UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Fiscal Year Ended October 31, 2010
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File No. 000-25043
| FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY |
(Exact name of registrant as specified in its charter) |
| New Jersey | 22-1697095 | |
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
| 505 Main Street, Hackensack, New Jersey | 07601 | |
| (Address of principal executive offices) | (Zip Code) |
201-488-6400
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each Class | Name of each exchange on which registered | |
| None | Not Applicable |
Securities registered pursuant to Section 12(g) of the Act:
Shares of Beneficial Interest
(Title of class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yeso Nox
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yeso Nox
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yesx Noo
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yeso xNoo
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-Kox
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
Large Accelerated Filero | Accelerated Filerx | Non-Accelerated Filero |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yeso Nox
The aggregate market value of the registrant’s shares of beneficial interest held by non-affiliates was approximately $79$99 million. Computation is based on the closing sales price of such shares as quoted on the over-the-counter-market on April 30, 2010,2012, the last business day of the registrant’s most recently completed second quarter.
As of January 14, 2011,2013, the number of shares of beneficial interest outstanding was 6,942,143
DOCUMENTS INCORPORATED BY REFERENCE
:Portions of the Proxy Statement for the Registrant’sFORM 10-K
| PART I | Page No. | |||
| Business | ||||
| Item 1A | 11 | |||
| Unresolved Staff Comments | 13 | |||
| Item 2 | Properties | 14 | ||
| Item 3 | Legal Proceedings | 17 | ||
| Item 4 | Mine Safety Disclosures | 17 | ||
| PART II | ||||
| Item 5 | Market for FREIT’s Common Equity, Related Security Holder Matters and Issuer Purchases of Equity Securities | |||
| Selected Financial Data | 19 | |||
| Item 7 | ||||
| Item 7A | ||||
| Item 8 | ||||
| Item 9 | ||||
| Controls and Procedures | 36 | |||
| Item 9B | ||||
| PART III | ||||
| Executive Compensation | 38 | |||
| Item 12 | ||||
| Item 13 | ||||
| Item 14 | ||||
| PART IV | ||||
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FORWARD-LOOKING STATEMENTS
Certain information included in this Annual Report contains or may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The registrant cautions readers that forward-looking statements, including, without limitation, those relating to the registrant’s investment policies and objectives; the financial performance of the registrant; the ability of the registrant to borrow and service its debt; the economic and competitive conditions which affect the registrant’s business; the ability of the registrant to obtain the necessary governmental approvals for the development, expansion or renovation of its properties, the impact of environmental conditions affecting the registrant’s properties, and the registrant’s liquidity and capital resources, are subject to certain risks and uncertainties. Actual results or outcomes may differ materially from those described in the forward-looking statements and will be affected by a variety of risks and factors, including, without limitation, the registrant’s future financial performance; the availability of capital; general market conditions; national and local economic conditions, particularly long-term interest rates; federal, state and local governmental regulations that affect the registrant; and the competitive environment in which the registrant operates, including, the availability of retail space and residential apartment units in the areas where the registrant’s properties are located. In addition, the registrant’s continued qualification as a real estate investment trust involves the application of highly technical and complex rules of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”). The forward-looking statements are made as of the date of this Annual Report and the registrant assumes no obligation to update the forward-looking statements or to update the reasons actual results could differ from those projected in such forward-looking statements.
TPART I
| BUSINESS |
| (a) | General Business |
First Real Estate Investment Trust of New Jersey (“FREIT”) is an equity real estate investment trust (“REIT”) organized in New Jersey in 1961. FREIT acquires, develops, constructs and holds real estate properties for long-term investment and not for resale.
FREIT’s long-range investment policy is to review and evaluate potential real estate investment opportunities for acquisition that it believes will (i) complement its existing investment portfolio, (ii) generate increased income and distributions to its shareholders, and (iii) increase the overall value of FREIT’s portfolio. FREIT’s investments may take the form of wholly-owned fee interests, or if the circumstances warrant diversification of risk, ownership on a joint venture basis with other parties, including employees and affiliates of Hekemian & Co., Inc., FREIT’s managing agent (“Hekemian”) (See “Management Agreement”), provided FREIT is able to maintain management control over the property. While our general investment policy is to hold and maintain properties for the long-term, we may, , from time-to-time, sell or trade certain properties in order to (i) obtain capital to be used to purchase, develop or renovate other properties which we believe will provide a higher rate of return and increase the value of our investment portfolio, and (ii) divest properties which we have determined or determine are no longer compatible with our growth strategies and investment objectives for our real estate portfolio.
FREIT Website
All of FREIT’s Securities and Exchange Commission filings for the past three years are available free of charge on FREIT’s website, which can be accessed at http://www.FREITNJ.com.
Fiscal Year 20102012 Developments
| (i) | FINANCING |
| (a) |
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| (b) | The $19.1 million mortgage loan |
| (c) | FREIT has an $18 million line of credit provided by the Provident Bank. The line of credit is for a two year term ending |
| (ii) | CONSTRUCTION The modernization and expansion Development plans and studies for the |
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| As a result of Giant terminating its lease and vacating its space at the Grande Rotunda shopping center, 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 the future development plans for the Rotunda 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 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 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. The revised building plans incorporate an expansion of approximately 115,000 square feet of retail space, approximately 350 residential rental apartments, and structured parking. 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 that had been included in CIP were no longer deemed to have any utility, and were written-off in the 3rd Quarter of Fiscal 2012. Due to the revised scope of the development and the improved economic and financing climate, FREIT intends to resume the redevelopment of the Rotunda as |
(iii) PLANNED DISPOSITION
On July 7, 2010, FREIT’s Board of Trustees On June 3, 2011, FREIT’s Board of Trustees authorized management to 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 |
(b) | Financial Information about Segments |
FREIT has two reportable segments: Commercial Properties and Residential Properties. These reportable segments have different types of tenants and are managed separately because each requires different operating strategies and management expertise. Segment information for the three years ended October 31, 20102012 is included in Note 11,12 “Segment Information” to FREIT’s consolidated financial statements.
(c) | Narrative Description of Business |
FREIT was founded and organized for the principal purpose of acquiring, developing, and owning a portfolio of diverse income producing real estate properties. FREIT’s developed properties include residential apartment communities and commercial properties that consist of multi and single tenanted properties. Our properties are located in New Jersey, Maryland and on Long Island, NY. We also currently own approximately 40.37 acres of unimproved land in New Jersey. See“Item 2, Properties“Properties - Portfolio of Investments.”
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FREIT elected to be taxed as a REIT under the Internal Revenue Code. FREIT operates in such a manner as to qualify for taxation as a REIT in order to take advantage of certain favorable tax aspects of the REIT structure. Generally, a REIT will not be subject to federal income taxes on that portion of its ordinary income or capital gain that is currently distributed to its equity holders.
As an equity REIT, we generally acquire interests in income producing properties to be held as long-term investments. FREIT’s return on such investments is based on the income generated by such properties mainly in the form of rents.
From time to time, FREIT has sold, and may sell again in the future, certain of its properties in order to (i) obtain capital used or to be used to purchase, develop or renovate other properties which we believe will provide a higher rate of return and increase the value of our investment portfolio, and (ii) divest properties which FREIT has determined or determines are no longer compatible with our growth strategies and investment objectives for our real estate portfolio.
We do not hold any patents, registered trademarks, or licenses.
Portfolio of Real Estate Investments
At October 31, 2010,2012, FREIT’s real estate holdings included (i) nine (9)eight (8) apartment buildings or complexes containing 1,075996 rentable units, (ii) ten (10) commercial properties (retail and office) containing approximately 1,265,0001,270,000 square feet of leasable space, including one (1) single tenant store, two (2) separate one acre parcels subject to ground leases, and (iii) four (4) parcels of undeveloped land consisting of approximately 40.37 acres. FREIT and its subsidiaries own all such properties in fee simple.See “ItemItem 2, Properties“Properties - Portfolio of Investments” of this Annual Report for a description of FREIT’s separate investment properties and certain other pertinent information with respect to such properties that is relevant to FREIT’s business.
Investment in Subsidiaries
The consolidated financial statements (See Note 1 to the Consolidated Financial Statements included in this Form 10-K) include the accounts of the following subsidiaries of FREIT:
Westwood Hills, LLC (“Westwood Hills”): FREIT owns a 40% membership interest in Westwood Hills, which owns and operates a 210-unit residential apartment complex in Westwood, NJ.
Wayne PSC, LLC (“WaynePSC”): FREIT owns a 40% membership interest in Wayne PSC, which owns a 322,000 sq. ft. community center in Wayne, NJ.
S And A Commercial Associates Limited Partnership (“S And A”): S And A owns a 100% interest in Pierre Towers, LLC, which owns a 269-unit residential apartment complex in Hackensack, NJ. FREIT owns a 65% partnership interest in S And A.
Grande Rotunda, LLC: FREIT owns a 60% membership interest in Grande Rotunda, which owns a 217,000 square foot mixed use property in Baltimore, MD.
Damascus Centre, LLC: FREIT owns a 70% membership interest in Damascus Centre, LLC which owns the Damascus Center that is currently beinghas recently been renovated and expanded. (SeeSee Item 1-a(ii) Construction.)
Damascus Second, LLC: FREIT owns a 70% interest in Damascus Second, LLC, which assumed a $21.3 million (originally $27.3 million) construction loan from Bank of America for the purpose of assisting Damascus Centre, LLC in owning, operating, managing and, as required, repairingrenovating the land and premises of the Damascus Center.
WestFREIT Corp: FREIT owns a 100% membership interest in WestFREIT, which owns the Westridge, Square Shopping Center, a 257,000252,000 square foot shopping center in Frederick, MD.
WestFredic LLC: FREIT owns a 100% membership interest in WestFredic, which assumed a $22 million mortgage loan that is secured by the Westridge Square Shopping Center in Frederick, MD.
On October 31, 20102012 FREIT and its subsidiaries had twenty-two (22)twenty (20) full-time employees and seven (7) part-time employees who work solely at the properties owned by FREIT or its subsidiaries. The number of part-time employees varies seasonally.
Mr. Robert S. Hekemian, Chairman of the Board and Chief Executive Officer, Mr. Donald W. Barney, President, Treasurer and Chief Financial Officer, and Mr. John A. Aiello, Esq., Secretary and Executive Secretary, are the executive officers of FREIT. Mr. Hekemian devotes approximately seventy percent (70%) of his business activities to FREIT, Mr. Barney devotes approximately fifteen percent (15%) of his business activities to FREIT, and Mr. Aiello devotes approximately sixseven percent (6%(7%) of his business activities to FREIT. Refer to “Item 10 – Directors, Executive Officers and Corporate Governance.” Hekemian has been retained by FREIT to manage FREIT’s properties and is responsible for recruiting, on behalf of FREIT, the personnel required to perform all services related to the operation of FREIT’s properties.See “Management Agreement.”
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Management Agreement
On April 10, 2002, FREIT and Hekemian executed a Management Agreement whereby Hekemian would continue as Managing Agent for FREIT. The term of the Management Agreement currently runs untilrenewed on November 1, 2011 for a two-year term and will expire on October 31, 2011 and shall be2013. The Management Agreement automatically renewedrenews for successive periods of two years unless either party gives not less than six (6) months prior notice to the other of non-renewal. The salient provisions of the Management Agreement are as follows: 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 WaynePSC.
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 a llall 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.
Pursuant to the terms of the Management Agreement, FREIT pays Hekemian certain fees and commissions as compensation for its services. 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 or its affiliates, with respect to such additional services. During the 4th quarter of Fiscal 2007, FREIT’s Board of Trustees (“Board”) approved, in general, development fee arrangements for the development services to be performed at the Rotunda (owned by Grande Rotunda, LLC), and the Damascus Center (owned by Damascus Centre, LLC), and the South Brunswick project.. These fees will be payable to Hekemian Development Resources LLC (“Resources”), a wholly owned affiliate of Hekemian. Definitive agreements for the development services to be performed at the Rotunda and the Damascus Center have been 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 to be equal to 7% of the redevelopment costs of up to approximately $17.3 million (as may be modified). The minority ownership interests of Grande Rotunda, LLC and Damascus Centre, LLC are owned by Rotunda 100, LLC and Damascus 100, LLC, which 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., a trustee of FREIT, and the members of the Hekemian family have majority management control of these entities. In connection with t he 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. (See Note 68 to FREIT’s consolidated financial statements.statements.)
Mr. Robert S. Hekemian, Chairman of the Board, Chief Executive Officer and a Trustee of FREIT, is the Chairman of the Board and Chief Executive Officer of Hekemian. Mr. Hekemian owns approximately 0.2% of all of the issued and outstanding shares of Hekemian. Mr. Robert S. Hekemian, Jr, a Trustee of FREIT, is the President of Hekemian, and owns approximately 33.3% of all of the issued and outstanding shares of Hekemian.
Real Estate Financing
FREIT funds acquisition opportunities and the development of its real estate properties largely through debt financing, including mortgage loans against certain of its properties. At October 31, 2010,2012, FREIT’s aggregate outstanding mortgage debt was $204.6$200.4 million with an average interest cost on a weighted average basis of 5.38%5.37%. FREIT has mortgage loans against certain properties, which serve as collateral for such loans.See the tables in “Item Item 2, Properties“Properties - Portfolio of Investments” for the outstanding mortgage balances at October 31, 20102012 with respect to each of these properties.
FREIT is currently highly leveraged and will continue to be for the foreseeable future. This increased level of indebtedness also presents an increased risk of default on the obligations of FREIT and an increase in debt service requirements that could adversely affect the financial condition and results of operations of FREIT. A number of FREIT’s mortgage loans are being amortized over a period that is longer than the terms of such loans; thereby requiring balloon payments at the expiration of the
terms of such loans. FREIT has not established a cash reserve sinking fund with respect to such obligations and at this time does not expect to have sufficient funds from operations to make such balloon payments when due under the terms of such| 7 |
FREIT is subject to the normal risks associated with debt financing, including the risk that FREIT’s cash flow will be insufficient to meet required payments of principal and interest; the risk that indebtedness on its properties will not be able to be renewed, repaid or refinanced when due; or that the terms of any renewal or refinancing will not be as favorable as the terms of the indebtedness being replaced. If FREIT were unable to refinance its indebtedness on acceptable terms, or at all, FREIT might be forced to dispose of one or more of its properties on disadvantageous terms which might result in losses to FREIT. These losses could have a material adverse effect on FREIT and its ability to make distributions to shareholders and to pay amounts due on its debt. If a property is mortgaged to secure payment of indebtednes sindebtedness and FREIT is unable to meet mortgage payments, the mortgagee could foreclose upon the property, appoint a receiver and receive an assignment of rents and leases or pursue other remedies, all with a consequent loss of revenues and asset value to FREIT. Further, payment obligations on FREIT’s mortgage loans will not be reduced if there is a decline in the economic performance of any of FREIT’s properties. If any such decline in economic performance occurs, FREIT’s revenues, earnings, and funds available for distribution to shareholders would be adversely affected.
Neither FREIT’s Declaration of Trust nor any policy statement formally adopted by FREIT’s Board of Trustees limits either the total amount of indebtedness or the specified percentage of indebtedness (based on the total capitalization of FREIT), which may be incurred by FREIT. Accordingly, FREIT may incur in the future additional secured or unsecured indebtedness in furtherance of its business activities, including, if or when necessary, to refinance its existing debt. Future debt incurred by FREIT could bear interest at rates which are higher than the rates on FREIT’s existing debt. Future debt incurred by FREIT could also bear interest at a variable rate. Increases in interest rates would increase FREIT’s variable interest costs (to the extent that the related indebtedness was not protected by interest rate pr otectionprotection arrangements), which could have a material adverse effect on FREIT and its ability to make distributions to shareholders and to pay amounts due on its debt or cause FREIT to be in default under its debt. Further, in the future, FREIT may not be able to, or may determine that it is not able to, obtain financing for property acquisitions or for capital expenditures to develop or improve its properties on terms which are acceptable to FREIT. In such event, FREIT might elect to defer certain projects unless alternative sources of capital were available, such as through an equity or debt offering by FREIT.
Competitive Conditions
FREIT is subject to normal competition with other investors to acquire real property and to profitably manage such property. Numerous other REITs, banks, insurance companies and pension funds, as well as corporate and individual developers and owners of real estate, compete with FREIT in seeking properties for acquisition and for tenants. Many of these competitors have significantly greater financial resources than FREIT.
In addition, retailers at FREIT's commercial properties face increasing competition from discount shopping centers, outlet malls, sales through catalogue offerings, discount shopping clubs, marketing and shopping through cable and computer sources, particularly over the internet, and telemarketing. In many markets, the trade areas of FREIT's commercial properties overlap with the trade areas of other shopping centers. Renovations and expansions at those competing shopping centers and malls could negatively affect FREIT's commercial properties by encouraging shoppers to make their purchases at such new, expanded or renovated shopping centers and malls. Increased competition through these various sources could adversely affect the viability of FREIT's tenants, and any new commercial real estate competition developed in the future could p otentiallypotentially have an adverse effect on the revenues of and earnings from FREIT's commercial properties.
| (A) | General Factors Affecting Investment in Commercial and Apartment Properties; Effect of Economic and Real Estate Conditions |
The revenues and value of FREIT’s commercial and residential apartment properties may be adversely affected by a number of factors, including, without limitation, the national economic climate; the regional economic climate (which may be adversely affected by plant closings, industry slow downs and other local business factors); local real estate conditions (such as an oversupply of retail space or apartment units); perceptions by retailers or shoppers of the security, safety, convenience and attractiveness of a shopping center; perception by residential tenants of the safety, convenience and attractiveness of an apartment building or complex; the proximity and the number of competing shopping centers and apartment complexes; the availability of recreational and other amenities and the willingness and ability of the owner to provide capable management and adequate maintenance. In addition, other factors may adversely affect the fair market value of a commercial property or apartment building or complex without necessarily affecting the revenues, including changes in government regulations (such as limitations on development or on hours of operation) changes in tax laws or rates, and potential environmental or other legal liabilities.
| (B) | Commercial Shopping Center Properties' Dependence on Anchor Stores and Satellite Tenants |
FREIT believes that its revenues and earnings; its ability to meet its debt obligations; and its funds available for distribution to shareholders would be adversely affected if space in FREIT's multi-store shopping center properties could not be leased or if anchor store tenants or satellite tenants failed to meet their lease obligations.
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The success of FREIT's investment in its shopping center properties is largely dependent upon the success of its tenants. Unfavorable economic, demographic, or competitive conditions may adversely affect the financial condition of tenants and consequently the lease revenues from and the value of FREIT's investments in its shopping center properties. If the sales of stores operating in FREIT's shopping center properties were to decline due to deteriorating economic conditions, the tenants may be unable to pay their base rents or meet other lease charges and fees due to FREIT. In addition, any lease provisions providing for additional rent based on a percentage of sales would not be operative in this economic environment. In the event of default by a tenant, FREIT could suffer a loss of rent and experience extraordinary delays while incu rringincurring additional costs in enforcing its rights under the lease, which may or may not be recaptured by FREIT.
As at October 31, 20102012 the following table lists the ten (10) largest commercial tenants, which account for approximately 53.1%53.6% of FREIT’s leased commercial rental space and 36.0%36.7% of fixed commercial rents.
| Tenant | Center | Sq. Ft. |
| Burlington Coat Factory | Westridge Square | 85,992 |
| Kmart Corporation | Westwood Plaza | 84,254 |
| Macy's Federated Department Stores, Inc. | Preakness | 81,160 |
| Pathmark Stores Inc. | Patchoque | 63,932 |
| Stop & Shop Supermarket Co. | Preakness | 61,020 |
| Safeway Stores Inc. | Damascus Center | 58,358 |
| Stop & Shop Supermarket Co. | Franklin Crossing | 48,673 |
| TJ MAXX | Westwood Plaza | 28,480 |
| T-Bowl Inc. | | 27,195 |
| Fitness World Golden Mile | Westridge Square | 20,680 |
| (C) | Renewal of Leases and Reletting of Space |
There is no assurance that we will be able to retain tenants at our commercial properties upon expiration of their leases. Upon expiration or termination of leases for space located in FREIT's commercial properties, the premises may not be relet or the terms of reletting (including the cost of concessions to tenants) may not be as favorable as lease terms for the terminated lease. If FREIT were unable to promptly relet all or a substantial portion of this space or if the rental rates upon such reletting were significantly lower than current or expected rates, FREIT's revenues and earnings, FREIT’s ability to service its debt, and FREIT’s ability to make expected distributions to its shareholders, could be adversely affected.
On February 3, 2012, Grande Rotunda, LLC (“Grande”), a 60% 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 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.
During Fiscal 20102011, FREIT was notified by the former tenant and Fiscal 2009 thereoperator of the 55,330 sq. ft. Giant Supermarket at Westridge that it would not extend the term of its lease, which expired on October 31, 2011. 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. We anticipate that G-Mart will begin operating at the center during the 1st calendar quarter of 2013.
There were no other material lease expirations during Fiscal 2012 and thereFiscal 2011.
There are no materi almaterial lease expirations expected during Fiscal 2011.
| (D) | Illiquidity of Real Estate Investments; Possibility that Value of FREIT's Interests may be less than its Investment |
Equity real estate investments are relatively illiquid. Accordingly, the ability of FREIT to vary its portfolio in response to changing economic, market or other conditions is limited. Also, FREIT's interests in its partially owned subsidiaries are subject to transfer constraints imposed by the operating agreements which govern FREIT’s investment in these partially owned subsidiaries. Even without such restrictions on the transfer of its interests, FREIT believes that there would be a limited market for its interests in these partially owned subsidiaries.
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If FREIT had to liquidate all or substantially all of its real estate holdings, the value of such assets would likely be diminished if a sale was required to be completed in a limited time frame. The proceeds to FREIT from any such sale of the assets in FREIT’s real estate portfolio might be less than the fair market value of those assets.
Impact of Governmental Laws and Regulations on Registrant's Business
FREIT’s properties are subject to various federal, state and local laws, ordinances and regulations, including those relating to the environment and local rent control and zoning ordinances.
| (A) | Environmental Matters |
Both federal and state governments are concerned with the impact of real estate construction and development programs upon the environment. Environmental legislation affects the cost of selling real estate, the cost to develop real estate, and the risks associated with purchasing real estate.
Under various federal, state and local environmental laws, statutes, ordinances, rules and regulations, an owner of real property may be liable for the costs of removal or remediation of certain hazardous or toxic substances at, on, in or under such property, as well as certain other potential costs relating to hazardous or toxic substances (including government fines and penalties and damages for injuries to persons and adjacent property). Such laws often impose such liability without regard to whether the owners knew of, or were responsible for, the presence or disposal of such substances. Such liability may be imposed on the owner in connection with the activities of any operator of, or tenant at, the property. The cost of any required remediation, removal, fines or personal injury or property damages and the property owner's liability therefore cou ldcould exceed the value of the property and/or the aggregate assets of the owner. In addition, the presence of such substances, or the failure to properly dispose of or remediate such substances, may adversely affect the owner's ability to sell or rent such property or to borrow using such property as collateral. If FREIT incurred any such liability, it could reduce FREIT's revenues and ability to make distributions to its shareholders.
A property can also be negatively impacted by either physical contamination or by virtue of an adverse effect upon value attributable to the migration of hazardous or toxic substances, or other contaminants that have or may have emanated from other properties.
At this time, FREIT is aware of the following environmental matters affecting its properties:
| (i) | Westwood Plaza Shopping Center, Westwood, NJ |
This 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.
| (ii) | Franklin Crossing, Franklin Lakes, NJ |
The redeveloped Franklin Crossing shopping center was completed during the summer of 1997. Also in 1997, a historical discharge of hazardous materials was discovered at Franklin Crossing. The discharge was reported to the NJDEP in accordance with applicable regulations. FREIT completed the remediation required by the NJDEP.
In November 1999, FREIT received a No Further Action Letter from the NJDEP concerning the contaminated soil at Franklin Crossing. Monitoring of the groundwater will continue pursuant to a memorandum of agreement filed with the NJDEP.
| (iii) | Preakness Shopping Center, Wayne, NJ |
Prior to its purchase, in November 2002, by WaynePSC,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 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.
| 10 |
| (iv) | Other |
a) 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.
In prior years, FREIT 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 in subparagraph (iii) above, the environmental reports secured by FREIT have not revealed any environmental conditions on its properties, which require remediation pursuant to any applicable Federal or state law or regulation.b) 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 in subparagraphs (i) - (iv) above will have a material adverse effect upon the capital expenditures, revenues, earnings, financial condition or competitive position of FREIT.
| (B) | Rent Control Ordinances |
Each of the apartment buildings or complexes owned by FREIT is subject to some form of rent control ordinance which limits the amount by which FREIT can increase the rent for renewed leases, and in some cases, limits the amount of rent which FREIT can charge for vacated units, except for Westwood Hills and The Boulders at Rockaway which are not subject to any rent control law or regulation.
| (C) | Zoning Ordinances |
Local zoning ordinances may prevent FREIT from renovating, expanding or converting its existing properties for their highest and best use as determined by FREIT’s Board of Trustees. The Board of Trustees is not aware of any such zoning impediments to the development of the South Brunswick property described herein.
| (D) | Financial Information about Foreign and Domestic Operations and Export Sale |
FREIT does not engage in operations in foreign countries and it does not derive any portion of its revenues from customers in foreign countries.
| RISK FACTORS |
Almost all of FREIT’s income and cash flow isare derived from the net rental income (revenues after expenses) from our properties. FREIT’s business and financial results are affected by the following fundamental factors:
| · | the national and regional economic climate; |
| · | occupancy rates at the properties; |
| · | tenant turnover rates; |
| · | rental rates; |
| · | operating expenses; |
| · | tenant improvement and leasing costs; |
| · | cost of and availability of capital; |
| · | failure of banking institutions; |
| · | failure of insurance carriers; |
| · | new acquisitions and development projects; and |
| · | changes in governmental regulations, real estate tax rates and similar matters. |
A negative or adverse quality change in the above factors could potentially cause a detrimental effect on FREIT’s revenue, earnings and cash flow. If rental revenues decline, we would expect to have less cash available to pay our indebtedness and distribute to our shareholders.
| 11 |
Adverse Changes in General Economic Climate
: FREIT derives the majority of its revenues from renting apartments to individuals or families, and from retailers renting space at its shopping centers. DespiteWe receive a substantial portion of our operating income as rent under long-term leases with commercial tenants. At any time, any of our commercial tenants could experience a downturn in its business that might weaken its financial condition. These tenants might defer or fail to make rental payments when due, delay lease commencement, voluntarily vacate the premises or declare bankruptcy, which could result in the termination of the tenant’s lease, and could result in material losses to us and harm to our results of operations. Also, it might take time to terminate leases of underperforming or nonperforming tenants and we might incur costs to remove such tenants. Given current conditions in the capital markets, retailers that have sought protection from creditors under bankruptcy law have had difficulty in some instances in obtai ningobtaining debtor-in-possession financing, which has decreased the likelihood that such retailers will emerge from bankruptcy protection and has limited their alternatives. Also, if tenants are unable to comply with the terms of our leases, we might modify lease terms in ways that are less favorable to us.
Tenants unable to pay rent:
Financially distressed tenants may be unable to pay rents and expense recovery charges, where applicable, and may default on their leases. Enforcing our rights as landlord could result in substantial costs and may not result in a full recovery of unpaid rent. If a tenant files for bankruptcy, the tenant’s lease may be terminated. In each such instance FREIT’s income and cash flow would be negatively impacted.Costs of re-renting space
: If tenants fail to renew leases, fail to exercise renewal options, or terminate their leases early, the lost rents due to vacancy and the costs of re-renting the space could prove costly to FREIT. In addition to cleaning and renovating the vacated space, we may be required to grant concessions to a new tenant, and may incur leasing brokerage commissions. The lease terms to a new tenant may be less favorable than the prior tenant’s lease terms, and will negatively impact FREIT’s income and cash flow and adversely affect our ability to pay mortgage debt and interest or make distributions to our shareholders.Inflation may adversely affect our financial condition and results of operations:
Increased inflation could have a pronounced negative impact on our operating and administrative expenses, as these costs may increase at a higher rate than our rents. While increases in most operating expenses at our commercial properties can be passed on to retail tenants, increases in expenses at our residential properties cannot be passed on to residential tenants. Unreimbursed increased operating expenses may reduce cash flow available for payment of mortgage debt and interest, and for distributions to shareholders.Development and construction risks
:As part of its investment strategy, FREIT seeks to acquire property for development and construction, as well as to develop and build on land already in its portfolio. FREIT| · | financing may not be available in the amounts we seek, or may not be on favorable terms; |
| · | long-term financing may not be available upon completion of the construction; |
| · | failure to complete construction on schedule or within budget may increase debt service costs and construction costs; and |
| · | abandoned project costs could result in an impairment loss. |
Debt financing could adversely affect income and cash flow:
FREIT relies on debt financing to fund its growth through acquisitions and development activities. To the extent third party debt financing is not available, or not available on| 12 |
As of October 31, 2012, FREIT currently hashad approximately $175.2$166.3 million of non-recourse mortgage debt subject to fixed interest rates, and $29.4$34.1 million of partial recourse mortgage debt subject to variable interest rates ($19.419.1 million relates to the acquisition of the Rotunda property, and $10.0$15.0 million relates to the Damascus Center redevelopment project)project; See Part 1; Item 1(a)(i) Financing). These mortgages are being repaid over periods (amortization schedules) that are longer than the terms of the mortgages. Accordingly, when the mortgages become due (at various times) significant balloon payments (the unpaid principal amounts) will be required. FREIT expects to refinance the individual mortgages with new mortgages when their terms expire. To this extent we have exposure to capital availability and interest rate risk. 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 refinancing proceeds may be less than the amount of the mortgage debt being retired. The $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 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. 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. As part of the 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. Under the restructured terms, the interest rate is now 350 basis points above the BBA LIBOR rate with a floor of 4%, and monthly principal payments of $10,000 are required. An additional principal payment may be required on February 1, 2012 in an amount necessary to reduce the loan to achieve a stipulated debt service coverage ratio. 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. To the extent we are unable to refinance our indebtedness on acceptable terms, we may need to dispose of one or more of our properties upon disadvantageous terms.
Our revolving $18 million credit line (of which $18 million was available as of October 31, 2010)2012), and our Grande Rotunda acquisition mortgage loan, and our Damascus Center construction loan, contain financial covenants that could restrict our acquisition activities and result in a default on these loans if we fail to satisfy these covenants.
Failure of banking and financing institutions:
Banking and financing institutions such as insurance companies provide FREIT with credit lines and construction financing. The credit lines available to FREIT may be used for a variety of business purposes, including general corporate purposes, acquisitions, construction, and letters ofFailure of insurance carriers:
FREIT’s properties are insured against unforeseen liability claims, property damages, and other hazards. The insurance companies FREIT uses have good ratings at the time the policies are put into effect. Financial failure of our carriers may result in their inability to pay current and future claims. This inability to pay claims may have an adverse impact on FREIT’s financial condition. In addition, a failure ofReal estate is a competitive business:
FREIT is subject to normal competition with other investors to acquire real property and to profitably manage such property. Numerous other REITs, banks, insurance companies and pension funds, as well as corporate and individual developers and owners of real estate, compete with FREIT in seeking properties for acquisition and for tenants. Many of these competitors have significantly greater financial resources than FREIT. In addition, retailers at FREIT's commercial properties face increasing competition from discount shopping centers, outlet malls, sales through catalogue offerings, discount shopping clubs, marketing and shopping through cable and| 13 |
Illiquidity of real estate investment:
Real estate investments are relatively difficult to buy and sell quickly. Accordingly, the ability of FREIT to vary its portfolio in response to changing economic, market or other conditions is limited. Also, FREIT’s interests in its partially owned subsidiaries are subject to transfer constraints by the operating agreementsEnvironmental problems may be costly:
Both federal and state governments are concerned with the impact of real estate construction and development programs upon the environment. Environmental legislation affects the cost of selling real estate, the cost to develop real estate, and the risks associated with purchasing real estate.Under various federal, state and local environmental laws, statutes, ordinances, rules and regulations, an owner of real property may be liable for the costs of removal or remediation of certain hazardous or toxic substances at, on, in or under such property, as well as certain other potential costs relating to hazardous or toxic substances (including government fines and penalties and damages for injuries to persons and adjacent property). Such laws often impose such liability without regard to whether the owners knew of, or were responsible for, the presence or disposal of such substances. Such liability may be imposed on the owner in connection with the activities of any operator of, or tenant at the property. The cost of any required remediation, re moval,removal, fines or personal injury or property damages and the property owner's liability therefore could exceed the value of the property and/or the aggregate assets of the owner. In addition, the presence of such substances, or the failure to properly dispose of or remediate such substances, may adversely affect the owner's ability to sell or rent such property or to borrow using such property as collateral. If FREIT incurred any such liability, it could reduce FREIT's revenues and ability to make distributions to its shareholders.
A property can also be negatively impacted by either physical contamination or by virtue of an adverse effect upon value attributable to the migration of hazardous or toxic substances, or other contaminants that have or may have emanated from other properties.
Qualification as a REIT:
Since its inception in 1961, FREIT has elected to qualify as a REIT for federal income tax purposes, and will continue to operate so as to qualify as aChange of investment and operating policies:
FREIT’s investment and operating policies, including indebtedness and dividends, are exclusively determined by FREIT’s Board of Trustees, and not subject to shareholder approval.| UNRESOLVED STAFF COMMENTS |
None.
| 14 |
| PROPERTIES |
Portfolio of Investments:The following tables set forth certain information relating to each of FREIT's real estate investments in addition to the specific mortgages encumbering the properties.
| Residential Apartment Properties as of October 31, 2010: | |||||||
| Property & Location | Year Acquired | No. of Units | Average Annual Occupancy Rate for the Year Ended 10/31/10 | Average Monthly Rent per Unit @ 10/31/10 | Average Monthly Rent per Unit @ 10/31/09 | Mortgage Balance ($000) | Depreciated Cost of Land, Buildings & Equipment ($000) |
| Palisades Manor | 1962 | 12 | 92.3% | $1,080 | $1,107 | None (1) | $41 |
| Palisades Park, NJ | |||||||
| Grandview Apts. | 1964 | 20 | 86.9% | $1,135 | $1,166 | None (1) | $128 |
| Hasbrouck Heights, NJ | |||||||
| Berdan Court | 1965 | 176 | 96.2% | $1,409 | $1,441 | $19,739 (2) | $1,315 |
| Wayne, NJ | |||||||
| Heights Manor | 1971 | 79 | 89.6% | $1,086 | $1,143 | $2,999 | $422 |
| Spring Lake Heights, NJ | |||||||
| Hammel Gardens | 1972 | 80 | 94.6% | $1,229 | $1,220 | $4,352 | $685 |
| Maywood, NJ | |||||||
| Steuben Arms | 1975 | 100 | 97.0% | $1,262 | $1,263 | $6,037 | $1,173 |
| River Edge, NJ | |||||||
| Westwood Hills (3) | 1994 | 210 | 95.8% | $1,440 | $1,448 | $23,500 (6) | $11,350 |
| Westwood Hills, NJ | |||||||
| Pierre Towers (4) | 2004 | 269 | 92.6% | $1,818 | $1,813 | $33,410 | $42,791 |
| Hackensack, NJ | |||||||
| Boulders (5) | 2006 | 129 | 94.5% | $1,679 | $1,753 | $19,546 | $18,967 |
| Rockaway, NJ | |||||||
| Residential Apartment Properties as of October 31, 2012: | |||||||
| Property & Location | Year Acquired | No. of Units | Average Annual Occupancy Rate for the Year Ended 10/31/12 | Average Monthly Rent per Unit @ 10/31/12 | Average Monthly Rent per Unit @ 10/31/11 | Mortgage Balance ($000) | Depreciated Cost of Land, Buildings & Equipment ($000) |
| Palisades Manor (1) | 1962 | 12 | 96.8% | $1,143 | $1,141 | None | $70 |
| Palisades Park, NJ | |||||||
| Grandview Apts. (1) | 1964 | 20 | 96.9% | $1,143 | $1,136 | None | $115 |
| Hasbrouck Heights, NJ | |||||||
| Berdan Court | 1965 | 176 | 95.3% | $1,455 | $1,412 | $19,248 | $1,552 |
| Wayne, NJ | |||||||
| Hammel Gardens | 1972 | 80 | 93.6% | $1,265 | $1,234 | $4,079 | $675 |
| Maywood, NJ | |||||||
| Steuben Arms | 1975 | 100 | 97.4% | $1,284 | $1,261 | $5,655 | $1,021 |
| River Edge, NJ | |||||||
| Westwood Hills (2) | 1994 | 210 | 96.4% | $1,489 | $1,467 | $22,774 | $10,898 |
| Westwood Hills, NJ | |||||||
| Pierre Towers (3) | 2004 | 269 | 93.9% | $1,909 | $1,867 | $32,364 | $41,377 |
| Hackensack, NJ | |||||||
| Boulders (4) | 2006 | 129 | 94.5% | $1,744 | $1,732 | $18,828 | $17,922 |
| Rockaway, NJ | |||||||
(1) Security for draws against FREIT's Credit Line.
(2) FREIT owns a 40% equity interest in Westwood Hills. See "Investment in Subsidiaries".
(3) Pierre Towers is 100% owned by S And A Commercial Associates LP, which is 65% owned by FREIT.
(4) Construction completed in August 2006 on land acquired in 1963 / 1964.
| Commercial Properties as of October 31, 2010: | |||||||
| Property & Location | Year Acquired | Leasable Space- Approximate Sq.Ft. | Average Annual Occupancy Rate for the Year Ended 10/31/10 | Average Annualized Rent per Sq. Ft. @ 10/31/10 | Average Annualized Rent per Sq. Ft. @ 10/31/09 | Mortgage Balance ($000) | Depreciated Cost of Land, Buildings & Equipment ($000) |
| Glen Rock, NJ | 1962 | 4,800 | 100.0% | $23.20 | $22.73 | None (1) | $102 |
| Franklin Crossing | 1966 (2) | 87,041 | 93.4% | $23.86 | $24.03 | None (1) | $8,333 |
| Franklin Lakes, NJ | |||||||
| Westwood Plaza | 1988 | 173,854 | 98.1% | $12.84 | $12.95 | $8,563 | $9,532 |
| Westwood, NJ | |||||||
| Westridge Square (3) | 1992 | 256,620 | 93.0% | $12.78 | $12.94 | $22,000 | $18,982 |
| Frederick, MD | |||||||
| Pathmark Super Store | 1997 | 63,962 | 100.0% | $19.99 | $19.99 | $5,798 (7) | $8,047 |
| Patchogue, NY | |||||||
| Preakness Center (4) | 2002 | 322,136 | 96.9% | $13.09 | $13.01 | $29,220 | $29,587 |
| Wayne, NJ | |||||||
| Damascus Center (5) | 2003 | 150,000 | 55.2% | $19.96 | $14.62 | $10,020 (8) | $25,301 |
| Damascus, MD | |||||||
| . | . | ||||||
| The Rotunda (6) | 2005 | 216,645 | 88.0% | $17.64 | $18.16 | $19,420 | $39,943 |
| 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) | $2,442 |
| Landlease | |||||||
| Contents | |||||||
| 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 | |||||||||||||
| 16 |
| Commercial lease expirations at October 31, 2010 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 | 13 | 67,441 | 5.9% | $ 1,286,704 | $ 19.08 |
| 2011 | 18 | 57,409 | 5.1% | $ 1,111,589 | $ 19.36 |
| 2012 | 23 | 156,348 | 13.8% | $ 1,746,719 | $ 11.17 |
| 2013 | 20 | 87,883 | 7.7% | $ 1,653,712 | $ 18.82 |
| 2014 | 16 | 49,082 | 4.3% | $ 830,101 | $ 16.91 |
| 2015 | 19 | 77,187 | 6.8% | $ 1,121,429 | $ 14.53 |
| 2016 | 12 | 93,251 | 8.2% | $ 1,369,766 | $ 14.69 |
| 2017 | 8 | 35,868 | 3.2% | $ 603,646 | $ 16.83 |
| 2018 | 15 | 42,819 | 3.8% | $ 886,277 | $ 20.70 |
| 2019 | 4 | 86,709 | 7.6% | $ 357,040 | $ 4.12 |
| 2020 | 2 | 7,400 | 0.7% | $ 189,225 | $ 25.57 |
Land Under Development and Vacant Land as of October 31, 2010:
| 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 (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. | ||||
| 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 | ||||
| (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’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 located 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 eighteen (18) anchor / sixteen (16) anchor/major tenants, thatwhich account for approximately 54%57.5% of the space leased. The balance of the space is leased to one hundred and sixty six (166)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. | ||||
| 17 |
| Commercial Property | No. of | |||
| Shopping Center (SC) | Net Leaseable | Additional/Satellite | ||
| Office Building (O) | Space | Anchor/Major Tenants | Tenants | |
| Westridge Square | (SC) | 256,620 | Burlington Coat Factory | 25 |
| Frederick, MD | Giant Supermarket | |||
| Franklin Crossing | (SC) | 87,041 | Stop & Shop | 18 |
| Franklin, Lakes, NJ | ||||
| Westwood Plaza | (SC) | 173,854 | Kmart Corp | 19 |
| Westwood, NJ | TJMaxx | |||
| Preakness Center (1) | (SC) | 322,136 | Stop & Shop | 38 |
| Wayne, NJ | Macy's | |||
| CVS | ||||
| Annie Sez | ||||
| Clearview Theaters | ||||
| Damascus Center (2) | (SC) | 150,000 | Safeway Stores | 11 |
| Damascus, MD | ||||
| The Rotunda (3) | (O) | 138,276 | Clear Channel Broadcasting | 46 |
| Baltimore, MD | US Social Security Office | |||
| Janus Associates | ||||
| (SC) | 78,369 | Giant Food of Maryland | 8 | |
| Rite Aid Corporation | ||||
| Patchogue, NY | (SC) | 63,962 | Pathmark | - |
| Glen Rock, NJ | (SC) | 4,800 | 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. | ||||
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 89.63%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.
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 93.97%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.
| LEGAL PROCEEDINGS |
There 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.
| 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, 2011,2013, 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, 2010 | |||||||
| First Quarter | $ | 18.00 | $ | 20.25 | |||
| Second Quarter | $ | 18.00 | $ | 19.00 | |||
| Third Quarter | $ | 16.50 | $ | 18.00 | |||
| Fourth Quarter | $ | 17.00 | $ | 17.00 | |||
| 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, 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.
| 18 |
| Shares Repurchased | ||||
| Date Plan Authorized | Amounts Authorized | # | Cost | Date Plan Expired |
| April 9, 2008 | $2,000,000 | 50,920 | $1,133,545 | March 31, 2009 |
| April 14, 2009 | $1,000,000 | 89 | $1,481 | June 30, 2009 |
| Total | 51,009 | $1,135,026 | ||
Dividends
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 20102012 and Fiscal 2009,2011, FREIT paid or declared aggregate total dividends of $1.20$1.10 and $1.20 per share, respectively, to the holders of Shares.
See “ItemItem 7, - Management’s“Management’s Discussion and Analysis of Financial Condition and Results of Operations - Distributions to Sh areholders.Shareholders.”
Securities Authorized for Issuance Under Equity Compensation Plans
See Item 12, “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.”
| 19 |
| 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, 20102012 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, | 2010 | 2009 | 2008 | 2007 | 2006 | |||||||||||||||
| (In thousands of dollars) | ||||||||||||||||||||
| Total Assets | $ | 245,128 | $ | 251,851 | $ | 241,756 | $ | 242,755 | $ | 234,786 | ||||||||||
| Mortgage Loans | $ | 204,604 | $ | 202,260 | $ | 192,352 | $ | 189,389 | $ | 180,679 | ||||||||||
| Shareholders' Equity | $ | 16,802 | $ | 20,722 | $ | 23,561 | $ | 25,130 | $ | 24,972 | ||||||||||
| Weighted average shares outstanding: | ||||||||||||||||||||
| Basic | 6,942 | 6,944 | 6,835 | 6,753 | 6,574 | |||||||||||||||
| Diluted | 6,916 | 6,816 | ||||||||||||||||||
| INCOME STATEMENT DATA: | ||||||||||||||||||||
| Year Ended October 31, | 2010 | 2009 | 2008 | 2007 | 2006 | |||||||||||||||
| (In thousands of dollars, except per share amounts) | ||||||||||||||||||||
| Revenue: | ||||||||||||||||||||
| Revenue from real estate operations | $ | 44,053 | $ | 42,422 | $ | 42,340 | $ | 40,738 | $ | 37,893 | ||||||||||
| Expenses: | ||||||||||||||||||||
| Real estate operations | 18,607 | 17,600 | 16,996 | 16,673 | 15,658 | |||||||||||||||
| General and administrative expenses | 1,567 | 1,652 | 1,542 | 1,543 | 1,212 | |||||||||||||||
| Depreciation | 6,053 | 5,870 | 5,622 | 5,311 | 4,726 | |||||||||||||||
| Totals | 26,227 | 25,122 | 24,160 | 23,527 | 21,596 | |||||||||||||||
| Operating income | 17,826 | 17,300 | 18,180 | 17,211 | 16,297 | |||||||||||||||
| Investment income | 122 | 221 | 554 | 634 | 232 | |||||||||||||||
| Interest expense including amortization of deferred financing costs * | (13,817 | ) | (10,848 | ) | (11,557 | ) | (11,897 | ) | (11,127 | ) | ||||||||||
| Income from continuing operations | 4,131 | 6,673 | 7,177 | 5,948 | 5,402 | |||||||||||||||
| Discontinued operations: | ||||||||||||||||||||
| Income from discontinued operations, net of noncontrolling interests of subsidiaries ** | - | - | - | 3,771 | 163 | |||||||||||||||
| Net income | 4,131 | 6,673 | 7,177 | 9,719 | 5,565 | |||||||||||||||
| Net loss (income) attributable to noncontrolling interests of subsidiaries | 280 | (1,121 | ) | (1,138 | ) | (776 | ) | (407 | ) | |||||||||||
| Net income attributable to common equity | $ | 4,411 | $ | 5,552 | $ | 6,039 | $ | 8,943 | $ | 5,158 | ||||||||||
| 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 | ||||||||||||
Basic earnings per share: | ||||||||||||||||||||
| Continuing operations | $ | 0.64 | $ | 0.80 | $ | 0.88 | $ | 0.76 | $ | 0.76 | ||||||||||
| Discontinued operations | - | - | - | 0.56 | 0.02 | |||||||||||||||
| Net income | $ | 0.64 | $ | 0.80 | $ | 0.88 | $ | 1.32 | $ | 0.78 | ||||||||||
| Diluted earnings per share: | ||||||||||||||||||||
| Continuing operations | $ | 0.74 | $ | 0.73 | ||||||||||||||||
| Discontinued operations | 0.55 | 0.03 | ||||||||||||||||||
| Net income | $ | 1.29 | $ | 0.76 | ||||||||||||||||
| Cash Dividends Declared Per Common Share | $ | 1.20 | $ | 1.20 | $ | 1.20 | $ | 1.30 | $ | 1.25 | ||||||||||
20 |
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 |
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 economic and financial 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. TheResidential Properties:
Occupancy and rental rates in our areas of operation are on the up swing,Commercial Properties:
The retail outlook, while still challenged, has shown improvement in consumer spending over the past yearDevelopment Projects and Capital Expenditures:
We continue to make only those capital expenditures that are absolutely necessary.Debt Financing Availability:
The dislocations in the credit markets seemed to have| 21 |
Operating Cash Flow and Dividend Distributions:
We expect that cash provided by net operatingSIGNIFICANT 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, 20102012 and 2009,October 31, 2011, and for the years ended October 31, 2010, 20092012, 2011 and 2008.2010. 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.
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 S eptember 15, 2009. FREIT 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. FREIT’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 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 arenew standard provides 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.
Results of Operations:
Fiscal Years Ended October 31, 20102012 and 2009
Summary revenues and net income for the fiscal years ended October 31, 20102012 (“Fiscal 2010”2012”) and October 31, 20092011 (“Fiscal 2009”2011”) are as follows:
| Year Ended October 31, | ||||||||||||
| 2010 | 2009 | Change | ||||||||||
| (in thousands, except per share amounts) | ||||||||||||
| Real estate revenues: | ||||||||||||
| Commercial properties | $ | 24,923 | $ | 23,333 | $ | 1,590 | ||||||
| Residential properties | 19,130 | 19,089 | 41 | |||||||||
| Total real estate revenues | 44,053 | 42,422 | 1,631 | |||||||||
| Operating expenses: | ||||||||||||
| Real estate operations | 18,607 | 17,600 | 1,007 | |||||||||
| General and administrative | 1,567 | 1,652 | (85 | ) | ||||||||
| Depreciation | 6,053 | 5,870 | 183 | |||||||||
| Total operating expenses | 26,227 | 25,122 | 1,105 | |||||||||
| Operating income | 17,826 | 17,300 | 526 | �� | ||||||||
| Investment income | 122 | 221 | (99 | ) | ||||||||
| Financing costs | (13,817 | ) | (10,848 | ) | (2,969 | ) | ||||||
| Net income | 4,131 | 6,673 | (2,542 | ) | ||||||||
| Net loss (income) attributable to noncontrolling interests in subsidiaries | 280 | (1,121 | ) | 1,401 | ||||||||
| Net income attributable to common equity | $ | 4,411 | $ | 5,552 | $ | (1,141 | ) | |||||
| Earnings per share: | ||||||||||||
| Basic | $ | 0.64 | $ | 0.80 | $ | (0.16 | ) | |||||
| Weighted average shares outstanding: | ||||||||||||
| Basic | 6,942 | 6,944 | ||||||||||
| 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 incomeIncome attributable to common equity (“Net Income-Common Equity”net income common equity”) for the year ended October 31, 2012 (“Fiscal 20102012”) was $4,411,000 ($0.64$11,351,000, or $1.64 per share, basic) compared to $5,552,000 ($0.80$5,378,000, or $0.77 per share basic)for the year ended October 31, 2011 (“Fiscal 2011”). Net income common equity for Fiscal 2009. Included2012 included $7,528,000 of net after-tax gains from the sale of real estate. Additionally, Fiscal 2012 included certain other items that affect comparability, which are listed in interest expensethe schedule above. Adjusting net income for the net gains from the sale of real estate and the other comparability items, net income for Fiscal 20102012 was a $2.1 million prepayment penalty related$4,346,000, or $0.63 per share, compared 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$5,095,000 or $0.73 per share for Fiscal 2010 is $840,000 ($0.12 per share basic). The refinancing increased FREIT’s cash reserves by $2.2 million, reduces interest expense on the new loan from 6.6% (weighted-average) to 4.62%, and extends the maturity of the loan 7 years.2011. (Refer to the segment disclosure below for a more detailed discussion on the financial performance of FREIT’s commercial and residential segments.)
| 23 |
The schedule below provides a detailed analysis of the major changes that impacted revenue and net income-common equity for Fiscal 20102012 and 2009:
| NET INCOME COMPONENTS | ||||||||||||
| Year Ended | ||||||||||||
| October 31, | ||||||||||||
| 2010 | 2009 | Change | ||||||||||
| (thousands of dollars) | ||||||||||||
| Income from real estate operations: | ||||||||||||
| Commercial properties | $ | 15,221 | $ | 14,114 | $ | 1,107 | ||||||
| Residential properties | 10,225 | 10,708 | (483 | ) | ||||||||
| Total income from real estate operations | 25,446 | 24,822 | 624 | |||||||||
| Financing costs: | ||||||||||||
| Fixed rate mortgages | (12,473 | ) | (10,106 | ) | (2,367 | ) | ||||||
| Floating rate - Rotunda & Damascus | (961 | ) | (432 | ) | (529 | ) | ||||||
| Corporate interest-floating rate credit line | (383 | ) | (310 | ) | (73 | ) | ||||||
| Total financing costs | (13,817 | ) | (10,848 | ) | (2,969 | ) | ||||||
| Investment income | 122 | 221 | (99 | ) | ||||||||
| General & administrative expenses: | ||||||||||||
| Accounting fees | (582 | ) | (573 | ) | (9 | ) | ||||||
| Legal & professional fees | (95 | ) | (114 | ) | 19 | |||||||
| Trustee fees | (530 | ) | (510 | ) | (20 | ) | ||||||
| Corporate expenses | (360 | ) | (455 | ) | 95 | |||||||
| Total general & administrative expenses | (1,567 | ) | (1,652 | ) | 85 | |||||||
| Depreciation: | ||||||||||||
Same properties (1) | (5,468 | ) | (5,454 | ) | (14 | ) | ||||||
| Damascus center - Safeway portion of Phase II becoming operational in Sept 2009. | (585 | ) | (416 | ) | (169 | ) | ||||||
| Total depreciation | (6,053 | ) | (5,870 | ) | (183 | ) | ||||||
| Net income | 4,131 | 6,673 | (2,542 | ) | ||||||||
| Net loss (income) attributable to noncontrolling interests in subsidiaries | 280 | (1,121 | ) | 1,401 | ||||||||
| Net Income attributable to common equity | $ | 4,411 | $ | 5,552 | $ | (1,141 | ) | |||||
| (1) Properties operated since the beginning of Fiscal 2009. | ||||||||||||
| 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 |
| 24 |
| Commercial | Residential | Combined | ||||||||||||||||||||||||||||||||||||||
| Year Ended | Year Ended | Year Ended | ||||||||||||||||||||||||||||||||||||||
| October 31, | Increase (Decrease) | October 31, | Increase (Decrease) | October 31, | ||||||||||||||||||||||||||||||||||||
| 2010 | 2009 | $ | % | 2010 | 2009 | $ | % | 2010 | 2009 | |||||||||||||||||||||||||||||||
| (in thousands) | (in thousands) | (in thousands) | ||||||||||||||||||||||||||||||||||||||
| Rental income | $ | 18,634 | $ | 17,687 | $ | 947 | 5.4 | % | $ | 18,872 | $ | 18,781 | $ | 91 | 0.5 | % | $ | 37,506 | $ | 36,468 | ||||||||||||||||||||
| Reimbursements | 5,923 | 5,247 | 676 | 12.9 | % | - | - | - | 5,923 | 5,247 | ||||||||||||||||||||||||||||||
| Other | 156 | 196 | (40 | ) | -20.4 | % | 258 | 308 | (50 | ) | -16.2 | % | 414 | 504 | ||||||||||||||||||||||||||
| Total revenue | 24,713 | 23,130 | 1,583 | 6.8 | % | 19,130 | 19,089 | 41 | 0.2 | % | 43,843 | 42,219 | ||||||||||||||||||||||||||||
| Operating expenses | 9,702 | 9,219 | 483 | 5.2 | % | 8,905 | 8,381 | 524 | 6.3 | % | 18,607 | 17,600 | ||||||||||||||||||||||||||||
| Net operating income | $ | 15,011 | $ | 13,911 | $ | 1,100 | 7.9 | % | $ | 10,225 | $ | 10,708 | $ | (483 | ) | -4.5 | % | 25,236 | 24,619 | |||||||||||||||||||||
| Average | ||||||||||||||||||||||||||||||||||||||||
| Occupancy % | 89.8 | % | 89.3 | % | 0.5 | % | 94.3 | % | 92.8 | % | 1.5 | % | ||||||||||||||||||||||||||||
| Reconciliation to consolidated net income - common equity: | ||||||||||||||||||||||||||||||||||||||||
| Deferred rents - straight lining | 240 | 238 | ||||||||||||||||||||||||||||||||||||||
| Amortization of acquired leases | (30 | ) | (35 | ) | ||||||||||||||||||||||||||||||||||||
| Investment income | 122 | 221 | ||||||||||||||||||||||||||||||||||||||
| General and administrative expenses | (1,567 | ) | (1,652 | ) | ||||||||||||||||||||||||||||||||||||
| Depreciation | (6,053 | ) | (5,870 | ) | ||||||||||||||||||||||||||||||||||||
| Financing costs | (13,817 | ) | (10,848 | ) | ||||||||||||||||||||||||||||||||||||
| Net income | 4,131 | 6,673 | ||||||||||||||||||||||||||||||||||||||
| Net loss (income) attributable to noncontrolling interests | 280 | (1,121 | ) | |||||||||||||||||||||||||||||||||||||
| Net income attributable to common equity | $ | 4,411 | $ | 5,552 | ||||||||||||||||||||||||||||||||||||
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 1,139,0001,132,000 sq. ft. of retail space and 138,000 sq. ft. of office space for Fiscal 2010.2012. 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 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,“Segment Information”, total rental revenue and NOI from FREIT’s commercial segment for Fiscal 2010 increased2012 decreased by 6.8%3.0% and 7.9%4.8%, respectively, overas compared to Fiscal 2009.2011. The primary reasons for the increasedecrease in total revenue for Fiscal 2012 were Giant vacating its space at the Westridge Square shopping center (see discussion below), and NOI were higher base rental income, primarilyreal estate taxes at the Damascus Center, a $250,000 lease termination fee relatedportion of which could not be billed back to a tenant at the Rotundatenants, since the center is not fully occupied, offset in part by $300,000 in easement income recognized by the Franklin Crossing shopping center, and a percentage rent paymentin Franklin Lakes, NJ during the 4th quarter of $123,000 relating to a tenant coming off of a percentage rent holiday.
The U.S. economyretail outlook, while still challenged, has recovered from the recession, but at a recovery rate much slower than anticipated. Retail salesshown improvement in consumer spending over the past year have posted slight gains, although among retailers, results have been mixed. The biggest problem in our areasand 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”), a 60% owned affiliate of operations continues to be unemployment, renewing consumers’ concerns about their jobs, resulting in reluctance to increase spending. To date, ourFREIT, entered into a lease termination agreement (“Agreement”) with Giant, the tenant fall-out has been minor, as average occupancy rates (exclusiveand operator of the Damascus Center, which is undergoing a major35,994 sq. ft. Giant supermarket at Grande’s 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 project) for Fiscal 2010 was at 94.4%, comparedof the property or March 31, 2015, and (iii) notwithstanding any earlier termination date, continue to 95.4%pay monthly fixed rent payments plus its share of common area maintenance charges and taxes for the prior year’s period.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 completion last year of Phases IGiant lease termination and IIthe terms of the renovationAgreement, Grande will not be required to construct a lower level Giant supermarket as part of the redevelopment project at the Damascus Center,Rotunda, which represented a costly component of the average occupancy rateproject. 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 Damascus Center increasedRotunda, specifically the write-off of the design fees relating to 55.2%the Giant portion of the project incurred to date and included in CIP. The early 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.
| 25 |
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 2010, as compared to 44.2 %2012. The impact on FREIT’s per share earnings for Fiscal 2009. However, we may experience additional fall-out if the pace2012 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 economic recovery slows down any further, or stalls.
On July 7, 2010,May 2, 2012, FREIT’s Board of Trustees authorized management to pursue athe sale of the Westridge Square Shopping Center located in Frederick, Maryland.its South Brunswick, NJ property. The decision to sell thethis 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. ItHowever, it is the intention of the Board to structure the sale as a like-kind exchange (Code Sec.1031), in order to defer the taxable income on the expected gain. The property is being actively marketed for sale. Due to current conditions in the commercial real estate market, it isstill not possible for management to estimate when a sale of the South Brunswick property will occur.
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. 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.
DEVELOPMENT ACTIVITIES
The modernization and expansion is underwayproject at the Damascus Center.Center was completed in November 2011. Total construction costs, inclusive of tenant improvement costs, are expected to approximateapproximated $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, began in December 2008, and was completed and the tenant opened for business in September 2009. Construction and other costs for Phase II approximated2009, at a cost of approximately $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 during the second quarter of 2011, with total construction costs for Phase II expected to approximate $6.7 million.leased and occupied. Total construction costs were to be 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 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, 2012, Damascus Centre, LLC drew down $15.0 million of this loan to cover construction costs. 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 Phase I and Phase II (Safeway) construction,three phases, certain tenant leases have been renewed and occupancy is begin ningbeginning to increase.
Development plans and studies for the expansion and renovation of our Rotunda property in Baltimore, MD (owned by our 60% owned affiliate Grande 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, 2010, we have2012, approximately $8.0 million has been incurred approximately $7.5 million for planning and feasibility stud ies.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 difficult 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.
| 26 |
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 delay notwithstanding,capital investment related to the revised redevelopment plans at this time, FREIT currently intends, upon improvement in 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 financing climate, FREIT intends to resume the redevelopment of the Rotunda as planned. To that end, FREIT has had, from time to time, ongoing discussions with potential sources of financing and potential major national and local tenants.
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 from FREIT’s residential segment for Fiscal 2010 reported a slight2012 reflected an increase of 0.2%2.2% over Fiscal 2009, whereas NOI for Fiscal 2010 decreased by 4.5% from last year’s comparable period. Despite the2011. The increase in total revenue for Fiscal 2012 is primarily attributable to higher than normal unemployment inbase rental income at many of our areas of operation over the past year, compounded by losses approximating $260,000 resultingresidential properties. NOI for Fiscal 2012 decreased 1.5% from storm damage costs at the Pierre Towers apartment complex, and overall higher operating costs, particularly utility costs caused by the colder winter this year were theFiscal 2011. The primary reasons for the decrease in NOI.NOI were higher 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 2011 at 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 positive increase in total rental re venuerevenue for Fiscal 2010 reflects the upward movement of occupancy and rents during the current fiscal year, as evidenced by average2012. Average occupancy for Fiscal 2010 increasing by 1.5%, over last year’s comparable period.
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 20102012 and Fiscal 20092011 period were $1,551$1,643 and $1,526,$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 $200,000$196,000 and $187,000, respectively.
On October 20, 2010, Westwood Hills, LLC refinancedAugust 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 loans secured by its Westwood Hills apartmentloan on the Heights Manor property in Westwood, NJ, with a new mortgage for $23.5 million. The refinanced mortgages had outstanding principal balances that aggregatedthe amount of approximately $15.4$2.8 million at a weighted average interest rate of 6.6%, and were due December 31, 2013. The new mortgage bears interest at 4.62%, and is due November 1, 2020. Due tofrom the early extinguishmentproceeds of the original debt, prepayment penalties of $2.1 million were incurred, and reportedsale. In compliance with current accounting guidance, the gain on the sale, as interest expense. After closing costs, FREIT netted approximately $5.6 million from this refinancing, of which $3.4 million was distributed towell as the noncontrolling interests of Westwood Hills. The refinancing increased FREIT’s cash reserves by $2.2 million, extends the maturityearnings of the loan 7 years, and despiteHeights Manor operation are classified as discontinued operations in the increase in loan amount,accompanying income statements for all periods presented.
FREIT continues to pursue the monthly debt service will decrease slightly as a resultsale of the lower interest ratePalisades 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 new loan.
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. We have substantially completed modernizing, where required, all apartments and some of the buildings’building’s mechanical services. This renovation is expected to cost approximately $4 - $6 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 12 months.year, at a cost of approximately $600,000. In addition, we are in 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, 2010, we2012, approximately $5.3 million was expended approximately $4.2 million inat The Pierre for these capital improvements, at The Pierre.of which approximately $698,000 related to Fiscal 2012.
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FINANCING COSTS
Financing costs are summarized as follows:
| Year Ended | ||||||||
| October 31, | ||||||||
| 2010 | 2009 | |||||||
| ($ in thousands) | ||||||||
| Fixed rate mortgages: | ||||||||
| 1st Mortgages | ||||||||
| Existing | $ | 10,172 | (2) | $ | 9,133 | |||
| New (1) | 1,263 | 291 | ||||||
| 2nd Mortgages | ||||||||
| Existing | 709 | (2) | 465 | |||||
| Variable rate mortgages: | ||||||||
| Acquisition loan-Rotunda | 798 | 531 | ||||||
| Construction loan-Damascus | 163 | 147 | ||||||
| Other | 383 | 310 | ||||||
| 13,488 | 10,877 | |||||||
| Amortization of Mortgage Costs | 329 | 239 | ||||||
| Total Financing Costs | 13,817 | 11,116 | ||||||
| Less amount capitalized | - | (268 | ) | |||||
| Financing costs expensed | $ | 13,817 | $ | 10,848 | ||||
| (1) Mortgages not in place at beginning of Fiscal 2009. | ||||||||
| (2) Includes prepayment penalties of $1,727 and $378 incurred in connection with the refinancing of Westwood Hills' 1st and 2nd mortgages, respectively. | ||||||||
| Years Ended October 31, | ||||||||
| 2012 | 2011 | |||||||
| ($ 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 20102012 increased 24.3%2.2%, overas compared to Fiscal 2011. The primary reason for the prior year’s comparable period. This increase was primarily attributable to a $2.1 million prepayment penalty related toan increase in the early extinguishment of debt andinterest rate for the subsequent debt refinancing at the Company’s Westwood Hills property.
INVESTMENT INCOME
Investment income for Fiscal 2010 decreased 44.8%2012 increased 71.3% to $122,000,$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). The decrease in investment income was primarily attributable to lower interest income on the Company’s investments in cash and cash equivalents, an d 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 to lower interest rates.
GENERAL AND ADMINISTRATIVE EXPENSES (“G & A”)
During Fiscal 2010,2012, G & A was $1,567,000,$1,624,000, as compared to $1,652,000$1,543,000 for the prior year’s period. The decreaseprimary components of G&A are accounting fees, legal & professional fees and Trustees’ fees. The increase for Fiscal 20102012 was primarily attributable to decreased office expense, as well as decreasedincreases in Trustee fees, legal and professional fees, and expenditures incurredan increase in Fiscal 2010, as compared to Fiscal 2009. In Fiscal 2009, FREIT settled certain litigation amounting to approximately $42,000.
DEPRECIATION
Depreciation expense for Fiscal 20102012 was $6,053,000,$6,186,000, as compared to $5,870,000$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 construction projects, specifically the Safeway portion of Phase II of construction at the Damascus Center,capitalized tenant improvements becoming operational in September 2009.Fiscal 2012.
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Results of Operations:
Fiscal Years Ended October 31, 20092011 and 2008
Summary revenues and net income for Fiscal 20092011 and for the fiscal year ended October 31, 20082010 (“Fiscal 2010”) 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 | |||||||
| Net income | 6,673 | 7,177 | (504 | ) | ||||||||
| Net income attributable to noncontrolling interests in subsidiaries | (1,121 | ) | (1,138 | ) | 17 | |||||||
| Net income attributable to common equity | $ | 5,552 | $ | 6,039 | $ | (487 | ) | |||||
| Earnings per share: | ||||||||||||
| Basic | $ | 0.80 | $ | 0.88 | $ | (0.08 | ) | |||||
| Weighted average shares outstanding: | ||||||||||||
| Basic | 6,944 | 6,835 | ||||||||||
| 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 2009 experienced a slight increase of 0.2%2011 increased slightly to $42,422,000$43,046,000 compared to $42,340,000$43,115,000 for Fiscal 2008.2010. 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 prepayment penalty related to the early extinguishment of debt and the subsequent debt refinancing at FREIT’s Westwood Hills property. The economic recession continuesimpact 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 have a negative impact on FREIT’s financial performance, specifically during4.62%, and extended the last halfmaturity of Fiscal 2009, in which both our commercial and residential segments experienced a decline in real estate revenues and operating income.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.)
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The schedule below provides a detailed analysis of the major changes that impacted revenue and net incomeincome-common equity for Fiscal 20092011 and 2008:
| NET INCOME COMPONENTS | ||||||||||||
| Year Ended | ||||||||||||
| October 31, | ||||||||||||
| 2009 | 2008 | Change | ||||||||||
| (thousands of dollars) | ||||||||||||
| 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 | ) | ||||||
| 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 | 6,673 | 7,177 | (504 | ) | ||||||||
| Net income attributable to noncontrolling interests in subsidiaries | (1,121 | ) | (1,138 | ) | 17 | |||||||
| Net Income attributable to common equity | $ | 5,552 | $ | 6,039 | $ | (487 | ) | |||||
| (1) Properties operated since the beginning of Fiscal 2008. | ||||||||||||
| 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.)
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| 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 - common equity: | ||||||||||||||||||||||||||||||||||||||||
| Deferred rents - straight lining | 238 | 237 | ||||||||||||||||||||||||||||||||||||||
| Amortization of acquired leases | (35 | ) | 96 | |||||||||||||||||||||||||||||||||||||
| Investment income | 221 | 554 | ||||||||||||||||||||||||||||||||||||||
| General and administrative expenses | (1,652 | ) | (1,542 | ) | ||||||||||||||||||||||||||||||||||||
| Depreciation | (5,870 | ) | (5,622 | ) | ||||||||||||||||||||||||||||||||||||
| Financing costs | (10,848 | ) | (11,557 | ) | ||||||||||||||||||||||||||||||||||||
| Net income | 6,673 | 7,177 | ||||||||||||||||||||||||||||||||||||||
| Net income attributable to noncontrolling interests | (1,121 | ) | (1,138 | ) | ||||||||||||||||||||||||||||||||||||
| Net income attributable to common equity | $ | 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 - CommonIncome-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 1,139,0001,132,000 sq. ft. of retail space and 138,000 sq. ft. of office space for fiscal 2009.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 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 increased2011 decreased by 1.4%2.4% and 3.0%, respectively, as compared to Fiscal 2008. However, NOI for Fiscal 2009 decreased by 0.6% from Fiscal 2008.2010. The primary reasonsreason for the decrease in NOIrevenue for Fiscal 2009 were2011 was lower expense reimbursements stemming from prior year common area maintenance adjustments compounded by an increaserecorded in operating expenses, specificallyFiscal 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 next year have been downsized, due in large part to the recent turbulence in the allowance for doubtful accounts atUS and global markets. Retail sales over the Rotunda. Average occupancy rates for FREIT’s commercial segment (exclusive of the Damascus Center) for Fiscal 2009 was at 95.4%, compared to 95.1% for the prior year’s period. The ongoing renovation at the Damascus Center , caused a temporary decline in occupancy levels. The average occupancy rate for the Damascus Cente r decreased to 44.2% for Fiscal 2009, as compared to 47.7% for Fiscal 2008. The average occupancy rate for the Damascus Center for the last half of Fiscal 2009 showed signs of improvement with tenants occupying new space due to the completion of the Phase I construction.
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 take longera new tenant or tenants that will enhance the shopping experience at Westridge Square. However, the space will be vacant and generallyno 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 lower rents that reflect current economic conditions.
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 ourFREIT’s residential segment for Fiscal 2009 decreased 0.5%2011 reflected increases of 2.9% and 2.8%9.1%, respectively, to $19,089,000 and $10,708,000 from last year’s comparable period.over Fiscal 2010. The primary reasons for the decreaseincrease in total revenue and NOI for Fiscal 2009 were a drop in average occupancy, lower2011 is primarily attributable to higher base rental income and an overall increase in operating expenses.
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 20092011 and Fiscal 20082010 period were $1,526$1,613 and $1,554,$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 $197,000$192,000 and $181,000,$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.
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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 and parking structure restoration) 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 renovationThrough October 31, 2011, approximately $4.6 million was expectedexpended at The Pierre for these capital improvements, of which approximately $385,000 related to cost approximately $3 - $4 million, andFiscal 2011. The remaining apartments werewill be renovated as they becamebecome temporarily vacant. Itvacant 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 anticipated that this renovation willexpected to be completed in fiscal 2010.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. Through October 31, 2009, we expended approximately $3.9 milli on in capital improvements at The Pierre.
FINANCING COSTS
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, | |||||||||
| 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 before capitalized amounts for Fiscal 20092011 decreased 6.6%15.8%, overas compared to Fiscal 2010. The primary reason for the prior year’s comparable period. This decrease was primarily attributable to our $22.5a $2.1 million acquisition loan for The Rotunda property, which bears a floating interest rate. Lower interest rates over the course of the current year decreased the level of interest expense for the Rotunda by approximately $667,000 to $531,000 forprepayment penalty recorded in Fiscal 2009.
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 FREIT’sthe 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.
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 increaseprimary 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
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.in Fiscal 2011.
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LIQUIDITY AND CAPITAL RESOURCES
Our financial condition remains strong. Net cash provided by operating activities was $10.2$13.1 million for Fiscal 20102012 compared to $13.4$14.8 million for Fiscal 2009.2011. 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, 2010,2012, we had cash and marketable securities totaling $6.8$10.6 million compared to $11.3$6.3 million at October 31, 2009.
The refinanced mortgages had outstanding principal balances that aggregated approximately $15.4 millionmodernization and expansion project at a weighted average interest rate of 6.6%, and were due December 31, 2013. The new mortgage bears interest at 4.62%, and is due November 1, 2020. Due to the early extinguishment of the original debt, prepayment penalties of $2.1 million were incurred. After closing costs, FREIT netted approximately $5.6 million from this refinancing, of which $3.4 million was distributed to the noncontrolling interests of Westwood Hills. This refinancing adds $2.2 million to FREIT’s cash reserves, extends the maturity of the loan 7 years, and despite the increase in loa n amount, the monthly debt service will decrease slightly as a result of the lower interest rate on the new loan.
We are planning a major expansion at The Rotunda in Baltimore, MD that will require capital estimated at $200 million. We expect financing for the Rotunda expansion will be, for the most part, from mortgage financing.MD. During Fiscal 2008, we substantially completed the planning and feasibility studies and expended approximately $7.5$8.0 million during this phase, which adds to the value of our property.phase. Due to the difficult economic environment, that redevelopment activity was placed on hold by FREIT during the fourth quarter of Fiscal 2008. The delay notwithstanding,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 not be required to construct a lower level Giant supermarket as part of the redevelopment project at this time, FREIT currently intends, upon improvement in the economic and financing climate,Rotunda, which represented a costly component to resumethe 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 as planned. To that end, FREIT has had,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 timethe $200 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 time, ongoing discussionsmove forward with potential sourcesthe 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 and potential major nati onal and local tenants.
As at October 31, 2010,2012, FREIT’s aggregate outstanding mortgage debt was $204.6$200.4 million. This debt bears a weighted average interest rate of 5.38%5.37%. The mortgages, which have an average life of approximately 5.33.5 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. |
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| Year | $ Millions | |||
| 2012 | $ | 10.0 | ||
| 2013 | $ | 27.1 | ||
| 2014 | $ | 12.1 | ||
| 2016 | $ | 24.5 | ||
| 2017 | $ | 22.0 | ||
| 2018 | $ | 5.0 | ||
| 2019 | $ | 45.2 | ||
| 2022 | $ | 14.4 | ||
The $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 to $19.5 million and the due date was extended until February 1, 2013. 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. As part of the 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. Under the restructured terms, the interest rate is now 350 basis points above the BBA LIBOR rate with a floor of 4%, and monthly principal payments of $10,000 are required. An additional principal payment may be required on February 1, 2012 in an amount necess aryIn order to reducemeet the loan to achieve a stipulatedbank’s annual debt service coverage ratio.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.
The following table shows the estimated fair value and carrying value of our long-term debt at October 31, 20102012 and 2009:
| (In Millions) | October 31, 2010 | October 31, 2009 | ||||||
| Fair Value | $ | 212.1 | $ | 198.1 | ||||
| Carrying Value | $ | 204.6 | $ | 202.3 | ||||
| (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 $10.2$8.4 million, and a 1% decrease would increase the fair value by $11.0$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 2012,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 Grandvie wGrandview 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%. As of October 31, 2010,2012, $18 million is available under the line of credit, and no amount is outstanding.
FREIT’s Board of Trustees 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. 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 $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. | ||||||||||||||||||||
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| 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 | $ | 25,301 | $ | 2,814 | $ | 6,347 | $ | 5,592 | $ | 10,548 | ||||||||||
| Balloon Payments | 169,283 | - | 27,134 | 12,089 | 130,060 | |||||||||||||||
| Total Long-Term Debt | 194,584 | 2,814 | 33,481 | 17,681 | 140,608 | |||||||||||||||
| Construction Loan (a) | 10,020 | - | 10,020 | - | - | |||||||||||||||
| Total Capital Commitments | $ | 204,604 | $ | 2,814 | $ | 43,501 | $ | 17,681 | $ | 140,608 | ||||||||||
| (a) Represents draws on construction loan related to Damascus Center redevelopment project. | ||||||||||||||||||||
| Shares Repurchased | ||||
| Date Plan Authorized | Amounts Authorized | # | Cost | Date Plan Expired |
| April 9, 2008 | $2,000,000 | 50,920 | $1,133,545 | March 31, 2009 |
| April 14, 2009 | $1,000,000 | 89 | $1,481 | June 30, 2009 |
| Total | 51,009 | $1,135,026 | ||
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, | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
| (in thousands, except per share amounts) | ||||||||||||
| Net income | $ | 4,131 | $ | 6,673 | $ | 7,177 | ||||||
| Depreciation | 6,053 | 5,870 | 5,622 | |||||||||
| Amortization of deferred mortgage costs | 329 | 239 | 371 | |||||||||
| Deferred rents (Straight lining) | (240 | ) | (238 | ) | (237 | ) | ||||||
| Amortization of acquired leases | 30 | 35 | (96 | ) | ||||||||
| Capital Improvements - Apartments | (363 | ) | (204 | ) | (424 | ) | ||||||
| Distributions from operations to noncontrolling interests | (1,022 | ) * | (926 | ) | (1,093 | ) | ||||||
| FFO | $ | 8,918 | $ | 11,449 | $ | 11,320 | ||||||
| Per Share - Basic | $ | 1.28 | $ | 1.65 | $ | 1.66 | ||||||
| Weighted Average Shares Outstanding: | ||||||||||||
| Basic | 6,942 | 6,944 | 6,835 | |||||||||
| 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.
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 | ||||||
| 35 |
| Fiscal Year Ended October 31, | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
| 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 | $ | 0.30 | ||||||
| Total For Year | $ | 1.20 | $ | 1.20 | $ | 1.20 | ||||||
| (in thousands of dollars) | Dividends | |||||||||||||||||||
| Fiscal | Per | Total | Ordinary | Taxable | as a % of | |||||||||||||||
| Year | Share | Dividends | Income | Income | Taxable Income | |||||||||||||||
| 2010 | $ | 1.20 | $ | 8,331 | $ | 5,128 | $ | 5,128 | 162.5 | % | ||||||||||
| 2009 | $ | 1.20 | $ | 8,331 | $ | 6,190 | $ | 6,190 | 134.6 | % | ||||||||||
| 2008 | $ | 1.20 | $ | 8,263 | $ | 6,346 | $ | 6,346 | 130.2 | % | ||||||||||
| (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.
| 36 |
| QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
See “Liquidity and Capital Resources” and “Commercial and Residential Segment”“Segment Information” in Item 7 above.
| 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 3639 of this Form 10-K.
| CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE |
None.
| 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 financialChanges 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| ITEM 9B | OTHER INFORMATION |
None.
| 37 |
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, 2010,2012, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway 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, 2010,2012, based on criteria established in Internal Control – Integrated Framework issued by the 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, 2010 and 2009, andfor the related consolidated statements of income, shareholders’ equity and cash flows for each of the years in the three-year periodyear ended October 31, 2010 and financial statement schedule,2012, and our report dated January 14, 20112013 expressed an unqualified opinion on those consolidated financial statements and includes an explanatory paragraph regarding FREIT’s adoption of revised accounting guidance related to noncontrolling interests.
/s/ EisnerAmper LLP
New York, New York
January 14, 20112013
| 38 |
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.
| 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 2011.
| 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 2011.
| 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 2011.
| 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 2011.
| 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 2011.
| 39 |
| ITEM | EXHIBITS, FINANCIAL STATEMENTS AND SCHEDULES |
| (a) Financial Statements: | Page |
| (i) Report of Independent Registered Public Accounting Firm | |
| (ii) Consolidated Balance Sheets as of October 31, | |
(iii) Consolidated Statements of 2010 | 43 |
| (iv) Consolidated Statements of | |
| (v) Consolidated Statements of Cash Flows for the years ended October 31, | |
| (vi) Notes to Consolidated Financial Statements | |
| (b) Exhibits: | |
| See Index to Exhibits. | |
| (c) Financial Statement Schedule: | |
| (i) XI - Real Estate and Accumulated Depreciation. |
| 40 |
SIGNATURES
In 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, | 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, | |
| Donald W. Barney | Officer (Principal Financial / Accounting Officer) and Trustee | ||
/s/ Herbert C. Klein | Trustee | January 14, | |
| Herbert C. Klein | |||
/s/ Ronald J. Artinian | Trustee | January 14, | |
| Ronald J. Artinian | |||
/s/ Alan L. Aufzien | Trustee | January 14, | |
| Alan L. Aufzien | |||
/s/ Robert S. Hekemian, Jr. | Trustee | January 14, | |
| Robert S. Hekemian, Jr. | |||
/s/ David F. McBride | Trustee | January 14, | |
| David F. McBride |
| 41 |
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, 20102012 and 2009,2011, and the related consolidated statements of income, shareholders’ equity and cash flows for each of the years in the three-year period ended October 31, 2010.2012. 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, 20102012 and 2009,2011, 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, 2010,2012 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, 2010,2012, 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, 20112013 expressed an unqualified opinion thereon.
/s/ EisnerAmper LLP
New York, New York
January 14, 2011
| 42 | ||||||||
| October 31, | ||||||||
| 2010 | 2009 | |||||||
| (In Thousands of Dollars) | ||||||||
| ASSETS | ||||||||
| Real estate, at cost, net of accumulated depreciation | $ | 210,745 | $ | 214,283 | ||||
| Construction in progress & pre-development costs | 9,760 | 9,694 | ||||||
| Cash and cash equivalents | 6,769 | 6,751 | ||||||
| Investments in US Treasury Bills at amortized cost, | ||||||||
| which approximates fair value | - | 4,549 | ||||||
| Tenants' security accounts | 2,005 | 2,147 | ||||||
| Sundry receivables | 5,872 | 4,440 | ||||||
| Secured loans receivable | 3,326 | 3,326 | ||||||
| Prepaid expenses and other assets | 3,264 | 3,198 | ||||||
| Acquired over market leases and in-place lease costs | 523 | 670 | ||||||
| Deferred charges, net | 2,864 | 2,793 | ||||||
| Total Assets | $ | 245,128 | $ | 251,851 | ||||
| LIABILITIES & EQUITY | ||||||||
| Liabilities: | ||||||||
| Mortgages payable | $ | 204,604 | $ | 202,260 | ||||
| Accounts payable and accrued expenses | 6,920 | 7,496 | ||||||
| Dividends payable | 2,083 | 2,083 | ||||||
| Tenants' security deposits | 2,668 | 2,847 | ||||||
| Acquired below market value leases and deferred revenue | 3,319 | 3,049 | ||||||
| Total liabilities | 219,594 | 217,735 | ||||||
| Commitments and contingencies | ||||||||
| 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 | (7,032 | ) | (3,112 | ) | ||||
| Total common equity | 16,802 | 20,722 | ||||||
| Noncontrolling interests in subsidiaries | 8,732 | 13,394 | ||||||
| Total equity | 25,534 | 34,116 | ||||||
| Total Liabilities & Equity | $ | 245,128 | $ | 251,851 | ||||
| See Notes to Consolidated Financial Statements. | ||||||||
| Table of Contents |
| FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY AND SUBSIDIARIES | ||||||||||||
| CONSOLIDATED STATEMENTS OF INCOME | ||||||||||||
| Year Ended October 31, | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
| (In Thousands of Dollars, Except Per Share Amounts) | ||||||||||||
| Revenue: | ||||||||||||
| Rental income | $ | 37,716 | $ | 36,671 | $ | 36,549 | ||||||
| Reimbursements | 5,923 | 5,247 | 5,370 | |||||||||
| Sundry income | 414 | 504 | 421 | |||||||||
| Totals | 44,053 | 42,422 | 42,340 | |||||||||
| Expenses: | ||||||||||||
| Operating expenses | 11,613 | 10,984 | 10,766 | |||||||||
| Management fees | 1,941 | 1,870 | 1,847 | |||||||||
| Real estate taxes | 6,620 | 6,398 | 5,925 | |||||||||
| Depreciation | 6,053 | 5,870 | 5,622 | |||||||||
| Totals | 26,227 | 25,122 | 24,160 | |||||||||
| Operating income | 17,826 | 17,300 | 18,180 | |||||||||
| Investment income | 122 | 221 | 554 | |||||||||
| Interest expense including amortization | ||||||||||||
| of deferred financing costs, and in 2010, a prepayment penalty of $2.1 million | (13,817 | ) | (10,848 | ) | (11,557 | ) | ||||||
| Net income | 4,131 | 6,673 | 7,177 | |||||||||
| Net loss (income) attributable to noncontrolling interests in subsidiaries | 280 | (1,121 | ) | (1,138 | ) | |||||||
| Net income attributable to common equity | $ | 4,411 | $ | 5,552 | $ | 6,039 | ||||||
| Earnings per share (attributable to common equity): | ||||||||||||
| Basic | $ | 0.64 | $ | 0.80 | $ | 0.88 | ||||||
| Weighted average shares outstanding | 6,942 | 6,944 | 6,835 | |||||||||
| See Notes to Consolidated Financial Statements. | ||||||||||||
| 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 | Accumulated Comprehensive Income | Total Common Equity | Noncontrolling Interests | Total Equity | ||||||||||||||||||||||
| (In Thousands of Dollars) | ||||||||||||||||||||||||||||
| Balance at October 31, 2007 | $ | 23,225 | $ | - | $ | 1,891 | $ | 14 | $ | 25,130 | $ | 13,304 | $ | 38,434 | ||||||||||||||
| Stock Options Exercised | 1,744 | 1,744 | 1,744 | |||||||||||||||||||||||||
| Treasury Shares | (1,075 | ) | (1,075 | ) | (1,075 | ) | ||||||||||||||||||||||
| Distributions to noncontrolling interests | - | (1,243 | ) | (1,243 | ) | |||||||||||||||||||||||
| Net income | 6,039 | 6,039 | 1,138 | 7,177 | ||||||||||||||||||||||||
| Accumulated Comprehensive Income | (14 | ) | (14 | ) | (14 | ) | ||||||||||||||||||||||
| Dividends declared ($1.20 per share) | (8,263 | ) | (8,263 | ) | (8,263 | ) | ||||||||||||||||||||||
| Balance at October 31, 2008 | $ | 24,969 | $ | (1,075 | ) | $ | (333 | ) | $ | - | $ | 23,561 | $ | 13,199 | $ | 36,760 | ||||||||||||
| Treasury Shares | (60 | ) | (60 | ) | (60 | ) | ||||||||||||||||||||||
| Distributions to noncontrolling interests | - | (926 | ) | (926 | ) | |||||||||||||||||||||||
| Net income | 5,552 | 5,552 | 1,121 | 6,673 | ||||||||||||||||||||||||
| Dividends declared ($1.20 per share) | (8,331 | ) | (8,331 | ) | (8,331 | ) | ||||||||||||||||||||||
| 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 | ||||||||||||
| See Notes to Consolidated Financial Statements. | ||||||||||||||||||||||||||||
| FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY AND SUBSIDIARIES | ||||||||||||
| CONSOLIDATED STATEMENTS OF CASH FLOWS | ||||||||||||
| Year Ended October 31, | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
| (In Thousands of Dollars) | ||||||||||||
| Operating activities: | ||||||||||||
| Net income | $ | 4,131 | $ | 6,673 | $ | 7,177 | ||||||
| Adjustments to reconcile net income to net cash provided by | ||||||||||||
| operating activities: | ||||||||||||
| Depreciation | 6,053 | 5,870 | 5,622 | |||||||||
| Amortization | 613 | 504 | 766 | |||||||||
| Net amortization of acquired leases | 30 | 35 | (96 | ) | ||||||||
| Deferred revenue | 338 | (344 | ) | (188 | ) | |||||||
| Changes in operating assets and liabilities: | ||||||||||||
| Tenants' security accounts | 142 | 230 | (8 | ) | ||||||||
| Sundry receivables, prepaid expenses and other assets | (1,657 | ) | (670 | ) | (154 | ) | ||||||
| Accounts payable, accrued expenses and other liabilities | 720 | 1,276 | 731 | |||||||||
| Tenants' security deposits | (179 | ) | (214 | ) | (63 | ) | ||||||
| Net cash provided by operating activities | 10,191 | 13,360 | 13,787 | |||||||||
| Investing activities: | ||||||||||||
| Capital improvements - existing properties | (1,855 | ) | (2,411 | ) | (2,715 | ) | ||||||
| Construction and pre-development costs | (1,828 | ) | (7,914 | ) | (9,006 | ) | ||||||
| Redemption of (investment in) US Treasury Bills | 4,549 | (4,549 | ) | - | ||||||||
| Net cash provided by (used in) investing activities | 866 | (14,874 | ) | (11,721 | ) | |||||||
| Financing activities: | ||||||||||||
| Repayment of mortgages | (21,319 | ) | (14,873 | ) | (8,118 | ) | ||||||
| Proceeds from mortgages and construction loans | 23,500 | 24,522 | 11,081 | |||||||||
| Deferred financing costs | (507 | ) | (259 | ) | (270 | ) | ||||||
| Proceeds from exercise of stock options | - | - | 1,744 | |||||||||
| Repurchase of Company stock-Treasury shares | - | (60 | ) | (1,075 | ) | |||||||
| Dividends paid | (8,331 | ) | (8,331 | ) | (8,883 | ) | ||||||
| Distributions from operations to noncontrolling interests | (1,022 | ) | (926 | ) | (1,093 | ) | ||||||
| Distributions from loan refinancing to noncontrolling interests | (3,360 | ) | - | - | ||||||||
| Net cash (used in) provided by inancing activities | (11,039 | ) | 73 | (6,614 | ) | |||||||
| Net increase (decrease) in cash and cash equivalents | 18 | (1,441 | ) | (4,548 | ) | |||||||
| Cash and cash equivalents, beginning of year | 6,751 | 8,192 | 12,740 | |||||||||
| Cash and cash equivalents, end of year | $ | 6,769 | $ | 6,751 | $ | 8,192 | ||||||
| Supplemental disclosure of cash flow data: | ||||||||||||
Interest paid, including capitalized construction period interest of $268 and $348 in fiscal 2009 and 2008, respectively. Included in interest for fiscal 2010 is $2,105 in prepayment penalties related to early extinguishment of debt. | $ | 12,943 | $ | 10,421 | $ | 11,177 | ||||||
| Income taxes paid | $ | - | $ | 5 | $ | 50 | ||||||
| Supplemental schedule of non cash activities: | ||||||||||||
| Investing activities: | ||||||||||||
| Accrued capital expenditures, construction costs, pre-development costs and interest | $ | 40 | $ | 2,465 | $ | - | ||||||
| Financing activities: | ||||||||||||
| Dividends declared but not paid | $ | 2,083 | $ | 2,083 | $ | 2,084 | ||||||
| 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:
Organization:
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 en ding 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 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 earlier adoption is prohibited.
| 2011. The |
FREIT adopted ASC 810-10 Non-Controlling Interests in Consolidated Financial Statements – an amendment of ARB No. 51” effective November 1, 2009, and as required, has retrospectively applied the presentation and disclosure requirements to prior years presented in this Form 10-K.
| · | 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. |
| 47 |
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.
| 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 | ||||
| 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 "noncontrolling interests in subsidiaries”. All significant inter-company accounts and transactions have been eliminated in consolidation.
Use of estimates:
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 Federallyfederally 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 development and construction phases are also capitalized. FREIT ceases capitalization of these costs, when the project or portion thereof becomes operational, or when construction has been postponed. Capitalization of these costs will recommence once construction on the 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, 2012, 2011 and 2010, there arewere no impairments of long-lived assets.
Deferred charges:
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 $329,000, $239,000$368,000, $305,000 and $371,000$324,000 in 2010, 20092012, 2011 and 2008,2010, respectively. Deferred leasing commissions are amortized on the straight-line method over the terms of the applicable leases.
Revenue recognition:
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.
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Advertising:
FREIT expenses the cost of advertising and promotions as incurred. Advertising costs charged to operations amounted to approximately $163,000, $156,000$127,000, $110,000 and $132,000$148,000 in 2012, 2011 and 2010, 2009 and 2008, respectively.
Stock-based compensation:
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 8.
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.
Comprehensive income:
Comprehensive income for the fiscal years ended October 31, 2012, 2011 and 2010 2009was equivalent to net income attributable to common equity.
Reclassifications:
Certain revenue and 2008 was $4,411,000, $5,552,000expense accounts in the 2011 and $6,025,000 respectively.
Note 2 – Planned disposition:
On July 7, 2010, FREIT’s 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. It isOn April 15, 2011, FREIT was notified by Giant of Maryland LLC (“Giant”), the intentionformer tenant and operator of the 55,330 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, FREIT halted its efforts to sell 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 a significant portion of the space 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 2013. No decision has been made as of the filing date of this report, to resume FREIT’s efforts to market the Westridge Square property for sale.
On June 3, 2011, FREIT’s Board authorized management to structurepursue the sale as a like-kind exchange (Code Sec.1031),of the Palisades Manor Apartments, in orderPalisades Park, NJ, the Grandview Apartments in Hasbrouck Heights, NJ, and the Heights Manor Apartments in Spring Lake Heights, NJ. The decision to deferpursue the income taxessale of these properties was based on the expected gain. The property is being actively marketed for sale. DueBoard’s desire to current conditions inre-deploy the commercialnet proceeds arising from the sale to real estate market,assets in other areas of FREIT’s operations. On August 29, 2012, the Heights Manor property was 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 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, as management is unable to estimate when a sale of the South Brunswick property will occur.
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 $9.5 million from the sale ($7.5 million after-tax, see Note 9). In addition, FREIT paid 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. Revenue attributable to discontinued operations was $853,000, $1,011,000 and $938,000 for Fiscal 2012, 2011 and 2010, respectively.
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Note 4 - Real estate and equipment:
Real estate and equipment consists of the following:
| Range of | |||||||||
| Estimated | October 31, | ||||||||
| Useful Lives | 2010 | 2009 | |||||||
| (In thousands of dollars) | |||||||||
| Land | $ | 76,684 | $ | 76,684 | |||||
| Unimproved land | 910 | 848 | |||||||
| Apartment buildings | 7-40 years | 81,606 | 81,002 | ||||||
| Commercial buildings/shopping centers | 15-50 years | 107,792 | 106,070 | ||||||
| Equipment/Furniture | 3-15 years | 2,666 | 2,571 | ||||||
| 269,658 | 267,175 | ||||||||
| Less accumulated depreciation | 58,913 | 52,892 | |||||||
| Totals | $ | 210,745 | $ | 214,283 | |||||
| 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 45 – Mortgages, notes payable and credit line:
| October 31, | |||||||
| 2010 | 2009 | ||||||
| (In Thousands of Dollars) | |||||||
| Frederick, MD (A) | $ | 22,000 | $ | 22,000 | |||
| Rockaway, NJ (B) | 19,546 | 19,876 | |||||
| Westwood, NJ (C) | 8,563 | 8,800 | |||||
| Spring Lake Heights, NJ (D) | 2,999 | 3,081 | |||||
| Patchogue, NY (E) | 5,798 | 5,878 | |||||
| Wayne, NJ (F) | 19,739 | 19,966 | |||||
| River Edge, NJ (G): | |||||||
| First mortgage | 4,363 | 4,482 | |||||
| Second mortgage | 1,674 | 1,727 | |||||
| Maywood, NJ (H): | |||||||
| First mortgage | 3,165 | 3,252 | |||||
| Second mortgage | 1,187 | 1,226 | |||||
| Westwood, NJ (I) | 23,500 | - | |||||
| Westwood, NJ (I): | |||||||
| First mortgage | - | 12,934 | |||||
| Second mortgage | - | 2,872 | |||||
| Wayne, NJ (J) | 29,220 | 29,916 | |||||
| Hackensack, NJ (K) | 33,410 | 33,893 | |||||
| Total fixed rate mortgage loans | 175,164 | 169,903 | |||||
| Baltimore, MD (L) | 19,420 | 22,500 | |||||
| Damascus, MD - Construction Loan (M) | 10,020 | 9,857 | |||||
| Total mortgages and notes payable | $ | 204,604 | $ | 202,260 | |||
| 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 | |||||||||||
| $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 | |||||||||||
| $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 | |||||||||||
| $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 | |||||||||||
| 50 |
| (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 | |||||||||||
| $7,599,000 as of October 31, 2012. | ||||||||||||
| (F) | Payable in monthly installments of $121,100 including interest at 6.09%, through September 1, 2019 at which time the outstanding balance is due. The | |||||||||||
| $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 $1,021,000 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 $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 refinanced 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 $120,752 including interest of 4.62%, through November 1, 2020, at which time the outstanding balance is due. The mortgage is secured by an apartment building in Westwood, New Jersey having a net book value of approximately | |
| (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 $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 $41,377,000 as of October 31, 2012. | |
| (L) | On 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 |
| 51 |
| (M) | On February 12, 2008, Damascus Second, LLC closed on a $27.3 million construction loan, secured by the |
Fair Value of Long-Term Debt:
The following table shows the estimated fair value and carrying value of FREIT’s long-term debt at October 31, 20102012 and October 31, 2009:
| October 31, | October 31, | |||||||
| ($ in Millions) | 2010 | 2009 | ||||||
| Fair Value | $ | 212.1 | $ | 198.1 | ||||
| Carrying Value | $ | 204.6 | $ | 202.3 | ||||
| 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, 20102012 and October 31, 20092011 and on discounted cash flow analysis. Changes in assumptions or estimation methods may significantly affect these fair value estimates.
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, 20102012 are as follows:
| Year Ending October 31, | Amount | |||
| 2011 | $ | 2,814 | ||
| 2012 | $ | 13,254 | ||
| 2013 | $ | 30,247 | ||
| 2014 | $ | 14,828 | ||
| 2015 | $ | 2,853 | ||
| 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 2012,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 Grandvi ewGrandview 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 at the time of the draws. The interest rate on the line of credit has a floor of 4%3.5%. As of October 31, 2010,2012, $18 million is available under the line of credit, and no amount is outstanding.
| 52 |
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 56 - Commitments and contingencies:
Leases:
Commercial tenants:
FREIT leases commercial space having a net book value of approximately $142$139 million at October 31, 20102012 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, 20102012 is as follows:
| Year Ending October 31, | Amount | |||
| 2011 | $ | 16,853 | ||
| 2012 | 14,187 | |||
| 2013 | 12,578 | |||
| 2014 | 11,172 | |||
| 2015 | 9,684 | |||
| Thereafter | 50,325 | |||
| Total | $ | 114,799 | ||
| 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, 20102012 were not material.
Residential tenants:
Lease terms for residential tenants are usually one year or less.
Environmental concerns:
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.
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.
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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:
The modernization and expansion is underwayproject at the Damascus Center.Center was completed in November 2011. Total construction costs, inclusive of tenant improvement costs, are expected to approximateapproximated $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 constructionthree phases, with the final phase being completed in November 2011. Additional tenant fit-up costs were approximately $6.2 million, of which $1.1 million related to tenant improvements. Phase II, which comprises aare expected, once the new 58,000 sq. ft. Safeway supermarket, was started in December 2008. The new Safeway supermarket was completedspace is leased and the tenant opened for business in September 2009. Construction and other costs for Phase II approximated $9.8 million. The Phase III construction is expected to begin during the second quarter of 2011, with total construction costs for Phase III expected to approximate $6.7 million. Total construction costs were to be funded from a $27.3 million construction loan entered into on February 12, 2008. As a result of a reevaluation of the future funding needsoccupied. Funding for this project on May 6, 2010, Damascus Centre, LLC reducedwas made available under a construction loan facility in the amount of the construction loan facility to $21.3 million. The construction loan is secured by the shopping center owned by Damascus Centre, LLC. ThisCenter. The loan will bewas drawn upon as needed to fund already expended and future construction costs at the Damascus Center. Because
Included in the accompanying consolidated balance sheets at October 31, 2012 and 2011, are $4.7 million and $8.1 million, respectively, of this expansion, leases for certain tenants have been allowedconstruction in progress related to expire and have not been renewed. This has caused occupancy to decline, on a temporary basis, during the construction phase. However, with the completion of the Phase I and Phase II (Safeway) construction, certain tenant leases have been renewed and occupancy is beg inning to increase.
Note 7 - Giant lease termination; Rotunda project cost write-off:
On August 6, 2009,February 3, 2012, Grande Rotunda, LLC (“Grande”), a complaint was filed against Damascus Centre, LLC, a 70%60% owned affiliate of FREIT, Hekemian & Co., Inc.entered into a lease termination agreement (“Hekemian”Agreement”) with Giant of Maryland LLC (“Giant”), the tenant and others (the “Defendants”)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 Rotunda property through March 31, 2015. Grande has agreed (i) not to lease more than 20,000 sq. ft. of any space in the Circuit Courtproperty 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 Montgomery County, Maryland (the “Court”). The plaintiffs leased commercial officethe 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 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. As a result of Giant terminating its lease and vacating its space at the Damascus Shopping Center locatedGrande Rotunda shopping center, 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 Damascus, Maryland and owned by Damascus Centre, LLC. The complaint alleged a number of causes of action in connection with alleged interference with plaintiffs’ business allegedly caused by Damascus Centre, LLC’sthe future development activities at the Damascus Center. The complaint sought 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 soug ht$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.
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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. On February 19, 2010, a voluntary stipulation of dismissaldevelopment plans for the Rotunda site, management proposed further revisions to the scope of the complaint, with prejudice, was filedRotunda 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 Court. This stipulation with prejudice has the same effect as a final adjudication on the meritsrevised development plans, an additional $2.2 million of the complaint favorablecertain deferred project costs relating to the Defendants,planning and relieves the Defendants offeasibility costs included in CIP were no longer deemed to have any liability to the plaintiffs based on the relevant facts set forthutility, and were written-off in the complaint. The stipulation also bars the plaintiffs from pursuing any subsequent action based on any relevant facts in the complaint.
Note 68 - 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 $1,792,000, $1,802,000 and $1,791,000 $1,723,000in 2012, 2011 and $1,708,000 in 2010, 2009 and 2008, 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 $718,000, $326,000 and $352,000 $427,000in 2012, 2011 and $265,0002010, respectively. Included in 2010, 2009 and 2008, respectively.
Total Hekemian management fees that were unpaidoutstanding at October 31, 20102012 and 20092011 were $146,000$145,000 and $139,000, 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.
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.
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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, 20102012 and 2009 was $3,323,000 for both years.2011was $3,323,000. The accrued but unpaid interest related to these notes for Fiscal 20102012 and Fiscal 20092011 amounted to approximately $221,000$401,000 and $142,000, 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 a pprovedapproved 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 incurred fees payablepaid $1,236,190 and $1,000,000, respectively, to Resources, ofrelating to fees incurred 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 paidAll such fees to Resources 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, 2010 and 2009.were capitalized. Resources, Rotunda 100, LLC, and Damascus 100, LLC are principally owned by employees of Hekemian, in cludingincluding 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 (a contemplated development site owned by FREIT) has not yet been finalized and approved. Development and acquisition fees and commissions charged to FREIT for various mortgage refinancings, amounted to approximately $0, $0 and $118,000 $100,000in Fiscal 2012, 2011 and $60,0002010, respectively.
Note 9 – Income taxes:
FREIT distributed as dividends to its shareholders 100% of its ordinary taxable income for each of the fiscal years ended October 31, 2012, 2011 and 2010. In addition, FREIT distributed approximately $5 million of the $9.5 million capital gain realized in 2010, 2009Fiscal 2012 from the sale of its Heights Manor Apartments (see Note 3). Accordingly, no provision for federal or state income taxes related to such ordinary and 2008, respectively.
Note 8-10- 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 th ethe 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.
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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. As of October 31, 2010,2012, 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, | |||||||||||||||
| 2010 | 2009 | 2008 | |||||||||||||
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 | $ | - | 0 | $ | - | 232,500 | $ | 7.50 | ||||||
| Options exercised | - | $ | - | - | $ | - | (232,500 | ) | $ | 7.50 | |||||
| Options cancelled | - | - | - | ||||||||||||
| Balance at end of period | 0 | $ | - | 0 | $ | - | 0 | $ | 7.50 | ||||||
Note 9- Share repurchase program:
| Shares Repurchased | ||||
| Date Plan Authorized | Amounts Authorized | # | Cost | Date Plan Expired |
| April 9, 2008 | $2,000,000 | 50,920 | $1,133,545 | March 31, 2009 |
| April 14, 2009 | $1,000,000 | 89 | $1,481 | June 30, 2009 |
| Total | 51,009 | $1,135,026 | ||
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 2009was $1,092,000, $978,000, and 2008 was $911,000, $820,000, and $745,000, respectively. As of October 31, 20102012 and 2009,2011, approximately $3,333,000$4,244,000 and $2,848,000,$3,749,000, respectively, of fees have been deferred together with accrued interest of approximately $1,457,000$2,468,000 and $1,075,000,$1,918,000, respectively. The deferred amounts for fiscal 2010 and 2009 are included in accrued expenses in the accompanying consolidated balance sheets.
Note 11-12- Segment information:
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 wereare comprised of ten and nineeight properties, respectively, during the three fiscal years ended October 31, 2010.
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.
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, amortization of acquired lease 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.
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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 years in the three-year period ended October 31, 2010.2012. Asset information is not reported since FREIT does not use this measure to assess performance.
| 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- Dividends and earnings per share:
FREIT declared 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 fiscal years ended October 31, 2012, 2011 and 2010.
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| 2010 | 2009 | 2008 | ||||||||||
| (In Thousands of Dollars) | ||||||||||||
| Real estate rental revenue: | ||||||||||||
| Commercial | $ | 24,713 | $ | 23,130 | $ | 22,816 | ||||||
| Residential | 19,130 | 19,089 | 19,191 | |||||||||
| Totals | 43,843 | 42,219 | 42,007 | |||||||||
| Real estate operating expenses: | ||||||||||||
| Commercial | 9,702 | 9,219 | 8,817 | |||||||||
| Residential | 8,905 | 8,381 | 8,179 | |||||||||
| Totals | 18,607 | 17,600 | 16,996 | |||||||||
| Net operating income: | ||||||||||||
| Commercial | 15,011 | 13,911 | 13,999 | |||||||||
| Residential | 10,225 | 10,708 | 11,012 | |||||||||
| Totals | $ | 25,236 | $ | 24,619 | $ | 25,011 | ||||||
| Recurring capital improvements- | ||||||||||||
| residential | $ | 363 | $ | 204 | $ | 424 | ||||||
| Reconciliation to consolidated net | ||||||||||||
| income - common equity: | ||||||||||||
| Segment NOI | $ | 25,236 | $ | 24,619 | $ | 25,011 | ||||||
| Deferred rents - straight lining | 240 | 238 | 237 | |||||||||
| Amortization of acquired above and below | ||||||||||||
| market value leases | (30 | ) | (35 | ) | 96 | |||||||
| Net investment income | 122 | 221 | 554 | |||||||||
| General and administrative expenses | (1,567 | ) | (1,652 | ) | (1,542 | ) | ||||||
| Depreciation | (6,053 | ) | (5,870 | ) | (5,622 | ) | ||||||
| Financing costs | (13,817 | ) | (10,848 | ) | (11,557 | ) | ||||||
| Net income | 4,131 | 6,673 | 7,177 | |||||||||
| Net loss (income) atrributable to noncontrolling interests in subsidiaries | 280 | (1,121 | ) | (1,138 | ) | |||||||
| Net income attributable to common equity | $ | 4,411 | $ | 5,552 | $ | 6,039 | ||||||
Note 14- Subsequent events:
On December 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 Contents
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, 2013. The loan will mature on March 1, 2018.
FREIT is in the process of refinancing its Westwood Plaza $8.0 million mortgage loan with a $22 million loan.
Note 12-15- Selected quarterly financial data (unaudited):
The following summary represents the results of operations for each quarter for the years ended October 31, 20102012 and 20092011 (in thousands, except per share amounts):
| Quarter Ended | ||||||||||||||||
| 2010: | Jan 31, | Apr 30, | Jul 31, | Oct 31, | ||||||||||||
| Revenue | $ | 10,885 | 11,390 | 10,876 | 11,024 | |||||||||||
| Expenses | 9,432 | 9,960 | 9,338 | 11,314 | ||||||||||||
| Net income (loss) | 1,453 | 1,430 | 1,538 | (290 | ) | |||||||||||
Net (income) loss attributable to noncontrolling interests in subsidiaries | (281 | ) | (300 | ) | (162 | ) | 1,023 | * | ||||||||
| Net income attributable to common equity | $ | 1,172 | $ | 1,130 | $ | 1,376 | $ | 733 | ||||||||
| Basic earnings per share | $ | 0.17 | $ | 0.16 | $ | 0.20 | $ | 0.11 | ||||||||
| Dividends declared per share | $ | 0.30 | $ | 0.30 | $ | 0.30 | $ | 0.30 | ||||||||
* Includes a prepayment penalty of $1,263,000 allocated to the noncontrolling interest. | ||||||||||||||||
| Quarter Ended | ||||||||||||||||
2009: | Jan 31, | Apr 30, | Jul 31, | Oct 31, | ||||||||||||
| Revenue | $ | 10,828 | $ | 10,621 | $ | 10,524 | $ | 10,670 | ||||||||
| Expenses | 8,944 | 9,241 | 8,795 | 8,990 | ||||||||||||
| Net income | 1,884 | 1,380 | 1,729 | 1,680 | ||||||||||||
Net income attributable to noncontrolling interests in subsidiaries | (363 | ) | (295 | ) | (155 | ) | (308 | ) | ||||||||
| Net income attributable to common equity | $ | 1,521 | $ | 1,085 | $ | 1,574 | $ | 1,372 | ||||||||
| Basic earnings per share | $ | 0.22 | $ | 0.16 | $ | 0.23 | $ | 0.20 | ||||||||
| 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.
| 59 |
FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY AND SUBSIDIARIES
SCHEDULE XI –- REAL ESTATE AND ACCUMULATED DEPRECIATION
October 31, 2010
(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 | $ - | $ 342 | $ 22 | $ 522 | $ 544 | $ 416 | 1925 | 1964 | 7-40 years | ||
| Hammel Gardens, Maywood, NJ | $ 4,352 | 312 | 728 | - | 1,014 | 312 | 1,742 | 2,054 | 1,369 | 1949 | 1972 | 7-40 years | ||
| Palisades Manor, Palisades | ||||||||||||||
| Park, NJ | - | 12 | 81 | - | 122 | 12 | 203 | 215 | 173 | 1935/70 | 1962 | 7-40 years | ||
| Steuben Arms, River Edge, NJ | 6,037 | 364 | 1,773 | - | 1,362 | 364 | 3,135 | 3,499 | 2,326 | 1966 | 1975 | 7-40 years | ||
| Heights Manor, Spring Lake | ||||||||||||||
| Heights, NJ | 2,999 | 109 | 974 | - | 831 | 109 | 1,805 | 1,914 | 1,492 | 1967 | 1971 | 7-40 years | ||
| Berdan Court, Wayne, NJ | 19,739 | 250 | 2,206 | - | 3,244 | 250 | 5,450 | 5,700 | 4,385 | 1964 | 1965 | 7-40 years | ||
| Westwood Hills, Westwood, NJ | 23,500 | 3,849 | 11,546 | - | 1,978 | 3,849 | 13,524 | 17,373 | 6,023 | 1965-70 | 1994 | 7-40 years | ||
| Pierre Towers, Hackensack, NJ | 33,410 | 8,390 | 37,486 | 19 | 4,228 | 8,409 | 41,714 | 50,123 | 7,332 | 1970 | 2004 | 7-40 years | ||
| Boulders - Rockaway, NJ | 19,546 | 5,019 | - | 16,183 | 5,019 | 16,183 | 21,202 | 2,235 | 2005-2006 | 1963/1964 | 7-40 years | |||
| Retail Properties: | ||||||||||||||
| Damascus Shopping Center, | ||||||||||||||
| Damascus, MD | 10,020 | 2,950 | 6,987 | 6,234 | 10,216 | 9,184 | 17,203 | 26,387 | 1,086 | 1960's | 2003 | 15-39 years | ||
| Franklin Crossing, Franklin Lakes, NJ | - | 29 | 3,382 | 7,698 | 3,411 | 7,698 | 11,109 | 2,776 | 1963/75/97 | 1966 | 10-50 years | |||
| Glen Rock, NJ | - | 12 | 36 | - | 212 | 12 | 248 | 260 | 158 | 1940 | 1962 | 10-31.5 years | ||
| Pathmark Super Center, | ||||||||||||||
| Patchogue, NY | 5,798 | 2,128 | 8,818 | 1 | (21) | 2,129 | 8,797 | 10,926 | 2,879 | 1997 | 1997 | 39 years | ||
| Westridge Square S/C, Frederick, MD | 22,000 | 9,135 | 19,159 | (1) | 2,716 | 9,134 | 21,875 | 31,009 | 12,027 | 1986 | 1992 | 15-31.5 years | ||
| Westwood Plaza, Westwood, NJ | 8,563 | 6,889 | 6,416 | - | 2,297 | 6,889 | 8,713 | 15,602 | 6,070 | 1981 | 1988 | 15-31.5 years | ||
| Preakness S/C, Wayne, NJ | 29,220 | 9,280 | 24,217 | - | 1,448 | 9,280 | 25,665 | 34,945 | 5,645 | 1955/89/00 | 2002 | 15-31.5 years | ||
| The Rotunda, Baltimore, MD | 19,420 | 16,263 | 14,634 | 232 | 11,233 | 16,495 | 25,867 | 42,362 | 2,418 | 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 | 103 | 2007 | |||||
| Vacant Land: | ` | |||||||||||||
| Franklin Lakes, NJ | 224 | (156) | - | 68 | 68 | - | 1966/93 | |||||||
| Wayne, NJ | 286 | - | 286 | 286 | - | 2002 | ||||||||
| South Brunswick, NJ | 80 | 1,051 | - | 1,131 | * | 1,131 | - | 1964 | ||||||
| $ 204,604 | $ 67,357 | $ 136,146 | $ 10,812 | $ 65,103 | $ - | $ 78,169 | $ 201,249 | $ 279,418 | $ 58,913 | |||||
| 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.
(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 |
| 60 |
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: | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
| Real estate: | ||||||||||||
| Balance, Beginning of year | $ | 276,869 | $ | 265,040 | $ | 254,528 | ||||||
| Additions: | ||||||||||||
| Buildings and improvements | 2,549 | 12,789 | 9,810 | |||||||||
| Adjustments/Deletions - buildings & improvements | - | (960 | ) | 702 | ||||||||
| Balance, end of year | $ | 279,418 | $ | 276,869 | $ | 265,040 | ||||||
| Accumulated depreciation: | ||||||||||||
| Balance, beginning of year | $ | 52,892 | $ | 48,027 | $ | 42,465 | ||||||
| Additions - Charged to operating expenses | 6,053 | 5,870 | 5,622 | |||||||||
| Adjustments/Deletions | (32 | ) | (1,005 | ) | (60 | ) | ||||||
| Balance, end of year | $ | 58,913 | $ | 52,892 | $ | 48,027 | ||||||
| 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 | ||||||
| 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. (Incorporated by reference to Exhibit 3.1 to | ||||
| 4 | Form of Specimen Share Certificate, Beneficial Interest in FREIT. (Incorporated by reference to Exhibit 4 to | ||||
| 10.1 | Management Agreement dated April 10, 2002, by and between FREIT and Hekemian & Co., Inc. (Incorporated by reference to Exhibit 10.1 to | ||||
| 10.2 | Indemnification Agreements by Damascus 100, LLC and Rotunda 100, LLC to FREIT. (Incorporated by reference to Exhibits 10.1 and 10.2, respectively, to | ||||
| 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). (Incorporated by reference to Exhibits 10.3 and 10.4, respectively, to | ||||
| 10.4 | Agency Agreement dated August 13, 2008 between Damascus Centre, LLC and Hekemian Development Resources, LLC. (Incorporated by reference to Exhibit 10.1 to | ||||
| 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 | ||||
| 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 | ||||
| 21 | Subsidiaries of FREIT | ||||
| 22 | Consent of EisnerAmper LLP | ||||
| 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 | ||||
| 101 | The following materials from FREIT’s annual report on Form 10-K for the fiscal year ended October 31, 2012, 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 (v) notes to consolidated financial statements | ||||