BRT Apartments Corp. - Quarter Report: 2011 March (Form 10-Q)

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

FORM 10-Q

 

x

Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

For the quarterly period ended March 31, 2011

 

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)

 

 

 

516-466-3100

(Registrant’s telephone number, including area code)

 

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes x  No 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 o  No 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 definition of “large accelerated filer,” “accelerated filer” and “small reporting company” in Rule 12b-2 of the Exchange Act.  (Check one):

 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes o  No x

 

Indicate the number of shares outstanding of each of the issuer’s classes of stock, as of the latest practicable date.

 

14,070,774 Shares of Beneficial Interest,

$3 par value, outstanding on May 6, 2011

 

 

 

Part 1 - FINANCIAL INFORMATION

Item 1. Financial Statements

 

BRT REALTY TRUST AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Amounts in thousands, except per share data)

 

		March 31, 2011 (Unaudited)			September 30, 2010
ASSETS
Real estate loans
Earning interest		$	84,356		$	17,263
Non-earning interest		8,488			35,143
		92,844			52,406
Deferred fee income		(1,289		)	(245		)
Allowance for possible losses		—			(3,165		)
		91,555			48,996
Purchase money mortgage loans		5,340			5,340
Real estate properties net of accumulated depreciation of $2,159 and $1,806		54,515			55,843
Investment in unconsolidated ventures		815			775
Cash and cash equivalents		21,700			58,497
Available-for-sale securities at market		4,674			10,270
Other assets		5,489			6,545
Total Assets		$	184,088		$	186,266
LIABILITIES AND EQUITY
Liabilities:
Junior subordinated notes		$	37,400		$	40,815
Mortgages payable		12,558			12,557
Accounts payable and accrued liabilities		1,156			1,332
Deposits payable		4,081			1,723
Total Liabilities		55,195			56,427
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, 15,001 and 15,148 issued		45,003			45,445
Additional paid-in capital		171,235			172,268
Accumulated other comprehensive income—net unrealized gain on available-for-sale securities		1,189			1,594
Accumulated deficit		(82,050		)	(83,389		)
Cost of 1,422 and 1,460 treasury shares of beneficial interest		(11,070		)	(11,364		)
Total BRT Realty Trust shareholders’ equity		124,307			124,554
Non-controlling interests		4,586			5,285
Total Equity		128,893			129,839
Total Liabilities and Equity		$	184,088		$	186,266

 

See accompanying notes to consolidated financial statements.

 

1

 

BRT REALTY TRUST AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(Dollars in thousands, except share data)

 

		Three Months Ended						Six Months Ended
		March 31,						March 31,
		2011			2010			2011			2010
Revenues:
Interest on real estate loans		$	1,654		$	714		$	2,716		$	1,159
Interest on purchase money mortgage loans		92			335			186			685
Loan fee income		275			13			518			115
Rental revenue from real estate properties		959			862			1,813			1,739
Recovery of previously provided allowance		2,566			—			2,566			—
Other, primarily investment income		151			103			350			210
Total revenues		5,697			2,027			8,149			3,908
Expenses:
Interest on borrowed funds		542			722			1,199			1,438
Advisor’s fees, related party		241			204			462			397
Provision for loan loss		—			—			—			3,165
Foreclosure related professional fees		167			148			357			169
General and administrative—including $219 and $191 to related party for the three months ended and $421 and $433 for the six months ended, respectively		1,629			1,588			3,060			3,016
Operating expenses relating to real estate properties		850			844			1,766			1,669
Amortization and depreciation		184			169			372			353
Total expenses		3,613			3,675			7,216			10,207
Total revenues less total expenses		2,084			(1,648		)	933			(6,299		)
Equity in earnings of unconsolidated ventures		86			35			135			110
Gain on sale of available-for-sale securities		593			—			1,014			1,586
Loss on extinguishment of debt		(2,138		)	—			(2,138		)	—
Income (loss) from continuing operations		625			(1,613		)	(56		)	(4,603		)
Discontinued operations:
Loss from operations		—			(136		)	—			(542		)
Impairment charges		—			—			—			(745		)
Gain on sale of real estate assets		697			22			697			1,275
Discontinued operations		697			(114		)	697			(12		)
Net income (loss)		1,322			(1,727		)	641			(4,615		)
Less net loss attributable to non-controlling interests		525			370			698			737
Net income (loss) attributable to common shareholders		$	1,847		$	(1,357	)	$	1,339		$	(3,878	)
Basic and diluted per share amounts attributable to common shareholders:
Income (loss) from continuing operations		$	.08		$	(.09	)	$	.05		$	(.28	)
Discontinued operations		.05			(.01		)	.05			—
Basic and diluted earnings (loss) per share		$	.13		$	(.10	)	$	.10		$	(.28	)

 

2

 

BRT REALTY TRUST AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)

(Unaudited)

(Dollars in thousands, except share data)

 

		Three Months Ended						Six Months Ended
		March 31,						March 31,
		2011			2010			2011			2010
Amounts attributable to BRT Realty Trust:
Income (loss) from continuing operations		$	1,150		$	(1,243	)	$	642		$	(3,866	)
Discontinued operations		697			(114		)	697			(12		)
Net income (loss)		$	1,847		$	(1,357	)	$	1,339		$	(3,878	)
Weighted average number of common shares outstanding:
Basic and diluted		14,047,924			14,090,229			14,012,404			13,647,654

 

See accompanying notes to consolidated financial statements.

 

3

 

BRT REALTY TRUST AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EQUITY

(Unaudited)

(Dollars in thousands, except share data)

 

		Shares of Beneficial Interest			Additional Paid-In Capital			Accumulated Other Comprehensive Income			Accumulated Deficit			Treasury Shares			Non Controlling Interest			Total
Balances, September 30, 2010		$	45,445		$	172,268		$	1,594		$	(83,389	)	$	(11,364	)	$	5,285		$	129,839
Restricted stock vesting					(294		)							294						—
Compensation expense — restricted stock		—			426			—			—			—			—			426
Contributions from non-controlling Interests		—			—			—			—			—			349			349
Distributions to non-controlling interests		—			—			—			—			—			(66		)	(66		)
Purchase of minority interest					(429		)										(284		)	(713		)
Shares repurchased (147,387)		(442		)	(736		)	—			—			—			—			(1,178		)
Net income		—			—			—			1,339			—			(698		)	641
Other comprehensive loss - net unrealized loss on available-for- sale securities (net of reclassification adjustment for gains of $330 included in net income)		—			—			(405		)	—			—			—			(405		)
Comprehensive income		—			—			—			—			—			—			236
Balances, March 31, 2011		$	45,003		$	171,235		$	1,189		$	(82,050	)	$	(11,070	)	$	4,586		$	128,893

 

See accompanying notes to consolidated financial statements.

 

4

 

BRT REALTY TRUST AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(Dollars in Thousands)

 

		Six Months Ended March 31,
		2011			2010
Cash flows from operating activities:
Net income (loss)		$	641		$	(4,615	)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Provision for loan loss		—			3,165
Recovery of previously provided allowance		(2,566		)	—
Impairment charges		—			745
Amortization and depreciation		468			450
Amortization of deferred fee income		(495		)	(114		)
Accretion of junior subordinated notes principal		277			287
Amortization of securities discount		(28		)	(34		)
Amortization of restricted stock		426			431
Gain on sale of real estate assets from discontinued operations		(697		)	(1,275		)
Gain on sale of available for sale securities		(1,014		)	(1,586		)
Loss on extinguishment of debt		2,138			—
Equity in earnings of unconsolidated joint ventures		(135		)	(110		)
Distribution of earnings of unconsolidated joint ventures		95			100
Increase in straight line rent		(49		)	(218		)
Increases and decreases from changes in other assets and liabilities:
(Increase) decrease in interest and dividends receivable		(113		)	337
Decrease in prepaid expenses		1,058			777
Increase (decrease) in accounts payable and accrued liabilities		2,183			(1,340		)
Decrease (increase) in deferred costs		—			(38		)
Increase in security deposits and other receivable		(496		)	(146		)
Other		37			(37		)
Net cash provided by (used in) operating activities		1,730			(3,221		)
Cash flows from investing activities:
Collections from real estate loans		21,165			7,255
Additions to real estate loans		(88,858		)	(10,525		)
Proceeds from the sale of loans and loan participations		26,500			16,815
Loan loss recoveries		9			37
Net costs capitalized to real estate owned		(1,294		)	(1,585		)
Collection of loan fees		1,583			248
Proceeds from sale of real estate owned		3,365			12,474
Proceeds from sale of available for sale securities		6,288			3,425
Purchase of available for sale securities		(55		)	—
Distributions of capital of unconsolidated joint ventures		—			1,701
Purchase of interest from minority partner		(713		)	—
Net cash (used in) provided by investing activities		(32,010		)	29,845
Cash flows from financing activities:
Repayment of junior subordinated notes		(5,000		)	—
Proceeds from mortgages payable		136			731
Mortgage principal payments		(135		)	(45		)
Increase in deferred borrowing costs		(623		)	—

 

5

 

BRT REALTY TRUST AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

(Unaudited)

(Dollars in Thousands)

 

		Six Months Ended March 31,
		2011			2010
Cash distribution — common shares		—			(1,334		)
Expenses associated with stock issuance		—			(60		)
Capital contributions from non-controlling interests		349			—
Capital distributions to non-controlling interests		(66		)	(120		)
Repurchase of shares of beneficial interest		(1,178		)	(123		)
Net cash used in financing activities		(6,517		)	(951		)
Net (decrease) increase in cash and cash equivalents		(36,797		)	25,673
Cash and cash equivalents at beginning of period		58,497			25,708
Cash and cash equivalents at end of period		$	21,700		$	51,381
Supplemental disclosure of cash flow information:
Cash paid during the period for interest		$	335		$	300
Non cash investing and financing activity:
Common stock dividend portion paid in the Trust’s common shares		$	—		$	11,916
Reclassification of real estate properties to real estate held for sale		$	—		$	8,552
Reclassification of deferred costs to real estate properties		$	396		$	—

 

See accompanying notes to consolidated financial statements.

 

6

 

BRT REALTY TRUST AND SUBSIDIARIES

Notes to Consolidated Financial Statements

March 31, 2011

 

Note 1 — Organization and Background

 

BRT Realty Trust is a business trust organized under the laws of the Commonwealth of Massachusetts.  Our primary business is to originate and hold for investment senior mortgage loans secured by commercial and multi-family real estate property in the United States. We recently began originating loans to persons purchasing their own mortgage debt or purchasing third party mortgage debt, in each case at a discount to the principal amount thereof.  The purchase of third party mortgage debt is generally structured as a repurchase agreement pursuant to which we purchase the mortgage and our counterparty is obligated to repurchase such mortgage within a specified period. The loans we originate generally have relatively high yields and are short-term or bridge loans with a duration ranging from six months to one year.  Historically we have loaned money at a floating rate of interest based on a spread over the prime rate.  More recently, the majority of the loans we have originated have been fixed rate loans.  We receive an origination fee for the loans we originate. We conduct our operations to qualify as a real estate investment trust, or REIT, for Federal income tax purposes.

 

From time-to-time we originate junior commercial and multi-family mortgage loans, participate as an equity investor in, and mortgage lender to, joint ventures which acquire income producing real estate property, and purchase securities of other REITs.

 

Note 2 - Basis of Preparation

 

The accompanying interim unaudited consolidated financial statements as of March 31, 2011 and for the three and six months ended March 31, 2011 and March 31, 2010 reflect all normal recurring adjustments which are, in the opinion of management, necessary for a fair presentation of the results for such interim periods. The results of operations for the three and six months ended March 31, 2011 and March 31, 2010 are not necessarily indicative of the results for the full year.  The balance sheet as of September 30, 2010 has been derived from the audited financial statements at that date but does not include all the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements.

 

Certain items on the consolidated financial statements for the preceding period have been reclassified to conform with the current presentation of the consolidated financial statements.

 

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 it is the primary beneficiary.  Material intercompany items and transactions have been eliminated. BRT Realty Trust and its subsidiaries are hereinafter referred to as “BRT” or the “Trust.”

 

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 variable interest entities, the Trust has determined that such joint ventures should be accounted for under the equity method of accounting for financial statement purposes.

 

RBH-TRB Newark Holdings LLC (“Newark Joint Venture”) was determined to be a Variable Interest Entity (“VIE”) because the Trust has voting rights that are not proportionate to its economic interests.  The Trust was determined to be the primary beneficiary as it has the power to direct the activities that

 

7

 

Note 2 - Basis of Preparation (Continued)

 

most significantly impact the economic performance and the obligation to absorb losses that could potentially be significant to this VIE.  For these reasons, the Trust has consolidated the operations of this VIE in the Trust’s consolidated financial statements.

 

These statements should be read in conjunction with the consolidated financial statements and related notes which are included in BRT’s Annual Report on Form 10-K for the year ended September 30, 2010.

 

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.  Actual results could differ from those estimates.

 

Note 3 - Equity

 

Common Share Dividend Distribution

 

During the quarter ended March 31, 2011, the Trust did not declare a dividend to its shareholders.

 

Restricted Shares

 

An aggregate of 850,000 shares have been authorized for issuance under the Trust’s equity incentive plans, of which 231,885 shares remain available for future grants at March 31, 2011. The shares issued vest five years from the date of issuance and under specified circumstances, including a change in control, may vest earlier.  Since inception of the plans, 126,410 shares have vested. For accounting purposes, the restricted stock is not included in the outstanding shares shown on the consolidated balance sheet until they vest, but is included in the earnings per share computation.  The estimated fair value of restricted stock at the date of grant is being amortized ratably into expense over the applicable vesting period. For the three months ended March 31, 2011 and 2010, the Trust recorded $218,000 and $213,000 of compensation expense respectively, and for the six months ended March 31, 2011 and 2010, recorded $426,000 and $431,000 of compensation expense, respectively, as a result of the amortization of restricted shares.  At March 31, 2011, $2,222,000 has been deferred as unearned compensation and will be charged to expense over the remaining weighted average vesting period of approximately 3.35 years.

 

Per Share Data

 

Basic earnings (loss) per share attributable to holders of shares of beneficial interest was determined by dividing net income (loss) for the period by the weighted average number of common shares outstanding during each period.

 

Diluted earnings (loss) per share attributable to holders of shares of beneficial interest reflects the potential dilution that could occur if securities or other contracts to issue common shares were exercised or converted into common shares or resulted in the issuance of common shares that shared in the earnings of the Trust.

 

Basic and diluted shares outstanding for the three months ended March 31, 2011 and 2010 were 14,047,924 and 14,090,229, respectively, and for the six months ended March 31, 2011 and 2010 were 14,012,404 and 13,647,654, respectively.

 

The impact of dilutive securities is not included in the computation of loss per share for the three and six months ended March 31, 2010, as the inclusion of such common share equivalents would be anti-dilutive.

 

8

 

Note 4 - Real Estate Loans and Purchase Money Mortgages

 

At March 31, 2011, information relating to real estate loans and purchase money mortgages, all of which are first mortgage loans, is summarized as follows (dollars in thousands):

 

		Earning Interest			Non-Earning Interest			Total Real Estate Loans
Multi-family residential		$	22,027		$	—		$	22,027
Condominium units (existing multi-family)		11,370			8,488			19,858
Office		34,590			—			34,590
Retail		4,149			—			4,149
Hotel		12,220			—			12,220
		84,356			8,488			92,844
Deferred fee income		(1,247		)	(42		)	(1,289		)
Real estate loans, net		83,109			8,446			91,555
Purchase money mortgage loans:
Multi-family residential		5,340			—			5,340
Real estate loans and purchase money mortgage loans, net		$	88,449		$	8,446		$	96,895

 

During the quarter ended March 31, 2011, a non-performing loan with a book value of $25.9 million (before loan loss allowance of $2,985,000), secured by a vacant loft building (with retail) and located in New York City, was sold to an unaffiliated third party for $25.5 million.  The Trust recorded a charge off on this loan of $429,000.

 

A second non-performing loan, with a book value of $580,000 (before loan loss allowance of $180,000) and secured by a vacant multi-family property located in New York City was satisfied in the current quarter.  The Trust received proceeds of $401,000 and charged off the remaining balance of $179,000.

 

At March 31, 2011, the Trust had one non-earning loan outstanding, which was originated in October 2008.  The loan has an aggregate outstanding principal balance of $8,488,000, and represents 8.6% of total real estate loans and 4.6% of total assets.  This collateral dependent loan, secured by condominium units, is recourse to the borrower.  The loan is not impaired and no allowance for loan loss has been established.  This loan represents a pari passu interest in a loan with a principal balance of $16,976,000. The borrower filed for protection under Chapter XI of the Federal Bankruptcy Code in December 2009 and has filed a plan of reorganization that the Trust is contesting.  The Trust is seeking to enforce judgments against the individual guarantors of this loan.

 

The Trust recognized cash basis interest of $153,000 and $146,000 on non-earning loans in the three months ended March 31, 2011 and March 31, 2010 and $303,000 and $277,000 in the six months ended March 31, 2011 and 2010, respectively.

 

9

 

Note 4 - Real Estate Loans and Purchase Money Mortgages (Continued)

 

At March 31, 2011, three separate, unaffiliated borrowers had loans outstanding in excess of 5% of total assets. Information regarding these loans is set forth in the table below (dollars in thousands):

 

		Gross Loan Balance			# of Loans		% of Gross Loans		% of Assets		State		Status
Office building		$	22,572		1		22.9	%	12.3	%	NY		Performing
Hotel		$	12,220		1		12.5	%	6.6	%	FL		Performing
Multi-family		$	11,550		1		11.8	%	6.3	%	NY		Performing

 

The Trust’s portfolio consists of senior mortgage loans, secured by residential and commercial property, 67% of which are located in New York, 20% in Florida and 13% in 5 other states.

 

Note 5 - Allowance for Possible Loan Losses

 

An analysis of the loan loss allowance at March 31, 2011 and March 31, 2010, respectively, is as follows (dollars in thousands):

 

		Three Months Ended March 31,						Six Months Ended March 31,
		2011			2010			2011			2010
Balance at beginning of period		$	3,165		$	4,820		$	3,165		$	1,618
Recovery of previously provided allowance		(2,566		)	—			(2,566		)	—
Provision for loan loss		—			—			—			3,165
Charge-offs		(608		)	—			(608		)	—
Recoveries		9			—			9			37
Balance at end of period		—			$	4,820		—			$	4,820

 

A loan evaluated for impairment is deemed to be impaired when based on current information and events, it is probable, in the judgment of management, that the Trust will not be able to collect all amounts due according to the contractual terms of the loan documents. When making this evaluation numerous factors are considered, including, market evaluations of the underlying collateral, estimated operating cash flow from the property during the projected holding period, and estimated sales value computed by applying an estimated capitalization rate to the projected stabilized net operating income of the specific property, less selling costs, discounted at market discount rates. If upon completion of the evaluation, the value of the collateral securing the loan is less than the recorded investment in the loan, an allowance is created with a corresponding charge to expense. The fair values related to the collateral securing our impaired loans are based on discounted cash flow models, which are considered to be Level 3 within the fair value hierarchy.  When the Trust acquires title to the property, the loan loss allowance is adjusted by charging off all amounts related to the loan and recording the property at the adjusted carrying value of the loan.

 

In the quarter ended March 31, 2011, the Trust reversed $2,566,000 of previously provided loan loss allowance.  This allowance related primarily to a non-performing loan which was sold during the quarter.

 

10

 

Note 6 - Real Estate Properties

 

A summary of real estate properties owned is as follows (dollars in thousands):

 

		September 30, 2010 Balance			Costs Capitalized			Depreciation, Amortization and Paydowns			March 31, 2011 Balance
Shopping centers/Retail		$	2,957		—			$	(52	)	$	2,905
Multi-family and coop apartments		2,969			$	10		(2,668		)(a)	311
Commercial (b)		41,945			1,681			(299		)	43,327
Land		7,972			—			—			7,972
Total real estate properties		$	55,843		$	1,691		$	(3,019	)	$	54,515

 

(a)		Includes $2,597,000 which represents the payoff of a mortgage loan which was classified as real estate for accounting purposes.
(b)		Represents the real estate assets of RBH-TRB Newark Holdings LLC, a consolidated VIE which owns operating and development properties in Newark, New Jersey. These properties contain a mix of office and retail space, totaling approximately 594,000 square feet. These assets are subject to blanket mortgages aggregating $27,000,000, held by the Trust, which are eliminated in consolidation. Several of the assets are also encumbered by other mortgages having an aggregate principal balance of $10,468,000 at March 31, 2011.
		The risks associated with our involvement in this VIE, as described in our Annual Report on Form 10-K for the fiscal year ended September 30, 2010, have not changed in the three or six months ended March 31, 2011.
		For the three months ended March 31, 2011 and March 31, 2010, this VIE recorded revenues of $608,000 and $509,000, respectively, and operating expenses of $704,000 and $649,000, respectively, excluding interest expense and depreciation. For the six months ended March 31, 2011 and 2010, this VIE recorded revenues of $1,147,000 and $1,026,000, respectively, and operating expenses of $1,407,000 and $1,274,000, respectively, excluding interest expense and depreciation. The Trust made a capital contribution to this venture of $350,000 during the six months ended March 31, 2011. Since March 31, 2011, the Trust made a capital contribution of $1,915,000 to this venture, representing its proportionate share of capital required to fund the operations of the venture for its next fiscal year.

 

Note 7 — Investment in Unconsolidated Ventures

 

The Trust is a partner in two unconsolidated ventures, each of which owns and operates one property.  The Trust’s share of the ventures’ earnings was $86,000 and $35,000 for the three months ended March 31, 2011 and 2010 and $135,000 and $110,000 for the six months ended March 31, 2011 and 2010, respectively.  The Trust’s investment in these unconsolidated ventures totaled $815,000 and $775,000 at March 31, 2011 and September 30, 2010, respectively.

 

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Note 8 — Available-For-Sale Securities

 

At March 31, 2011, the Trust’s available-for-sale securities which consisted solely of equity securities. These securities had a market value of $4,677,000 and a cost basis of $3,488,000.  Unrealized gains totaled $1,225,000 and unrealized losses totaled $36,000.

 

Unrealized gains and losses are reflected as accumulated other comprehensive income-net unrealized gain on available-for-sale securities in the accompanying consolidated balance sheets.

 

The Trust’s available-for-sale equity securities were determined to be Level 1 financial assets within the valuation hierarchy established by current accounting guidance, and the valuation is based on current market quotes received from financial sources that trade such securities.  All of the available-for-sale securities in an unrealized loss position are equity securities and amounts are not considered to be other-than-temporary impairment because the Company expects the value of these securities to recover and plans on holding them until at least such recovery.

 

During the three months ended March 31, 2011, the Trust sold available-for-sale equity securities for $2,231,000 with a basis of $2,130,000, determined using average cost.  Accordingly, the Trust recognized a gain of $101,000 from these sales.  In the six months ended March 31, 2011, the Trust sold equity securities for $2,871,000 with a basis of $2,349,000, determined using average cost.  Accordingly, the Trust recognized a gain of $522,000 from these sales.

 

During the three and six months ended March 31, 2011, the Trust sold available-for-sale debt securities for $3,417,000 which had a basis of $2,925,000 determined using specific cost.  Accordingly, the Trust recognized a gain of $492,000 from these sales.

 

During the three and six months ended March 31, 2010, the Trust sold available-for-sale equity securities for $2,425,000.  The basis of these securities was $975,000, determined using average cost.  Accordingly, the Trust recognized a gain of $1,450,000 from these sales. The Trust also sold an available-for-sale debt security for $1,000,000.  The basis of this security was $864,000 and was determined using specific identification.  Accordingly, the Trust recognized a gain of $136,000 on this sale.

 

Note 9 — Debt Obligations

 

Debt obligations consist of the following (dollars in thousands):

 

		March 31, 2011			September 30, 2010
Junior subordinated notes		$	37,400		$	40,815
Mortgages payable		12,558			12,557
Total debt obligations		$	49,958		$	53,372

 

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Note 9 — Debt Obligations (Continued)

 

Junior Subordinated Notes

 

On March 15, 2011, the Trust restructured its existing junior subordinated notes resulting in the repayment of $5,000,000 of the outstanding notes at par and the reduction of the interest rates on the remaining outstanding notes as set forth in the table below:

 

Interest period		Prior Interest Rate		New Interest Rate
March 15, 2011 through July 31, 2012		3.50	%	3.00	%
August 1, 2012 through April 29, 2016		8.37	%	4.90	%
April 30, 2016 through April 30, 2036		LIBOR + 2.95	%	LIBOR + 2.00	%

 

At March 31, 2011 the outstanding balance of the subordinated notes was $37,400,000.

 

The Trust accounted for the restructuring of this debt as an extinguishment of debt.  For the three and six months ended March 31, 2011, the Trust recognized a loss on the extinguishment of the debt of $2,138,000, which represented the unamortized principal of $1,308,000 and unamortized costs of $830,000.  The Trust also incurred third party costs of $512,000 which were deferred and will be amortized over the remaining life of the notes.

 

Interest expense for the three and six months ended March 31, 2011 was $483,000 and $1,004,000, respectively.  For the three and six months ended March 31, 2010, interest expense was $515,000 and $1,029,000 respectively.  Amortization of the deferred costs was $7,000 and $15,000 for the three and six months ended March 31, 2011, respectively.  For the three and six months ended March 31, 2010, amortization of these costs was $8,000 and $16,000, respectively.

 

Mortgages Payable

 

The Trust has five first mortgages and one second mortgage outstanding with an aggregate principal balance at March 31, 2011 of $12,558,000.  One of these mortgages, with an outstanding balance at March 31, 2011 of $2,090,000, is secured by a long term leasehold position on a shopping center owned by a consolidated joint venture.  The remaining five mortgages, with outstanding balances at March 31, 2011 of $10,468,000, are secured by individual parcels of two land assemblages in Newark, NJ owned by another consolidated joint venture. The Trust has guaranteed $493,000 of one of the mortgage obligations at March 31, 2011, based on the current outstanding balance.  The guarantee will increase to $2,154,000 if the full amount of the $8,600,000 loan is drawn and outstanding.

 

Interest expense relating to the mortgages payable for the three and six months ended March 31, 2011 was $287,000 and $577,000 respectively.  For the three and six months ended March 31, 2010, interest expense was $198,000 and $393,000, respectively.

 

During the three and six months ended March 31, 2011, the Trust capitalized interest expense of $234,000 and $397,000, respectively.  This interest is being capitalized in connection with the development of a portion of our Newark Joint Venture’s properties.

 

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Note 10 — Comprehensive Income (Loss)

 

Comprehensive income (loss) for the three and six month’s was as follows (dollars in thousands):

 

		Three Months Ended March 31,						Six Months Ended March 31,
		2011			2010			2011			2010
Net income (loss)		$	1,322		$	(1,727	)	$	641		$	(4,615	)
Other comprehensive (loss) income Unrealized (loss) gain on available-for-sale securities		(354		)	330			(405		)	(1,269		)
Less: net loss attributable to non-controlling interests		525			370			698			737
Comprehensive income (loss) attributable to common shareholders		$	1,493		$	(1,027	)	$	934		$	(5,147	)

 

Note 11 -Segment Reporting

 

Management has determined that it operates in two reportable segments: (i) a loan and investment segment which includes the origination and servicing of our loan portfolio and investments; and (ii) a real estate segment which includes the operation and disposition of our real estate assets.

 

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Note 11 -Segment Reporting (Continued)

 

The following table summarizes our segment reporting for the three and six months ended March 31, 2011 (dollars in thousands):

 

		Three Months Ended March 31, 2011									Six Months Ended March 31, 2011
		Loan and Investment			Real Estate			Total			Loan and Investment			Real Estate			Total
Revenues		$	4,738		$	959		$	5,697		$	6,336		$	1,813		$	8,149
Interest on borrowed funds		331			211			542			690			509			1,199
Other expenses		1,435			1,452			2,887			2,742			2,903			5,645
Amortization and depreciation		—			184			184			—			372			372
Total expenses		1,766			1,847			3,613			3,432			3,784			7,216
Total revenues less total expenses		2,972			(888		)	2,084			2,904			(1,971		)	933
Equity in earnings of unconsolidated ventures		—			86			86			—			135			135
Gain on sale of available-for-sale securities		593			—			593			1,014			—			1,014
Loss on extinguishment of debt		(1,448		)	(690		)	(2,138		)	(1,448		)	(690		)	(2,138		)
Income (loss) from continuing operations		2,117			(1,492		)	625			2,470			(2,526		)	(56		)
Discontinued operations:
Gain on sale of real estate assets		—			697			697			—			697			697
Net income (loss)		2,117			(795		)	1,322			2,470			(1,829		)	641
Less net loss attributable to non-controlling interests		—			525			525			—			698			698
Net income (loss) attributable to common shareholders		$	2,117		$	(270	)	$	1,847		$	2,470		$	(1,131	)	$	1,339
Segment assets		$	124,690		$	59,398		$	184,088		$	124,690		$	59,398		$	184,088

 

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