Notes to Consolidated Financial Statements
March 31, 2016
Note 1 – Organization and Background
BRT Realty Trust (“BRT” or the “Trust”) is a business trust organized in Massachusetts. BRT owns, operates and develops multi‑family properties and owns and operates other assets, including real estate and a real estate loan.
The multi‑family properties are generally acquired with venture partners in transactions in which the Trust generally contributes
65%
to
80%
of the equity. At
March 31, 2016
, the Trust owns
31
multi-family properties with
8,793
units located in
12
states.
BRT conducts its operations to qualify as a real estate investment trust, or REIT, for federal income tax purposes.
Note 2 – Basis of Preparation
The accompanying interim unaudited consolidated financial statements as of
March 31, 2016
, and for the
three and six
months ended
March 31,
2016
and
2015
, 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,
2016
and
2015
, are not necessarily indicative of the results for the full year. The consolidated balance sheet as of
September 30, 2015
, 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 ("GAAP") for complete 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 ("VIE's") in which the Trust is determined to be the primary beneficiary. Material inter-company balances and transactions have been eliminated.
The Trust’s consolidated joint ventures that own multi‑family properties, 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 an 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 that could potentially be significant to the VIE.
The distributions to each joint venture partner are determined pursuant to the applicable operating agreement and may not be pro-rata to the equity interest each partner has in the applicable venture.
Certain items on the consolidated financial statements for the prior fiscal periods have been reclassified to conform with the current year's presentation, including the reclassification of balance sheet and revenue and expense items related to the Newark Joint Venture which are now reported as discontinued operations.
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, 2016
, the Trust did not declare a dividend on its shares.
Restricted Shares
The Trust's Amended and Restated 2016 Incentive Plan (the "Plan") 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. The Plan also allows for the grant of cash settled dividend equivalent rights in tandem with the grant of restricted stock units and certain performance based awards. As of March 31, 2016, no shares have been granted under this plan. In January
2016
, the Trust granted
141,050
shares of restricted stock pursuant to the 2012 Incentive Plan (the "2012 Plan"). As of
March 31, 2016
,
667,025
shares of unvested restricted stock are outstanding pursuant to the 2012 Plan and the 2009 Incentive Plan ( collectively the "Prior Plans").
No
additional awards may be granted under the Prior Plans. All restricted shares 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. For the three months ended
March 31, 2016
and
2015
, the Trust recorded $
188,000
and
$206,000
, respectively, of compensation expense related to the amortization of unearned compensation. For the
six months ended March 31, 2016
and
2015
, the Trust recorded
$418,000
and
$444,000
, respectively of compensation expense related to the amortization of unearned compensation. At
March 31, 2016
and September 30, 2015, $
2,532,000
and
$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
2.8
years.
Share Buyback
In February 2016, the Trust purchased
252,000
shares of beneficial interest at the market price of
$6.26
for a total, including commission, of
$1,584,000
under the existing share repurchase authorization. On March 11, 2016, the Board of Trustees approved a new share repurchase program authorizing the Trust repurchase up to
$5,000,000
of shares of beneficial interest through September 30, 2017. On April 27, 2016, the Trust purchased
59,232
shares of beneficial interest at the market price of
$7.10
for a total of
$421,000
.
Per Share Data
Basic earnings (loss) per share is determined by dividing net income (loss) applicable to common shareholders for the applicable period by the weighted average number of shares of beneficial interest outstanding during such period. 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 period by the weighted average number of shares of beneficial interest outstanding during such period plus the dilutive effect of the Trust's unvested restricted stock using the treasury stock method.
Basic and diluted shares outstanding for the three months ended
March 31,
2016
and
2015
, were
14,132,235
and
14,086,761
, respectively, and for the
six months ended March 31, 2016
and
2015
were
14,116,560
and
14,165,826
, respectively.
Note 4 ‑ Real Estate Properties
A summary of real estate properties owned ( including properties held for sale) is as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2015
Balance
|
|
Additions
|
|
Capitalized Costs and Improvements
|
|
Depreciation
|
|
Sales
|
|
March 31, 2016
Balance
|
Multi-family
|
$
|
605,040
|
|
|
$
|
116,200
|
|
|
$
|
18,059
|
|
|
$
|
(10,562
|
)
|
|
$
|
(69,767
|
)
|
|
$
|
658,970
|
|
Land - Daytona, FL
|
7,972
|
|
|
—
|
|
|
1
|
|
|
—
|
|
|
—
|
|
|
7,973
|
|
Shopping centers/Retail - Yonkers, NY
|
2,574
|
|
|
—
|
|
|
—
|
|
|
(54
|
)
|
|
—
|
|
|
2,520
|
|
Total real estate properties
|
$
|
615,586
|
|
|
$
|
116,200
|
|
|
$
|
18,060
|
|
|
$
|
(10,616
|
)
|
|
$
|
(69,767
|
)
|
|
$
|
669,463
|
|
The following table summarizes the preliminary allocations of the purchase prices of assets acquired and liabilities assumed during the three months ended
March 31, 2016
(dollars in thousands):
|
|
|
|
|
|
|
|
Preliminary Purchase Price Allocation
|
Land
|
|
$
|
14,508
|
|
Buildings and Improvements
|
|
101,692
|
|
Total Consideration
|
|
$
|
116,200
|
|
The preliminary measurements of fair value reflected above 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 price of properties at the time of purchase and the finalized allocation of the purchase price, as adjusted, as of March 31, 2016 (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preliminary Purchase Price Allocation
|
|
Adjustments
|
|
Finalized Purchase Price Allocation
|
Land
|
|
$
|
9,553
|
|
|
$
|
(3,598
|
)
|
|
$
|
5,955
|
|
Building and Improvements
|
|
91,922
|
|
|
3,129
|
|
|
95,051
|
|
Acquisition-related intangible assets (in acquired lease intangibles, net)
|
|
—
|
|
|
469
|
|
|
469
|
|
Total Consideration
|
|
$
|
101,475
|
|
|
$
|
—
|
|
|
$
|
101,475
|
|
Note 5 ‑ Acquisitions and Dispositions
Property Acquisitions
The table below provides information for the six months ended
March 31,
2016
regarding the Trust's purchases of multi-family properties (dollars in thousands).
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|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Location
|
|
Purchase Date
|
|
No. of Units
|
|
Contract Purchase Price
|
|
Acquisition Mortgage Debt
|
|
Initial BRT Equity
|
|
Ownership Percentage
|
|
Property Acquisition Cost
|
N. Charleston, SC (a)
|
|
10/13/2015
|
|
271
|
|
|
$
|
3,625
|
|
|
—
|
|
|
$
|
6,558
|
|
|
65
|
%
|
|
—
|
|
La Grange, GA
|
|
11/18/2015
|
|
236
|
|
|
22,800
|
|
|
$
|
16,051
|
|
|
6,824
|
|
|
100
|
%
|
|
$
|
57
|
|
Katy, TX
|
|
1/22/2016
|
|
268
|
|
|
40,250
|
|
|
30,750
|
|
|
8,150
|
|
|
75
|
%
|
|
382
|
|
Macon, GA
|
|
2/1/2016
|
|
240
|
|
|
14,525
|
|
|
11,200
|
|
|
3,250
|
|
|
80
|
%
|
|
158
|
|
Southaven, MS
|
|
2/29/2016
|
|
392
|
|
|
35,000
|
|
|
28,000
|
|
|
5,856
|
|
|
60
|
%
|
|
413
|
|
|
|
|
|
1,407
|
|
|
$
|
116,200
|
|
|
$
|
86,001
|
|
|
$
|
30,638
|
|
|
|
|
$
|
1,010
|
|
___________________________________________________
(a) This acquisition of
41.5
acres of land was purchased for development. The initial equity includes funds contributed in connection with the commencement of construction. Acquisition costs related to this development have been capitalized.
The North Charleston, SC purchase was accounted for as an asset acquisition and the other purchases were accounted for as business combinations. The purchase price for the business combinations is allocated to the acquired assets and assumed liabilities based on management's estimate of the fair value of these acquired assets and assumed liabilities at the dates of acquisition.
On May 6, 2016, the Trust, through a joint venture, purchased a multi-family property located in San Antonio, TX, for
$35,150,000
, including
$26,400,000
of mortgage debt obtained in connection with the acquisition. The Trust contributed equity of $
6,858,000
for its
65%
interest.
Property Dispositions
The following table is a summary of the real estate properties disposed of by the Trust in the six months ended March 31, 2016 (dollars in thousands):
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Location
|
Sale
Date
|
|
No. of
Units
|
|
Sales Price
|
|
Gain on Sale
|
|
Non-controlling partner portion of gain
|
New York, NY
|
10/1/2015
|
|
1
|
|
|
$
|
652
|
|
|
$
|
609
|
|
|
—
|
|
Cordova, TN
|
3/2/2016
|
|
464
|
|
|
31,100
|
|
|
6,764
|
|
|
$
|
2,195
|
|
Kennesaw, GA
|
3/15/2016
|
|
450
|
|
|
64,000
|
|
|
17,462
|
|
|
10,037
|
|
|
|
|
915
|
|
|
$
|
95,752
|
|
|
$
|
24,835
|
|
|
$
|
12,232
|
|
Note 6 –Discontinued Operations
On February 23, 2016, the Trust sold, through subsidiaries which owned such interests, its equity interests in RBH - TRB Newark Holdings, LLC, (the "Newark Joint Venture"), to RBH Partners III, LLC, for
$16,900,000
. The buyer is an affiliate of the Trust's former partners in the Newark Joint Venture. The Trust recognized a gain of
$15,467,000
in connection with this sale. In addition, the Trust (i) may be paid up to an additional
$900,000
by the newly formed parent of the Newark Joint Venture (“Holdco”) upon the achievement of specified investment returns, development of certain properties, realization of specified cost savings and any one or more of the foregoing and (ii) has been granted a nominal profit participation interest in Holdco.
Other than the agreement of the Trust's subsidiary to provide an indemnity with respect to up to
$2,800,000
of obligations related to the venture, neither the Trust nor its subsidiaries have any guaranty, indemnity or similar obligations with respect to the Newark Joint Venture.
As a result of this transaction, the mortgage debt in principal amount of
$19,500,000
owed to the Trust by this venture (the “NJV Debt”), which had previously been eliminated in consolidation in the Trust's consolidated balance sheet at September 30, 2015, is reflected as a real estate loan in the Trust's consolidated balance sheet at March 31, 2016. The NJV Debt matures in June 2017 and bears an annual interest rate of
11%
. Six percent (
6%
) is to be paid on a monthly basis. Five percent
5%
is deferred and is to be paid in June 2016 and at maturity in June 2017. At March 31, 2016, the amount of deferred interest that has accrued is
$1,930,000
. This mortgage debt is secured by various contiguous parcels on Market Street (between University Avenue and Washington Street) in Newark, NJ. The site is approximately
68,000
square feet and has approximately
303,000
square feet of rentable space.
The assets and liabilities as of September 30, 2015 of the Newark Joint Venture and the statement of operations for the three and six months ended March 31, 2016 and 2015, are summarized as follows (dollars in thousands):
|
|
|
|
|
|
Balance Sheet
|
|
September 30, 2015
|
ASSETS
|
|
|
Real estate properties, net
|
|
$
|
141,441
|
|
Restricted cash
|
|
13,277
|
|
Deferred costs, net
|
|
9,683
|
|
Deposits and escrows
|
|
93
|
|
Other assets
|
|
8,734
|
|
Total assets of discontinued operations
|
|
$
|
173,228
|
|
|
|
|
LIABILITIES
|
|
|
Mortgage payable
|
|
$
|
110,375
|
|
Accounts payable and accrued liabilities
|
|
6,848
|
|
Deferred income
|
|
30,990
|
|
Total liabilities of discontinued operations
|
|
$
|
148,213
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Statement of Operations
|
|
|
Three Months Ended
March 31,
|
|
Six Months Ended March 31,
|
|
|
|
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Revenues:
|
|
|
|
|
|
|
|
|
Rental and other revenue from real estate properties
|
|
$
|
900
|
|
|
$
|
1,088
|
|
|
$
|
2,437
|
|
|
$
|
2,070
|
|
Other income
|
|
174
|
|
|
261
|
|
|
444
|
|
|
530
|
|
Total revenues
|
|
1,074
|
|
|
1,349
|
|
|
2,881
|
|
|
2,600
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
Real estate operating expenses
|
|
944
|
|
|
1,099
|
|
|
2,277
|
|
|
2,143
|
|
Interest expense
|
|
845
|
|
|
1,127
|
|
|
2,242
|
|
|
2,567
|
|
Depreciation
|
|
473
|
|
|
571
|
|
|
1,150
|
|
|
1,071
|
|
Total expense
|
|
2,262
|
|
|
2,797
|
|
|
5,669
|
|
|
5,781
|
|
Income from discontinued operations
|
|
(1,188
|
)
|
|
(1,448
|
)
|
|
(2,788
|
)
|
|
(3,181
|
)
|
Gain on sale of partnership interest
|
|
15,467
|
|
|
—
|
|
|
15,467
|
|
|
—
|
|
Discontinued operations
|
|
$
|
14,279
|
|
|
$
|
(1,448
|
)
|
|
$
|
12,679
|
|
|
$
|
(3,181
|
)
|
Note 7 - Real Estate Property Held For Sale
At
March 31,
2016
, the Courtney Station, Pooler, GA property was classified as a real estate asset held for sale. The property, which has a book value of $
32,219,000
, was sold in April 2016. The Trust estimates it will recognize a gain on the sale of the property of approximately
$5,700,000
, of which approximately $
1,510,000
will be allocated to the non-controlling partner. At September 30, 2015, the Grove at Trinity, Cordova, TN property, was classified as a real estate asset held for sale. This property was sold in the quarter ended March 31, 2016 and the Trust recognized a gain of $
6,764,000
, of which
$2,195,000
was allocated to the non-controlling partner. See Note 5 - Acquisitions and Dispositions.
Note 8 - 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 sheets, 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 9 – Debt Obligations
Debt obligations consist of the following (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2016
|
|
September 30, 2015
|
Mortgages payable (a)
|
|
$
|
495,136
|
|
|
$
|
456,064
|
|
Junior subordinated notes
|
|
37,400
|
|
|
37,400
|
|
Total debt obligations
|
|
$
|
532,536
|
|
|
$
|
493,464
|
|
_____________________________________
(a) Excludes mortgages payable held for sale of $26,400
and $19,248 at March 31, 2016 and September 30, 2015 respectively.
Mortgages Payable
During the six months ended March 31,2016, the Trust purchased four multi-family properties and incurred the following fixed rate debt (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Location
|
|
Closing Date
|
|
Acquisition Mortgage Debt
|
|
Interest Rate
|
|
Interest only period
|
|
Maturity Date
|
LaGrange, GA
|
|
11/18/15
|
|
$
|
16,051
|
|
|
4.36
|
%
|
|
-
|
|
February 2022
|
Katy, TX
|
|
1/22/16
|
|
30,750
|
|
|
4.44
|
%
|
|
60 months
|
|
February 2026
|
Macon, GA
|
|
2/1/16
|
|
11,200
|
|
|
4.39
|
%
|
|
24 months
|
|
February 2026
|
Southaven, MS
|
|
2/29/16
|
|
28,000
|
|
|
4.24
|
%
|
|
60 months
|
|
March 2026
|
|
|
|
|
$
|
86,001
|
|
|
|
|
|
|
|
During the
six
months ended
March 31, 2016
, the Trust obtained additional fixed rate mortgage financing as set forth in the table below (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Location
|
|
Closing Date
|
|
Additional Mortgage Debt
|
|
Interest Rate
|
|
Maturity Date
|
Pensacola, FL
|
|
10/13/15
|
|
$
|
3,194
|
|
|
4.92
|
%
|
|
March 2022
|
Atlanta, GA
|
|
11/10/15
|
|
5,000
|
|
|
4.93
|
%
|
|
July 2021
|
Houston, TX
|
|
2/9/16
|
|
3,865
|
|
|
4.94
|
%
|
|
August 2021
|
|
|
|
|
$
|
12,059
|
|
|
|
|
|
During the six months ended March 31, 2016,
$5,260,000
and
$416,000
was advanced on the construction loans that are financing the Southridge and North Charleston (Factory at Garco) developments.
Junior Subordinated Notes
At
March 31, 2016
and
September 30, 2015
, the Trust's junior subordinated notes had an outstanding principal balance of
$37,400,000
. The interest rates on the outstanding notes are set forth in the table below:
|
|
|
|
|
Interest Period
|
|
Interest Rate
|
August 1, 2012 through April 29, 2016
|
|
4.90
|
%
|
April 30, 2016 through April 30, 2036
|
|
Libor + 2.00%
|
|
The junior subordinated notes require interest only payments through maturity, at which time repayment of the outstanding principal and unpaid interest become due. Interest expense for each of the three and six months ended
March 31,
2016
and
2015
was
$458,000
and
$916,000
respectively. Amortization of the deferred costs, a component of interest expense, was
$5,000
for each of the three months ended
March 31,
2016
and
2015
, and
$10,000
for each of the six months ended
March 31,
2016
and
2015
. At May 1, 2016 the interest rate on the notes for the next three months is
2.64%
Other borrowings
On December 11, 2015, the Trust borrowed
$8,000,000
, on an unsecured basis, from Gould Investors L.P. , a related party. The note bore interest at
5.24%
and was paid in full on February 24, 2016.
Note 10 – Related Party Transactions
The Trust paid REIT Management, a related party, advisory fees pursuant to its Advisory Agreement of
$0
and
$605,000
, respectively, for the three months ended March 31, 2016 and 2015 and $
693,000
and $
1,189,000
, respectively, for the six months ended March 31, 2016 and 2015. The Advisory Agreement terminated effective December 31, 2015. In lieu thereof, the Trust retained certain of its executive officers and its former chairman of the board to provide the services previously provided pursuant to such agreement. The aggregate fee in calendar 2016 for the provision of such services will not exceed
$1,150,000
. These fees totaled
$287,500
in the three months ended March 31, 2016.
Majestic Property Management Corp., a related party, provides management services to the Trust for certain properties owned by the Trust and joint ventures in which the Trust participates. These fees amounted to
$8,000
and
$6,000
for the
three months ended March 31,
2016
and
2015
, respectively and
$19,000
and
$15,000
for the six months ended March 31, 2016 and 2015, respectively.
The allocation of expenses for the shared facilities, personnel and other resources used by the Trust is computed in accordance with a shared services agreement by and among the Trust and related parties. Amounts paid pursuant to the agreement are included in general and administrative expenses on the consolidated statement of operations. The Trust paid Gould Investors L.P., a related party,
$160,000
and
$177,000
, in the three months ended March 31, 2016 and 2015, respectively, and
$297,000
and
$218,000
for the six months ended March 31, 2016 and 2015, respectively, for services provided under the agreement.
In the fiscal year ended September 30, 2015, the Trust leased space from an affiliate of Gould Investors L.P. The rent paid for the three and six months ended
March 31, 2015
, was
$26,000
and
$64,000
, respectively. During the quarter ended March 31, 2015, the building was sold to a third party and the Trust ceased paying rent to Gould Investors for such space.
On December 11, 2015, the Trust borrowed
$8,000,000
from Gould Investors L.P. - see Note 9 “Debt Obligations - Other Borrowings”. Interest for the three and six months ended
March 31,
2016
, at a rate of
5.24%
, was
$62,000
and
$86,000
respectively. This loan was satisfied on February 24, 2016.
Management of many of the Trust's multi-family properties is performed by the Trust's joint venture partners or their affiliates (none of these joint venture partners is Gould Investors L.P. or its affiliates). In addition, the Trust may pay an acquisition fee to a joint venture partner in connection with a property purchased by such joint venture. Management and acquisition fees to these related parties for the quarter ended
March 31,
2016
and
2015
amounted to
$804,000
and
$363,000
, respectively. For the six months ended March 31, 2016 and 2015, these fees amount to
$1,227,000
and
$987,000
respectively.
Note 11 - Segment Reporting
Management determined that the Trust operates in
two
reportable segments: a multi-family property segment which includes the ownership, operation and development of multi-family properties; and an other assets segment which includes the ownership and operation of the Trust's other real estate assets and a real estate loan.
The following tables summarize our segment reporting for the periods indicated (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2016
|
|
Multi-Family
Real Estate
|
|
Other
Assets
|
|
Total
|
Revenues:
|
|
|
|
|
|
Rental and other revenues from real estate properties
|
$
|
22,473
|
|
|
$
|
358
|
|
|
$
|
22,831
|
|
Other income
|
—
|
|
|
2,026
|
|
|
2,026
|
|
Total revenues
|
22,473
|
|
|
2,384
|
|
|
24,857
|
|
Expenses:
|
|
|
|
|
|
Real estate operating expenses
|
10,793
|
|
|
142
|
|
|
10,935
|
|
Interest expense
|
6,028
|
|
|
21
|
|
|
6,049
|
|
Property acquisition costs
|
953
|
|
|
—
|
|
|
953
|
|
General and administrative
|
2,234
|
|
|
46
|
|
|
2,280
|
|
Depreciation
|
5,605
|
|
|
27
|
|
|
5,632
|
|
Total expenses
|
25,613
|
|
|
236
|
|
|
25,849
|
|
Total revenue less total expenses
|
(3,140
|
)
|
|
2,148
|
|
|
(992
|
)
|
Gain on sale of real estate
|
24,226
|
|
|
—
|
|
|
24,226
|
|
Loss on extinguishment of debt
|
(2,668
|
)
|
|
—
|
|
|
(2,668
|
)
|
Income from continuing operations
|
18,418
|
|
|
2,148
|
|
|
20,566
|
|
Plus: net (income) loss attributable to non-controlling interests
|
(10,581
|
)
|
|
672
|
|
|
(9,909
|
)
|
Net income attributable to common shareholders before reconciling items
|
$
|
7,837
|
|
|
$
|
2,820
|
|
|
$
|
10,657
|
|
Reconciling adjustment:
|
|
|
|
|
|
Discontinued operations
|
|
|
|
|
14,279
|
|
Net income attributable to common shareholders
|
|
|
|
|
$
|
24,936
|
|
Segment Assets at March 31, 2016
|
$
|
722,338
|
|
|
$
|
30,637
|
|
|
$
|
752,975
|
|
Note 11- Segment Reporting - continued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2015
|
|
|
Multi-Family
Real Estate
|
|
Other Assets
|
|
Total
|
Revenues:
|
|
|
|
|
|
|
Rental and other revenues from real estate properties
|
|
$
|
18,795
|
|
|
$
|
303
|
|
|
$
|
19,098
|
|
Other income
|
|
—
|
|
|
25
|
|
|
25
|
|
Total revenues
|
|
18,795
|
|
|
328
|
|
|
19,123
|
|
Expenses:
|
|
|
|
|
|
|
Real estate operating expenses
|
|
9,105
|
|
|
110
|
|
|
9,215
|
|
Interest expense
|
|
4,686
|
|
|
52
|
|
|
4,738
|
|
Advisor's fee, related party
|
|
518
|
|
|
87
|
|
|
605
|
|
General and administrative
|
|
1,632
|
|
|
104
|
|
|
1,736
|
|
Depreciation and amortization
|
|
4,514
|
|
|
30
|
|
|
4,544
|
|
Total expenses
|
|
20,455
|
|
|
383
|
|
|
20,838
|
|
Total Revenues less total expenses
|
|
(1,660
|
)
|
|
(55
|
)
|
|
(1,715
|
)
|
Gain on sale of real estate assets
|
|
2,777
|
|
|
—
|
|
|
2,777
|
|
Income from continuing operations
|
|
1,117
|
|
|
(55
|
)
|
|
1,062
|
|
|
|
|
|
|
|
|
Plus: net loss attributable to non-controlling interests
|
|
(1,212
|
)
|
|
850
|
|
|
(362
|
)
|
Net (loss) income attributable to common shareholders
|
|
$
|
(95
|
)
|
|
$
|
795
|
|
|
$
|
700
|
|
Reconciling adjustment:
|
|
|
|
|
|
|
Discontinued operations
|
|
|
|
|
|
(1,448
|
)
|
Net loss attributable to common shareholders
|
|
|
|
|
|
$
|
(748
|
)
|
Segment Assets at March 31, 2015
|
|
$
|
583,438
|
|
|
$
|
17,075
|
|
|
$
|
600,513
|
|
Note 11- Segment Reporting - continued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended March 31, 2016
|
|
|
Multi-Family
Real Estate
|
|
Other Assets
|
|
Total
|
Revenues:
|
|
|
|
|
|
|
Rental and other revenues from real estate properties
|
|
$
|
43,556
|
|
|
$
|
673
|
|
|
$
|
44,229
|
|
Other income
|
|
—
|
|
|
2,033
|
|
|
2,033
|
|
Total revenues
|
|
43,556
|
|
|
2,706
|
|
|
46,262
|
|
Expenses:
|
|
|
|
|
|
|
Real estate operating expenses
|
|
20,816
|
|
|
292
|
|
|
21,108
|
|
Interest expense
|
|
11,487
|
|
|
93
|
|
|
11,580
|
|
Advisor's fee, related party
|
|
594
|
|
|
99
|
|
|
693
|
|
Property acquisition costs
|
|
1,010
|
|
|
—
|
|
|
1,010
|
|
General and administrative
|
|
3,895
|
|
|
134
|
|
|
4,029
|
|
Depreciation
|
|
10,563
|
|
|
53
|
|
|
10,616
|
|
Total expenses
|
|
48,365
|
|
|
671
|
|
|
49,036
|
|
Total revenue less total expenses
|
|
(4,809
|
)
|
|
2,035
|
|
|
(2,774
|
)
|
Gain on sale of real estate
|
|
24,226
|
|
|
609
|
|
|
24,835
|
|
Loss on extinguishment of debt
|
|
(2,668
|
)
|
|
—
|
|
|
(2,668
|
)
|
Income from continuing operations
|
|
16,749
|
|
|
2,644
|
|
|
19,393
|
|
|
|
|
|
|
|
|
Plus: net (income) loss attributable to non-controlling interests
|
|
(10,780
|
)
|
|
1,610
|
|
|
(9,170
|
)
|
Net income attributable to common shareholders before reconciling items
|
|
$
|
5,969
|
|
|
$
|
4,254
|
|
|
$
|
10,223
|
|
Reconciling adjustment:
|
|
|
|
|
|
|
Discontinued operations
|
|
|
|
|
|
12,679
|
|
Net income attributable to common shareholders
|
|
|
|
|
|
$
|
22,902
|
|
Segment Assets at March 31, 2016
|
|
$
|
722,338
|
|
|
$
|
30,637
|
|
|
$
|
752,975
|
|
Note 11- Segment Reporting - continued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended March 31, 2015
|
|
|
Multi-Family
Real Estate
|
|
Other
Real Estate
|
|
Total
|
|
|
|
|
|
|
|
Rental and other revenues from real estate properties
|
|
$
|
36,956
|
|
|
$
|
641
|
|
|
$
|
37,597
|
|
Other income
|
|
—
|
|
|
52
|
|
|
52
|
|
Total revenues
|
|
36,956
|
|
|
693
|
|
|
37,649
|
|
Expenses:
|
|
|
|
|
|
|
Real estate operating expenses
|
|
18,320
|
|
|
260
|
|
|
18,580
|
|
Interest expense
|
|
9,395
|
|
|
104
|
|
|
9,499
|
|
Advisor's fee, related party
|
|
1,003
|
|
|
186
|
|
|
1,189
|
|
Property acquisition costs
|
|
295
|
|
|
—
|
|
|
295
|
|
General and administrative
|
|
3,190
|
|
|
203
|
|
|
3,393
|
|
Depreciation
|
|
8,144
|
|
|
58
|
|
|
8,202
|
|
Total expenses
|
|
40,347
|
|
|
811
|
|
|
41,158
|
|
Total revenue less total expenses
|
|
(3,391
|
)
|
|
(118
|
)
|
|
(3,509
|
)
|
Gain on sale of real estate
|
|
2,777
|
|
|
—
|
|
|
2,777
|
|
Income from continuing operations
|
|
(614
|
)
|
|
(118
|
)
|
|
(732
|
)
|
|
|
|
|
|
|
|
Plus: net (income) loss attributable to non-controlling interests
|
|
(1,015
|
)
|
|
1,682
|
|
|
667
|
|
Net (loss) income attributable to common shareholders before reconciling items
|
|
$
|
(1,629
|
)
|
|
$
|
1,564
|
|
|
$
|
(65
|
)
|
Reconciling adjustment:
|
|
|
|
|
|
|
Discontinued operations
|
|
|
|
|
|
(3,181
|
)
|
Net loss attributable to common shareholders
|
|
|
|
|
|
$
|
(3,246
|
)
|
Segment Assets at March 31, 2015
|
|
$
|
583,438
|
|
|
$
|
17,075
|
|
|
$
|
600,513
|
|
Note 12 – 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 recorded 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
March 31, 2016
and
September 30, 2015
the estimated fair value of the notes is lower than their carrying value by approximately $
19,948,000
and
$21,400,000
based on a market interest rate of
6.11%
and
6.37%
, respectively.
Mortgages payable: At
March 31, 2016
, the estimated fair value of the Trust’s mortgages payable is greater than their carrying value by approximately
$5,246,000
assuming market interest rates between
3.28%
and
4.71%
and at
September 30, 2015
, the estimated fair value of the Trust's mortgages payable was greater than their carrying value by approximately
$890,000
assuming market interest rates between
1.99%
and
15.00%
. Market interest rates were determined using rates which the Trust believes reflects institutional lender yield requirements.
Other borrowed funds: At
March 31, 2016
, the estimated fair value of the Trust's other borrowed funds were equal to their carrying value assuming market interest rates of between
4%
and
5.24%
. Market interest rates were determined using rates which the Trust believes reflects institutional yield requirements.
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.
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 market 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 liabilities measured at fair value as of
March 31, 2016
(dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying and Fair Value
|
|
Fair Value Measurements
Using Fair Value Hierarchy
|
|
|
Level 1
|
|
Level 2
|
Financial Liabilities:
|
|
|
|
|
|
Interest rate swap
|
$
|
72
|
|
|
—
|
|
|
$
|
72
|
|
Derivative financial instrument:
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, foreign exchange rates, and implied volatilities. At
March 31, 2016
, this derivative is included in other 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 derivative 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
March 31, 2016
, the Trust assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative position and determined that the credit valuation adjustments are not significant to the overall valuation of its derivative. As a result, the Trust determined that its derivative valuation is classified in Level 2 of the fair value hierarchy.
Note 13 – 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.
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
March 31, 2016
, 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
|
|
Notional Amount
|
|
Rate
|
|
Maturity
|
Interest rate swap
|
|
$
|
1,613
|
|
|
5.25
|
%
|
|
April 1, 2022
|
The table below presents the fair value of the Trust’s derivative financial instrument as well as its classification on the consolidated balance sheets as of the dates indicated (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives as of:
|
March 31, 2016
|
|
September 30, 2015
|
Balance Sheet Location
|
|
Fair Value
|
|
Balance Sheet Location
|
|
Fair Value
|
Accounts payable and accrued liabilities
|
|
$
|
72
|
|
|
Accounts payable and accrued liabilities
|
|
$
|
58
|
|
As of
March 31, 2016
, the Trust did not have any derivative instruments that were considered to be ineffective and does not use derivative instruments for trading or speculative purposes.
The following table presents the effect of the Trust’s interest rate swap on the consolidated statements of comprehensive loss for the dates indicated (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
Six Months Ended March 31, 2016
|
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Amount of loss recognized on derivative in Other Comprehensive Income (loss)
|
|
$
|
(41
|
)
|
|
$
|
(28
|
)
|
|
$
|
(29
|
)
|
|
$
|
(60
|
)
|
Amount of loss reclassified from Accumulated
Other Comprehensive Income (loss) into Interest Expense
|
|
$
|
(7
|
)
|
|
$
|
(8
|
)
|
|
$
|
(15
|
)
|
|
$
|
(17
|
)
|
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
three and six
months ended
March 31, 2016
and
March 31, 2015
. During the twelve months ending
September 30, 2016
, the Trust estimates an additional
$24,000
will be reclassified from other comprehensive income (loss) 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
March 31, 2016
, 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
$78,000
. As of
March 31, 2016
, the Trust has not posted any collateral related to this agreement. If the Trust had been in breach of this agreement at
March 31, 2016
, it could have been required to settle its obligations thereunder at its termination value of
$78,000
.
Note 14 – New Accounting Pronouncements
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.
Note 15 – Subsequent Events
Subsequent events have been evaluated and any significant events, relative to our consolidated financial statements as of
March 31, 2016
that warrant additional disclosure, have been included in the notes to the consolidated financial statements.