Here's info on a company I think is a good short:
BRT makes short term bridge loans on commercial real estate. It has 11.3 million shares outstanding and trades at around $15 per share. The co. also owns 625,000 shares of Entertainment Properties Trust (EPR) with a value of about $25 million. BRT has borrowed $12 million on its line of credit and has $57 million of trust preferreds outstanding.
According to the 10-K filed a few weeks ago, BRT has a portfolio of 51 loans totalling $250 million. At September 30, 2007, seven of those loans totalling $63.6 million were not earning interest. An allowance of $5.9 million has been taken for these loans. Is a loan loss reserve of only 9.3% enough?
BRT also has 44 mortgage loans totaling $186 million that are performing. A loan loss of $3 million has been taken on these loans. Again, the reserve may well be inadequate if more than a few of these loans go south.
Of BRT's total loan portfolio, 28% (or $70 million) consisted of laons secured by existing multi-family and hotel properties being converted to condominiums. Of these loans, 54% (or $37.8 million) are not earning interest. There is substantial risk of additional losses since the condo conversion business is dead and loans made based on condo sell-out prices were inflated compared to loans made based on cash flow as a rental building.
In adition, during fiscal 2007 (ended 9/30/07) BRT ramped up its loans on unimproved land. Now totals 17.5% ($43.8 million) of all loans, up from 12.3% the prior year. These are high risk loans since there is zero cash flow to repay the lender and development has slowed to a trickle.
Further, 6% of BRT's loans ($14 million) are junior mortgages, junior participations or mezzanine loans.
In addition, under a joint venture with CIT (of which BRT is a 25% joint venturer), $58.4 million in loans were made, of which there is no loan loss provision.
Not including the CIT JV, 43% of BRT's loans are secured by properties in the NYC metropolitan area, 25% are for properties in Tennessee, 24% in Florida and 8% is dispersed throughout other states. The three largest mortgage loans were for $26.1 million, $24.8 million and $19.4 million and in the aggregate, these three loans account for 21.3% of total loans.
In fiscal 2007, BRT lent $64 million (including those loans made by the CIT JV) to one borrower. According to the 10-K, this borrower "became incapacitated and is not able to manage his business or make business decisions." A guardian is being appointed. This could be a disaster (and at a minimum, BRT's new loans will shrink as this large borrower is no longer a customer . . .) .
For additional info, see: http://seekingalpha.com/article/57637-what-s-buried-in-brt-realty-trust-s-10-k?source=yahoo
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