Summary of BRT REALTY TRUST

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.

Overview

We are a real estate investment trust, also known as a REIT. We originate and hold for investment short-term senior and junior commercial mortgage loans, and our primary source of revenue has historically been interest and loan fee income. The continuing crisis in the credit and real estate markets has had a substantial effect on our lending business by significantly limiting investments in real estate and substantially reducing demand for short-term commercial mortgage loans. In addition, in the current credit environment we have concerns about the ability of potential borrowers to be able to (i) refinance and repay loans we originate, (ii) sell the underlying collateral for an amount in excess of a loan we originate or (iii) otherwise raise funds to repay loans. As a result during the nine months ended June 30, 2009, we only originated one new loan in the aggregate principal amount of $8,700,000, advanced funds pursuant to prior commitments in the aggregate amount of $1,907,000 and provided seller financing of $6,070,000 to facilitate the sale of properties.

Commencing in fiscal 2008 many of our borrowers defaulted on their monetary obligations to us, which has required us to focus significant resources on servicing our loan portfolio, work-out activities, pursuing foreclosure actions and acquiring the underlying real property by foreclosure or deed in lieu of foreclosure, operating and stabilizing real property acquired by us (including interfacing with receivers and local property managers), and engaging in activities related to the sale process with respect to properties we are attempting to sell. Set forth below are material effects the crisis in the credit and real estate markets has had on our business during the three and nine months ended June 30, 2009:

· Real estate loans earning interest declined by approximately 49% during the nine months ended June 30, 2009 from $118,028,000 at September 30, 2008 to $60,229,000 at June 30, 2009.

· Interest on real estate loans declined by 66% to $1,313,000 and by 43%, to $7,618,000, respectively, during the three and nine month ended June 30, 2009.

· During the nine months ended June 30, 2009, we offered properties for sale that we acquired in foreclosure. In the course of this process, we ascertained that declining real estate values in the current recessionary environment, coupled with the serious difficulties potential purchasers are having in obtaining mortgage money, has significantly and adversely impacted the market values of commercial real estate in the geographic areas in which these properties are located. Accordingly, in the nine months ended June 30, 2009 we took impairment charges of $9,311,000 against four real estate properties and impairment charges of $17,522,000 against eleven properties classified as held for sale. Included in the impairment charges against real estate properties is $7,790,000 relating to two separate multi family residential properties of 388 and 250 units, respectively, located in Ft. Wayne, Indiana and Nashville, Tennessee. Included in impairment charges against properties held for sale is $7,818,000 against five multi-family residential properties, with a total of 484 units, located in Nashville, Tennessee. These four multi-family properties have been sold as of August 1, 2009 and after all costs of sale and impairment charges, we anticipate will result in no gain or loss. Impairment charges for the nine month period ended June 30, 2009 against properties held for sale include $7,185,000 taken against 162 units at a condominium complex located in Apopka, Florida. This property was sold in the quarter ended June 30, 2009 and resulted in no gain or loss.

· In the nine months ended June 30, 2009 we added $17,530,000 to our loan loss allowance and had a total of $8,592,000 in loan loss allowance outstanding against three non earning loans with a principal balance of $28,414,000 at June 30, 2009.

· For the nine months ended June 30, 2009, our income from real estate properties, excluding our real estate properties held for sale, was $2,996,000 and our operating expenses for these properties was $4,231,000, resulting in a loss from real estate operations of $1,235,000 as compared to operating income of $1,090,000, operating expenses of $1,654,000 and a net loss from operations of $563,000 in the nine months ended June 30, 2008.

Until the credit markets stabilize and credit is made available to real estate owners and developers, we could experience (i) more borrower defaults, (ii) additional foreclosure actions (with an increase in direct and indirect expenses in pursuing such actions), (iii) the acquisition of additional properties in foreclosure or by deed in lieu of foreclosure, (iv) a continuing decline in real estate values, and (v) limited origination activity, all of which will result in a decline in our revenues and net income (or an increase in our net loss).

Liquidity and Capital Resources

Our total available liquidity at June 30, 2009 was approximately $26,861,000, including $22,461,000 of cash and cash equivalents, and $4,387,000 of approximate availability under our margin lines of credit. We believe that our existing sources of capital will be adequate to meet our liquidity needs. In addition, many of the properties we have acquired by foreclosure are being offered for sale. Consummation of any such sales will increase our liquidity.

During the nine months ended June 30, 2009, we generated cash of $9,039,000 from real estate loan collections, and $18,371,000 from the sales of real estate properties. The cash, along with our cash on hand of $35,765,000 at September 30, 2008, was used primarily to fund real estate loan originations of $12,650,000, pay shareholder dividends in October 2008 of $15,564,000 (relating to taxable income for the 2007 calendar year) and fund an operating loss of $8,179,000.

Cash Distribution Policy

Our board of trustees suspended the payment of dividends on our common shares in December 2008. In view of the problems facing the real estate industry and the Trust at the present time, and the need to preserve capital, the board considered it prudent to suspend the payment of dividends. Our board of trustees reviews the dividend policy at each regularly scheduled quarterly board meeting. Since we will report a taxable loss for the year ended December 31, 2008, no distributions will be required in 2009 in order for us to retain our REIT status.

Results of Operations

Interest on loans decreased by $2,508,000, or 66%, to $1,313,000 for the three months ended June 30, 2009 from $3,821,000 for the three months ended June 30, 2008. A decline in the average balance of earning loans outstanding due to a combination of payoffs, reduced originations caused by weakness in the real estate and credit markets, transfers to owned real estate and transfers to non performing loans, accounted for a decrease in interest income of $1,833,000. A 155 basis point decrease in the rate earned on the performing loan portfolio, from 12.43% to 10.88% in the three months ended June 30, 2009 when compared to June 30, 2008, primarily due to lower mortgage renewal rates and lower rates earned on purchase money mortgages originated to facilitate the sale of properties, caused a decrease in interest income of $675,000.

Interest on loans decreased by $5,818,000, or 43%, to $7,618,000 for the nine months ended June 30, 2009 from $13,436,000 for the nine months ended June 30, 2008. A decline in the average balance of earning loans outstanding due to a combination of payoffs, reduced originations, transfers to owned real estate and transfers to non performing loans accounted for a decrease in interest income of $4,781,000. The average interest rate earned on the earning loan portfolio decreased 66 basis points to 11.98% in the nine months ended June 30, 2009 from 12.64% in the nine months ended June 30, 2008, which caused interest income to decrease by $1,037,000.

Loan fee income decreased by $351,000, or 64%, to $196,000 for the three months ended June 30, 2009 from $547,000 for the three months ended June 30, 2008. Loan fee income also decreased by $854,000, or 52%, to $803,000 for the nine months ended June 30, 2009 from $1,657,000 for the nine months ended June 30, 2008. The decreases in both the three and nine month periods are the result of a decline in loan originations and the increase in non performing loans over the past several quarters due to the weakness in the real estate and credit markets.

Operating income from real estate properties increased $634,000, or 167%, for the three month period ended June 30, 2009 to $1,011,000 from $377,000 in the three month period ended June 30, 2008. Operating income from real estate properties increased $1,906,000, or 175%, for the nine month period ended June 30, 2009 to $2,996,000 from $1,090,000 in the nine month period ended June 30, 2008. The increases for both the three and nine month periods were primarily the result of rental revenues received from tenants at two multi-family apartment complexes located in Fort Wayne, Indiana and Nashville, Tennessee and the rental of condominium units located in Miami Beach, Florida. The Trust acquired title to these properties by foreclosure or deed in lieu of foreclosure in the prior fiscal year.

Other, primarily investment income, declined by $216,000, or 55%, to $174,000 in the three months ended June 30, 2009 from $390,000 in the three months ended June 30, 2008, and declined by $995,000, or 65%, to $537,000 in the nine months ended June 30, 2009 from $1,532,000 in the nine months ended June 30, 2008. The declines in both the current and three and nine month periods were primarily due to reduced dividend income paid on shares of EPR that we owned, much of which we now have sold.

Interest expense on borrowed funds decreased to $923,000 for the three months ended June 30, 2009, from $1,734,000 for the three months ended June 30, 2008, a decline of $811,000, or 47%. For the three month period ended June 30, 2009, the average outstanding balance of borrowed funds declined by $24 million, as a result of our paydown of the credit facility with funds from loan repayments and the sale of properties. This decline accounted for a decrease in interest expense of $205,000. A decline of 225 basis points in the interest rate paid on the credit facility caused a decrease in interest expense of $116,000. Additionally, $150,000 of the decrease was the result of the decline in the amortization of deferred fees on our credit facility. The Trust also realized a reduction in interest and amortization of fees of $340,000, as a result of the restructuring of its trust preferred securities.

Interest expense on borrowed funds decreased to $3,725,000 for the nine months ended June 30, 2009, from $5,179,000 for the nine months ended June 30, 2008, a decline of $1,454,000, or 28%. For the nine month period ended June 30, 2009, the average outstanding balance of borrowed funds declined by $18 million, as a result of our paydown of the credit facility with funds from loan repayments and the sale of properties. This decline accounted for a decrease in interest expense of $541,000. A decline of 225 basis points in the interest rate paid on the credit facility caused a further decrease in interest expense of $323,000. Additionally, $250,000 was the result of a decline in the amortization of deferred fees on our credit facility. The Trust also realized a reduction in interest and amortization of fees of $340,000, as a result of the restructuring of its trust preferred securities.

The advisor's fee, which is calculated based on invested assets, decreased by $162,000, or 36%, for the three months ended June 30, 2009, to $289,000 from $451,000 for the three months ended June 30, 2008 and decreased by $431,000, or 31%, for the nine months ended June 30, 2009, to $941,000 from $1,372,000 for the nine months ended June 30, 2008. The decline in both periods was the result of a decreased level of invested assets on which the fee is based, resulting primarily from the impairment charges taken on our real estate assets and sales of real estate.

For the three months ended June 30, 2009, the Trust recorded $371,000 of impairment charges against its real estate portfolio. Management, in its regular review process, analyzed the real estate portfolio and determined that the deterioration in the credit markets and in the real estate markets where the Trust's properties are located, has made it necessary to recognize declines in the value of two of our properties. For the three months ended June 30, 2008, the Trust recorded impairment charges of $395,000 against two properties and $1,050,000 against the value of one of the Trust's joint ventures.

For the nine months ended June 30, 2009, the Trust recorded $9,311,000 of impairment charges against its real estate portfolio. Management analyzed the real estate portfolio and determined that the deterioration in the credit markets and the real estate markets where the Trust's properties are located made it necessary to record declines in the value of our properties. The impairment charges were taken against four properties of which $7,790,000 related to two multi family properties (one located in Fort Wayne, Indiana and the other in Nashville, Tennessee) and the remaining $1,521,000 was taken against a land parcel in Manhattan, New York and condominium units in Florida. For the nine months ended June 30, 2008, the Trust recorded impairment charges of $445,000 against two properties and $1,050,000 against the value of one of the Trusts joint ventures.

Management, in its regular review process, analyzes the loan portfolio and the underlying value of the collateral securing its loans to determine the necessity of recording provisions for loan losses to reflect a decrease in the value of the collateral underlying loans. Due to the continuation of the credit crisis and national recession for the nine months ended June 30, 2009, the Trust recorded $17,530,000 in provisions for loan losses. The provision was taken against 22 loans with an aggregate outstanding balance of $65,771,000 and includes $2,265,000, taken against a loan due to a fraud committed by our borrower which has been reported to the appropriate authorities. For the three months ended June 30, 2009 no additional loan loss provision was required. For the three and nine month period ended June 30, 2008, the Trust recorded provision for loan losses of $6,400,000 and $11,700,000, respectively. The prior period's provisions were taken against six loans with an aggregate outstanding balance of $67,357,000 and seven loans with an aggregate outstanding balance of $51,357,000, respectively.

Foreclosure related professional fees decreased to $97,000 for the three months ended June 30, 2009 from $438,000 for the three months ended June 30, 2008, a decrease of $341,000, or 78%. Foreclosure related professional fees also decreased to $687,000 for the nine months ended June 30, 2009 from $1,664,000 for the nine months ended June 30, 2008, a decline of $977,000, or 59%. The decreases in both periods are the result of reduced legal fees and expenses due to fewer foreclosure actions and workout matters.

Debt restructuring charges of $685,000 were recorded in both the three and nine month periods ended June 30, 2009. These charges include legal expenses and third party costs in connection with the restructuring of the Trust's preferred securities. There was no comparable expense in the three or nine month periods ended June 30, 2008.

General and administrative expenses increased $259,000, or 16%, from $1,669,000 in the three months ended June 30, 2008 to $1,928,000 in the three months ended June 30, 2009. The increase was primarily the result of $325,000 of professional fees incurred in connection with the workout and negotiations relating to the joint venture agreement that was entered into in the current quarter with respect to the Newark, New Jersey assemblage. This increase was offset by a decline in advertising and promotional costs of $ 65,000 as the Trust curtailed its marketing expenditures due to the current state of the real estate market.

For the nine month period ended June 30, 2009, general and administrative expenses increased $145,000, or 3%, from $5,173,000 in the nine months ended June 30, 2008 to $5,318,000 in the three months ended June 30, 2009. The increase was also primarily the result of $367,000 of professional fees incurred in connection with the workout and negotiations relating to the joint venture agreement that was entered into in the current quarter with respect to the Newark, New Jersey assemblage. This increase was offset by a decline in advertising and promotional costs of $272,000.

Other taxes decreased by $130,000, or 100%, to $0 in the three months ended June 30, 2009 from $130,000 in the three months ended June 30, 2008, and decreased by $212,000, or 92%, to $18,000 in the nine months ended June 30, 2009 from $230,000 in the nine months ended June 30, 2008. Current period amounts represent the accrual of state franchise and excise taxes, while the prior periods include federal excise tax which is based on income generated in the prior year but not distributed until the current year.

Operating expenses relating to real estate properties increased $488,000, or 45%, from $1,094,000 in the three month period ended June 30, 2008 to $1,582,000 in the three month period ended June 30, 2009. Operating expenses relating to real estate properties also increased $2,577,000, or 156%, from $1,654,000 in the nine month period ended June 30, 2008 to $4,231,000 in the nine month period ended June 30, 2009. The increase in both the three and nine month periods is the result of operating expenses relating to four additional properties acquired by foreclosure and the addition in the current period of the Newark, New Jersey properties.

Amortization and depreciation increased $594,000, or 127%, from $469,000 in the nine month period ended June 30, 2008 to $1,063,000 in the nine month period ended June 30, 2009. The increase in the nine month period is the result of depreciation expense relating to properties acquired in foreclosure in the prior fiscal year and catch up depreciation taken on those properties reclassified from real estate properties held for sale.

Equity in earnings of unconsolidated ventures decreased $67,000 in the three months ended June 30, 2009 to $104,000 from $171,000 in the three months ended June 30, 2008. This decrease is the result of decreased earnings by our joint venture with the CIT Group. This category also decreased $3,305,000 in the nine months ended June 30, 2009 to a loss of $1,983,000 from earnings of $1,322,000 in the nine months ended June 30, 2008. This decrease is primarily the result of a loss recorded by our joint venture with the CIT Group. In the current nine month period the venture recorded a loan loss provision to reflect a decrease in the value of a multi-family garden apartment complex which secured a non performing loan.

Gain on sale of joint venture interests increased $271,000 for the nine month period ended June 30, 2009 from $0 in the nine month period ended June 30, 2008. In the current nine month period the Trust sold its interest in four joint ventures which owned properties located in Connecticut. The proceeds of the sale were $1,350,000 and the Trust recognized a gain on the sale of $271,000.

Gain on sale of available-for-sale securities declined from $7,885,000 in the three month period ended June 30, 2008 to $92,000 in the three month period ended June 30, 2009. In the current three month period the Trust sold 12,000 shares of Entertainment Properties Trust. These securities, with a cost basis of $158,000, were sold for $250,000. In the prior three month period the Trust sold 190,824 shares of Entertainment Properties Trust. These securities, with a cost basis of $2,506,000 were sold for $10,391,000.

Gain on sale of available-for-sale securities declined from $11,703,000 in the nine month period ending June 30, 2008 to $92,000 in the nine month period ending June 30, 2009. In the current nine month period the Trust sold 12,000 shares of Entertainment Properties Trust. These securities, with a cost basis of $158,000, were sold for $250,000. In the prior nine month period the Trust sold 292,224 shares of Entertainment Properties Trust. These securities with a cost basis of $3,838,000 were sold for $15,541,000.

Loss from discontinued operations was $2,283,000 in the three month period ended June 30, 2009 as compared to a loss of $5,280,000 in the three month period ended June 30, 2008. The losses in both the current and prior three month periods are primarily due to impairment charges taken on real estate that the Trust has classified as held for sale or sold in these periods. In the quarter ended June 30, 2009, the Trust took impairment charges of $2,211,000 against seven properties five of which were sold in the current period. These impairment charges include $1,145,000 taken against condominium units located in Miami, Florida and $755,000 against condominium units located in Apopka, Florida. In the quarter ended June 30, 2008 the Trust took impairment charges of $5,402,000 against five properties. These impairments include $3,740,000 taken against units owned at two separate condominium complexes located in Miami and Apopka, Florida, $630,000 taken against a shopping center owned in Stuart, Florida and $985,000 taken against a multi family property located in Chattanooga, Tennessee.

Loss from discontinued operations was $18,178,000 in the nine month period ended June 30, 2009 as compared to a loss of $4,175,000 in the nine month period ended June 30, 2008. The losses in both the current and prior three month periods are primarily due to impairment charges taken on real estate that the Trust has classified as held for sale or sold in these periods. In the nine months ended June 30, 2009 the Trust took impairment charges of $17,522,000 against 11 properties. These impairments include $1,130,000 taken against condominium units located in Miami, Florida, $7,185,000 against condominium units located in Apopka, Florida and $7,818,000 taken against five multi family properties located in Nashville, Tennessee. In the nine months ended June 30, 2008 the Trust took impairment charges of $ 5,305,000 against four properties. These impairments include $3,690,000 taken against units at two separate condominium complexes located in Miami and Apopka, Florida, $630,000 taken against a shopping center in Stuart, Florida and $985,000 taken against a multi family property located in Chattanooga, Tennessee.