Filed by BRT Realty Trust
(Commission File No. 001-07172)
Pursuant to Rule 425 under the Securities Act of 1933 and deemed filed
pursuant to Rule 14a-12 of the Securities Exchange Act of 1934.
Subject Company: BRT Realty Trust (Registration Statement No. 333-215221)
To our Shareholders:
We achieved a number of meaningful milestones in fiscal 2016 which we believe will favorably drive our future prospects.
We successfully grew our multi-family portfolio by five properties (11 purchases and six sales), bringing our total portfolio at fiscal year-end to 33 properties with an aggregate of 9,420 units. These transactions allowed us to fine tune and upgrade the quality of our portfolio as we continue to increase our exposure to select Sun-Belt markets characterized by strong job growth and other positive demographics, key drivers of multi-family property fundamentals. This fine tuning process has translated into strong operational results. During the year, we achieved a 6.1% increase in same store rents while maintaining same store occupancy at approximately 95%. We believe that the continued upgrading of our portfolio will provide us with better organic growth prospects over the long term; and we are encouraged by our progress to date.
Our transaction activity and focus on active asset management translated into significant gains from the sale of multi-family properties. In fiscal 2016, our share of the gains from sales of six multi-family properties, after giving effect to our share of mortgage prepayment charges, was $24.6 million. These gains provided us with capital to invest in higher quality assets and demonstrate our strong underwriting capabilities as the properties we sold generated a weighted average internal rate of return of approximately 19.8 percent. Subsequent to September 30, 2016, we sold four additional properties and anticipate that our share of the gain, after giving effect to our share of the mortgage prepayment charge, will be approximately $17.6 million. The weighted average internal rate of return of these four sold properties was approximately 27.7%.
During fiscal 2016, we disposed of a non-core asset – an asset that had generated operating losses for several years - for a significant gain. Specifically, we sold our interest in the Newark Joint Venture for a $15.5 million gain and in connection with the sale, retained a $19.5 million loan secured by certain of the assets of this venture. Subsequent to fiscal year end, we continued to monetize our investment in this venture, as we received a $16.3 million payment on our $19.5 million loan - $13.6 million of the payment represents a principal paydown, $2.5 million represents the payment of deferred interest and the remaining $5.9 million principal balance matures in June 2017. The proceeds from the sale of our interest in the Newark Joint Venture coupled with the principal paydown and the payment of deferred interest provides us with additional capital to deploy in our target markets.
From an earnings perspective, we improved net income to $2.23 per diluted share (including $1.76 and $1.10 per diluted share from multi-family property sales and the sale of our interest in the Newark Joint Venture, respectively), compared to a loss of $0.17 per diluted share in 2015 (including $0.64 per diluted share from multi-family property sales). In addition, our funds from operations grew to $0.47 per diluted share from $0.24 the year prior. See “Item 6. Selected Financial Data” of Annex E of the accompanying proxy statement/prospectus for a reconciliation of funds from operations to net income, as presented in accordance with generally accepted accounting principles.
We also took various steps to further align the interests of management and shareholder. We achieved significant savings by terminating the advisory agreement between us and our external advisor and internalizing management. We are also proud of our newly implemented pay-for-performance compensation program under which management is rewarded only if BRT achieves growth objectives that should benefit all shareholders. Finally, we are, subject to shareholder approval, in the process of converting our form of entity from a Massachusetts business trust to a corporation and our jurisdiction of organization from Massachusetts to Maryland. The conversion has a number of benefits as we look forward to the continued growth of our multi-family platform. As more fully set forth in the proxy statement/prospectus that accompanies this letter, following this conversion there will be no change in your stock