Overview

We are a real estate investment trust, also known as a REIT. We operate in three lines of business: real estate lending, ownership and operation of multi-family properties, and ownership and operation of other real estate assets.

Our lending activities involves originating and holding for investment senior mortgage loans secured by commercial and multi-family real estate property in the United States. Revenues are generated from the interest income (i.e, the interest borrowers pay on our loans) and to a lesser extent, loan fee income generated on the origination and extension of loans and investment income from securities transactions.

Our multi-family activities derive revenues primarily from tenant rental payments. We commenced these activities in 2012 as we identified a demand for equity capital in this sector. Generally, these activities involve our investment of 80% of the equity in a joint venture that acquires a multi-family property. Our multi-family property activities are complementary to our loan origination activities in that we address the funding needs of multi-family real estate investors by providing them with access to both equity capital and debt financing.

Our ownership and operation of other real estate assets is comprised principally of the activities of the Newark Joint Venture and to a lesser extent, the ownership and operations of various real estate assets located in New York and Florida. The Newark Joint Venture is engaged in the development of properties in downtown Newark, NJ. The properties are to be developed for educational, commercial, retail and residential use. The Newark Joint Venture is currently developing a project known as "Teachers Village"-the project currently involves five buildings, in various stages of construction and pre-construction, which are to be used for charter schools, retail space and residential units. The venture is currently unprofitable and it is anticipated that the activities will continue to be unprofitable at least until the Teacher's Village is constructed and reasonable occupancy levels achieved. The venture requires substantial third party funding (including tax credits and financing provided by governmental authorities) for its development activities-no assurance can be given that sufficient funding will be available and even if sufficient funding is obtained and construction completed, that such development activities will ever by profitable to us.

The following table sets forth (i) the impact of these lines of business on our total revenues and net income attributable to common shareholders for the periods indicated and (ii) our total assets applicable to each segment as of the dates indicated (dollars in thousands):

                        Fiscal 2012                  Fiscal 2011


                               Net Income                   Net Income
                                 (Loss)                       (Loss)
                              Attributable                 Attributable      Segment Assets at
                   Total       to Common        Total       to Common          September 30,
                 Revenues     Shareholders    Revenues     Shareholders      2012        2011
 Loan and
 investment       $ 10,026    $       9,456    $ 14,425    $       8,068   $ 113,383   $ 126,916
 Multi-family
 real estate         5,464           (4,248 )         -                -     121,153           -
 Other real
 estate              4,089             (778 )     3,456           (1,694 )   151,420      64,096

Net income attributable to common shareholders decreased by $2 million or 31.3% from $6.4 million in 2011 to $4.4 million in 2012. The decrease is primarily due to the net losses sustained in our multi-family property activities and to a lesser extent, net losses from the activities of our other real estate assets. These losses were partially offset by the increase in net income attributable to our loan and investment activities.

Contributing to the net loss attributable to common shareholders of our multi-family activities were, among other things, property acquisition costs of $2.4 million with respect to the five multi-family properties acquired in 2012 (and in particular, costs of $1.6 million with respect to the acquisition of the Palm Beach Gardens, Florida property) and $1.3 million of non-cash depreciation and amortization expense. Depreciation and amortization expense will continue to negatively impact income-but not funds from operations-from our multi-family property segment.

Historically, our primary source of revenue and income has been derived from our loan origination activities. We anticipate that as a result of our multi-family property acquisitions, our primary sources of revenues and operating cash will, in the future, be generated by a combination of our multi-family and loan origination activities.

The following highlights certain of our activities in 2012 and our financial condition at year-end:

º •
º we originated $98.6 million of mortgage loans in 2012 ($25.5 million, $40.6 million, $20.1 million and $12.4 million in the first, second, third and fourth fiscal quarters, respectively), and $131.3 million of mortgage loans in 2011 ($28.3 million, $60.5 million, $23.6 million and $18.9 million in the first, second, third and fourth fiscal quarters, respectively);

º •
º we acquired five multi-family properties with an aggregate of 1,451 units and invested equity of approximately $28.6 million in the joint ventures that acquired these properties;

º •
º we have cash and cash equivalents, net of deposits payable, of approximately $76.1 million and $44 million, at September 30, 2012 and December 5, 2012, respectively;

º •
º interest on loans and loan fee income in 2012 declined $798,000 or 7.7% from 2011; and

º •
º the Newark Joint Venture obtained $68.5 million in financing, which together with New Markets Tax Credits net proceeds of approximately $25.8 million, is being used to construct five buildings at the Teacher's Village site.

From October 1, 2012, through December 5, 2012 we (i) had loan originations, net of repayments, of approximately $20 million and (ii) invested equity of approximately $14 million in joint ventures that acquired three additional multi-family properties with an aggregate of 884 units.

Year Ended September 30, 2012 Compared to Year Ended September 30, 2011

Revenues

    The following table compares our revenues for the years indicated:


                                                Fiscal            Increase
(Dollars in thousands):                     2012       2011      (Decrease)     % Change
Interest on real estate loans             $  7,257   $  8,500    $    (1,243 )      (14.6 )%
Loan fee income                              2,273      1,828            445         24.3 %
Rental and other revenue from real
estate properties                            8,675      3,456          5,219        151.0 %
Recovery of previously provided
allowances                                     156      3,595         (3,439 )            *
Other income                                 1,218        502            716        142.6 %

Total revenues                            $ 19,579   $ 17,881    $     1,698          9.5 %

Interest on real estate loans. The decrease is attributable to the following factors: (i) $797,000 is due to the inclusion, during fiscal 2011, of cash basis income received primarily from non-performing loans and purchase money mortgages; and (ii) $425,000 is due to the $3.5 million decrease in the average balance of earning loans outstanding. This average balance decreased due to lower loan originations and accelerated repayments by borrowers. We believe that loan originations decreased due to competitive pressures and reduced demand for repurchase loans and that the accelerated repayments by borrowers were due to the increased availability of credit on more favorable terms. The weighted average interest rate on performing loans was 11.85% and 11.82% in 2012 and 2011, respectively.

Loan fee income. The increase is primarily due to higher amortization of loan fees and extension fees and accelerated amortization of loans that paid off prior to maturity.

Rental and other revenue from real estate properties. The increase is due to the inclusion of $5.46 million of rental income from five multi-family properties acquired in fiscal 2012. We anticipate that rental revenue will increase in fiscal 2013 as the 2012 results only includes rental revenue for a portion of such year due to the timing of these acquisitions and three multi-family properties were acquired after year end. Assuming, among other things, that rental and occupancy rates remain stable, we estimate that rental revenues in 2013 from our eight multi-family properties will increase to approximately $21.6 million. Partially offsetting the increase was the inclusion in 2011 of $77,000 of rebill income at a Newark Joint Venture property and a $188,000 decrease due to the loss of several commercial tenants at its Market Street properties. This is a development site and accordingly, leasing space at this property, which leases are short-term in nature, is difficult.

Recovery of previously provided allowances. The decline is due to the inclusion in 2011 of $2.5 million from the reversal of a previously provided loan loss allowance and a $1 million recovery on a loan charged off in a prior year.

Other income. The increase is the result of a U.S. Treasury subsidy of $876,000 which covers approximately 90% of the interest payments with respect to qualified school construction bonds in principal amount of $22.7 million issued by the Newark Joint Venture at the end of the second quarter of 2012. We anticipate that this subsidy, in the annual amount of approximately $1.2 million, will continue until at least 2018. Partially offsetting the increase was a $160,000 decrease in investment income resulting from the sale of securities that had generated such income in 2011.

Expenses

    The following table compares our expenses for the periods indicated:


                                                Fiscal            Increase
(Dollars in thousands)                      2012       2011      (Decrease)     % Change
Interest expense                          $  4,729   $  2,112    $     2,617        123.9 %
Advisor's fee, related party                 1,104        916            188         20.5 %
Foreclosure related professional fees            -        579           (579 )       (100 )%
Property acquisition costs                   2,407          -          2,407              *
General and administrative                   7,161      6,149          1,012         16.5 %
Operating expenses related to real
estate properties                            6,042      3,340          2,702         80.9 %
Depreciation and amortization                2,004        738          1,266        171.4 %

Total expenses                            $ 23,447   $ 13,834    $     9,613         69.5 %

Interest expense. The increase is attributable to the following factors:
(i) $1.39 million is due to interest expense related to $68.5 million of mortgage debt incurred in connection with the Newark Joint Venture's 2012 financings; (ii) $1.44 million is due to the mortgage debt of $89.7 million incurred in connection with the multi-family properties acquired in 2012; and
(iii) $144,000 is related to interest expense and amortization of fees associated with our credit line. The increase was partially offset by a $330,000 interest expense decrease resulting from the March 2011 restructuring of our junior subordinated notes. As: (i) 2012 only includes interest expense for a portion of such year with respect to the aggregate mortgage debt of $158.2 million incurred in connection with the acquisitions of multi-family properties and the Newark Joint Venture financings; and (ii) the interest rate on the junior subordinated notes increased from 3% to 4.9% in August 2012, we estimate that interest expense in 2013 attributable to our eight multi-family properties, the Newark Joint Venture's 2012 financings and the junior subordinated notes, will increase to approximately $5.3 million, $1.8 million and $3.9 million, respectively, for an aggregate increase of approximately $11 million. Capitalized interest was $1.66 million and $775,000 in 2012 and 2011, respectively.

Advisor's fee, related party. The fee is calculated based on invested assets which increased because of the purchase of five multi-family properties in 2012.

Foreclosure related professional fees. Fees decreased due to the resolution of the foreclosure, bankruptcy and related proceedings in which we had been involved.

Property acquisition costs. These costs were incurred in connection with our purchase of multi-family properties. Such costs included acquisition fees, brokerage fees, and legal, due diligence and other transactional costs and expenses. There was no corresponding expense in 2011.

General and administrative expense. The increase is attributable primarily to the following factors: (i) a net increase of $320,000 is due to increased professional fees resulting from, among other things, our multi-family joint venture activities; (ii) $205,000 is due to the payment of Federal alternative minimum tax resulting from our use of net operating loss carryfowards to reduce 2011 taxable income; (iii) a net increase of $186,000 is due to higher rates of employee compensation; (iv) $150,000 is due to the fees of $50,000 per quarter payable to the chairman of our board of trustees, which payment commenced January 2012; (v) $115,000 is due to the inclusion in the prior year of reversals of over-accruals relating to state franchise taxes; and (v) $70,000 is due to increased travel and related expenses. General and administrative expense is allocated among our three segments in proportion to the assets allocated to each segment as of the end of each quarter.

Operating expenses related to real estate properties. The increase is due to the inclusion, for a portion of 2012, of expenses related to the multi-family properties acquired in such year. We estimate that in 2013 the expense related to our eight multi-family properties will increase by approximately $8.1 million to $10.8 million.

Depreciation and amortization. The increase is due to the inclusion of such expense, for a portion of 2012, of the five multi-family properties we acquired in such year. We estimate that the expense for 2013 related to our eight multi-family properties will be approximately $4.6 million.

Other revenue and expense items

The following table compares other revenue and expense items for the years indicated:

                                                 Fiscal           Increase
(Dollars in thousands)                      2012       2011      (Decrease)     % Change
Equity in earnings of unconsolidated
ventures                                   $   829   $    350    $       479        136.8 %
Gain on sale of available-for-sale
securities                                     605      1,319           (714 )      (54.2 )%
Gain on sale of loan                         3,192          -          3,192              *
Loss on extinguishment of debt                   -     (2,138 )       (2,138 )            *


--------------------------------------------------------------------------------
   º *
   º Not meaningful.

Equity in earnings of unconsolidated joint ventures. The increase, reflected in our other real estate asset segment, is related to a distribution from a joint venture of $864,000 in excess of its basis resulting from the refinancing of a mortgage which was recorded as income. Partially offsetting the increase was: (i) $125,000 loss from a joint venture entered into in the March 2012 quarter which is primarily the result of $193,000 of acquisition costs related to multi-family properties acquired by joint ventures that were, in the fourth quarter of 2012, included in our consolidated results of operations; and
(ii) $235,000 (which reflects the write-off of $297,000 of capitalized costs) related to a joint venture that ceased loan purchasing activities in November 2011, which activities are reflected in our loan and investment segment.

Gain on sale of available-for-sale securities. In 2012, we sold available-for-sale equity securities with a cost basis of $3,334,000 and recognized a gain of $605,000. In 2011, we sold available-for-sale debt and equity securities with a cost basis of $6,270,000 and recognized a gain of approximately $1,319,000.

Gain on sale of loan. In October 2011, pursuant to a Federal Bankruptcy Court approved joint plan of reorganization, we and our loan participant sold the rights to a loan for net proceeds of approximately $23.5 million. We recognized a $3.2 million gain on the sale, representing our 50% interest in this loan. There was no corresponding gain in 2011.

Loss on extinguishment of debt. In 2011, we restructured our outstanding junior subordinated notes. Pursuant to the restructuring, we repaid $5.0 million of the notes at par and reduced the interest rate on the remaining outstanding notes through the April 2036 maturity date. For financial statement purposes, this restructuring was treated as an extinguishment of debt, and accordingly, we recognized a loss of $2,138,000 which represented the unaccreted principal balance of the notes and the related unamortized costs. There was no corresponding debt extinguishment in 2012.

Discontinued operations

In 2012, discontinued operations consisted of the gain of $792,000 on the sale of two vacant cooperative apartments. In 2011, discontinued operations consisted of the sale of two vacant cooperative apartments for a gain of $1,001,000 and a gain of $289,000 from the payoff of a loan which was accounted for as real estate for financial statement purposes. All of these properties were located in Manhattan, New York. These activities are reflected in our other real estate assets segment.

Year Ended September 30, 2011 Compared to Year Ended September 30, 2010

Revenues

    The following table compares our revenues for the years indicated:


                                                   Fiscal           Increase
(Dollars in thousands):                        2011      2010      (Decrease)    % Change
Interest on real estate loans                $  8,500   $ 3,624    $     4,876         135 %
Loan fee income                                 1,828       253          1,575         623 %
Rental and other revenue from real estate
properties                                      3,456     3,422             34           1 %
Recovery of previously provided allowance       3,595       365          3,230         885 %
Other income                                      502       471             31           7 %

Total revenues                               $ 17,881   $ 8,135    $     9,746         120 %

Interest on real estate loans. The increase is primarily due to a $37.1 million increase in the average balance of earning loans outstanding attributable to additional loan originations, which we believe was the result of improved economic conditions. This average balance excludes $11.2 million of purchase money mortgages that were provided in prior years to facilitate the sale of our owned real estate. The interest rate on our portfolio increased from 9.83% in 2010 to 11.85% in 2011 as the result of the payoffs of the lower rate purchase money mortgages.

Loan fee income. The increase is due to the amortization of loan fees received on the increase in loans originated during 2011.

Recovery of previously provided allowance. The increase reflects the reversal of a previously provided loan loss allowance of $2.5 million allocated to a non-performing loan that was sold in the quarter ended March 31, 2011 and the recovery of $1 million on a loan charged off in a prior year.

Expenses

    The following table compares our expenses for the years indicated:


                                                Fiscal            Increase
(Dollars in thousands)                      2011       2010      (Decrease)     % Change
Interest expense                          $  2,112   $  2,584    $      (472 )      (18.3 )%
Advisor's fee, related party                   916        785            131         16.7 %
Provision for loan losses                        -      3,165         (3,165 )            *
Impairment charges                               -      2,625         (2,625 )            *
Foreclosure related professional fees          579        673            (94 )      (13.9 )%
General and administrative                   6,149      6,063             86          1.4 %
Operating expenses related to real
estate properties                            3,340      3,216            124          3.9 %
Amortization and depreciation                  738        733              5            1 %

Total expenses                            $ 13,834   $ 19,844    $    (6,010 )      (30.3 )%

Interest expense. Approximately $508,000 of the decrease is attributable to the restructuring of the junior subordinated notes in March 2011 (of which $433,000 is due to the reduction of the interest rate and $75,000 is due to the decrease in the principal amount outstanding) and approximately $449,000 is due to the capitalization of interest with respect to a Newark, NJ development site. The decrease was partially offset by a $448,000 increase in mortgage interest due to the aggregate net increase of $1.86 million in mortgage debt outstanding. This debt increased due to the borrowing pursuant to an $8.6 million financing facility for the Newark Joint Venture. The $4 million outstanding at September 30, 2011 under this facility carried interest at the rate of 17% per year.

Advisor's fee, related party. The fee is calculated based on invested assets and increased because of the increase in our portfolio of loans and real estate assets.

Provision for loan losses. In 2010, we recorded $3,165,000 of loan loss provisions. There were no such provisions in 2011.

Impairment charges. In 2010, we recorded $2,625,000 of impairment charges. There were no such charges in 2011.

Foreclosure related professional fees. Fees decreased primarily due to the resolution in 2011 of substantially all of the foreclosure, bankruptcy and related proceedings in which we were involved.

General and administrative expense. The increase is attributable primarily to an increase of $440,000 in payroll related costs reflecting higher salaries, commissions, pension and medical expenses, partially offset by an approximately $412,000 decline in professional fees, travel related, public company and other miscellaneous expenses.

Operating expenses related to real estate owned. The increase is attributable primarily to increases in maintenance, insurance and professional fees on properties owned by the Newark Joint Venture, partially offset by a $134,000 decline in real estate tax expense on a land parcel we own in Daytona, FL.

Other revenue and expense items

The following table compares other revenue and expense items for the years indicated:

                                                 Fiscal           Increase
(Dollars in thousands)                       2011      2010      (Decrease)     % Change
Equity in earnings of unconsolidated
ventures                                   $    350   $   196    $       154         78.4 %
Gain on sale of available-for-sale
securities                                    1,319     1,586           (267 )      (16.8 )%
Loss on extinguishment of debt               (2,138 )       -         (2,138 )            *


--------------------------------------------------------------------------------
   º *
   º Not meaningful.

Equity in earnings of unconsolidated ventures. The increase is attributable to $99,000 of income generated with respect to the activities of a joint venture engaged in loan purchasing activities and $54,000 attributable to increased rental income at one of our other ventures properties.

Gain on sale of available-for-sale securities. During fiscal 2011, we sold available-for-sale securities with a cost basis of $6.3 million for $7.6 million, recognizing a gain of $1.3 million. During fiscal 2010, we sold available-for-sale securities with a cost basis of $1.8 million for $3.4 million recognizing a gain of $1.6 million.

Discontinued operations

In fiscal 2011, we had income from discontinued operations of $1.3 million due to the sale of two cooperative apartment units in New York and the payoff of a loan which was classified as real estate for financial statement purposes. In fiscal 2010, discontinued operations represented the loss from operations of $602,000 primarily from the sale of two multi-family garden apartment properties and a hotel property, an impairment charge of $745,000 which related to a multi-family garden apartment property and gains of $1,937,000 from the sale of two multi-family properties, a hotel property and coop and condominium units.

Credit Facility

A subsidiary of ours is able, pursuant to a senior secured revolving credit facility, to borrow up to an aggregate of $25 million to originate loans. The subsidiary may borrow (i) on an unsecured basis, $10 million for up to 90 days and (ii) on a secured basis, up to the lesser of $25 million and the borrowing base. The borrowing base is generally equal to 40% to 65% (depending on, among other things, the type of property secured by eligible mortgage receivables acceptable to the lender as collateral and the operating income of the related property) of such receivables. Interest accrues on the outstanding balance at the greater of (i) 4% plus LIBOR and (ii) 5.50%. The facility matures June 21, 2014 and, subject to the satisfaction of specified conditions, the outstanding balance may be converted at our option into an 18 month term loan. We have guaranteed the payment and performance of our subsidiary's obligations under the facility. The credit facility, among other things, requires us to maintain specified net worth and liquidity levels, requires the subsidiary to maintain specified debt service coverage and collateral coverage ratios, and limits our . . .