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EX-32.1 - EXHIBIT 32.1 - BRT Apartments Corp.exhibit321q216.htm
EX-31.3 - EXHIBIT 31.3 - BRT Apartments Corp.exhibit313q216.htm
EX-32.2 - EXHIBIT 32.2 - BRT Apartments Corp.exhibit322q216.htm
EX-10.2 - EXHIBIT 10.2 - BRT Apartments Corp.exhibit102q216.htm
EX-32.3 - EXHIBIT 32.3 - BRT Apartments Corp.exhibit323q216.htm
EX-31.1 - EXHIBIT 31.1 - BRT Apartments Corp.exhibit311q216.htm
EX-10.1 - EXHIBIT 10.1 - BRT Apartments Corp.exhibit101q216.htm
EX-31.2 - EXHIBIT 31.2 - BRT Apartments Corp.exhibit312q216.htm

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC  20549
 
FORM 10-Q
 
ý      Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 
For the quarterly period ended March 31, 2016
 
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
 
13-2755856
(State or other jurisdiction of
 
(I.R.S. Employer
incorporation or organization)
 
Identification No.)
60 Cutter Mill Road, Great Neck, NY
 
11021
(Address of principal executive offices)
 
(Zip Code)
 
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 ý  No o
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Date File required to be submitted and posted pursuant to Rule 405 of Regulations 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 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):
 
Large accelerated filer o
 
Accelerated filer x
 
 
 
Non-accelerated filer o
 
Smaller reporting company o
(Do not check if a smaller reporting company)
 
 
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o  No ý
 
Indicate the number of shares outstanding of each of the issuer’s classes of stock, as of the latest practicable date.
 
13,914,274 Shares of Beneficial Interest,
$3 par value, outstanding on May 5, 2016



BRT REALTY TRUST AND SUBSIDIARIES
Table of Contents



Page No.
Item 1.
 
 
 
 
 
 
 
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
 
Item 2.
 
 
 
Item 5.
 
 
 
Item 6.


1



Part I ‑ FINANCIAL INFORMATION
Item 1. Financial Statements
BRT REALTY TRUST AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share data)
 
March 31,
2016
(Unaudited)
 
September 30,
2015
ASSETS
 
 
 
Real estate properties, net of accumulated depreciation
and amortization of $37,767 and $40,640
$
637,244

 
$
591,727

 
 
 
 
Real estate loan
19,500

 

Cash and cash equivalents
34,792

 
15,556

Restricted cash - multi-family
6,988

 
6,518

Deferred costs, net
6,040

 
5,327

Deposits and escrows
9,840

 
12,782

Other assets
6,352

 
6,882

Assets of discontinued operations

 
173,228

Real estate asset held for sale
32,219

 
23,859

Total Assets
$
752,975

 
$
835,879

LIABILITIES AND EQUITY
 
 
 
Liabilities:
 
 
 
Mortgages payable
$
495,136

 
$
456,064

Junior subordinated notes
37,400

 
37,400

Accounts payable and accrued liabilities
14,310

 
14,780

Liabilities of discontinued operations

 
148,213

Mortgage payable held for sale
26,400


19,248

Total Liabilities
573,246

 
675,705

 
 
 
 
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, 13,306 and13,428 issued
39,919

 
40,285

Additional paid-in capital
161,041

 
161,842

Accumulated other comprehensive loss
(72
)
 
(58
)
Accumulated deficit
(56,512
)
 
(79,414
)
Total BRT Realty Trust shareholders’ equity
144,376

 
122,655

Non-controlling interests
35,353

 
37,519

Total Equity
179,729

 
160,174

Total Liabilities and Equity
$
752,975

 
$
835,879

See accompanying notes to consolidated financial statements.

2



BRT REALTY TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(Dollars in thousands, except share data)
 
Three Months Ended
March 31,
 
Six Months Ended
March 31,
 
 
 
2016

2015
 
2016
 
2015
Revenues:
 
 
 
 
 
 
 
Rental and other revenues from real estate properties
$
22,831

 
$
19,098

 
$
44,229

 
$
37,597

Other income
2,026

 
25

 
2,033

 
52

Total revenues
24,857

 
19,123

 
46,262

 
37,649

Expenses:
 
 
 
 
 
 
 
Real estate operating expenses - including $372 and $369 to related parties for the three months ended and $804 and $725 for the six months ended
10,935

 
9,215

 
21,108

 
18,580

Interest expense - including $62 and $- to related party for the three months ended and $86 and $- for the six months ended
6,049

 
4,738

 
11,580

 
9,499

Advisor’s fees, related party

 
605

 
693

 
1,189

Property acquisition costs - including $439 and $- to related parties for the three months ended and $439 and $276 for the six months ended
953

 

 
1,010

 
295

General and administrative - including $60 and $69 to related party for the three months ended and $87 and $127 for the six months ended
2,280

 
1,736

 
4,029

 
3,393

Depreciation
5,632

 
4,544

 
10,616

 
8,202

Total expenses
25,849

 
20,838

 
49,036

 
41,158

Total revenue less total expenses
(992
)
 
(1,715
)
 
(2,774
)
 
(3,509
)
Gain on sale of real estate
24,226

 
2,777

 
24,835

 
2,777

Loss on extinguishment of debt
(2,668
)
 

 
(2,668
)
 

Income from continuing operations
20,566

 
1,062

 
19,393

 
(732
)
Discontinued operations:
 
 
 
 
 
 
 
Loss 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
)
Net income (loss)
34,845

 
(386
)
 
32,072

 
(3,913
)
Plus: net (income) loss attributable to non-controlling interests
(9,909
)
 
(362
)
 
(9,170
)
 
667

Net income (loss) attributable to common shareholders
$
24,936

 
$
(748
)
 
$
22,902

 
$
(3,246
)

 
 
 
 
 
 
 
Basic and diluted per share amounts attributable to common shareholders:
 
 
 
 
 
 
 
Income (loss) from continuing operations
$
0.75

 
$
0.05

 
$
0.72

 
$
(0.01
)
Income (loss) from discontinued operations
1.01

 
(0.10
)
 
0.90

 
(0.22
)
Basic and diluted earnings (loss) per share
$
1.76

 
$
(0.05
)
 
$
1.62

 
$
(0.23
)

 
 
 
 
 
 
 
Amounts attributable to BRT Realty Trust:
 
 
 
 
 
 
 
Income (loss) from continuing operations
$
9,957

 
$
(174
)
 
$
8,564

 
$
(2,188
)
Income (loss) from discontinued operations
14,979

 
(574
)
 
14,338

 
(1,058
)
Net Income (loss)
$
24,936

 
$
(748
)
 
$
22,902

 
$
(3,246
)

 
 
 
 
 
 
 
Weighted average number of common shares outstanding:
 
 
 
 
 
 
 
Basic and diluted
14,132,235

 
14,086,761

 
14,116,560

 
14,165,826

See accompanying notes to consolidated financial statements.

3



BRT REALTY TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(Unaudited)
(Dollars in thousands)

 
Three Months Ended
March 31,
 
Six Months Ended
March 31,
 
 
 
2016
 
2015
 
2016
 
2015
Net income (loss)
$
34,845

 
$
(386
)
 
32,072

 
(3,913
)
Other comprehensive loss:
 
 
 
 
 
 
 
Unrealized loss on derivative instruments
(34
)
 
(23
)
 
(14
)
 
(48
)
Other comprehensive loss
(34
)
 
(23
)
 
(14
)
 
(48
)
Comprehensive income (loss)
34,811

 
(409
)
 
32,058

 
(3,961
)
Less: comprehensive income (loss) attributable to non-controlling interests
9,904

 
359

 
9,168

 
(667
)
Comprehensive income (loss) attributable to common shareholders
$
24,907

 
$
(768
)
 
$
22,890

 
$
(3,294
)

See accompanying notes to consolidated financial statements.


4



BRT REALTY TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF EQUITY
Six Months Ended March 31, 2016
(Unaudited)
(Dollars in thousands, except share data)

 
Shares of Beneficial Interest
 
Additional
Paid-In Capital
 
Accumulated
Other Comprehensive (Loss)
 
Accumulated Deficit
 

Non- Controlling Interest
 
Total
Balances, September 30, 2015
$
40,285

 
$
161,842

 
$
(58
)
 
$
(79,414
)
 
$
37,519

 
$
160,174

Restricted stock vesting
390

 
(390
)
 

 

 

 

Compensation expense –restricted stock

 
418

 

 

 

 
418

Contributions from non-controlling interests

 

 

 

 
10,964

 
10,964

Distributions to non-controlling interests

 

 

 

 
(21,013
)
 
(21,013
)
Deconsolidation of joint venture upon sale
 
 
 
 
 
 
 
 
(1,287
)
 
(1,287
)
Shares repurchased - 252,000 shares
(756
)
 
(829
)
 

 

 

 
(1,585
)
Net income

 

 

 
22,902

 
9,170

 
32,072

Other comprehensive loss

 

 
(14
)
 

 

 
(14
)

Comprehensive income

 

 

 

 

 
32,058

Balances, March 31, 2016
$
39,919

 
$
161,041

 
$
(72
)
 
$
(56,512
)
 
$
35,353

 
$
179,729

 
See accompanying notes to consolidated financial statements.

5



BRT REALTY TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in Thousands)
 
Six Months Ended March 31,
 
2016
 
2015
Cash flows from operating activities:
 
 
 
Net income (loss)
$
32,072

 
$
(3,913
)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
 
 
 
Depreciation and amortization
12,943

 
10,492

Amortization of restricted stock
418

 
444

   Gain on sale of real estate
(24,835
)
 
(2,777
)
   Gain on sale of partnership interest
(15,467
)
 

   Loss on extinguishment of debt
2,668

 

   Effect of deconsolidation of non-controlling interest
(1,687
)
 

Increases and decreases from changes in other assets and liabilities:
 
 
 
(Increase) decrease in interest and dividends receivable
(2,040
)
 
17

Increase in prepaid expenses
(86
)
 
(1,503
)
Increase in prepaid interest

 
598

Decrease in deposits and escrows
3,035

 
3,285

Decrease in other assets
2,566

 
4,390

Increase in accounts payable and accrued liabilities
(89
)
 
4,248

Net cash provided by operating activities
9,498

 
15,281

 
 
 
 
Cash flows from investing activities:
 
 
 
    Collections from real estate loans

 
2,000

    Additions to real estate properties
(100,148
)
 
(10,777
)
    Net costs capitalized to real estate properties
(25,244
)
 
(35,307
)
    Net change in restricted cash - Newark
(1,952
)
 
6,162

    Net change in restricted cash - Multi Family
(470
)
 
2,774

    Purchase of non controlling interests

 
(3,886
)
    Proceeds from the sale of real estate properties
94,602

 
9,605

   Proceeds from the sale of joint venture interest
16,870

 

Net cash used in investing activities
(16,342
)
 
(29,429
)
 
 
 
 
Cash flows from financing activities:
 
 
 
    Proceeds from mortgages payable
96,527

 
24,549

    Increase in other borrowed funds
6,001

 

    Mortgage payoffs
(60,552
)
 
(6,233
)
    Mortgage amortization
(2,591
)
 
(1,376
)
   Loss on extinguishment of debt
(2,668
)
 
0

    Increase in deferred borrowing costs
(1,750
)
 
(2,465
)
    Capital contributions from non-controlling interests
10,964

 
292

    Capital distribution to non-controlling interests
(21,013
)
 
(3,367
)
    Proceeds from sale of New Market Tax Credits
2,746

 

    Repurchase of shares of beneficial interest
(1,584
)
 
(2,422
)
Net cash provided by financing activities
26,080

 
8,978

 
 
 
 
    Net increase (decrease) in cash and cash equivalents
19,236

 
(5,170
)
    Cash and cash equivalents at beginning of period
15,556

 
23,181

    Cash and cash equivalents at end of period
$
34,792

 
$
18,011

 
 
 
 
Supplemental disclosure of cash flow information:
 
 
 
    Cash paid during the period for interest
$
14,181

 
$
12,230

    Taxes paid
$
536

 
$
21

    Acquisition of real estate through assumption of debt
$
16,051

 
$
17,173

    Real estate properties reclassified to assets held for sale
$
32,219

 
$

See accompanying notes to consolidated financial statements.

6



BRT REALTY TRUST AND SUBSIDIARIES
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.


7



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.


8



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).

9



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):
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.

10



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
)



11



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.


12



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: 


13



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.

14





15




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



16



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


17




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








18



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







19



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.

20



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.

21





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.



22



Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements

With the exception of historical information, this report on Form 10-Q contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended. We intend such forward-looking statements to be covered by the safe harbor provision 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, which are based on certain assumptions and describe our future plans, strategies and expectations, are generally identifiable by use of the words "may", "will", "believe", "expect", "intend", "anticipate", "estimate", "project", or similar expressions or variations thereof. Forward-looking statements involve known and unknown risks, uncertainties and other factors which are, in some cases, beyond our control and which could materially affect actual results, performance or achievements. Investors are cautioned not to place undue reliance on any forward-looking statements and are urged to read “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended September 30, 2015.


Overview

We are a real estate investment trust, also known as a REIT, engaged in the ownership, operation and development of multi‑family properties and the ownership and operation of other assets including real estate and a real estate loan. Effective as of January 1, 2016, we are an internally managed REIT.

Our multi‑family property activities involve the ownership, operation and development of such properties, primarily through joint ventures in which we generally have a 65% to 80% equity interest. At March 31, 2016, we own 31 multi‑family properties located in 12 states with an aggregate of 8,793 units (including 631 units at two development properties, one under construction and one in lease up stage). Occupancy at March 31, 2016, excluding the units at the development properties, is 94.2%. At March 31, 2016, the net book value of the multi-family assets was $659.0 million.
We own and operate various other real estate assets. At March 31, 2016, the net book value of the real property included in these other real estate assets was $30 million including a real estate loan of $19.5 million.
Net income attributable to common shareholders increased in the six months ended March 31, 2016 by $26.1 million to $22.9 million from a loss of $3.2 million in the six months ended March 31, 2015. The increase is primarily due to gain on the sale of two multi-family properties and the sale of our interest in the Newark Joint Venture.

Recent Developments

Sale of Interests in Newark Joint Venture

On February 23, 2016, we sold our equity interest in the Newark Joint Venture for $16.9 million. The buyer is an affiliate of our former partners in the Newark Joint Venture. In addition, we (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) have been granted a nominal profit participation interest in Holdco. We have not and do not anticipate generating significant income, if any, from these additional interests. We recognized a gain on the sale of $15.5 million for both tax and financial statement purposes. As a result of the sale, mortgage debt in the principal amount of $19.5 million owed to us by the joint venture and previously eliminated in consolidation is now reflected on our consolidated balance sheet. This mortgage debt matures in June 2017 and bears an annual interest rate of 11%. Six percent (6%) is to be paid on a monthly basis and 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 $1.9 million. 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. See Note 6 - Discontinued Operations.

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We had previously reported that there had been  discussions with respect to the possible repayment of all or a portion of such debt and the related release of certain properties from the mortgages securing such debt. We do not have any additional information regarding the possibility of such repayment and can provide no assurance that such repayment  transaction will be completed.

Multi-Family Acquisitions and Dispositions

During the three months ended March 31, 2016, we acquired three additional multi-family properties with an aggregate of 900 units for $89.8 million, including mortgage debt of $70.0 million. See Note 5 - Acquisitions and Dispositions.

During the three months ended March 31, 2016, we sold two multi-family properties with an aggregate of 914 units for $95.1 million and recorded an aggregate gain (without giving effect to a $2.7 million loss on extinguishment of debt, of which $1.5 million was allocated to the non-controlling interest) of $24.2 million; $12.2 million of this gain was allocated to the non-controlling interest.
               
On May 6, 2016, we, through a joint venture in which we have a 65% interest, acquired a 288 unit multi-family property located in San Antonio, TX for $35.2 million, inclusive of $26.4 million of mortgage debt obtained in connection with the acquisition. The mortgage matures in May 2023 and bears an annual interest rate of 3.61%.We estimate that this property will generate $2.1 million of revenues in fiscal 2016 and incur estimated operating expenses of $2.3 million (including estimated interest expense and depreciation of $700,000 and $580,000, respectively) in such period.

Other Developments

On February 24, 2016, we repaid the $8 million loan we obtained from Gould Investors, a related party.
 
We received a certificate of occupancy for the remaining 123 units under development (of a total of 360 units) at the Southridge development. We commenced leasing the completed units in April 2015 and approximately 60% of the total number of units at this property are currently leased.


Results of Operations – Three months ended March 31, 2016 compared to three months ended March 31, 2015.

Revenues

The following table compares our revenues for the periods indicated:
 
 
Three Months Ended
March 31,
 
 
 
 
(Dollars in thousands):
 
2016
 
2015
 
Increase
 
%
Change
Rental and other revenues from real estate properties
 
$
22,831

 
$
19,098

 
$
3,733

 
19.5
%
Other income
 
2,026

 
25

 
2,001

 
N/M

Total revenues
 
$
24,857

 
$
19,123

 
$
5,734

 
30.0
%

Rental and other revenues from real estate properties.

The increase is due primarily to:
$4.7 million from eight multi-family properties acquired in the twelve months ended March 31, 2016,

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$726,000 from same store properties (i.e., properties owned during all of the three months ended March 31, 2016 and 2015) , due primarily to a net increase in rental rates at many of our multi-family properties and
$665,000 from the Southridge development property which began lease up activities in April 2015.

Offsetting this increase are decreases of $2.1 million of rental revenue from the three properties sold prior to January 1, 2016 and $300,000 from two properties sold during the quarter ended March 31, 2016.

Other Income.

This increase is due to the inclusion of $2.0 million interest recorded on the loan to the Newark Joint Venture. This loan and the related interest was previously eliminated in consolidation, including deferred interest of $1.9 million that has accrued since September 2014. As a result of the sale of our interest in the venture, this interest income is now reflected on our consolidated statement of operations.

Expenses

The following table compares our expenses for the periods indicated:
 
 
Three Months Ended
March 31,
 
 
 
 
(Dollars in thousands)
 
2016
 
2015
 
Increase
(Decrease)
 
% Change
Real estate operating expenses
 
$
10,935

 
$
9,215

 
$
1,720

 
18.7
 %
Interest expense
 
6,049

 
4,738

 
1,311

 
27.7
 %
Advisor’s fees, related party
 

 
605

 
(605
)
 
(100.0
)%
Property acquisition costs
 
953

 

 
953

 
N/A

General and administrative
 
2,280

 
1,736

 
544

 
31.3
 %
Depreciation
 
5,632

 
4,544

 
1,088

 
23.9
 %
Total expenses
 
$
25,849

 
$
20,838

 
$
5,011

 
24.0
 %


Real estate operating expenses.

The increase is due primarily to:
$2.0 million from eight multi-family properties acquired in the twelve months ended March 31, 2016,
$315,000 from same store properties due to increased real estate taxes, utilities and repairs and maintenance at several properties, and
$287,000 from the Southridge development which commenced operations in April 2015.

Offsetting the increase is a net decrease of $912,000 relating to five properties sold in the twelve months ended March 31, 2016.

Interest expense.

The increase is due primarily to:
$1.4 million is due to the mortgages on the eight multi-family properties acquired in the twelve months ended March 31, 2016,
$252,000 from six properties that obtained supplemental debt, and
$136,000 for the Southridge development as we ceased capitalizing interest on buildings that were completed.


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Offsetting the increase are decreases in interest expense of $450,000 relating to the mortgage debt on three properties sold prior to January 1, 2016 and $127,000 relating to mortgage debt on two properties sold during the quarter ended March 31, 2016.

In April 2016 the fixed interest rate on our junior subordinated debt changed to a variable interest rate equal to three month LIBOR plus 200 basis points. Based on the three month LIBOR rate of 0.64% on April 28, 2016, we anticipate a reduction in interest expense associated with this debt of $140,000 in the quarter ending June 30, 2016 and $350,000 in the fiscal 2016.

Advisor’s fees, related party. The advisory agreement terminated effective December 31, 2015. The services previously provided pursuant to the advisory agreement are now provided by our executive officers and the former chairman of our board at a cost per quarter of $287,500. These costs are included in general and administrative expense.

Property acquisition costs. These costs increased due to the acquisition of three multi-family properties in the three months ended March 31, 2016.

General and administrative. These costs increased primarily as a result of increased professional and consulting fees. The consulting fees are for services previously provided pursuant to the advisory agreement.

Depreciation
The increase is due to:
$1.9 million from the eight multi-family properties acquired during the twelve months ended March 31, 2016,
$429,000 due to the commencement of depreciation upon completion of certain buildings at our Southridge development, and
$103,000 from the finalization of purchase price allocations with respect to properties acquired in the 12 months ended March 31, 2016.


Offsetting the increase are decreases of $637,000 from three properties sold prior to January 1, 2016 and $452,000 related to two properties sold during the three months ended March 31, 2016.

Gain on sale of real estate During the three months ended March 31, 2016, we sold two multi family properties located in Cordova, TN and Kennesaw, GA, for an aggregate of $95.1 million. We recognized gains on the sales of these properties of $24.2 million. The 2015 period includes the sale of Lawrenceville, GA. property which was sold for a $2.8 million gain.
Loss on extinguishment of debt In connection with the sale of the Kennesaw, GA property, we incurred an expense of $2.7 million in connection with the repayment of the related mortgage debt prior to its maturity.
Discontinued operations    In the three months ended March 31, 2016, we sold our interest in the Newark Joint Venture and reclassified the operations of the venture to discontinued operations. The three months ended March 31, 2016, reflects the $15.5 million gain on the sale of our interest.

Results of Operations – Six months ended March 31, 2016 compared to the six months ended March 31, 2015.

Revenues

The following table compares our revenues for the periods indicated:

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Six Months Ended
March 31,
 
 
 
 
(Dollars in thousands):
 
2016
 
2015
 
Increase
 
%
Change
Rental and other revenues from real estate properties
 
$
44,229

 
$
37,597

 
$
6,632

 
17.6
%
Other income
 
2,033

 
52

 
1,981

 
N/M

Total revenues
 
$
46,262

 
$
37,649

 
$
8,613

 
22.9
%

Rental and other revenues from real estate properties.

The increase is due primarily to:
$6.2 million from the inclusion, for the full six months, of four multi-family properties that were only owned for a portion of the corresponding period in the prior year,
$2.2 million from five multi-family properties acquired in the twelve months ended March 31, 2016,
$1.5 million from same store operations (i.e., properties owned during all of the six months ended March 31, 2016 and 2015), due primarily to a net increase in rental rates at several of our multi-family properties, and
$1.1 million from the Southridge development as a result of commencement of lease up activities in April 2015.

Offsetting the increase is a decrease of $4.4 million of rental revenue from three sold properties sold prior to October 1, 2105 and a net decrease of $52,000 from properties sold during the three months ended March 31, 2016.


Expenses

The following table compares our expenses for the periods indicated:
 
 
Six Months Ended
March 31,
 
 
 
 
(Dollars in thousands)
 
2016
 
2015
 
Increase
(Decrease)
 
% Change
Real estate operating expenses
 
$
21,108

 
$
18,580

 
$
2,528

 
13.6
 %
Interest expense
 
11,580

 
9,499

 
2,081

 
21.9
 %
Advisor’s fees, related party
 
693

 
1,189

 
(496
)
 
(41.7
)%
Property acquisition costs
 
1,010

 
295

 
715

 
242.4
 %
General and administrative
 
4,029

 
3,393

 
636

 
18.7
 %
Depreciation
 
10,616

 
8,202

 
2,414

 
29.4
 %
Total expenses
 
$
49,036

 
$
41,158

 
$
7,878

 
19.1
 %


Real estate operating expenses.

The increase is due primarily to:
$3.0 million from the inclusion, for the full six months ended March 31, 2016, of four multi-family properties that were only owned for a portion of the corresponding period in the prior year
$852,000 from five multi-family properties acquired in the twelve months ended March 31, 2016, and
$482,000 at the Southridge development which commenced operations in April 2015.

Offsetting this increase is a net decrease in operating expenses of $2.2 million relating to five properties sold in the twelve months ended March 31, 2016.

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Interest expense.

The increase is due primarily to:
$1.9 million from the inclusion, for the full six months ended March 31, 2016 of interest expense of four multi-family properties that were only owned for a portion of the corresponding period in the prior year
$722,000 is due to the mortgages on the four multi-family properties acquired in the twelve months ended March 31, 2016, and
$362,000 from five properties that obtained supplemental debt.

Offsetting this increase are decreases in interest expense of $996,000 related to mortgage debt on three properties sold prior to October 1, 2015 and $127,000 of interest expense from properties sold during the six months ended March 31, 2016.

Advisor’s fees, related party. The decrease is due to the termination of the advisory agreement effective December 31, 2015.

Property acquisition costs. These costs increased due to the acquisition of four multi-family properties in the six months ended March 31, 2016.

General and administrative. These costs increased primarily as a result of increased professional and consulting fees. The increased consulting fees are for services previously provided pursuant to the advisory agreement.

Depreciation. The increase is due to:
$2.5 million from the inclusion, for the full six months ended March 31, 2016, of depreciation from four multi-family properties that were only owned for a portion of the corresponding period in the prior year.,
$649,000 from the five multi-family properties acquired during the twelve months ended March 31, 2016,
$221,000 from the finalization of purchase price allocations with respect to properties acquired in the 12 months ended March 31, 2016, and
$590,000 due to completion of additional buildings at our Southridge development.

Offsetting the increase are decreases of $945,000 of depreciation related to three properties sold prior to October 1, 2015 and $641,000 of depreciation from two properties sold in the six months ended March 31, 2016.

Liquidity and Capital Resources
We require funds to acquire properties, repay borrowings and pay operating expenses. Generally, our primary sources of capital and liquidity are the operations of, and distributions from, our multi-family properties, our available cash (including restricted cash), mortgage debt financing and our share of proceeds from the sale of multi-family properties. At March 31, 2016, our available cash, including restricted cash of $7.0 million intended for capital improvements at multi-family properties, is approximately $41.8 million.
We anticipate that operating expenses will be funded from cash generated from the operations of the multi-family properties as well as interest income from our real estate loan and that debt service payable through 2017 will be funded from the cash generated from operations of these properties and, if needed, 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. Our ability to acquire additional multi-family properties is limited by our available cash and the availability of mortgage debt.
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 $38.6 million for the Greenville project and $30.3 million for the N. Charleston project.

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As of March 31, 2016, $34.7 million has been drawn on the Greenville facility and $416,000 has been drawn against the N. Charleston project.
Statements of Cash Flows
As of March 31, 2016 and 2015, we had cash and cash equivalents of $34.8 million and $15.6 million, respectively. Our cash and cash equivalents were generated from the following activities (dollars in thousands):
 
Six Months Ended March 31,
 
2016
 
2015
Cash flow from operating activities
$
9,498

 
$
15,281

Cash flow used in investing activities
(16,342
)
 
(29,429
)
Cash flow from financing activities
26,080

 
8,978

  Net change in cash and cash equivalents
19,236

 
(5,170
)
Cash and cash equivalents a beginning of year
15,556

 
23,181

Cash and cash equivalents at end of year
$
34,792