(5) Construction completed in August 2006 on land acquired in 1963 / 1964.
Commercial Properties as of October 31, 2009: | Property & Location | Year Acquired | Leasable Space- Approximate Sq.Ft. | Average Annual Occupancy Rate @ 10/31/09 | Average Annualized Rent per Sq. Ft. @ 10/31/09 | Average Annualized Rent per Sq. Ft. @ 10/31/08 | Mortgage Balance ($000) | Depreciated Cost of Land, Buildings & Equipment ($000) | | | | | | | | | Glen Rock, NJ | 1962 | 4,800 | 100.0% | $22.73 | $20.48 | None (1) | $115 | | | | | | | | | | | | | | | | | Franklin Crossing | 1966 (2) | 87,041 | 90.8% | $24.03 | $23.64 | None (1) | $8,438 | Franklin Lakes, NJ | | | | | | | | | | | | | | | | Westwood Plaza | 1988 | 173,854 | 100.0% | $12.95 | $12.91 | $8,800 | $9,874 | Westwood, NJ | | | | | | | | | | | | | | | | Westridge Square (3) | 1992 | 256,620 | 93.1% | $12.94 | $12.45 | $22,000 | $19,556 | Frederick, MD | | | | | | | | | | | | | | | | Pathmark Super Store | 1997 | 63,962 | 100.0% | $19.99 | $19.99 | $5,878 (7) | $8,271 | Patchogue, NY | | | | | | | | | | | | | | | | Preakness Center (4) | 2002 | 322,136 | 98.0% | $13.01 | $12.79 | $29,916 | $30,303 | Wayne, NJ | | | | | | | | | | | | | | | | Damascus Center (5) | 2003 | 152,001 | 44.2% | $14.62 | $10.57 | $9,857 (8) | $25,149 | Damascus, MD | | | | | | | | | | | | | | | | The Rotunda (6) | 2005 | 216,645 | 90.7% | $18.16 | $18.20 | $22,500 | $39,773 | Baltimore, MD | | | | | | | | | | | | | | | | Rockaway, NJ | 1964/1963 | 1 Acre | 100.0% | N/A | N/A | None | $165 | | | Landlease | | | | | | | | | | | | | | Rochelle Park, NJ | 2007 | 1 Acre | N/A | N/A | N/A | None | $2,475 | | | Landlease | | | | | |
Commercial Properties as of October 31, 2012: | | | | | Property & Location | Year Acquired | Leasable Space- Approximate Sq.Ft. | Average Annual Occupancy Rate for the Year Ended 10/31/12 | Average Annualized Rent per Sq. Ft. @ 10/31/12 | Average Annualized Rent per Sq. Ft. @ 10/31/11 | Mortgage Balance ($000) | Depreciated Cost of Land, Buildings & Equipment ($000) | | | | | | | | | Glen Rock, NJ | 1962 | 4,800 | 100.0% | $23.20 | $23.20 | None (1) | $76 | | | | | | | | | | | | | | | | | Franklin Crossing | 1966 (2) | 87,041 | 98.3% | $24.61 | $23.18 | None (1) | $7,958 | Franklin Lakes, NJ | | | | | | | | | | | | | | | | Westwood Plaza | 1988 | 173,854 | 99.0% | $13.46 | $13.15 | $8,032 | $8,969 | Westwood, NJ | | | | | | | | | | | | | | | | Westridge Square (3) | 1992 | 251,991 (10) | 72.2% | $13.65 | $13.00 | $22,000 | $17,432 | Frederick, MD | | | | | | | | | | | | | | | | Pathmark Super Store | 1997 | 63,962 | 100.0% | $20.62 | $19.99 | $5,623 (7) | $7,599 | Patchogue, NY | | | | | | | | | | | | | | | | Preakness Center (4) | 2002 | 322,136 | 93.3% | $13.73 | $13.11 | $27,697 | $28,184 | Wayne, NJ | | | | | | | | | | | | | | | | Damascus Center (5) | 2003 | 150,000 | 61.0% | $18.45 | $19.25 | $15,050 (8) | $30,073 | Damascus, MD | | | | | | | | | | | | . | . | | | The Rotunda (6) | 2005 | 216,645 (11) | 74.3% | $19.40 | $18.69 | $19,070 | $36,489 | Baltimore, MD | | | | | | | | | | | | | | | | Rockaway, NJ | 1964/1963 | 1 Acre | 100.0% | N/A | N/A | None | $165 | | | Landlease | | | | | | | | | | | | | | Rochelle Park, NJ | 2007 | 1 Acre | N/A | N/A | N/A | None (9) | $2,375 | | | Landlease | | | | | |
(1) Security for draws against FREIT's Credit Line. (2) The original 33,000 sq. ft. shopping center was replaced with a new 87,041 sq. ft. center that opened in October 1997. (3) FREIT owns a 100% interest in WestFREIT Corp, that owns the center. (4) FREIT owns a 40% equity interest in WaynePSC, that owns the center. (5) FREIT owns a 70% equity interest in Damascus Centre, LLC, that owns the center. Major renovation and expansion project completed November 1, 2011. (6) FREIT owns a 60% equity interest in Grande Rotunda, LLC, that owns the center. (7) Effective January 1, 2013, interest rate on loan was renegotiated to a fixed rate of 4.5%. All other terms of the loan remain unchanged. (8) On December 26, 2012, Damascus Centre, LLC refinanced the construction loan with a new mortgage loan in the amount of $20 million, bearing a floating rate equal to 210 basis points over the BBA LIBOR, and will mature on January 3, 2023. (9) Security for Rotunda $19.5 million acquisition loan. (10) Giant supermarket, which leases 55,330 sq ft, elected not to extend their lease as of November 1, 2011. (11) Giant supermarket, which leases 35,994 sq ft, vacated their space in April 2012, and mutually agreed to continue to make payments under the terms of their lease through March 15, 2015. Supplemental Segment Information: Commercial lease expirations at October 31, 2012 assuming none of the tenants exercise renewal options: | | | | | | | | | | | | Annual Rent of Expiring Leases | | Year Ending | | Number of | | | Expiring Leases | | | Percent of | | | | | | | | October 31, | | Expiring Leases | | | Sq. Ft. | | | Commercial Sq. Ft. | | | Total | | | Per Sq. Ft. | | | | | | | | | | | | | | | | | | Month to month | | | 46 | | | | 192,066 | | | | 18.4% | | | $ | 2,510,386 | | | $ | 13.07 | | 2013 | | | 29 | | | | 99,199 | | | | 9.5% | | | $ | 1,905,315 | | | $ | 19.21 | | 2014 | | | 25 | | | | 56,136 | | | | 5.4% | | | $ | 723,319 | | | $ | 12.89 | | 2015 | | | 18 | | | | 76,759 | | | | 7.4% | | | $ | 1,523,719 | | | $ | 19.85 | | 2016 | | | 20 | | | | 117,464 | | | | 11.3% | | | $ | 2,079,566 | | | $ | 17.70 | | 2017 | | | 15 | | | | 142,750 | | | | 13.7% | | | $ | 1,884,085 | | | $ | 13.20 | | 2018 | | | 14 | | | | 38,875 | | | | 3.7% | | | $ | 901,571 | | | $ | 23.19 | | 2019 | | | 5 | | | | 88,509 | | | | 8.5% | | | $ | 428,100 | | | $ | 4.84 | | 2020 | | | 3 | | | | 8,996 | | | | 0.9% | | | $ | 185,551 | | | $ | 20.63 | | 2021 | | | 10 | | | | 24,827 | | | | 2.4% | | | $ | 595,502 | | | $ | 23.99 | | 2022 | | | 1 | | | | 63,932 | | | | 6.1% | | | $ | 1,278,640 | | | $ | 20.00 | |
(1) Security for draws against FREIT's Credit Line. | | (2) The original 33,000 sq. ft. shopping center was replaced with a new 87,041 sq. ft. center that opened in October 1997. | | (3) FREIT owns a 100% interest in WestFREIT Corp, that owns the center. | | (4) FREIT owns a 40% equity interest in WaynePSC, that owns the center. | | (5) FREIT owns a 70% equity interest in Damascus Centre, LLC, that owns the center. Undergoing a renovation and expansion project. | (6) FREIT owns a 60% equity interest in Grande Rotunda, LLC, that owns the center. | | (7) On February 29, 2008, unpaid principal amount of $5.9 million was refinanced with a $6 million mortgage loan bearing fixed interest rate of 6.125%, with a 10 year term. | (8) On February 12, 2008, Damascus Centre, LLC closed on a $27.3 million construction loan, of which $9.9 million was drawn down at 10/31/09.16 |
Supplemental Segment Information:Commercial lease expirations at October 31, 2009 assuming none of the tenants exercise renewal options: | | | | | Annual Rent of Expiring Leases | Year Ending | Number of | Expiring Leases | Percent of | | | October 31, | Expiring Leases | Sq. Ft. | Commercial Sq. Ft. | Total | Per Sq. Ft. | | | | | | | Month to month | 25 | 84,977 | 7.4% | $ 1,410,942 | $ 16.60 | 2010 | 16 | 39,616 | 3.4% | $ 734,496 | $ 18.54 | 2011 | 23 | 70,345 | 6.1% | $ 1,431,051 | $ 20.34 | 2012 | 23 | 150,594 | 13.1% | $ 1,785,852 | $ 11.86 | 2013 | 24 | 92,552 | 8.1% | $ 1,689,729 | $ 18.26 | 2014 | 17 | 53,719 | 4.7% | $ 840,767 | $ 15.65 | 2015 | 13 | 87,561 | 7.6% | $ 1,026,170 | $ 11.72 | 2016 | 9 | 46,411 | 4.0% | $ 719,391 | $ 15.50 | 2017 | 9 | 37,608 | 3.3% | $ 646,690 | $ 17.20 | 2018 | 15 | 42,819 | 3.7% | $ 952,880 | $ 22.25 | 2019 | 2 | 83,960 | 7.3% | $ 299,800 | $ 3.57 |
Land Under Development and Vacant Land as of October 31, 2009: | | Vacant Land | | | Permitted Use Pre | Acreage Per | Location (1) | Acquired | Current Use | Local Zoning Laws | Parcel | Franklin Lakes, NJ | 1966 | None | Residential | 4.27 | | | | | | Wayne, NJ | 2002 | None | Commercial | 2.1 | | | | | | Rockaway, NJ | 1964 | None | Residential | 1.0 | | | | | | So. Brunswick, NJ (2) | 1964 | Principally leased | Industrial | 33.0 | | | as farmland qualifying | | | | | for state farmland assessment | | | | | tax treatment | | | (1) All of the above land is unencumbered, except as noted. (2) Site plan approval received for the construction of a 563,000 square foot industrial building. |
Land Under Development and Vacant Land as of October 31, 2012: | | | | | Vacant Land | | | Permitted Use Per | Acreage Per | Location (1) | Acquired | Current Use | Local Zoning Laws | Parcel | Franklin Lakes, NJ | 1966 | None | Residential | 4.27 | | | | | | Wayne, NJ | 2002 | None | Commercial | 2.1 | | | | | | Rockaway, NJ | 1964 | None | Residential | 1.0 | | | | | | So. Brunswick, NJ | 1964 | Principally leased | Industrial | 33.0 | | | as farmland qualifying for state farmland assessment tax treatment | | | (1) All of the above land is unencumbered, except as noted. |
FREIT believes that it has a diversified portfolio of residential and commercial properties. FREIT’s business is not materially dependent upon any single tenant or any one of its properties.
FREIT has no properties that have contributed 15% or more of FREIT'sFREIT’s total revenue in one (1) or more of the last three (3) fiscal years.
Although FREIT’s general investment policy is to hold properties as long-term investments, FREIT could selectively sell certain properties if it determines that any such sale is in FREIT’s and its shareholders’ best interests. See “Business-Planned Disposition” under Item 1 above. With respect to FREIT’s future acquisition and development activities, FREIT will evaluate various real estate opportunities, which FREIT believes would increase FREIT’s revenues and earnings, as well as complement and increase the overall value of FREIT’s existing investment portfolio. Except for the Pathmark supermarket super store located in Patchogue, Long Island, the TD Bank branch located in Rockaway, NJ and the Pascack Community Bank branch to be constructedlocated on our land in Rochelle Park, NJ, all of FREIT’s and its subsidiaries’ commercial properties have multiple tenants. FREIT and its subsidiaries’ commercial properties have nineteen (19) anchor / sixteen (16) anchor/major tenants, thatwhich account for approximately 60%57.5% of the space leased. The balance of the space is leased to one hundred and seventy (170)sixty nine (169) satellite and office tenants. The following table lists the anchor / major tenants at each center and the number of satellite tenants: Commercial Property | | | | No. of | Shopping Center (SC) | | Net Leaseable | | Additional/Satellite | Office Building (O) | | Space | Anchor/Major Tenants | Tenants | Westridge Square | (SC) | 251,991 | Burlington Coat Factory | 25 | Frederick, MD (1) | | | | | Franklin Crossing | (SC) | 87,041 | Stop & Shop | 21 | Franklin, Lakes, NJ | | | | | Westwood Plaza | (SC) | 173,854 | Kmart Corp | 21 | Westwood, NJ | | | TJMaxx | | Preakness Center (2) | (SC) | 322,136 | Stop & Shop | 38 | Wayne, NJ | | | Macy's | | | | | CVS | | | | | Annie Sez | | | | | Clearview Theaters | | Damascus Center (3) | (SC) | 150,000 | Safeway Stores | 13 | Damascus, MD | | | | | The Rotunda (4) | (O) | 138,276 | Clear Channel Broadcasting | 44 | Baltimore, MD | | | US Social Security Office | | | | | | | | | | | | | (SC) | 78,369 | Horizon Cinema | 6 | | | | Rite Aid Corporation | | Patchogue, NY | (SC) | 63,962 | Pathmark | — | Glen Rock, NJ | (SC) | 4,800 | Chase Bank | 1 | (1) Giant Food of Maryland vacated in May 2011, but continued to pay rent through 10/31/2011. | (2) FREIT has a 40% interest in this property. | (3) FREIT has a 70% interest in this property. | (4) FREIT has a 60% interest in this property. Giant Food of Maryland vacated in April 2012, but | mutually agreed to continue to pay rent in accordance with lease terms through 5/31/2015. |
Commercial Property | | | No.Table of | Shopping Center (SC) | Net Leaseable | | Additional/Satellite | Office Building (O) | Space | Anchor/Major Tenants | Tenants | | | | | Westridge Square | 256,620 (SC) | Burlington Coat Factory | 24 | Frederick, MD | | Giant Supermarket | | Franklin Crossing | 87,041 (SC) | Stop & Shop | 18 | Franklin, Lakes, NJ | | | | Westwood Plaza | 173,854 (SC) | Kmart Corp | 18 | Westwood, NJ | | TJMaxx | | Preakness Center (1) | 322,136 (SC) | Stop & Shop | 41 | Wayne, NJ | | Macy's | | | | CVS | | | | Annie Sez | | | | Clearview Theaters | | Damascus Center (2) | 152,001 (SC) | Safeway Stores | 11 | Damascus, MD | | | | The Rotunda (3) | 138,276 (O) | Clear Channel Broadcasting | 49 | Baltimore, MD | | US Social Security Office | | | | Janus Associates | | | | | | | 78,369 (SC) | Giant Food of Maryland | 8 | | | Rite Aid Corporation | | | | Bank of America | | Patchogue, NY | 63,962 (SC) | Pathmark | - | Glen Rock, NJ | 4,800 (SC) | Chase Bank | 1 | (1) FREIT has a 40% interest in this property. | (2) FREIT has a 70% interest in this property. | (3) FREIT has a 60% interest in this property. | | Contents |
With respect to most of FREIT’s commercial properties, lease terms range from five (5) years to twenty-five (25) years with options, which if exercised would extend the terms of such leases. The lease agreements generally provide for reimbursement of real estate taxes, maintenance, insurance and certain other operating expenses of the properties. During the last three (3) completed fiscal years, FREIT’s commercial properties averaged an 89.8%83.7%, which represents the actual “physical” occupancy rate (based upon possession and use of leased space). For Fiscal 2011, the “economic” occupancy rate (based upon the payment of rent for leased space) was 89.6%, while the actual physical occupancy rate was 87.9%. The difference between economic and physical occupancy for Fiscal 2011 was primarily attributable to the vacancy created at Westridge resulting from Giant vacating its premises in May 2011, while continuing to pay rent in accordance with respectits lease through the expiration of the lease on October 31, 2011. On July 27, 2012, FREIT signed a lease agreement with G-Mart Frederick, Inc. (“G-Mart”), an international grocery chain, for a significant portionof the space (40,000 of 55,330 square feet of available space) that was vacated by Giant at its Westridge Square property. G-Mart is scheduled to FREIT’s available leasable space. begin operations at the center during the 1st calendar quarter of 2013.Leases for FREIT’s apartment buildings and complexes are usually one (1) year in duration. Even though the residential units are leased on a short-term basis, FREIT has averaged, during the last three (3) completed fiscal years, a 94.2%95.03% occupancy rate with respect to FREIT’s available apartment units. FREIT does not believe that any seasonal factors materially affect FREIT’s business operations and the leasing of its commercial and apartment properties. FREIT believes that its properties are covered by adequate fire and property insurance provided by reputable companies and with commercially reasonable deductibles and limits. Other than the legal proceeding related to the Damascus Center, as described below, thereThere are no other material pending legal proceedings to which FREIT is a party, or of which any of its properties is the subject. There is, however, ordinary and routine litigation involving FREIT's business including various tenancy and related matters. NotwithstandingExcept for the environmental conditions involving remediation disclosed in “Item 1(c) Narrative Description of Business - Impact of Governmental Laws and Regulations on Registrant’s Business; Environmental Matters,” there are no legal proceedings concerning environmental issues with respect to any property owned by FREIT. On August 6, 2009, a complaint was filed against Damascus Centre (a 70% owned subsidiary of FREIT), Hekemian (FREIT’s managing agent), and others in the Circuit Court of Montgomery County, Maryland. The plaintiffs leased commercial office space at the Damascus Center. The complaint alleges a number of causes of action in connection with alleged interference with plaintiffs’ business allegedly caused by Damascus Centre’s development activities at the Damascus Center. The complaint seeks compensatory damages of $500,000 for the alleged interference with the plaintiffs’ business and $5,000,000 in punitive damages. In addition, the plaintiffs seek to enjoin the demolition of the shopping center. FREIT received notice of the lawsuit on September 2, 2009. At this time, based on the limited information available, FREIT believes the claim to be substantially without merit, and will vigorously defend itself against all claims related to this matter. Accordingly, no provisions for this matter have been made in the accompanying financial statements.
ITEM 4 | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERSMINE SAFETY DISCLOSURES |
There were no matters submitted to a vote of security holders during the fourth quarter of FREIT's 2009 fiscal year.
ITEM 5 | MARKET FOR FREIT'S COMMON EQUITY, RELATED SECURITY HOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES |
Shares of Beneficial Interest Beneficial interests in FREIT are represented by shares without par value (the “Shares”). The Shares represent FREIT’s only authorized issued and outstanding class of equity. As of January 14, 2010,2013, there were approximately 500 holders of record of the Shares. The Shares are traded in the over-the-counter market through use of the OTC Bulletin Board Service (the “OTC Bulletin Board”) provided by FINRA, Inc. FREIT does not believe that an active United States public trading market exists for the Shares since historically only small volumes of the Shares are traded on a sporadic basis. The following table sets forth, at the end of the periods indicated, the Bid and Asked quotations for the Shares on the OTC Bulletin Board. | | Bid | | Asked | | Fiscal Year Ended October 31, 2009 | | | | | | First Quarter | | $ | 15.00 | | $ | 15.80 | | Second Quarter | | $ | 15.25 | | $ | 15.25 | | Third Quarter | | $ | 16.00 | | $ | 16.00 | | Fourth Quarter | | $ | 17.20 | | $ | 17.20 | |
| | Bid | | Asked | | Fiscal Year Ended October 31, 2008 | | | | | | First Quarter | | $ | 21.60 | | $ | 21.60 | | Second Quarter | | $ | 22.00 | | $ | 22.05 | | Third Quarter | | $ | 23.50 | | $ | 23.50 | | Fourth Quarter | | $ | 18.60 | | $ | 21.00 | |
| | Bid | | | Asked | | Fiscal Year Ended October 31, 2012 | | | | | | | | | First Quarter | | $ | 21.00 | | | $ | 21.00 | | Second Quarter | | $ | 18.60 | | | $ | 19.40 | | Third Quarter | | $ | 16.90 | | | $ | 16.90 | | Fourth Quarter | | $ | 18.00 | | | $ | 17.25 | |
| | Bid | | | Asked | | Fiscal Year Ended October 31, 2011 | | | | | | | | | First Quarter | | $ | 16.90 | | | $ | 20.50 | | Second Quarter | | $ | 16.70 | | | $ | 16.70 | | Third Quarter | | $ | 19.00 | | | $ | 23.50 | | Fourth Quarter | | $ | 20.25 | | | $ | 20.25 | |
The bid quotations set forth above for the Shares reflect inter-dealer prices, without retail mark-up, markdown or commission and may not necessarily represent actual transactions. The source of the bid and asked quotations is Janney Montgomery Scott, LLC.,LLC members of the New York Stock Exchange and other national securities exchanges. Share Repurchase Program
On April 9, 2008, FREIT’s Board of Trustees authorized up to $2 million for the repurchase of FREIT shares. The share repurchase plan provided for the repurchase of FREIT shares on or before March 31, 2009. Share repurchases under this program were made from time to time in the open market or through privately negotiated transactions. As of March 31, 2009, FREIT repurchased 50,920 shares of common stock at a cost of $1,133,545.
On March 31, 2009, FREIT announced the adoption of a new share repurchase plan to replace the repurchase plan that expired on March 31, 2009. The new plan complied with Rules 10b5-1 and 10b-18 of the Securities Exchange Act of 1934 and provided for the repurchase of up to $1,000,000 in value of FREIT’s shares for the period beginning April 14, 2009 through June 30, 2009, subject to certain price limitations and other conditions established under the new plan. Share repurchases under the new plan could have been made, from time to time, through privately negotiated transactions or in the open market. The new plan could have been terminated at any time and without prior notice. Rule 10b5-1 permits the implementation of a written plan for repurchasing shares of company stock through a repurchasing agent at times when the issuer is not in possession of material, nonpublic information and allows issuers adopting such plans to repurchase shares on a regular basis, regardless of any subsequent material, nonpublic information it receives. UBS Financial Services, Inc. was engaged as FREIT’s repurchasing agent, pursuant to the terms and conditions set forth in the share repurchase plan.
The new share repurchase plan expired on June 30, 2009. Through June 30, 2009, FREIT repurchased a total of 51,009 shares of common stock under both repurchase plans at a cost of $1,135,026, which is reflected in the Shareholders’ Equity section of FREIT’s consolidated balance sheets.
The holders of Shares are entitled to receive distributions as may be declared by FREIT’s Board of Trustees. Dividends may be declared from time to time by the Board of Trustees and may be paid in cash, property, or Shares. The Board of Trustees’ present policy is to distribute annually at least ninety percent (90%) of FREIT’s REIT taxable income as dividends to the holders of Shares in order to qualify as a REIT for Federal income tax purposes. Distributions are made on a quarterly basis. In Fiscal 20092012 and Fiscal 2008,2011, FREIT paid or declared aggregate total dividends of $1.20$1.10 and $1.20 per share, respectively, to the holders of shares. Shares.
See “ItemItem 7, - Management’s“Management’s Discussion and Analysis of Financial Condition and Results of Operations - Distributions to Shareholders.”
Securities Authorized for Issuance Under Equity Compensation Plans Refer to “ItemSee Item 12, Security“Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.”
ITEM 6 | SELECTED FINANCIAL DATA |
The selected consolidated financial data for FREIT for each of the five (5) fiscal years in the period ended October 31, 20092012 are derived from financial statements herein or previously filed financial statements. This data should be read in conjunction with “ItemItem 7, - Management’s“Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this Annual Report and with FREIT’s consolidated financial statements and related notes included in this Annual Report. BALANCE SHEET DATA: | | | | | | | | | | | | | | | | As At October 31, | | 2012 | | | 2011 | | | 2010 | | | 2009 | | | 2008 | | | | (In thousands of dollars) | | Total Assets | | $ | 242,300 | | | $ | 243,220 | | | $ | 245,128 | | | $ | 251,851 | | | $ | 241,756 | | Mortgage Loans | | $ | 200,420 | | | $ | 203,275 | | | $ | 204,604 | | | $ | 202,260 | | | $ | 192,352 | | Common Equity | | $ | 17,564 | | | $ | 13,850 | | | $ | 16,802 | | | $ | 20,722 | | | $ | 23,561 | | Weighted average shares outstanding: | | | | | | | | | | | | | | | | | | | | | Basic | | | 6,942 | | | | 6,942 | | | | 6,942 | | | | 6,944 | | | | 6,835 | |
INCOME STATEMENT DATA: | | | | | | | | | | | | | | | | Year Ended October 31, | | 2012 | | | 2011 | | | 2010 | | | 2009 | | | 2008 | | | | (In thousands of dollars, except per share amounts) | | Revenue: | | | | | | | | | | | | | | | | | | | | | Revenue from real estate operations | | $ | 42,524 | | | $ | 43,046 | | | $ | 43,115 | | | $ | 41,487 | | | $ | 41,340 | | Income relating to early lease termination | | | 2,950 | | | | — | | | | — | | | | — | | | | — | | Total revenue | | | 45,474 | | | | 43,046 | | | | 43,115 | | | | 41,487 | | | | 41,340 | | Expenses: | | | | | | | | | | | | | | | | | | | | | Real estate operations | | | 18,192 | | | | 17,652 | | | | 18,158 | | | | 17,150 | | | | 16,587 | | General and administrative expenses | | | 1,624 | | | | 1,543 | | | | 1,567 | | | | 1,652 | | | | 1,542 | | Deferred project cost write-off | | | 3,726 | | | | — | | | | — | | | | — | | | | — | | Depreciation | | | 6,186 | | | | 6,070 | | | | 5,996 | | | | 5,813 | | | | 5,563 | | Totals | | | 29,728 | | | | 25,265 | | | | 25,721 | | | | 24,615 | | | | 23,692 | | | | | | | | | | | | | | | | | | | | | | | Operating income | | | 15,746 | | | | 17,781 | | | | 17,394 | | | | 16,872 | | | | 17,648 | | | | | | | | | | | | | | | | | | | | | | | Investment income | | | 173 | | | | 101 | | | | 122 | | | | 221 | | | | 554 | | Interest expense including amortization of deferred financing costs * | | | (11,704 | ) | | | (11,452 | ) | | | (13,608 | ) | | | (10,634 | ) | | | (11,338 | ) | Income from continuing operations | | | 4,215 | | | | 6,430 | | | | 3,908 | | | | 6,459 | | | | 6,864 | | Discontinued operations: | | | | | | | | | | | | | | | | | | | | | Income from discontinued operation | | | 253 | | | | 283 | | | | 223 | | | | 214 | | | | 313 | | Gain on sale of discontinued operation, net of tax | | | 7,528 | | | | — | | | | — | | | | — | | | | — | | Net income | | | 11,996 | | | | 6,713 | | | | 4,131 | | | | 6,673 | | | | 7,177 | | Net (income) loss attributable to noncontrolling interests of subsidiaries | | | (645 | ) | | | (1,335 | ) | | | 280 | | | | (1,121 | ) | | | (1,138 | ) | Net income attributable to common equity | | $ | 11,351 | | | $ | 5,378 | | | $ | 4,411 | | | $ | 5,552 | | | $ | 6,039 | |
* In 2010, includes $2.1 million prepayment penalty on early debt extinguishment. Basic earnings per share: | | | | | | | | | | | | | Continuing operations | | $ | 0.52 | | | $ | 0.73 | | | $ | 0.61 | | | $ | 0.77 | | | $ | 0.83 | | Discontinued operations | | | 1.12 | | | | 0.04 | | | | 0.03 | | | | 0.03 | | | | 0.05 | | Net income | | $ | 1.64 | | | $ | 0.77 | | | $ | 0.64 | | | $ | 0.80 | | | $ | 0.88 | | | | | | | | | | | | | | | | | | | | | | | Cash Dividends Declared Per Common Share | | $ | 1.10 | | | $ | 1.20 | | | $ | 1.20 | | | $ | 1.20 | | | $ | 1.20 | |
BALANCE SHEET DATA: | | | | | | | | | | | | | | | | As At October 31, | | 2009 | | | 2008 | | | 2007 | | | 2006 | | | 2005 | | | | (In thousands of dollars) | | Total Assets | | $ | 251,851 | | | $ | 241,756 | | | $ | 242,755 | | | $ | 234,786 | | | $ | 214,998 | | Mortgage Loans | | $ | 202,260 | | | $ | 192,352 | | | $ | 189,389 | | | $ | 180,679 | | | $ | 166,874 | | Shareholders' Equity | | $ | 20,722 | | | $ | 23,561 | | | $ | 25,130 | | | $ | 24,972 | | | $ | 26,115 | | Weighted average shares outstanding: | | | | | | | | | | | | | | | | | | | | | Basic | | | 6,944 | | | | 6,835 | | | | 6,753 | | | | 6,574 | | | | 6,440 | | Diluted | | | 6,944 | | | | 6,835 | | | | 6,916 | | | | 6,816 | | | | 6,774 | |
INCOME STATEMENT DATA: | | | | | | | | | | | | | | | | Year Ended October 31, | | 2009 | | | 2008 | | | 2007 | | | 2006 | | | 2005 | | | | (In thousands of dollars, except per share amounts) | | Revenue: | | | | | | | | | | | | | | | | Revenue from real estate operations | | $ | 42,422 | | | $ | 42,340 | | | $ | 40,738 | | | $ | 37,893 | | | $ | 33,268 | | Expenses: | | | | | | | | | | | | | | | | | | | | | Real estate operations | | | 17,600 | | | | 16,996 | | | | 16,673 | | | | 15,658 | | | | 13,414 | | General and administrative expenses | | | 1,652 | | | | 1,542 | | | | 1,543 | | | | 1,212 | | | | 1,001 | | Depreciation | | | 5,870 | | | | 5,622 | | | | 5,311 | | | | 4,726 | | | | 4,252 | | Totals | | | 25,122 | | | | 24,160 | | | | 23,527 | | | | 21,596 | | | | 18,667 | | | | | | | | | | | | | | | | | | | | | | | Operating income | | | 17,300 | | | | 18,180 | | | | 17,211 | | | | 16,297 | | | | 14,601 | | | | | | | | | | | | | | | | | | | | | | | Investment income | | | 221 | | | | 554 | | | | 634 | | | | 232 | | | | 229 | | Interest expense including amortization of deferred financing costs | | | (10,848 | ) | | | (11,557 | ) | | | (11,897 | ) | | | (11,127 | ) | | | (10,039 | ) | Minority interest | | | (1,121 | ) | | | (1,138 | ) | | | (776 | ) | | | (407 | ) | | | (426 | ) | Income from continuing operations | | | 5,552 | | | | 6,039 | | | | 5,172 | | | | 4,995 | | | | 4,365 | | Discontinued operations: | | | | | | | | | | | | | | | | | | | | | Income from discontinued operations, net of Minority Interests * | | | - | | | | - | | | | 3,771 | | | | 163 | | | | 129 | | Net income | | $ | 5,552 | | | $ | 6,039 | | | $ | 8,943 | | | $ | 5,158 | | | $ | 4,494 | |
* Includes gain on disposal of $3,680 in fiscal year 2007.
Basic earnings per share: | | | | | | | | | | | | | | | | Continuing operations | | $ | 0.80 | | | $ | 0.88 | | | $ | 0.76 | | | $ | 0.76 | | | $ | 0.68 | | Discontinued operations | | | - | | | | - | | | | 0.56 | | | | 0.02 | | | | 0.02 | | Net income | | $ | 0.80 | | | $ | 0.88 | | | $ | 1.32 | | | $ | 0.78 | | | $ | 0.70 | | Diluted earnings per share: | | | | | | | | | | | | | | | | | | | | | Continuing operations | | $ | 0.80 | | | $ | 0.88 | | | $ | 0.74 | | | $ | 0.73 | | | $ | 0.64 | | Discontinued operations | | | - | | | | - | | | | 0.55 | | | | 0.03 | | | | 0.02 | | Net income | | $ | 0.80 | | | $ | 0.88 | | | $ | 1.29 | | | $ | 0.76 | | | $ | 0.66 | | Cash Dividends Declared Per Common Share | | $ | 1.20 | | | $ | 1.20 | | | $ | 1.30 | | | $ | 1.25 | | | $ | 1.20 | |
ITEM 7 | MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
Cautionary Statement Identifying Important Factors That Could Cause FREIT’s Actual Results to Differ From Those Projected in Forward Looking Statements. Readers of this discussion are advised that the discussion should be read in conjunction with the consolidated financial statements of FREIT (including related notes thereto) appearing elsewhere in this Form 10-K. Certain statements in this discussion may constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements reflect FREIT’s current expectations regarding future results of operations, economic performance, financial condition and achievements of FREIT, and do not relate strictly to historical or current facts. FREIT has tried, wherever possible, to identify these forward-looking statements by using words such as “believe,” “expect,” “anticipate,” “intend, “ “plan,” “ estimate,” or words of similar meaning. Although FREIT believes that the expectations reflected in such forward-looking statements are based on reasonable assumptions, such statements are subject to risks and uncertainties, which may cause the actual results to differ materially from those projected. Such factors include, but are not limited to the following: general economic and business conditions, which will, among other things, affect demand for rental space, the availability of prospective tenants, lease rents, the financial condition of tenants and the default rate on leases, operating and administrative expenses and the availability of financing; adverse changes in FREIT’s real estate markets, including, among other things, competition with other real estate owners, competition confronted by tenants at FREIT’s commercial properties, governmental actions and initiatives; environmental/safety requirements; and risks of real estate development and acquisitions. The risks with respect to the development of real estate include: increased construction costs, inability to obtain construction financing, or unfavorable terms of financing that may be available, unforeseen construction delays and the failure to complete construction within budget. |
Overview
OVERVIEW FREIT is an equity real estate investment trust ("REIT") that is self-administered and externally managed. FREIT owns a portfolio of residential apartment and commercial properties. Our revenues consist primarily of fixed rental income from our residential and commercial properties and additional rent in the form of expense reimbursements derived from our income producing commercial properties. Our properties are primarily located in northern New Jersey and Maryland. We acquire existing properties for investment. We also acquire properties, which we feel have redevelopment potential, and make changes and capital improvements to these properties. We develop and construct properties on our vacant land. Our policy is to acquire and develop real property for long-term investment. The global economic and financial crisis: environment: Despite projected weak European economic growth, the economies of China and other emerging markets are expected to gain momentum, and should positively affect the U.S. economy. The following U.S. economydevelopments and factors are also positive: (a) the housing market is beginningexpected to show signsimprove and drag along ancillary services; (b) inflation is expected to remain in check; (c) consumer spending should be modestly higher in 2013; (d) private sector employment is expected to grow steadily; and (e) credit availability has improved. These factors should slowly aid economic growth in the United States.Residential Properties: Occupancy and rental rates in our areas of operation are on the up swing, reflecting the increasing preference towards rental housing. The speed of recovery from the recession and the bank liquidity and credit market crisis that had plagued the U.S. and the regional economies in which we operate. Continued economic growth is expected throughout 2010. However, job growth is lagging overall economic growth and, many economists are expecting that unemployment will not peak until mid-2010. Residential Properties: While the occupancy at our residential properties generally remains high, the effects of the economic recession have been felt. As a result of higher than normalwill likely mirror job growth and reduced unemployment in our areas of operations, we are experiencing rent reductions, a higher number of move-outs and higher than usual incidences of delinquencies of rental payments, causing us to more closely review our allowance for doubtful accounts and increase the related bad debt reserve as warranted.
operation.Commercial Properties: Overall, The retail sales have begun to register increases among retailers, although results have been mixed. The continued low level ofoutlook, while still challenged, has shown improvement in consumer spending has had an impact onover the sales volumespast year and profitability of many merchants, including those who are our tenants. As a result, some tenants have closed their business; some have been put on relaxed payment plans, or are seeking reduced rents or other rent concessions. As such, delinquencies havethis improvement is expected to continue into 2013 and mirror increased causing us to more closely review our allowancediscretionary spending. This should bode well for doubtful accounts and increase the related bad debt reserve as warranted. To date our tenant fall-out has been minor, however, we may experience additional fall-out if the economic recovery is slow. We expect re-leasing of vacated space to take longer and, generally at lower rents that reflect current economic conditions. commercial segment.Development Projects and Capital Expenditures: We are concentratingcontinue to make only on those capital expenditures that are absolutely necessary. We continueAs of November 2011, the expansion and renovation of the Damascus Center was completed. On July 24, 2012, the FREIT Board of Trustees approved revisions to pursue the completionscope of the Rotunda redevelopment project, thereby reducing the complexity and projected cost of the project. It is expected that development and construction activities started at the Damascus Center. Because of reduced demand from residential rental tenants and buyers, curtailed business expansion, and the current state of the credit markets, no date has been determined for the commencement of construction at our Rotunda and South Brunswick projects. will commence during calendar 2013.Debt Financing Availability: The dislocations in the credit markets seemed to have caused significant price volatility and liquidity disruptions. High pricing spreads and very conservative debt service ratio requirements have made certain financing unattractive and, in certain instances, unavailable. Additionally, construction financingabated. Financing for large, mixed usedevelopment projects is virtually unavailable, or too costly.has become more available. As a result, of this difficult financing environment and reduced end user demand (see above), FREIT has not determined a date forintends to resume the commencement of construction at its Rotunda Project.
On August 6, 2009, FREIT refinanced the mortgage loans secured by its Berdan Court apartment property in Wayne, NJ, with a new mortgage for approximately $20 million. The refinanced mortgages had outstanding principal balances that aggregated approximately $12.3 million at a weighted average interest rate of 6.7%, and were due January 1, 2010. The new mortgage bears interest at 6.09%, and is due September 1, 2019.
The $22.5 million mortgage loan entered into by Grande Rotunda for the acquisitionredevelopment of the Rotunda was scheduled to come due on July 19, 2009, and has been extended by the bank until February 1, 2010. FREIT is currently negotiating with the bank for a two to three year extension of this loan. It is expected that the extension will require the posting of additional collateral, and Grande Rotunda reducing the loan by up to $3 million. Under the agreement with the equity owners of Grande Rotunda, FREIT would be responsible for 60% of any cash required by Grande Rotunda, and 40% would be the responsibility of the minority interest. (See Notes 5, 7 and 14 to FREIT's consolidated financial statements.)project.Operating Cash Flow and Dividend Distributions: FREIT’s cash position remains strong. We expect that cash provided by net operating activitiesincome will be adequate to cover mandatory debt service payments (excluding balloon payments), necessary capital improvements and dividends necessary to retain qualification as a REIT. ItREIT (90% of taxable income). Until the economic climate indicates that a change is appropriate, it is FREIT’s intention to maintain its quarterly dividend at $.30 per share until the economic climate indicates a change is appropriate, butlevel not less than the levelthat required to maintain its REIT status for Federal income tax purposes.
SIGNIFICANT ACCOUNTING POLICIES AND ESTIMATES Pursuant to the Securities and Exchange Commission ("SEC")SEC disclosure guidance for "Critical Accounting Policies," the SEC defines Critical Accounting Policies as those that require the application of Management'smanagement's most difficult, subjective, or complex judgments, often because of the need to make estimates about the effect of matters that are inherently uncertain and may change in subsequent periods. Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, the preparation of which takes into account estimates based on judgments and assumptions that affect certain amounts and disclosures. Accordingly, actual results could differ from these estimates. The accounting policies and estimates used, which are outlined in Note 1 to our Consolidated Financial Statements which is presented elsewhere in this Form 10-K, have been applied consistently as at October 31, 20092012 and 2008,October 31, 2011, and for the years ended October 31, 2009, 20082012, 2011 and 2007.2010. We believe that the following accounting policies or estimates require the application of Management'smanagement's most difficult, subjective, or complex judgments: Revenue Recognition: Base rents, additional rents based on tenants' sales volume and reimbursement of the tenants' share of certain operating expenses are generally recognized when due from tenants. The straight-line basis is used to recognize base rents under leases if they provide for varying rents over the lease terms. Straight-line rents represent unbilled rents receivable to the extent straight-line rents exceed current rents billed in accordance with lease agreements. Before FREIT can recognize revenue, it is required to assess, among other things, its collectibility. If we incorrectly determine the collectibility of revenue, our net income and assets could be overstated. Valuation of Long-Lived Assets: We periodically assess the carrying value of long-lived assets whenever we determine that events or changes in circumstances indicate that their carrying amount may not be recoverable. When FREIT determines that the carrying value of long-lived assets may be impaired, the measurement of any impairment is based on a projected discounted cash flow method determined by FREIT's management. While we believe that our discounted cash flow methods are reasonable, different assumptions regarding such cash flows may significantly affect the measurement of impairment. During 2007,Real Estate Development Costs: It is FREIT’s policy to capitalize pre-development costs, which generally include legal and professional fees and other directly related third-party costs. Real estate taxes and interest costs incurred during the development and construction phases are also capitalized. FREIT sold its Lakewood, NJ property. FREIT reclassifiedceases capitalization of these costs, when the gainproject or portion thereof becomes operational, or when construction has been postponed. Capitalization of these costs will recommence once construction on the sale, as well as the net income (loss) from the operation of this property as Discontinued Operations for all periods presented. The results of this reclassification can be seen in "Item 6 Selected Financial Data" above and in the Consolidated Financial Statements of FREIT (including related notes thereto) appearing elsewhere in this Form 10-K. project resumes.Adopted and recently issued accounting standards: In June 2009,December 2011, the Financial Accounting Standards Board (“FASB”) issued FASB Statement No. 168, “TheAccounting Standards Update (“ASU”) 2011-10, “Property, Plant, and Equipment (Topic 360): Derecognition of in Substance Real Estate-a Scope Clarification”. The purpose of this update is to resolve the diversity in practice about whether the guidance under FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles-a Replacement of FASB Statement No. 162” (“ASC”). ASC is Subtopic 360-20, “Property, Plant, and Equipment-Real Estate Sales”, applies to a major restructuring of accounting and reporting standards designed to simplify user access to all authoritative U.S. GAAP by providing authoritative literature in a topically organized structure for nongovernmental entities, in addition to guidance issued by the SEC. ASC supercedes all then-existing, non-SEC accounting and reporting standards for nongovernmental entities. FASB Statement No. 168 is the final standard issued by the FASB inparent that form. This statement is effective for financial statements issued for interim and annual periods ending after September 15, 2009. The Company adopted FASB ASC effective with its Form 10-K for the year ended October 31, 2009, and the adoption of this new standard did not have an impact on our financial statements. The Company’s accounting policies were not affected by the adoption of ASC. However, references to specific accounting standards in the footnotes to our consolidated financial statements have been changed to refer to the appropriate topics of ASC.
In June 2009, The FASB issued SFAS No. 167, “Amendments to FASB Interpretation No. 46(R)” (Topic 810), which changes guidance for variable interest entities that are insufficiently capitalized or not controlled through voting or similar rights. SFAS No.167 amends FIN 46(R) to require that a variable interest entity (“VIE”) be consolidated by the company that has both the power to direct the activities that most significantly impact the VIE’s economic performance and the obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE. The new standard will be effective for fiscal years beginning after November 15, 2009, or January 1, 2010 for calendar year companies. The adoption of SFAS 167 is not expectedceases to have a material impact on ourcontrolling financial statements.
In May 2009, the FASB issued Statement of Financial Accounting Standards (“SFAS”) No. 165, “Subsequent Events” (ASC 855-10), which establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued.interest in a subsidiary, as specified under ASC 855 was effective for interim or annual financial periods ending after June 15, 2009. FREIT has adopted this statement effective with its 3rd Quarter 10-Q for the period ended July 31, 2009. In accordance with the provisions of ASC 855, FREIT has evaluated all events or transactions through January 14, 2010. (See Note 14 – to FREIT’s consolidated financial statements.)
On December 4, 2007, the FASB issued SFAS No. 160,Subtopic 810-10, “Non-Controlling Interests in Consolidated Financial Statements – an amendment of ARB No. 51” (ASC 810-10), that is in substance real estate as a result of default on the subsidiary’s nonrecourse debt. The new guidance is intended to emphasize that accounting for such transactions “is based on their substance rather than their form”, specifically that the parent should only deconsolidate the real estate subsidiary when legal title to the real estate is transferred to the lender and the related nonrecourse debt has been extinguished. The standard takes effect for public companies for fiscal years, and interim periods within those years beginning on or after June 15, 2012. The adoption of this guidance is not expected to have any impact on our financial statements.In June 2011, the FASB issued ASU 2011-05, “Presentation of Comprehensive Income”, which supersedes the presentation options in ASC Topic 220, “Reporting of Comprehensive Income”. The new standard isprovides guidance for the presentation of comprehensive income and its components in the financial statements. The new guidance only affects the presentation of comprehensive income, and not the components that must be reported therein. The standard takes effect for public companies effective for fiscal years and interim periods within those years beginning after December 15, 2008 and earlier2011. The adoption of this guidance is prohibited. The objective of ASC 810 isnot expected to improve the relevance, comparability and transparency ofhave any impact on our financial information provided to investors by: (i) requiring all entities to report non-controlling interests (minority interests) as equity in the consolidated financial statements and separate from the parent’s equity; (ii) requiring that the amount of net income attributable to the parent and non-controlling interest be clearly identified and presented on the face of the consolidated statement of income; and (iii) expanding the disclosure requirements with respect to the parent and its non-controlling interests. Adoption of ASC 810 will require separate presentation in the statement of undistributed earnings of the changes in the non-controlling members’ interests, as well as balance sheet presentation of such interests as a separate component of Shareholders’ Equity. Upon adoption by the Company effective November 1, 2009, ASC 810 will require retrospective application for all periods presented.statements.
Since we consider net income from continuing operations to be the most significant element of net income, all references and comparisons refer to this item unless otherwise stated. All references to per share amounts are on a diluted basis (unless otherwise indicated).
Fiscal Years Ended October 31, 20092012 and 2008 2011Summary revenues and net income for the fiscal years ended October 31, 20092012 (“Fiscal 2009”2012”) and October 31, 20082011 (“Fiscal 2008”2011”) are as follows: | | Year Ended October 31, | | | | 2009 | | | 2008 | | | Change | | | | (in thousands, except per share amounts) | | Real estate revenues: | | | | | | | | | | Commercial properties | | $ | 23,333 | | | $ | 23,149 | | | $ | 184 | | Residential properties | | | 19,089 | | | | 19,191 | | | | (102 | ) | Total real estate revenues | | | 42,422 | | | | 42,340 | | | | 82 | | | | | | | | | | | | | | | Operating expenses: | | | | | | | | | | | | | Real estate operations | | | 17,600 | | | | 16,996 | | | | 604 | | General and administrative | | | 1,652 | | | | 1,542 | | | | 110 | | Depreciation | | | 5,870 | | | | 5,622 | | | | 248 | | Total operating expenses | | | 25,122 | | | | 24,160 | | | | 962 | | Operating income | | | 17,300 | | | | 18,180 | | | | (880 | ) | | | | | | | | | | | | | | Investment income | | | 221 | | | | 554 | | | | (333 | ) | | | | | | | | | | | | | | Financing costs | | | (10,848 | ) | | | (11,557 | ) | | | 709 | | Minority interest in earnings of subsidiaries | | | (1,121 | ) | | | (1,138 | ) | | | 17 | | Net income | | $ | 5,552 | | | $ | 6,039 | | | $ | (487 | ) | | | | | | | | | | | | | | Earnings per share: | | | | | | | | | | | | | Basic | | $ | 0.80 | | | $ | 0.88 | | | $ | (0.08 | ) | Diluted | | $ | 0.80 | | | $ | 0.88 | | | $ | (0.08 | ) | | | | | | | | | | | | | | Weighted average shares outstanding: | | | | | | | | | | | | | Basic | | | 6,944 | | | | 6,835 | | | | | | Diluted | | | 6,944 | | | | 6,835 | | | | | |
Real Estate revenue | | Years Ended October 31, | | | | 2012 | | | 2011 | | | Change | | | | (in thousands, except per share amounts) | | Real estate revenues: | | | | | | | | | | | | | Commercial properties | | $ | 23,398 | | | $ | 24,334 | | | $ | (936 | ) | Residential properties | | | 19,126 | | | | 18,712 | | | | 414 | | Total real estate revenues | | | 42,524 | | | | 43,046 | | | | (522 | ) | | | | | | | | | | | | | | Operating expenses: | | | | | | | | | | | | | Real estate operations | | | 18,192 | | | | 17,652 | | | | 540 | | General and administrative | | | 1,624 | | | | 1,543 | | | | 81 | | Deferred project cost write-off, net of income | | | | | | | | | | | | | relating to early lease termination | | | 776 | | | | — | | | | 776 | | Depreciation | | | 6,186 | | | | 6,070 | | | | 116 | | Total operating expenses | | | 26,778 | | | | 25,265 | | | | 1,513 | | Operating income | | | 15,746 | | | | 17,781 | | | | (2,035 | ) | | | | | | | | | | | | | | Investment income | | | 173 | | | | 101 | | | | 72 | | | | | | | | | | | | | | | Financing costs | | | (11,704 | ) | | | (11,452 | ) | | | (252 | ) | Income from continuing operations | | | 4,215 | | | | 6,430 | | | | (2,215 | ) | | | | | | | | | | | | | | Income from discontinued operation | | | 253 | | | | 283 | | | | (30 | ) | Gain on sale of discontinued operation, net of tax | | | 7,528 | | | | — | | | | 7,528 | | Net income | | | 11,996 | | | | 6,713 | | | | 5,283 | | | | | | | | | | | | | | | Net income attributable to noncontrolling | | | | | | | | | | | | | interests in subsidiaries | | | (645 | ) | | | (1,335 | ) | | | 690 | | Net income attributable to common equity | | $ | 11,351 | | | $ | 5,378 | | | $ | 5,973 | | | | | | | | | | | | | | | Earnings per share: | | | | | | | | | | | | | Continuing operations | | $ | 0.52 | | | $ | 0.73 | | | $ | (0.21 | ) | Discontinued operations | | | 1.12 | | | | 0.04 | | | | 1.08 | | Net income attributable to common equity | | $ | 1.64 | | | $ | 0.77 | | | $ | 0.87 | | | | | | | | | | | | | | | Weighted average shares outstanding: | | | | | | | | | | | | | Basic | | | 6,942 | | | | 6,942 | | | | | |
Net Income attributable to common equity (“net income common equity”) for the year ended October 31, 2012 (“Fiscal 2012”) was $11,351,000, or $1.64 per share, compared to $5,378,000, or $0.77 per share for the year ended October 31, 2011 (“Fiscal 2011”). Net income common equity for Fiscal 2009 experienced a slight increase2012 included $7,528,000 of 0.2% to $42,422,000net after-tax gains from the sale of real estate. Additionally, Fiscal 2012 included certain other items that affect comparability, which are listed in the schedule above. Adjusting net income for the net gains from the sale of real estate and the other comparability items, net income for Fiscal 2012 was $4,346,000, or $0.63 per share, compared to $42,340,000$5,095,000 or $0.73 per share for Fiscal 2008. The economic recession continues to have a negative impact on FREIT’s financial performance, specifically during the last half of Fiscal 2009, in which both our commercial and residential segments experienced a decline in real estate revenues and operating income.2011. (Refer to the segment disclosure below for a more detailed discussion on the financial performance of FREIT’s commercial and residential segments.)
The schedule below provides a detailed analysis of the major changes that impacted revenue and net incomeincome-common equity for Fiscal 20092012 and 2008: NET INCOME COMPONENTS | | | | | | | | | | | | Year Ended | | | | October 31, | | | | 2009 | | | 2008 | | | Change | | | | ($ in thousands) | | Income from real estate operations: | | | | | | | | | | Commercial properties | | $ | 14,114 | | | $ | 14,332 | | | $ | (218 | ) | | | | | | | | | | | | | | Residential properties | | | 10,708 | | | | 11,012 | | | | (304 | ) | Total income from real estate operations | | | 24,822 | | | | 25,344 | | | | (522 | ) | | | | | | | | | | | | | | Financing costs: | | | | | | | | | | | | | Fixed rate mortgages | | | (10,106 | ) | | | (10,119 | ) | | | 13 | | Floating rate - Rotunda | | | (432 | ) | | | (1,098 | ) | | | 666 | | Corporate interest -floating rate credit line | | | (310 | ) | | | (340 | ) | | | 30 | | Total financing costs | | | (10,848 | ) | | | (11,557 | ) | | | 709 | | | | | | | | | | | | | | | Investment income | | | 221 | | | | 554 | | | | (333 | ) | | | | | | | | | | | | | | General & administrative expenses: | | | | | | | | | | | | | Accounting fees | | | (573 | ) | | | (600 | ) | | | 27 | | Legal & professional fees | | | (114 | ) | | | (80 | ) | | | (34 | ) | Trustee fees | | | (510 | ) | | | (500 | ) | | | (10 | ) | Corporate expenses | | | (455 | ) | | | (362 | ) | | | (93 | ) | Total general & administrative expenses | | | (1,652 | ) | | | (1,542 | ) | | | (110 | ) | | | | | | | | | | | | | | Minority interest in earnings of subsidiaries | | | (1,121 | ) | | | (1,138 | ) | | | 17 | | | | | | | | | | | | | | | Depreciation: | | | | | | | | | | | | | Same properties (1) | | | (5,454 | ) | | | (5,328 | ) | | | (126 | ) | Damascus center-phase I becoming operational in June 2008 | | | (416 | ) | | | (294 | ) | | | (122 | ) | Total depreciation | | | (5,870 | ) | | | (5,622 | ) | | | (248 | ) | | | | | | | | | | | | | | Net Income | | $ | 5,552 | | | $ | 6,039 | | | $ | (487 | ) | | | | | | | | | | | | | | (1) Properties operated since the beginning of Fiscal 2008. | | | | | | | | | |
2011:NET INCOME COMPONENTS | | | | | | | | | | | | Years Ended October 31, | | | | 2012 | | | 2011 | | | Change | | | | (thousands of dollars) | | Income from real estate operations: | | | | | | | | | | | | | Commercial properties | | $ | 13,872 | | | $ | 14,773 | | | $ | (901 | ) | | | | | | | | | | | | | | Residential properties | | | 10,460 | | | | 10,621 | | | | (161 | ) | Total income from real estate operations | | | 24,332 | | | | 25,394 | | | | (1,062 | ) | | | | | | | | | | | | | | Financing costs: | | | | | | | | | | | | | Fixed rate mortgages | | | (9,954 | ) | | | (10,053 | ) | | | 99 | | Floating rate - Rotunda & Damascus | | | (1,176 | ) | | | (938 | ) | | | (238 | ) | Corporate interest | | | (574 | ) | | | (461 | ) | | | (113 | ) | Total financing costs | | | (11,704 | ) | | | (11,452 | ) | | | (252 | ) | | | | | | | | | | | | | | Investment income | | | 173 | | | | 101 | | | | 72 | | | | | | | | | | | | | | | General & administrative expenses: | | | | | | | | | | | | | Accounting fees | | | (482 | ) | | | (478 | ) | | | (4 | ) | Legal & professional fees | | | (105 | ) | | | (87 | ) | | | (18 | ) | Trustee fees | | | (542 | ) | | | (517 | ) | | | (25 | ) | Corporate expenses | | | (495 | ) | | | (461 | ) | | | (34 | ) | Total general & administrative expenses | | | (1,624 | ) | | | (1,543 | ) | | | (81 | ) | | | | | | | | | | | | | | Deferred project cost write-off, net of income | | | | | | | | | | | | | relating to early lease termination | | | (776 | ) | | | — | | | | (776 | ) | Depreciation | | | (6,186 | ) | | | (6,070 | ) | | | (116 | ) | | | | | | | | | | | | | | Income from continuing operations | | | 4,215 | | | | 6,430 | | | | (2,215 | ) | | | | | | | | | | | | | | Income from discontinued operation | | | 253 | | | | 283 | | | | (30 | ) | Gain on sale of discontinued operation, net of tax | | | 7,528 | | | | — | | | | 7,528 | | Net income | | | 11,996 | | | | 6,713 | | | | 5,283 | | Net income attributable to noncontrolling interests | | | | | | | | | | | | | in subsidiaries | | | (645 | ) | | | (1,335 | ) | | | 690 | | | | | | | | | | | | | | | Net income attributable to common equity | | $ | 11,351 | | | $ | 5,378 | | | $ | 5,973 | |
SEGMENT INFORMATION The following table sets forth comparative operating data related to continuing operations for FREIT’s real estate segments: | | Commercial | | Residential | | Combined | | | Years Ended | | | | | | Years Ended | | | | | | Years Ended | | | October 31, | | Increase (Decrease) | | October 31, | | Increase (Decrease) | | October 31, | | | 2012 | | 2011 | | $ | | % | | 2012 | | 2011 | | $ | | % | | 2012 | | 2011 | | | (in thousands) | | | | (in thousands) | | | | (in thousands) | Rental income | | $ | 18,090 | | | $ | 18,560 | | | $ | (470 | ) | | | -2.5% | | | $ | 18,772 | | | $ | 18,398 | | | $ | 374 | | | | 2.0% | | | $ | 36,862 | | | $ | 36,958 | | Reimbursements | | | 4,843 | | | | 5,374 | | | | (531 | ) | | | -9.9% | | | | — | | | | — | | | | — | | | | | | | | 4,843 | | | | 5,374 | | Other | | | 450 | | | | 183 | | | | 267 | | | | 145.9% | | | | 354 | | | | 314 | | | | 40 | | | | 12.7% | | | | 804 | | | | 497 | | Total revenue | | | 23,383 | | | | 24,117 | | | | (734 | ) | | | -3.0% | | | | 19,126 | | | | 18,712 | | | | 414 | | | | 2.2% | | | | 42,509 | | | | 42,829 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Operating expenses | | | 9,526 | | | | 9,561 | | | | (35 | ) | | | -0.4% | | | | 8,666 | | | | 8,091 | | | | 575 | | | | 7.1% | | | | 18,192 | | | | 17,652 | | Net operating income | | $ | 13,857 | | | $ | 14,556 | | | $ | (699 | ) | | | -4.8% | | | $ | 10,460 | | | $ | 10,621 | | | $ | (161 | ) | | | -1.5% | | | | 24,317 | | | | 25,177 | | Average | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Occupancy % | | | 83.7% | | | | 87.9% | | | | | | | | -4.2% | | | | 95.2% | | | | 95.3% | | | | | | | | -0.1% | | | | | | | | | |
| Reconciliation to consolidated net income-common equity: | | | | | | | | | | Deferred rents - straight lining | | | 17 | | | | 242 | | | Amortization of acquired leases | | | (2 | ) | | | (25 | ) | | Investment income | | | 173 | | | | 101 | | | General and administrative expenses | | | (1,624 | ) | | | (1,543 | ) | | Depreciation | | | (6,186 | ) | | | (6,070 | ) | | Deferred project cost write-off, net of | | | | | | | | | | income relating to early termination fee | | | (776 | ) | | | — | | | Financing costs | | | (11,704 | ) | | | (11,452 | ) | | Income from continuing operations | | | 4,215 | | | | 6,430 | | | Income from discontinued operation | | | 253 | | | | 283 | | | Gain on sale of discontinued operation, net of tax | | | 7,528 | | | | — | | | Net income | | | 11,996 | | | | 6,713 | | | Net income attributable to noncontrolling interests | | | (645 | ) | | | (1,335 | ) | | Net income attributable to common equity | | $ | 11,351 | | | $ | 5,378 | |
| | Commercial | | Residential | | Combined | | | | Year Ended | | | | | | | | Year Ended | | | | | | | | | Year Ended | | | | October 31, | | Increase (Decrease) | | October 31, | | | Increase (Decrease) | | October 31, | | | | 2009 | | 2008 | | $ | | % | | 2009 | | | 2008 | | | $ | | % | | 2009 | | | 2008 | | | | (in thousands) | | | | | (in thousands) | | | | | (in thousands) | | Rental income | | $ | 17,687 | | | $ | 17,238 | | | $ | 449 | | | | 2.6 | % | | $ | 18,781 | | | $ | 18,978 | | | $ | (197 | ) | | | -1.0 | % | | $ | 36,468 | | | $ | 36,216 | | Reimbursements | | | 5,247 | | | | 5,370 | | | | (123 | ) | | | -2.3 | % | | | - | | | | - | | | | - | | | | | | | | 5,247 | | | | 5,370 | | Other | | | 196 | | | | 208 | | | | (12 | ) | | | -5.8 | % | | | 308 | | | | 213 | | | | 95 | | | | 44.6 | % | | | 504 | | | | 421 | | Total Revenue | | | 23,130 | | | | 22,816 | | | | 314 | | | | 1.4 | % | | | 19,089 | | | | 19,191 | | | | (102 | ) | | | -0.5 | % | | | 42,219 | | | | 42,007 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Operating expenses | | | 9,219 | | | | 8,817 | | | | 402 | | | | 4.6 | % | | | 8,381 | | | | 8,179 | | | | 202 | | | | 2.5 | % | | | 17,600 | | | | 16,996 | | Net operating income | | $ | 13,911 | | | $ | 13,999 | | | $ | (88 | ) | | | -0.6 | % | | $ | 10,708 | | | $ | 11,012 | | | $ | (304 | ) | | | -2.8 | % | | | 24,619 | | | | 25,011 | | Average | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Occupancy % | | | 89.3 | % | | | 89.8 | % | | | | | | | -0.5 | % | | | 92.8 | % | | | 94.8 | % | | | | | | | -2.0 | % | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Reconciliation to consolidated net income: | | | | | | | | | | | | | | | | | | | | | | | | | | | | Deferred rents - straight lining | | | | | | | 238 | | | | 237 | | | | | | | | | | | | | | | | Amortization of acquired leases | | | | | | | (35 | ) | | | 96 | | | | | | | | | | | | | | | | Net investment income | | | | | | | 221 | | | | 554 | | | | | | | | | | | | | | | | General and administrative expenses | | | | | | | | (1,652 | ) | | | (1,542 | ) | | | | | | | | | | | | | | | Depreciation | | | | | | (5,870 | ) | | | (5,622 | ) | | | | | | | | | | | | | | | Financing costs | | | | | | | (10,848 | ) | | | (11,557 | ) | | | | | | | | | | | | | | | Minority interest | | | | | | | | (1,121 | ) | | | (1,138 | ) | | | | | | | | | | | | | | | | | | | Net income | | | | | | | | | | | | 5,552 | | | | 6,039 | |
The above table details the comparative net operating income (“NOI”) for FREIT’s Commercial and Residential Segments, and reconciles the combined NOI to consolidated Net Income.Income-Common Equity. NOI is based on operating revenue and expenses directly associated with the operations of the real estate properties, but excludes deferred rents (straight lining), lease amortization, depreciation, financing costs and other non-operating activity.items. FREIT assesses and measures segment operating results based on NOI. NOI is not a measure of operating results or cash flow as measured by generally accepted accounting principles, and is not necessarily indicative of cash available to fund cash needs and should not be considered an alternative to cash flows as a measure of liquidity.
FREIT’s commercial properties consist of ten (10) properties totaling approximately 1,139,0001,132,000 sq. ft. of retail space and 138,000 sq. ft. of office space for fiscal 2009.Fiscal 2012. Seven (7) are multi-tenanted retail or office centers, and one is a single tenanted store. In addition, FREIT has two parcels of leased land, from which it receives rental income. One is from a tenant who has built and operates a bank branch on land FREIT owns in Rockaway, NJ. The other is from a tenant who is currently buildinghas built and will soon be operatingoperates a bank branch on land FREIT owns in Rochelle Park, NJ. As indicated in the table above under the caption Segment Information,“Segment Information”, total rental revenue and NOI from FREIT’s commercial segment for Fiscal 2009 increased2012 decreased by 1.4%3.0% and 4.8%, respectively, as compared to Fiscal 2008. However, NOI for Fiscal 2009 decreased by 0.6% from Fiscal 2008.2011. The primary reasons for the decrease in NOIrevenue for Fiscal 20092012 were lower expense reimbursements stemming from prior year common area maintenance adjustments, compounded by an increase in operating expenses, specifically in the allowance for doubtful accountsGiant vacating its space at the Rotunda. Average occupancy rates for FREIT’s commercial segment (exclusive of the Damascus Center) for Fiscal 2009 was at 95.4%Westridge Square shopping center (see discussion below), compared to 95.1% for the prior year’s period. The ongoing renovationand higher real estate taxes at the Damascus Center, a portion of which could not be billed back to the tenants, since the center is not fully occupied, offset in part by $300,000 in easement income recognized by the Franklin Crossing shopping center, in Franklin Lakes, NJ during the 4th quarter of Fiscal 2012. The retail outlook, while still challenged, has shown improvement in consumer spending over the past year and this improvement is expected to continue into 2013 and mirror increased discretionary spending. This should bode well for the commercial segments. On February 3, 2012, Grande Rotunda, LLC (“Grande”), caused a temporary decline60% owned affiliate of FREIT, entered into a lease termination agreement (“Agreement”) with Giant, the tenant and operator of the 35,994 sq. ft. Giant supermarket at Grande’s property located in occupancy levels.Baltimore, Maryland. Giant, under the terms of the Agreement, agreed to (i) waive its right to extend the term of the lease through March 31, 2035, (ii) terminate the lease and surrender the premises to Grande no later than the earlier of commencement of the redevelopment of the property or March 31, 2015, and (iii) notwithstanding any earlier termination date, continue to pay monthly fixed rent payments plus its share of common area maintenance charges and taxes for the Rotunda property through March 31, 2015. Grande has agreed (i) not to lease more than 20,000 sq. ft. of any space in the property for use as a food supermarket through March 31, 2035, and (ii) if Grande decides to lease such space for use as a food supermarket, it must first offer the space for the same use under the terms acceptable to Grande, to Giant, which will have thirty days to accept the offer before the space may be leased to a third party. As a result of the Giant lease termination and the terms of the Agreement, Grande will not be required to construct a lower level Giant supermarket as part of the redevelopment project at the Rotunda, which represented a costly component of the project. In addition, the Giant lease contained significant restrictions on Grande’s ability to make modifications to the property. This development clears the way for Grande to move forward with the redevelopment planning for this property. As a result of Giant terminating its lease and vacating its space at the Grande Rotunda shopping center in April 2012, the results for Fiscal 2012 include income of $2.95 million relating to the Giant early lease termination, offset by a $1.49 million deferred project cost write-off relating to a change in development plans for the Rotunda, specifically the write-off of the design fees relating to the Giant portion of the project incurred to date and included in CIP. The average occupancy rateearly lease termination fee is comprised of the net present value of the monthly rent in accordance with the terms of the terminated lease, projected common area maintenance charges, and real estate taxes from April 1, 2012 through March 31, 2015. In addition, included in the $2.95 million lease termination fee are the write-off of the balances in Below Market Value Lease Acquisition Costs, and In-Place Lease Costs relating to the Giant lease. In light of the Giant lease termination and its potential impact on the scope of the development plans for the Rotunda site, management proposed further revisions to the scope of the Rotunda development project. On July 24, 2012, the Board approved the revisions to the scope of the project, thereby further reducing the complexity and projected cost of the project. As a result of the Board’s decision to move forward with the revised development plans, an additional $2.2 million of certain deferred project costs relating to planning and feasibility costs included in CIP were no longer deemed to have any utility, and were also written-off in the 3rd Quarter of Fiscal 2012. At Westridge Square, a major tenant, Giant, elected not to extend its lease beyond October 31, 2011, and vacated its space at the center during May 2011. Since Giant vacated its space at Westridge Square, FREIT has been endeavoring to re-lease the space to a new tenant or tenants that would enhance the shopping experience at Westridge Square. However, no rent has been generated from the space since November 1, 2011. This vacancy has adversely affected Westridge Square’s operating results, resulting in revenue reductions for the Westridge Square property of approximately 26% for Fiscal 2012. The impact on FREIT’s per share earnings for Fiscal 2012 is approximately $0.09 per share. On July 27, 2012, FREIT signed a lease agreement with G-Mart Frederick, Inc. (“G-Mart”) for a significant portion (40,000 square feet) of the space previously occupied by Giant. G-Mart manages an international grocery store chain, and the operation of a G-Mart International Foods store at Westridge Square is expected to complement other retailers in the center and be a welcome addition to the surrounding neighborhood. FREIT expects to incur leasing costs and tenant improvement costs associated with the lease to G-Mart. We anticipate that G-Mart will begin operating at the center during the 1st calendar quarter of 2013. Approximately 15,000 square feet of space previously occupied by Giant remains vacant. On May 2, 2012, FREIT’s Board authorized management to pursue the sale of its South Brunswick, NJ property. The decision to sell this property was based on the Board’s desire to re-deploy the net proceeds arising from the sale to real estate assets in other areas of FREIT’s operations. However, it is still not possible for management to estimate when a sale of the South Brunswick property will occur, and therefore, it is classified as held for use as of October 31, 2012. Construction related to the expansion and renovation of the Damascus Center decreased to 44.2%was completed in November 2011. We are currently in the negotiation process with potential tenants for Fiscal 2009, as compared to 47.7% for Fiscal 2008. The average occupancy rate forthe new, currently available space constructed in the final phase (Phase III) of this project. As of October 31, 2012, approximately 80% of the space at the Damascus Center for the last half of Fiscal 2009 showed signs of improvement with tenants occupying new space due to the completionis leased or under letters-of-intent, and 72% of the Phase I construction. (See discussion below). Overall, retail sales have registered increases, although among retailers results have been mixed. The continued low level of consumer spending has had an impact on the sales volumes and profitability of many merchants, including those who are our tenants. As a result, some tenants have closed their business, some have been put on relaxed payment plans, and some are seeking reduced rents or other rent concessions. Delinquencies have increased, causing us to closely review our allowance for doubtful accounts and increase the related bad debt reserve as warranted. Bad debt expense for Fiscal 2009 increased $151,000 to $212,000, as compared to $61,000 for last year’s comparable period. Year-to-date, tenant fall-out has been minor as average occupancy declined only 0.5%, however, we may experience additional fall-out if the economic recoveryspace is slow. We expect re-leasing of vacated space to take longer and, generally at lower rents that reflect current economic conditions.
occupied.DEVELOPMENT ACTIVITIES AThe modernization and expansion is underwayproject at the Damascus Center.Center was completed in November 2011. Total construction costs, are expected to approximate $21.9inclusive of tenant improvement costs, approximated $22.7 million. The building plans incorporateredevelopment resulted in an expansion of retail space from its current configuration of approximately 140,000 sq. ft. to approximately 150,000 sq. ft., anchored by a modern 58,000 sq. ft. Safeway supermarket. Construction onwas completed in three phases. Phase I began in June 2007, and was completed in June 2008. Phase I construction costs were2008, at a cost of approximately $6.2 million, of which $1.1 million related to tenant improvements. Phase II, which comprises a new 58,000 sq. ft. Safeway supermarket, was started in December 2008. Thecomprised the new Safeway supermarket, spacebegan in December 2008, and was completed in AugustSeptember 2009, and the remainderat a cost of the Phase II construction should be completed in 2010. As of October 31, 2009, construction and other costs for Phase II approximated $9.2approximately $9.8 million. The Phase III construction which began in June 2011, was completed as of November 2011 at a cost of approximately $6.4 million. Additional tenant fit-up costs are expected, once the new space is expected to begin in mid-2010.leased and occupied. Total construction costs will bewere funded from a $27.3 million construction loan entered into on February 12, 2008. As a result of a reevaluation of the future funding needs for this project, on May 6, 2010, Damascus Centre, LLC reduced the amount of the construction loan facility to $21.3 million. The construction loan is secured by the shopping center owned by Damascus Center.Centre, LLC. This loan will bewas drawn upon as needed to fund already expended and future construction costs at the Damascus Center. As of October 31, 2009, $9.92012, Damascus Centre, LLC drew down $15.0 million of this loan was drawn down to cover construction costs. (See “Liquidity and Capital Resources” for additional information regarding this loan.) Because of this expansion, leases for certain tenants have beenwere allowed to expire and havewere not been renewed. This has caused occupancy to decline, on a temporary basis, during the construction phase. However, with the completion of each of the three phases, certain tenant leases have been renewed and occupancy is beginning to increase. As of October 31, 2012, approximately 80% of the space at the Damascus Center is leased or under letters-of-intent, and 72% of the space is occupied. On December 26, 2012, Damascus Centre, LLC refinanced its construction loan with a long-term financing provided by People’s United Bank. The amount of the new loan is $25 million, of which $20 million has been drawn. The balance, up to an additional $5 million, will be available as a one-time draw over the next 36 month period, and the amount available will depend on future leasing at the shopping center. The new loan bears a floating interest rate equal to 210 basis points over the BBA LIBOR, and the loan will mature on January 3, 2023 (See Liquidity and Capital Resources for more detail).Development plans and studies for the expansion and renovation of our Rotunda property in Baltimore, MD (owned by our 60% owned affiliate Grande Rotunda)Rotunda, LLC) were substantially completed during Fiscal 2008. The Rotunda property, on an 11.5-acre site, currently consists of an office building containing 138,000 sq. ft. of office space and 78,000 sq. ft. of retail space on the lower floor of the main building. The original building plans incorporateincorporated an expansion of approximately 180,500 sq. ft. of retail space, approximately 302 residential rental apartments, 56 condominium units and 120 hotel rooms, and structured parking. Development costs for this project arewere expected to approximate $200 million. City Planning Board approval has been received. As of October 31, 2009, we have2012, approximately $8.0 million has been incurred approximately $7.5 million for planning and feasibility studies.studies, of which $3.7 million was written-off in Fiscal 2012 as a result of revisions to the scope of the redevelopment project (see discussion under Commercial Segment above). Due to the adversedifficult economic environment, FREIT placed the Rotunda redevelopment activity on hold during the fourth quarter of Fiscal 2008. During Fiscal 2012, the original plans for the Rotunda redevelopment project were revised, primarily attributable tothe Giant lease termination and related termination agreement.(See discussion under Commercial Segment above.)As a result, we will not be required to construct a lower level Giant supermarket as part of the redevelopment plans at the Rotunda, which represented a costly component to the project. In addition, the Giant lease contained significant restrictions on Grande’s ability to make modifications to the property. This development clears the way for Grande to move forward with the redevelopment planning for this property. In light of the Giant lease termination and its potential impact on the scope of the development plans for the Rotunda site, management proposed further revisions to the scope of the Rotunda development project. On July 24, 2012, the Board approved the revisions to the scope of the project, thereby further reducing the complexity and projected cost of the project. The capital investment related to the revised redevelopment plans at the Rotunda is estimated at approximately $100 million, which is a significant reduction from the $200 million estimated for the original development plans. We expect financing for the Rotunda expansion will be, for the most part, from mortgage financing. Due to the revised scope of the development and the improved economic and credit conditions,financing climate, FREIT intends to resume the start date forredevelopment of the construction has not yet been determined.
Rotunda as revised.RESIDENTIAL SEGMENT FREIT operates nine (9)(8) multi-family apartment communities totaling 1,075996 apartment units. As indicated in the table above, total rental revenue and NOI from ourFREIT’s residential segment for Fiscal 20092012 reflected an increase of 2.2% over Fiscal 2011. The increase in total revenue for Fiscal 2012 is primarily attributable to higher base rental income at many of our residential properties. NOI for Fiscal 2012 decreased 0.5% and 2.8%, respectively, to $19,089,000 and $10,708,0001.5% from last year’s comparable period.Fiscal 2011. The primary reasons for the decrease in total revenue and NOI for Fiscal 2009 were a drop in average occupancy, lower base rental income, and an overall increase in operating expenses. While average occupancyhigher real estate taxes at our residential properties for the current year, and a $235,000 insurance recovery relating to storm damages incurred and expensed during Fiscal 2009 is2011 at 92.8%,FREIT’s Pierre Towers apartment complex. The insurance recovery has been recorded as an offset within operating expenses. The increases in real estate taxes along with last year’s insurance recovery, more than offset the effects of the economic recession have been felt. Year-to-date, average occupancy has fallen 2.0% compared to Fiscal 2008. The declines are attributable to higher than normal unemploymentpositive increase in our areas of operation. Additionally, we are experiencing rent reductions, a higher number of move-outs, and higher than usual incidences of delinquencies of rental payments. As with our commercial segment, we are closely reviewing our allowance for doubtful accounts and increasing the related bad debt reserve as warranted. Bad debt expenserevenue for Fiscal 2009 increased $85,000 to $155,000, as compared to $70,0002012. Average occupancy for last year’s comparable period.
Fiscal 2012 remained relatively level with occupancy levels for Fiscal 2011.Our residential revenue is principally composed of monthly apartment rental income. Total rental income is a function of occupancy and monthly apartment rents. Monthly average residential rents at the end of Fiscal 20092012 and Fiscal 20082011 period were $1,526$1,643 and $1,554,$1,613, respectively. A 1% decline in annual average occupancy, or a 1% decline in average rents from current levels, results in an annual revenue decline of approximately $197,000$196,000 and $181,000,$187,000, respectively. On August 29, 2012, FREIT closed on its contract for the sale of the Heights Manor Apartments in Spring Lake Heights, NJ and recognized a gain of $9.5 million from the sale ($7.5 million after-tax). In addition, FREIT was required to pay off the related mortgage loan on the Heights Manor property in the amount of approximately $2.8 million from the proceeds of the sale. In compliance with current accounting guidance, the gain on the sale, as well as the earnings of the Heights Manor operation are classified as discontinued operations in the accompanying income statements for all periods presented. FREIT continues to pursue the sale of the Palisades Manor Apartments, in Palisades Park, NJ, and the Grandview Apartments in Hasbrouck Heights, NJ. The decision to pursue the sale of these properties was based on the Board’s desire to re-deploy the net proceeds arising from the sale to real estate assets in other areas of FREIT’s operations. It is not possible for management to estimate when a sale of any of these properties will occur, and therefore, the properties continue to be classified as held for use as of October 31, 2012. Capital expenditures: Since all of our apartment communities, with the exception of The Boulders, were constructed more than 25 years ago, we tend to spend more in any given year on maintenance and capital improvements than may be spent on newer properties. A majorMajor renovation program is ongoingprograms (apartment renovations, parking structure restoration, and air conditioning system replacement) are underway at The Pierre Towers apartment complex (“The Pierre”).Pierre. We have substantially completed modernizing, where required, all apartments and some of the buildings’building’s mechanical services. This renovation was expected to cost approximately $3 - $4 million, andThe remaining apartments werewill be renovated as they becamebecome temporarily vacant. Itvacant at an estimated cost of $1 - $1.5 million. The parking structure restoration project at The Pierre is anticipated that this renovation willexpected to be completed within the next year, at a cost of approximately $600,000. In addition, we are in fiscal 2010.the planning stages of a major project to replace the current air conditioning system at The Pierre, which is expected to be completed within the next 2 years, at an estimated cost of $1.5 million. These costs are being financed from operating cash flow and cash reserves. Through October 31, 2009, we2012, approximately $5.3 million was expended approximately $3.9 million inat The Pierre for these capital improvements, at The Pierre.of which approximately $698,000 related to Fiscal 2012. Financing costs are summarized as follows: | | Year Ended October 31, | | | | 2009 | | | 2008 | | | | (in thousands) | | Fixed rate mortgages: | | | | | | | 1st Mortgages | | | | | | | Existing | | $ | 8,771 | | | $ | 8,547 | | New (1) | | | 653 | | | | 244 | | 2nd Mortgages | | | | | | | | | Existing | | | 465 | | | | 1,188 | | Variable rate mortgages: | | | | | | | | | Acquisition loan-Rotunda | | | 531 | | | | 1,198 | | Construction loan-Damascus | | | 147 | | | | 112 | | Other | | | 310 | | | | 245 | | | | | 10,877 | | | | 11,534 | | Amortization of Mortgage Costs | | | 239 | | | | 371 | | Total Financing Costs | | | 11,116 | | | | 11,905 | | Less amount capitalized | | | (268 | ) | | | (348 | ) | Financing costs expensed | | $ | 10,848 | | | $ | 11,557 | | | | | | | | | | | (1) Mortgages not in place at beginning of Fiscal 2008. | | | | Years Ended October 31, | | | 2012 | | 2011 | | | ($ in thousands) | Fixed rate mortgages: | | | | | 1st Mortgages | | | | | | | | | Existing | | $ | 9,436 | | | $ | 9,592 | | 2nd Mortgages | | | | | | | | | Existing | | | 150 | | | | 156 | | Variable rate mortgages: | | | | | | | | | Acquisition loan-Rotunda | | | 779 | | | | 775 | | Construction loan-Damascus | | | 397 | | | | 163 | | Other | | | 574 | | | | 461 | | | | | 11,336 | | | | 11,147 | | Amortization of Mortgage Costs | | | 368 | | | | 305 | | Financing costs expensed | | $ | 11,704 | | | $ | 11,452 | |
Total financing costs before capitalized amounts for Fiscal 2009 decreased 6.6%2012 increased 2.2%, overas compared to Fiscal 2011. The primary reason for the increase was an increase in the interest rate for the Damascus construction loan. INVESTMENT INCOME Investment income for Fiscal 2012 increased 71.3% to $173,000, as compared to the comparable prior year’s period. The primary reason for the significant increase in investment income for the current year was the recognition of interest income related to the discounting of the Giant lease termination fee at the Rotunda. (See Commercial Segment disclosure above.) Investment income is principally derived from interest earned from cash on deposit in institutional money market funds and interest earned from secured loans receivable (loans made to Hekemian employees, including certain members of the immediate family of Robert S. Hekemian, FREIT CEO and Chairman of the Board, and Robert S. Hekemian, Jr., a trustee of FREIT, for their equity investment in Grande Rotunda, LLC, a limited liability company in which FREIT owns a 60% equity interest, and Damascus Centre, LLC, a limited liability company in which FREIT owns a 70% equity interest). GENERAL AND ADMINISTRATIVE EXPENSES (“G & A”) During Fiscal 2012, G & A was $1,624,000, as compared to $1,543,000 for the prior year’s comparable period. This decreaseThe primary components of G&A are accounting fees, legal & professional fees and Trustees’ fees. The increase for Fiscal 2012 was primarily attributable to our $22.5increases in Trustee fees, legal and professional fees, and an increase in office expenses. DEPRECIATION Depreciation expense for Fiscal 2012 was $6,186,000, as compared to $6,070,000 for the prior year’s period. The increase was primarily attributable to the Damascus Center redevelopment project becoming operational, in addition to current renovation and capitalized tenant improvements becoming operational in Fiscal 2012. Results of Operations: Fiscal Years Ended October 31, 2011 and 2010 Summary revenues and net income for Fiscal 2011 and for the fiscal year ended October 31, 2010 (“Fiscal 2010”) are as follows: | | Years Ended October 31, | | | 2011 | | 2010 | | Change | | | (in thousands, except per share amounts) | Real estate revenues: | | | | | | | | | | | | | Commercial properties | | $ | 24,334 | | | $ | 24,923 | | | $ | (589 | ) | Residential properties | | | 18,712 | | | | 18,192 | | | | 520 | | Total real estate revenues | | | 43,046 | | | | 43,115 | | | | (69 | ) | | | | | | | | | | | | | | Operating expenses: | | | | | | | | | | | | | Real estate operations | | | 17,652 | | | | 18,158 | | | | (506 | ) | General and administrative | | | 1,543 | | | | 1,567 | | | | (24 | ) | Depreciation | | | 6,070 | | | | 5,996 | | | | 74 | | Total operating expenses | | | 25,265 | | | | 25,721 | | | | (456 | ) | Operating income | | | 17,781 | | | | 17,394 | | | | 387 | | | | | | | | | | | | | | | Investment income | | | 101 | | | | 122 | | | | (21 | ) | | | | | | | | | | | | | | Financing costs | | | (11,452 | ) | | | (13,608 | ) | | | 2,156 | | Income from continuing operations | | | 6,430 | | | | 3,908 | | | | 2,522 | | | | | | | | | | | | | | | Income from discontinued operation | | | 283 | | | | 223 | | | | 60 | | Net income | | | 6,713 | | | | 4,131 | | | | 2,582 | | | | | | | | | | | | | | | Net (income) loss attributable to noncontrolling | | | | | | | | | | | | | interests in subsidiaries | | | (1,335 | ) | | | 280 | | | | (1,615 | ) | Net income attributable to common equity | | $ | 5,378 | | | $ | 4,411 | | | $ | 967 | | | | | | | | | | | | | | | Earnings per share: | | | | | | | | | | | | | Continuing operations | | $ | 0.73 | | | $ | 0.61 | | | $ | 0.12 | | Discontinued operations | | | 0.04 | | | | 0.03 | | | | 0.01 | | Net income attributable to common equity | | $ | 0.77 | | | $ | 0.64 | | | $ | 0.13 | | | | | | | | | | | | | | | Weighted average shares outstanding: | | | | | | | | | | | | | Basic | | | 6,942 | | | | 6,942 | | | | | |
Total real estate revenue for Fiscal 2011 increased slightly to $43,046,000 compared to $43,115,000 for Fiscal 2010. Net income attributable to common equity (“Net Income-Common Equity”) for Fiscal 2011 was $5,378,000 ($0.77 per share basic) compared to $4,411,000 ($0.64 per share basic) for Fiscal 2010. Included in interest expense for Fiscal 2010 was a $2.1 million acquisitionprepayment penalty related to the early extinguishment of debt and the subsequent debt refinancing at FREIT’s Westwood Hills property. The impact of the prepayment penalty on Net Income-Common Equity for Fiscal 2010 was $840,000 ($0.12 per share basic). The refinancing increased FREIT’s cash reserves by $2.2 million, reduced interest expense on the new loan from 6.6% (weighted-average) to 4.62%, and extended the maturity of the loan 7 years. (Refer to the segment disclosure below for a more detailed discussion on the financial performance of FREIT’s commercial and residential segments.) The Rotunda property,schedule below provides a detailed analysis of the major changes that impacted revenue and net income-common equity for Fiscal 2011 and 2010: NET INCOME COMPONENTS | | | | | | | | | Years Ended October 31, | | | 2011 | | 2010 | | Change | | | (thousands of dollars) | Income from real estate operations: | | | | | | | | | | | | | Commercial properties | | $ | 14,773 | | | $ | 15,221 | | | $ | (448 | ) | | | | | | | | | | | | | | Residential properties | | | 10,621 | | | | 9,736 | | | | 885 | | Total income from real estate operations | | | 25,394 | | | | 24,957 | | | | 437 | | | | | | | | | | | | | | | Financing costs: | | | | | | | | | | | | | Fixed rate mortgages | | | (10,053 | ) | | | (12,264 | ) | | | 2,211 | | Floating rate - Rotunda & Damascus | | | (938 | ) | | | (961 | ) | | | 23 | | Corporate interest | | | (461 | ) | | | (383 | ) | | | (78 | ) | Total financing costs | | | (11,452 | ) | | | (13,608 | ) | | | 2,156 | | | | | | | | | | | | | | | Investment income | | | 101 | | | | 122 | | | | (21 | ) | | | | | | | | | | | | | | General & administrative expenses: | | | | | | | | | | | | | Accounting fees | | | (478 | ) | | | (582 | ) | | | 104 | | Legal & professional fees | | | (87 | ) | | | (95 | ) | | | 8 | | Trustee fees | | | (517 | ) | | | (530 | ) | | | 13 | | Corporate expenses | | | (461 | ) | | | (360 | ) | | | (101 | ) | Total general & administrative expenses | | | (1,543 | ) | | | (1,567 | ) | | | 24 | | | | | | | | | | | | | | | Depreciation | | | (6,070 | ) | | | (5,996 | ) | | | (74 | ) | | | | | | | | | | | | | | Income from continuing operations | | | 6,430 | | | | 3,908 | | | | 2,522 | | | | | | | | | | | | | | | Income from discontinued operation | | | 283 | | | | 223 | | | | 60 | | Net income | | | 6,713 | | | | 4,131 | | | | 2,582 | | Net (income) loss attributable to noncontrolling | | | | | | | | | | | | | interests in subsidiaries | | | (1,335 | ) | | | 280 | | | | (1,615 | ) | | | | | | | | | | | | | | Net income attributable to common equity | | $ | 5,378 | | | $ | 4,411 | | | $ | 967 | |
SEGMENT INFORMATION The following table sets forth comparative operating data related to continuing operations for FREIT’s real estate segments: | | Commercial | | Residential | | Combined | | | Years Ended | | | | | | Years Ended | | | | | | Years Ended | | | October 31, | | Increase (Decrease) | | October 31, | | Increase (Decrease) | | October 31, | | | 2011 | | 2010 | | $ | | % | | 2011 | | 2010 | | $ | | % | | 2011 | | 2010 | | | (in thousands) | | | | (in thousands) | | | | (in thousands) | Rental income | | $ | 18,560 | | | $ | 18,634 | | | $ | (74 | ) | | | -0.4% | | | $ | 18,398 | | | $ | 17,949 | | | $ | 449 | | | | 2.5% | | | $ | 36,958 | | | $ | 36,583 | | Reimbursements | | | 5,374 | | | | 5,923 | | | | (549 | ) | | | -9.3% | | | | — | | | | — | | | | — | | | | | | | | 5,374 | | | | 5,923 | | Other | | | 183 | | | | 156 | | | | 27 | | | | 17.3% | | | | 314 | | | | 243 | | | | 71 | | | | 29.2% | | | | 497 | | | | 399 | | Total revenue | | | 24,117 | | | | 24,713 | | | | (596 | ) | | | -2.4% | | | | 18,712 | | | | 18,192 | | | | 520 | | | | 2.9% | | | | 42,829 | | | | 42,905 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Operating expenses | | | 9,561 | | | | 9,702 | | | | (141 | ) | | | -1.5% | | | | 8,091 | | | | 8,456 | | | | (365 | ) | | | -4.3% | | | | 17,652 | | | | 18,158 | | Net operating income | | $ | 14,556 | | | $ | 15,011 | | | $ | (455 | ) | | | -3.0% | | | $ | 10,621 | | | $ | 9,736 | | | $ | 885 | | | | 9.1% | | | | 25,177 | | | | 24,747 | | Average | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Occupancy % | | | 89.6% | | (1) | | 89.8% | | | | | | | | -0.2% | | | | 95.3% | | | | 94.6% | | | | | | | | 0.7% | | | | | | | | | |
| Reconciliation to consolidated net income-common equity: | | | | | | | | | | Deferred rents - straight lining | | | 242 | | | | 240 | | | Amortization of acquired leases | | | (25 | ) | | | (30 | ) | | Investment income | | | 101 | | | | 122 | | | General and administrative expenses | | | (1,543 | ) | | | (1,567 | ) | | Depreciation | | | (6,070 | ) | | | (5,996 | ) | | Financing costs | | | (11,452 | ) | | | (13,608 | ) | | Income from continuing operations | | | 6,430 | | | | 3,908 | | | Income from discontinued operation | | | 283 | | | | 223 | | | Net income | | | 6,713 | | | | 4,131 | | | Net loss (income) attributable to noncontrolling interests | | | (1,335 | ) | | | 280 | | | Net income attributable to common equity | | $ | 5,378 | | | $ | 4,411 | |
(1)Represents average “economic” occupancy(based upon the payment of rent for leased space),as opposed to “physical” occupancy(based upon possession and use of leased space). Actual physical occupancy would be 87.9% for Fiscal 2011.This decrease in physical occupancy as compared to economic occupancy is primarily attributable to a vacancy at Westridge. Giant elected not to renew its lease for 55,330 sq ft at Westridge and vacated the space during May, 2011, but continued paying rent through October 31, 2011. (See discussion under the caption “Commercial Segment” below.)
The above table details the comparative net operating income (“NOI”) for FREIT’s Commercial and Residential Segments, and reconciles the combined NOI to consolidated Net Income-Common Equity. NOI is based on operating revenue and expenses directly associated with the operations of the real estate properties, but excludes deferred rents (straight lining), lease amortization, depreciation, financing costs and other items. FREIT assesses and measures segment operating results based on NOI. NOI is not a measure of operating results or cash flow as measured by generally accepted accounting principles, and is not necessarily indicative of cash available to fund cash needs and should not be considered an alternative to cash flows as a measure of liquidity. COMMERCIAL SEGMENT FREIT’s commercial properties consist of ten (10) properties totaling approximately 1,132,000 sq. ft. of retail space and 138,000 sq. ft. of office space for Fiscal 2011. Seven (7) are multi-tenanted retail or office centers, and one is a single tenanted store. In addition, FREIT has two parcels of leased land, from which bearsit receives rental income. One is from a floating interest rate. Lower interest ratestenant who has built and operates a bank branch on land FREIT owns in Rockaway, NJ. The other is from a tenant who has built and operates a bank branch on land FREIT owns in Rochelle Park, NJ. As indicated in the table above under the caption “Segment Information”, total rental revenue and NOI from FREIT’s commercial segment for Fiscal 2011 decreased by 2.4% and 3.0%, respectively, as compared to Fiscal 2010. The primary reason for the decrease in revenue for Fiscal 2011 was lower expense reimbursements stemming from prior year common area maintenance adjustments recorded in Fiscal 2011, which also affected the reduction in NOI. Although the U.S. economy has recovered from the recession, the rate of recovery has been much slower than anticipated. Forecasts for economic growth and job gains over the coursenext year have been downsized, due in large part to the recent turbulence in the US and global markets. Retail sales over the past year have posted slight gains, although among retailers, results have been mixed. The biggest problem in our areas of operations continues to be unemployment, renewing consumers’ concerns about their jobs, resulting in a reluctance to increase spending. Exclusive of the Giant space that was vacated during May 2011 (see discussion below), tenant fall-out at our other properties has been minor, as average occupancy rates for Fiscal 2011 (exclusive of the Damascus Center, which is undergoing a major redevelopment project) decreased 0.2% from last year’s comparable period. At Westridge Square, a major tenant, Giant, has elected not to extend its lease beyond October 31, 2011, and has vacated its space at the center during May 2011. However, Giant continued to pay monthly rent in accordance with its lease terms through October 31, 2011. FREIT is actively pursuing the re-leasing of the space vacated by Giant. It is FREIT’s intention to re-lease the space to a new tenant or tenants that will enhance the shopping experience at Westridge Square. However, the space will be vacant and no rent will be received from the space beginning on November 1, 2011 unless or until FREIT is able to re-lease the space, and it is occupied by a new tenant(s). Additionally, FREIT expects to incur leasing costs and tenant improvement costs associated with re-leasing the space. The vacancy will adversely affect FREIT’s operating results in fiscal 2012 depending upon the outcome and timing of FREIT’s re-leasing efforts for this space. The potential impact on FREIT’s per share earnings for Fiscal 2012 is estimated at approximately $0.10 per share assuming the vacant space is not leased for the entire year. Construction related to the expansion and renovation of the Damascus Center was completed in November 2011. We are currently in the negotiation process with potential tenants for the new, currently available space constructed in the final phase (Phase III) of this project. RESIDENTIAL SEGMENT FREIT operates nine (9) multi-family apartment communities totaling 1,075 apartment units. As indicated in the table above, total rental revenue and NOI from FREIT’s residential segment for Fiscal 2011 reflected increases of 2.9% and 9.1%, respectively, over Fiscal 2010. The increase in total revenue and NOI for Fiscal 2011 is primarily attributable to higher base rental income at many of our residential properties, overall lower operating costs for the current year, and a $235,000 insurance recovery relating to storm damages incurred and expensed last year at FREIT’s Pierre Towers apartment complex. The insurance recovery has been recorded as an offset within operating expenses. The positive operating results for Fiscal 2011 reflect the upward movement of occupancy levels, as evidenced by average occupancy increasing 0.7% as compared to Fiscal 2010. Our residential revenue is principally composed of monthly apartment rental income. Total rental income is a function of occupancy and monthly apartment rents. Monthly average residential rents at the end of Fiscal 2011 and Fiscal 2010 period were $1,613 and $1,587, respectively. A 1% decline in annual average occupancy, or a 1% decline in average rents from current levels, results in an annual revenue decline of approximately $192,000 and $183,000, respectively. FREIT continues to pursue the sale of the Palisades Manor Apartments, in Palisades Park, NJ, the Grandview Apartments in Hasbrouck Heights, NJ, and the Heights Manor Apartments in Spring Lake Heights, NJ. The decision to pursue the sale of these properties was based on the Board’s desire to re-deploy the net proceeds arising from the sale to real estate assets in other areas of FREIT’s operations. It is not possible for management to estimate when a sale of any of these properties will occur, and therefore, the properties continue to be classified as held for use as of October 31, 2011. Capital expenditures: Since all of our apartment communities, with the exception of The Boulders, were constructed more than 25 years ago, we tend to spend more in any given year on maintenance and capital improvements than may be spent on newer properties. Major renovation programs (apartment renovations and parking structure restoration) are underway at The Pierre. We have substantially completed modernizing, where required, all apartments and some of the building’s mechanical services. Through October 31, 2011, approximately $4.6 million was expended at The Pierre for these capital improvements, of which approximately $385,000 related to Fiscal 2011. The remaining apartments will be renovated as they become temporarily vacant at an estimated cost of $1 - $1.5 million. We are also in the planning stages of a major parking structure restoration project at The Pierre, which is expected to be completed within the next 2 years, at an expected cost of approximately $1.5 - $2.5 million. These costs are being financed from operating cash flow and cash reserves. FINANCING COSTS Financing costs are summarized as follows: | | Years Ended October 31, | | | | 2011 | | | 2010 | | | | ($ in thousands) | | Fixed rate mortgages: | | | | | | | | | 1st Mortgages | | | | | | | | | Existing | | $ | 8,499 | | | $ | 11,195 | (2) | New (1) | | | 1,093 | | | | 36 | | 2nd Mortgages | | | | | | | | | Existing | | | 156 | | | | 709 | (2) | Variable rate mortgages: | | | | | | | | | Acquisition loan-Rotunda | | | 775 | | | | 798 | | Construction loan-Damascus | | | 163 | | | | 163 | | Other | | | 461 | | | | 383 | | | | | 11,147 | | | | 13,284 | | Amortization of Mortgage Costs | | | 305 | | | | 324 | | Financing costs expensed | | $ | 11,452 | | | $ | 13,608 | | | | | | | | | | | (1) Mortgages not in place at beginning of Fiscal 2010. | (2) Includes prepayment penalties of $1,727 and $378 incurred in connection with the refinancing of Westwood Hills' 1st and 2nd mortgages, respectively. |
Total financing costs for Fiscal 2011 decreased the level of interest expense15.8%, as compared to Fiscal 2010. The primary reason for the Rotunda by approximately $667,000 to $531,000 fordecrease was a $2.1 million prepayment penalty recorded in Fiscal 2009.
2010 (as discussed in footnote (2) above.).INVESTMENT INCOME Investment income for Fiscal 20092011 decreased 60.1%17.2% to $221,000,$101,000, as compared to the comparable prior year’s period. Investment income is principally derived from interest earned from cash on deposit in institutional money market funds and interest earned from secured loans receivable (loans made to Hekemian employees, including certain members of the immediate family of Robert S. Hekemian, FREIT CEO and Chairman of the Board, and Robert S. Hekemian, Jr., a trustee of FREIT, for their equity investment in Grande Rotunda LLC, a limited liability company in which FREIT owns a 60% equity interest, and Damascus Centre, LLC, a limited liability company in which FREIT owns a 70% equity interest). The decrease in investment income was primarily attributable to lower interest income on the Company’s investments in cash and cash equivalents, and lower interest income relative to secured loans made to Hekemian employees in connection with the sale of equity interests in the Rotunda and the Damascus Center, due in part to lower interest rates. To protect our cash deposits due to the current banking crisis, we have repositioned our bank deposits to fall within the insured limits of the FDIC and the U.S. Treasury Guarantee Program. This necessitated transferring significant balances from interest bearing deposit accounts to non-interest bearing deposit accounts, which resulted in reduced earnings from interest income for the current fiscal year and for the foreseeable future.
GENERAL AND ADMINISTRATIVE EXPENSES (“G & A”) During Fiscal 2009,2011, G & A was $1,652,000,$1,543,000, as compared to $1,542,000$1,567,000 for the prior year’s period. The increasesprimary components of G&A are accounting fees, legal & professional fees and Trustees’ fees. The slight decrease for Fiscal 20092011 was primarily attributable to increaseddecreased accounting fees, offset by an increase in office expense, Trustees’ fees, development costs related to FREIT’s new website, expenditures related to the settlement of certain litigation amounting to approximately $42,000, and higher legal and professional fees related to this litigation.
Depreciation expense for Fiscal 20092011 was $5,870,000,$6,070,000, as compared to $5,622,000$5,996,000 for the prior year’s period. The increase was primarily attributable to current renovation and construction projectscapitalized tenant improvements becoming operational at the Damascus Center, the Westridge Square Shopping Center, and the Pierre Towers apartments, respectively.
Results of Operations:
Fiscal Years Ended October 31, 2008 and 2007
Summary revenues and net income for the fiscal years ended October 31, 2008 (“Fiscal 2008”) and October 31, 2007 (“Fiscal 2007”) are as follows:
| | Year Ended October 31, | | | | 2008 | | | 2007 | | | Change | | | | (in thousands, except per share amounts) | | Real estate revenues: | | | | | | | | | | Commercial properties | | $ | 23,149 | | | $ | 22,112 | | | $ | 1,037 | | Residential properties | | | 19,191 | | | | 18,626 | | | | 565 | | Total real estate revenues | | | 42,340 | | | | 40,738 | | | | 1,602 | | | | | | | | | | | | | | | Operating expenses: | | | | | | | | | | | | | Real estate operations | | | 16,996 | | | | 16,673 | | | | 323 | | General and administrative | | | 1,542 | | | | 1,543 | | | | (1 | ) | Depreciation | | | 5,622 | | | | 5,311 | | | | 311 | | Total operating expenses | | | 24,160 | | | | 23,527 | | | | 633 | | Operating income | | | 18,180 | | | | 17,211 | | | | 969 | | | | | | | | | | | | | | | Investment income | | | 554 | | | | 634 | | | | (80 | ) | | | | | | | | | | | | | | Financing costs | | | (11,557 | ) | | | (11,897 | ) | | | 340 | | Minority interest in earnings of subsidiaries | | | (1,138 | ) | | | (626 | ) | | | (512 | ) | Distribution to certain minority interests | | | - | | | | (150 | ) | | | 150 | | Income from continuing operations | | | 6,039 | | | | 5,172 | | | | 867 | | Income from discontinued operations | | | - | | | | 3,771 | | | | (3,771 | ) | Net income | | $ | 6,039 | | | $ | 8,943 | | | $ | (2,904 | ) | | | | | | | | | | | | | | Basic earnings per share: | | | | | | | | | | | | | Continuing operations | | $ | 0.88 | | | $ | 0.76 | | | $ | 0.12 | | Discontinued operations | | $ | - | | | $ | 0.56 | | | $ | (0.56 | ) | Net income | | $ | 0.88 | | | $ | 1.32 | | | $ | (0.44 | ) | | | | | | | | | | | | | | Diluted earnings per share: | | | | | | | | | | | | | Continuing operations | | $ | 0.88 | | | $ | 0.74 | | | $ | 0.14 | | Discontinued operations | | $ | - | | | $ | 0.55 | | | $ | (0.55 | ) | Net income | | $ | 0.88 | | | $ | 1.29 | | | $ | (0.41 | ) | | | | | | | | | | | | | | Weighted average shares outstanding: | | | | | | | | | | | | | Basic | | | 6,835 | | | | 6,753 | | | | | | Diluted | | | 6,835 | | | | 6,916 | | | | | |
Revenue for Fiscal 2008 increased 3.9% to $42,340,000 compared to $40,738,000 for Fiscal 2007. The increase in revenues was attributable to both of FREIT’s real estate segments, with the commercial segment contributing 65% of the increase, and the residential segment contributing 35% of the increase.
During the 3rd quarter of Fiscal 2007, FREIT sold its Lakewood Apartments in Lakewood, New Jersey. In compliance with applicable accounting guidance, the gain on the sale, as well as the current and prior year’s earnings of the Lakewood operation are classified as “Income from discontinued operations”, which is included within “Net Income” after “Income from continuing operations”. (See Note 3 for a further discussion of the sale.) Net income for Fiscal 2008 was $6,039,000 ($0.88 diluted) compared to $8,943,000 ($1.29 diluted) for the prior year. Income from continuing operations for Fiscal 2008 was $6,039,000 ($0.88 diluted) compared to $5,172,000 ($0.74 diluted) for the prior year.
The schedule below provides a detailed analysis of the major changes that impacted revenue and net income for Fiscal 2008 and 2007:
NET INCOME COMPONENTS | | | | | | | | | | | | | | | | | | | | | | Year Ended October 31, | | | | 2008 | | | 2007 | | | Change | | | | (in thousands) | | | | | | | | | | | | Commercial Properties (except Damascus) | | $ | 13,812 | | | $ | 13,085 | | | $ | 727 | | Damascus Center - undergoing renovation | | | 520 | | | | 406 | | | | 114 | | Total Commercial Properties | | | 14,332 | | | | 13,491 | | | | 841 | | | | | | | | | | | | | | | Residential Properties | | | 11,012 | | | | 10,574 | | | | 438 | | | | | | | | | | | | | | | Total income from real estate operations | | | 25,344 | | | | 24,065 | | | | 1,279 | | | | | | | | | | | | | | | Financing costs: | | | | | | | | | | | | | Fixed rate mortgages | | | (10,119 | ) | | | (9,966 | ) | | | (153 | ) | Floating Rate - Rotunda | | | (1,098 | ) | | | (1,638 | ) | | | 540 | | Corporate Interest - floating rate credit line | | | (340 | ) | | | (293 | ) | | | (47 | ) | Total financing costs | | | (11,557 | ) | | | (11,897 | ) | | | 340 | | | | | | | | | | | | | | | Investment income | | | 554 | | | | 634 | | | | (80 | ) | | | | | | | | | | | | | | Corporate expenses | | | (862 | ) | | | (816 | ) | | | (46 | ) | Accounting & other professional fees | | | (680 | ) | | | (727 | ) | | | 47 | | Minority interest in earnings of subsidiaries | | | (1,138 | ) | | | (626 | ) | | | (512 | ) | Distribution to Westwood Hills minority interests | | | - | | | | (150 | ) | | | 150 | | | | | | | | | | | | | | | Depreciation | | | (5,622 | ) | | | (5,311 | ) | | | (311 | ) | | | | | | | | | | | | | | Income from continuing operations | | | 6,039 | | | | 5,172 | | | | 867 | | | | | | | | | | | | | | | Income from discontinued operations | | | - | | | | 3,771 | | | | (3,771 | ) | | | | | | | | | | | | | | Net Income | | $ | 6,039 | | | $ | 8,943 | | | $ | (2,904 | ) |
SEGMENT INFORMATION
The following table sets forth comparative operating data for FREIT’s real estate segments:
| | Commercial | | Residential | | Combined | | | | Year Ended | | | | | | | | Year Ended | | | | | | | | Year Ended | | | | October 31, | | Increase (Decrease) | | October 31, | | Increase (Decrease) | | October 31, | | | | 2008 | | 2007 | | $ | | % | | 2008 | | 2007 | | $ | | % | | 2008 | | | 2007 | | | | (in thousands) | | | | | (in thousands) | | | | | (in thousands) | | Rental income | | $ | 17,238 | | | $ | 16,692 | | | $ | 546 | | | | 3.3 | % | | $ | 18,978 | | | $ | 18,333 | | | $ | 645 | | | | 3.5 | % | | $ | 36,216 | | | $ | 35,025 | | Reimbursements | | | 5,370 | | | | 4,639 | | | | 731 | | | | 15.8 | % | | | - | | | | - | | | | - | | | | | | | | 5,370 | | | | 4,639 | | Other | | | 208 | | | | 182 | | | | 26 | | | | 14.3 | % | | | 213 | | | | 293 | | | | (80 | ) | | | -27.3 | % | | | 421 | | | | 475 | | Total Revenue | | | 22,816 | | | | 21,513 | | | | 1,303 | | | | 6.1 | % | | | 19,191 | | | | 18,626 | | | | 565 | | | | 3.0 | % | | | 42,007 | | | | 40,139 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Operating expenses | | | 8,817 | | | | 8,621 | | | | 196 | | | | 2.3 | % | | | 8,179 | | | | 8,052 | | | | 127 | | | | 1.6 | % | | | 16,996 | | | | 16,673 | | Net operating income | | $ | 13,999 | | | $ | 12,892 | | | $ | 1,107 | | | | 8.6 | % | | $ | 11,012 | | | $ | 10,574 | | | $ | 438 | | | | 4.1 | % | | | 25,011 | | | | 23,466 | | Average | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Occupancy % | | | 89.8 | % | | | 90.3 | % | | | | | | | -0.5 | % | | | 94.8 | % | | | 95.0 | % | | | | | | | -0.2 | % | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Reconciliation to consolidated net income: | | | | | | | | | | | | | | | | | | | | | | | | | | | | Deferred rents - straight lining | | | | | | | | 237 | | | | 298 | | | | | | | | | | | | | | | | Amortization of acquired leases | | | | | | | | 96 | | | | 301 | | | | | | | | | | | | | | | | Net investment income | | | | | | | | 554 | | | | 634 | | | | | | | | | | | | | | | | General and administrative expenses | | | | | | | | (1,542 | ) | | | (1,543 | ) | | | | | | | | | | | | | | | Depreciation | | | | | | | | (5,622 | ) | | | (5,311 | ) | | | | | | | | | | | | | | | Financing costs | | | | | | | | (11,557 | ) | | | (11,897 | ) | | | | | | | | | | | | | | | Distributions to certain minority interests | | | | | | | | - | | | | (150 | ) | | | | | | | | | | | | | | | Minority interest | | | | | | | (1,138 | ) | | | (626 | ) | | | | | | | | | | | | | | | Income from continuing operations | | | | | | | | 6,039 | | | | 5,172 | | | | | | | | | | | | | | | | Income from discontinued operations | | | | | | | | - | | | | 3,771 | | | | | | | | | | | | | | | | | | | | Net income | | | | | | | | | | | $ | 6,039 | | | $ | 8,943 | |
The above table details the comparative net operating income (“NOI”) for FREIT’s Commercial and Residential Segments, and reconciles the combined NOI to consolidated Net Income. NOI is based on operating revenue and expenses directly associated with the operations of the real estate properties, but excludes deferred rents (straight lining), lease amortization, depreciation, financing costs and other non-operating activity. FREIT assesses and measures segment operating results based on NOI. NOI is not a measure of operating results or cash flow as measured by generally accepted accounting principles, and is not necessarily indicative of cash available to fund cash needs and should not be considered an alternative to cash flows as a measure of liquidity.
COMMERCIAL SEGMENT
The commercial segment contained ten (10) separate properties during Fiscal 2008 and Fiscal 2007. Seven are multi-tenanted retail or office centers, and one is a single tenanted store. In addition, FREIT owns land in Rockaway, NJ and Rochelle Park, NJ from which it receives monthly rental income. The Rockaway land is leased to a tenant who has built and operates a bank branch on the land. In Rochelle Park, FREIT leases the land to a tenant who plans to build and operate a bank branch on the land.
Revenue and NOI from FREIT’s commercial segment for Fiscal 2008 increased $1.3 million (6.1%) and $1.1 million (8.6%), respectively, over Fiscal 2007. The primary reasons for the increase in revenue and NOI, not including Damascus Centre, were higher occupancy levels at Westridge Square, Westwood Plaza and the Rotunda, a full-year’s revenue with respect to FREIT’s Rochelle Park land lease and an increase in reimbursable operating expenses over last year, specifically at the Rotunda. The increase in revenue and NOI was tempered slightly by the effect of the anticipated planned renovation at the Damascus Center, which caused a temporary decline in occupancy levels. Average occupancy rates for FREIT’s commercial segment for Fiscal 2008 was at 95.1%, exclusive of the Damascus Center, compared to 94.6% for Fiscal 2007. Occupancy rates for the Damascus Center decreased to 47.7% for Fiscal 2008 from 55.9% for Fiscal 2007.
The impact of this renovation on the year-to-date results of the commercial segment is reflected in the following table:
| | Year Ended October 31, | | | | 2008 | | | 2007 | | | | (in thousands) | | | | Commercial | | | | | | Same | | | Commercial | | | | | | Same | | | | Properties | | | Damascus | | | Properties | | | Properties | | | Damascus | | | Properties | | Revenues | | $ | 22,816 | | | $ | 917 | | | $ | 21,899 | | | $ | 21,513 | | | $ | 829 | | | $ | 20,684 | | Expenses | | | 8,817 | | | | 434 | | | | 8,383 | | | | 8,621 | | | | 410 | | | | 8,211 | | NOI | | $ | 13,999 | | | $ | 483 | | | $ | 13,516 | | | $ | 12,892 | | | $ | 419 | | | $ | 12,473 | |
Revenues and NOI for same properties increased 6% and 8% respectively for Fiscal 2008 over Fiscal 2007.
RESIDENTIAL SEGMENT
During Fiscal 2008 and Fiscal 2007, FREIT operated nine (9) multi-family apartment communities totaling 1,075 apartment units, excluding the Lakewood property that was sold during Fiscal 2007. (See Note 3 to FREIT’s consolidated financial statements for a further discussion of the sale.)
During Fiscal 2008 revenues increased $565,000 (3.0%) to $19,191,000 and NOI increased $438,000 (4.1%) to $11,012,000 over Fiscal 2007. The favorable results at FREIT’s residential segment for Fiscal 2008 was primarily attributable to the contribution made by The Boulders, which accounted for 57% and 50% of the increase in revenues and NOI, respectively. Average occupancy rates for FREIT’s residential segment for Fiscal 2008 and 2007 was level at 95%. However, average occupancy at The Boulders increased to 97% for Fiscal 2008, compared to 88% for last year’s comparable period.
The occupancy at our residential properties remains high. However, due to the current economic crisis causing high unemployment in our areas of operation, we are experiencing resistance to rent increases, granting concessions, a higher number of move-outs and higher than usual incidences of late or defaulted monthly rental payments. We expect this trend to continue through 2009 and result in residential revenues to be flat or slightly lower than during Fiscal 2008.
Our residential revenue is principally composed of monthly apartment rental income. Total rental income is a factor of occupancy and monthly apartment rents. A 1% decline in annual average occupancy, or a 1% decline in average rents from current levels, results in an annual revenue decline of approximately $200,000 and $188,000 respectively.
Capital expenditures: During Fiscal 2008 we expended $424,000 ($626 per apartment unit) excluding The Pierre and the newly constructed Boulders. Since our apartment communities were constructed more than 25 years ago, we tend to spend more in any given year on maintenance and capital improvements than may be spent on newer properties.
At The Pierre, a major renovation program is ongoing. We are in the process of modernizing, where required, all apartments and some of the building’s mechanical services. This renovation is expected to cost approximately $3 - $4 million and apartments are to be renovated as they become temporarily vacant, over the next several years. These costs will be financed from operating cash flow and cash reserves. Through October 31, 2008, we expended approximately $2.9 million in capital improvements at The Pierre, including approximately $205,000 during Fiscal 2008.
INVESTMENT INCOME
Investment income decreased 13% to $554,000 during Fiscal 2008 from $634,000 in Fiscal 2007. Investment income is principally derived from interest earned from cash on deposit in institutional money market funds and interest earned from secured loans receivable (loans made to Hekemian employees, including certain members of the immediate family of Robert S. Hekemian, FREIT CEO and Chairman of the Board and Robert S. Hekemian, Jr., a trustee of FREIT, for their equity investment in Grande Rotunda, a limited liability company in which FREIT owns a 60% equity interest, and Damascus Centre, a limited liability company in which FREIT owns a 70% equity interest). The decrease in investment income for the current year was primarily attributable to lower interest income on the Company’s investments, due in part to lower interest rates and a decrease in the level of investable cash for Fiscal 2008, as funds were used for construction and development activities. Slightly offsetting the decrease in investment income was increased interest income relative to secured loans made to Hekemian employees in connection with the sale of equity interests in the Rotunda and the Damascus Center.2011.FINANCING COSTS
Financing costs are summarized as follows:
| | Year Ended October 31, | | | | 2008 | | | 2007 | | | | (in thousands) | | Fixed rate mortgages: | | | | | | | 1st Mortgages | | | | | | | Existing | | $ | 8,547 | | | $ | 6,503 | | New (1) | | | 244 | | | | 1,728 | | 2nd Mortgages | | | | | | | | | Existing | | | 1,188 | | | | 1,774 | | Variable rate mortgages: | | | | | | | | | Acquisition loan-Rotunda | | | 1,198 | | | | 1,580 | | Construction loan-Damascus | | | 112 | | | | - | | Other | | | 245 | | | | 269 | | | | | 11,534 | | | | 11,854 | | Amortization of Mortgage Costs | | | 371 | | | | 277 | | Total Financing Costs | | | 11,905 | | | | 12,131 | | Less amount capitalized | | | (348 | ) | | | (234 | ) | Financing costs expensed | | $ | 11,557 | | | $ | 11,897 | | | | | | | | | | | (1) Mortgages not in place at beginning of Fiscal 2007. | |
Financing costs for Fiscal 2008 decreased by $340,000 (2.9%) compared to Fiscal 2007. The principal reasons for the decrease were attributable to lower interest rates relative to The Rotunda acquisition loan of $22.5 million, which bears a floating interest rate, coupled with an increase in capitalized interest related to ongoing capital projects. Lower interest rates over the course of the last year decreased the level of interest expense for The Rotunda by $382,000, to $1,198,000 for Fiscal 2008.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses (“G&A”) for Fiscal 2008 were $1,542,000, level with Fiscal 2007. The primary components of G&A are accounting & professional fees and Trustees fees, which, in the aggregate, comprise 77% of total G&A.
DEPRECIATION
Depreciation expense in Fiscal 2008 increased $311,000 (5.9%) to $5,622,000 from $5,311,000 for Fiscal 2007. The increase was primarily attributable to depreciation related to the June 2008 completion of Phase I of the Damascus Center redevelopment project, in addition to capital improvements at FREIT’s Westridge Square Shopping Center in Frederick, MD.
LIQUIDITY AND CAPITAL RESOURCES Our financial condition remains strong. Net cash provided by operating activities was $13.4$13.1 million for Fiscal 20092012 compared to $13.8$14.8 million for Fiscal 2008.2011. We expect that cash provided by net operating activitiesincome will be adequate to cover mandatory debt service payments (excluding balloon payments), recurring capital improvements and dividends necessary to retain qualification as a REIT (90% of taxable income). Included in cash provided by investing activities for Fiscal 2012 is approximately $9.9 million in net proceeds related to the sale of FREIT’s Heights Manor Apartments. (See discussion under Residential Segment.) As at October 31, 2009,2012, we had cash and marketable securities totaling $11.3$10.6 million compared to $8.2$6.3 million at October 31, 2008. On August 6, 2009,2011.The modernization and expansion project at the Damascus Center was completed in November 2011. Total construction costs, inclusive of tenant improvement costs, approximate $22.7 million.Total construction and development costs were funded, in part, from a $21.3 million (as modified) construction loan facility, of which approximately $15 million was drawn and advances by FREIT refinancedin the mortgage loans secured by its Berdan Court apartment property in Wayne, NJ, with a new mortgage for approximately $20approximate aggregate amount of $3.2 million. The refinanced mortgages had outstanding principal balances that aggregated approximately $12.3 million at a weighted average interest rate of 6.7%, and were due January 1, 2010. The new mortgage bears interest at 6.09%, and is due September 1, 2019. After closing costs, FREIT netted approximately $7.3 million from this refinancing.
We are in the process of rebuilding of the Damascus Center. The total capital required for this project is estimated at $21.9 million. On February 12, 2008, Damascus Centre closed on a $27.3 million construction loan, that is available to fund already expended and future construction costs. This loan hasincluding the exercise of a term of forty-eight (48) months, with one twelve (12) month extension option. FREIToption, was scheduled to mature on February 12, 2013. On December 26, 2012, Damascus Centre, LLC refinanced the construction loan with long-term financing provided by People’s United Bank. The amount of the new loan is for $25 million of which $20 million has guaranteed 30%been drawn. The balance, up to an additional $5 million, will be available as a one-time draw over the next 36 month period, and the amount available will depend on future leasing at the shopping center. The new loan will mature on January 3, 2023. The loan bears a floating interest rate equal to 210 basis points over the BBA LIBOR. In order to minimize interest rate volatility during the term of the loan, and the minority interests, who have a 30% investment in Damascus Centre, have agreedLLC entered into an interest rate swap agreement that in effect, converted the floating interest rate to indemnify FREIT for their sharea fixed interest rate of 3.81% over the term of the guarantee. Draws against this loan bearloan. The interest at the BBA LIBOR daily floating rate plus 135 basis points. As of October 31, 2009, Damascus Centre drew down $9.9 million of this loanswap is considered a derivative financial instrument that will be used only to cover construction costs. We expect this development project to add to revenues, income, cash flow,reduce interest rate risk, and shareholder value.
not held or used for trading purposes.We are planning a major expansion at The Rotunda in Baltimore, MDMD. During Fiscal 2008, we substantially completed the planning and feasibility studies and expended approximately $8.0 million during this phase. Due to the difficult economic environment, that redevelopment activity was placed on hold by FREIT during the fourth quarter of Fiscal 2008. During Fiscal 2012, the original plans for the Rotunda redevelopment project were revised, primarily attributable tothe Giant lease termination and related termination agreement. As a result, we will requirenot be required to construct a lower level Giant supermarket as part of the redevelopment project at the Rotunda, which represented a costly component to the project. In addition, the Giant lease contained significant restrictions on Grande Rotunda, LLC’s ability to make modifications to the property. This development clears the way for Grande Rotunda, LLC to move forward with the redevelopment planning for this property. In light of the Giant lease termination and its potential impact on the scope of the development plans for the Rotunda site, management proposed further revisions to the scope of the Rotunda development project. On July 24, 2012, the Board approved the revisions to the scope of the project, thereby further reducing the complexity and projected cost of the project. The capital investment related to the revised redevelopment plan at the Rotunda is estimated at approximately $100 million, which is a significant reduction from the $200 million.million estimated for the original development plans. As a result of the Giant lease termination and the resulting change in project scope, and the Board’s decision to move forward with the revised development plans, $3.7 million of certain deferred project costs relating to planning and feasibility costs included in CIP were no longer deemed to have any utility, and were written-off in Fiscal 2012. We expect financing for the Rotunda expansion will be, for the most part, from mortgage financing. During Fiscal 2008, we substantially completed the planning and feasibility studies and expended approximately $7.5 million during this phase, which adds to the value of our property. Due to the adverse economic and credit conditions, no date for the commencement of construction has been determined. As at October 31, 2009,2012, FREIT’s aggregate outstanding mortgage debt was $202.3$200.4 million. This debt bears a fixed weighted average interest rate of 5.09%5.37%. The fixed rate mortgages, which have an average life of approximately 5.53.5 years, are subject to repayment (amortization) schedules that are longer than the term of the mortgages. As such, balloon payments for all mortgage debt will be required as follows: Year | | $ in Millions | | 2013 | | $ | 27.1 | * | 2014 | | $ | 9.4 | | 2016 | | $ | 24.5 | | 2017 | | $ | 22.0 | | 2018 | | $ | 5.0 | | 2019 | | $ | 45.2 | | 2021 | | $ | 19.1 | | 2022 | | $ | 14.4 | |
| * Exclusive of $15.0 million related to the October 31, 2012 balance of the Damascus construction loan, due February 2013. On December 26, 2012, Damascus Centre, LLC refinanced its $15.0 million construction loan with a new mortgage loan. The amount of the new loan is $20 million and matures on January 3, 2023. |
Year | | $ Millions | | 2010 | | $ | 22.5 | | 2012 | | $ | 9.9 | | 2013 | | $ | 8.0 | | 2014 | | $ | 25.9 | | 2016 | | $ | 24.5 | | 2017 | | $ | 22.0 | | 2018 | | $ | 5.0 | | 2019 | | $ | 45.0 | | 2022 | | $ | 14.4 | |
OurThe $22.5 million mortgage loan entered into by Grande Rotunda, LLC for the acquisition of the Rotunda was scheduled to come due on July 19, 2009, and was extended by the bank until February 1, 2010. On February 1, 2010, a principal payment of $3 million was made reducing the original loan amount of $22.5 million matures into $19.5 million and the due date was extended until February 2010. FREIT1, 2013. It is currently negotiating with the bank for a twoCompany’s intent to threenegotiate another one year extension of this loan. It is expected that the extension will require the posting of additional collateral, and Grand Rotunda reducingloan, which would extend the loan until February 1, 2014. This extension may require an additional principal payment in an amount necessary to reduce the loan to achieve a stipulated debt service coverage ratio. As part of the terms of the loan extension agreement, the loan is further collateralized by upa first mortgage lien and the assignment of the ground lease on FREIT’s Rochelle Park, NJ land parcel. Under the restructured terms, the interest rate is now 350 basis points above the BBA LIBOR with a floor of 4%, and monthly principal payments of $10,000 are required. In order to $3 million.meet the bank’s annual debt service coverage ratio requirement, a principal payment of $110,000 was made in February 2012. Under the agreement with the equity owners of Grande Rotunda, LLC, FREIT would be responsible for 60% of any cash required by Grande Rotunda, LLC, and 40% would be the responsibility of the minority interest. (See Notes 5, 7 and 14 to FREIT's consolidated financial statements.) The following table shows the estimated fair value and carrying value of our long-term debt at October 31, 20092012 and 2008:
(In Millions) | | October 31, 2009 | | | October 31, 2008 | | Fair Value | | $ | 198.1 | | | $ | 196.2 | | Carrying Value | | $ | 202.3 | | | $ | 192.4 | |
2011: (In Millions) | | October 31, 2012 | | | October 31, 2011 | | Fair Value | | $ | 213.2 | | | $ | 213.9 | | Carrying Value | | $ | 200.4 | | | $ | 203.3 | |
Fair values are estimated based on market interest rates at the end of each fiscal year and on discounted cash flow analysis. Changes in assumptions or estimation methods may significantly affect these fair value estimates. FREIT expects to re-finance the individual mortgages with new mortgages when their terms expire. To this extent we have exposure to interest rate risk on our fixed rate debt obligations. If interest rates, at the time any individual mortgage note is due, are higher than the current fixed interest rate, higher debt service may be required, and/or re-financing proceeds may be less than the amount of mortgage debt being retired. For example, a 1% interest rate increase would reduce the fair value of our debt by $9.0$8.4 million, and a 1% decrease would increase the fair value by $9.7$8.9 million. We believe that the values of our properties will be adequate to command re-financing proceeds equal to, or higher than, the mortgage debt to be re-financed. We continually review our debt levels to determine if additional debt can prudently be utilized for property acquisition additions to our real estate portfolio that will increase income and cash flow to shareholders. Credit Line: FREIT has an $18 million line of credit provided by the Provident Bank. The line of credit is for a two year term ending in January 2010,on July 29, 2014, but can be cancelled by the bank, at its will, within 60 days before or after each anniversary date. The credit line will automatically be extended at the termination date of the current term and each subsequent term for an additional period of 24 months, provided there is no default and the credit line has not been cancelled. Draws against the credit line can be used for general corporate purposes, for property acquisitions, construction activities, and letters of credit. Draws against the credit line are secured by mortgages on FREIT’s Franklin Crossing Shopping Center, Franklin Lakes, NJ, retail space in Glen Rock, NJ, Palisades Manor Apartments, Palisades Park, NJ, and Grandview Apartments, Hasbrouck Heights, NJ. Interest rates on draws will be set at the time of each draw for 30, 60, or 90-day periods, based on our choice of the prime rate or at 175 basis points over the 30, 60, or 90-day LIBOR rates at the time of the draws. The interest rate on the line of credit has a floor of 4%3.5%.
In connection with its construction activities in Rockaway, NJ, FREIT utilized the credit line for the issuance of a $384,000 Letter of Credit, which expired on April 3, 2009. As of October 31, 2009, approximately2012, $18 million wasis available under the line of credit.
The variable rate mortgage loan oncredit, and no amount is outstanding.FREIT’s Board of Trustees has authorized management to pursue the Patchogue, NY property came due on January 2, 2008. The due datesale of the loan was extendedPalisades Manor Apartments and the Grandview Apartments, which currently secure draws on FREIT’s credit line. Since these properties are being used as collateral for the $18 million line of credit, their ultimate sale would reduce FREIT’s line of credit with Provident Bank to February 29, 2008. On February 29, 2008, the unpaid principal amount of this loan of approximately $5.9 million was refinanced with a $6 million mortgage loan bearing a fixed interest rate of 6.125%, with a ten (10) year term, and payable according to a thirty (30) year amortization schedule. Under the terms of the mortgage loan agreement, FREIT can request, during the term of the loan, additional fundings that will bring the outstanding principal balance up to 75% of loan-to-value (percentage of mortgage loan to total appraised value of property securing the loan). $13 million. FREIT’s total capital commitments representcontractual obligations under its mortgage loan and construction contracts are as follows:CONTRACTUAL OBLIGATIONS | (in thousands of dollars) | | | Within | | | 2 - 3 | | | 4 - 5 | | | After 5 | | | | Total | | | One Year | | | Years | | | Years | | | Years | | Long-Term Debt | | | | | | | | | | | | | | | | | | | | | Annual Amortization | | $ | 18,700 | | | $ | 2,966 | | | $ | 5,548 | | | $ | 4,688 | | | $ | 5,498 | | Balloon Payments | | | 166,670 | | | | 27,054 | | | | 9,374 | | | | 46,546 | | | | 83,696 | | Total Long-Term Debt | | | 185,370 | | | | 30,020 | | | | 14,922 | | | | 51,234 | | | | 89,194 | | | | | | | | | | | | | | | | | | | | | | | Construction Loan (a) | | | 15,050 | | | | 15,050 | | | | — | | | | — | | | | — | | Total Contractual Obligations | | $ | 200,420 | | | $ | 45,070 | | | $ | 14,922 | | | $ | 51,234 | | | $ | 89,194 | | | | | | | | | | | | | | | | | | | | | | | (a) Represents draws on construction loan related to Damascus Center redevelopment project. On December 26, 2012, the construction loan was refinanced with a new long-term mortgage loan. The amount of the new loan is $20 million at a floating interest rate equal to 210 basis points over BBA LIBOR. The new loan will mature on January 3, 2023. |
CAPITAL COMMITMENTS | | | | | | | | | | | | | | | | (in thousands of dollars) | | | | | | | | | | | | | | | | | | | | | Within | | | | 2 - 3 | | | | 4 - 5 | | | After 5 | | Contractual Obligations | | Total | | | One Year | | | Years | | | Years | | | Years | | Long-Term Debt | | | | | | | | | | | | | | | | | | Annual Amortization | | $ | 25,087 | | | $ | 2,636 | | | $ | 6,290 | | | $ | 5,647 | | | $ | 10,514 | | Balloon Payments | | | 167,316 | | | | 22,500 | | | | - | | | | 33,918 | | | | 110,898 | | Total Long-Term Debt | | | 192,403 | | | | 25,136 | | | | 6,290 | | | | 39,565 | | | | 121,412 | | | | | | | | | | | | | | | | | | | | | | | Construction Loan (a) | | | 9,857 | | | | - | | | | 9,857 | | | | - | | | | - | | Total Capital Commitments | | $ | 202,260 | | | $ | 25,136 | | | $ | 16,147 | | | $ | 39,565 | | | $ | 121,412 | | | | | | | | | | | | | | | | | | | | | | | (a) Represents draws on construction loan related to Damascus Center redevelopment project. | |
Share repurchase program:
On April 9, 2008, FREIT’s Board of Trustees authorized up to $2 million for the repurchase of FREIT shares. The share repurchase plan provided for the repurchase of FREIT shares on or before March 31, 2009. Share repurchases under this program were made from time to time in the open market or through privately negotiated transactions. As of March 31, 2009, FREIT repurchased 50,920 shares of common stock at a cost of $1,133,545.
On March 31, 2009, FREIT announced the adoption of a new share repurchase plan to replace the repurchase plan that expired on March 31, 2009. The new plan complied with Rules 10b5-1 and 10b-18 of the Securities Exchange Act of 1934 and provided for the repurchase of up to $1,000,000 in value of FREIT’s shares for the period beginning April 14, 2009 through June 30, 2009, subject to certain price limitations and other conditions established under the Plan. Share repurchases under the new plan could have been made, from time to time, through privately negotiated transactions or in the open market. The new plan could have been terminated at any time and without prior notice. Rule 10b5-1 permits the implementation of a written plan for repurchasing shares of company stock through a repurchasing agent at times when the issuer is not in possession of material, nonpublic information and allows issuers adopting such plans to repurchase shares on a regular basis, regardless of any subsequent material, nonpublic information it receives. UBS Financial Services, Inc. was engaged as FREIT’s repurchasing agent, pursuant to the terms and conditions set forth in the share repurchase plan.
The new share repurchase plan expired on June 30, 2009. Through June 30, 2009, FREIT repurchased a total of 51,009 shares of common stock under both repurchase plans at a cost of $1,135,026, which is reflected in the Shareholders’ Equity section of FREIT’s consolidated balance sheets.
Funds From Operations (“FFO”) Many consider FFO as the standard measurement of a REIT’s performance. We compute FFO as follows: | | Year Ended October 31, | | | | 2009 | | | 2008 | | | 2007 | | | | (in thousands, except per share amounts) | | Net income | | $ | 5,552 | | | $ | 6,039 | | | $ | 8,943 | | Depreciation | | | 5,870 | | | | 5,622 | | | | 5,311 | | Amortization of deferred mortgage costs | | | 239 | | | | 371 | | | | 277 | | Deferred rents (Straight lining) | | | (238 | ) | | | (237 | ) | | | (298 | ) | Amortization of acquired leases | | | 35 | | | | (96 | ) | | | (301 | ) | Capital Improvements - Apartments | | | (204 | ) | | | (424 | ) | | | (460 | ) | Discontinued operations | | | - | | | | - | | | | (3,771 | ) | Minority interests: | | | | | | | | | | | | | Equity in earnings of subsidiaries | | | 1,121 | | | | 1,138 | | | | 776 | | Distributions to minority interests | | | (926 | ) | | | (1,093 | ) | | | (998 | ) | FFO | | $ | 11,449 | | | $ | 11,320 | | | $ | 9,479 | | | | | | | | | | | | | | | Per Share - Basic | | $ | 1.65 | | | $ | 1.66 | | | $ | 1.40 | | Per Share - Diluted | | $ | 1.65 | | | $ | 1.66 | | | $ | 1.37 | | Weighted Average Shares Outstanding: | | | | | | | | | | | | | Basic | | | 6,944 | | | | 6,835 | | | | 6,753 | | Diluted | | | 6,944 | | | | 6,835 | | | | 6,916 | |
| | For the Years Ended October 31, | | | | 2012 | | | 2011 | | | 2010 | | | | ($ in thousands, except per share amounts) | | Net income | | $ | 11,996 | | | $ | 6,713 | | | $ | 4,131 | | Depreciation | | | 6,186 | | | | 6,070 | | | | 5,996 | | Amortization of deferred leasing costs | | | 291 | | | | 282 | | | | 284 | | Deferred rents (Straight lining) | | | (17 | ) | | | (242 | ) | | | (240 | ) | Amortization of acquired leases | | | 2 | | | | 25 | | | | 30 | | Under market lease amortization re:Giant | | | | | | | | | | | | | lease termination | | | (1,344 | ) | | | — | | | | — | | Project abandonment costs | | | 3,726 | | | | — | | | | — | | Discontinued operation | | | (253 | ) | | | (283 | ) | | | (223 | ) | Gain on sale of discontinued operation, | | | | | | | | | | | | | net of tax | | | (7,528 | ) | | | — | | | | — | | Capital Improvements - Apartments | | | (723 | ) | | | (433 | ) | | | (334 | ) | Distributions from operations to noncontrolling interests | | | (834 | ) | | | (1,267 | ) | | | (1,022 | )* | FFO | | $ | 11,502 | | | $ | 10,865 | | | $ | 8,622 | | Per Share - Basic | | $ | 1.66 | | | $ | 1.57 | | | $ | 1.24 | | Weighted Average Shares Outstanding: | | | | | | | | | | | | | Basic | | | 6,942 | | | | 6,942 | | | | 6,942 | |
* Excludes $3,360,000 of distributions to noncontrolling interests arising from proceeds related to a mortgage refinancing. FFO does not represent cash generated from operating activities in accordance with accounting principles generally accepted in the United States of America, and therefore should not be considered a substitute for net income as a measure of results of operations or for cash flow from operations as a measure of liquidity. Additionally, the application and calculation of FFO by certain other REITs may vary materially from that of FREIT’s, and therefore FREIT’s FFO and the FFO of other REITs may not be directly comparable.
Distributions to Shareholders Since its inception in 1961, FREIT has elected to be treated as a REIT for Federal income tax purposes. In order to qualify as a REIT, we must satisfy a number of highly technical and complex operational requirements including that we must distribute to our shareholders at least 90% of our REIT taxable income. We anticipate making distributions to shareholders from operating cash flows, which are expected to increase from future growth in rental revenues. Although cash used to make distributions reduces amounts available for capital investment, we generally intend to distribute not less than the minimum of REIT taxable income necessary to satisfy the applicable REIT requirement as set forth in the Internal Revenue Code. With respect to the Jobs and Growth Tax Relief Reconciliation Act of 2003, the reduction of the tax rate on dividends does not apply to FREIT dividends. Since it isdividends other than capital gains dividends, which are subject to capital gains rates. FREIT’s policy is to pass on at least 90% of its ordinary taxable income to shareholders,shareholders. FREIT’s taxable income is untaxed at the trust level. As a result,level to the extent distributed to shareholders. FREIT’s dividends of ordinary taxable income will be taxed as ordinary income to its shareholders and FREIT’s capital gains dividends will be taxed as ordinary income. capital gains to its shareholders.It has been our policy to pay fixed quarterly dividends for the first three quarters of each fiscal year, and a final fourth quarter dividend based on the fiscal year’s net income and taxable income. The following tables list the quarterly dividends declared for the three most recent fiscal years and the dividends as a percentage of taxable income for those periods. | | Fiscal Year Ended October 31, | | | | 2012 | | | 2011 | | | 2010 | | First Quarter | | $ | 0.30 | | | $ | 0.30 | | | $ | 0.30 | | Second Quarter | | $ | 0.30 | | | $ | 0.30 | | | $ | 0.30 | | Third Quarter | | $ | 0.30 | | | $ | 0.30 | | | $ | 0.30 | | Fourth Quarter | | $ | 0.20 | | | $ | 0.30 | | | $ | 0.30 | | Total For Year | | $ | 1.10 | | | $ | 1.20 | | | $ | 1.20 | |
| | Fiscal Year ended October 31, | | | | 2009 | | | 2008 | | | 2007 | | First Quarter | | $ | 0.30 | | | $ | 0.30 | | | $ | 0.30 | | Second Quarter | | $ | 0.30 | | | $ | 0.30 | | | $ | 0.30 | | Third Quarter | | $ | 0.30 | | | $ | 0.30 | | | $ | 0.30 | | Fourth Quarter | | $ | 0.30 | | | $ | 0.30 | | | $ | 0.40 | | Total For Year | | $ | 1.20 | | | $ | 1.20 | | | $ | 1.30 | |
| | | | | (in thousands of dollars) | | | Dividends | | Fiscal | | Per | | | Total | | | Ordinary | | | Capital Gain | | | Taxable | | | as a % of | | Year | | Share | | | Dividends | | | Income | | | Income | | | Income | | | Taxable Income | | 2009 | | $ | 1.20 | | | $ | 8,331 | | | $ | 6,190 | | | $ | - | | | $ | 6,190 | | | | 134.6 | % | 2008 | | $ | 1.20 | | | $ | 8,263 | | | $ | 6,346 | | | $ | - | | | $ | 6,346 | | | | 130.2 | % | 2007 | | $ | 1.30 | | | $ | 8,787 | | | $ | 5,353 | | | $ | 2,040 | | | $ | 7,393 | | | | 118.9 | % |
| | | | | (In thousands of dollars) | | | Dividends | | Fiscal | | Per | | | Total | | | Ordinary | | | Capital Gain | | | Taxable | | | as a % of | | Year | | Share | | | Dividends | | | Income | | | Income | | | Income | | | Taxable Income | | 2012 | | $ | 1.10 | | | $ | 7,637 | | | $ | 2,939 | | | $ | 9,493 | | | $ | 12,432 | | | | 61.4% | | 2011 | | $ | 1.20 | | | $ | 8,330 | | | $ | 6,153 | | | $ | — | | | $ | 6,153 | | | | 135.4% | | 2010 | | $ | 1.20 | | | $ | 8,331 | | | $ | 5,128 | | | $ | — | | | $ | 5,128 | | | | 162.5% | |
As indicated in the table above, FREIT realized capital gain income of $9.5 million in Fiscal 2012, which relates to the sale of its Heights Manor Apartments in Fiscal 2012. FREIT distributed as dividends to its shareholders approximately $5 million of the capital gain. The remaining $4.5 million capital gain was undistributed. INFLATION Inflation can impact the financial performance of FREIT in various ways. Our commercial tenant leases normally provide that the tenants bear all or a portion of most operating expenses, which can reduce the impact of inflationary increases on FREIT. Apartment leases are normally for a one-year term, which may allow us to seek increased rents as leases renew or when new tenants are obtained.
ITEM 7A | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
See “Liquidity and Capital Resources” and “Commercial and Residential Segment”“Segment Information” in Item 7 above.
ITEM 8 | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA |
The consolidated financial statements and supplementary data of FREIT are submitted as a separate section of this Form 10-K. See "Index to Consolidated Financial Statements" on page 3739 of this Form 10-K. ITEM 9 | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE |
ITEM 9A | CONTROLS AND PROCEDURES |
At the end of the period covered by this report, we carried out an evaluation of the effectiveness of the design and operation of FREIT’s disclosure controls and procedures. This evaluation was carried out under the supervision and with participation of FREIT’s management, including FREIT’s Chairman and Chief Executive Officer and Chief Financial Officer, who concluded that FREIT’s disclosure controls and procedures are effective. There have been no significant changes in FREIT’s internal controls or in other factors, which could significantly affect internal controls subsequent to the date we carried out our evaluation. Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in FREIT’s reports filed or submitted under the Exchange Act is recorded, processed, summarized, and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in FREIT’s reports filed under the Exchange Act is accumulated and communicated to management, including FREIT’s Chief Executive Officer and Chief Financial Officer as appropriate, to allow timely decisions regarding required disclosure. Management’s Annual Report on Internal Control Over Financial Reporting — FREIT’s management, under the supervision of FREIT’s Chief Executive Officer and Chief Financial Officer, is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) or 15d-15(f) under the Exchange Act). Management evaluated the effectiveness of FREIT’s internal control over financial reporting based on the framework inInternal Control — Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on that evaluation, management has concluded that FREIT’s internal control over financial reporting was effective as of October 31, 2009. Eisner2012. EisnerAmper LLP, FREIT’s independent registered public accounting firm for fiscal 2009,Fiscal 2012, audited FREIT’s financial statements contained in this Form 10-K, and has issued the attestation report on FREIT’s internal control over financial reporting provided on the following page.Changes in Internal Control Over Financial Reporting — FREIT’s management, with the participation of FREIT’s Chief Executive Officer and Chief Financial Officer, has evaluated whether any change in FREIT’s internal control over financial reporting occurred during the fourth quarter of Fiscal 2009.2012. Based on that evaluation, management concluded that there has been no change in FREIT’s internal control over financial reporting during the fourth quarter of Fiscal 20092012 that has materially affected, or is reasonably likely to materially affect, FREIT’s internal control over financial reporting.ITEM 9B None.
Report of Independent Registered Public Accounting Firm
To the Trustees and Shareholders First Real Estate Investment Trust of New Jersey and Subsidiaries
We have audited First Real Estate Investment Trust of New Jersey and Subsidiaries’ (“FREIT”) internal control over financial reporting as of October 31, 2009,2012, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).Commission. FREIT’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the effectiveness of FREIT’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. In our opinion, FREIT maintained, in all material respects, effective internal control over financial reporting as of October 31, 2009,2012, based on criteria established in Internal Control – Integrated Framework issued by the COSO. Committee of Sponsoring Organizations of the Treadway Commission.We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheetsfinancial statements and financial statement schedule of FREIT as of October 31, 2009 and 2008, andfor the related consolidated statements of income and comprehensive income, shareholders’ equity and cash flows for each of the years in the three-year periodyear ended October 31, 2009 and financial statement schedule,2012, and our report dated January 14, 20102013 expressed an unqualified opinion on those consolidated financial statements.
statements and financial statement schedule./s/ EisnerEisnerAmper LLP
January 14, 20102013
Certain information required by Part III is incorporated by reference to FREIT's definitive proxy statement (the "Proxy Statement") to be filed with the Securities and Exchange Commission no later than 120 days after the end of FREIT's fiscal year covered by this Annual Report. Only those sections of the Proxy Statement that specifically address the items set forth in this Annual Report are incorporated by reference from the Proxy Statement into this Annual Report. ITEM 10 | DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE |
The information required by this item is incorporated herein by reference to the sections titled "Election of Trustees" and " Section“Section 16(a) Beneficial Ownership Reporting Compliance" in FREIT's Proxy Statement for its Annual Meeting to be held in April 2010.
2013.ITEM 11 | EXECUTIVE COMPENSATION |
The information required by this item is incorporated herein by reference to the section titled " Executive“Executive Compensation" in FREIT's Proxy Statement for its Annual Meeting to be held in April 2010. 2013.ITEM 12 | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS |
The information required by this item is incorporated herein by reference to the section titled "Security Ownership of Certain Beneficial Owners and Management" in FREIT's Proxy Statement for its Annual Meeting to be held in April 2010.
2013. ITEM 13 | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE |
The information required by this item is incorporated herein by reference to the section titled "Certain Relationships and Related Party Transactions; Director Independence" in FREIT's Proxy Statement for its Annual Meeting to be held in April 2010. 2013.ITEM 14 | PRINCIPAL ACCOUNTANT FEES AND SERVICES |
The information required by this item is incorporated by reference to the sections titled “Audit Fees,” “Audit-Related Fees,” “ Tax“Tax Fees” and “All Other Fees” contained in FREIT’s Proxy Statement for its Annual Meeting to be held in April 2010.2013.
ITEM 15: | EXHIBITS, FINANCIAL STATEMENTS AND SCHEDULES |
(a) Financial Statements: | Page | | | (i) Report of Independent Registered Public Accounting Firm of Eisner LLP | 4041 | | | (ii) Consolidated Balance Sheets as of October 31, 20092012 and 20082011 | 4142 | | | (iii) Consolidated Statements of Income and Comprehensive Income for the years ended October 31, 2009, 20082012, 2011 and 2007 2010 | 43 | | | (iv) Consolidated Statements of Shareholders’ Equity for the years ended October 31, 2009, 2008 and 20072012, 2011and 2010 | 42
43 44 | | | (v) Consolidated Statements of Cash Flows for the years ended October 31, 2009, 20082012, 2011 and 20072010 | 4445 | | | (vi) Notes to Consolidated Financial Statements | 4546 | | | (b) Exhibits: | | | | See Index to Exhibits. | 6061 | | | (c) Financial Statement Schedule: | | | | (i) XI - Real Estate and Accumulated Depreciation. | 58/5959/60 |
Pursuant to the requirements ofIn accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, FREIT has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. | | First Real Estate Investment Trust of New Jersey | | | | | | Dated: January 14, 20102013 | | By: /s/ Robert S. Hekemian | | | | Robert S. Hekemian, Chairman of the Board and Chief Executive Officer | | | | | | | | By: /s/ Donald W. Barney | | | | Donald W. Barney, President, Treasurer and Chief Financial Officer |
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints each of Robert S. Hekemian and Donald W. Barney his true and lawful attorney-in-fact and agent for him and in his name, place an stead, in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as they might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent may lawfully do or cause to be done by virtue hereof. In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant has caused this report to be signed by the following persons in the capacities and on the dates stated. Signatures | | Title | Date | /s/ Robert S. Hekemian | | Chairman of the Board and Chief | January 14, 2013 | Robert S. Hekemian | | Executive Officer (Principal Executive Officer) and Trustee | | /s/ Donald W. Barney | | President, Treasurer, Chief Financial | January 14, 2013 | Donald W. Barney | | Officer (Principal Financial / Accounting Officer) and Trustee | | /s/ Herbert C. Klein | | Trustee | January 14, 2013 | Herbert C. Klein | | | | /s/ Ronald J. Artinian | | Trustee | January 14, 2013 | Ronald J. Artinian | | | | /s/ Alan L. Aufzien | | Trustee | January 14, 2013 | Alan L. Aufzien | | | | /s/ Robert S. Hekemian, Jr. | | Trustee | January 14, 2013 | Robert S. Hekemian, Jr. | | | | /s/ David F. McBride | | Trustee | January 14, 2013 | David F. McBride | | | |
Report of Independent Registered Public Accounting Firm To the Trustees and Shareholders First Real Estate Investment Trust of New Jersey and Subsidiaries We have audited the accompanying consolidated balance sheets of First Real Estate Investment Trust of New Jersey and Subsidiaries (“FREIT”) as of October 31, 20092012 and 2008,2011, and the related consolidated statements of income, and comprehensive income, shareholders’ equity and cash flows for each of the years in the three-year period ended October 31, 2009.2012. Our audits also included the financial statement schedule listed in the index at item 15(c). These consolidated financial statements and schedule are the responsibility of FREIT's management. Our responsibility is to express an opinion on these consolidated financial statements and schedule based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the auditsaudit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of FREITFirst Real Estate Investment Trust of New Jersey and Subsidiaries as of October 31, 20092012 and 2008,2011, and the consolidated results of their operations and their consolidated cash flows for each of the years in the three-year period ended October 31, 2009,2012 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the referredrelated financial statement schedule referred to above, when considered in relation to the consolidatedbasic financial statements taken as a whole, presents fairly, in all material respects, the information statedset forth therein. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), FREIT’s internal control over financial reporting as of October 31, 2009,2012, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated January 14, 20102013 expressed an unqualified opinion thereon. /s/ EisnerEisnerAmper LLP
FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY AND SUBSIDIARIES | CONSOLIDATED BALANCE SHEETS | | | | | | | | | | | | | | | | | October 31, | | | | 2009 | | | 2008 | | | | (In Thousands of Dollars) | | ASSETS | | | | | | | | | | | | | | Real estate, at cost, net of accumulated depreciation | | $ | 214,283 | | | $ | 208,955 | | Construction in progress | | | 9,694 | | | | 8,058 | | Cash and cash equivalents | | | 6,751 | | | | 8,192 | | Investments in US Treasury Bills at amortized cost, | | | | | | | | | which approximates fair value | | | 4,549 | | | | - | | Tenants' security accounts | | | 2,147 | | | | 2,377 | | Sundry receivables | | | 4,440 | | | | 4,371 | | Secured loans receivable | | | 3,326 | | | | 3,326 | | Prepaid expenses and other assets | | | 3,198 | | | | 2,952 | | Acquired over market leases and in-place lease costs | | | 670 | | | | 865 | | Deferred charges, net | | | 2,793 | | | | 2,660 | | Totals | | $ | 251,851 | | | $ | 241,756 | | | | | | | | | | | | | | | | | | | | LIABILITIES AND SHAREHOLDERS' EQUITY | | | | | | | | | | | | | | | | | | Liabilities: | | | | | | | | | Mortgages payable | | $ | 202,260 | | | $ | 192,352 | | Accounts payable and accrued expenses | | | 7,496 | | | | 4,014 | | Dividends payable | | | 2,083 | | | | 2,084 | | Tenants' security deposits | | | 2,847 | | | | 3,061 | | Acquired below market value leases and deferred revenue | | | 3,049 | | | | 3,485 | | Total liabilities | | | 217,735 | | | | 204,996 | | | | | | | | | | | Minority interest | | | 13,394 | | | | 13,199 | | | | | | | | | | | Commitments and contingencies | | | | | | | | | | | | | | | | | | Shareholders' equity: | | | | | | | | | Shares of beneficial interest without par value: | | | | | | | | | 8,000,000 shares authorized; | | | | | | | | | 6,993,152 shares issued | | | 24,969 | | | | 24,969 | | Treasury stock, at cost: 51,009 and 46,720 shares | | | (1,135 | ) | | | (1,075 | ) | Dividends in excess of net income | | | (3,112 | ) | | | (333 | ) | Total shareholders' equity | | | 20,722 | | | | 23,561 | | Totals | | $ | 251,851 | | | $ | 241,756 | | | | | | | | | | | | | | | | | | | | See Notes to Consolidated Financial Statements. | | | | | | | | |
FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY AND SUBSIDIARIES | CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Year Ended October 31, | | | | 2009 | | | 2008 | | | 2007 | | | | (In Thousands of Dollars, Except Per Share Amounts) | | Revenue: | | | | | | | | | | Rental income | | $ | 36,671 | | | $ | 36,549 | | | $ | 35,624 | | Reimbursements | | | 5,247 | | | | 5,370 | | | | 4,639 | | Sundry income | | | 504 | | | | 421 | | | | 475 | | Totals | | | 42,422 | | | | 42,340 | | | | 40,738 | | | | | | | | | | | | | | | Expenses: | | | | | | | | | | | | | Operating expenses | | | 10,984 | | | | 10,766 | | | | 10,742 | | Management fees | | | 1,870 | | | | 1,847 | | | | 1,775 | | Real estate taxes | | | 6,398 | | | | 5,925 | | | | 5,699 | | Depreciation | | | 5,870 | | | | 5,622 | | | | 5,311 | | Totals | | | 25,122 | | | | 24,160 | | | | 23,527 | | | | | | | | | | | | | | | Operating income | | | 17,300 | | | | 18,180 | | | | 17,211 | | | | | | | | | | | | | | | Investment income | | | 221 | | | | 554 | | | | 634 | | Interest expense including amortization | | | | | | | | | | | | | of deferred financing costs | | | (10,848 | ) | | | (11,557 | ) | | | (11,897 | ) | Minority interest | | | (1,121 | ) | | | (1,138 | ) | | | (626 | ) | Distribution to certain minority interests | | | - | | | | - | | | | (150 | ) | Income from continuing operations | | | 5,552 | | | | 6,039 | | | | 5,172 | | Discontinued operations: | | | | | | | | | | | | | Earnings from discontinued operations | | | - | | | | - | | | | 91 | | Gain on sale | | | - | | | | - | | | | 3,680 | | Income from discontinued operations | | | - | | | | - | | | | 3,771 | | Net income | | $ | 5,552 | | | $ | 6,039 | | | $ | 8,943 | | | | | | | | | | | | | | | Basic earnings per share: | | | | | | | | | | | | | Continuing operations | | $ | 0.80 | | | $ | 0.88 | | | $ | 0.76 | | Discontinued operations | | | - | | | | - | | | $ | 0.56 | | Net income | | $ | 0.80 | | | $ | 0.88 | | | $ | 1.32 | | Diluted earnings per share: | | | | | | | | | | | | | Continuing operations | | $ | 0.80 | | | $ | 0.88 | | | $ | 0.74 | | Discontinued operations | | | - | | | | - | | | $ | 0.55 | | Net income | | $ | 0.80 | | | $ | 0.88 | | | $ | 1.29 | | | | | | | | | | | | | | | Weighted average shares outstanding: | | | | | | | | | | | | | Basic | | | 6,944 | | | | 6,835 | | | | 6,753 | | Diluted | | | 6,944 | | | | 6,835 | | | | 6,916 | | | | | | | | | | | | | | | COMPREHENSIVE INCOME | | | | | | | | | | | | | Net income | | $ | 5,552 | | | $ | 6,039 | | | $ | 8,943 | | Other comprehensive income (loss): | | | | | | | | | | | | | Unrealized (loss) on interest | | | | | | | | | | | | | rate swap contract | | | - | | | | - | | | | (73 | ) | Comprehensive income | | $ | 5,552 | | | $ | 6,039 | | | $ | 8,870 | | | | | | | | | | | | | | | | | | | | | | | | | | | | See Notes to Consolidated Financial Statements. | | | | | | | | | |
| | CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Shares of Beneficial Interest | | | Treasury Shares at Cost | | | Undistributed Earnings (Dividends in Excess of Net Income) | | | Accumulated Comprehensive Income | | | Total Shareholders' Equity | | | | (In Thousands of Dollars) | | | | | | | | | | | | | | | | | | Balance at October 31, 2006 | | $ | 23,150 | | | $ | - | | | $ | 1,735 | | | $ | 87 | | | $ | 24,972 | | | | | | | | | | | | | | | | | | | | | | | Stock options exercised | | | 75 | | | | | | | | | | | | | | | | 75 | | | | | | | | | | | | | | | | | | | | | | | Net income | | | | | | | | | | | 8,943 | | | | | | | | 8,943 | | | | | | | | | | | | | | | | | | | | | | | Accumulated Comprehensive Income | | | | | | | | | | | | | | | (73 | ) | | | (73 | ) | | | | | | | | | | | | | | | | | | | | | | Dividends declared | | | | | | | | | | | (8,787 | ) | | | | | | | (8,787 | ) | | | | | | | | | | | | | | | | | | | | | | Balance at October 31, 2007 | | $ | 23,225 | | | $ | - | | | $ | 1,891 | | | $ | 14 | | | $ | 25,130 | | | | | | | | | | | | | | | | | | | | | | | Stock options exercised | | | 1,744 | | | | | | | | | | | | | | | | 1,744 | | | | | | | | | | | | | | | | | | | | | | | Treasury shares | | | | | | | (1,075 | ) | | | | | | | | | | | (1,075 | ) | | | | | | | | | | | | | | | | | | | | | | Net income | | | | | | | | | | | 6,039 | | | | | | | | 6,039 | | | | | | | | | | | | | | | | | | | | | | | Accumulated Comprehensive Income | | | | | | | | | | | | | | | (14 | ) | | | (14 | ) | | | | | | | | | | | | | | | | | | | | | | Dividends declared | | | | | | | | | | | (8,263 | ) | | | | | | | (8,263 | ) | | | | | | | | | | | | | | | | | | | | | | Balance at October 31, 2008 | | $ | 24,969 | | | $ | (1,075 | ) | | $ | (333 | ) | | $ | - | | | $ | 23,561 | | | | | | | | | | | | | | | | | | | | | | | Treasury shares | | | | | | | (60 | ) | | | | | | | | | | | (60 | ) | | | | | | | | | | | | | | | | | | | | | | Net income | | | | | | | | | | | 5,552 | | | | | | | | 5,552 | | | | | | | | | | | | | | | | | | | | | | | Dividends declared | | | | | | | | | | | (8,331 | ) | | | | | | | (8,331 | ) | | | | | | | | | | | | | | | | | | | | | | Balance at October 31, 2009 | | $ | 24,969 | | | $ | (1,135 | ) | | $ | (3,112 | ) | | $ | - | | | $ | 20,722 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | See Notes to Consolidated Financial Statements. | | | | | | | | | | | | | | | | | |
2013FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY AND SUBSIDIARIES | CONSOLIDATED STATEMENTS OF CASH FLOWS42 |
| | | | | | | | | | | | | | | | | | | | | | Year Ended October 31, | | | | 2009 | | | 2008 | | | 2007 | | | | (In Thousands of Dollars) | | Operating activities: | | | | | | | | | | Net income | | $ | 5,552 | | | $ | 6,039 | | | $ | 8,943 | | Adjustments to reconcile net income to net cash provided by | | | | | | | | | | | | | operating activities (including discontinued operations): | | | | | | | | | | | | | Depreciation | | | 5,870 | | | | 5,622 | | | | 5,319 | | Amortization | | | 504 | | | | 766 | | | | 763 | | Net amortization of acquired leases | | | 35 | | | | (96 | ) | | | (301 | ) | Deferred revenue | | | (344 | ) | | | (188 | ) | | | 1,083 | | Minority interest | | | 1,121 | | | | 1,138 | | | | 776 | | Gain on sale of discontinued operations | | | - | | | | - | | | | (3,680 | ) | Changes in operating assets and liabilities: | | | | | | | | | | | | | Tenants' security accounts | | | 230 | | | | (8 | ) | | | (208 | ) | Sundry receivables, prepaid expenses and other assets | | | (670 | ) | | | (154 | ) | | | (795 | ) | Accounts payable, accrued expenses and other liabilities | | | 1,276 | | | | 731 | | | | (394 | ) | Tenants' security deposits | | | (214 | ) | | | (63 | ) | | | 301 | | Net cash provided by operating activities | | | 13,360 | | | | 13,787 | | | | 11,807 | | Investing activities: | | | | | | | | | | | | | Capital improvements - existing properties | | | (2,411 | ) | | | (2,715 | ) | | | (2,038 | ) | Proceeds from sale of discontinued operations | | | - | | | | - | | | | 3,796 | | Construction and pre development costs | | | (7,914 | ) | | | (9,006 | ) | | | (6,043 | ) | Acquisition of real estate | | | - | | | | - | | | | (2,545 | ) | Investment in US Treasury Bills | | | (4,549 | ) | | | - | | | | - | | Net cash used in investing activities | | | (14,874 | ) | | | (11,721 | ) | | | (6,830 | ) | Financing activities: | | | | | | | | | | | | | Repayment of mortgages | | | (14,873 | ) | | | (8,118 | ) | | | (19,621 | ) | Proceeds from mortgages and construction loans | | | 24,522 | | | | 11,081 | | | | 28,331 | | Deferred financing costs | | | (259 | ) | | | (270 | ) | | | (663 | ) | Proceeds from exercise of stock options | | | - | | | | 1,744 | | | | 75 | | Repurchase of Company stock-Treasury shares | | | (60 | ) | | | (1,075 | ) | | | - | | Dividends paid | | | (8,331 | ) | | | (8,883 | ) | | | (9,458 | ) | Distribution to minority interest | | | (926 | ) | | | (1,093 | ) | | | (998 | ) | Contributions by minority interest | | | - | | | | - | | | | 481 | | Net cash provided by (used in) financing activities | | | 73 | | | | (6,614 | ) | | | (1,853 | ) | Net (decrease) increase in cash and cash equivalents | | | (1,441 | ) | | | (4,548 | ) | | | 3,124 | | Cash and cash equivalents, beginning of year | | | 8,192 | | | | 12,740 | | | | 9,616 | | Cash and cash equivalents, end of year | | $ | 6,751 | | | $ | 8,192 | | | $ | 12,740 | | | | | | | | | | | | | | | Supplemental disclosure of cash flow data: | | | | | | | | | | | | | Interest paid, including capitalized construction period interest | | | | | | | | | | | | | of $268, $348 and $234 in fiscal 2009, 2008 and 2007, respectively. | | $ | 10,421 | | | $ | 11,177 | | | $ | 11,669 | | Income taxes paid | | $ | 5 | | | $ | 50 | | | $ | 20 | | Supplemental schedule of non cash financing activities: | | | | | | | | | | | | | Accrued capital expenditures, construction costs and pre-development costs and interest | | $ | 2,465 | | | $ | - | | | $ | 1,910 | | Dividends declared but not paid | | $ | 2,083 | | | $ | 2,084 | | | $ | 2,704 | | | | | | | | | | | | | | | See Notes to Consolidated Financial Statements. | | | | | | | | | | | | | | | | | | | | | | | | | |
FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS | | October 31, | | | | 2012 | | | 2011 | | | | (In Thousands of Dollars) | | ASSETS | | | | | | | | | | | | | | | | | | Real estate, at cost, net of accumulated depreciation | | $ | 207,982 | | | $ | 211,393 | | Construction in progress | | | 6,102 | | | | 8,768 | | Cash and cash equivalents | | | 10,610 | | | | 6,317 | | Tenants' security accounts | | | 1,659 | | | | 1,860 | | Receivables arising from straight-lining of rents | | | 4,272 | | | | 4,255 | | Accounts receivable, net of allowance for doubtful accounts | | | 2,675 | | | | 1,029 | | Secured loans receivable | | | 3,323 | | | | 3,323 | | Prepaid expenses and other assets | | | 3,464 | | | | 3,501 | | Acquired over market leases and in-place lease costs | | | 60 | | | | 388 | | Deferred charges, net | | | 2,153 | | | | 2,386 | | Total Assets | | $ | 242,300 | | | $ | 243,220 | | | | | | | | | | | | | | | | | | | | LIABILITIES AND EQUITY | | | | | | | | | | | | | | | | | | Liabilities: | | | | | | | | | Mortgages payable | | $ | 200,420 | | | $ | 203,275 | | Deferred trustee compensation plan | | | 6,712 | | | | 5,667 | | Accounts payable and accrued expenses, including taxes payable of $1,965 at October 31, 2012 | | | 4,136 | | | | 4,000 | | Dividends payable | | | 1,389 | | | | 2,083 | | Tenants' security deposits | | | 2,325 | | | | 2,509 | | Deferred revenue and acquired below market value leases | | | 1,143 | | | | 3,036 | | Total Liabilities | | | 216,125 | | | | 220,570 | | | | | | | | | | | Commitments and contingencies (Note 6) | | | | | | | | | | | | | | | | | | | | | | | | | | | Equity: | | | | | | | | | Common equity: | | | | | | | | | Shares of beneficial interest without par value: | | | | | | | | | 8,000,000 shares authorized; 6,993,152 shares issued | | | 24,969 | | | | 24,969 | | Treasury stock, at cost: 51,009 shares | | | (1,135 | ) | | | (1,135 | ) | Dividends in excess of net income | | | (6,270 | ) | | | (9,984 | ) | Total Common Equity | | | 17,564 | | | | 13,850 | | Noncontrolling interests in subsidiaries | | | 8,611 | | | | 8,800 | | Total Equity | | | 26,175 | | | | 22,650 | | Total Liabilities and Equity | | $ | 242,300 | | | $ | 243,220 | |
See Notes to Consolidated Financial Statements. 43 |
FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME | | Years Ended October 31, | | | | 2012 | | | 2011 | | | 2010 | | | | (In Thousands of Dollars, Except Per Share Amounts) | | Revenue: | | | | | | | | | | | | | Rental income | | $ | 36,877 | | | $ | 37,175 | | | $ | 36,793 | | Reimbursements | | | 4,843 | | | | 5,374 | | | | 5,923 | | Income relating to early lease termination | | | 2,950 | | | | — | | | | — | | Sundry income | | | 804 | | | | 497 | | | | 399 | | | | | 45,474 | | | | 43,046 | | | | 43,115 | | | | | | | | | | | | | | | Expenses: | | | | | | | | | | | | | Operating expenses | | | 10,250 | | | | 10,475 | | | | 11,302 | | Management fees | | | 1,885 | | | | 1,900 | | | | 1,895 | | Real estate taxes | | | 7,681 | | | | 6,820 | | | | 6,528 | | Depreciation | | | 6,186 | | | | 6,070 | | | | 5,996 | | Deferred project cost write-off | | | 3,726 | | | | — | | | | — | | | | | 29,728 | | | | 25,265 | | | | 25,721 | | | | | | | | | | | | | | | Operating income | | | 15,746 | | | | 17,781 | | | | 17,394 | | | | | | | | | | | | | | | Investment income | | | 173 | | | | 101 | | | | 122 | | Interest expense including amortization | | | | | | | | | | | | | of deferred financing costs, and in 2010 | | | | | | | | | | | | | a prepayment penalty of $2.1 million | | | (11,704 | ) | | | (11,452 | ) | | | (13,608 | ) | Income from continuing operations | | | 4,215 | | | | 6,430 | | | | 3,908 | | | | | | | | | | | | | | | Income from discontinued operations | | | 253 | | | | 283 | | | | 223 | | Gain on sale of discontinued operations (net of tax of $1,965) | | | 7,528 | | | | — | | | | — | | Net income | | | 11,996 | | | | 6,713 | | | | 4,131 | | | | | | | | | | | | | | | Net (income) loss attributable to | | | | | | | | | | | | | noncontrolling interest in subsidiaries | | | (645 | ) | | | (1,335 | ) | | | 280 | | | | | | | | | | | | | | | Net income attributable to common equity | | $ | 11,351 | | | $ | 5,378 | | | $ | 4,411 | | | | | | | | | | | | | | | Earnings per share - basic: | | | | | | | | | | | | | Continuing operations | | $ | 0.52 | | | $ | 0.73 | | | $ | 0.61 | | Discontinued operations | | | 1.12 | | | | 0.04 | | | | 0.03 | | Net income attributable to common equity | | $ | 1.64 | | | $ | 0.77 | | | $ | 0.64 | | | | | | | | | | | | | | | Weighted average shares outstanding-basic | | | 6,942 | | | | 6,942 | | | | 6,942 | | | | | | | | | | | | | | | | | | | | | | | | | | | | Amounts attributable to common equity: | | | | | | | | | | | | | Income from continuing operations | | $ | 3,570 | | | $ | 5,095 | | | $ | 4,188 | | Income related to discontinued operations | | | 7,781 | | | | 283 | | | | 223 | | Net income attributable to common equity | | $ | 11,351 | | | $ | 5,378 | | | $ | 4,411 | |
See Notes to Consolidated Financial Statements. 44 |
FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EQUITY | | Common Equity | | | | | | | | | | | Shares of Beneficial Interest | | | Treasury Shares at Cost | | | Dividends in Excess of Net Income | | | Total Common Equity | | | Noncontrolling Interests | | | Total Equity | | | | | (In Thousands of Dollars, Except Per Share Amounts) | | | | | Balance at October 31, 2009 | | $ | 24,969 | | | $ | (1,135 | ) | | $ | (3,112 | ) | | $ | 20,722 | | | $ | 13,394 | | | $ | 34,116 | | | | | | | | | | | | | | | | | | | | | | | | | | | Distributions to noncontrolling interests | | | | | | | | | | | | | | | — | | | | (4,382 | ) | | | (4,382 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | Net income (loss) | | | | | | | | | | | 4,411 | | | | 4,411 | | | | (280 | ) | | | 4,131 | | | | | | | | | | | | | | | | | | | | | | | | | | | Dividends declared ($1.20 per share) | | | | | | | | | | | (8,331 | ) | | | (8,331 | ) | | | | | | | (8,331 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | Balance at October 31, 2010 | | | 24,969 | | | | (1,135 | ) | | | (7,032 | ) | | | 16,802 | | | | 8,732 | | | | 25,534 | | | | | | | | | | | | | | | | | | | | | | | | | | | Distributions to noncontrolling interests | | | | | | | | | | | | | | | — | | | | (1,267 | ) | | | (1,267 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | Net income | | | | | | | | | | | 5,378 | | | | 5,378 | | | | 1,335 | | | | 6,713 | | | | | | | | | | | | | | | | | | | | | | | | | | | Dividends declared ($1.20 per share) | | | | | | | | | | | (8,330 | ) | | | (8,330 | ) | | | | | | | (8,330 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | Balance at October 31, 2011 | | | 24,969 | | | | (1,135 | ) | | | (9,984 | ) | | | 13,850 | | | | 8,800 | | | | 22,650 | | | | | | | | | | | | | | | | | | | | | | | | | | | Distributions to noncontrolling interests | | | | | | | | | | | | | | | — | | | | (834 | ) | | | (834 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | Net income | | | | | | | | | | | 11,351 | | | | 11,351 | | | | 645 | | | | 11,996 | | | | | | | | | | | | | | | | | | | | | | | | | | | Dividends declared ($1.10 per share) | | | | | | | | | | | (7,637 | ) | | | (7,637 | ) | | | | | | | (7,637 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | Balance at October 31, 2012 | | $ | 24,969 | | | $ | (1,135 | ) | | $ | (6,270 | ) | | $ | 17,564 | | | $ | 8,611 | | | $ | 26,175 | |
See Notes to Consolidated Financial Statements. 45 |
FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS | | Years Ended October 31, | | | | 2012 | | | 2011 | | | 2010 | | | | (In Thousands of Dollars) | | Operating activities: | | | | | | | | | | | | | Net income | | $ | 11,996 | | | $ | 6,713 | | | $ | 4,131 | | Adjustments to reconcile net income to net cash provided by | | | | | | | | | | | | | operating activities (including discontinued operations): | | | | | | | | | | | | | Depreciation | | | 6,215 | | | | 6,109 | | | | 6,053 | | Amortization | | | 669 | | | | 592 | | | | 613 | | Net amortization of acquired leases | | | 2 | | | | 25 | | | | 30 | | Income from early lease termination | | | (2,950 | ) | | | — | | | | — | | Deferred project cost write-off | | | 3,726 | | | | — | | | | — | | Gain on sale of discontinued operation, net of tax | | | (7,528 | ) | | | — | | | | — | | Changes in operating assets and liabilities: | | | | | | | | | | | | | Tenants' security accounts | | | 201 | | | | 145 | | | | 142 | | Accounts and straight-line rents receivable, prepaid | | | | | | | | | | | | | expenses and other assets | | | (324 | ) | | | 296 | | | | (1,657 | ) | Accounts payable, accrued expenses, accrued taxes | | | | | | | | | | | | | and deferred trustee compensation plan | | | 1,541 | | | | 1,299 | | | | 720 | | Tenants' security deposits | | | (184 | ) | | | (159 | ) | | | (179 | ) | Deferred revenue | | | (239 | ) | | | (219 | ) | | | 338 | | Net cash provided by operating activities | | | 13,125 | | | | 14,801 | | | | 10,191 | | Investing activities: | | | | | | | | | | | | | Capital improvements - existing properties | | | (2,114 | ) | | | (1,343 | ) | | | (1,855 | ) | Construction and pre-development costs | | | (3,999 | )(a) | | | (2,781 | )(b) | | | (1,828 | ) | Proceeds from sale of discontinued operation | | | 9,908 | | | | — | | | | — | | Redemption of US Treasury Bills | | | — | | | | — | | | | 4,549 | | Net cash provided by (used in) investing activities | | | 3,795 | | | | (4,124 | ) | | | 866 | | Financing activities: | | | | | | | | | | | | | Repayment of mortgages | | | (6,337 | ) | | | (3,066 | ) | | | (21,319 | ) | Proceeds from mortgages and construction loans | | | 3,085 | | | | 1,574 | | | | 23,500 | | Deferred financing costs | | | (210 | ) | | | (40 | ) | | | (507 | ) | Dividends paid | | | (8,331 | ) | | | (8,330 | ) | | | (8,331 | ) | Distributions from operations to noncontrolling interests | | | (834 | ) | | | (1,267 | ) | | | (1,022 | ) | Distributions from loan refinancing to noncontrolling interests | | | — | | | | — | | | | (3,360 | ) | Net cash used in financing activities | | | (12,627 | ) | | | (11,129 | ) | | | (11,039 | ) | Net increase (decrease) in cash and cash equivalents | | | 4,293 | | | | (452 | ) | | | 18 | | Cash and cash equivalents, beginning of year | | | 6,317 | | | | 6,769 | | | | 6,751 | | Cash and cash equivalents, end of year | | $ | 10,610 | | | $ | 6,317 | | | $ | 6,769 | | | | | | | | | | | | | | | Supplemental disclosure of cash flow data: | | | | | | | | | | | | | Interest paid. Included in interest for fiscal 2010 is $2,105 in | | | | | | | | | | | | | prepayment penalties related to early extinguishment of debt. | | $ | 10,526 | | | $ | 10,721 | | | $ | 12,943 | | Income taxes paid | | $ | — | | | $ | 2 | | | $ | — | | Supplemental schedule of non cash activities: | | | | | | | | | | | | | Investing activities: | | | | | | | | | | | | | Accrued capital expenditures, construction costs, | | | | | | | | | | | | | pre-development costs and interest | | $ | 747 | | | $ | 2,651 | | | $ | 40 | | Financing activities: | | | | | | | | | | | | | Dividends declared but not paid | | $ | 1,389 | | | $ | 2,083 | | | $ | 2,083 | |
(a) Includes $2,256 that was incurred and accrued in fiscal 2011; paid in fiscal 2012. (b) Includes $1,000 that was incurred and accrued in fiscal 2009; paid in fiscal 2011. See Notes to Consolidated Financial Statements. 46 |
FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Organization and significant accounting policies: First Real Estate Investment Trust of New Jersey ("FREIT" or the “Company”) was organized on November 1, 1961 as a New Jersey Business Trust. FREIT is engaged in owning residential and commercial income producing properties located primarily in New Jersey, Maryland and New York. FREIT has elected to be taxed as a Real Estate Investment Trust under the provisions of Sections 856-860 of the Internal Revenue Code, as amended. Accordingly, FREIT does not pay federal income tax on income whenever income distributed to shareholders is equal to at least 90% of real estate investment trust taxable income. Further, FREIT pays no federal income tax on capital gains distributed to shareholders. FREIT is subject to federal income tax on undistributed taxable income and capital gains. FREIT may make an annual election under Section 858 of the Internal Revenue Code to apply part of the regular dividends paid in each respective subsequent year as a distribution for the immediately preceding year. Adopted and recently issued accounting standards: In June 2009,December 2011, the Financial Accounting Standards Board (“FASB”) issued FASB Statement No. 168, “TheAccounting Standards Update (“ASU”) 2011-10, “Property, Plant, and Equipment (Topic 360): Derecognition of in Substance Real Estate-a Scope Clarification”. The purpose of this update is to resolve the diversity in practice about whether the guidance under FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles-a Replacement of FASB Statement No. 162” (“ASC”). ASC is Subtopic 360-20, “Property, Plant, and Equipment-Real Estate Sales”, applies to a major restructuring of accounting and reporting standards designed to simplify user access to all authoritative U.S. GAAP by providing authoritative literature in a topically organized structure for nongovernmental entities, in addition to guidance issued by the SEC. ASC supercedes all then-existing, non-SEC accounting and reporting standards for nongovernmental entities. FASB Statement No. 168 is the final standard issued by the FASB inparent that form. This statement is effective for financial statements for interim and annual periods ending after September 15, 2009. The Company adopted FASB ASC effective with its Form 10-K for the year ended October 31, 2009, and the adoption of this new standard did not have an impact on our financial statements. The Company’s accounting policies were not affected by the adoption of ASC. However, references to specific accounting standards in the footnotes to our consolidated financial statements have been changed to refer to the appropriate topics of ASC. In June 2009, The FASB issued SFAS No. 167, “Amendments to FASB Interpretation No. 46(R)” (ASC topic 810), which changes guidance for variable interest entities that are insufficiently capitalized or not controlled through voting or similar rights. SFAS No.167 amends FIN 46(R) to require that a variable interest entity (“VIE”) be consolidated by the company that has both the power to direct the activities that most significantly impact the VIE’s economic performance and the obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE. The new standard will be effective for fiscal years beginning after November 15, 2009, or January 1, 2010 for calendar year companies. The adoption of SFAS 167 is not expectedceases to have a material impact on ourcontrolling financial statements.
In May 2009, the FASB issued Statement of Financial Accounting Standards (“SFAS”) No. 165, “Subsequent Events” (ASC 855-10), which establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued.interest in a subsidiary, as specified under ASC 855 was effective for interim or annual financial periods ending after June 15, 2009. FREIT has adopted this statement effective with its 3rd Quarter 10-Q for the period ended July 31, 2009. In accordance with the provisions of ASC 855, FREIT has evaluated all events or transactions through January 14, 2010, see Note 14 – Subsequent Events.
On December 4, 2007, the FASB issued two new accounting standards, SFAS No. 141R, “Business Combinations” (ASC 805-10), and SFAS No. 160,Subtopic 810-10, “Non-Controlling Interests in Consolidated Financial Statements – an amendment of ARB No. 51” (ASC 810-10), that is in substance real estate as a result of default on the subsidiary’s nonrecourse debt. The new guidance is intended to emphasize that accounting for such transactions “is based on their substance rather than their form”, specifically that the parent should only deconsolidate the real estate subsidiary when legal title to the real estate is transferred to the lender and the related nonrecourse debt has been extinguished. The standard takes effect for public companies for fiscal years and interim periods within those years beginning on or after June 15, 2012. The adoption of this guidance is not expected to have any impact on our financial statements.In June 2011, the FASB issued ASU 2011-05, “Presentation of Comprehensive Income”, which supersedes the presentation options in ASC Topic 220, “Reporting of Comprehensive Income”. The standards are effectivenew standard provides guidance for the presentation of other comprehensive income (“OCI”) and its components in the financial statements. The new guidance only affects the presentation of OCI, and not the components that must be reported in OCI. The standard takes effect for public companies for fiscal years and interim periods within those years beginning after December 15, 2008 and earlier2011. The adoption of this guidance is prohibited. not expected to have any impact on our financial statements.FREIT adopted ASC 810-10 Non-Controlling Interests in Consolidated Financial Statements – an amendment of ARB No. 51” effective November 1, 2009. | · | The objective of ASC 805 is to improve the relevance, representational faithfulness, and comparability of the information that a reporting entity provides in its financial reports about a business combination and its effects. To accomplish that, this Statement establishes principles and requirements for how the acquirer: |
| (a) | Recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any non-controlling interest in the acquiree; |
| (b) | Recognizes and measures the goodwill acquired in the business combination or a gain from a bargain purchase; |
| (c) | Determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. |
| · | The objective of ASC 810 is to improve the relevance, comparability and transparency of financial information provided to investors by: (i) requiring all entities to report non-controlling interests (minority interests) as equity in the consolidated financial statements and separate from the parent’s equity; (ii) requiring that the amount of net income attributable to the parent and non-controlling interest be clearly identified and presented on the face of the consolidated statement of income; and (iii) expanding the disclosure requirements with respect to the parent and its non-controlling interests. |
| Prior to the adoption of ASC 810, FREIT could not record a negative minority interest in its consolidated financial statements if the minority members had no obligation to restore their negative capital accounts. As a result, FREIT was accounting for the minority members’ capital deficit of its Westwood Hills subsidiary as a charge to income and a reduction to undistributed earnings. As of November 1, 2009, the amount of the minority members’ capital deficit that was booked as a reduction to FREIT’s undistributed earnings was approximately $2.3 million. Subsequently, in accordance with the revised standard, future losses were attributed to the non-controlling members. Effective June 1, 2007, the Westwood Hills operating agreement was amended to require the non-controlling members to restore their negative capital accounts. |
The effect of the adoption of ASC 805 will be dependent upon future acquisition activity, if any, of the Company.
Adoption of ASC 810 will require separate presentation in the statement of undistributed earnings of the changes in the non-controlling members’ interests, as well as balance sheet presentation of such interests as a separate component of Shareholders’ Equity. As adopted by the Company effective November 1, 2009, ASC 810 requires retrospective application for all periods presented.
In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities – including an amendment of FASB Statement No. 115 (ASC 825-10). This new standard allows companies to measure certain financial assets and liabilities at fair value, rather than at historic cost. The objective of ASC 825 is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. Once the fair value option is elected, the decision is irrevocable. This statement was effective as of the beginning of an entity’s first fiscal year that begins after November 15, 2007. The adoption of ASC 825 did not have a material impact on our financial statements.
In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (ASC 820-10), which defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles (“GAAP”), and expands disclosures about fair value measurements. This new standard does not require fair values to be used in any situations not already covered by GAAP; however, for some entities, the application of this standard will change current practice. ASC 820 was effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. The adoption of ASC 820 did not have a material impact on our financial statements for the year ended October 31, 2009.
Principles of consolidation: The Company is subject to revised FIN 46, “Consolidation of Variable Interest Entities, an Interpretation of Accounting Research Bulletin No. 51”, issued in December 2003 (ASC 810-10), which requires the consolidation of certain entities in which an enterprise absorbs a majority of the entity’s expected losses, receives a majority of the entity’s expected residual returns, or both, as a result of ownership, contractual or other financial interests in the entity (variable interest entities, or “VIEs”). Entities are generally consolidated by an enterprise when it has a controlling financial interest through ownership of a majority voting interest in the entity. In accordance with the definition of related parties as defined in ASC 810, it is the belief of the management of FREIT that ASC 810 is applicable to Westwood Hills, LLC and Wayne PSC, LLC, both 40% owned by FREIT. Because of this determination, FREIT has consolidated these two entities in its consolidated financial statements.
Accordingly, the consolidated financial statements include the accounts of FREIT and itsthe following significant subsidiaries:
Subsidiary | | Owning Entity | | % Ownership | | Year Acquired/Organized | | S and A Commercial Associates Limited Partnership ("S and A") | | | FREIT | | | 65% | | | 2000 | | Westwood Hills, LLC | | | FREIT | | | 40% | | | 1994 | | Damascus Centre, LLC | | | FREIT | | | 70% | | | 2003 | | Damascus Second, LLC | | | FREIT | | | 70% | | | 2008 | | Wayne PSC, LLC | | | FREIT | | | 40% | | | 2002 | | Pierre Towers, LLC | | | S and A | | | 100% | | | 2004 | | Grande Rotunda, LLC | | | FREIT | | | 60% | | | 2005 | | WestFREIT Corp | | | FREIT | | | 100% | | | 2007 | | WestFredic LLC | | | FREIT | | | 100% | | | 2007 | |
subsidiaries in which FREIT has a controlling financial interest, including two LLCs in which FREIT is the managing member with a 40% ownership interest:Subsidiary | | Owning Entity | | % Ownership | | Year Acquired/Organized | | S and A Commercial Associates Limited Partnership ("S and A") | | | FREIT | | | 65% | | | 2000 | | Westwood Hills, LLC | | | FREIT | | | 40% | | | 1994 | | Damascus Centre, LLC | | | FREIT | | | 70% | | | 2003 | | Damascus Second, LLC | | | FREIT | | | 70% | | | 2008 | | Wayne PSC, LLC | | | FREIT | | | 40% | | | 2002 | | Pierre Towers, LLC | | | S and A | | | 100% | | | 2004 | | Grande Rotunda, LLC | | | FREIT | | | 60% | | | 2005 | | WestFREIT Corp | | | FREIT | | | 100% | | | 2007 | | WestFredic LLC | | | FREIT | | | 100% | | | 2007 | |
The consolidated financial statements include 100% of each subsidiary’s assets, liabilities, operations and cash flows, with the interests not owned by FREIT reflected as "minority interest”"noncontrolling interests in subsidiaries”. All significant inter-company accounts and transactions have been eliminated in consolidation. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. Cash and cash equivalents: Financial instruments that potentially subject FREIT to concentrations of credit risk consist primarily of cash and cash equivalents. FREIT considers all highly liquid investments purchased with aan original maturity of three months or less to be cash equivalents. FREIT maintains its cash and cash equivalents in bank and other accounts, the balances of which, at times, may exceed Federally insured limits. During Fiscal 2008, Federally Insured limits were temporarily increased from $100,000 to $250,000 through December 31, 2009. During Fiscal 2009, FREIT’s bank deposits were repositioned to fall within thefederally insured limits of $250,000. Real estate development costs: It is FREIT’s policy to capitalize pre-development costs, which generally include legal and other professional fees and other directly related third-party costs. Real estate taxes and interest costs incurred during the FDICdevelopment and construction phases are also capitalized. FREIT ceases capitalization of these costs, when the U.S. Treasury Guarantee Program. This necessitated transferring significant balances from interest bearing deposit accounts to non-interest bearing deposit accounts, which resulted in reduced earnings from interest income forproject or portion thereof becomes operational, or when construction has been postponed. Capitalization of these costs will recommence once construction on the current fiscal year. project resumes.Depreciation: Real estate and equipment are depreciated on the straight-line method by annual charges to operations calculated to absorb costs of assets over their estimated useful lives. Impairment of long-lived assets: Impairment losses on long-lived assets, such as real estate and equipment, are recognized when events or changes in circumstances indicate that the undiscounted cash flows estimated to be generated by such assets are less than their carrying value and, accordingly, all or a portion of such carrying value may not be recoverable. Impairment losses are then measured by comparing the fair value of assets to their carrying amounts. AtFor the fiscal years ended October 31, 2009,2012, 2011 and 2010, there arewere no impairments of long-lived assets. Deferred charges consist of mortgage costs and leasing commissions. Deferred mortgage costs are amortized on the straight-line method by annual charges to operations over the terms of the mortgages. Amortization of such costs is included in interest expense and approximated $239,000, $371,000$368,000, $305,000 and $277,000$324,000 in 2009, 20082012, 2011 and 2007,2010, respectively. Deferred leasing commissions are amortized on the straight-line method over the terms of the applicable leases. Income from leases is recognized on a straight-line basis regardless of when payment is due. Lease agreements between FREIT and commercial tenants generally provide for additional rentals and reimbursements based on such factors as percentage of tenants' sales in excess of specified volumes, increases in real estate taxes, Consumer Price Indices and common area maintenance charges. These additional rentals are generally included in income when reported to FREIT, when billed to tenants,earned, or ratably over the appropriate period. FREIT expenses the cost of advertising and promotions as incurred. Advertising costs charged to operations amounted to approximately $156,000, $132,000$127,000, $110,000 and $109,000$148,000 in 2009, 20082012, 2011 and 2007,2010, respectively. Stock-based compensation: At October 31, 2009, FREIT has a stock-based employee compensation plan that was approved on September 10, 1998 by the Board of Trustees, and isratified by FREIT’s shareholders. Stock based awards under the plan are accounted for based on thetheir grant-date fair value estimated in accordance with the provisions of ASC 718, which is described more fully invalue. (See Note 9. 10.)All issuances of shares of beneficial interest, options or other equity instruments to nonemployees as the consideration for goods or services received by FREIT are accounted for based on the fair value of the equity instruments issued (unless the fair value of the consideration received can be more reliably measured). The fair value of any options or similar equity instruments issued is estimated based on option pricing models and the assumption that all of the options or other equity instruments will ultimately vest. Such fair value is measured generally, on the earlier of the date the other party becomes committed to provide the goods or services or the date performance by the other party is complete and capitalized or expensed as if FREIT had paid cash for the goods or services.
Acquired Over Market and Below Market Value Leases and In-Place Leases: Capitalized above-market lease values classified as other assets, are being amortized as a reduction of base rental revenue over the remaining term of the leases, and the capitalized below-market lease values are being amortized as an increase to base rental revenue over the remaining terms of the leases, including renewal options. The value ascribed to leases in place also classified as other assets, is being amortized over the weighted average remaining lease terms as calculated above.
terms.Comprehensive income: Comprehensive income for the fiscal years ended October 31, 2012, 2011 and 2010 was equivalent to net income attributable to common equity. Reclassifications: Certain revenue and expense accounts in the 2011 and 2010 consolidated financial statements and footnotes related to property sold in Fiscal 2012 have been reclassified to discontinued operations to conform to the 2012 presentation. (See Note 3.) Note 2 – Minority Interests: Planned asset dispositions:On July 7, 2010, FREIT’s 40% owned subsidiary, Westwood Hills,Board of Trustees (“Board”) authorized management to pursue a sale of the 256,620 sq. ft. Westridge Square Shopping Center (“Westridge”) located in Frederick, Maryland. The decision to sell the property (acquired in 1992) was based on the Board’s desire to re-deploy the net proceeds or other consideration arising from the sale to real estate assets in other areas of FREIT’s operations. On April 15, 2011, FREIT was notified by Giant of Maryland LLC (“Westwood Hills”Giant”), had a capital deficit resulting from distributions to members, including proceeds received on refinancing the mortgage on the residential building owned by Westwood Hills. Prior to June 1, 2007, minority members were under no legal obligation to restore their shareformer tenant and operator of the capital deficit, and as55,330 sq. ft. Giant Supermarket at Westridge, that it would not extend the term of its lease, which expired on October 31, 2011. As a result, cash distributions madeFREIT halted its efforts to minority memberssell Westridge and will reconsider its decision to market Westridge for sale when the space is re-leased. On July 27, 2012, FREIT signed a lease agreement with G-Mart Frederick, Inc. (“G-Mart”) for the leasing of Westwood Hills were charged to expense. Effective June 1, 2007, the Operating Agreement of Westwood Hills was amended by a majoritysignificant portion of the membersspace vacated by Giant (40,000 square feet). FREIT expects to incur tenant improvement costs associated with the lease to G-Mart. FREIT anticipates that G-Mart will begin its operations at the center sometime in the 1st calendar quarter of Westwood Hills to require2013. No decision has been made as of the members to restore their negative capital accounts caused by any future losses, distributions from operations or net refinancing proceeds from the effectivefiling date of this amendment forward. As a result of this amendment, future minority interest distributions by Westwood Hills in excess of allocated income are recorded as a receivable from minority members and no longer impactreport, to resume FREIT’s net income.
Note 3 – Dispositions and Acquisitions:
efforts to market the Westridge Square property for sale.On June 26, 2007, FREIT closed on its contract for3, 2011, FREIT’s Board authorized management to pursue the sale of the LakewoodPalisades Manor Apartments, in Lakewood,Palisades Park, NJ, the Grandview Apartments in Hasbrouck Heights, NJ, and the Heights Manor Apartments in Spring Lake Heights, NJ. The sales price fordecision to pursue the sale of these properties was based on the Board’s desire to re-deploy the net proceeds arising from the sale to real estate assets in other areas of FREIT’s operations. On August 29, 2012, the Heights Manor property was $4 million.sold (See Note 3 for more details). However, it is still not possible for management to estimate when a sale of the other two properties will occur, and therefore, the Grandview and Palisades Manor properties are classified as held for use as of October 31, 2012. On May 2, 2012, FREIT’s Board authorized management to pursue the sale of its South Brunswick, NJ property. The decision to sell this property was acquiredbased on the Board’s desire to re-deploy the net proceeds arising from the sale to real estate assets in 1962other areas of FREIT’s operations. However, as management is unable to estimate when a sale of the South Brunswick property will occur, it is classified as held for approximately $407,000. For financial reporting purposes,use as of October 31, 2012. Note 3 – Discontinued operations: On August 29, 2012, FREIT sold its Heights Manor Apartments in Spring Lake Heights, New Jersey and recognized a gain of approximately $3.7$9.5 million from the sale. (Seesale ($7.5 million after-tax, see Note 13.) On September 28, 2007,9). In addition, FREIT acquired three parcels of land in Rochelle Park, NJ totaling approximately one acre. The acquisition cost was approximately $2.5 million, of which $1.6 million relates topaid off the land and $0.9 million relates to an advance to the Pascack Community Bank, the lessee, for construction of a bank branchrelated mortgage loan on the site.
FREIT structuredHeights Manor property in the Lakewood sale andamount of approximately $2.8 million from the subsequent purchaseproceeds of the land in Rochelle Park in a manner that would qualify as a like-kind exchange of real estate pursuant to Section 1031 of the Internal Revenue Code, which resulted in a deferral for income tax purposes of $1.6 million ofsale. In compliance with current accounting guidance, the gain on the Lakewood sale. Since it issale, as well as the intentionearnings of FREITthe Heights Manor operation are classified as discontinued operations in the accompanying income statements for all periods presented. Revenue attributable to continue to qualify as a real estate investment trust, deferred tax would be minimal.discontinued operations was $853,000, $1,011,000 and $938,000 for Fiscal 2012, 2011 and 2010, respectively.Note 4 - Real estate and equipment: Real estate and equipment consists of the following:
| Range of | | | | | | | | Estimated | | October 31, | | | Useful Lives | | 2009 | | | 2008 | | | | | (In thousands of dollars) | | Land | | | $ | 76,684 | | | $ | 71,637 | | Unimproved land | | | | 848 | | | | 731 | | Apartment buildings | 7-40 years | | | 81,002 | | | | 79,875 | | Commercial buildings/shopping centers | 15-50 years | | | 106,070 | | | | 102,242 | | Equipment/Furniture | 3-15 years | | | 2,571 | | | | 2,497 | | | | | | 267,175 | | | | 256,982 | | Less accumulated depreciation | | | | 52,892 | | | | 48,027 | | Totals | | | $ | 214,283 | | | $ | 208,955 | |
| | Range of | | | | | | | | | | Estimated | | | October 31, | | | | Useful Lives | | | 2012 | | | 2011 | | | | | | | (In Thousands of Dollars) | | Land | | | | | | $ | 76,637 | | | $ | 76,745 | | Unimproved land | | | | | | | 874 | | | | 865 | | Apartment buildings | | | 7-40 years | | | | 81,784 | | | | 82,275 | | Commercial buildings/shopping centers | | | 15-50 years | | | | 115,492 | | | | 113,707 | | Equipment/Furniture | | | 3-15 years | | | | 2,814 | | | | 2,777 | | | | | | | | | 277,601 | | | | 276,369 | | Less accumulated depreciation | | | | | | | 69,619 | | | | 64,976 | | Totals | | | | | | $ | 207,982 | | | $ | 211,393 | |
Note 5 – Mortgages, notes payable and credit line: | | October 31, | | | | 2009 | | | 2008 | | | | (In Thousands of Dollars) | | Frederick, MD (A) | | $ | 22,000 | | | $ | 22,000 | | Rockaway, NJ (B) | | | 19,876 | | | | 20,190 | | Westwood, NJ (C) | | | 8,800 | | | | 9,021 | | Spring Lake Heights, NJ (D) | | | 3,081 | | | | 3,159 | | Patchogue, NY (E) | | | 5,878 | | | | 5,953 | | Wayne, NJ (F): | | | | | | | | | First mortgage | | | - | | | | 9,407 | | Second mortgage | | | - | | | | 3,169 | | Wayne, NJ (F) | | | 19,966 | | | | - | | River Edge, NJ (G): | | | | | | | | | First mortgage | | | 4,482 | | | | 4,594 | | Second mortgage | | | 1,727 | | | | 1,778 | | Maywood, NJ (H): | | | | | | | | | First mortgage | | | 3,252 | | | | 3,333 | | Second mortgage | | | 1,226 | | | | 1,261 | | Westwood, NJ (I): | | | | | | | | | First mortgage | | | 12,934 | | | | 13,255 | | Second mortgage | | | 2,872 | | | | 2,955 | | Wayne, NJ (J) | | | 29,916 | | | | 30,571 | | Hackensack, NJ (K) | | | 33,893 | | | | 34,125 | | Total fixed rate mortgage loans | | | 169,903 | | | | 164,771 | | Baltimore, MD (L) | | | 22,500 | | | | 22,500 | | Damascus, MD - Construction Loan (M) | | | 9,857 | | | | 5,081 | | Total mortgages and notes payable | | $ | 202,260 | | | $ | 192,352 | |
| | October 31, | | | | 2012 | | | 2011 | | | | (In Thousands of Dollars) | | | | | | | | | Frederick, MD (A) | | $ | 22,000 | | | $ | 22,000 | | Rockaway, NJ (B) | | | 18,828 | | | | 19,197 | | Westwood, NJ (C) | | | 8,032 | | | | 8,307 | | | | | | | | | | | Spring Lake Heights, NJ (D) | | | — | | | | 2,911 | | Patchogue, NY (E) | | | 5,623 | | | | 5,713 | | Wayne, NJ (F) | | | 19,248 | | | | 19,501 | | River Edge, NJ (G): | | | | | | | | | First mortgage | | | 4,098 | | | | 4,235 | | Second mortgage | | | 1,557 | | | | 1,617 | | Maywood, NJ (H): | | | | | | | | | First mortgage | | | 2,974 | | | | 3,073 | | Second mortgage | | | 1,105 | | | | 1,147 | | Westwood, NJ (I) | | | 22,774 | | | | 23,144 | | Wayne, NJ (J) | | | 27,697 | | | | 28,482 | | Hackensack, NJ (K) | | | 32,364 | | | | 32,901 | | Total fixed rate mortgage loans | | | 166,300 | | | | 172,228 | | Baltimore, MD (L) | | | 19,070 | | | | 19,290 | | Damascus, MD - Construction Loan (M) | | | 15,050 | | | | 11,757 | | Total mortgages and notes payable | | $ | 200,420 | | | $ | 203,275 | |
| (A) | Payable in monthly installments of interest only computed over the actual number of days in the elapsed monthly interest period at the rate of 5.55% through May 2017 at which time the outstanding balance is due. The mortgage is secured by a retail building in Frederick, Maryland having a net book value of approximately $19,556,000. $17,432,000 as of October 31, 2012. | | (B) | Payable in monthly installments of $115,850 including interest at 5.37% through February 2022 at which time the outstanding balance is due. The mortgage is secured by a residential building in Rockaway, New Jersey having a net book value of approximately $19,501,000. $17,922,000 as of October 31, 2012. | | (C) | Payable in monthly installments of $73,248 including interest at 7.38% through February 2013 at which time the outstanding balance is due. FREIT is in the process of refinancing the mortgage loan with another lending institution. The amount of the new loan is estimated to be $22.8 million at a rate and terms to be determined. The mortgage is secured by a retail building in Westwood, New Jersey having a net book value of approximately $9,874,000. $8,969,000 as of October 31, 2012. | | (D) | Payable in monthly installments of $23,875 including interest at 6.70% through December 2013 at which time the outstanding balance iswas due. The mortgage iswas secured by an apartment building in Spring Lake Heights, New Jersey, having a net book valuewhich was sold on August 29, 2012. A portion of approximately $450,000.the proceeds from the sale were used to pay-off the $2.8 million outstanding balance plus accrued interest and fees. |
| | (E) | Payable in monthly installments of $36,457 including interest at 6.125%, through March 2018 at which time the outstanding balance is due. Under the terms of the mortgage loan agreement, FREIT can request, during the term of the loan, additional fundings that will bring the outstanding principal balance up to 75% of loan-to-value (percentage of mortgage loan to total appraised value of property securing the loan). FREIT has renegotiated the interest rate on this loan to a fixed rate of 4.5% from January 1, 2013 until maturity at March 1, 2018. The mortgage is secured by a retail building in Patchogue, New York having a net book value of approximately $8,271,000. $7,599,000 as of October 31, 2012. | | (F) | On August 6, 2009, FREIT refinanced the mortgage loans secured by its Berdan Court apartment property in Wayne, NJ, with a new mortgage for approximately $20 million. The refinanced mortgages had outstanding principal balances that aggregated approximately $12.3 million at a weighted average interest rate of 6.7%, and were due January 1, 2010. The new mortgage is payablePayable in monthly installments of $121,100 including interest at 6.09%, and is duethrough September 1, 2019. The first mortgage was payable in monthly installments of $76,023 including interest at 7.29% through July 20102019 at which time the outstanding balance wasis due. The second mortgage was payable in monthly installments of $20,878 including interest at 4.92% through July 2010 at which time the outstanding balance was due. The mortgages areis secured by an apartment building in Wayne, New Jersey having a net book value of approximately $1,317,000. $1,552,000 as of October 31, 2012. |
| (G) | The first mortgage is payable in monthly installments of $34,862 including interest at 6.75% through December 2013 at which time the outstanding balance is due. The second mortgage is payable in monthly installments of $12,318 including interest at 5.53% through December 2013 at which time the outstanding balance is due. The mortgages are secured by an apartment building in River Edge, New Jersey having a net book value of approximately $1,264,000. | | | $1,021,000 as of October 31, 2012. | | (H) | The first mortgage is payable in monthly installments of $25,295 including interest at 6.75% through December 2013 at which time the outstanding balance is due. The second mortgage is payable in monthly installments of $8,739 including interest at 5.53% through December 2013 at which time the outstanding balance is due. The mortgages are secured by an apartment building in Maywood, New Jersey having a net book value of approximately $655,000. | | | $675,000 as of October 31, 2012. | | (I) | On October 20, 2010, Westwood Hills, LLC refinanced the mortgage loans secured by its Westwood Hills apartment property in Westwood, NJ, with a new mortgage for $23.5 million. The firstrefinanced mortgages had outstanding principal balances that aggregated approximately $15.4 million at a weighted average interest rate of 6.6%, and were due December 31, 2013. A $2.1 million prepayment penalty was incurred in connection with such refinancing. The new mortgage is payable in monthly installments of $99,946$120,752 including interest at 6.693%of 4.62%, through December 2013November 1, 2020, at which time the outstanding balance is due. The second mortgage is payable in monthly installments of $21,954 including interest at 6.18% through December 2013 at which time the outstanding balance is due. The mortgages are secured by an apartment building in Westwood, New Jersey having a net book value of approximately $11,691,000. | | | $10,898,000 as of October 31, 2012. | | (J) | Payable in monthly installments of interest only of $161,067 at the rate of 6.04% through June 2006, thereafter payable in monthly installments of $206,960 including interest until June 2016 at which time the unpaid balance is due. The mortgage is secured by a shopping center in Wayne, NJ having a net book value of approximately $30,303,000. | | | $28,184,000 as of October 31, 2012. | | (K) | Payable in monthly installments of interest only of $152,994 at the rate of 5.38% through May 2009, thereafter payable in monthly installments of $191,197 including interest until May 2019 at which time the unpaid balance is due. The mortgage is secured by an apartment building in Hackensack, NJ having a net book value of approximately $43,688,000. | | | $41,377,000 as of October 31, 2012. | | (L) | AcquisitionOn February 1, 2010, a principal payment of $3 million was made reducing the original loan amount of $22.5 million to $19.5 million and the due date was extended until February 1, 2013. In order to meet the bank’s annual debt service coverage ratio requirement, a principal payment of $110,000 was made on the loan in February 2012. Under the restructured terms, the interest rate is now 350 basis points above the BBA LIBOR with a floor of 4%, and monthly principal payments of $10,000 are required. The loan represents the acquisition loan to Grande Rotunda, LLC; which was payable in monthly installments of interest only.only prior to the loan’s restructuring on February 1, 2010. The interest rate varieson the original loan varied from time-to-time based on the borrower’s election of 150 basis points over the various LIBOR, or the Lender’s prime rate. The loan was due on July 19, 2009, but was extended to February 1, 2010. FREIT guarantees payment of up to 35% of the outstanding principal amount of the loan plus accrued interest if borrower defaults, however, Rotunda 100, LLC (a 40% joint venture partner in Grande Rotunda, LLC) has indemnified FREIT for up to 40% of any losses under its guaranty. The loan is secured by a mixed-use property in Baltimore, MD having(FREIT’s Rotunda property), which has a net book value of approximately $39,773,000. (See Note 14.)$36,489,000 as of October 31, 2012. As part of the restructured terms of the loan extension agreement, the loan is further collateralized by a first mortgage lien and the assignment of the ground lease on FREIT’s Rochelle Park, NJ land parcel. It is the Company’s intent to negotiate another one year extension of this loan, which would extend the loan until February 1, 2014. This extension may require an additional principal payment in an amount necessary to reduce the loan to achieve a stipulated debt service coverage ratio. |
| | (M) | On February 12, 2008, Damascus Second, LLC closed on a $27.3 million construction loan, secured by the shopping centerDamascus Center owned by Damascus Centre, LLC located in Damascus, MD. This loan has a term of forty-eight (48) months, with one twelve (12) month extension option.option which was exercised. Draws against this loan bear interest at a floating rate equal to 135 basis points over the BBA LIBOR daily floating rate. As a result of a revaluation of future funding needs of the redevelopment project, on May 6, 2010, Damascus Centre, LLC entered into a modification of its construction loan agreement, which reduced the amount of the construction loan facility from $27.3 million to $21.3 million. In addition, the construction completion due date was extended until November 1, 2011. All other terms of the construction loan remain unchanged. As of October 31, 2009, Damascus drew down $9.92012, $15.0 million of this loan, which includes accrued interest, was drawn down to cover construction costs.costs, and all construction was completed as of this date. Additional tenant fit-up costs are expected, once the new space is leased and occupied. FREIT guarantees 30% of the outstanding principal amount of the loan plus other costs, if borrower defaults, however, Damascus 100, LLC (a 30% joint venture partner in Damascus Centre, LLC) has indemnified FREIT for up to 30% of any losses under its guaranty. On December 26, 2012, Damascus Centre, LLC refinanced its construction loan with long-term financing provided by People’s United Bank. The amount of the new loan is $25 million, of which $20 million has been drawn. The balance, up to an additional $5 million, will be available as a one-time draw over the next 36 month period, and the amount available will depend on future leasing at the shopping center. The new loan bears a floating interest rate equal to 210 basis points over the BBA LIBOR and the loan will mature on January 3, 2023. The shopping center securing the loan has a net book value of approximately $25,149,000.$30,073,000 as of October 31, 2012. |
Fair Value of Long-Term Debt: The following table shows the estimated fair value and carrying value of FREIT’s long-term debt at October 31, 2012 and 2011: | | October 31, | | | October 31, | | ($ in Millions) | | 2012 | | | 2011 | | Fair Value | | $ | 213.2 | | | $ | 213.9 | | | | | | | | | | | Carrying Value | | $ | 200.4 | | | $ | 203.3 | |
Fair values are estimated based on market interest rates at October 31, 2012 and October 31, 2011 and on discounted cash flow analysis. Changes in assumptions or estimation methods may significantly affect these fair value estimates. The fair value, of FREIT's long-term debt, which approximates $198.1 million and $196.2 million at October 31, 2009 and 2008, respectively, is estimated based on observable inputs, has been characterized as level 2 in the current rates offered to FREIT for debt of the similar remaining maturities. fair value hierarchy as provided by authoritative guidance.Principal amounts (in thousands of dollars) due under the above obligations (assuming no additional principal payment for the Rotunda) in each of the five years subsequent to October 31, 20092012 are as follows: Year Ending October 31, | | Amount | | 2010 | | $ | 25,136 | | 2011 | | $ | 3,049 | | 2012 | | $ | 13,098 | | 2013 | | $ | 11,206 | | 2014 | | $ | 28,360 | |
Year Ending October 31, | | Amount | | 2013 | | $ | 30,020 | * | 2014 | | $ | 12,086 | | 2015 | | $ | 2,836 | | 2016 | | $ | 27,118 | | 2017 | | $ | 24,116 | | * Exclusive of $15.0 million related to the October 31, 2012 balance of the Damascus construction loan, due February 2013. On December 26, 2012, Damascus Centre, LLC refinanced its $15.0 million construction loan with a new mortgage loan. The amount of the new loan is $20 million and matures on January 3, 2023. |
Credit Line: FREIT has an $18 million line of credit provided by the Provident Bank. The line of credit is for a two year term ending in January 2010,On July 29, 2014, but can be cancelled by the bank, at its will, within 60 days before or after each anniversary date. The credit line will automatically be extended at the termination date of the current term and each subsequent term for an additional period of 24 months, provided there is no default and the credit line has not been cancelled. Draws against the credit line can be used for general corporate purposes, for property acquisitions, construction activities, and letters of credit. Draws against the credit line are secured by mortgages on FREIT’s Franklin Crossing Shopping Center, Franklin Lakes, NJ, retail space in Glen Rock, NJ, Palisades Manor Apartments, Palisades Park, NJ, and Grandview Apartments, Hasbrouck Heights, NJ. Interest rates on draws will be set at the time of each draw for 30, 60, or 90-day periods, based on our choice of the prime rate or at 175 basis points over the 30, 60, or 90-day LIBOR rates at the time of the draws. The interest rate on the line of credit has a floor of 4%3.5%.
In connection with its construction activities in Rockaway, NJ, FREIT utilized the credit line for the issuance of a $384,000 Letter of Credit, which expired on April 3, 2009. As of October 31, 2009,2012, $18 million is available under the line of credit.credit, and no amount is outstanding.FREIT’s Board has authorized management to pursue the sale of the Palisades Manor Apartments and the Grandview Apartments, which currently secure draws on FREIT’s credit line. When or if an agreement for the sale of either or both of these properties is entered into, these properties will have to be released as collateral for the credit line. Provident Bank indicated that the ultimate sale of these properties would reduce FREIT’s line of credit to $13 million. Certain of the Company’s mortgage loans and the Credit Line contain financial covenants. The Company was in compliance with all of its financial covenants as of October 31, 2012. Note 6 - Commitments and contingencies: FREIT leases commercial space having a net book value of approximately $144$139 million at October 31, 20092012 to tenants for periods of up to twenty-five years. Most of the leases contain clauses for reimbursement of real estate taxes, maintenance, insurance and certain other operating expenses of the properties. Minimum rental income (in thousands of dollars) to be received from non-cancelable operating leases in years subsequent to October 31, 20092012 is as follows:
Year Ending October 31, | | Amount | | 2010 | | $ | 16,485 | | 2011 | | | 15,710 | | 2012 | | | 12,864 | | 2013 | | | 11,345 | | 2014 | | | 9,919 | | Thereafter | | | 57,486 | | Total | | $ | 123,809 | |
Year Ending October 31, | | Amount | | 2013 | | $ | 16,715 | | 2014 | | | 15,313 | | 2015 | | | 13,857 | | 2016 | | | 12,395 | | 2017 | | | 9,386 | | Thereafter | | | 38,397 | | Total | | $ | 106,063 | |
The above amounts assume that all leases which expire are not renewed and, accordingly, neither minimal rentals nor rentals from replacement tenants are included. Minimum future rentals do not include contingent rentals, which may be received under certain leases on the basis of percentage of reported tenants' sales volume or increases in Consumer Price Indices. Rental income that is contingent on future events is not included in income until the contingency is resolved. Contingent rentals included in income for each of the three years for the period ended October 31, 20092012 were not material. Lease terms for residential tenants are usually one year or less. The Westwood Plaza Shopping Center property is in a HUD Flood Hazard Zone and serves as a local flood retention basin for part of Westwood, New Jersey.Zone. FREIT maintains flood insurance in the amount of $500,000 for the subject property, which is the maximum available under the HUD Flood Program for the property. Any reconstruction of that portion of the property situated in the flood hazard zone is subject to regulations promulgated by the New Jersey Department of Environmental Protection ("NJDEP"), which could require extraordinary construction methods. In accordance with applicable regulations, FREIT reported to the New Jersey Department of Environmental Protection ("NJDEP") that a historical discharge of hazardous material was discovered in 1997 at the renovated Franklin Lakes shopping center (the "Center").
In November 1999, FREIT received a no further action letter from the NJDEP concerning the historical discharge at the Center. However, FREIT is required to continue monitoring such discharge, the cost of which will not be material.
Prior to its purchase by Wayne PSC, LLC, a 40% owned affiliate of FREIT (“Wayne PSC”), a Phase I and Phase II Environmental Assessment of the Preakness shopping center revealed soil and ground water contamination with Percloroethylene (Dry Cleaning Fluid) caused by the mishandling of this chemical by a former dry cleaner tenant. The seller of the Preakness shopping center to WaynePSCWayne PSC is in the process of performing the remedial work in accordance with the requirements of the NJDEP. Additionally, the seller has escrowed the estimated cost of the remediation and has purchased a cap-cost insurance policy covering any expenses over and above the estimated cost. In performing the remedial work, possible contamination of this property by groundwater migrating from an offsite source was discovered. The NJDEP has not made any determination with respect to responsibility for remediation of this possible condition, and it is not possible to determine whether or to what extent Wayne PSC will have potential liability with respect to this condition or whether or to what extent insurance coverage may be available.
The State of New Jersey has adopted an underground fuel storage tank law and various regulations with respect to underground storage tanks. FREIT no longer has underground storage tanks on any of its properties.
FREIT has conducted environmental audits for all of its properties except for its undeveloped land; retail properties in Franklin Lakes (Franklin Crossing) and Glen Rock, New Jersey; and residential apartment properties located in Palisades Park and Hasbrouck Heights, New Jersey. Except as noted above, the environmental reports secured by FREIT have not revealed any environmental conditions on its properties, which require remediation pursuant to any applicable Federalfederal or state law or regulation. FREIT has determined that several of its properties contain lead based paint (“LBP”). FREIT believes that it complies with all federal, state and local requirements as they pertain to LBP. FREIT does not believe that the environmental conditions described above will have a materially adverse effect upon the capital expenditures, revenues, earnings, financial condition or competitive position of FREIT. Construction and redevelopment activities: AThe modernization and expansion is underwayproject at the Damascus Center was completed in Damascus, MD (the “Damascus Center”), owned by FREIT’s 70% owned affiliate, Damascus Centre, LLC (“Damascus Centre”).November 2011. Total construction costs, are expected to approximate $21.9inclusive of tenant improvement costs, approximated $22.7 million. The building plans incorporateincorporated an expansion of retail space from its current configuration of approximately 140,000 sq. ft. to approximately 150,000 sq. ft., anchored by a modern 58,000 sq. ft. Safeway supermarket. Construction on Phase I began in June 2007, and was completed in June 2008. Phase I construction costs were approximately $6.2 million, of which $1.1 million related to tenant improvements. Phase II, which comprises a new 58,000 sq. ft. Safeway supermarket, was started in December 2008. The new Safeway supermarket space wasthree phases, with the final phase being completed in August 2009, and the remainder of the Phase II construction should be completed in 2010. As of October 31, 2009, construction and other costs for Phase II approximated $9.2 million. The Phase III construction is expected to begin in mid-2010. ConstructionNovember 2011. Additional tenant fit-up costs are funded primarily fromexpected, once the $27.3 millionnew space is leased and occupied. Funding for this project was made available under a construction loan entered into on February 12, 2008.facility in the amount of $21.3 million. The construction loan is secured by the shopping center owned by Damascus Centre. As of October 31, 2009, $9.9 million of thisCenter. The loan was drawn downupon as needed to coverfund construction costs. In additioncosts at the Damascus Center. Included in the accompanying consolidated balance sheets at October 31, 2012 and 2011, are $4.7 million and $8.1 million, respectively, of construction in progress related to the Rotunda redevelopment project. Due to the difficult economic environment, that redevelopment activity was placed on hold by FREIT during the fourth quarter of Fiscal 2008. On July 24, 2012, the Board approved the revisions to the scope of the project, thereby further reducing the complexity and projected cost of the project. (See Note 7 for more details.) However, no date has been determined for the commencement of construction loan,at the Rotunda project.The delay notwithstanding, at this time, FREIT currently intends, upon improvement in the economic and financing climate, to resume the redevelopment of the Rotunda as planned. To that end, FREIT has electedhad, from time to fund, ontime, ongoing discussions with potential sources of financing and potential major national and local tenants. Note 7 - Giant lease termination; Rotunda project cost write-off: On February 3, 2012, Grande Rotunda, LLC (“Grande”), a selective basis, construction costs60% owned affiliate of FREIT, entered into a lease termination agreement (“Agreement”) with Giant of Maryland LLC (“Giant”), the tenant and operator of the 35,994 sq. ft. Giant supermarket at Grande’s Rotunda property located in Baltimore, Maryland. Giant, under the terms of the Agreement, agreed to (i) waive its right to extend the term of the lease through March 31, 2035, (ii) terminate the lease and surrender the premises to Grande no later than the earlier of commencement of the redevelopment of the property or March 31, 2015, and (iii) notwithstanding any earlier termination date, continue to pay monthly fixed rent payments plus its share of common area maintenance charges and taxes for the DamascusRotunda property through March 31, 2015. Grande has agreed (i) not to lease more than 20,000 sq. ft. of any space in the property for use as a food supermarket through March 31, 2035, and (ii) if Grande decides to lease such space for use as a food supermarket, it must first offer the space for the same use under the terms acceptable to Grande, to Giant, which will have thirty days to accept the offer before the space may be leased to a third party. As a result of the Giant lease termination and the terms of the Agreement, Grande will not be required to construct a lower level Giant supermarket as part of the redevelopment project at the prevailing interest rateRotunda, which represented a costly component to the project. In addition, the Giant lease contained significant restrictions on Grande’s ability to make modifications to the property. This development clears the way for similar loans.Grande to move forward with the redevelopment planning for this property. As a result of October 31, 2009, FREIT had loaned to Damascus Centre approximately $2.2 million to cover construction costs. The loan between FREITGiant terminating its lease and Damascus Centre is considered an intercompany loan, which has been eliminated in consolidation and is not presented as a receivable on FREIT’s Consolidated Balance Sheet. Because of this expansion, leases for certain tenants have been allowed to expire and have not been renewed. This has caused occupancy to decline, on a temporary basis, during the construction phase. Litigation:
On August 6, 2009, a complaint was filed against Damascus Centre, Hekemian & Co., Inc., FREIT’s managing agent (“Hekemian”), and others in the Circuit Court of Montgomery County, Maryland. The plaintiffs leased commercial officevacating its space at the Damascus Center. The complaint allegesGrande Rotunda shopping center, the results for Fiscal 2012, include income of $2.95 million relating to the Giant early lease termination, offset by a number of causes of action$1.49 million deferred project cost write-off relating to a change in connection with alleged interference with plaintiffs’ business allegedly caused by Damascus Centre’sthe future development activities at the Damascus Center. The complaint seeks compensatory damages of $500,000plans for the alleged interferenceRotunda shopping center, specifically the impact that the Giant portion of the project had on the design fees incurred to date and included in Construction in Progress (“CIP”). The early lease termination fee is comprised of the net present value of the monthly rent in accordance with the plaintiffs’ businessterms of the terminated lease, projected common area maintenance charges and $5,000,000 in punitive damages.real estate taxes from April 1, 2012 through March 31, 2015. In addition, included in the plaintiffs seek$2.95 million lease termination fee are the write-off of balances in Below Market Value Acquisition Costs, and In-Place Lease Costs relating to enjoin the demolitionGiant lease.In light of the shopping center. FREIT received noticeGiant lease termination and its potential impact on the scope of the lawsuit on September 2, 2009. At this time, based ondevelopment plans for the limited information available, FREIT believesRotunda site, management proposed further revisions to the claimscope of the Rotunda development project. On July 24, 2012, the Board approved the revisions to be substantially without merit,the scope of the project, thereby further reducing the complexity and will vigorously defend itself against all claims relatedprojected cost of the project. As a result of the Board’s decision to this matter. Accordingly,move forward with the revised development plans, an additional $2.2 million of certain deferred project costs relating to planning and feasibility costs included in CIP were no provisions for this matterlonger deemed to have been madeany utility, and were written-off in the accompanying financial statements. Fiscal 2012.Note 78 - Management agreement, fees and transactions with related party: On April 10, 2002, FREIT and Hekemian & Co., Inc. (“Hekemian”) executed a Management Agreement whereby Hekemian would continue as Managing Agent for FREIT. The term of the Management Agreement renewed on November 1, 2011 for a two-year term which will expire on October 31, 2013. The Management Agreement automatically renews for successive periods of two years unless either party gives not less than six (6) months prior notice to the other of non-renewal. Pursuant to the terms of the Management Agreement: FREIT retains Hekemian as the exclusive management and leasing agent for properties which FREIT owned as of April 2002 and for the Preakness Shopping Center acquired on November 1, 2002 by Wayne PSC. However, FREIT may retain other managing agents to manage certain other properties acquired after April 10, 2002 and to perform various other duties such as sales, acquisitions, and development with respect to any or all properties. Hekemian does not serve as the exclusive advisor for FREIT to locate and recommend to FREIT investments, which Hekemian deems suitable for FREIT, and is not required to offer potential acquisition properties exclusively to FREIT before acquiring those properties for its own account. The Management Agreement includes a detailed schedule of fees for those services, which Hekemian may be called upon to perform. The Management Agreement provides for a termination fee in the event of a termination or non-renewal of the Management Agreement under certain circumstances. Hekemian currently manages all the properties owned by FREIT, except for the Rotunda, a mixed-use office and retail facility located in Baltimore, Maryland, which is managed by an independent third party management company. The management agreement with Hekemian, effective November 1, 2001, requires the payment of management fees equal to a percentage of rents collected. Such fees were approximately $1,723,000, $1,708,000$1,792,000, $1,802,000 and $1,656,000$1,791,000 in 2009, 20082012, 2011 and 2007, respectively, inclusive of $13,000 in 2007 included in discontinued operations in the accompanying consolidated statements of income.2010, respectively. In addition, the management agreement provides for the payment to Hekemian of leasing commissions, sales commissions, as well as the reimbursement of operating expenses incurred on behalf of FREIT. Such fees amounted to approximately $427,000, $265,000$718,000, $326,000 and $319,000$352,000 in 2009, 20082012, 2011 and 2007,2010, respectively. Included in the fees paid to Hekemian in Fiscal 2012 is a payment of $316,500, which represents the sales commission paid to Hekemian relating to the sale of the Heights Manor property. Total Hekemian management fees that were unpaidoutstanding at October 31, 20092012 and 20082011 were $139,000$145,000 and $146,000, respectively. The agreement expires$145,000, respectively, and included in Accounts Payable on October 31, 2011, and is automatically renewed for periods of two years unless either party gives notice of non-renewal.
the accompanying Consolidated Balance Sheets. FREIT also uses the resources of the Hekemian insurance department to secure various insurance coverages for its properties and subsidiaries. Hekemian is paid a commission for these services. Such commissions amounted to approximately $110,000, $111,000$122,000, $97,000 and $113,000$102,000 in fiscal 2009, 20082012, 2011 and 2007,2010, respectively. Grande Rotunda, LLC (“Grande Rotunda”) owns and operates the Rotunda. FREIT owns a 60% equity interest in Grande Rotunda, and Rotunda 100, LLC owns a 40% equity interest. Damascus Centre, LLC owns and operates the Damascus Center. During fiscal 2005, FREIT’s Board of Trustees authorized an investor group, Damascus 100, LLC, to acquire a 30% equity interest in Damascus Centre.Centre, LLC. The sale price, based on the fair market value of the shopping center, reduced FREIT’s equity interest to 70%. The sale was completed on October 31, 2006, at a sales price of $3,224,000, of which FREIT financed approximately $1,451,000. The sale price was equivalent to the book value of the interest sold. The equity owners of Rotunda 100, LLC, and Damascus 100, LLC are principally employees of Hekemian. To incentivize the employees of Hekemian, FREIT has agreed to advance, only to employees of Hekemian, up to 50% of the amount of the equity contributions that the Hekemian employees were required to invest in Rotunda 100, LLC and Damascus 100, LLC. These advances are in the form of secured loans that bear interest that will float at 225 basis points over the ninety (90) day LIBOR, as adjusted each November 1, February 1, May 1 and August 1. These loans are secured by the Hekemian employees’ interests in Rotunda 100, LLC and Damascus 100, LLC, and are full recourse loans. Interest only payments are required to be made quarterly. No principal payments are required during the term of the notes, except that the borrowers are required to pay to FREIT all refinancing proceeds and other cash flow they receive from their interests in Damascus Centre, LLC and Grande Rotunda. These payments shall be applied first to accrued and unpaid interest and then any outstanding principal. The notes mature at the earlier of (a) ten (10) years after issue (Grande Rotunda – 6/19/2015, Damascus Centre, LLC – 9/30/2016), or, (b) at the election of FREIT, ninety (90) days after the borrower terminates employment with Hekemian, at which time all outstanding unpaid principal is due. The aggregate outstanding principal balance of the notes at October 31, 20092012 and 2008 was $3,323,000 for both years.2011was $3,323,000. The accrued but unpaid interest related to these notes for Fiscal 20092012 and Fiscal 20082011 amounted to approximately $142,000$401,000 and $10,000, respectively.$310,000, respectively, and is included in Accounts Receivable on the accompanying Consolidated Balance Sheets. On May 8, 2008, FREIT’s Board of Trustees approved amendments to the existing loan agreements with the Hekemian employees, relative to their interests in Rotunda 100, LLC, to increase the aggregate amount that FREIT may advance to such employees from $2 million to $4 million. No other terms of the loan agreements were amended.
From time to time, FREIT engages Hekemian to provide certain additional services, such as consulting services related to development and financing activities of FREIT. Separate fee arrangements are negotiated between Hekemian and FREIT with respect to such additional services. During the 4th quarter of Fiscal 2007, FREIT’s Board of Trustees (“Board”) approved development fee arrangements for the Rotunda and Damascus Center redevelopment projects, as well as the South Brunswick development project.projects. In connection with the development activities at the Rotunda and the redevelopment activities at the Damascus Center, definitive contract agreements for the development services to be provided by Hekemian Development Resources LLC (“Resources”), a wholly-owned subsidiary of Hekemian, have been approved and executed. The development fee arrangement for the Rotunda provides for Resources to receive a fee equal to 6.375% of the total development costs of up to $136$84.6 million (as may be modified),modified, and less the amount of $3 million previously paid to Hekemian for the Rotunda project). In addition, the Board approved the payment of a fee to Resources in the amount of $1.4 million, subject to the revision to the scope of the Rotunda development project. The fee will be paid to Resources upon the following terms: (i) $500,000 of the $1.4 million will be paid on a monthly basis during the design phase; and (ii) $900,000 of the $1.4 million will be paid upon the issuance of a certificate of occupancy for the multi-family portion of the project. The fee for the redevelopment of the Damascus Center will be an amount equal to 7% of the redevelopment costs of up to approximately $17.3 million (as may be modified). DuringIn Fiscal 2009,2011 and Fiscal 2010, FREIT incurredpaid $1,236,190 and $1,000,000, respectively, to Resources, relating to fees ofincurred in Fiscal 2009; $2,000,000 for development activities at the Rotunda, and incurred and paid $226,769$236,190 for development activities at the Damascus Center. During Fiscal 2008, FREIT incurred and paid to ResourcesAll such fees of $1,000,000 and $750,000 for development activities at the Rotunda and Damascus Center, respectively. These fees have been capitalized and accordingly are included in Construction in Progress or Real Estate on FREIT’s Consolidated Balance Sheet as of October 31, 2009 and 2008.were capitalized. Resources, Rotunda 100, LLC, and Damascus 100, LLC are principally owned by employees of Hekemian, including certain members of the immediate family of Robert S. Hekemian FREIT’s CEO and Chairman, and Robert S. Hekemian, Jr., Robert S. Hekemian, Chairman of the Board, Chief Executive Officer and a trusteeTrustee of FREIT.FREIT, is the Chairman of the Board and Chief Executive Officer of Hekemian. Robert S. Hekemian, Jr, a Trustee of FREIT, is the President of Hekemian. Trustee fee expense (including interest) incurred by FREIT for Fiscal 2012, 2011 and 2010 was approximately $546,000, $494,000 and $455,000, respectively, for Robert S. Hekemian, and $43,000, $36,000 and $34,000, respectively, for Robert S. Hekemian, Jr. The members of the Hekemian family have majority management control of these entities. In connection with the development activities at South Brunswick, the fees with respect to this project are 7% of development costs of up to $21,000,000 (as may be modified). A definitive contract regarding the specific services to be provided at the South Brunswick project has not yet been finalized and approved. Development and acquisition fees and commissions charged to FREIT for the sale of the Lakewood Apartments during fiscal 2007; the development and construction of The Boulders, Rockaway, NJ, during fiscal 2006; and various mortgage refinancings, amounted to approximately $100,000, $60,000$0, $0 and $696,000$118,000 in 2009, 2008Fiscal 2012, 2011 and 2007,2010, respectively.
Note 8- Dividends and earnings per share: 9 – Income taxes:FREIT declareddistributed as dividends to its shareholders 100% of $8,331,000 ($1.20 per share), $8,263,000 ($1.20 per share) and $8,787,000 ($1.30 per share) to shareholders of record during 2009, 2008 and 2007, respectively. Basic earnings per share is calculated by dividing netits ordinary taxable income by the weighted average number of shares outstanding during each period. The calculation of diluted earnings per share is similar to that of basic earnings per share, except that the denominator is increased to include the number of additional shares which would have been outstanding if all potentially dilutive shares, such as those issuable upon the exercise of stock options and warrants, had been issued during the period.
In computing diluted earnings per share for each of the threefiscal years in the period ended October 31, 2009, the assumed exercise of all of FREIT's outstanding stock options, adjusted for application2012, 2011 and 2010. In addition, FREIT distributed approximately $5 million of the treasury stock method, would have increased$9.5 million capital gain realized in Fiscal 2012 from the weighted average numbersale of shares outstanding as shownits Heights Manor Apartments (see Note 3). Accordingly, no provision for federal or state income taxes related to such ordinary and capital gain income was recorded on the Company’s financial statements. Since FREIT does not intend to distribute to its shareholders the remaining $4.5 million of capital gain realized on the Heights Manor sale, FREIT provided approximately $1.5 million federal and $400,000 state income taxes on such undistributed gain, which has been charged to discontinued operations in the table below:
| | 2009 | | | 2008 | | | 2007 | | Basic weighted average shares outstanding | | | 6,943,504 | | | | 6,835,269 | | | | 6,753,282 | | Shares arising from assumed exercise of stock options | | | - | | | | - | | | | 163,189 | | Dilutive weighted average shares outstanding | | | 6,943,504 | | | | 6,835,269 | | | | 6,916,471 | |
fiscal year ended October 31, 2012.Note 9-10- Equity incentive plan: On September 10, 1998, the Board of Trustees approved FREIT's Equity Incentive Plan (the "Plan") which was ratified by FREIT's shareholders on April 7, 1999, whereby up to 920,000 of FREIT's shares of beneficial interest (adjusted for stock splits) may be granted to key personnel in the form of stock options, restricted share awards and other share-based awards. In connection therewith, the Board of Trustees approved an increase of 920,000 shares in FREIT's number of authorized shares of beneficial interest. Key personnel eligible for these awards include trustees, executive officers and other persons or entities including, without limitation, employees, consultants and employees of consultants, who are in a position to make significant contributions to the success of FREIT. Under the Plan, the exercise price of all options will be the fair market value of the shares on the date of grant. The consideration to be paid for restricted share and other share-based awards shall be determined by the Board of Trustees, with the amount not to exceed the fair market value of the shares on the date of grant. The maximum term of any award granted may not exceed ten years. The Board of Trustees will determine the actual terms of each award. Upon ratification of the Plan on April 7, 1999, FREIT issued 754,000 stock options (adjusted for stock splits), which it had previously granted to key personnel on September 10, 1998. The fair value of the options on the date of grant was $7.50 per share. On April 4, 2007, FREIT shareholders approved amendments to FREIT’s Equity Incentive Plan as follows: (a) reserving an additional 300,000 shares for issuance under the Plan; and (b) extending the term of the Plan until September 10, 2018. The following table summarizes As of October 31, 2012, 466,000 shares are available for issuance under the Plan.During Fiscal 2012, 2011 and 2010, no options or other stock option activities: | | Years Ended October 31, | | | | 2009 | | | 2008 | | | 2007 | | | | No. of Options Outstanding | | | Average Exercise Price | | | No. of Options Outstanding | | | Average Exercise Price | | | No. of Options Outstanding | | | Average Exercise Price | | Balance beginning of period | | | 0 | | | $ | - | | | | 232,500 | | | $ | 7.50 | | | | 242,500 | | | $ | 7.50 | | Grants during period | | | - | | | | | | | | - | | | | | | | | - | | | | | | Options exercised | | | - | | | $ | - | | | | (232,500 | ) | | $ | 7.50 | | | | (10,000 | ) | | $ | 7.50 | | Options cancelled | | | - | | | | | | | | - | | | | | | | | - | | | | | | Balance at end of period | | | 0 | | | $ | - | | | | 0 | | | $ | 7.50 | | | | 232,500 | | | $ | 7.50 | |
The impact on FREIT's consolidated shareholders' equity forawards were granted under the options that were exercised during fiscal 2008 and 2007 was to increase the values of beneficial interest outstanding by $1,744,000 and $75,000, respectively, for those fiscal years.Plan. There were no options outstanding at October 31, 2009,2012 and October 31, 2011, since all previously granted options expired in September 2008 andor were exercised prior to that date.
The total intrinsic value of options exercised during fiscal 2008 and 2007 was $3,650,000 and $173,000, respectively, and the aggregate intrinsic value of options outstanding at October 31, 2007 was $3,511,000.
Note 10- Share repurchase program:
On April 9, 2008, FREIT’s Board of Trustees authorized up to $2 million for the repurchase of FREIT shares. The share repurchase plan provided for the repurchase of FREIT shares on or before March 31, 2009. Share repurchases under this program were made from time to time in the open market or through privately negotiated transactions. As of March 31, 2009, FREIT repurchased 50,920 shares of common stock at a cost of $1,133,545.
On March 31, 2009, FREIT announced the adoption of a new share repurchase plan to replace the repurchase plan that expired on March 31, 2009. The new plan complied with Rules 10b5-1 and 10b-18 of the Securities Exchange Act of 1934 and provided for the repurchase of up to $1,000,000 in value of FREIT’s shares for the period beginning April 14, 2009 through June 30, 2009, subject to certain price limitations and other conditions established under the Plan. Share repurchases under the new plan could have been made, from time to time, through privately negotiated transactions or in the open market. The new plan could have been terminated at any time and without prior notice. Rule 10b5-1 permits the implementation of a written plan for repurchasing shares of company stock through a repurchasing agent at times when the issuer is not in possession of material, nonpublic information and allows issuers adopting such plans to repurchase shares on a regular basis, regardless of any subsequent material, nonpublic information it receives. UBS Financial Services, Inc. was engaged as FREIT’s repurchasing agent, pursuant to the terms and conditions set forth in the share repurchase plan.
The new share repurchase plan expired on June 30, 2009. Through June 30, 2009, FREIT repurchased a total of 51,009 shares of common stock under both repurchase plans at a cost of $1,135,026, which is reflected in the Shareholders’ Equity section of FREIT’s consolidated balance sheets.
Note 11- Deferred fee plan: During fiscal 2001, the Board of Trustees adopted a deferred fee plan for its officers and trustees, which was amended and restated in fiscal 2009 to make the deferred fee plan compliant with Section 409A of the Internal Revenue Code and the regulations promulgated thereunder (the "Plan""Deferred Fee Plan"). Pursuant to the Deferred Fee Plan, any officer or trustee may elect to defer receipt of any fees that would be due them. These fees include annual retainer and meeting attendance fees as determined by the full Board of Trustees. FREIT has agreed to pay any participant (the "Participant") in the Deferred Fee Plan interest on any deferred fee at 9% per annum, compounded quarterly. Any such deferred fee is to be paid to the Participants at the later of: (i) the retirement age specified in the deferral election; (ii) actual retirement; or (iii) upon cessation of a Participant's duties as an officer or trustee. The Deferred Fee Plan provides that any such deferral fee will be paid in a lump sum or in annual installments over a period not to exceed 10 years, at the election of the Participant. Trustee fee expense (including interest) for each of the years ended October 31, 2012, 2011 and 2010 was $1,092,000, $978,000, and $911,000, respectively. As of October 31, 20092012 and 2008,2011, approximately $2,848,000$4,244,000 and $2,381,000,$3,749,000, respectively, of fees have been deferred together with accrued interest of approximately $1,075,000$2,468,000 and $765,000,$1,918,000, respectively. The deferred amounts for fiscal 2009 and 2008 are included in accrued expenses in the accompanying consolidated balance sheets.
Note 12- Segment information: SFAS No. 131,ASC 280-10, "Disclosures about Segments of an Enterprise and Related Information" (ASC 280-10), established standards for reporting financial information about operating segments in interim and annual financial reports and provides for a "management approach" in identifying the reportable segments. FREIT has determined that it has two reportable segments: commercial properties and residential properties. These reportable segments offer different types of space, have different types of tenants and are managed separately because each requires different operating strategies and management expertise. The commercial and residential segments contained the following numberare comprised of ten and eight properties, respectively, during the three fiscal years ended October 31, 2009: | October 31, | | 2009 | 2008 | 2007 | Commercial segment | 10 | 10 | 10(a) | Residential segment | 9 | 9 | 9(b) | (a) Rochelle Park land acquired September 2007; (b) Lakewood Apartments sold in June 2007. |
2012, 2011 and 2010, exclusive of the residential property sold in Fiscal 2012 which has been classified as a discontinued operation.The accounting policies of the segments are the same as those described in Note 1. The chief operating decision-making group of FREIT's commercial segment, residential segment and corporate/other is comprised of FREIT's Board of Trustees.
Board.FREIT assesses and measures segment operating results based on net operating income ("NOI"). NOI is based on operating revenue and expenses directly associated with the operations of the real estate properties, but excludes deferred rents (straight lining), depreciation, financing costs, and amortization of acquired lease values.values and other items. NOI is not a measure of operating results or cash flows from operating activities as measured by accounting principles generally accepted in the United States of America, and is not necessarily indicative of cash available to fund cash needs and should not be considered an alternative to cash flows as a measure of liquidity. Continuing real estate rental revenue, operating expenses, NOI and recurring capital improvements for the reportable segments are summarized below and reconciled to consolidated net income attributable to common equity for each of the three years in the three-year period ended October 31, 2009.2012. Asset information is not reported since FREIT does not use this measure to assess performance. | | 2009 | | | 2008 | | | 2007 | | | | (In Thousands of Dollars) | | Real estate rental revenue: | | | | | | | | | | Commercial | | $ | 23,130 | | | $ | 22,816 | | | $ | 21,513 | | Residential | | | 19,089 | | | | 19,191 | | | | 18,626 | | Totals | | | 42,219 | | | | 42,007 | | | | 40,139 | | | | | | | | | | | | | | | Real estate operating expenses: | | | | | | | | | | | | | Commercial | | | 9,219 | | | | 8,817 | | | | 8,621 | | Residential | | | 8,381 | | | | 8,179 | | | | 8,052 | | Totals | | | 17,600 | | | | 16,996 | | | | 16,673 | | | | | | | | | | | | | | | Net operating income: | | | | | | | | | | | | | Commercial | | | 13,911 | | | | 13,999 | | | | 12,892 | | Residential | | | 10,708 | | | | 11,012 | | | | 10,574 | | Totals | | $ | 24,619 | | | $ | 25,011 | | | $ | 23,466 | | | | | | | | | | | | | | | Recurring capital improvements- | | | | | | | | | | | | | residential | | $ | 204 | | | $ | 424 | | | $ | 460 | | | | | | | | | | | | | | | Reconciliation to consolidated net | | | | | | | | | | | | | income: | | | | | | | | | | | | | Segment NOI | | $ | 24,619 | | | $ | 25,011 | | | $ | 23,466 | | Deferred rents - straight lining | | | 238 | | | | 237 | | | | 298 | | Amortization of acquired asbove and below | | | | | | | | | | | | | market value leases | | | (35 | ) | | | 96 | | | | 301 | | Net investment income | | | 221 | | | | 554 | | | | 634 | | Minority interest in earnings of | | | | | | | | | | | | | subsidiaries | | | (1,121 | ) | | | (1,138 | ) | | | (776 | ) | General and administrative expenses | | | (1,652 | ) | | | (1,542 | ) | | | (1,543 | ) | Depreciation | | | (5,870 | ) | | | (5,622 | ) | | | (5,311 | ) | Financing costs | | | (10,848 | ) | | | (11,557 | ) | | | (11,897 | ) | Income from continuing operations | | | 5,552 | | | | 6,039 | | | | 5,172 | | | | | | | | | | | | | | | Discontinued operations | | | - | | | | - | | | | 3,771 | | | | | | | | | | | | | | | Net income | | $ | 5,552 | | | $ | 6,039 | | | $ | 8,943 | |
| | October 31, | | | | 2012 | | | 2011 | | | 2010 | | | | (In Thousands of Dollars) | | Real estate rental revenue: | | | | | | | | | | | | | Commercial | | $ | 23,383 | | | $ | 24,117 | | | $ | 24,713 | | Residential | | | 19,126 | | | | 18,712 | | | | 18,192 | | Totals | | | 42,509 | | | | 42,829 | | | | 42,905 | | | | | | | | | | | | | | | Real estate operating expenses: | | | | | | | | | | | | | Commercial | | | 9,526 | | | | 9,561 | | | | 9,702 | | Residential | | | 8,666 | | | | 8,091 | | | | 8,456 | | Totals | | | 18,192 | | | | 17,652 | | | | 18,158 | | | | | | | | | | | | | | | Net operating income: | | | | | | | | | | | | | Commercial | | | 13,857 | | | | 14,556 | | | | 15,011 | | Residential | | | 10,460 | | | | 10,621 | | | | 9,736 | | Totals | | $ | 24,317 | | | $ | 25,177 | | | $ | 24,747 | | | | | | | | | | | | | | | Recurring capital improvements- | | | | | | | | | | | | | residential | | $ | 723 | | | $ | 433 | | | $ | 334 | | | | | | | | | | | | | | | | | | | | | | | | | | | | Reconciliation to consolidated net | | | | | | | | | | | | | income-common equity: | | | | | | | | | | | | | Segment NOI | | $ | 24,317 | | | $ | 25,177 | | | $ | 24,747 | | Deferred rents - straight lining | | | 17 | | | | 242 | | | | 240 | | Amortization of acquired above and below | | | | | | | | | | | | | market value leases | | | (2 | ) | | | (25 | ) | | | (30 | ) | Net investment income | | | 173 | | | | 101 | | | | 122 | | General and administrative expenses | | | (1,624 | ) | | | (1,543 | ) | | | (1,567 | ) | Depreciation | | | (6,186 | ) | | | (6,070 | ) | | | (5,996 | ) | Deferred project cost write-off, net of | | | | | | | | | | | | | income relating to early lease termination | | | (776 | ) | | | — | | | | — | | Financing costs | | | (11,704 | ) | | | (11,452 | ) | | | (13,608 | )* | Income from continuing operations | | | 4,215 | | | | 6,430 | | | | 3,908 | | Income from discontinued operation | | | 253 | | | | 283 | | | | 223 | | Gain on sale of discontinued operation, net of tax | | | 7,528 | | | | — | | | | — | | Net income | | | 11,996 | | | | 6,713 | | | | 4,131 | | Net (income) loss attributable to | | | | | | | | | | | | | noncontrolling interests in subsidiaries | | | (645 | ) | | | (1,335 | ) | | | 280 | | Net income attributable to common equity | | $ | 11,351 | | | $ | 5,378 | | | $ | 4,411 | | | | | | | | | | | | | | | * Includes $2.1 million in prepayment penalties relating to the early debt extinguishment. |
Note 13- Discontinued operations: On June 26, 2007, Dividends and earnings per share:FREIT closed on its contractdeclared dividends of $7,637,000 ($1.10 per share), $8,330,000 ($1.20 per share) and $8,331,000 ($1.20 per share) to shareholders of record during Fiscal 2012, 2011 and 2010, respectively. Basic earnings per share is calculated by dividing net income attributable to common equity by the weighted average number of shares outstanding during each period. The calculation of diluted earnings per share is similar to that of basic earnings per share, except that the denominator is increased to include the number of additional shares which would have been outstanding if all potentially dilutive shares, such as those issuable upon the exercise of stock options and warrants had been issued during the period. Since FREIT does not have any outstanding options or other dilutive securities, only basic earnings per share is presented for the sale of the Lakewood Apartments in Lakewood, New Jerseyfiscal years ended October 31, 2012, 2011 and recognized a gain of approximately $3.7 million from the sale. In compliance with accounting guidance, the gain on the sale, as well as earnings of the Lakewood operation, are classified as discontinued operations in the accompanying income statements, and prior periods’ income statements have been reclassified. Revenue attributable to discontinued operations was $268,000 for fiscal 2007.2010. Note 14- Subsequent events: On December 1, 2009,26, 2012, Damascus Centre, LLC (“Damascus”) refinanced its $15.0 million construction loan with a new long-term mortgage loan with People’s United Bank. The amount of the Rotundanew loan inis $25 million, of which $20 million has been drawn. The balance, up to an additional $5 million, will be available as a one-time draw over the next 36 month period, and the amount available will depend on future leasing at the shopping center. The loan bears a floating interest rate equal to 210 basis points over the BBA LIBOR and the loan will mature on January 3, 2023. In order to minimize interest rate volatility during the term of $22.5 million became due, however, the bank grantedloan, Damascus entered into an extensioninterest rate swap agreement with People’s United Bank. In effect, the interest rate swap will convert the floating interest rate on the loan until Februaryto a fixed interest rate over the term of the loan. The interest rate swap is considered a derivative financial instrument that will be used only to reduce interest rate risk, and not held or used for trading purposes. FREIT renegotiated the interest rate on its Patchogue loan from a fixed rate of 6.125% to a fixed rate of 4.5%. The new rate will take effect on January 1, 2010. 2013. The loan will mature on March 1, 2018. FREIT is currently negotiatingin the process of refinancing its Westwood Plaza $8.0 million mortgage loan with the bank for a two to three year extension of this loan, and it is expected that the extension will require the posting of additional collateral, and Grande Rotunda reducing the loan by up to $3 million. Under the agreement with the equity owners of Grande Rotunda, FREIT would be responsible for 60% of any cash required by Grande Rotunda, and 40% would be the responsibility of the minority interest.
$22 million loan.Note 15- QuarterlySelected quarterly financial data (unaudited): The following summary represents the results of operations for each quarter for the years ended October 31, 20092012 and 20082011 (in thousands, except per share amounts): | | Quarter Ended | | 2009: | | Jan 31, | | Apr 30, | | Jul 31, | | Oct 31, | | Revenue | | $ | 10,828 | | | $ | 10,621 | | | $ | 10,524 | | | $ | 10,670 | | Expenses | | | 9,307 | | | | 9,536 | | | | 8,950 | | | | 9,298 | | Income from continuing operations | | | 1,521 | | | | 1,085 | | | | 1,574 | | | | 1,372 | | Income from discontinued operations | | | - | | | | - | | | | - | | | | - | | Net income | | $ | 1,521 | | | $ | 1,085 | | | $ | 1,574 | | | $ | 1,372 | | Basic earnings per share: | | | | | | | | | | | | | | | | | Continuing | | $ | 0.22 | | | $ | 0.16 | | | $ | 0.23 | | | $ | 0.20 | | Discontinued | | | - | | | | - | | | | - | | | | - | | Net income | | $ | 0.22 | | | $ | 0.16 | | | $ | 0.23 | | | $ | 0.20 | | Diluted earnings per share: | | | | | | | | | | | | | | | | | Continuing | | $ | 0.22 | | | $ | 0.16 | | | $ | 0.23 | | | $ | 0.20 | | Discontinued | | | - | | | | - | | | | - | | | | - | | Net income | | $ | 0.22 | | | $ | 0.16 | | | $ | 0.23 | | | $ | 0.20 | | Dividends declared per share | | $ | 0.30 | | | $ | 0.30 | | | $ | 0.30 | | | $ | 0.30 | | | | | | | | | | | | | | | | | | | | | Quarter Ended | 2008: | | Jan 31, | | | Apr 30, | | | Jul 31, | | | Oct 31, | | Revenue | | $ | 10,616 | | | $ | 10,403 | | | $ | 10,852 | | | $ | 11,023 | | Expenses | | | 9,213 | | | | 9,166 | | | | 8,933 | | | | 9,543 | | Income from continuing operations | | | 1,403 | | | | 1,237 | | | | 1,919 | | | | 1,480 | | Income from discontinued operations | | | - | | | | - | | | | - | | | | - | | Net income | | $ | 1,403 | | | $ | 1,237 | | | $ | 1,919 | | | $ | 1,480 | | Basic earnings per share: | | | | | | | | | | | | | | | | | Continuing | | $ | 0.21 | | | $ | 0.18 | | | $ | 0.28 | | | $ | 0.21 | | Discontinued | | | - | | | | - | | | | - | | | | - | | Net income | | $ | 0.21 | | | $ | 0.18 | | | $ | 0.28 | | | $ | 0.21 | | Diluted earnings per share: | | | | | | | | | | | | | | | | | Continuing | | $ | 0.20 | | | $ | 0.18 | | | $ | 0.28 | | | $ | 0.21 | | Discontinued | | | - | | | | - | | | | - | | | | - | | Net income | | $ | 0.20 | | | $ | 0.18 | | | $ | 0.28 | | | $ | 0.21 | | Dividends declared per share | | $ | 0.30 | | | $ | 0.30 | | | $ | 0.30 | | | $ | 0.30 | |
2012: | | Quarter Ended | | | | | January 31, | | | April 30, | | | July 31, | | | October 31, | | | | | | | | | | | | | | | | | Revenue | | $ | 10,820 | | | $ | 13,510 | | (a) | $ | 10,668 | | | $ | 10,476 | | | Expenses | | | 9,335 | | | | 10,818 | | (b) | | 11,682 | | (b) | | 9,424 | | | Income from continuing operations | | | 1,485 | | | | 2,692 | | | | (1,014 | ) | | | 1,052 | | | | | | | | | | | | | | | | | | | | | Income from discontinued operations | | | 77 | | | | 75 | | | | 123 | | | | 7,506 | | (c) | Net income | | | 1,562 | | | | 2,767 | | | | (891 | ) | | | 8,558 | | | | | | | | | | | | | | | | | | | | | Net income attributable to noncontrolling interest in subsidiaries | | (369 | ) | | | (824 | ) | | | 668 | | | | (120 | ) | | Net income attributable to common equity | | $ | 1,193 | | | $ | 1,943 | | | $ | (223 | ) | | $ | 8,438 | | | | | | | | | | | | | | | | | | | | | Basic earnings per share: | | | | | | | | | | | | | | | | | | Continuing operations | | $ | 0.16 | | | $ | 0.27 | | (a),(b) | $ | (0.05 | ) | (b) | $ | 0.14 | | | Discontinued operations | | | 0.01 | | | | 0.01 | | | | 0.02 | | | | 1.08 | | (c) | Net income attributable to common equity | | $ | 0.17 | | | $ | 0.28 | | | $ | (0.03 | ) | | $ | 1.22 | | | Dividends per share | | $ | 0.30 | | | $ | 0.30 | | | $ | 0.30 | | | $ | 0.20 | | |
(a) Includes income related to early lease termination of $2,950 ($0.42 per share) | (b) Includes deferred project cost write-off of $1,490 ($0.21 per share), and $2,236 ($0.32 per share) in the quarters ended April 30, and July 31, respectively. | (c) Includes gain on sale of discontinued operation, net of tax, of $7,528 ($1.08 per share) |
2011: | | Quarter Ended | | | | | January 31, | | | April 30, | | | July 31, | | | October 31, | | | | | | | | | | | | | | | | | Revenue | | $ | 10,610 | | | $ | 10,726 | | | $ | 10,679 | | | $ | 11,031 | | | Expenses | | | 9,313 | | | | 9,103 | | | | 8,919 | | | | 9,281 | | | Income from continuing operations | | | 1,297 | | | | 1,623 | | | | 1,760 | | | | 1,750 | | | | | | | | | | | | | | | | | | | | | Income from discontinued operations | | | 63 | | | | 70 | | | | 74 | | | | 76 | | | Net income | | | 1,360 | | | | 1,693 | | | | 1,834 | | | | 1,826 | | | | | | | | | | | | | | | | | | | | | Net income attributable to noncontrolling interest in subsidiaries | | (341 | ) | | | (373 | ) | | | (329 | ) | | | (292 | ) | | Net income attributable to common equity | | $ | 1,019 | | | $ | 1,320 | | | $ | 1,505 | | | $ | 1,534 | | | | | | | | | | | | | | | | | | | | | Basic earnings per share: | | | | | | | | | | | | | | | | | | Continuing operations | | $ | 0.13 | | | $ | 0.18 | | | $ | 0.21 | | | $ | 0.21 | | | Discontinued operations | | | 0.01 | | | | 0.01 | | | | 0.01 | | | | 0.01 | | | Net income attributable to common equity | | $ | 0.14 | | | $ | 0.19 | | | $ | 0.22 | | | $ | 0.22 | | | Dividends per share | | $ | 0.30 | | | $ | 0.30 | | | $ | 0.30 | | | $ | 0.30 | | |
Note: Due to rounding, total of quarterly per share amounts may not agree to amounts reported for the full fiscal year.
FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY AND SUBSIDIARIES
SCHEDULE XI –- REAL ESTATE AND ACCUMULATED DEPRECIATION 2012(In Thousands of Dollars)
| Column A | Column B | Column C | Column D | Column E | Column F | Column G | Column H | Column I | | | Initial Cost | Costs Capitalized | Gross Amount at Which | | | | | | | to Company | Subsequent to Acquisition | Carried at Close of Period | | | | | | | | | | | | | | | | | | | Life on | | | | Buildings | | | | | | Buildings | | | | | Which De- | | Encum- | | and | | Improve- | Carrying | | | and | | Accumulated | Date of | Date | preciation | Description | brances | Land | Improvements | Land | ments | Costs | Land | | Improvements | Total (1) | Depreciation | Construction | Acquired | is Computed | | | | | | | | | | | | | | | | Residential Properties: | | | | | | | | | | | | | | | Grandview Apts., Hasbrouck | | | | | | | | | | | | | | | Heights, NJ | | $ 22 | $ 180 | $ - | $ 318 | | $ 22 | | $ 498 | $ 520 | $ 405 | 1925 | 1964 | 7-40 years | Hammel Gardens, Maywood, NJ | $ 4,478 | 312 | 728 | - | 930 | | 312 | | 1,658 | 1,970 | 1,315 | 1949 | 1972 | 7-40 years | Palisades Manor, Palisades | | | | | | | | | | | | | | | Park, NJ | | 12 | 81 | - | 119 | | 12 | | 200 | 212 | 169 | 1935/70 | 1962 | 7-40 years | Steuben Arms, River Edge, NJ | 6,209 | 364 | 1,773 | - | 1,339 | | 364 | | 3,112 | 3,476 | 2,212 | 1966 | 1975 | 7-40 years | Heights Manor, Spring Lake | | | | | | | | | | | | | | | Heights, NJ | 3,081 | 109 | 974 | - | 802 | | 109 | | 1,776 | 1,885 | 1,435 | 1967 | 1971 | 7-40 years | Berdan Court, Wayne, NJ | 19,966 | 250 | 2,206 | - | 3,109 | | 250 | | 5,315 | 5,565 | 4,248 | 1964 | 1965 | 7-40 years | Westwood Hills, Westwood, NJ | 15,806 | 3,849 | 11,546 | - | 1,908 | | 3,849 | | 13,454 | 17,303 | 5,612 | 1965-70 | 1994 | 7-40 years | Pierre Towers, Hackensack, NJ | 33,893 | 8,390 | 37,486 | 19 | 3,889 | | 8,409 | | 41,375 | 49,784 | 6,096 | 1970 | 2004 | 7-40 years | Boulders - Rockaway, NJ | 19,876 | 5,019 | | - | 16,191 | | 5,019 | | 16,191 | 21,210 | 1,709 | 2005-2006 | 1963/1964 | 7-40 years | | | | | | | | | | | | | | | | Retail Properties: | | | | | | | | | | | | | | | Damascus Shopping Center, | | | | | | | | | | | | | | | Damascus, MD | 9,857 | 2,950 | 6,987 | 6,234 | 9,479 | | 9,184 | | 16,466 | 25,650 | 500 | 1960's | 2003 | 15-39 years | Franklin Crossing, Franklin Lakes, NJ | | 29 | | 3,382 | 7,582 | | 3,411 | | 7,582 | 10,993 | 2,555 | 1963/75/97 | 1966 | 10-50 years | Glen Rock, NJ | | 12 | 36 | - | 212 | | 12 | | 248 | 260 | 145 | 1940 | 1962 | 10-31.5 years | Pathmark Super Center, | | | | | | | | | | | | | | | Patchogue, NY | 5,878 | 2,128 | 8,818 | - | (20) | | 2,128 | | 8,798 | 10,926 | 2,655 | 1997 | 1997 | 39 years | Westridge Square S/C, Frederick, MD | 22,000 | 9,135 | 19,159 | (1) | 2,512 | | 9,134 | | 21,671 | 30,805 | 11,248 | 1986 | 1992 | 15-31.5 years | Westwood Plaza, Westwood, NJ | 8,800 | 6,889 | 6,416 | - | 2,288 | | 6,889 | | 8,704 | 15,593 | 5,719 | 1981 | 1988 | 15-31.5 years | Preakness S/C, Wayne, NJ | 29,916 | 9,280 | 24,217 | - | 1,420 | | 9,280 | | 25,637 | 34,917 | 4,901 | 1955/89/00 | 2002 | 15-31.5 years | The Rotunda, Baltimore, MD | 22,500 | 16,263 | 14,634 | 232 | 10,542 | | 16,495 | | 25,176 | 41,671 | 1,898 | 1920 | 2005 | 40 Years | | | | | | | | | | | | | | | | Land Leased: | | | | | | | | | | | | | | | Rockaway, NJ | | 114 | | 50 | - | | 164 | | | 164 | - | | 1963/1964 | | Rochelle Park, NJ | | 1,640 | 905 | - | - | | 1,640 | | 905 | 2,545 | 70 | | 2007 | | Vacant Land: | | | | | | | | | | | | | | | Franklin Lakes, NJ | | 224 | | (156) | - | | 68 | | | 68 | - | | 1966/93 | | Wayne, NJ | | 286 | | | - | | 286 | | | 286 | - | | 2002 | | South Brunswick, NJ | | 80 | | 986 | - | | 1,066 | * | | 1,066 | - | | 1964 | | | | | | | | | | | | | | | | | | $ 202,260 | $ 67,357 | $ 136,146 | $ 10,746 | $ 62,620 | $ - | $ 78,103 | | $ 198,766 | $ 276,869 | $ 52,892 | | | | | | | | | | | | | | | | | | |
Column A | | Column B | | | Column C | | | Column D | | | Column E | | | Column F | | | Column G | | | Column H | | | Column I | | | | | | Initial Cost | | | Costs Capitalized | | | Gross Amount at Which | | | | | | | | | | | | | | | | | | to Company | | | Subsequent to Acquisition | | | Carried at Close of Period | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Life on | | | | | | | | | Buildings | | | | | | | | | | | | | | | Buildings | | | | | | | | | | | | | | | Which De- | | | Encum- | | | | | | and | | | | | | Improve- | | | Carrying | | | | | | and | | | | | | Accumulated | | | Date of | | | Date | | | preciation | Description | | brances | | | Land | | | Improvements | | | Land | | | ments | | | Costs | | | Land | | | Improvements | | | Total (1) | | | Depreciation | | | Construction | | | Acquired | | | is Computed | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Residential Properties: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Grandview Apts., Hasbrouck | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Heights, NJ | | | — | | | $ | 22 | | | $ | 180 | | | $ | — | | | $ | 350 | | | | | | | $ | 22 | | | $ | 530 | | | $ | 552 | | | $ | 437 | | | | 1925 | | | | 1964 | | | 7-40 years | Hammel Gardens, Maywood, NJ | | $ | 4,079 | | | | 312 | | | | 728 | | | | — | | | | 1,106 | | | | | | | | 312 | | | | 1,834 | | | | 2,146 | | | | 1,471 | | | | 1949 | | | | 1972 | | | 7-40 years | Palisades Manor, Palisades | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Park, NJ | | | — | | | | 12 | | | | 81 | | | | — | | | | 160 | | | | | | | | 12 | | | | 241 | | | | 253 | | | | 183 | | | | 1935/70 | | | | 1962 | | | 7-40 years | Steuben Arms, River Edge, NJ | | | 5,655 | | | | 364 | | | | 1,773 | | | | 1 | | | | 1,429 | | | | | | | | 365 | | | | 3,202 | | | | 3,567 | | | | 2,546 | | | | 1966 | | | | 1975 | | | 7-40 years | Berdan Court, Wayne, NJ | | | 19,248 | | | | 250 | | | | 2,206 | | | | — | | | | 3,767 | | | | | | | | 250 | | | | 5,973 | | | | 6,223 | | | | 4,671 | | | | 1964 | | | | 1965 | | | 7-40 years | Westwood Hills, Westwood, NJ | | | 22,774 | | | | 3,849 | | | | 11,546 | | | | — | | | | 2,341 | | | | | | | | 3,849 | | | | 13,887 | | | | 17,736 | | | | 6,838 | | | | 1965-70 | | | | 1994 | | | 7-40 years | Pierre Towers, Hackensack, NJ | | | 32,364 | | | | 8,390 | | | | 37,486 | | | | 19 | | | | 5,311 | | | | | | | | 8,409 | | | | 42,797 | | | | 51,206 | | | | 9,829 | | | | 1970 | | | | 2004 | | | 7-40 years | Boulders - Rockaway, NJ | | | 18,828 | | | | 1,683 | | | | | | | | 3,335 | | | | 16,196 | | | | | | | | 5,018 | | | | 16,196 | | | | 21,214 | | | | 3,292 | | | | 2005-2006 | | | | 1963/1964 | | | 7-40 years | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Retail Properties: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Damascus Shopping Center, | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Damascus, MD | | | 15,050 | | | | 2,950 | | | | 6,987 | | | | 6,296 | | | | 16,197 | | | | | | | | 9,246 | | | | 23,184 | | | | 32,430 | | | | 2,358 | | | | 1960's | | | | 2003 | | | 15-39 years | Franklin Crossing, Franklin Lakes, NJ | | | — | | | | 29 | | | | | | | | 3,382 | | | | 7,804 | | | | | | | | 3,411 | | | | 7,804 | | | | 11,215 | | | | 3,257 | | | | 1963/75/97 | | | | 1966 | | | 10-50 years | Glen Rock, NJ | | | — | | | | 12 | | | | 36 | | | | — | | | | 213 | | | | | | | | 12 | | | | 249 | | | | 261 | | | | 185 | | | | 1940 | | | | 1962 | | | 10-31.5 years | Pathmark Super Center, | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Patchogue, NY | | | 5,623 | | | | 2,128 | | | | 8,818 | | | | — | | | | (21 | ) | | | | | | | 2,128 | | | | 8,797 | | | | 10,925 | | | | 3,326 | | | | 1997 | | | | 1997 | | | 39 years | Westridge Square S/C, Frederick, MD | | | 22,000 | | | | 9,135 | | | | 19,159 | | | | (1 | ) | | | 2,754 | | | | | | | | 9,134 | | | | 21,913 | | | | 31,047 | | | | 13,616 | | | | 1986 | | | | 1992 | | | 15-31.5 years | Westwood Plaza, Westwood, NJ | | | 8,032 | | | | 6,889 | | | | 6,416 | | | | — | | | | 2,458 | | | | | | | | 6,889 | | | | 8,874 | | | | 15,763 | | | | 6,794 | | | | 1981 | | | | 1988 | | | 15-31.5 years | Preakness S/C, Wayne, NJ | | | 27,697 | | | | 9,280 | | | | 24,217 | | | | — | | | | 1,491 | | | | | | | | 9,280 | | | | 25,708 | | | | 34,988 | | | | 7,090 | | | | 1955/89/00 | | | | 2002 | | | 15-31.5 years | The Rotunda, Baltimore, MD | | | 19,070 | | | | 16,263 | | | | 14,634 | | | | 232 | | | | 8,916 | | | | | | | | 16,495 | | | | 23,550 | | | | 40,045 | | | | 3,556 | | | | 1920 | | | | 2005 | | | 40 years | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Land Leased: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Rockaway, NJ | | | | | | | 114 | | | | | | | | 51 | | | | — | | | | | | | | 165 | | | | | | | | 165 | | | | — | | | | | | | | 1963/1964 | | | | Rochelle Park, NJ | | | | | | | 1,640 | | | | 905 | | | | — | | | | — | | | | | | | | 1,640 | | | | 905 | | | | 2,545 | | | | 170 | | | | | | | | 2007 | | | | Vacant Land: | | | | | | | | | | | | | | | ` | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Franklin Lakes, NJ | | | | | | | 224 | | | | | | | | (156 | ) | | | — | | | | | | | | 68 | | | | | | | | 68 | | | | — | | | | | | | | 1966/93 | | | | Wayne, NJ | | | | | | | 286 | | | | | | | | | | | | — | | | | | | | | 286 | | | | | | | | 286 | | | | — | | | | | | | | 2002 | | | | South Brunswick, NJ | | | | | | | 80 | | | | | | | | 988 | | | | — | | | | | | | | 1,068 | * | | | | | | | 1,068 | | | | — | | | | | | | | 1964 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | $ | 200,420 | | | $ | 63,912 | | | $ | 135,172 | | | $ | 14,147 | | | $ | 70,472 | | | $ | — | | | $ | 78,059 | | | $ | 205,644 | | | $ | 283,703 | | | $ | 69,619 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
* Included in land balances are improvements classified under construction in progress. _____________________
* Included in land balances are improvements classified under construction in progress. (1) | | (1) Total cost for each property is the same for Federal income tax purposes, with the exception of Pierre Towers, Preakness S/C and The Rotunda, | whose cost for Federal income tax purposes is approximately $37.3 million. $35.3$38.7 million, $35.2 million and $34.9$30.5 million, respectively. |
FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY AND SUBSIDIARIES
SCHEDULE XI - REAL ESTATE AND ACCUMULATED DEPRECIATION (In Thousands of Dollars) Reconciliation of Real Estate and Accumulated Depreciation: | | 2012 | | | 2011 | | | 2010 | | | | | | | | | | | | Real estate: | | | | | | | | | | | | | Balance, Beginning of year | | $ | 285,137 | | | $ | 279,418 | | | $ | 276,869 | | | | | | | | | | | | | | | Additions: | | | | | | | | | | | | | Buildings and improvements | | | 4,267 | | | | 5,719 | | | | 2,549 | | | | | | | | | | | | | | | Deferred project cost write-off | | | (3,726 | ) | | | — | | | | — | | | | | | | | | | | | | | | Sale of discontinued operation | | | (1,975 | ) | | | — | | | | — | | | | | | | | | | | | | | | Adjustments/Deletions - buildings & improvements | | | — | | | | — | | | | — | | | | | | | | | | | | | | | Balance, end of year | | $ | 283,703 | | | $ | 285,137 | | | $ | 279,418 | | | | | | | | | | | | | | | Accumulated depreciation: | | | | | | | | | | | | | Balance, beginning of year | | $ | 64,976 | | | $ | 58,913 | | | $ | 52,892 | | | | | | | | | | | | | | | Additions - Charged to operating expenses | | | 6,215 | | | | 6,109 | | | | 6,053 | | | | | | | | | | | | | | | Sale of discontinued operation | | | (1,561 | ) | | | — | | | | — | | | | | | | | | | | | | | | Adjustments/Deletions | | | (11 | ) | | | (46 | ) | | | (32 | ) | | | | | | | | | | | | | | Balance, end of year | | $ | 69,619 | | | $ | 64,976 | | | $ | 58,913 | |
Reconciliation of Real Estate and Accumulated Depreciation: | | | | | | | | | | | | | | | | | | | | | | 2009 | | | 2008 | | | 2007 | | | | | | | | | | | | | | Real estate: | | | | | | | | | | | Balance, Beginning of year | | $ | 265,040 | | | $ | 254,528 | | | $ | 245,151 | | | | | | | | | | | | | | | | | Additions: | | | | | | | | | | | | | | Buildings and improvements | | | 12,789 | | | | 9,810 | | | | 10,072 | | | | | | | | | | | | | | | | | Adjustments/Deletions - buildings & improvements | | | (960 | ) | | | 702 | | | | (695 | )(a) | | | | | | | | | | | | | | | | Balance, end of year | | $ | 276,869 | | | $ | 265,040 | | | $ | 254,528 | | | | | | | | | | | | | | | | | Accumulated depreciation: | | | | | | | | | | | | | | Balance, beginning of year | | $ | 48,027 | | | $ | 42,465 | | | $ | 37,843 | | | | | | | | | | | | | | | | | Additions - Charged to operating expenses | | | 5,870 | | | | 5,622 | | | | 5,311 | | | | | | | | | | | | | | | | | Adjustments/Deletions | | | (1,005 | ) | | | (60 | ) | | | (689 | )(b) | | | | | | | | | | | | | | | | Balance, end of year | | $ | 52,892 | | | $ | 48,027 | | | $ | 42,465 | | | | | | | | | | | | | | | | | (a) Relates to the sale of the Lakewood property assets in June 2007 | | | | | | | | | | | (b) Includes $594 of accumulated depreciation related to the sale of the Lakewood property in June 2007. |
FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY (“FREIT”)
Exhibit No. | | | 3 | | Amended and Restated Declaration of Trust of FREIT, as further amended on January 21, 2004, May 15, 2007, and March 4, 2008. (a) | | | (Incorporated by reference to Exhibit 3.1 to FREIT’s Form 8-K filed with the SEC on March 10, 2008) | 4 | | Form of Specimen Share Certificate, Beneficial Interest in FREIT. (b) | | | (Incorporated by reference to Exhibit 4 to FREIT’s Annual Report on Form 10-K for the fiscal year ended October 31, 1998) | 10.1 | | Management Agreement dated April 10, 2002, by and between FREIT and Hekemian & Co., Inc. | | | (Incorporated by reference to Exhibit 10.1 to FREIT’s Form 10-K for the fiscal year ended October 31, 2009 and filed with the SEC on January 14, 2010) | 10.2 | | Indemnification Agreements by Damascus 100, LLC and Rotunda 100, LLC to FREIT. (c) | | | (Incorporated by reference to Exhibits 10.1 and 10.2, respectively, to FREIT’s 10-Q for the quarter ended April 30, 2008 and filed with the SEC on June 9, 2008) | 10.3 | | Notes to Hekemian employees relative to their investments in each of Grande Rotunda, LLC and Damascus Centre, LLC and the related documents (pledge and security agreements and amendments). (d) | | | (Incorporated by reference to Exhibits 10.3 and 10.4, respectively, to FREIT’s 10-Q for the quarter ended April 30, 2008 and filed with the SEC on June 9, 2008) | 10.4 | | Agency Agreement dated August 13, 2008 between Damascus Centre, LLC and Hekemian Development Resources, LLC. (e) | | | (Incorporated by reference to Exhibit 10.1 to FREIT’s 10-Q for the quarter ended July 31, 2008 and filed with the SEC on September 9, 2008) | 10.5 | | Agency Agreement dated November 10, 2009 between Grande Rotunda, LLC and Hekemian Development Resources, LLC. | | | (Incorporated by reference to Exhibit 10.1 to FREIT’s Form 10-Q for the quarter ended April 30, 2010 and filed with the SEC on June 9, 2010) | 10.6 | | Line of Credit Note in the principal amount of $18 million executed by FREIT as Borrower, and delivered to The Provident Bank, as Lender, in connection with the Credit Facility provided by The Provident Bank to FREIT. | | | (Incorporated by reference to Exhibit 10.6 to FREIT’s Form 10-K for the fiscal year ended October 31, 2009 and filed with the SEC on January 14, 2010) | 21 | | Subsidiaries of FREIT | | | | 22 | | Consent of EisnerEisnerAmper LLP | | | | 23 | | Power of Attorney (filed with signature pages). | | | | 31.1 | | Rule 13a-14(a) - Certification of Chief Executive Officer. | | | | 31.2 | | Rule 13a-14(a) - Certification of Chief Financial Officer | | | | 32.1 | | Section 1350 Certification of Chief Executive Officer | | | | 32.2 | | Section 1350 Certification of Chief Financial Officer. |
101 | | The following filings with the Securities and Exchange Commission are incorporated by reference: |
Footnote | | (a) | Exhibit 3.1 tomaterials from FREIT’s 8-K filed on March 10, 2008. | (b) | Exhibit 4 to FREIT’s Annual Reportannual report on Form 10-K for the fiscal year ended October 31, 1998. | (c)
(d)
(e)
| Exhibits 10.12012, formatted in Extensible Business Reporting Language (“XBRL”): (i) consolidated balance sheets; (ii) consolidated statements of income; (iii) consolidated statements of equity; (iv) consolidated statements of cash flows; and 10.2, respectively,(v) notes to FREIT’s 10-Q for the quarter ended April 30, 2008.
Exhibits 10.3 and 10.4, respectively, to FREIT’s 10-Q for the quarter ended April 30, 2008.
Exhibit 10.1 to FREIT’s 10-Q for the quarter ended July 31, 2008.
| | consolidated financial statements |
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