factors.
Set forth below is a discussion of certain risks affecting our business. The categorization of risks set forth below is meant
to help you better understand the risks facing our business and is not intended to limit your consideration of the possible effects
of these risks to the listed categories. Any adverse effects arising from the realization of any of the risks discussed, including
our financial condition and results of operation, may, and likely will, adversely affect many aspects of our business.
Risks Related to our Business
Our acquisition, development and property improvement activities are limited by available funds.
Our ability to acquire additional multi-family properties, to improve our multi-family properties and to develop our
Newark Joint Venture properties, is limited by the funds available to us. At September 30, 2015, we had approximately $15.6
million of cash and cash equivalents and approximately $6.5 million and $13.3 million designated as restricted cash for multi-
family property improvements and Newark Joint Venture development activities, respectively. Our multi-family acquisition and
improvement activities and the Newark Joint Venture development activities are constrained by funds available to us which will
limit growth in our revenues and operating results. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Liquidity and Capital Resources - Newark Joint Venture".
13
It is unlikely that we will be required to declare any dividends in the next several years to maintain our status as a REIT.
We have not declared or paid any dividends since 2010. In order to qualify as a REIT, we are required to distribute 90%
of our taxable income. At December 31, 2014, we had a tax loss carry-forward of approximately $65 million. Under current tax
laws, we can offset our future taxable income against our tax loss carry-forward until 2029 or until the tax loss carry-forward
has been fully used, whichever occurs first. As a result, it is unlikely that we will be required to pay a dividend for the next
several years in order to maintain our REIT status. The non-payment of cash dividends may negatively impact the price of our
common shares.
We may not be able to compete with competitors, many of which have greater financial and other resources than we possess.
We compete with many third parties engaged in the ownership and operation of multi-family properties, including other
REITs, specialty finance companies, public and private investors, investment and pension funds and other entities. The Newark
Joint Venture competes (i) with real estate developers for tax credit allocations and financing provided by governmental and
quasi-governmental authorities, and (ii) for tenants, with landlords and developers with, or interested in developing, properties
in Newark, New Jersey and the surrounding area. Many of these competitors have substantially greater financial and other
resources than we do. Larger and more established competitors enjoy significant competitive advantages that result from,
among other things, enhanced operating efficiencies and more extensive networks providing greater and more favorable access
to capital, financing and tax credit allocations and more favorable lending and acquisition opportunities. Larger multi-family
property operators have the ability and capacity to acquire a greater number of higher quality properties at more favorable
locations and on more favorable terms and conditions.
We may incur impairment charges in 2016.
We evaluate on a quarterly basis our real estate portfolios for indicators of impairment. Impairment charges reflect
management's judgment of the probability and severity of the decline in the value of real estate assets we own. These charges
and provisions may be required in the future as a result of factors beyond our control, including, among other things, changes in
the economic environment and market conditions affecting the value of real property assets. If we are required to take
impairment charges, our results of operations will be adversely impacted.
Our revenues and the value of our portfolio may be negatively affected by casualty events occurring on our properties.
The joint ventures in which we are an equity participant carry all risk property insurance covering the property and any
improvements to the property owned by the joint venture for the cost of replacement in the event of a casualty. Further, we
carry insurance for such purpose on properties owned by us. However, the amount of insurance coverage maintained for any
property may be insufficient to pay the full replacement cost following a casualty event. In addition, the rent loss coverage
under a policy may not extend for the full period of time that a tenant or tenants may be entitled to a rent abatement that is a
result of, or that may be required to complete restoration following, a casualty event. In addition, there are certain types of
losses, such as those arising from earthquakes, floods, hurricanes and terrorist attacks, that may be uninsurable or that may not
be economically feasible to insure. Changes in zoning, building codes and ordinances, environmental considerations and other
factors may make it impossible for a joint venture or us, as the case may be, to use insurance proceeds to replace damaged or
destroyed improvements at a property. If any of these or similar events occur, the amount of coverage may not be sufficient to
replace a damaged or destroyed property. As a result, our returns and the value of our investment may be reduced.
Compliance or failure to comply with the Americans with Disabilities Act of 1990 or other safety regulations and
requirements could result in substantial costs.
The Americans with Disabilities Act generally requires that public buildings, including our properties, be made
accessible to disabled persons. Non-compliance could result in the imposition of fines by the federal government or the award
of damages to private litigants. From time-to-time claims may be asserted against us with respect to some of our properties
under the Americans with Disabilities Act. If, under the Americans with Disabilities Act, we are required to make substantial
alterations and capital expenditures in one or more of our properties, including the removal of access barriers, it could adversely
affect our financial condition and results of operations.
Our properties are subject to various federal, state and local regulatory requirements, such as state and local fire and
life safety requirements. If we fail to comply with these requirements, we could incur fines or private damage awards. We do
not know whether existing requirements will change or whether compliance with future requirements will require significant
unanticipated expenditures that will affect our cash flow and results of operations.
14
In order for real estate properties to generate positive cash flow or to make real estate properties suitable for sale, we may
need to make significant capital improvements and incur deferred maintenance costs with respect to these properties.
Some of our properties, and in particular, our multi-family properties, face competition from newer, and updated
properties. At September 30, 2015, the approximate weighted average age (based on the number of units) of our multi-family
properties is approximately 25 years. To remain competitive and increase occupancy at these properties and/or make them
attractive to potential tenants or purchasers, we may have to make significant capital improvements and/or incur deferred
maintenance costs with respect to these properties. The cost of these improvements and deferred maintenance items may impair
our financial condition and liquidity.
Our transactions with affiliated entities involve conflicts of interest.
Entities affiliated with us and with certain of our executive officers provide services to us and on our behalf. Although our
policy is to obtain terms in transactions with affiliates that are at least as favorable as those that we would receive if the
transactions were entered into with unaffiliated entities, these transactions raise the potential that we may not receive terms as
favorable as those that we would receive if the transactions were entered into with unaffiliated entities.
Liability relating to environmental matters may impact the value of properties that we acquire.
We may be subject to environmental liabilities arising from the ownership of properties we acquire. Under various
federal, state and local laws, an owner or operator of real property may become liable for the costs of removal of certain
hazardous substances released on its property. These laws often impose liability without regard to whether the owner or
operator knew of, or was responsible for, the release of such hazardous substances.
If we acquire properties, the presence of hazardous substances on a property may adversely affect our ability to finance or
sell the property and we may incur substantial remediation costs. The discovery of material environmental liabilities attached to
such properties could have a material adverse effect on our results of operations and financial condition.
The presence of hazardous substances may adversely affect our ability to sell real estate or borrow using the real estate as
collateral.
Senior management and other key personnel are critical to our business and our future success may depend on our ability
to retain them.
We depend on the services of Jeffrey A. Gould, our president and chief executive officer, and other members of senior
management to carry out our business and investment strategies. Although Jeffrey A. Gould devotes substantially all of his
business time to our affairs, he devotes a limited amount of his business time to entities affiliated with us. In addition to Jeffrey
A. Gould, only two other executive officers, Mitchell Gould, our executive vice president, and George Zweier, a vice president
and our chief financial officer, devote all or substantially all of their business time to us. The remainder of our executive
management personnel share their services on a part-time basis with entities affiliated with us and located in the same executive
offices pursuant to a shared services agreement. We rely on part-time executive officers to provide certain services to us,
including legal and accounting services, since we do not employ full-time executive officers to handle these services. If the
shared services agreement is terminated, we will have to obtain such services or hire employees to perform them. We may not
be able to replace these services or hire such employees in a timely manner or on terms, including cost and level of expertise,
that are as favorable as those we receive under the shared services agreement.
In addition, in the future we may need to attract and retain qualified senior management and other key personnel, both on
a full-time and part-time basis. The loss of the services of any of our senior management or other key personnel or our inability
to recruit and retain qualified personnel in the future, could impair our ability to carry out our business and our investment
strategies.
We do not carry key man life insurance on members of our senior management.
Breaches of information technology systems could materially harm our business and reputation.
We, our joint venture partners and the property managers managing our properties collect and retain on information
technology systems certain financial, personal and other sensitive information provided by third parties, including tenants,
vendors and employees. Such persons also rely on information technology systems for the collection and distribution of funds.
There can be no assurance that we, our joint venture partners or property managers will be able to prevent unauthorized access
to sensitive information or the unauthorized distribution of funds. Any loss of this information or unauthorized distribution of
funds as a result of a breach of information technology systems may result in loss of funds to which we are entitled, legal
15
liability and costs (including damages and penalties), as well as damage to our reputation, that could materially and adversely
affect our business and financial performance.
We are subject to risks associated with real estate assets and the real estate industry, which could decrease revenues or
increase costs and adversely affect the economic performance and value of our properties.
Our real estate assets are subject to general economic and market risks. As such, in a general economic decline or recessionary
climate, our assets may not generate sufficient cash to pay expenses, service debt or cover maintenance, and, as a result, our
financial condition, results of operations and cash flow may be adversely affected. Factors that may adversely affect the economic
performance or value of our properties include, among others:
•
•
•
•
•
•
changes in the national, regional and local economic climate;
inflation;
national, regional and local unemployment rates;
local conditions such as an oversupply of space or a reduction in demand for real estate in the area;
favorable interest rate environments that may result in a significant number of potential residents of our multifamily
apartment communities deciding to purchase homes instead of renting;
changes in tax, real estate, environmental and zoning laws;
Risks Related to our Multi-Family Activities
Unfavorable changes in market and economic conditions could adversely affect occupancy, rental rates, operating expenses,
and the overall market value of multi-family properties we acquire.
Conditions in markets in which we acquire multi-family properties may significantly affect occupancy, rental rates and
the operating performance of such assets. The risks that may adversely affect conditions in those markets include the following:
•
•
•
•
•
•
industry slowdowns, plant closings and other factors that adversely affect the local economy;
an oversupply of, or a reduced demand for, multi-family units;
a decline in household formation or employment or lack of employment growth;
the inability or unwillingness of residents to pay rent increases;
rent control or rent stabilization laws, or other laws regulating housing, that could prevent us from raising rents to
offset increases in operating costs; and
economic conditions that could cause an increase in our operating expenses, such as increases in property taxes,
utilities, and routine maintenance.
We may be unable to refinance our multi-family mortgage debt as it matures.
We are subject to the risks associated with mortgage financing, including the risk that our cash flow will be insufficient to
meet required payments of principal and interest and that we will be unable to refinance our mortgage debt as it matures. At
September 30, 2015, the weighted average annual interest rate on our multi-family mortgage debt is 3.99% and the weighted
average remaining term on this mortgage debt is 6.5 years. Approximately $142.3 million in principal amount of mortgage
debt, bearing annual interest rates ranging from approximately 3.7% to 4%, matures in 2019. As we will not have sufficient
liquidity to make all these principal payments when due, we will need to refinance a significant portion, if not all, of our
outstanding multi-family debt as it matures. We may not be able to refinance existing debt or, in the event of increased interest
rates, refinance on terms as favorable as currently in effect; either of these outcomes could have a material adverse effect on
our financial condition and results of operations.
We could be negatively impacted by changes in our relationship with Fannie Mae or Freddie Mac, changes in the condition
of Fannie Mae or Freddie Mac and by changes in government support for multi-family housing.
Fannie Mae and Freddie Mac have been a major source of financing for multi-family real estate in the United States
and we have used loan programs sponsored by these agencies to finance many of our acquisitions of multi-family properties.
There has been ongoing discussion by the government with regard to the long term structure and viability of Fannie Mae
and Freddie Mac, which could result in adjustments to guidelines for their loan products. Should these agencies have their
16
mandates changed or reduced, lose key personnel, be disbanded or reorganized by the government or otherwise discontinue
providing liquidity for the multi-family sector, our ability to obtain financing through loan programs sponsored by the agencies
could be negatively impacted. In addition, changes in our relationships with Fannie Mae and Freddie Mac, and the lenders that
participate in these loan programs, with respect to our existing mortgage financing could impact our ability to obtain
comparable financing for new acquisitions or refinancing for our existing multi-family real estate investments. Should our
access to financing provided through Fannie Mae and Freddie Mac loan programs be reduced or impaired, it would
significantly reduce our access to debt capital and/or increase borrowing costs and could significantly limit our ability to
acquire properties on acceptable terms and reduce the values to be realized upon property sales.
Most of our multi-family properties are located in a limited number of markets, which makes us susceptible to adverse
economic developments in such markets.
In addition to general, regional and national economic conditions, the operating performance of our multi-family
residential properties is impacted by the economic conditions of the specific markets in which our properties are concentrated.
Approximately 21%, 17%, 15% and 14% of our estimated 2016 revenues from multi-family properties are attributable to
properties located in Texas, Georgia, Tennessee and Florida, respectively. Accordingly, adverse economic developments in such
markets could adversely impact the operations of these properties and therefore our operating results and cash flow. The
concentration of properties in a limited number of markets exposes us to risks of adverse economic developments which are
greater than the risks of owning properties with a more geographically diverse portfolio.
We are subject to certain risks associated with selling multi-family properties, which could limit our operational and
financial flexibility.
We may desire to dispose of multifamily properties that no longer meet our objectives, but our ability to complete such
sales may be limited by adverse market conditions, including conditions over which we have limited or no control, such as the
availability of mortgage debt. These conditions may impact the price or the other terms of a contemplated sale and the time
needed to find a purchaser and complete the sale. We may be required to expend funds to correct defects or to make
improvements before a property can be sold. Further, federal tax laws limit our ability to profit on the sale of properties that we
have owned for less than two years, and this limitation may prevent us from selling properties when market conditions are
favorable. The foregoing conditions may limit our ability to dispose of properties in order to meet our objectives, which may in
turn have a material adverse effect on our financial condition and the market value of our securities.
The failure of third party property management companies to properly manage our properties may result in a decrease in
occupancy rates, rental rates or both, which could adversely impact our results of operations
We and our joint venture partners rely on third party property management companies to manage our properties. These
management companies are responsible for, among other things, leasing and marketing rental units, selecting tenants (including
an evaluation of the creditworthiness of tenants), collecting rent, paying operating expenses, and maintaining the property. If
these property management companies do not perform their duties properly or we or our joint venture partners do not
effectively supervise the activities of these companies, occupancy rates, rental rates or both may decline at such properties. One
property manager and its affiliates manage nine properties, a second property manager and its affiliates manage four properties
and nine other property managers manage three or fewer properties - the loss of our managers, and in particular, the property
manager that manages nine properties, could result in a decrease in occupancy rates, rental rates or both. Further, some of
management companies are owned by our joint venture partners or their affiliates. The termination of a management company
may require the approval of the mortgagee, our joint venture partner or both. If we are unable to terminate a property manager
not performing its duties, on a timely basis, our occupancy rates, rental rates or both, could be adversely impacted.
Increased competition and increased affordability of residential homes could limit our ability to retain our tenants or
increase or maintain rents.
Our multi-family properties compete with numerous housing alternatives, including other multi-family and single-family
rental homes, as well as owner occupied single and multi-family homes. Our ability to retain tenants and increase or maintain
rents or occupancy levels could be adversely affected by the alternative housing in a particular area and, due to declining
housing prices, mortgage interest rates and government programs to promote home ownership, the increasing affordability of
owner occupied single and multi-family homes.
Risks involved in conducting real estate activity through joint ventures.
We have in the past and in the future intend to acquire properties in joint ventures with other persons or entities when we
believe that circumstances warrant the use of such structure. Joint venture investments involve risks, including the possibility
that our partner might become insolvent or otherwise refuse to make capital contributions or property distributions when due;
that we may be responsible to our partner for indemnifiable losses; that our partner may not perform its property oversight
17
responsibilities; that our partner may have business goals which are inconsistent with ours; our partner may be in a position to
take action or withhold consent contrary to our instructions or requests; and our partner might engage in unlawful or fraudulent
conduct with respect to our jointly owned properties or other properties in which they have an ownership interest. We and our
partner may each have the right to trigger a buy-sell arrangement, which could cause us to sell our interest, or acquire our
partner's interest, at a time when we otherwise would not have initiated such a transaction.
In some instances, joint venture partners may have competing interests in our markets that could create conflicts of
interest. Further, our joint venture partners may experience financial distress, including bankruptcy, and to the extent they do
not meet their obligations to us or our joint venture with them, we may be adversely affected.
Five of our multi-family property joint ventures are owned with one joint venture partner or its affiliates and four of our
multi-family property joint ventures are owned with a second joint venture partner or its affiliates. We may be adversely
effected if we are unable to maintain a satisfactory working relationship with either of these joint venture partners or if either
partner becomes financially distressed.
Risks Related to the Newark Joint Venture and Other Real Estate Operations.
The Newark Joint Venture likely will have an operating loss for the foreseeable future.
We anticipate that the Newark Joint Venture will operate at a loss in 2016 and for several years thereafter. If the Newark
Joint Venture operates at a loss, we and our partners in the venture may be required to fund the operating losses and capital
requirements by making additional capital contributions. No assurance can be given that we or our venture partners will have
the resources or be willing to make such contribution and the failure to make the required contribution may have an adverse
impact on us.
If we are unable to pay debt service as it becomes due, we may be forced to sell properties at disadvantageous terms or
relinquish our rights to such properties, which would result in the loss of revenues and in a decline in the value of our real
property portfolio.
At September 30, 2015, approximately $9.4 million of debt service relating to the Newark Joint Venture is payable prior
to the end of 2016 and $17.4 million of debt service is payable from 2017 through 2018. The cash flow from the properties
securing the mortgage debt may be insufficient to meet required debt service payments. In particular, the rental revenues from
the current tenants at Teachers Village are insufficient to cover all of the Newark Joint Ventures debt service obligations from
2016 through 2018. If efforts to generate additional rental revenues from the Teachers Village site are unsuccessful (due to,
among other things, the failure to complete the buildings under construction or contemplated to be constructed or to fully lease
at satisfactory rates the residential and commercial space at the six buildings contemplated to comprise Teachers Village), the
Newark Joint Venture may be unable to meet its debt service obligation with respect to the Teachers Village properties and such
properties would require additional capital from the members of the venture or may be foreclosed on by the lenders. See
"Management's Discussion and Analysis of Financial Condition and Results of Operations - Disclosure of Contractual
Oblidgations".
The Newark Joint Venture is limited in its ability the Teachers Village facilities for purposes other than as contemplated by
the applicable financing and tax credit transactions.
The terms and conditions of the financings and tax credits provided to the Newark Joint Venture limit the venture's ability
to use the Teachers Village facilities in a manner other than as permitted to be used by the governing transaction documents.
Among other things, the New Markets Tax Credits and related contractual obligations provide that if prior to the seven year
recapture period, the facilities are used in a manner prohibited by such tax credit program, the credits may be disallowed. The
qualified school construction bonds in principal amount of approximately $22.7 million at September 30, 2015 requires that
certain portions of the facilities be used for at least 19 years as public school facilities and the annual $1 million interest
reimbursement provided by the US Treasury is subject to recapture if such facilities are not used for educational purposes for
specified periods. The New Jersey Urban Transit Hub tax credits program requires that certain portions of the facilities must be
used for residential purposes for at least ten years and that at least 20% of the residential units be allocated for lower/middle
income housing. If as a result of market or other conditions, it is determined that the contemplated uses of the facilities are not
financially viable, the Newark Joint Venture will be limited in its ability to use these facilities in an alternative manner which
may adversely impact our financial condition and results of operations.
We have limited experience in developing and operating development sites.
The principal assets of our Newark Joint Venture are several development sites located in downtown Newark, NJ. Since
we have limited experience in real estate development, we are subject to risks that differ from those to which we have been
18
subject to historically. Although the principal of the managing member of the Newark Joint Venture (who is formerly the
principal of our borrowers) is knowledgeable with respect to the local real estate market, he has limited experience in
development projects. There can be no assurance that the Newark Joint Venture will be successful in developing and/or
managing the redevelopment of the sites.
The success of our Newark Joint Venture depends, to a large extent, on the principal of the Newark Joint Venture's
manager.
The principal of the manager of the Newark Joint Venture was responsible for acquiring all the properties owned by the
Newark Joint Venture and is responsible for, among other things, overseeing the construction and leasing activities at Teachers
Village and development activities with respect to Market Street and the other properties owned by the venture. We believe that
the principal's continued involvement is important to the success of the Newark Joint Venture. The diminution or loss of his
services due to disability, death or for any other reasons could have a material adverse effect on the Newark Joint Venture's
business, which would result in a material adverse effect on our business.
The Newark Joint Venture carries key man life insurance on such principal in the amount of $40 million. There can be no
assurance that the proceeds from such life insurance would be sufficient to compensate the Newark Joint Venture for the loss of
his services, and these policies do not provide any benefits if he becomes disabled or is otherwise unable to render services to
the Newark Joint Venture.
The Newark Joint Venture is subject to risks particular to real estate development activities.
The Newark Joint Venture is subject to the risks associated with development activities. These risks include:
•
•
•
•
•
•
•
The inability to complete the Phases II or III of the Teachers Village project because the funds available from the
financing and New Markets Tax Credits transactions, due to cost overruns or under estimating the funds needed, may
be insufficient for such purpose. We estimate that at least approximately $[ ]million to $[ ]million is needed to
complete these phases of this project and we can provide no assurance tat such funds will be obtained. See "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of Operations-Liquidity and Capital
Resources-Newark Joint Venture"
The failure to obtain governmental and other approvals on a timely basis;
Construction, financing and other costs of developing the properties owned by the Newark Joint Venture and in
particular, Teachers Village, may exceed original estimates, possibly making such activities unprofitable;
The time required to complete the construction of Teachers Village or to lease up the completed project may be greater
than originally anticipated, thereby adversely affecting the Newark Joint Venture's liquidity;
Occupancy rates and rents of a completed project may be insufficient to make such project profitable;
The inability to acquire all the properties needed to develop the project to its full potential; and
The inability to complete a development.
Failure of the Newark Joint Venture to comply with the requirements of the New Markets Tax Credit program may result in
significant losses and impair our financial condition.
The Newark Joint Venture entered into various arrangements to obtain funding under the New Markets Tax Credit
program for the Teachers Village project and in connection therewith received approximately $31 million of net tax credit
proceeds. New Markets Tax Credits are subject to recapture for a period of seven years as provided in the Internal Revenue
Code. The Newark Joint Venture is required to comply with various regulations and contractual provisions that apply to the
these credits and has indemnified the beneficiaries thereof for any loss or recapture of the benefits of such credits until the
obligation to deliver tax benefits is relieved. We estimate that such indemnity obligation would not exceed approximately
$33 million (exclusive of interest and penalties) and is subject to reduction to the extent the credits are not disallowed. Non-
compliance with applicable requirements could result in the tax benefits not being realized by the beneficiaries which would
have an adverse effect on our financial position and results of operations.
19
Risks Related to our Industry
Compliance with REIT requirements may hinder our ability to maximize profits.
In order to qualify as a REIT for Federal income tax purposes, we must continually satisfy tests concerning, among other
things, our sources of income, the amounts we distribute to our shareholders and the ownership of securities. We may also be
required to make distributions to shareholders at disadvantageous times or when we do not have funds readily available for
distribution. Accordingly, compliance with REIT requirements may hinder our ability to operate solely on the basis of
maximizing profits.
In order to qualify as a REIT, we must also ensure that at the end of each calendar quarter at least 75% of the value of our
assets consists of cash, cash items, government securities and qualified REIT real estate assets. The remainder of our
investment in securities cannot include more than 10% of the outstanding voting securities of any one issuer or more than 10%
of the total value of the outstanding securities of such issuer. In addition, no more than 5% of the value of our assets can consist
of the securities of any one issuer, other than a qualified REIT security. If we fail to comply with these requirements, we must
dispose of the portion of our assets in excess of such amounts within 30 days after the end of the calendar quarter in order to
avoid losing our REIT status and suffering adverse tax consequences. This requirement could cause us to dispose of assets for
consideration of less than their true value and could lead to a material adverse impact on our results of operations and financial
condition.
Because Real Estate Investments Are Illiquid, We May Not Be Able to Sell Properties As Needed.
Real estate investments generally cannot be sold quickly. We may not be able to reconfigure our portfolio promptly in
response to economic or other conditions. This inability to reallocate our capital promptly could adversely affect our financial
condition and results of operations.
Item 1B. Unresolved Staff Comments.
None.
Item 2. Properties.
Our executive office is located at 60 Cutter Mill Road, Suite 303, Great Neck, New York. This office is located in a
building that through December 31, 2014 was owned by a subsidiary of Gould Investors L.P. We believe that such facilities are
satisfactory for our current and projected needs.
The information set forth under "Item 1—Business" is incorporated herein by this reference to the extent responsive to
the information called for by this item.
Item 3. Legal Proceedings.
None.
Item 4. Mine Safety Disclosures.
Not applicable.
PART II
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities.
Our common shares of beneficial interest, or Common Shares, are listed on the New York Stock Exchange, or the NYSE,
under the symbol "BRT." The following table shows for the periods indicated, the high and low sales prices of the Common
Shares as reported in the consolidated transaction reporting system.
Fiscal Quarters
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Fiscal 2015
Fiscal 2014
High
Low
High
Low
$
$
$
7.50
7.35
7.30
7.19
$
6.91
6.71
6.74
6.76
7.24
7.66
7.57
7.76
6.85
7.01
7.05
7.00
20
On December 1, 2015, the high and low sales prices of our Common Shares was $7.00 and $6.74, respectively.
As of December 1, 2015, there were approximately 917 holders of record of our Common Shares.
We have not paid any cash dividends since 2010. Our tax loss carry forward at December 31, 2014, was approximately
$65.3 million; therefore, we are not currently required by Federal tax code provisions relating to REITs to pay cash dividends to
maintain our status as a REIT.
Stock Performance Graph
This graph compares the performance of our shares with the Standard & Poor's 500 Stock Index, an index consisting of
publicly traded mortgage REITs (i.e., FTSE NAREIT Mortgage REITs) and an index consisting of apartment REITs (i.e., FTSE
NAREIT Equity Apartments). The graph assumes $100 invested on September 30, 2010 and assumes the reinvestment of
dividends.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among BRT Realty Trust, the S&P 500 Index,
the FTSE NAREIT Mortgage REITs Index, and the FTSE NAREIT Equity Apartments Index
$200
$150
$100
$50
$0
9/10
9/11
9/12
9/13
9/14
9/15
BRT Realty Trust
S&P 500
FTSE NAREIT Mortgage REITs
FTSE NAREIT Equity Apartments
_______________________________________________________________________________
*
$100 invested on 9/30/10 in stock or index, including reinvestment of dividends. Fiscal year ending September 30.
9/10
9/11
9/12
9/13
9/14
9/15
BRT Realty Trust
S&P 500
FTSE NAREIT Mortgage REITs
FTSE NAREIT Equity Apartments
$
$
100.00
100.00
100.00
100.00
$
97.34
101.14
103.11
112.73
$
101.72
131.69
137.33
134.00
$
112.21
157.17
125.81
131.64
$
117.37
188.18
141.98
153.74
110.95
187.02
136.79
191.87
Issuer Purchases of Equity Securities
Our Board of Trustees has authorized us to repurchase up to $4 million of our common shares through September 30,
2017. At September 30, 2015, $1.6 million of such authorization remains available.
21
Item 6. Selected Financial Data.
The following table, not covered by the report of the independent registered public accounting firm, sets forth selected
historical financial data for each of the fiscal years indicated. This table should be read in conjunction with the detailed
information and financial statements appearing elsewhere herein.
(Dollars in thousands, except per share amounts)
2015
2014
2013
2012
2011
Operating statement data:
Total revenues(1)
Total expenses(2)
Gain on sale of real estate
Gain on sale of available-for-sale securities
Gain on sale of partnership interest
(Loss) from continuing operations
Income from discontinued operations
Net (loss) income attributable to common shareholders
Earnings (loss) per beneficial share:
(Loss) income from continuing operations
Income from discontinued operations
Basic and diluted (loss) earnings per share
Balance sheet data:
Total assets(3)
Real estate properties, net(4)
Cash and cash equivalents
Restricted cash-construction holdback/multi-family
Available-for-sale securities at fair value
Assets related to discontinued operations
Mortgages payable(5)
Junior subordinated notes
Total BRT Realty Trust shareholders' equity
$ 82,497
99,107
$ 66,414
83,980
$ 32,003
44,951
$ 10,858
17,390
$
15,005
—
—
(1,605)
—
(2,388)
—
—
—
(17,566)
1,400
(9,454)
—
530
5,481
(6,937)
9,026
5,013
—
605
—
(5,927)
7,477
4,430
4,308
7,479
—
1,319
—
(3,990)
8,914
6,374
$
$
(0.17) $
—
(0.76) $
0.10
(0.28) $
0.63
(0.16) $
0.48
0.35
0.10
(0.17) $
(0.66) $
0.35
$
0.32
$
0.45
$ 835,879
733,168
$ 734,620
635,612
$ 549,491
402,896
$ 385,956
190,317
$ 191,012
59,277
15,556
19,795
—
—
566,438
37,400
122,655
23,181
32,390
—
2,017
482,406
37,400
130,140
56,905
32,369
—
30,589
313,216
37,400
138,791
78,245
55,252
1,249
37,057
169,284
37,400
133,449
44,025
—
2,766
67,333
14,417
37,400
129,063
_______________________________________________________________________________
(1) The increases from 2012 through 2015 are due primarily to the operations of our multi-family properties.
(2) The increases from 2012 through 2015 are due primarily to increased expenses (i.e., operating expense, interest
expense and depreciation and amortization) related to our multi-family property activities. The increase in 2012 from
2011 is a result of, among other things, expenses associated with our multi-family property activities and interest
expense associated with Phases I and II of the Newark Joint Venture financings.
(3) The increases from 2012 through 2014 are due to our multi-family property acquisitions and the increase in 2012 from
2011 is due primarily to such acquisitions and the proceeds from the Newark Joint Venture financings and New
Markets Tax Credits transactions.
(4) The increases from 2012 through 2015 are due to our multi-family property acquisitions.
(5) Approximately $154.6 million of the increase from 2013 to 2014 and approximately $141.9 million of the increase
from 2012 to 2013 is due to the mortgage debt incurred in the multi-family property acquisitions. Of the increase from
2011 to 2012, approximately $89.7 million and $72.8 million is due to the multi-family mortgage debt and the Newark
Joint Venture's financing transactions, respectively.
22
Funds from Operations; Adjusted Funds from Operations.
In view of our multi- family property activities, we disclose below funds from operations ("FFO") and adjusted funds
from operations ("AFFO") because we believe that such metrics are a widely recognized and appropriate measure of the
performance of an equity REIT.
We compute FFO in accordance with the "White Paper on Funds From Operations" issued by the National Association of
Real Estate Investment Trusts ("NAREIT") and NAREIT's related guidance. FFO is defined in the White Paper as net income
(loss) (computed in accordance with generally accepted accounting principles), excluding gains (or losses) from sales of
property, plus depreciation and amortization, plus impairment write-downs of depreciable real estate and after adjustments for
unconsolidated partnerships and joint ventures. Adjustments for unconsolidated partnerships and joint ventures will be
calculated to reflect funds from operations on the same basis. In computing FFO, we do not add back to net income the
amortization of costs in connection with our financing activities or depreciation of non-real estate assets. Since the NAREIT
White Paper only provides guidelines for computing FFO, the computation of FFO may vary from one REIT to another. We
compute AFFO by adjusting FFO for our straight-line rent accruals, restricted stock expense and deferred mortgage costs
(including our share of our unconsolidated joint ventures).
We believe that FFO and AFFO are useful and standard supplemental measures of the operating performance for equity
REITs and are used frequently by securities analysts, investors and other interested parties in evaluating equity REITs, many of
which present FFO and AFFO when reporting their operating results. FFO and AFFO are intended to exclude GAAP historical
cost depreciation and amortization of real estate assets, which assures that the value of real estate assets diminish predictability
over time. In fact, real estate values have historically risen and fallen with market conditions. As a result, we believe that FFO
and AFFO provide a performance measure that, when compared year over year, should reflect the impact to operations from
trends in occupancy rates, rental rates, operating costs, interest costs and other matters without the inclusion of depreciation and
amortization, providing a perspective that may not be necessarily apparent from net income. We also consider FFO and AFFO
to be useful to us in evaluating potential property acquisitions.
FFO and AFFO do not represent net income or cash flows from operations as defined by GAAP. FFO and AFFO should
not be considered to be an alternative to net income as a reliable measure of our operating performance; nor should FFO and
AFFO be considered an alternative to cash flows from operating, investing or financing activities (as defined by GAAP) as
measures of liquidity.
FFO and AFFO do not measure whether cash flow is sufficient to fund all of our cash needs, including principal
amortization and capital improvements. FFO and AFFO do not represent cash flows from operating, investing or financing
activities as defined by GAAP.
Management recognizes that there are limitations in the use of FFO and AFFO. In evaluating our performance,
management is careful to examine GAAP measures such as net income (loss) and cash flows from operating, investing and
financing activities. Management also reviews the reconciliation of net income (loss) to FFO and AFFO.
23
The table below provides a reconciliation of net income (loss) determined in accordance with GAAP to FFO and AFFO
for each of the indicated years (amounts in thousands):
2015
2014
2013
2012
2011
Net (loss) income attributable to common shareholders
Add: depreciation of properties
Add: our share of depreciation in unconsolidated joint ventures
Add: impairment charges
Add: amortization of deferred leasing costs
Deduct: gain on sales of real estate
Adjustment for non-controlling interest
Funds from operations
Adjust for: straight-line rent accruals
Add: restricted stock expense
Add: amortization of deferred mortgage costs
Adjustment for non-controlling interest
Adjusted funds from operations
$ (2,388) $ (9,454) $ 5,013
7,076
20,681
15,562
20
—
71
(15,005)
221
3,600
(411)
906
20
—
34
—
62
64
— (6,250)
(1,549)
4,388
(263)
691
(4,012)
2,178
(542)
805
$ 4,430
1,992
$ 6,374
705
270
—
59
(792)
(600)
5,359
(23)
757
39
—
48
(1,346)
(335)
5,485
(78)
847
2,242
(703)
$ 5,634
1,825
(424)
$ 3,842
1,371
(463)
$ 5,724
580
(247)
$ 6,426
161
(35)
$ 6,380
The table below provides a reconciliation of net income (loss) per common share (on a diluted basis) determined in
accordance with GAAP to FFO and AFFO.
Net (loss) income attributable to common shareholders
Add: depreciation of properties
Add: our share of depreciation in unconsolidated joint ventures
Add: impairment charge
Add: amortization of deferred leasing costs
Deduct: gain on sales of real estate
Adjustment for non-controlling interest
Funds from operations
Adjustment for: straight-line rent accruals
Add: restricted stock expense
Add: amortization of deferred mortgage costs
Adjustment for non-controlling interest
Adjusted funds from operations
2015
2014
2013
2012
2011
$ (0.17) $ (0.66) $
1.46
1.10
—
—
—
(1.07)
0.02
0.24
(0.04)
0.07
0.16
(0.07)
0.36
$
—
—
—
—
(0.28)
0.16
(0.04)
0.06
0.13
(0.03)
0.28
$
$
0.35
0.51
—
—
—
(0.44)
(0.11)
0.31
(0.02)
0.05
0.1
(0.03)
0.40
$
$
0.32
0.14
0.02
—
—
(0.06)
(0.04)
0.38
—
0.05
0.04
(0.04)
0.44
$
$
0.45
0.05
—
—
—
(0.1)
(0.02)
0.38
(0.01)
0.06
0.01
(0.02)
0.42
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Overview
We are a REIT that during the past three years engaged in three principal business activities: the ownership, operation and
development of multi-family properties; the ownership, operation and development of commercial and mixed use real estate
assets; and real estate lending. During this period, we commenced and accelerated our multi-family property activities and de-
emphasized and ultimately exited our real estate lending activities. As of November 1, 2014, we were no longer engaged in real
estate lending and the financial information (including our consolidated financial statements) included herein reclassifies, for
all periods presented, our real estate lending activities as discontinued operations. See note 1 to our consolidated financial
statements.
24
Our multi-family activities derive revenue primarily from tenant rental payments. Generally, these activities involve our
investment of 80% of the equity in a joint venture that acquires a multi-family property, with the balance of the equity
contributed by our joint venture partner. We commenced these activities in 2012 and as of September 30, 2015, 2014, 2013 and
2012, we owned 28, 27, 14 and five multi-family properties, respectively, with 8,300, 7,609, 3,786 and 1,452 units,
respectively. Since October 1, 2015, we acquired two multi-family properties with an aggregate of 507 units (including a
development project which contemplates the construction of 271 units). At December 1, 2015, we own 30 multi-family
properties with an aggregate of 8,807 units-four of these properties are wholly owned.
Our ownership, operation and development of commercial, mixed use and other real estate assets is comprised principally
of the activities of the Newark Joint Venture and to a lesser extent, the ownership and operations of various real estate assets
located in New York and Florida. The Newark Joint Venture is engaged in the development of properties in downtown Newark,
NJ. The properties are being developed for educational, commercial, retail and residential uses. Currently, the Newark Joint
Venture is developing a project known as "Teachers Village"—the project currently involves six buildings:
•
•
•
two buildings were completed in the summer of 2013 (i.e., Phase I of the project) and are currently tenanted by three
charter schools and a day care center that occupy 78% of the available space ;
three buildings—one completed in September 2014, one completed in December 2014 and one anticipated to be fully
completed by February 2016 — when the third building is completed, these buildings will provide approximately
29,140 square feet of retail space and 123 residential units (i.e., Phase II of the project); and
one building, with 10,074 square feet of retail space and 81 residential units, expected to be completed by July 2016
(i.e., Phase III of the project).
The venture, which contemplates developing certain of its other properties located in Newark (e.g., Market Street and
some of the other land parcels at Teachers Village), generates negative cash flow and anticipates that it will continue to generate
negative cash flow at least until the fifth and sixth buildings currently contemplated by the Teacher's Village project are
completed and significant occupancy levels achieved. The venture estimates that it requires approximately $7 million to $10
million to cover cost overruns and the build out of retail space at the Phase II buildings. We can provide no assurance that
sufficient funding will be available for the foregoing purposes or for any additional development activities (including
development activities relating to the Market Street and other properties) and even if sufficient funding is obtained, that such
activities will be profitable to us. See " -Other Developments" for information, among other things, regarding the possible sale
by BRT of its equity interests in the Newark Joint Venture.
Our real estate lending activities involved originating and holding for investment short-term senior mortgage loans
secured by commercial and multi-family real estate properties. Revenue was generated from interest income (i.e, the interest
borrowers paid on our loans) and to a lesser extent, loan fee income generated on the origination and extension of loans, and
investment income from securities transactions. These activities decreased during the two years ended September 30, 2014 due
to, among other things, increased competition, and as of November 1, 2014, we were no longer engaged in real estate lending.
Accordingly, these activities are presented as discontinued operations.
Highlights of 2015
The following summarizes certain of our activities in 2015 and our financial condition at year-end:
we acquired four multi-family properties with an aggregate of 1,506 units for an aggregate purchase price of $129.4
million, including aggregate mortgage debt of $74.1 million and $35 million of our equity;
we increased our ownership interest in joint ventures that own (i) Pathways and Stonecrossing Apartments from 80%
to 91% by purchasing a partner's interest for $2 million; (ii)Avondale Station from 80% to 100% by purchasing a
partner's interest for $ 1.9 million; and (iii) Silvana Oaks Apartments from 90% to 100% by purchasing a partner's
interest for $790,000.
we sold three multi-family properties, which we refer to as the Properties Sold, with an aggregate of 1,175 units, for an
aggregate sales price of $67.1 million and an aggregate gain of $14.3 million- $5.1 million of this gain was allocated
to our joint venture partners;
we obtained $12.9 million in supplemental mortgage debt on three multi-family properties;
•
•
•
•
25
•
•
the Newark Joint Venture completed the second building and completed approximately 50% of the third building
contemplated by Phase II, began construction on the building contemplated by Phase III and leased 91 residential units
representing all currently available units; and
we have cash and cash equivalents of approximately $15.6 million and approximately $10.7 million, at September 30,
2015 and December 1, 2015, respectively.
Other Developments
BRT is negotiating the sale of all or substantially all of its equity interest in the Newark Joint Venture, which we refer
to as the Equity Sale, and anticipates that it will recognize a gain if this transaction is consummated. In addition, the Newark
Joint Venture is discussing with an institutional lender a possible repayment, which we refer to as the Repayment Transaction,
of the $19.5 million in principal amount of secured mortgage debt owed to BRT eliminated in consolidation. If the Equity Sale
is consummated, BRT will no longer be engaged in funding the capital resource and liquidity requirements of the Newark Joint
Venture. Further, in the first full quarter immediately following such sale, BRT's consolidated financial statements will de-
consolidate the assets, liabilities and operations of the Newark Joint Venture and the $19.5 million secured mortgage debt
currently eliminated in consolidation will be reflected, until the consummation of the Repayment Transaction, on our
consolidated balance sheet as a mortgage receivable.We can provide no assurance that the Equity Sale or Repayment
Transaction will be consummated or if consummated, that such transactions will be consummated on terms favorable to BRT.
Subsequent to September 30, 2015, we acquired two multi-family properties with an aggregate of 507 units (including
a development project that contemplates constructing 271 units) for $26.4 million, including mortgage debt of $16.1 million.
We estimate that in 2016, the rental revenue from the operating property will be approximately $2.1 million and the operating
expenses, interest expense and depreciation will aggregate approximately $2.1 million.
Gould Investors, a related party, has indicated that to facilitate our multi-family acquisitions, it would, through March
31, 2016, lend BRT up to $10 million on an unsecured basis, such loan to (i) mature on the earlier, and to the extent, of (a) six
months from the date of funding and (b) the receipt of proceeds from the Equity Sale and/or the Repayment Transaction and (ii)
bear interest at a rate of three month LIBOR plus 475 basis points. We refer to this loan as the Gould Loan. On December 11,
2015, BRT borrowed $8 million from Gould Investors.
Years Ended September 30, 2015 and 2014
Revenues
The following table compares our revenues for the years indicated:
(Dollars in thousands):
Rental and other revenue from real estate properties
Other income
Total revenues
2015
2014
Increase
(Decrease)
% Change
$
$
81,358
1,139
82,497
$
$
65,254
1,160
66,414
$
$
16,104
(21)
16,083
24.7 %
(1.8)%
24.2 %
Rental and other revenue from real estate properties. The components of the increase are: (i) $11.6 million due
primarily to the inclusion, for a full year, of 12 properties that were acquired in 2014 and, to a lesser extent, improved rental
rates at several of these properties; (ii) $3.6 million from four multi-family properties acquired in 2015; (iii) $822,000 primarily
from residential tenants that took possession of rental units at Teachers Village following completion of construction of two
Phase II buildings in September and December 2014; and (iv) $2.1 million primarily due to rental rate increases at multi-family
properties acquired prior to 2014, and in particular, demand driven rental rate increases at The Fountains Apartments and
Mountain Park Estates, which account for approximately $1.1 million of the increase. Included in 2015 and 2014 are revenues
of $6.8 million and $8.9 million from the Properties Sold.
26
Expenses
The following table compares our expenses for the periods indicated:
(Dollars in thousands)
Real estate operating expenses—including $1,233,$1,120 and $426
to related parties
Interest expense
Advisor's fees, related party
Property acquisition costs—including $1,293,$1,677 and $1,382 to
related parties
General and administrative
Depreciation
Total expenses
2015
2014
Increase
(Decrease)
% Change
$
43,219
$
37,067
$
24,177
2,448
1,885
6,683
20,695
20,670
1,801
2,542
6,324
15,576
6,152
3,507
647
(657)
359
5,119
$
99,107
$
83,980
$
15,127
16.6 %
17.0 %
35.9 %
(25.8)%
5.7 %
32.9 %
18.0 %
Operating expenses related to real estate properties. The components of the increase are: (i) $5.4 million, due to the
inclusion, for a full year, of the operations at 12 multifamily properties acquired in 2014; (ii) $1.5 million from the operations at
four multi-family properties acquired in 2015; and (iii) $526,000 from operating expenses at the Newark Joint Venture, which
includes a $233,000 increase in management fees. The management fee increased because the fee paid in 2014 was only paid
for a portion of such year. The other operating expenses at the venture increased primarily due to the commencement of
operations at the two Phase II buildings completed in September and December 2014. Included in 2015 and 2014 are operating
expenses of $4.4 million and $5.4 million from the Properties Sold.
Interest expense. The components of the increase are: (i) $2.2 million, due to the inclusion, for a full year, of the
mortgage debt incurred in connection with the 12 multifamily properties acquired in 2014; (ii) $910,000, due to the mortgage
debt incurred in connection with the four multifamily properties acquired in 2015; (iii) $257,000 from supplemental financing
obtained in 2015 at three properties; and (iv) $ 614,000 from the inclusion of a full year of interest expense associated with the
Newark Joint Venture's September 2014 financing. Included in 2015 and 2014 is interest expense of $1.6 million and $2.1
million respectively, attributable to the mortgage debt of the Properties Sold. Capitalized interest was $2.6 million and $1.3
million in 2015 and 2014, respectively. The increase in capitalized interest is due to construction activities related to Phases II
and III. Our junior subordinated notes in principal amount of $37.4 million bear interest at a fixed rate of 4.9% per annum and
beginning April 2016, bear interest at a rate equal to three month LIBOR plus 200 basis points. Assuming that interest rates
from April 2016 through the balance of the year are the same as in effect as of September 30, 2015, we estimate that the interest
expense associated with such notes will decrease in 2016 by approximately $400,000 .
Advisor's fee, related party. The fee, calculated based on invested assets, increased primarily due to the inclusion, for a
full year, of the multi-family properties acquired in 2014. Approximately $214,000 of the fees paid to the advisor in 2014 is
recorded in discontinued operations.The Advisory Agreement terminates December 31, 2015 and we anticipate realizing net
savings of approximately $1 million in 2016 from such termination. See "Business-Our Structure."
Property acquisition costs.
2015 and 13 properties in 2014.
The change is due to decreased acquisition activity in 2015. We acquired four properties in
General and administrative expense. The increase is due primarily to the inclusion of $357,000 of expenses, which in
2014, had been included in discontinued operations. These continuing expenses, which had been borne by our loan and
investment segment, were borne in 2015 by our multi-family and other real estate assets segments. There were also increases in
professional fees of $138,000 primarily related to the buyout of our partners' interests in several joint ventures and a $100,000
increase in restricted stock expense due to the (i) higher stock price associated with the restricted stock awards granted in the
past several years in comparison to the awards granted in 2010 that vested in 2015 and (ii) to a lesser extent, the increase in the
number of such awards granted over the past several years. These increases were offset by a $138,000 reduction in state
franchise tax expense resulting from a refund of prior years' taxes. General and administrative expense is allocated between our
two segments in 2015 and 2014 in proportion to the estimated time spent by our full time personnel on such segments.
Depreciation. The components of the increase are: (i) $1.9 million due to the inclusion, for the full year, of 12 multi-
family properties acquired in 2014; (ii) $1.0 million from the four multi-family properties acquired in 2015; (iii) $1.4 million
reflecting the net effect of purchase price allocation adjustments; and (iv) $611,000 due to the commencement of depreciation
with respect to the two Phase II buildings completed in September and December 2014. Included in 2015 and 2014 is
depreciation of $1.2 million and $1.1 million, respectively, related to the Properties Sold.
27
Other revenue and expense items
Gain on sale of property. In 2015, we recognized an aggregate gain of $14.4 million from the Properties Sold. We also
sold certain other residential properties, which are included in our other real estate asset segment, for an aggregate gain of
$723,000. There were no corresponding gains in 2014.
Discontinued Operations
Discontinued operations reflects our real estate lending activities which ceased in October 2014. There is no income
from discontinued operations in 2015, compared to $1.4 million of income from discontinued operations in 2014. The decrease
is due to the termination of our real estate lending activities.
Net Income/Loss Attributable to Non-controlling Interests
The following table compares our net income/loss attributable to Non-controlling Interests for the reported periods by our
reportable segments:
(Dollars in Thousands)
Multi- family
Other
Total
2015
2014
Increase/
(decrease)
$
$
(4,878)
4,095
(783)
$
$
759
5,953
6,712
$
$
(5,637)
(1,858)
(7,495)
The change with respect to our multi-family activities primarily reflects the allocation to our joint venture partners of
approximately $5.2 million, representing their share of the gain on the sale of three multi-family properties in 2015. The change
with respect to our other real estate segment reflects primarily the allocation in 2014 to our partner in the Newark Joint Venture
of such partner's share of certain interest expense. This expense related to a one time payment of deferred interest to BRT on
debt eliminated in consolidation.
Years Ended September 30, 2014 and 2013
Revenues
The following table compares our revenues for the years indicated:
(Dollars in thousands):
Rental and other revenue from real estate properties
Other income
Total revenues
2014
2013
Increase
(Decrease)
$
$
65,254
1,160
66,414
30,592
1,411
32,003
$
$
34,662
(251)
34,590
% Change
113.30 %
(17.79)%
108.08 %
Rental and other revenue from real estate properties. The components of the increase are: (i) approximately
$20.6 million from 13 multi-family properties acquired in 2014; (ii) approximately $11.6 million due to the inclusion, for a full
year, of nine properties that were owned for a portion of 2013; (iii) approximately $1.6 million primarily due to inclusion for a
full year of rental income from commercial tenants at Teachers Village; and (iv) $925,000 primarily due to rental rate increases
at multi-family properties acquired prior to 2013.
28
Expenses
The following table compares our expenses for the periods indicated:
(Dollars in thousands)
2014
2013
Increase
(Decrease)
% Change
Operating expenses related to real estate properties
$
37,067
$
16,409
$
20,658
Interest expense
Advisor's fee, related party
Property acquisition costs
General and administrative
Depreciation
Total expenses
20,670
11,978
8,692
1,801
2,542
6,324
15,576
971
2,637
5,862
7,094
830
(95)
462
8,482
$
83,980
$
44,951
$
39,029
125.9 %
72.6 %
85.5 %
(3.6)%
7.9 %
119.6 %
86.8 %
Operating expenses related to real estate properties. The increase is due to (i) operating expenses of $10.7 million from
13 multi-family properties acquired in 2014, (ii) $6.8 million to the inclusion, for a full year, of operating expenses from nine
multi-family properties acquired in 2013, and (iii) $1.9 million to an increase in operating expenses at the Newark Joint
Venture. Approximately $1.1 million of the increase at the Newark Joint Venture is due to the commencement of operations at
the two buildings completed in September 2013 and $801,000 is due to the resumption of regular management fees in 2014,
after a one-time reduction in 2013.
Interest expense. The components of the increase are as follows: (i) $7.8 million is due to mortgage interest expense on
our multi-family properties (of which $4.7 million is due to mortgages on the 13 multi-family properties acquired in 2014 and
$3.1 million to the inclusion, for a full year, of the expense associated with nine multi- family properties acquired in 2013); and
(ii) $645,000 due to the decrease in capitalized interest as a result of the completion of the Phase I buildings in September 2013.
Advisor's fee, related party. The fee, calculated based on invested assets, increased primarily due to the purchase of
multi-family properties in 2014 and 2013. Approximately $215,000 and $831,000 of the fees paid to the advisor is recorded in
discontinued operations for 2014 and 2013, respectively.
General and administrative expense. The increase is due primarily to increased time spent by our full-time personnel on
multi-family properties activities and the recording, particularly for 2013, of the expense related to our real estate lending
activities in discontinued operations.
Depreciation. The components of the increase are as follows: (i) $3.2 million is due to the 13 multi-family properties
acquired in 2014, (ii) $4.4 million is due to the inclusion, for a full year, of nine multi-family properties acquired in 2013 and
(iii) $781,000 is due to the commencement of depreciation with respect to the two Phase I buildings at Teachers Village
completed in August/September 2013.
Other revenue and expense items
The following table compares other revenue and expense items for the years indicated:
Equity in earnings of unconsolidated joint ventures. The decrease is primarily due to the inclusion in 2013 of the equity
in earnings of a joint venture. We sold substantially all of our interest in this joint venture in 2013.
Gain on sale of available-for-sale securities. The decrease is due to the inclusion in the prior year of gains from the sales
of securities. There were no sales in 2014.
Gain on sale of partnership interest. In July 2013, we sold substantially all of our interest in a joint venture that owns a
leasehold interest in a property in Manhattan, NY, and recognized a gain of $5.5 million. There was no corresponding gain in
2014.
Discontinued Operations
Discontinued operations primarily reflects our real estate lending activities. Discontinued operations were $1.4 million in
2014 compared to approximately $9 million in 2013. The decrease is primarily due to significantly decreased real estate lending
activities.
29
Disclosure of Contractual Obligations
The following table sets forth as of September 30, 2015 our known contractual obligations:
(Dollars in thousands)
Long-Term Debt Obligations(1)
Capital Lease Obligations
Operating Lease Obligation
Purchase Obligations(2)(3)(4)
Other Long-Term Liabilities Reflected on the Trust's Balance Sheet
Under GAAP
Total
Payment due by Period
Less than
1 Year
$ 34,069
—
202
4,545
1 - 3
Years
3 - 5
Years
$ 71,218
—
$ 256,780
—
More than
5 Years
$ 458,331
—
261
8,372
116
8,372
232
—
Total
$820,398
—
811
21,289
—
$ 38,816
—
$ 79,851
—
$ 265,268
—
$ 458,563
—
$842,498
_______________________________________________________________________________
(1) Includes payments of principal (including amortization payments) and interest. Assumes that the: (i) qualified school
construction bonds ($22.7 million as of September 30, 2015) issued in connection with the Newark Joint Venture
financing transactions will be refinanced in 2018 at an effective interest rate of 0.51% per annum, which is the rate
currently in effect; and (ii) interest rate on the junior subordinated notes after April 30, 2016 will be 2.20% per annum.
(2) Assumes that $107,000 will be paid annually for the next five years pursuant to the shared services agreement (i.e., the
same amount paid in 2015 pursuant to this agreement), and $1.15 million will be paid annually through September 30,
2020, to personnel performing the services previously performed pursuant to the Advisory Agreement. See "Business
—Our Structure."
(3) Assumes that approximately $2.9 million of property management fees will be paid annually to the managers of our
multi-family properties. Such sum reflects the amount we anticipate paying in 2016 on the 30 multi-family properties
we own at December 1, 2015. These fees are typically charged based on a percentage of rental revenues from a
property. No amount has been reflected as payable pursuant thereto after five years as such amount is not
determinable.
(4) Excludes the purchase obligations of the Newark Joint Venture relating to the construction and related costs of
completing Phases II and III of the Teachers Village project. It is anticipated that such costs will be covered by the
application of the $13.3 million reflected on our consolidated balance sheet as restricted cash—Newark. See also "—
Liquidity and Capital Resources—Newark Joint Venture."
The following table sets forth as of September 30, 2015 information regarding the components of our long-term debt
obligations:
(Dollars in thousands)
Multi-family properties
Newark Joint Venture
Junior subordinated notes
Other
Total
Liquidity and Capital Resources
Payment due by Period
Less than
1 Year
$ 24,135
8,329
1,412
193
$ 34,069
1 - 3
Years
$ 51,598
17,589
1,645
386
$ 71,218
3 - 5
Years
$ 212,039
42,710
1,645
386
$ 256,780
More than
5 Years
$ 310,155
96,806
50,222
1,148
$ 458,331
Total
$ 597,927
165,434
54,924
2,113
$ 820,398
We require funds to acquire properties (including investments in joint ventures that acquire properties), repay borrowings
and pay operating expenses. In 2015, our primary sources of capital and liquidity were the operations of our multi-family
properties (including distributions from the joint ventures that own such properties), our available cash (including restricted
cash), mortgage debt financing (an aggregate of $144.0 million, of which $91.3 million was used to acquire four multi-family
30
properties) and $20.7 million of our share of the distributions from the sales of three multi-family properties. Our available cash
(including restricted cash) at September 30, 2015 and December 1, 2015, is approximately $35.4 million and $29.7 million,
respectively.
BRT's primary sources of liquidity and capital resources for 2016 are available cash and funds from multi-family
property operations. Other potential liquidity and capital resources for 2016 include the Gould Loan, Equity Sale, Repayment
Transaction and the sale of multi-family properties(e.g., Grove at Trinity Pointe). The Newark Joint Venture anticipates that its
general operating requirements will be funded from operations and to the extent of any shortfall, capital contributions from the
members of the venture, and that its capital expenditure requirements (including retail build out, cost overruns and Phase III
construction) will be funded as described under "-Newark Joint Venture-Capital Expenditures" and by borrowings from the
EB-5 Immigrant Investor Program, which we refer to as the EB-5 Program. Approximately $6 million was borrowed pursuant
to the EB-5 Program subsequent to September 30, 2015. Such borrowings generally mature in five years and bear interest at a
rate of 4% per annum.
We believe that available cash and distributions from multi family properties will provide us with sufficient funds to
meet our operating expenses in 2016 and 2017 and to fund any capital contributions required by the general operations of
Newark Joint Venture. Our ability to acquire additional multi-family properties is limited by our available cash, mortgage debt,
funds from the Gould Loan and, if such transactions are consummated, as to which we can provide no assurance, funds from
the Equity Sale, Repayment Transaction and multifamily property sales. We believe, though there is uncertainty, that the
Newark Joint Venture has sufficient access to capital resources, as described under "-Newark Joint Venture", to complete Phase
III and address the cost overruns and retail build out associated with Phase II.
Multi-Family Properties
We anticipate that the operating expenses will be funded from cash generated from the operations of these properties and
that the $49.6 million of debt service (including $12.9 million of principal payments) payable from 2016 through 2017 will be
funded from the cash generated from operations of these properties and supplemental financings. The mortgage debt with
respect to these properties generally is non-recourse to us and our subsidiary holding our interest in the applicable joint venture.
At September 30, 2015, approximately $6.5 million of restricted cash is available to fund improvements to these properties.
We anticipate that the construction and other costs associated with the Greenville and N. Charleston, SC development
projects will be funded by capital previously contributed by our joint venture partner and us and in-place construction financing
of up to $39.4 million.
Newark Joint Venture
The Newark Joint Venture's capital resource and liquidity requirements through September 30, 2017 are primarily
operating expenses in excess of rental income, debt service associated with the Teachers Village project and construction and
other costs related to this project.
Operating Expenses
The Newark Joint Venture anticipates that the debt service (including principal and sinking fund payments) and operating
expenses of approximately $19 million to $21 million payable through September 2017 for the Teachers Village project will be
funded by an aggregate of approximately (i) $10.7 million from an interest reserve, tax credit proceeds and the US Treasury
interest subsidy on the qualified school construction bonds (collectively the "Reserve"), and (ii) $7.5 million from the
operations of the currently completed buildings. The Newark Joint Venture believes that this approximate $800,000 to $2.8
million shortfall can be funded through leasing of substantially all of the residential units and at least 70% of the vacant (and/or
to be built) commercial space units at the Phase II and III buildings-however, there is uncertainty as to whether this leasing
activity can be completed on a timely basis, due , among other things, to the need, as described below, to obtain additional
capital resources to fund change orders and the build out of retail space at the Phase II buildings, the timing of the receipt of
such additional capital resources, the ability to complete the build out of the retail space and obtain tenants for the Phase II
buildings on a timely basis, the ability of retail tenants to obtain third party financing to complete on a timely basis tenant work
at the Phase II buildings and the ability to complete and lease the Phase III building on a timely basis. Additional financing
from third parties and/or capital contributions from the members of the Newark Joint Venture (of which we are a 50.1%
member), may be required if the Reserve, and funds generated from operations are insufficient to satisfy debt service and
operating expenses. No assurance can be given that sufficient funds will be generated, provided or contributed to fund the debt
service and operating expenses of the project.
31
Capital Expenditures
The Newark Joint Venture estimates that it will require approximately $24 million to $28 million to complete the
Teachers Village project (i.e., the cost overruns and retail build out required with respect to Phase II and the costs associated
with Phase III). It is anticipated that these capital expenditures will be funded in part by the (i) $13.3 million restricted cash-
construction holdback reflected on our consolidated balance sheet, (ii) an aggregate of approximately $8.0 million from tax
credit proceeds and committed but unfunded loans (which are not reflected on our consolidated balance sheet), and (iii)
proceeds from the EB-5 Immigrant Investor Program. The venture expects that the foregoing sums will be released or funded,
as the case may be, from time to time upon satisfaction of specified conditions (including budgeting, construction and
permitting related conditions). The estimated additional $2.7 million to $6.7 million required over approximately the next nine
months to complete this project will require additional equity investments and/or debt financing from third parties or the
members of the Newark Joint Venture. Although discussions have taken place with lenders and members of the venture with
respect to the additional funds required, there have been no commitments by any such party to provide the funding. Failure to
obtain such funds and complete the project will have a material adverse effect on the Newark Joint Venture and BRT.
Statements of Cash Flows
As of September 30, 2015 and 2014, we had cash and cash equivalents of $ 15.6 million and $23.2 million, respectively.
Our cash and cash equivalents were generated from the following activities (dollars in thousands):
Cash flow from operating activities
Cash flow from investing activities
Cash flow from financing activities
Net decrease in cash and cash equivalents
Cash and cash equivalents a beginning of year
Cash and cash equivalents at end of year
2015 compared to 2014
For the Years ended September 30,
2015
2014
2013
$
$
8,407
(67,388)
51,356
(7,625)
23,181
$
(4,835)
(219,324)
190,435
(33,724)
56,905
766
(179,444)
157,702
(20,976)
77,881
$
15,556
$
23,181
$
56,905
The increase in cash flow from operating activities in 2015 was primarily due to the inclusion in 2014 of a receivable
from the September 2014 Newark Joint Venture financing and an increase in accounts payable and accrued liabilities.
The decrease in cash flow used in investing activities in 2015 is due to fewer property acquisitions (four purchases in
2015 compared to 13 purchases in 2014) and the decrease in collections from real estate loans due to the termination of real
estate lending activities. The decrease was offset by the proceeds from the Properties Sold.
The decrease in cash flow from financing activities in 2015 is due primarily to reduced mortgage borrowing activity (i.e.,
fewer property acquisitions), and the payoff of mortgages on the Properties Sold.
2014 compared to 2013
The decrease in cash flow in 2014 from operating activities was due to the inclusion in 2014 of a receivable from the
September 2014 Newark Joint Venture financing and a decrease in accounts payable and accrued liabilities.
The increase in cash used in investing activities in 2014 compared to 2013 is due to increased property
acquisitions in 2014 (13 purchases in 2014 compared to nine purchases in 2013), the use of restricted cash-Newark
for Teachers Village construction activities and the increase in capitalized costs associated with the Teachers
Village construction activity. This was offset by a decrease in net loan activity (decreased collections and
originations) resulting from the winding down of our real estate lending activities.
The increase in cash flow from financing activities in 2014 from 2103 is due primarily to increased mortgage borrowing
activity from increased property acquisitions in 2014 and the consummation by the Newark Joint Venture of a financing
transaction in September 2014.
32
Off Balance Sheet Arrangements
Not applicable.
Significant Accounting Estimates and Critical Accounting Policies
Our significant accounting policies are more fully described in Note 1 to our consolidated financial statements. The
preparation of financial statements and related disclosure in conformity with accounting principles generally accepted in the
United States requires management to make certain judgments and estimates that affect the amounts reported in the
consolidated financial statements and accompanying notes. Certain of our accounting policies are particularly important to
understand our financial position and results of operations and require the application of significant judgments and estimates by
our management; as a result they are subject to a degree of uncertainty. These significant accounting policies include the
following:
Principles of Consolidation
We have entered into, and may continue to enter into, various joint venture agreements with unrelated third parties to hold
or develop real estate assets. We must determine for each of these joint ventures whether to consolidate the entity or account for
our investment under the equity or cost basis of accounting. Investments acquired or created are continually evaluated based on
the accounting guidance relating to variable interest entities ("VIEs"), which requires the consolidation of VIEs in which we are
considered to be the primary beneficiary. If the investment is determined not to be a VIE, then the investment is evaluated for
consolidation (primarily using a voting interest model) under the remaining consolidation guidance relating to real estate
entities. If we are the manager of a limited liability company, we also consider the consolidation guidance relating to the rights
of non-managing members to assess whether any rights held by such members overcome the presumption of control by us. We
evaluate our accounting for investments on a quarterly basis or when a reconsideration event (as defined in GAAP) with respect
to our investments occurs. The analysis required to identify VIEs and primary beneficiaries is complex and requires substantial
management judgment.
Carrying Value of Real Estate Portfolio
We conduct a quarterly review of each real estate asset owned by us and our joint ventures. This review is conducted in
order to determine if indicators of impairment are present on the real estate.
In reviewing the value of the real estate assets owned, whether by us or our joint ventures, if there is an indicator of
impairment, we seek to arrive at the fair value of each real estate asset by using one or more valuation techniques, such as
comparable sales, discounted cash flow analysis or replacement cost analysis. Our real estate assets and our joint ventures' real
estate assets are evaluated for indicators of impairment. If the analysis suggests that the undiscounted cash flows to be
generated by the property will be insufficient to recover the investment made by us or any joint venture, as the case may be, an
impairment provision will be calculated based upon the excess of the carrying amount of the property over its fair value using a
discounted cash flow model. Real estate assets are valued at the lower of the recorded cost or estimated fair value. Any
impairment taken with respect to our real estate assets reduces our net income, assets and shareholders' equity to the extent of
the amount of the allowance, but it will not affect our cash flow until such time as the property is sold. No such charges were
taken in the past three years.
Revenue Recognition
Rental revenue from residential properties is recorded when due from residents and is recognized monthly as it is earned.
Rental payments are due in advance. Leases on residential properties are generally for terms that do not exceed one year.
Rental revenue from commercial properties, including the base rent that each tenant is required to pay in accordance with
the terms of their respective leases, net of any rent concessions and lease incentives, is reported on a straight-line basis over the
non-cancellable term of the lease.
Purchase Price Allocations
We allocate the purchase price of properties to net tangible and identified intangible assets acquired based on their fair
values. In making estimates of fair values for purposes of allocating purchase price, we use a number of sources, including
independent appraisals that may be obtained in connection with the acquisition or financing of the respective property, our own
analysis of recently acquired and existing comparable properties in our portfolio and other market data. We also consider
information obtained about each property as a result of its pre-acquisition due diligence, marketing and leasing activities in
estimating the fair value of the tangible and intangible assets acquired.
33
Cash Distribution Policy
We have elected to be taxed as a REIT under the Internal Revenue Code of 1986, as amended, since our organization. To
qualify as a REIT, we must meet a number of organizational and operational requirements, including a requirement that we
distribute currently (within the time frames prescribed by the Code and the applicable regulations) to our shareholders at least
90% of our adjusted ordinary taxable income. It is the current intention of our management to maintain our REIT status. As a
REIT, we generally will not be subject to corporate Federal income tax on taxable income we distribute currently in accordance
with the Code and applicable regulations to shareholders. If we fail to qualify as a REIT in any taxable year, we will be subject
to Federal income taxes at regular corporate rates and may not be able to qualify as a REIT for four subsequent tax years. Even
if we qualify for Federal taxation as a REIT, we may be subject to certain state and local taxes on our income and to Federal
income and excise taxes on undistributed taxable income, i.e., taxable income not distributed in the amounts and in the time
frames prescribed by the Code and applicable regulations thereunder.
We have not paid cash dividends since 2010. At December 31, 2014, we had a net operating loss carry-forward of
approximately $65 million. Since we can offset our future taxable income, if any, against our tax loss carry-forward until the
earlier of 2029 or the tax loss carry-forward has been fully used, it is unlikely that we will be required under the Internal
Revenue Code to pay a dividend for the next several years to maintain our REIT status.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Our junior subordinated notes bear interest at a fixed rate of 4.9% per year through April 2016 and thereafter, bear interest
at the rate of three month LIBOR plus 200 basis points.Assuming that interest rates on such debt at the time it becomes floating
is 2.33% per annum (the rate that would be in effect if such interest was determined as of September 30, 2015), a 100 basis
point increase would have a negative effect of $152,000 and a 100 basis point decrease in such floating rate would have a
positive effect of $52,000.
With the exception of four mortgages (one which is subject to an interest rate swap agreement), all of our mortgage debt
is fixed rate. For the variable rate debt, an increase of 100 basis points in the interest rate would have a negative annual effect of
approximately $518,000 and a decrease of 100 basis points in the interest rate would have a $172,000 positive effect on income
before taxes.
As of September 30, 2015, we had one interest rate swap agreement outstanding. The fair value of our interest rate swap
is dependent upon existing market interest rates and swap spreads, which change over time. At September 30, 2015, if there had
been an increase of 100 basis points in forward interest rates, the fair market value of the interest rate swap and net unrealized
loss on derivative instrument would have decreased by approximately $75,000. If there had been a decrease of 100 basis points
in forward interest rates, the fair market value of the interest rate swap and net unrealized loss on derivative instrument would
have increased by approximately $77,000. These changes would not have any material impact on our net income or cash.
Item 8. Financial Statements and Supplementary Data.
The information required by this item appears in a separate section of this Report following Part IV.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
Not applicable.
Item 9A. Controls and Procedures.
A review and evaluation was performed by our management, including our Chief Executive Officer and Chief Financial
Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period
covered by this Annual Report on Form 10-K. Based on that review and evaluation, the CEO and CFO have concluded that our
current disclosure controls and procedures, as designed and implemented, were effective. There have been no changes in our
internal controls that occurred during the three months ended September 30, 2015 that materially affected, or is reasonably
likely to materially affect, our internal controls subsequent to the date of their evaluation. There were no material weaknesses
identified in the course of such review and evaluation and, therefore, we took no corrective measures.
34
Management's Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting.
Internal control over financial reporting is defined in Rules 13a-15(f) and 15d-15(f) promulgated under the Securities Exchange
Act of 1934, as amended, as a process designed by, or
under the supervision of, a company's principal executive and principal financial officers and effected by a company's board,
management and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with GAAP and includes those policies and procedures
that:
•
•
•
pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and
dispositions of the assets of a company;
provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements
in accordance with GAAP, and that receipts and expenditures of a company are being made only in accordance with
authorizations of management and directors of a company; and
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition
of a company's assets that could have a material effect on the financial transactions.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Projections of any evaluation of effectiveness to future periods are subject to the risks that controls may become inadequate
because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.
Our management assessed the effectiveness of our internal control over financial reporting as of September 30, 2015. In
making this assessment, our management used criteria set forth by the Committee of Sponsoring Organizations of the Treadway
Commission in Internal Control—Integrated Framework (2013).
Based on its assessment, our management believes that, as of September 30, 2015, our internal control over financial
reporting was effective based on those criteria.
Our independent auditors, BDO USA, LLP, have issued an audit report on the effectiveness of internal control over
financial reporting. This report appears on page F-1 of this Annual Report on Form 10-K.
Item 9B. Other Information.
For information regarding the Gould Loan, see "Management's Discussion and Analysis of Financial Condition and
Results of Operations-Other Developments".
The Advisory Agreement will terminate effective as of December 31, 2015. See"Business-Our Structure"
35
Item 10. Directors, Executive Officers and Corporate Governance.
PART III
Apart from certain information concerning our executive officers which is set forth below in Part I of this report, the other
information required by Item 10 is incorporated herein by reference to the applicable information to be in the proxy statement
to be filed by January 28, 2016 for our 2016 Annual Meeting of Shareholders.
Executive Officers of Registrant
Set forth below is a list of our executive officers whose terms will expire at our 2016 annual Board of Trustees' meeting.
The business history of officers who are also Trustees will be provided in our proxy statement to be filed not later than
January 28, 2016. References to a particular year for these biographies refer to the calendar year.
Name
Israel Rosenzweig(1)
Jeffrey A. Gould(2)
Mitchell K. Gould
Matthew J. Gould(2)
Simeon Brinberg(3)
David W. Kalish(4)
Mark H. Lundy(3)
George E. Zweier
Isaac Kalish(4)
Steven Rosenzweig(1)
Office
Chairman of the Board of Trustees
President and Chief Executive Officer; Trustee
Executive Vice President
Senior Vice President; Trustee
Senior Counsel
Senior Vice President, Finance
Senior Vice President and General Counsel
Vice President and Chief Financial Officer
Vice President and Treasurer
Vice President
_______________________________________________________________________________
(1)
(2)
(3)
(4)
Steven Rosenzweig is the son of Israel Rosenzweig.
Jeffrey A. Gould and Matthew J. Gould are sons of Fredric H. Gould, the former chairman of our board of trustees and
currently, a trustee.
Mark H. Lundy is the son-in-law of Simeon Brinberg.
Isaac Kalish is the son of David W. Kalish.
Mitchell K. Gould (age 43), employed by us since 1998, has been a Vice President since 1999 and Executive Vice
President since 2007.
Simeon Brinberg (age 81) served as our Secretary from 1983 through 2013, as a Senior Vice President from 1988 through
2013, and as Senior Counsel since 2006. Mr. Brinberg has been a Vice President of Georgetown Partners, Inc., the managing
general partner of Gould Investors L.P., since 1988. Since 1989, Mr. Brinberg has been a Vice President, Senior Vice President
or Senior Counsel of One Liberty Properties, Inc. Mr. Brinberg is a member of the New York Bar.
David W. Kalish (age 68), a certified public accountant, has been our Senior Vice President, Finance since 1998.
Mr. Kalish was our Vice President and Chief Financial Officer from 1990 until 1998. He has been Chief Financial Officer of
One Liberty Properties, Inc. and Georgetown Partners, Inc. since 1990.
Mark H. Lundy (age 53) has been our General Counsel since 2007, Senior Vice President since 2005 and from 1993 to
2005 he served as a Vice President. He served as a Vice President of One Liberty Properties from 2000 to 2006 and has been its
Secretary and Senior Vice President since June 1993 and 2006, respectively. Since 2013, Mr. Lundy has served as President and
Chief Operating Officer, and from 1990 through 2013 as a Vice President (including Senior Vice President), of Georgetown
Partners, Inc. He is licensed to practice law in New York and Washington, D.C.
George E. Zweier (age 51), a certified public accountant, has served as our Chief Financial Officer and a Vice President
since 1998.
Isaac Kalish (age 40), a certified public accountant, has been associated with us since 2004, served as Assistant Treasurer
from 2007 through 2014 and as Vice President and Treasurer since 2013 and 2014, respectively. Mr. Kalish has served as Vice
36
President and Assistant Treasurer of One Liberty Properties since 2013 and 2007, respectively, as Assistant Treasurer of
Georgetown Partners, Inc. from 2012 through 2013, and as its Treasurer since 2013.
Steven Rosenzweig (age 40), has served as a Vice President since March 2015 and has been associated with us since
February 2013. For more than five years prior thereto, he was affiliated with Willkie Farr & Gallagher LLP. He is licensed to
practice law in New York.
Item 11. Executive Compensation.
The information concerning our executive compensation required by Item 11 will be included in the proxy statement to be
filed by January 28, 2016 with respect to our 2016 Annual Meeting of Shareholders, and is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
Except as set forth below, the information required by Item 12 will be included in the proxy statement to be filed by
January 28, 2016 with respect to to our 2016 Annual Meeting of Shareholders, and is incorporated herein by reference.
Equity Compensation Plan Information
The table below provides information as of September 30, 2015 with respect to our Common Shares that may be issued
upon exercise of outstanding options, warrants and rights:
Number of securities
to be issued upon
exercise
of outstanding
options,
warrants and rights
Weighted-
average
exercise
price of
outstanding
options,
warrants and
rights
Number of securities
remaining available-for
future issuance under
equity compensation
plans—excluding
securities
reflected in column (a)
Equity compensation plans approved by security holders(1)
Equity compensation plans not approved by security holders
Total
—
—
—
—
—
—
185,075
—
185,075
_______________________________________________________________________________
(1) Excludes 414,925 and 258,250 outstanding shares of unvested restricted stock issued to officers, directors, employees
and consultants pursuant to the 2012 Incentive Plan and the 2009 Incentive Plan, respectively. These restricted shares
generally vest five years from the effective date of the award, subject to acceleration as provided in the agreement and
incentive plan governing same.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
The information concerning relationships and certain transactions required by Item 13 will be included in the proxy
statement to be filed by January 28, 2016 with respect to our 2016 Annual Meeting of Shareholders, and is incorporated herein
by reference.
Item 14. Principal Accounting Fees and Services.
The information concerning our principal accounting fees required by Item 14 will be included in the proxy statement to
be filed by January 28, 2016 with respect to our 2016 Annual Meeting of Shareholders, and is incorporated herein by reference.
37
PART IV
Item 15. Exhibits, Financial Statement Schedules.
(a)
1. All 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:
In reviewing the agreements included as exhibits to this Annual Report on Form10-K, please remember they are
included to provide you with information regarding their terms and are not intended to provide any other factual or disclosure
information about us or the other parties to the agreements. The agreements contain representations and warranties by each of
the parties to the applicable agreement. These representations and warranties have been made solely for the benefit of the other
parties to the applicable agreement and:
•
•
should not in all instances be treated as categorical statements of fact, but rather as a way of allocating the risk to one
of the parties if those statements prove to be inaccurate;
have been qualified by disclosures that were made to the other party in connection with the negotiation of the
applicable agreement, which disclosures are not necessarily reflected in the agreement;
• may apply standards of materiality in a way that is different from what may be viewed as material to you or other
investors; and
•
were made only as of the date of the applicable agreement or such other date or dates as may be specified in the
agreement and are subject to more recent developments. Accordingly, these representations and warranties may not
describe the actual state of affairs as of the date they were made or at any other time.
38
Exhibit
No.
3.1
3.2
3.3
4.1
4.2
Title of Exhibits
Third Amended and Restated Declaration of Trust (incorporated by reference to Exhibit 3.1 to our Form 10-K
for the year ended September 30, 2005).
By-laws (incorporated by reference to Exhibit 3.2 to our Form 10-K for the year ended September 30, 2005).
Amendment to By-laws, dated December 10, 2007 (incorporated by reference to Exhibit 3.1 to our Form 8-K
filed December 11, 2007).
Junior Subordinated Supplemental Indenture, dated as of March 15, 2011, between us and the Bank of New York
Mellon (incorporated by reference to Exhibit 4.1 to our Form 8-K filed March 18, 2011).
Form of Certificate for Shares of Beneficial Interest (incorporated by reference to Exhibit 4.1 to Registration
Statement on Form S-8 (Registration No. 333-104461) filed on April 11, 2003).
10.1 * Amended and Restated Advisory Agreement, effective as of January 1, 2007, between us and REIT Management
Corp. (incorporated by reference to Exhibit 10.1 to our Form 8-K filed November 27, 2006).
10.2 * Amendment No. 1 dated as of December 8, 2011 to Amended and Restated Advisory Agreement between us and
REIT Management (incorporated by reference to exhibit 10.2 to our Form 10-Q for the period ended
December 31, 2011).
10.3 * Amendment No. 2 dated as of March 12, 2014 and effective as of June 30, 2014 to Amended and Restated
Advisory Agreement between us and REIT Management, as amended. (incorporated by reference to Exhibit 10.1
to our Form 10-Q for the period ended March 31, 2014)
10.4 * Shared Services Agreement, dated as of January 1, 2002, by and among Gould Investors L.P., us, One Liberty
Properties, Inc., Majestic Property Management Corp., Majestic Property Affiliates, Inc. and REIT Management
Corp. (incorporated by reference to Exhibit 10.2 to our Form 10-K filed December 11, 2008).
10.5
Amended and Restated Limited Liability Company Operating Agreement by and among TRB Newark
Assemblage LLC, TRB Newark TRS, LLC, RBH Capital, LLC and RBH Partners LLC (incorporated by
reference to Exhibit 10.1 to our Form 8-K filed June 9, 2009).
10.6 * Form of Restricted Stock Award Agreement (incorporated by reference to Exhibit 10.5 to our Form 10-K for the
year ended September 30, 2010).
10.7 * Form of Restricted Shares Agreement for the 2012 Incentive Plan (incorporated by reference to Exhibit 10.1 to
our Form 10-Q for the period ended December 31, 2013).
10.8 * 2009 Incentive Plan, as amended (incorporated by reference to exhibit 10.1 to our Quarterly Report on Form 10-
Q for the period ended December 31, 2011).
10.9 * 2012 Incentive Plan (incorporated by reference to exhibit 99.1 to our Registration Statement on Form S-8 filed
on June 11, 2012 (File No. 333-182044)).
10.1
10.11
Bond agreement dated as of December 1, 2011 by and among the New Jersey Economic Development Authority,
RBH-TRB East Mezz Urban Renewal Entity, LLC and TD Bank, N.A. (incorporated by reference to exhibit 10.3
to our Form 10-Q for the period ended December 31, 2011).
Note dated December 29, 2011 issued by RBH-TRB East Mezz Urban Renewal Entity LLC in favor of New
Jersey Economic Development Authority (incorporated by reference to exhibit 10.4 to our Form 10-Q for the
period ended December 31, 2011).
10.12 Multi-Family Loan and Security Agreement (Non-Recourse) by and between Landmark at Garden Square, LLC,
and Berkadia Commercial Mortgage LLC, dated as of March 22, 2012 (incorporated by reference to exhibit 10.1
to our Form 10-Q for the period ended March 31, 2012).
39
Exhibit
No.
10.13 Consolidated, Amended and Restated Multi-family Note entered into as of March 22, 2012, by and between
Landmark at Garden Square, LLC and Berkadia Commercial Mortgage LLC. (incorporated by reference to
exhibit 10.2 to our Form 10-Q for the period ended March 31, 2012).
Title of Exhibits
10.14 Mortgage and Security Agreement made as of February 3, 2012, given by RBH-TRB East Mezz Urban Renewal
Entity, LLC, in favor of New Jersey Economic Development Authority (incorporated by reference to exhibit 10.4
to our Form 10-Q for the period ended March 31, 2012).
10.15 Guaranty of Completion made as of the 3rd day of February, 2012, by RBH-TRB Newark Holdings, LLC, and
RBH-TRB East Mezz Urban Renewal Entity, LLC, in favor of TD Bank, N.A. (incorporated by reference to
exhibit 10.5 to our Form 10-Q for the period ended March 31, 2012).
10.16
10.17
10.18
10.19
Security Agreement dated as of February 3, 2012, by and between RBH-TRB East Mezz Urban Renewal
Entity, LLC and TD Bank, N.A. (incorporated by reference to exhibit 10.6 to our Form 10-Q for the period ended
March 31, 2012).
Leasehold Mortgage, Assignment of Leases and Rents and Security Agreement dated February 3, 2012 in the
amount of $32,700,000 from Teachers Village School QALICB Urban Renewal, LLC to NJCC CDE Essex LLC,
and Gateway SUB-CDE I, LLC. (incorporated by reference to exhibit 10.7 to our Form 10-Q for the period ended
March 31, 2012).
Leasehold Mortgage, Assignment of Leases and Rents and Security Agreement dated February 3, 2012 in the
amount of $27,000,000 from Teachers Village School QALICB Urban Renewal, LLC to NJCC CDE Essex LLC,
and Gateway SUB-CDE I, LLC. (incorporated by reference to exhibit 10.8 to our Form 10-Q for the period ended
March 31, 2012).
Joint and Several Completion Guaranty dated as of February 3, 2012, by Teachers Village School QALICB Urban
Renewal, LLC, and RBH-TRB Newark Holdings, LLC, to TD Bank, N.A. Gateway SUB-CDE I, LLC, and NJCC
CDE Essex LLC. (incorporated by reference to exhibit 10.9 to our Form 10-Q for the period ended March 31,
2012).
10.20 Guaranty of New Markets Tax Credits made as of February 3, 2012, by Teachers Village School QALICB Urban
Renewal, LLC, and RBH-TRB Newark Holdings, LLC, for the benefit of GSB NMTC Investor LLC. (incorporated
by reference to exhibit 10.10 to our Form 10-Q for the period ended March 31 2012).
10.21 Multi-Family Loan and Security Agreement dated as of the June 20, 2012 by and between Madison 324, LLC and
CWCapital LLC. (incorporated by reference to exhibit 10.1 to our Form 10-Q for the period ended June 30, 2012)
10.22 Multi-Family Deed of Trust, Assignment of Leases and Rents, Security Agreement and Fixture Filing dated as of
the 20th day of June, 2012, executed by Madison 324, LLC to Joseph B. Pitt, JR, as trustee for the benefit of
CWCapital LLC. (incorporated by reference to exhibit 10.2 to our Form 10-Q for the period ended June 30, 2012).
10.23 Multi-Family Note dated as of June 20, 2012 in face amount of $25,680,000 issued by Madison 324, LLC in favor
of CWCapital LLC. (incorporated by reference to exhibit 10.3 to our Form 10-Q for the period ended June 30,
2012).
10.24 Guaranty of New Markets Tax Credits made as of September 11, 2012, by Teachers Village Project A QALICB
Urban Renewal Entity, LLC, and RBH-TRB Newark Holdings, LLC for the benefit of GSB NMTC Investor LLC,
its successors and assigns (incorporated by reference to exhibit 10.32 to our Form 10-K for the year ended
September 30, 2012).
40
Exhibit
No.
Title of Exhibits
10.25 Guaranty of Payment and Recourse Carveouts made as of the 11th day of September, 2012, by RBH-TRB
Newark Holdings, LLC and Ron Beit-Halachmy, in favor of Goldman Sachs Bank USA. (incorporated by
reference to exhibit 10.33 to our Form 10-K for the year ended September 30, 2012).
10.26
Joint and Several Completion Guaranty dated as of September 11, 2012, made on a joint and several basis by
Teachers Village Project A QALICB Urban Renewal Entity, LLC and RBH-TRB Newark Holdings LLC, to
Goldman Sachs Bank USA. (incorporated by reference to exhibit 10.34 to our Form 10-K for the year ended
September 30, 2012).
10.27 Environmental Indemnity Agreement dated as of September 11, 2012, made by Teachers Village Project A
QALICB Urban Renewal Entity, LLC, to Goldman Sachs Bank USA. (incorporated by reference to
exhibit 10.35 to our Form 10-K for the year ended September 30, 2012).
10.28 Environmental Indemnity Agreement dated as of September 11, 2012, made by Teachers Village Project A
QALICB Urban Renewal Entity, LLC, to GSB NMTC Investor LLC; Carver CDC-Subsidiary CDE 21, LLC;
NCIF New Markets Capital Fund IX CDE, LLC; GSNMF Sub-CDE 2 LLC; and BACDE NMTC Fund 4, LLC.
(incorporated by reference to exhibit 10.36 to our Form 10-K for the year ended September 30, 2012).
10.29 Building Loan Agreement dated as of September 11, 2012 by and among GSB NMTC Investor LLC, and NCIF
New Markets Capital Fund IX CDE, LLC; NCIF New Markets Capital Fund IX CDE LLC, Carver CDC-
Subsidiary CDE-21, LLC, BACDE NMTC Fund 4 LLC, GSNMF Sub-CDE 2 LLC and Teachers Village Project
A QALICB Urban Renewal Entity, LLC. (incorporated by reference to exhibit 10.37 to our Form 10-K for the
year ended September 30, 2012).
10.30 Mortgage, Assignment of Leases and Rents and Security Agreement dated September 2012 in the amount of
$15,699,999 from Teachers Village Project A QALICB Urban Renewal Entity, LLC to NCIF New Markets
Capital Fund IX CDE, LLC, Carver CDC-Subsidiary CDE 21, LLC, BACDE NMTC Fund 4, LLC and GSNMF
Sub-CDE 2, LLC. (incorporated by reference to exhibit 10.38 to our Form 10-K for the year ended
September 30, 2012).
10.31 Mortgage, Assignment of Leases and Rents and Security Agreement dated September 2012 in the amount of
$9,000,000 from Teachers Village Project A QALICB Urban Renewal Entity, LLC, to Goldman Sachs Bank
USA. (incorporated by reference to exhibit 10.39 to our Form 10-K for the year ended September 30, 2012).
10.32 Loan Agreement dated as of September 11, 2012 between Goldman Sachs Bank USA, and RBH-TRB Newark
Holdings, LLC (incorporated by reference to exhibit 10.40 to our Form 10-K for the year ended September 30,
2012).
10.33 Building Loan Agreement dated as of September 11, 2012 by and between Goldman Sachs Bank USA, and
Teachers Village Project A QALICB Urban Renewal Entity, LLC (incorporated by reference to exhibit 10.41 to
our Form 10-K for the year ended September 30, 2012 (incorporated by reference to exhibit 10.41 to our
Form 10-K for the year ended September 30, 2012).
10.34 Loan Agreement made as of the 11th day of September, 2012, by and between RBH-TRB-West I Mezz Urban
Renewal Entity, LLC, and Goldman Sachs Bank USA, Carver CDC-Subsidiary CDE 21, LLC, and BACDE
NMTC Fund 4, LLC, and GSNMF Sub- CDE 2 LLC, and Teachers Village Project A QALICB Urban Renewal
Entity, LLC. (incorporated by reference to exhibit 10.42 to our Form 10-K for the year ended September 30,
2012).
12.1 Schedule of Computation of Ratio of Earnings to Fixed Charges
41
Exhibit
No.
Title of Exhibits
14.1 Revised Code of Business Conduct and Ethics of BRT Realty Trust, adopted June 12, 2006 (incorporated by
reference to Exhibit 14.1 to the Form 8-K of BRT Realty Trust filed June 14, 2006).
21.1 Subsidiaries of the Registrant
23.1 Consent of BDO USA LLP
31.1 Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (the "Act")
31.2 Certification of Senior Vice President—Finance pursuant to Section 302 of the Act.
31.3 Certification of Chief Financial Officer pursuant to Section 302 of the Act
32.1 Certification of Chief Executive Officer pursuant to Section 906 of the Act
32.2 Certification of Senior Vice President—Finance pursuant to Section 906 of the Act
32.3 Certification of Chief Financial Officer pursuant to Section 906 of the Act
101.INS XBRL Instance Document
101.SCH XBRL Taxonomy Extension Schema Document
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF XBRL Taxonomy Extension Definition Linkbase Document
101.LAB XBRL Taxonomy Extension Definition Label Linkbase Document
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document
_______________________________________________________________________________
*
Indicates management contract or compensatory plan or arrangement.
(b) Exhibits.
See Item 15(a)(3) above. Except as otherwise indicated with respect to a specific exhibit, the file number for all of the
exhibits incorporated by reference is: 001-07172.
(c) Financial Statements.
See Item 15(a)(2) above.
42
Pursuant to the requirements of Section 13 or 15(d) 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.
SIGNATURES
Date: December 11, 2015
By:
/s/ JEFFREY A. GOULD
BRT REALTY TRUST
Jeffrey A. Gould
Chief Executive Officer and President
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 capacity and on the dates indicated.
Signature
Title
Date
/s/ ISRAEL ROSENZWEIG
Israel Rosenzweig
/s/ JEFFREY A. GOULD
Jeffrey A. Gould
Chairman of the Board
December 11, 2015
Chief Executive Officer, President and Trustee
(Principal Executive Officer)
December 11, 2015
/s/ KENNETH BERNSTEIN
Trustee
Kenneth Bernstein
/s/ ALAN GINSBURG
Trustee
Alan Ginsburg
/s/ FREDRIC H. GOULD
Trustee
Fredric H. Gould
/s/ MATTHEW J. GOULD
Trustee
Matthew J. Gould
/s/ LOUIS C. GRASSI
Louis C. Grassi
Trustee
December 11, 2015
December 11, 2015
December 11, 2015
December 11, 2015
December 11, 2015
43
Title
Signature
/s/ GARY HURAND
Gary Hurand
Trustee
/s/ JEFFREY RUBIN
Trustee
Jeffrey Rubin
/s/ JONATHAN SIMON
Trustee
Jonathan Simon
/s/ ELIE WEISS
Trustee
Elie Weiss
Date
December 11, 2015
December 11, 2015
December 11, 2015
December 11, 2015
/s/ GEORGE E. ZWEIER
George E. Zweier
Chief Financial Officer, Vice President (Principal Financial and
Accounting Officer)
December 11, 2015
44
Item 8, Item 15(a)(1) and (2)
Index to Consolidated Financial Statements and Consolidated Financial Statement Schedules
Reports of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of September 30, 2015 and 2014
Consolidated Statements of Operations for the years ended September 30, 2015, 2014 and 2013
Consolidated Statements of Comprehensive (Loss) Income for the years ended September 30, 2015, 2014 and 2013
Consolidated Statements of Shareholders' Equity for the years ended September 30, 2015, 2014 and 2013
Consolidated Statements of Cash Flows for the years ended September 30, 2015, 2014 and 2013
Notes to Consolidated Financial Statements
Consolidated Financial Statement Schedule for the year ended September 30, 2015:
III—Real Estate Properties and Accumulated Depreciation
Page
No.
F-2
F-4
F-5
F-6
F-7
F-8
F-9
F-28
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.
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Trustees and Shareholders
BRT Realty Trust and Subsidiaries
Great Neck, New York
We have audited the accompanying consolidated balance sheets of BRT Realty Trust and Subsidiaries as of
September 30, 2015 and 2014 and the related consolidated statements of operations, comprehensive (loss) income,
shareholders' equity, and cash flows for each of the three years in the period ended September 30, 2015. In connection with our
audits of the financial statements, we have also audited the financial statement schedule listed in the accompanying index.
These financial statements and schedule are the responsibility of the Trust's management. Our responsibility is to express an
opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management,
as well as evaluating the overall presentation of the financial statements and schedules. We believe that our audits provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial
position of BRT Realty Trust and Subsidiaries at September 30, 2015, and 2014 and the results of its operations and its cash
flows for each of the three years in the period ended September 30, 2015, in conformity with accounting principles generally
accepted in the United States of America.
Also, in our opinion, the financial statement schedule, when considered in relation to the basic consolidated financial
statements taken as a whole, present fairly, in all material respects, the information set forth therein.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States), BRT Realty Trust and Subsidiaries' internal control over financial reporting as of September 30, 2015, based on criteria
established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO) and our report dated December 11, 2015 expressed an unqualified opinion thereon.
/s/ BDO USA LLP
New York, New York
December 11, 2015
F-2
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Trustees and Shareholders
BRT Realty Trust and Subsidiaries
Great Neck, New York
We have audited BRT Realty Trust and Subsidiaries' internal control over financial reporting as of September 30, 2015,
based on criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission (the COSO criteria). BRT Realty Trust and Subsidiaries' management is
responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of
internal control over financial reporting included in the accompanying Item 9A. Management's Report on Internal Control Over
Financial Reporting. Our responsibility is to express an opinion on the Trust's internal control over financial reporting based on
our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding
of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the
design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other
procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our
opinion.
A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures
that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the
company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company's assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, BRT Realty Trust and Subsidiaries maintained, in all material respects, effective internal control over
financial reporting as of September 30, 2015, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States), the consolidated balance sheets of BRT Realty Trust and Subsidiaries as of September 30, 2015 and 2014, and the
related consolidated statements of operations, comprehensive (loss) income, shareholders' equity, and cash flows for each of the
three years in the period ended September 30, 2015 and our report dated December 11, 2015 expressed an unqualified opinion
thereon.
New York, New York
December 11, 2015
/s/ BDO USA LLP
F-3
BRT REALTY TRUST AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except per share data)
ASSETS
Real estate properties, net of accumulated depreciation of $40,640 and $27,424
Cash and cash equivalents
Restricted cash—Newark
Restricted cash—multi-family
Deferred costs, net
Deposits and escrows
Other assets
Real estate property held for sale
Assets of discontinued operations
Total Assets
LIABILITIES AND EQUITY
Liabilities:
Mortgages payable
Junior subordinated notes
Accounts payable and accrued liabilities
Deferred income
Mortgage payable held for sale
Total Liabilities
Commitments and contingencies
Equity:
BRT Realty Trust shareholders' equity:
Preferred shares, $1 par value:
Authorized 10,000 shares, none issued
Shares of beneficial interest, $3 par value:
Authorized number of shares, unlimited, 13,428 and 13,655 issued
Additional paid-in capital
Accumulated other comprehensive loss
Accumulated deficit
Total BRT Realty Trust shareholders' equity
Non-controlling interests
Total Equity
Total Liabilities and Equity
See accompanying notes to consolidated financial statements.
F-4
September 30,
2015
2014
$
733,168
$
635,612
15,556
13,277
6,518
15,010
12,875
15,616
23,859
—
23,181
22,835
9,555
13,515
12,273
15,632
—
2,017
$
835,879
$
734,620
$
566,438
$
482,406
37,400
21,629
30,990
19,248
37,400
15,185
30,990
—
675,705
565,981
—
—
—
—
40,285
161,842
(58)
(79,414)
122,655
37,519
160,174
835,879
$
40,965
166,209
(8)
(77,026)
130,140
38,499
168,639
734,620
$
BRT REALTY TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except share data)
Year Ended September 30,
2015
2014
2013
Revenues:
Rental and other revenue from real estate properties
$
81,358
$
65,254
$
Other income
Total revenues
Expenses:
Real estate operating expenses—including $1,233,$1,120 and $426 to
related parties
Interest expense
Advisor's fees, related party
Property acquisition costs—including $1,293,$1,677 and $1,382 to
related parties
General and administrative—including $171, $286 and $442 to related
party
Depreciation
Total expenses
Total revenues less total expenses
Gain on sale of real estate
Gain on sale of available-for-sale securities
Gain on sale of partnership interest
Loss from continuing operations
Discontinued operations:
Discontinued operations—including $0, $214 and $831 to related party
Gain on sale of real estate assets
Income from discontinued operations
Net (loss) income
Plus: net (income) loss attributable to non-controlling interests
Net (loss) income attributable to common shareholders
Basic and diluted per share amounts attributable to common shareholders:
Loss from continuing operations
Income from discontinued operations
Basic and diluted (loss) earnings per share
Amounts attributable to BRT Realty Trust:
Loss from continuing operations
Income from discontinued operations
Net (loss) income attributable to common shareholders
$
$
$
$
$
1,139
82,497
43,219
24,177
2,448
1,160
66,414
37,067
20,670
1,801
1,885
2,542
6,683
20,695
99,107
(16,610)
15,005
—
—
(1,605)
6,324
15,576
83,980
(17,566)
—
—
—
(17,566)
—
—
—
(1,605)
(783)
(2,388) $
1,400
—
1,400
(16,166)
6,712
(9,454) $
(0.17) $
—
(0.17) $
(0.76) $
0.10
(0.66) $
30,592
1,411
32,003
16,409
11,978
971
2,637
5,862
7,094
44,951
(12,948)
—
530
5,481
(6,937)
8,257
769
9,026
2,089
2,924
5,013
(0.28)
0.63
0.35
(2,388) $
—
(2,388) $
(10,854) $
1,400
(9,454) $
(3,244)
8,257
5,013
Weighted average number of common shares outstanding:
Basic and diluted
14,133,352
14,265,589
14,137,091
See accompanying notes to consolidated financial statements.
F-5
BRT REALTY TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
(Dollars in thousands)
Net (loss) income
Other comprehensive (loss) income:
Net unrealized (loss) on available-for-sale securities
Unrealized (loss) gain on derivative instruments
Other comprehensive— loss
Comprehensive (loss) income
Plus comprehensive (income) loss attributable to non-controlling interests
Comprehensive (loss) income attributable to common shareholders
$
Year Ended September 30,
2015
2014
2013
$
(1,605) $ (16,166) $
2,089
—
(50)
(50)
(1,655)
(776)
(2,431) $
—
(2)
(2)
(16,168)
6,712
(9,456) $
(460)
98
(362)
1,727
2,909
4,636
See accompanying notes to consolidated financial statements.
F-6
BRT REALTY TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Years Ended September 30, 2015, 2014 and 2013
(Dollars in thousands, except share data)
Balances, September 30, 2012
Restricted stock vesting
Compensation expense—restricted stock
Contributions from non-controlling interests
Distributions to non-controlling interests
Net income (loss)
Other comprehensive loss
Comprehensive income
Balances, September 30, 2013
Restricted stock vesting
Compensation expense—restricted stock
Contributions from non-controlling interests
Distributions to non-controlling interests
Net loss
Other comprehensive loss
Comprehensive loss
Balances, September 30, 2014
Restricted stock vesting
Compensation expense—restricted stock
Contributions from non-controlling interests
Distributions to non-controlling interests
Purchase of non-controlling interests
Shares repurchased - 345,081 shares
Net (loss) income
Other comprehensive loss
Comprehensive loss
Balances, September 30, 2015
Shares of
Beneficial
Interest
$ 40,420
186
—
—
—
—
—
—
$ 40,606
359
—
—
—
—
—
Additional
Paid-In
Capital
$ 165,258
(186)
691
—
—
—
—
—
$ 165,763
(359)
805
—
—
—
—
—
$ 40,965
355
—
—
—
—
(1,035)
—
—
—
$ 166,209
(355)
906
—
—
(3,531)
(1,387)
—
—
$
$
Accumulated
Other
Comprehensive
Income (Loss)
(Accumulated
Deficit)
Non
Controlling
Interests
$
356
$
(72,585) $
—
—
—
—
5,013
—
—
(67,572) $
—
—
—
—
(9,454)
—
13,569
—
—
17,192
(1,370)
(2,924)
—
—
26,467
—
—
22,062
(3,318)
(6,712)
—
Total
$147,018
—
691
17,192
(1,370)
2,089
(362)
1,727
$165,258
—
805
22,062
(3,318)
(16,166)
(2)
—
(8) $
—
—
(77,026) $
—
38,499
— (16,168)
$168,639
—
—
—
—
—
—
—
(2,388)
—
—
906
11,973
(12,588)
(1,148)
—
783
—
11,973
(12,588)
(4,679)
(2,422)
(1,605)
(50)
(1,655)
$160,174
—
—
—
—
—
(362)
—
(6) $
—
—
—
—
—
(2)
—
—
—
—
—
—
(50)
—
(58) $
—
$ 40,285
—
$ 161,842
$
—
(79,414) $
—
37,519
See accompanying notes to consolidated financial statements.
F-7
BRT REALTY TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
Cash flows from operating activities:
Net (loss) income
Adjustments to reconcile net (loss) income to net cash provided by (used in) operating activities:
Recovery of previously provided allowances
Depreciation and amortization
Amortization of deferred fee income
Amortization of restricted stock
Gain on sale of partnership interest
Gain on sale of real estate assets
Gain on sale of available-for-sale securities
Equity in earnings of unconsolidated joint ventures
Distribution of earnings of unconsolidated joint ventures
(Increase) decrease in straight line rent
Increases and decreases from changes in other assets and liabilities:
Decrease in interest and dividends receivable
Increase in prepaid expenses
(Increase) decrease in prepaid interest
Increase in accounts payable and accrued liabilities
Decrease in deferred costs
Increase (decrease) in security deposits and other receivable
Other
Net cash provided by (used in) operating activities
Cash flows from investing activities:
Collections from real estate loans
Additions to real estate loans
Loan loss recoveries
Additions to real estate properties
Net costs capitalized to real estate owned
Net change in restricted cash-Newark
Net change in restricted cash-multi-family
Collection of loan fees
Purchase of non controlling interest
Proceeds from sale of real estate owned
Proceeds from sale of available-for-sale securities
Proceeds from the sale of partnership interest
Net cash used in investing activities
Cash flows from financing activities:
Proceeds from borrowed funds
Repayment of borrowed funds
Proceeds from mortgages payable
Mortgage principal payments
Increase in deferred borrowing costs
Capital contributions from non-controlling interests
Capital distributions to non-controlling interests
Proceeds from sale of New Markets Tax Credits
Repurchase of shares of beneficial interest
Net cash provided by financing activities
Net decrease in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Supplemental disclosures of cash flow information:
Cash paid during the year for interest expense, including capitalized interest of $2,602, $1,310 and $1,820
in 2015, 2014 and 2013
Cash paid during the year for income and excise taxes
Acquisition of real estate through assumption of debt
Year Ended September 30,
2014
2013
2015
$
(1,605) $
(16,166) $
2,089
—
22,957
—
906
—
(15,005)
—
—
—
(411)
17
(93)
(881)
1,739
—
783
—
8,407
2,000
—
—
(84,295)
(59,407)
9,558
3,037
—
(4,679)
66,398
—
—
(67,388)
— $
—
98,907
(40,756)
(3,758)
11,973
(12,588)
—
(2,422)
51,356
(7,625)
23,181
15,556
24,324
131
45,129
$
$
$
$
$
$
$
$
(10)
17,535
(393)
805
—
—
—
(19)
8
(569)
273
(548)
(1,016)
7,416
—
(12,167)
16
(4,835)
34,045
(5,533)
10
(205,220)
(43,130)
6,444
(6,195)
180
—
75
—
—
(219,324)
—
—
170,767
(1,577)
(2,641)
22,062
(3,318)
5,142
—
190,435
(33,724)
56,905
23,181
19,700
255
28,615
$
$
$
$
(1,066)
8,713
(1,820)
691
(5,481)
(769)
(530)
(198)
175
(264)
183
(440)
2,463
1,460
(519)
(3,995)
74
766
76,872
(70,288)
1,066
(185,453)
(33,860)
25,973
(3,001)
1,520
—
887
1,318
5,522
(179,444)
3,000
(3,000)
147,957
(4,025)
(2,052)
17,192
(1,370)
—
—
157,702
(20,976)
77,881
56,905
10,753
133
—
See accompanying notes to consolidated financial statements.
F-8
BRT REALTY TRUST AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 2015
NOTE 1—ORGANIZATION, BACKGROUND AND SIGNIFICANT ACCOUNTING POLICIES
Organization and Background
BRT Realty Trust ("BRT" or the "Trust") is a business trust organized in Massachusetts. BRT owns, operates and
develops (i) multi-family properties, and (ii) commercial and mixed use real estate assets.
The multi-family properties are generally acquired with venture partners in transactions in which the Trust contributes
80% of the equity. At September 30, 2015, the Trust owns 28 multi-family properties with 8,300 units and located in 11 states.
BRT conducts its operations to qualify as a real estate investment trust, or REIT, for Federal income tax purposes.
Principles of Consolidation
The consolidated financial statements include the accounts and operations of BRT Realty Trust, its wholly owned
subsidiaries, and its majority owned or controlled real estate entities and its interests in variable interest entities in which the
Trust is determined to be the primary beneficiary. Material intercompany balances and transactions have been eliminated.
RBH-TRB Newark Holdings LLC, referred to herein as the Newark Joint Venture, was determined to be a variable
interest entity ("VIE") because the total equity investment at risk is not sufficient to permit it to finance its activities without
additional subordinated financial support by its equity holders. It was determined that the Trust is the primary beneficiary of
this joint venture because it has a controlling interest in that it has the power to direct the activities of the VIE that most
significantly impact the entity's economic performance and it has the obligation to absorb losses of the entity and the right to
receive benefits from the entity that could potentially be significant to the VIE.
The Trust's consolidated joint ventures that own multi-family properties, other than the joint venture which owns a multi-
family property in Kennesaw, GA, were determined to be VIE's because the voting rights of some equity investors are not
proportional to their obligations to absorb the expected losses of the entity and their right to receive the expected residual
returns. In addition, substantially all of the entity's activities either involve or are conducted on behalf of the investor that has
disproportionately fewer voting rights. It was determined that the Trust is the primary beneficiary of these joint ventures
because it has a controlling interest in that it has the power to direct the activities of the VIE that most significantly impact the
entity's economic performance and it has the obligation to absorb losses of the entity and the right to receive benefits from the
entity that could potentially be significant to the VIE.
The joint venture that owns the Kennesaw, GA property was determined not to be a VIE but is consolidated because the
Trust has substantive participating rights in the entity giving it a controlling financial interest in the entity.
With respect to its unconsolidated joint ventures, as (i) the Trust is primarily the managing member but does not exercise
substantial operating control over these entities or the Trust is not the managing member and (ii) such entities are not VIE's, the
Trust has determined that such joint ventures should be accounted for under the equity method of accounting for financial
statement purposes.
Certain items on the consolidated financial statements for the prior years have been reclassified to conform with the
current year's presentation, including the reclassification of certain expenses from general and administrative to property
acquisition costs and the reclassification of the operations and related assets of the Trust's loan and investment segment to
discontinued operations.
Income Tax Status
The Trust qualifies as a real estate investment trust under sections 856-860 of the Internal Revenue Code of 1986, as
amended. The Trustees may, at their option, elect to operate the Trust as a business trust not qualifying as a real estate
investment trust.
In accordance with ASC Topic 740, the Trust believes that it has appropriate support for the income tax positions taken
and, as such, does not have any uncertain tax positions that, if successfully challenged, could result in a material impact on the
Trust's financial position or results of operations. The Trust's income tax returns for the previous six years are subject to review
by the Internal Revenue Service.
F-9
BRT REALTY TRUST AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 2015
NOTE 1—ORGANIZATION, BACKGROUND AND SIGNIFICANT ACCOUNTING POLICIES (continued)
Revenue Recognition
Rental revenue from residential properties is recorded when due from residents and is recognized monthly as it is earned.
Rental payments are due in advance. Leases on residential properties are generally for terms that do not exceed one year.
Rental revenue from commercial properties, including the base rent that each tenant is required to pay in accordance with
the terms of their respective leases, net of any rent concessions and lease incentives, is reported on a straight-line basis over the
non-cancellable term of the lease.
Real Estate Properties
Real estate properties are stated at cost, net of accumulated depreciation, and include real property acquired through
acquisition, development or foreclosure.
The Trust assesses the fair value of real estate acquired (including land, buildings and improvements, and identified
intangibles such as above and below market leases and acquired in-place leases, if any) and acquired liabilities and allocates the
acquisition price based on these assessments. Fixed-rate renewal options have been included in the calculation of the fair value
of acquired leases where applicable. Depreciation is computed on a straight-line basis over the estimated useful lives of the
tangible assets. Intangible assets (and liabilities) are amortized over the remaining life of the related lease at the time of
acquisition. There were no unamortized value of in-place leases at September 30, 2015 and 2014. Expenditures for maintenance
and repairs are charged to operations as incurred.
Real estate is classified as held for sale when management has determined that it has met the applicable criteria. Real
estate assets that are expected to be disposed of are valued at the lower of their carrying amount or their fair value less costs to
sell on an individual asset basis.
The Trust accounts for the sale of real estate when title passes to the buyer, sufficient equity payments have been
received, there is no continuing involvement by the Trust and there is reasonable assurance that the remaining receivable, if any,
will be collected.
Real Estate Asset Impairments
The Trust reviews each real estate asset owned, including investments in real estate ventures, to determine if there are
indicators of impairment. If such indicators are present, the Trust determines whether the carrying amount of the asset can be
recovered. Recognition of impairment is required if the undiscounted cash flows estimated to be generated by the asset are less
than the asset's carrying amount and that carrying amount exceeds the estimated fair value of the asset. In evaluating a property
for impairment, various factors are considered, including estimated 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 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. If future
evaluations result in a decrease in the value of the property below its carrying value, the reduction will be recognized as an
impairment charge. The fair values related to the impaired real estate are considered to be a level 3 valuation within the fair
value hierarchy.
Fixed Asset Capitalization
A variety of costs may be incurred in the development of the Trust's properties. After a determination is made to capitalize
a cost, it is allocated to the specific project that is benefited. The costs of land and building under development include
specifically identifiable costs. The capitalized costs include pre-construction costs essential to the development of the property,
development costs, construction costs, interest costs, real estate taxes, and other costs incurred during the period of
development. A construction project is considered substantially completed when it is available for occupancy, but no later than
one year from cessation of major construction activity. The Trust ceases capitalization when the project is available for
occupancy.
F-10
BRT REALTY TRUST AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 2015
NOTE 1—ORGANIZATION, BACKGROUND AND SIGNIFICANT ACCOUNTING POLICIES (continued)
Equity Based Compensation
Compensation expense for restricted stock awards is amortized over the vesting period of such awards, based upon the
estimated fair value of such restricted stock at the grant date. For accounting purposes, the restricted shares are not included in
the outstanding shares shown on the consolidated balance sheets until they vest; however, they are included in the calculation of
both basic and diluted earnings per share as they participate in the earnings of the Trust.
Derivatives and Hedging Activities
The Trust's objective in using derivative financial instruments is to manage interest rate risk. The Trust does not use
derivatives for trading or speculative purposes. The Trust records all derivatives on its consolidated balance sheets at fair value.
The accounting for changes in the fair value of derivatives depends on the intended use of the derivative; whether the Trust has
elected to designate a derivative in a hedging relationship and apply hedge accounting and whether the hedging relationship has
satisfied the criteria necessary to apply hedge accounting. Derivatives designated and qualifying as a hedge of the exposure to
variability in expected future cash flows are considered cash flow hedges. For derivatives designated as cash flow hedges, the
effective portion of changes in the fair value of the derivative is initially reported in accumulated other comprehensive income
(loss) and subsequently reclassified to earnings in the period in which the hedge transaction affects earnings. The ineffective
portion of changes in the fair value of the derivative is recognized directly in earnings. For derivatives not designated as cash
flow hedges, changes in the fair value of the derivative are recognized directly in earnings in the period in which they occur.
Per Share Data
Basic earnings (loss) per share is determined by dividing net income (loss) applicable to common shareholders for the
applicable year by the weighted average number of shares of beneficial interest outstanding during such year. Diluted earnings
per share reflects the potential dilution that could occur if securities or other contracts to issue shares of beneficial interest were
exercised or converted into shares of beneficial interest or resulted in the issuance of shares of beneficial interest that share in
the earnings of the Trust. Diluted earnings (loss) per share is determined by dividing net income (loss) applicable to common
shareholders for the applicable year by the sum of the weighted average number of shares of beneficial interest outstanding plus
the dilutive effect of the Trust's unvested restricted stock using the treasury stock method.
Cash Equivalents
Cash equivalents consist of highly liquid investments, primarily direct United States treasury obligations with maturities
of three months or less when purchased.
Restricted Cash
Restricted cash—Newark and restricted cash—multi-family consist principally of cash held for construction costs and
property improvements at specific properties as may be required by contractual arrangements.
Deferred Costs
Fees and costs incurred in connection with multi-family property financings and the New Markets Tax Credits related to
the Newark Joint Venture (Note 9) are deferred and amortized over the term of the related debt obligations. Fees and costs paid
related to the successful negotiation of leases are deferred and amortized on a straight-line basis over the terms of the respective
leases.
Use of Estimates
The preparation of the financial statements in conformity with accounting principles generally accepted in the United
States requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial
statements and accompanying notes. Actual results could differ from those estimates.
F-11
BRT REALTY TRUST AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 2015
NOTE 1—ORGANIZATION, BACKGROUND AND SIGNIFICANT ACCOUNTING POLICIES (continued)
Segment Reporting
As of September 30, 2015 and 2014, the Trust operates in two reportable segments: (i) multi-family real estate; and (ii)
other real estate. The multi-family real estate segment includes the ownership, operation and development of the Trust's multi-
family properties and the other real estate segment includes all activities related to the ownership, development, operation and
disposition of the Trust's other real estate assets. In the year ended September 30, 2013, the Trust operated in a third segment,
the loan and investment segment, which includes all activities related to the origination and servicing of the Trust's loan
portfolio and other investments. The operations and assets related to this segment are reported as part of discontinued
operations as the Trust no longer operates in this segment.
New Pronouncements
In May 2014, the FASB issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers
(ASU 2014-09), which supersedes nearly all existing revenue recognition guidance under U.S. GAAP. The core principle of
ASU 2014-09 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects
the consideration to which an entity expects to be entitled for those goods or services. ASU 2014-09 defines a five step process
to achieve this core principle and, in doing so, more judgment and estimates may be required within the revenue recognition
process than are required under existing U.S. GAAP.
The standard is effective for annual periods beginning after December 15, 2017, and interim periods therein, using
either of the following transition methods: (i) a full retrospective approach reflecting the application of the standard in each
prior reporting period with the option to elect certain practical expedients, or (ii) a retrospective approach with the cumulative
effect of initially adopting ASU 2014-09 recognized at the date of adoption (which includes additional footnote disclosures).
We are currently evaluating the impact of our pending adoption of ASU 2014-09 on our consolidated financial statements and
have not yet determined the method by which we will adopt the standard in 2018.
In April 2015, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No.
2015-03 Interest - Imputation of Interest, which amends the balance sheet presentation for debt issuance costs. Under the
amended guidance, a company will present unamortized debt issuance costs as a direct deduction from the carrying amount of
that debt liability. The guidance is to be applied on a retrospective basis, and is effective for annual reporting periods beginning
after December 15, 2015, with early adoption being permitted. The Trust is currently in the process of evaluating the impact
the adoption of the guidance will have on its consolidated financial statements.
In January 2015, the FASB issued ASU No. 2015-01, Simplifying Income Statement Presentation by Eliminating the
Concept of Extraordinary Items, which simplifies income statement presentation by eliminating extraordinary items from US
GAAP. The ASU retains current presentation and disclosure requirements for an event or transaction that is of an unusual nature
or of a type that indicates infrequency of occurrence. Transactions that meet both criteria would now also follow such
presentation and disclosure requirements. The ASU is effective in annual periods, and interim periods within those annual
periods, beginning after December 15, 2015. Early adoption is permitted; however, adoption must occur at the beginning of an
annual period. An entity can elect to apply the guidance prospectively or retrospectively. The Trust elected early adoption for
the fiscal year beginning October 1, 2014, and its adoption did not have a material effect on its consolidated financial
statements.
F-12
BRT REALTY TRUST AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
September 30, 2015
NOTE 2—REAL ESTATE PROPERTIES
A summary of activity in real estate properties(including a multi-family property held for sale), for the year ended
September 30, 2015, follows (dollars in thousands):
Multi-family
Commercial/mixed use(a)
Land (b)
Shopping centers/retail (c)
Co-op/Condo Apts
September 30,
2014
Balance
$
511,866
113,021
7,972
2,678
75
Additions
$ 129,425
—
—
—
—
Capitalized
Costs and
Improvements
33,399
$
30,661
—
4
—
Depreciation,
Amortization
and other
Reductions
September 30,
2015
Balance
Sales
$ (51,319) $
—
—
—
(75)
(18,331) $
(2,241)
—
(108)
—
605,040
141,441
7,972
2,574
—
Total real estate properties
_______________________________________________________________________________
$ 129,425
635,612
$
$
64,064
$ (51,394) $
(20,680) $
757,027
(a) Represents the real estate assets of RBH-TRB Newark Holdings LLC, a consolidated VIE, which owns operating and
development properties in Newark, NJ. These properties contain a mix of office, retail, residential, charter schools and
surface parking aggregating approximately 565,000 square feet of commercial space and 61 residential apartment units
(excluding 16,000 square feet of commercial space and 62 residential apartment units currently under construction).
Certain of these assets are subject to a mortgage in the aggregate principal balance of $19,500,000 held by the Trust,
which is eliminated in consolidation. Several of the assets are also encumbered by other mortgages which are discussed in
Note 5—Debt Obligations—Mortgages Payable. The Trust made net capital contributions of $1,836,000 and $4,972,000
to this venture in the years ended September 30, 2015 and 2014 , respectively, representing its proportionate share of
capital required to fund the operations of the venture for its next fiscal year and, in the year ended September 30, 2014, to
purchase additional land parcels. The 2014 contribution includes $2,489,000 for the payment of deferred interest on the
loan held by the Trust.
(b) Represents an 8.9 acre development parcel located in Daytona Beach, FL acquired in foreclosure.
(c) The Trust, through a joint venture in which it has an 85% interest, owns a leasehold interest in a portion of a retail
shopping center located in Yonkers, NY. The leasehold interest is for approximately 28,500 square feet and, including all
option periods, expires in 2045.
The acquisitions completed in the year ended September 30, 2015 and described in Note 3-Acquisitions, Dispositions and
Impairments, have been accounted for as business combinations. The purchase prices were allocated to the acquired assets and
assumed liabilities based on management's estimate of fair value of these acquired assets and assumed liabilities at the dates of
acquisition. The preliminary measurements of fair value reflected below are subject to change. The Trust expects to finalize the
valuations and complete the purchase price allocations within one year from the date of the applicable acquisition.
The following table summarizes the preliminary allocations of the purchase prices of assets acquired and liabilities
assumed during the year ended September 30, 2015 (dollars in thousands):
Land
Buildings and Improvements
Total Consideration
Preliminary
Purchase Price
Allocation
$
$
15,163
114,287
129,450
F-13
BRT REALTY TRUST AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
September 30, 2015
NOTE 2—REAL ESTATE PROPERTIES (continued)
The following table summarizes the preliminary allocations of the purchase price of properties as recorded as of
September 30, 2014, and the finalized allocation of the purchase price, as adjusted, as of September 30, 2015 (dollars in
thousands):
Land
Buildings and Improvements
Acquisition-related intangible assets (in acquired lease intangibles, net) (1)
Total Consideration
Preliminary
Purchase Price
Allocation
$
$
58,700
$
172,500
—
231,200
Adjustments
Finalized
Purchase Price
Allocation
(10,052) $
8,692
1,360
48,648
181,192
1,360
— $
231,200
A summary of the Trust's multi-family properties by state as at and for the year ended September 30, 2015, is as
follows (dollars in thousands):
Location
Texas (a)
Tennessee
Georgia
Florida (a)
Kansas
Indiana
South Carolina
Alabama (a)
Ohio
Arkansas
Missouri (a)
Number
of Units
2015
Revenue
% of
Revenue
1,412
1,244
1,312
1,186
496
400
568
826
264
172
420
8,300
$
$
19,135
14,931
14,334
11,742
3,405
2,988
2,892
2,699
2,331
1,122
64
75,643
25%
20
19
15
5
4
4
4
3
1
—
100%
(a) Includes properties purchased during the year ended September 30, 2015.
Future minimum rentals to be received by the Trust pursuant to non-cancellable operating leases with terms in
excess of one year, from commercial properties owned by the Trust at September 30, 2015, are as follows (dollars in
thousands):
Year Ending September 30,
2016
2017
2018
2019
2020
Thereafter
Total
Amount
3,945
3,575
3,360
3,397
3,489
37,096
54,862
$
$
Leases at the Trust's multi-family properties are generally for a term of one year or less and are not reflected in the
above table.
F-14
BRT REALTY TRUST AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 2015
NOTE 3—ACQUISITIONS, DISPOSITIONS AND IMPAIRMENT CHARGES
Property Acquisitions
Set forth below is information for the year ended September 30, 2015 regarding the Trust's purchases of multi-family
properties through joint ventures. The Trust has an 80% equity interest in each venture, except for the Pensacola, FL and Valley,
AL ventures in each of which it has a 97.5% interest (dollars in thousands):
Location
Pensacola, FL
Valley, AL
San Marco, TX
Lake St. Louis, MO
Other
Purchase
Date
12/22/2014
7/27/2015
09/08/2015
09/25/2015
No. of
Units
276
618
192
420
—
1,506
Contract
Purchase
Price
$ 27,950
43,750
21,725
36,000
—
$ 129,425
Acquisition
Mortgage
Debt
17,173
28,990
17,158
27,957
—
91,278
$
$
Initial BRT
Equity
$ 11,380
10,351
4,720
8,500
—
$ 34,951
Property
Acquisition
Costs
$
$
258
629
535
447
16
1,885
Subsequent to September 30, 2015, the Trust purchased two properties. The Trust has an 65% equity interest in the
venture that purchased the Charleston, SC property and the LaGrange, GA property is wholly owned. Information regarding
these purchases is set forth below:
Location
Charleston, SC ( a)
LaGrange, GA
Purchase
Date
No. of
Units
Contract
Purchase
Price
Acquisition
Mortgage
Debt
Initial BRT
Equity
12/22/2014
7/24/2015
271
236
507
$ 27,950
$
— $ 11,380
22,800
$ 50,750
16,052
$ 16,052
6,558
$ 17,938
Property
Acquisition
Costs
$
$
—
57,000
57,000
During the three months ended December 31, 2014, the Trust increased its ownership interest in a (i) joint venture
that owns two multi -family properties in Houston, TX from 80% to 91% by purchasing a partner's interest in the venture
for $2,036,000; and (ii) joint venture that owns a multi family property in Decatur, GA from 80% to 100% by purchasing
its partner's interest in the venture for $ 1,850,000. The Trust incurred $153,000 in professional fees related to these
transactions.
On April 1, 2015, the Trust increased its ownership interest in a joint venture that owns a multi-family property in
North Charleston, SC from 90% to 100% by purchasing its partner's interest for $790,000.
Property Dispositions
Set forth below is a summary of the real estate properties disposed of by the Trust in the year ended September 30, 2015
(dollars in thousands):
Location
Lawrenceville, GA
Marietta, GA
Houston, TX
New York, NY
Misc.
Sale
Date
2/5/2015
7/7/2015
7/24/2015
9/30/2015
No. of
Units
170
207
236
1
—
614
Sales Price
9,700
$
17,600
39,848
635
—
67,783
$
Gain on Sale
2,655
$
7,781
3,846
601
122
15,005
$
Non-controlling
partner portion
of gain
$
$
1,141
3,179
769
—
—
5,089
F-15
BRT REALTY TRUST AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 2015
NOTE 3—ACQUISITIONS, DISPOSITIONS AND IMPAIRMENT CHARGES - (continued)
Impairment Charges
The Trust reviews each real estate asset, including those held through investments in unconsolidated joint ventures, for
impairment when there is an event or a change in circumstances indicating that the carrying amount may not be recoverable.
The Trust measures and records impairment losses, and reduces the carrying value of properties, when indicators of impairment
are present and the expected undiscounted cash flows related to those properties are less than their carrying amounts. In cases
where the Trust does not expect to recover its carrying costs on properties held for use, the Trust reduces its carrying costs to
fair value, and for properties held for sale, the Trust reduces its carrying value to the fair value less costs to sell. During the
years ended September 30, 2015, 2014, and 2013, no impairment charges were recorded. Management does not believe that the
values of any properties are impaired as of September 30, 2015.
NOTE 4—REAL ESTATE PROPERTY HELD FOR SALE
At September 30, 2015, The Grove at Trinity Point property in Cordova, TN was held for sale. The property which
has a book value of $23,859,000, is under contract for sale. The Trust estimates it will recognize a gain on the sale of the
property of approximately $6,800,000, of which approximately $2,700,000 will be allocated to the minority partner.
NOTE 5—RESTRICTED CASH
Restricted cash represents funds that are being held for specific purposes and are therefore not generally available for
general corporate purposes. As reflected on the consolidated balance sheet: (i) "Restricted cash—Newark" represents funds that
are held by third parties for the construction of residential/commercial buildings at the Newark Joint Venture's Teachers Village
Project; and (ii) "Restricted cash—multi-family" represents funds that are held by or on behalf of the Trust specifically for
capital improvements at multi-family properties.
NOTE 6—DEBT OBLIGATIONS
Debt obligations consist of the following (dollars in thousands):
Mortgages payable (including mortgage held for sale)
Junior subordinated notes
Total debt obligations
Mortgage Payable
September 30,
2015
585,686
37,400
623,086
$
$
2014
482,406
37,400
519,806
$
$
At September 30, 2015, $473,646,000 of mortgage debt is outstanding on the Trust's 28 multi family properties with a
weighted average interest rate of 3.99% and a weighted average remaining term to maturity of 6.5 years. Scheduled principal
repayments for the next five years and thereafter are as follows (dollars in thousands):
Year Ending September 30,
2016
2017
2018
2019
2020
Thereafter
Principal Payments Due
5,635
7,249
8,027
142,385
43,169
267,181
473,646
$
$
At September 30, 2015, $112,040,000 of mortgage debt is outstanding on the Trust's other real estate properties with
a weighted average interest rate of 5.53% and a weighted average remaining term to maturity of 10.5 years. Scheduled
F-16
BRT REALTY TRUST AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 2015
NOTE 6—DEBT OBLIGATIONS- (continued)
principal repayments for the next five years and thereafter are as follows: (dollars in thousands):
Year Ending September 30,
2016
2017
2018
2019
2020
Thereafter
Junior Subordinated Notes
Principal Payments Due
1,998
2,635
2,829
23,971
8,669
71,938
112,040
$
$
At September 30, 2015 and 2014 the Trust's junior subordinated notes had an outstanding principal balance of
$37,400,000. The interest rates on the outstanding notes is set forth below:
Interest period
August 1, 2012 through April 29, 2016
April 30, 2016 through April 30, 2036
Interest Rate
4.9%
Three month LIBOR + 2.00
The junior subordinated notes require interest only payments through the maturity date, at which time repayment of all
outstanding principal and interest are due. Interest expense for each of the years ended September 30, 2015, 2014 and 2013,
which includes amortization of deferred costs, was $1,853,000 .
Unsecured short term borrowing
On December 11, 2015, the Trust borrowed $8,000,000, on a short term unsecured basis, from Gould Investors L.P. ,
a related party. The note bears interest at 5.24% and will mature on the earlier of (i) May 10, 2016 or (ii) the receipt of funds
from the sale of the Trust's equity interest in the Newark Joint Venture or the repayment of the Newark Joint Venture loan, in
principal amount of $19,500,000, which is eliminated in consolidation.
NOTE 7—DEFERRED INCOME (NEW MARKETS TAX CREDIT TRANSACTION)
In connection with the Teachers Village project, on September 30, 2014, affiliates of JP Morgan Chase ("Chase")
contributed $5,100,000, and on September 12, 2012 and February 3, 2012, affiliates of Goldman Sachs (" Goldman")
contributed $16,400,000 and $11,200,000, respectively, to special purpose subsidiaries of the Newark Joint Venture and these
subsidiaries received the proceeds from the sale of New Markets Tax Credits ("NMTC") for which the project qualified. Chase
and Goldman are entitled to receive tax credits against their qualified investments in the project over the seven years
commencing as of the dates of their respective contributions. At the end of the seven years, the Newark Joint Venture
subsidiaries have the option to acquire the special purpose entities for a nominal fee.
Included in deferred income on the Trust's consolidated balance sheet at September 30, 2015 and 2014 are $30,990,000 of
the Chase and Goldman contributions, which are net of fees of the NMTC transactions and Newark Joint Venture financing
transactions. These amounts will be recognized into income when the obligations to comply with the requirements of the
NMTC program as set forth in the applicable provisions of the Internal Revenue Code of 1986, as amended (the "Code"), is
eliminated. The failure of the Newark Joint Venture to comply with the requirements of the NMTC program may result in the
reversal of the tax credit benefits and the related obligation of the Newark Joint Venture to indemnify the beneficiaries of such
credits. The tax credits are subject to recapture for a seven year period as provided in the Code.
Costs incurred in structuring these transactions are deferred and will be recognized as an expense based on the maturities
of the various mortgage financings, including the debt financing obtained by the Newark Joint Venture contemporaneously with
the NMTC transactions. At September 30, 2015 and 2014, these costs totaled $9.7 million and $8.7 million and are included in
deferred costs on the consolidated balance sheets.
F-17
BRT REALTY TRUST AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
September 30, 2015
NOTE 7—DEFERRED INCOME (NEW MARKETS TAX CREDIT TRANSACTION) - (continued)
The Trust determined that the special purpose subsidiaries are VIE's. The VIE's ongoing activities, which include
collecting and remitting interest and fees and NMTC compliance, were all considered in the design of the special purpose
entities and are not anticipated to affect the economic performance during the life of the VIE's.
Management considered the obligation to deliver tax benefits, provide guarantees to Chase and Goldman and the Trust's
obligation to absorb the losses of the VIE. Management also considered Chase's and Goldman's lack of a material interest in the
underlying economics of the project. Management concluded that the Trust is the primary beneficiary and has therefore
consolidated the VIE's.
NOTE 8—INCOME TAXES
The Trust elected to be taxed as a real estate investment trust ("REIT"),pursuant to the Code. As a REIT, the Trust will
generally not be subject to Federal income taxes at the corporate level if it distributes 100% of its REIT taxable income, as
defined, to its shareholders. To maintain its REIT status, the Trust must distribute at least 90% of its taxable income; however if
it does not distribute 100% of its taxable income, it will be taxed on undistributed income. There are a number of organizational
and operational requirements the Trust must meet to remain a REIT. If the Trust fails to qualify as a REIT in any taxable year,
its taxable income will be subject to Federal income tax at regular corporate tax rates and it may not be able to qualify as a
REIT for four subsequent tax years. Even if it is qualified as a REIT, the Trust is subject to certain state and local income taxes
and to Federal income and excise taxes on the undistributed taxable income. For income tax purposes, the Trust reports on a
calendar year.
During the years ended September 30, 2015, 2014 and 2013, the Trust recorded $18,000, $155,000 and $102,000,
respectively, of state franchise tax expense, net of refunds, relating to the 2014, 2013 and 2012 tax years.
During the years ended September 30, 2014 and 2013, the Trust also paid $13,000 and $182,000, respectively, in
alternative minimum tax, which resulted from the use of net operating loss carryforwards in tax years 2013 and 2012.
Earnings and profits, which determine the taxability of dividends to shareholders, differs from net income reported for
financial statement purposes due to various items including timing differences related to loan loss provisions, impairment
charges, depreciation methods and carrying values.
At December 31, 2014, the Trust had a net operating loss carry forward of $65,286,000. These net operating losses may
be available in future years to reduce taxable income when it is generated. These tax loss carry forwards begin to expire in
2029.
NOTE 9—SHAREHOLDERS' EQUITY
Distributions
During the year ended September 30, 2015, 2014 and 2013, the Trust did not declare or pay any dividends.
Restricted Shares
The Trust's 2012 Incentive Plan, approved by its shareholders in January 2012, permits the Trust to grant stock options,
restricted stock, restricted stock units, performance shares awards and any one or more of the foregoing, up to a maximum of
600,000 shares. As of September 30, 2015, 414,925 shares were issued and 414,625 shares were outstanding pursuant to this
plan. An aggregate of 258,250 shares of restricted stock were granted pursuant to the Trust's 2009 equity incentive plan (the
"Prior Plan") and have not yet vested. No additional awards may be granted under the Prior Plan. The restricted shares that have
been granted under the 2012 Incentive Plan and the Prior Plan vest five years from the date of grant and under specified
circumstances, including a change in control, may vest earlier. For accounting purposes, the restricted shares are not included in
the outstanding shares shown on the consolidated balance sheets until they vest, but are included in the earnings per share
computation.
During the years ended September 30, 2015, 2014 and 2013, the Trust issued 142,950, 140,600 and 131,525 restricted
shares, respectively, under the Trust's equity incentive plans. The estimated fair value of restricted stock at the date of grant is
amortized ratably into expense over the applicable vesting period. For the years ended September 30, 2015, 2014 and 2013, the
18
BRT REALTY TRUST AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 2015
NOTE 9—SHAREHOLDERS' EQUITY - (continued)
Trust recognized $906,000, $805,000 and $691,000 of compensation expense, respectively. At September 30,2015, $2,184,000
has been deferred as unearned compensation and will be charged to expense over the remaining vesting periods. The weighted
average vesting period is 2.6 years.
Changes in number of shares outstanding under the Trust's equity incentive plans are shown below:
Outstanding at beginning of the year
Issued
Cancelled
Vested
Outstanding at the end of the year
Earnings (Loss) Per Share
Years Ended September 30,
2015
2014
648,225
142,950
—
(118,300)
672,875
627,425
140,600
(300)
(119,500)
648,225
2013
580,180
131,525
(22,000)
(62,280)
627,425
The following table sets forth the computation of basic and diluted earnings (loss) per share (dollars in thousands):
Numerator for basic and diluted earnings per share attributable to common
shareholders:
Net (loss) income attributable to common shareholders
$
(2,388) $
(9,454) $
5,013
2015
2014
2013
Denominator:
Denominator for basic earnings per share—weighted average shares
14,133,352
14,265,589
14,137,091
Denominator for diluted earnings per share—adjusted weighted average shares
and assumed conversions
Basic (loss) earnings per share
Diluted (loss) earnings per share
Share Buyback and Treasury Shares
14,133,352
14,265,589
14,137,091
$
$
(0.17) $
(0.17) $
(0.66) $
(0.66) $
0.35
0.35
In September 2013, the Board of Trustees approved a share repurchase program authorizing the Trust to spend up to
$2,000,000 through September 2015 to repurchase its shares of beneficial interest. In December 2014,the Board of Trustees
increased to $4 million the amount the Trust can spend to repurchase shares of beneficial interest and extended the program
through September 30, 2017. On December 12, 2014, the Trust purchased 345,081 shares of beneficial interest at a price of
$7.02 per share, or a total of $2,422,000.
NOTE 10—ADVISOR'S COMPENSATION AND RELATED PARTY TRANSACTIONS
Certain of the Trust's officers and trustees are also officers and directors of REIT Management Corp. ("REIT
Management") to which the Trust, pursuant to an amended and restated advisory agreement, as amended, paid advisory fees for
administrative services and investment advice. Fredric H. Gould, a trustee and former Chairman of the Board of the Trust, is the
sole shareholder of REIT Management.
The Advisory Agreement, as amended, provides that (i) it renews automatically on July 1st of each year, unless earlier
terminated with or without cause, (ii) the minimum and maximum fees payable in a twelve month period to REIT Management
were set at $750,000 and $4 million, respectively, subject to adjustment for any period of less than twelve months and (iii) the
Trust is to pay REIT Management the following annual fees which are to be paid on a quarterly basis:
•
•
.45% of the average book value of all real estate properties, excluding depreciation;
.25% of the average amount of the fair market value of marketable securities;
F-19
BRT REALTY TRUST AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 2015
NOTE 10—ADVISOR'S COMPENSATION AND RELATED PARTY TRANSACTIONS - (continued)
•
•
•
.15% of the average amount of cash and cash equivalents;
1.0% of the average principal amount of earning loans; and
.35% of the average amount of the fair market value of non-earning loans;
To the extent loans or real estate are held by joint ventures or other arrangements in which the Trust has an interest, fees
vary based on, among other things, the nature of the asset (i.e., real estate or loans), the nature of the Trust's involvement
(i.e., active or passive) and the extent of the Trust's equity interests in such arrangements.
Advisory fees amounted to $$2,448,000, $2,016,000 and $1,802,000 for the years ended September 30, 2015, 2014 and
2013, respectively, of which $214,000 and $831,000, in the years ended September 30, 2014 and 2013, respectively, is reported
as a component of discontinued operations. Effective as of December 31, 2015, the Advisory Agreement will terminate. In lieu
thereof, the Trust will retain personnel, including related parties, to provide the services previously provided pursuant to such
agreement. The aggregate fees in calendar 2016 for the provision of such services may not exceed $1.15 million.
Management of certain properties owned by the Trust and certain joint venture properties is provided by Majestic
Property Management Corp., a corporation in which Fredric H. Gould is the sole shareholder, under renewable year-to-year
agreements. Certain of the Trust's officers and Trustees are also officers and directors of Majestic Property Management Corp.
Majestic Property Management Corp. provides real property management, real estate brokerage and construction supervision
services to these properties. For the years ended September 30, 2015, 2014 and 2013, fees for these services aggregated
$56,000, $28,000, and $81,000, respectively.
Fredric H. Gould is also vice chairman of the board of directors of One Liberty Properties, Inc., a related party, and
certain of the Trust's officers and Trustees are also officers and directors of One Liberty Properties, Inc. In addition, Mr. Gould
is an executive officer and sole shareholder of Georgetown Partners, Inc., the managing general partner of Gould Investors L.P.,
a related party. Certain of the Trust's officers and Trustees are also officers and directors of Georgetown Partners, Inc. The
allocation of expenses for the shared facilities, personnel and other resources is computed in accordance with a shared services
agreement by and among the Trust and the affiliated entities and is included in general and administrative expense on the
statements of operations. During the years ended September 30, 2015, 2014 and 2013, allocated general and administrative
expenses reimbursed by the Trust to Gould Investors L.P. pursuant to the shared services agreement aggregated $532,000,
$474,000 and $633,000, respectively.
In the three months ended December 31, 2014, the Trust sold its last loan receivable with an outstanding balance of
$2,000,000 to Gould Investors, L.P. at face value.
Management of many of our properties is performed by our partners or their affiliates. In addition, we may pay an
acquisition fee to our partner upon the purchase of a property. Management and acquisition fees amounted to $2,678,000,
$2,797,000 and $1,808,000 for the years ended September 30, 2015, 2014 and 2013, respectively.
In addition to its share of rent included as part of the Shared Services Agreement, the Trust leased additional space in the
same building directly from an affiliate of Gould Investors, L.P. prior to the sale of the building in January 2015. The rent paid
was $64,000, $149,000 and $146,000 in the years ended September 30, 2015, 2014 and 2013, respectively.
The Trust obtains insurance ( primarily property insurance) in conjunction with Gould Investors, L.P. and reimburses
them for the Trust's share of the insurance cost. Insurance reimbursements to Gould for the years ended September 30, 2015,
2014 and 2013 were $15,000, $15,000 and $13,000 respectively.
On December 11, 2015, the Trust borrowed $8,000,000 from Gould Investors L.P. - see Note 6" Debt Obligations -
Unsecured Short Term Borrowing".
NOTE 11—DISCONTINUED OPERATIONS
Effective November 1, 2014 the Trust no longer had any loans in its portfolio and ceased originating loans. The loan
origination and servicing activities have been reclassified to discontinued operations on the consolidated statements of
operations and balances related to this activity have been reclassified as "Assets related to discontinued operations" on the
consolidated balance sheets.
F-20
BRT REALTY TRUST AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 2015
NOTE 12—SEGMENT REPORTING
Commencing with the the year ended September 30, 2014, management determined that the Trust operates in two
reportable segments: a multi-family real estate segment which includes the ownership and operation of its multi-family
properties, and an other real estate segment, which includes the ownership, operation and development of its other real estate
assets; in particular, the Newark Joint Venture. In the year ended September 30, 2013 the Trust operated in a third segment
which included the origination and servicing of the Trust's loan portfolio. The Trust no longer operates in this third segment and
the operations of this segment are reported as discontinued operations.
The following table summarizes the Trust's segment reporting for the year ended September 30, 2015 (dollars in
thousands):
Revenues:
Multi-Family
Real Estate
Other
Real Estate
Total
Rental and other revenues from real estate properties
$
75,643
$
5,715
$
81,358
Other income
Total revenues
Expenses:
Real estate operating expenses
Interest expense
Advisor's fee, related party
Property acquisition costs
General and administrative
Depreciation and amortization
Total expenses
Total revenues less total expenses
Gain on sale of real estate
Net income (loss)
Plus: net (income) loss attributable to non-controlling interests
Net income (loss) attributable to common shareholders
Segment assets at September 30, 2015
—
75,643
38,000
18,944
2,077
1,885
6,314
18,336
85,556
(9,913)
14,404
4,491
(4,482)
9
616,909
$
$
$
$
1,139
6,854
5,219
5,233
371
—
369
2,359
13,551
(6,697)
601
(6,096)
3,699
(2,397) $
$
218,970
1,139
82,497
43,219
24,177
2,448
1,885
6,683
20,695
99,107
(16,610)
15,005
(1,605)
(783)
(2,388)
835,879
F-21
BRT REALTY TRUST AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 2015
NOTE 12—SEGMENT REPORTING - (continued)
The following table summarizes the Trust's segment reporting for the year ended September 30, 2014 (dollars in
thousands):
Revenues:
Multi-Family
Real Estate
Other
Real Estate
Total
Rental and other revenues from real estate properties
$
60,362
$
4,892
$
65,254
Other income
Total revenues
Expenses:
Operating expenses relating to real estate properties
Interest expense
Advisor's fee, related party
Property acquisition costs
General and administrative
Depreciation and amortization
Total expenses
Loss from continuing operations
Plus: net loss attributable to non-controlling interests
Net (loss) income attributable to common shareholders before reconciling
adjustments
Other income
Discontinued operations
Net loss attributable to common shareholders
Segment assets at September 30, 2014
4
60,366
32,347
16,212
1,466
2,542
5,887
13,828
72,282
(11,916)
759
1,091
5,983
4,720
4,458
335
—
437
1,748
11,698
(5,715)
5,953
1,095
66,349
37,067
20,670
1,801
2,542
6,324
15,576
83,980
(17,631)
6,712
$
(11,157) $
238
(10,919)
65
1,400
(9,454)
$
$
569,357
$
163,246
F-22
BRT REALTY TRUST AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 2015
NOTE 12—SEGMENT REPORTING - (continued)
The following table summarizes the Trust's segment reporting for the year ended September 30, 2013 (dollars in
thousands):
Revenues:
Rental and other revenues from real estate properties
Other income
Total revenues
Expenses:
Operating expenses relating to real estate properties
Interest expense
Advisor's fee, related party
Property acquisition costs
General and administrative
Depreciation and amortization
Total expenses
Total revenues less total expenses
Gain on sale of partnership interest
(Loss) income from continuing operations
Discontinued operations:
Gain on sale of real estate assets
Income from discontinued operations
Net (loss) income
Plus: net loss attributable to non-controlling interests
Net (loss) income attributable to common shareholders before reconciling
adjustments
Reconciling adjustments:
Other income
Gain on sale of available-for-sale securities
Discontinued operations
Net income attributable to common shareholders
Segment assets at September 30, 2013
Multi-
Family
Real Estate
Other
Real Estate
Total
$
27,265
$
3,327
$
30,592
—
1,270
1,270
27,265
4,597
31,862
13,570
8,193
750
2,637
5,490
6,119
36,759
(9,494)
—
(9,494)
—
—
(9,494)
480
2,839
3,785
221
—
372
975
8,192
(3,595)
5,481
1,886
769
769
2,655
2,444
16,409
11,978
971
2,637
5,862
7,094
44,951
(13,089)
5,481
(7,608)
769
769
(6,839)
2,924
$
(9,014) $
5,099
(3,915)
141
530
8,257
5,013
$
$ 312,962
$ 149,487
F-23
BRT REALTY TRUST AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 2015
NOTE 13—FAIR VALUE OF FINANCIAL INSTRUMENTS
Financial Instruments Not Measured at Fair Value
The following methods and assumptions were used to estimate the fair value of each class of financial instruments that
are not reported at fair value on the consolidated balance sheets:
Cash and cash equivalents, restricted cash, accounts receivable (included in other assets), accounts payable and accrued
liabilities: The carrying amounts reported in the balance sheets for these instruments approximate their fair value due to the
short term nature of these accounts.
Junior subordinated notes: At September 30, 2015 and 2014, the estimated fair value of the Trust's junior subordinated
notes is less than their carrying value by approximately $20,174,000, and $22,527,000, respectively based on market interest
rates of 6.38% and 6.71%, respectively.
Mortgages payable: At September 30, 2015 and 2014,the estimated fair value of the Trust's mortgages payable is
greater than their carrying value by approximately $890,000 assuming market interest rates between 1.99% and 15.00%. At
September 30, 2014, the estimated fair value was lower than the carrying value by $9,451,000, assuming market interest rates
between 2.22% and 9.37%. Market interest rates were determined using current financing transaction information provided by
third party institutions.
Considerable judgment is necessary to interpret market data and develop estimated fair value. The use of different market
assumptions and/or estimation methodologies may have a material effect on the estimated fair value assumptions. The fair
values of the real estate loans and debt obligations are considered to be Level 2 valuations within the fair value hierarchy.
Financial Instruments Measured at Fair Value
The Trust's fair value measurements are based on the assumptions that market participants would use in pricing the asset
or liability. As a basis for considering market participant assumptions in fair value measurements, there is a fair value hierarchy
that distinguishes between markets participant assumptions based on market data obtained from sources independent of the
reporting entity and the reporting entity's own assumptions about market participant assumptions. Level 1 assets/liabilities are
valued based on quoted prices for identical instruments in active markets, Level 2 assets/liabilities are valued based on quoted
prices in active markets for similar instruments, on quoted prices in less active or inactive markets, or on other "observable"
market inputs and Level 3 assets/liabilities are valued based significantly on "unobservable" market inputs. The Trust does not
currently own any financial instruments that are classified as Level 3. Set forth below is information regarding the Trust's
financial assets and liabilities measured at fair value as of September 30, 2015 (dollars in thousands):
Financial Liabilities:
Interest rate swap
Carrying and
Fair Value
Fair Value Measurements
Using Fair Value Hierarchy
Level 2
Level 1
$
(58)
— $
(58)
Derivative financial instruments: Fair values are approximated using widely accepted valuation techniques including
discounted cash flow analysis on the expected cash flows of the derivatives. This analysis reflects the contractual terms of the
derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves, and
implied volatilities. At September 30, 2015, these derivatives are included in accounts payable and accrued liabilities on the
consolidated balance sheet.
Although the Trust has determined that the majority of the inputs used to value its derivatives fall within Level 2 of the
fair value hierarchy, the credit valuation adjustments associated with it utilize Level 3 inputs, such as estimates of current credit
spreads to evaluate the likelihood of default by itself and its counterparty. As of September 30, 2015, the Trust assessed the
significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and determined
that the credit valuation adjustments are not significant to the overall valuation of its derivatives. As a result, the Trust
determined that its derivative valuation is classified in Level 2 of the fair value hierarchy.
F-24
BRT REALTY TRUST AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 2015
NOTE 14—COMMITMENT
The Trust maintains a non-contributory defined contribution 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 salary
as defined therein. Pension expense approximated $322,000, $322,000 and $310,000 during the years ended September 30,
2015, 2014 and 2013, respectively. At September 30, 2015 and 2014, $50,000 and $48,000, respectively, remains unpaid and is
included in accounts payable and accrued liabilities on the consolidated balance sheets.
NOTE 15—DERIVATIVE FINANCIAL INSTRUMENTS
Cash Flow Hedges of Interest Rate Risk
The Trust's objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure
to interest rate movements. To accomplish this objective, the Trust primarily uses interest rate swaps as part of its interest rate
risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable amounts from a
counterparty in exchange for the Trust making fixed-rate payments over the life of the agreements without exchange of the
underlying notional amount.
The effective portion of changes in the fair value of derivatives, designated and that qualify as cash flow hedges, is
recorded in accumulated other comprehensive income (loss) on our consolidated balance sheets and is subsequently reclassified
into earnings in the period that the hedged forecasted transaction affects earnings. In March 2012 the Trust entered into an
interest rate swap agreement used to hedge the variable cash flows associated with existing variable-rate debt.
Amounts reported in accumulated other comprehensive income (loss) related to derivatives will be reclassified to interest
expense as interest payments are made on the Trust's variable-rate debt.
As of September 30, 2015, the Trust had the following outstanding interest rate derivative that was designated as a cash flow
hedge of interest rate risk (dollars in thousands):
Interest Rate Derivative
Interest Rate Swap
Notional
Amount
Rate
Maturity
$
1,665
5.25%
April 1, 2022
September 30, 2015
Balance Sheet Location
Other Assets
Accounts payable and accrued liabilities
Derivatives as of:
Fair
Value
$ —
$
58
September 30, 2014
Balance Sheet Location
Other assets
Accounts payable and accrued liabilities
Fair
Value
$
$
—
8
The following table presents the effect of the Trust's derivative financial instrument on the consolidated statements of
comprehensive income (loss) for the years ended September 30, 2015, 2014 and 2013 (dollars in thousands):
(Loss) amount of gain (loss) recognized on derivative in Other Comprehensive Income
Amount of (loss) reclassified from Accumulated Other Comprehensive (loss) income into
Interest Expense
$
$
Year Ended
September 30,
2015
2014
2013
(83) $
(37) $
61
(33) $
(36) $
(37)
No gain or loss was recognized related to hedge ineffectiveness or to amounts excluded from effectiveness testing on the
Trust's cash flow hedges during the years ended September 30, 2015, 2014 or 2013. During the twelve months ending
F-25
BRT REALTY TRUST AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 2015
NOTE 15—DERIVATIVE FINANCIAL INSTRUMENTS - (continued)
September 30, 2016, the Trust estimates an additional $32,000,000 will be reclassified from other comprehensive income
as an increase to interest expense.
Credit-risk-related Contingent Features
The agreement between the Trust and its derivatives counterparty provides that if the Trust defaults on any of its
indebtedness, including default where repayment of the indebtedness has not been accelerated by the lender, the Trust could be
declared in default on its derivative obligation.
As of September 30, 2015, the fair value of the derivative in a net liability position, which includes accrued interest, but
excludes any adjustment for nonperformance risk related to this agreement, was $63,000,000. As of September 30, 2015, the
Trust has not posted any collateral related to this agreement. If the Trust had been in breach of this agreement at September 30,
2015, it could have been required to settle its obligations thereunder at its termination value of $63,000,000.
NOTE 16—QUARTERLY FINANCIAL DATA (Unaudited)
Revenues
Expenses
Revenues less expenses
Gain on sale of real estate
(Loss) from continuing operations
Net loss
Plus: net loss attributable to non-controlling
interests
Net (loss) income attributable to common
shareholders
Basic and per share amounts attributable to
common shareholders
Continuing operations
Discontinued operations
Basic and diluted loss per share
2015
1st Quarter
Oct. - Dec
2nd Quarter
Jan. - March
3rd Quarter
April - June
4th Quarter
July - Sept.
Total
For Year
$
19,777
$
20,472
$
21,225
$
21,023
$
82,497
23,304
(3,527)
—
(3,527)
(3,527)
23,635
(3,163)
2,777
(386)
(386)
24,733
(3,508)
—
(3,508)
(3,508)
27,435
(6,412)
12,228
5,816
5,816
99,107
(16,610)
15,005
(1,605)
(1,605)
1,029
(362)
930
(2,380)
(783)
(2,498) $
(748) $
(2,578) $
3,436
$
(2,388)
(0.18) $
—
(0.18) $
(0.05) $
—
(0.05) $
(0.18) $
—
(0.18) $
0.24
—
0.24
$
$
(0.17)
—
(0.17)
$
$
$
F-26
BRT REALTY TRUST AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
September 30, 2015
NOTE 16—QUARTERLY FINANCIAL DATA (Unaudited) - continued)
2014
1st Quarter
Oct. - Dec
2nd Quarter
Jan. - March
3rd Quarter
April - June
4th Quarter
July - Sept.
Total
For Year
$
14,078
$
15,156
$
17,771
$
19,409
$
66,414
18,681
(4,603)
852
(3,751)
19,028
(3,872)
361
(3,511)
21,959
(4,188)
185
(4,003)
24,312
(4,903)
2
(4,901)
83,980
(17,566)
1,400
(16,166)
1,018
(2,733) $
919
(2,592) $
3,672
(331) $
1,103
(3,798) $
6,712
(9,454)
(0.25) $
0.06
(0.19) $
(0.21) $
0.03
(0.18) $
(0.03) $
0.01
(0.02) $
(0.27) $
—
(0.27) $
(0.76)
0.10
(0.66)
$
$
$
Revenues
Expenses
(Loss) from continuing operations
Income from discontinued operations:
Discontinued operations
Net loss
Plus: net loss attributable to non-controlling
interests
Net loss attributable to common shareholders
Basic and per share amounts attributable to
common shareholders
Continuing operations
Discontinued operations
Basic and diluted loss per share
NOTE 17—SUBSEQUENT EVENTS
Subsequent events have been evaluated and any significant events, relative to our consolidated financial statements as of
September 30, 2015 that warrant additional disclosure have been included in the notes to the consolidated financial statements.
F-27
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2
-
F
BRT REALTY TRUST AND SUBSIDIARIES
SCHEDULE III—REAL ESTATE PROPERTIES AND ACCUMULATED DEPRECIATION
(Including Real Estate Property Held for Sale)
SEPTEMBER 30, 2015
(Dollars in thousands)
Notes to the schedule:
(a) Total real estate properties
Less: Accumulated depreciation and amortization
Net real estate properties
$ 799,957
(42,930)
$ 757,027
(b) Amortization of the Trust's leasehold interests is over the shorter of estimated useful life or the term of the
respective land lease.
(c)
Information not readily obtainable.
A reconciliation of real estate properties is as follows:
Balance at beginning of year
Additions:
Acquisitions
Capital improvements
Capitalized development expenses and carrying costs
Deductions:
Sales
Depreciation/amortization/paydowns
2015
2014
2013
$
635,612
$
402,896
$
190,317
129,425
205,220
185,453
8,442
55,623
8,273
34,857
3,371
30,947
193,490
248,350
219,771
51,394
20,681
72,075
80
15,554
15,634
117
7,075
7,192
Balance at end of year
$
757,027
635,612
$
402,896
F-29