UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[ X ][X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Fiscal Year Ended October 31, 19981999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________ to __________
Commission File No. 2-27018
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FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY
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(Exact name of registrant as specified in its charter)
New Jersey 22-1697095
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
505 Main Street, P.O. Box 667
Hackensack, New Jersey 07602
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 201-488-6400
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Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each classClass on which registered
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None Not Applicable
Securities registered pursuant to Section 12(g) of the Act:
Shares of Beneficial Interest
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(Title of class)
Indicate by check mark whether the registrant(1)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 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. Yes [ X ][X] No [ ]
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 this Form 10-K or any amendment to this
Form 10-K. [ X ]
The registrant is an equity real estate investment trust and beneficial
interests in the registrant are represented by shares without par value. At
January 15,1999,19, 2000, the aggregate market value of the registrant's shares of
beneficial interest held by nonaffiliates of the registrant was approximately
$34,859,130.$31,663,710. Excluded from this calculation are shares of the registrant owned
or deemed to be beneficially owned by the trustees and executive officers of the
registrant, including shares with respect to which the trustees and executive
officers disclaim beneficial ownership. At January 15, 1999that date, 1,559,788 shares of
beneficial interest were issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the Registrant's 19992000 Annual
Meeting of Shareholders to be held inon April 199912, 2000 are incorporated by
reference in Part III of this Annual Report.
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 service its debt; the competitive conditions which affect the
registrant's business; the impact of environmental conditions affecting the
registrant's properties; the registrant's liquidity and capital resources and
the impact of the Year 2000 issue and the registrant's state of readiness with
respect to the Year 2000 issue, 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. 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.
PART I
ITEM 1 BUSINESS
(a) GENERAL DEVELOPMENT OF BUSINESS
First Real Estate Investment Trust of New Jersey (the "Registrant") is
an unincorporated businessa real estate investment trust which was("REIT") organized in New Jersey in 1961
pursuant to a Trust Agreement, dated as of November 1, 1961; amended and
restated as of November 7, 1983; and amended on May 31, 1994 and September 10,
1998 (the "Declaration of Trust").1961. The
Registrant acquires, develops and holds for investment income producing real estate properties, including apartment
buildings and complexes and retail properties. At December 31, 1998, the
Registrant's real estate portfolio consisted of (i) eight (8) apartment
buildings or complexes containing 639 units, (ii) a forty percent (40%) equity
interest in Westwood Hills, LLC, a limited liability company which owns a 210
unit apartment complex ("Westwood Hills"), (iii) five (5) retail properties
comprised of an aggregate of approximately 588,000 square feet of leasable
space, including three (3) shopping centers and two (2) single tenant locations,
and (iv) three (3) undeveloped parcels of land consisting of an aggregate of
approximately 56.5 acres. See "Investment in Affiliate" and "Item 2 Properties -
Portfolio of Investments." All of the Registrant's properties are currently
managed by Hekemian & Co., Inc., a real estate brokerage and management company
("Hekemian & Co."). See "Management Agreement."
From its inception, the Registrant's general investment policy has been
to acquire, develop and hold income producing properties for long-term
investment and not for resale. Its investment portfolio contains multi family
residential properties, retail properties, undeveloped land and a 40% equity
interest in Westwood Hills, LLC, which owns a 210 unit apartment complex. All
but two of the Registrant's properties are located in New Jersey. See the tables
in "Item 2 Properties - Portfolio of Investments"
The Registrant's long-range investment policy is
to continue to review and evaluate
potential real estate investment opportunities with the objective of making, from time to time, certain strategic
acquisitions of properties which the Registrantfor acquisition that it believes
will (i) complement its existing investment portfolio, (ii) generate increased
income and increase the
Registrant's earnings and its distributions to shareholders, and (iii) increase the overall value
of the Registrant's investment portfolio. The decisionRegistrant's investments may take the form of
wholly-owned fee interests or, if the circumstances warrant, on joint venture
basis with other parties provided the Registrant would be able to acquire or develop a particular property is made on a case by case basis bymaintain
control over the Registrant's Board of Trustees which determines whether in its judgment such an
investment is in the best interestsmanagement and operation of the Registrant and its shareholders.
Except for its equity investment in Westwood Hills, the Registrant has invested
only in retail properties since 1988. Although the Registrant's portfolio of
developed properties consists only of residential apartment and retail
properties, the Registrant does and will continue to evaluate potential
investment properties in other sectors of the real estate market.
All but two of the Registrant's properties are located in New Jersey.
The Registrant's largest retail shopping center, the 256,600 square foot
Westridge Square shopping center which the Registrant acquired in 1992, is
located in Frederick, Maryland (Western Maryland). The Registrant's most recent
property acquisition, which occurred in December 1997, was a 63,900 square foot
retail property located in Patchogue (Long Island), New York, on which Pathmark
operates a supermarket super store. The Company has reviewed and evaluated and
will continue to review and evaluate potential real estate investment
opportunities in New Jersey as well as in locations outside of New Jersey.
Althoughproperty. While the
Registrant's general investment policy is to hold and maintain its properties
as long-term, income producing investments, the Registrant has sold
and in the future couldit may, from time-to-time, sell from time to time,or trade certain properties inthat it
feels no longer meets its portfolio. Factors which are considered by the Registrant's Board of Trusteesinvestment criteria, and reinvest in
evaluating the disposition of a property include (i) whether the property
continues to satisfy the Registrant's investment objectives for its real estate
portfolio, and (ii) whether the proceeds from a sale could be reinvested into
another property or other properties
which maythat offer greater growth potential
and a higher rate of return to the Registrant.
Except for the Registrant's equity investment in Westwood Hills, each
of the properties in the Registrant's real estate portfolio is wholly-owned in
fee by the Registrant. In the future, if the circumstances warrant, the
Registrant could acquire interests in other real estate properties on a joint
venture basis with another party or parties; provided, that the Registrant would
be able to maintain appropriate control over the management and operation of any
such property.
The Registrant is a real estate investment trust ("REIT") under
Sections 856-860 of the Internal Revenue Code of 1986, as amended (the "Code").
The Registrant was the first REIT organized in New Jersey. As a result of its
election to be treated as a REIT, the Registrant will not be subject to federal
income tax on that portion of its REIT taxable income which is currently
distributed to the Registrant's shareholders, assuming it satisfies the various
REIT requirements under the Code. REITs are subject to a number of highly
technical and complex organizational and operational requirements. One of the
REIT requirements under the Code is that at least 95% of the Registrant's REIT
taxable income shall be distributed to the shareholders. REIT taxable income is
computed in accordance with normal corporate rules subject to several
adjustments. If the Registrant fails to qualify as a REIT, its taxable income
may be subject to federal income tax at the applicable regular corporate tax
rates. For the foreseeable future, it is the Registrant's intention to continue
to conduct its operations in a manner intended to qualify as a REIT for tax
purposes. However, no assurance can be given that the Registrant's operations
for any one taxable year will satisfy such requirements, and no assurance can be
given that the Internal Revenue Service would not be able to successfully
challenge the Registrant's eligibility for taxation as a REIT.potential.
Fiscal Year 19981999 Developments
(i) Purchase of Supermarket in Patchogue, New York
On December 22, 1997, the Registrant completed its purchase of a 63,900
square foot single tenant retail property located in Patchogue, New York. The
purchase price was $10.9 million, of which $7.5 million was financed with the
property serving as collateral for the mortgage loan. Pathmark operates a
supermarket super store on the property pursuant to a twenty-five (25) year
lease with options to extend for up to a maximum of twenty-four (24) years. The
supermarket is located on approximately 8.775 acres of land.
(ii) Completion of New Development ofDevelopments at Franklin Crossing Shopping Center
During the summer of 1997, the Registrant completed the construction of
a newFranklin Crossing (Franklin Lakes, NJ) is an 87,001 square foot
shopping center named "Franklin Crossing," containing approximately
87,000 square feetredevelopment of leasable space in Franklin Lakes, New Jersey. Franklin
Crossing replaced an old shopping center which the Registrant had owned since
1964 and which contained approximatelyolder 33,000 square feet of leasable space. The
old shoppingfoot center was closed and completely demolished in December 1996 to
allow forowned by the
construction of Franklin Crossing.Registrant. Grand Union is the anchor tenant operating a 42,000 square foot
supermarket. During fiscal 1999 occupancy at the Center has leased a total
of approximately 41,000increased from 68.6%
to 71.5% (approximately 62,200 square feet) and an additional 11,800 square feet of the available space and is operating a
supermarket in the shopping center. Grand Union took possession of its space for
tenant fit-up in August, 1997 and commenced payment of rent on October 12, 1997
when it opened for business. Grand Union has a twenty (20) year lease with
options to extend for up to a maximum of twenty (20) additional years.
Approximately 13,600 square feet of satellite space at Franklin Crossing
has been leased that will raise occupancy to seven (7) other tenants.85% when these tenants take
occupancy during the first quarter of fiscal 2000. At DecemberOctober 31, 1998, there was1999
approximately 32,30013,000 square feet of vacant leasable space remain to be leased at Franklin
Crossing. The Registrant is actively pursuing tenants to fill the remaining
available space.
(iii)(ii) Mortgage FinancingsFinancing and Amendment and Extension of Credit Facility
During fiscal 1998 and the first quarter of fiscal 1999, the Registrant took advantage
of the appreciated values of certain real estate properties in its investment
portfolio and a favorable interest rate environment to complete a
number ofthree mortgage
financings whichthat yielded approximately $28.8$12.9 million in net proceeds to the
Registrant. In addition, in December 1998, Westwood Hills completed a
refinancing of its outstandinga $10+ million, 7.8% mortgage debt in December 1998,loan for a $15.5 million, 6.693%
mortgage loan yielding net proceeds of approximately $4.9 million. Pursuant to
its 40% equity investment in Westwood Hills, the Registrant received a $2
million distribution out of such proceeds. Part of the net proceeds from the financings which were completed in the first
quarter of fiscal 1998 were used to acquire the Patchogue, Long Island property
on which the Pathmark supermarket super store is located and to pay off the
Registrant's outstanding balance under its credit facility with Summit Bank. The
remaining proceeds from these financings
providesprovide the Registrant with an immediately available source of capital for
future property acquisitions and development. During the greater part of fiscal
1999 the proceeds from these financings have been invested in institutional
grade money market pools and have generated interest income. See "Item 7
Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources."
As a result of these mortgage financings, the Registrant is more highly
leveraged than it has been in the past. The increase in the Registrant's debt
service requirements could have an adverse effect on the financial condition and
results of operations. Although the Registrant believes that it will generate
sufficient funds from its operations to service the Registrant's debt
requirements, a default by the Registrant with respect to any of its mortgage
indebtedness could have a material adverse effect on the Registrant. See "Real
Estate Financing" and "Item 7 Management's Discussion and Analysis of Financial
Condition and Results of Operations - Liquidity and Capital Resources."
The Registrant's $8 million revolving line of credit with Summit Bank
which was scheduled
to expirehas been extended and matures on April 30, 1998, was renegotiated, amended and extended through May
31, 1999. Prior to suchMarch 1, 2000. The Registrant is in the process
of negotiating an extension the credit line to March 1, 2001. At the option of
the Registrant, paid off the outstanding
balanceinterest on any borrowings under the line of credit facility withshall accrue
a portionLIBOR + 175 basis points or the Bank's Floating Base Rate + 1/4%. LIBOR
contracts of the proceeds received by the
Registrant from the mortgage financings which the Registrant closed during the
first quarter of30, 60, or 90 days will be available. Throughout fiscal 1998. In connection with and in anticipation of the
above described mortgage financings, the maximum amount which the Registrant can
borrow under this credit facility has been reduced from approximately $12.3
million to $8 million effective as of November 30, 1998. At December 31, 1998,1999 the
Registrant did not have any outstanding borrowings under the Summit Bank credit
facility. See "Item 7 Management's Discussion and Analysis of Financial
Condition and Results of Operations - Liquidity and Capital Resources."
(iv) Year 2000 Issue
The Year 2000 ("Y2K") issue results from computer programs being
written using two (2) rather than four (4) digits to define the applicable year.
As the year 2000 approaches, systemsInformation technology ("IT systems") using such programs may be unable to
accurately process certain date based information. As disclosed elsewhere in
this Annual Report, Hekemian & Co. currently manages the Registrant's
properties, and the Registrant does not own any computer systems. The business
managed by Hekemian & Co. is dependent on computer hardware, software, systems
and processes, including financial and accounting systems, relating to information technology ("IT
Systems")Systems and non-information technology systems such as HVAC systems, boilers,
alarms, elevators, escalators, building security systems, backup lighting and
generators, sprinkler systems, fire/smoke detection and suppression systems,
parking garage systems and other equipment containing embedded microprocessor
technology ("Non-IT Systems").
The Registrant is participatingparticipated with Hekemian & Co. in a comprehensive
assessment of the Registrant's business exposure relative to the Y2K issue. The
Registrant and Hekemian & Co. have assessed all systems for Y2K readiness.
Hekemian & Co. has advised the Registrant that it has utilized or is utilizing the resources
necessary to replace, upgrade or modify all significant systems affected by the
Y2K issue. All major Non-IT Systems critical to the Registrant's business
operations are Y2K compliant. IT Systems were assessed for Y2K compliance and in
most cases new hardware was purchased and is operating. All personal computer
and network server software has been upgraded for Y2K compliance.
The accounting system is now substantially compliant and is expected
to be fully Y2K compliant bySince the end of the first quarter of fiscal 1999. It is
expected that all IT Systems will be tested for Y2K compliance by June, 1999 and
that all such systems will be Y2K compliant before the end of 1999.
In additionrollover to the remediation efforts outlined above, Hekemian & Co.
has identified and mailed Y2K information requests to all retail tenants of the
Registrant and all critical external entities (product suppliers, service
providers, and those with which Hekemian & Co. or the Registrant exchange
information) to determine whether they will be able to continue normal business
operations at the turn of the century. Approximately 19% of such tenants and
entities, including most of the Registrant's major tenants and suppliers, have
responded. The third parties responding to the request have indicated that the
Y2K issue does not and will not significantly impact their businesses, or that
they either will be Y2K compliant or will have an adequate contingency plan
ready and active before the year 2000.
Neither Hekemian & Co. nor2000 the Registrant has yet establishednot experienced
any contingency plans for possible Y2K interruptions. Based upon the continuing
assessment of possible risks, the Registrant could establish contingency plans
in the futuredisruptions to address the Registrant's exposure to potential Y2K problems.
The failure of critical systems of the Registrant, its management service
company, or its significant retail tenants and external entities to be Y2K
compliant could disrupt or interrupt the business of the Registrant, which could
have a material adverse effect on the results of operations or financial
condition of the Registrant.
The Registrant anticipates that any costs incurred by it in assessingresulting from the Y2K issue and remediating any Y2K problems will not have a significant
adverse effect on the Registrant's operating results or financial condition.
issue.
(b) Financial Information about Industry Segments
All revenues, operating profits or losses, and assets of the Registrant
are attributable to one line of business, the acquisition, development and
ownership of real property for investment.
The revenue and profits from, and the assets which are part of, the
Registrant's operations are as set forth in the Financial Statements of the
Registrant and of Westwood Hills beginning on page F-1 of this Annual Report.
(c) Narrative Description of Business
The Registrant was founded and organized for the principal purpose of
acquiring, developing and owning a portfolio of diverse income producing real
estate properties. The Registrant's developed properties include residential
apartment and retail properties. The Registrant's properties are located
principally in New Jersey, with the Westridge Square Shopping Center located in
Frederick, Maryland and the Pathmark supermarket super store located on Long
Island. The Registrant also currently owns approximately 56.5 acres of
unimproved land in New Jersey. See "Item 2 Properties - Portfolio of
Investments."
The Registrant elected to be taxed as a REIT under the Internal Revenue
Code. The Registrant 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, the Registrant generally acquires interests in
income producing properties to be held by the Registrant as long-term
investments. The Registrant's return on such investments is based on the income
generated by such properties mainly in the form of rents.
From time to time, the Registrant 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 the Registrant
believes will provide a higher rate of return and increase the value of the
Registrant's investment portfolio, and (ii) divest properties which the
Registrant has determined or determines are no longer compatible with the
Registrant's growth strategies and investment objectives for its real estate
portfolio.
The Registrant does not hold any patents, trademarks or licenses.
Portfolio of Real Estate Investments
At DecemberOctober 31, 1998,1999, the Registrant's real estate holdings included (i)
eight (8) apartment buildings or complexes containing 639 rentable units, (ii)
five (5) retail properties containing approximately 588,000 square feet of
leasable space, including two (2) single tenant stores, and (iii) three (3)
parcels of undeveloped land consisting of approximately 56.5 acres. AllThe
Registrant wholly owns all such property is wholly-owned in fee by the Registrant.fee. See "Item 2 Properties -
Portfolio of Investments" of this Annual Report for a description of the
Registrant's separate investment properties and certain other pertinent
information with respect to such properties which is relevant to the
Registrant's business. In addition, the Registrant holds a 40% membership
interest in Westwood Hills which owns an apartment complex containing 210
rentable units. See "Investment in Affiliate."
Investment in Affiliate
In May 1994, the Registrant acquired a forty percent (40%) membership
interest in Westwood Hills, a New Jersey limited liability company. In June
1994, Westwood Hills consummated the purchase of Westwood Properties,company which owns
and operates a 210 unit residential apartment complex containing 210 units, located in Westwood, New
Jersey, for a total purchase price of approximately $15.4 million. Approximately
$9.5 million ofIn December 1998, the purchase price was financed by the proceeds of aaffiliate refinanced its mortgage loan which was refinanced in December 1998.loan. See
"Fiscal Year 19981999 Developments - Mortgage Financings and Amendment and Extension
of Credit Facility." The Registrant is the managing member of Westwood Hills,
and Hekemian & Co. currently is the managing agent of the property. See
"Management Agreement." In connection with the refinancing, Robert S. Hekemian,
Chairman of the Board of the Registrant and a member of Westwood Hills, provided
a personal guarantee in certain limited circumstances. The Registrant has agreed
to indemnify Mr. Hekemian with respect to this guaranty.
Employees
The Registrant does not have any full-time employees. Except for Mr.
Hekemian, Chairman of the Board, who devotes approximately twenty-five percent
(25%) of his business activities to the Registrant's business, none of the other
executive officers of the Registrant (who are identified in "Item 4A Executive
Officers of the Registrant" of this Annual Report), devotes more than ten
percent (10%) of his business activities to the business of the Registrant.
Hekemian & Co. has been retained by the Registrant to manage the Registrant's
developed properties and is responsible for providing the personnel required to
performperforming
all services related to the management and operation of the Registrant's
properties. See "Management Agreement." For the foreseeable future, the
Registrant intends to maintain its present form of management arrangement and
does not anticipate hiring employees.
Management Agreement
Pursuant to the terms of a Management Agreement dated December 20,
1961, by and between the
Registrant and Hekemian & Co., as amended (the "Management Agreement"), Hekemian
& Co., a real estate brokerage and management company, manages all of the
Registrant's properties. In connection with its management services, Hekemian &
Co. employs the superintendents and other personnel who perform the functions
required to operateoperating and maintainmaintaining the Registrant's properties. Pursuant to the
terms of the Management Agreement, the Registrant pays Hekemian & Co. certain
fees and commissions as compensation for its services. The Registrant also
reimburses Hekemian & Co. for the salaries, payroll taxes, insurance costs and
certain other costs of persons employed at the Registrant's properties by
Hekemian & Co. on behalf of the Registrant. From time to time, the Registrant
engages Hekemian & Co. to provide certain additional services, such as
consulting services related to development and financing activities of the
Registrant. Separate fee arrangements are negotiated between Hekemian & Co. and
the Registrant with respect to such services. See "First Real Estate Investment
Trust of New Jersey Notes to Financial Statements - - Note 7."
Mr. Hekemian, Chairman of the Board and a Trustee of the Registrant, is
currently the Chairman of the Board and Chief Executive Officer of Hekemian &
Co. Mr. Hekemian, his brother and two sisters currently ownowns approximately 67% of all of the issued and outstanding
shares of Hekemian & Co. A dispute between the shareholders of
Hekemian & Co. has developed which will lead to the dissolution of the company.
The Registrant is confident that any such dissolution will not have a material
adverse effect on its business operations.
Real Estate Financing
The Registrant funds acquisition opportunities and the development of
its real estate properties largely through debt financing, including mortgage
loans against certain of the Registrant's properties, and an $8 million line of
credit with Summit Bank. At DecemberOctober 31, 1998,1999, the Registrant's aggregate
outstanding mortgage debt was $60.69$60 million with an average interest cost on a
weighted average basis of 7.518%7.513%. The Registrant has mortgage loans against
the
followingcertain properties, which serve as collateral for such loans: (i) Westridge
Square shopping enter in Frederick, Maryland, (ii) Westwood Plaza shopping
center in Westwood, New Jersey, (iii) Pathmark supermarket super store property
in Patchogue, New York, (iv) Berdan Court Apartments in Wayne, New Jersey, (v)
Steuben Arms Apartments in River Edge, New Jersey,(vi) Hammel Gardens Apartments
in Maywood, New Jersey, and (vii) Heights Manor Apartments in Spring Lake
Heights, New Jersey.loans. See the tables in
"Item 2 Properties - Portfolio of Investments" for the outstanding mortgage
balance at DecemberOctober 31, 19981999 with respect to each of these properties.
At DecemberOctober 31, 1998,1999 there was no outstanding balance under the Summit
Bank line of credit. Any borrowings under the credit facility would bear
interest at a variable fluctuating rate which is based at the Registrant's
election on (i) Summit Bank's floating base rate plus one-quarter of one percent
(0.25%) or (ii) the London Interbank Offered Rate (LIBOR) plus 175 basis points
(1.75%). The Franklin Crossing shopping center and each of the
Registrant's residential apartment properties in Camden, Lakewood, Palisades
Park and Hasbrouck Heights, New Jersey, serve as collateral for the Summit Bank
line of credit.
In
During fiscal 1999 and fiscal 1998, the Registrant consummated a series
of mortgage financings in order to take advantage of the appreciated values of
certain of the Registrant's real estate properties and a favorable interest rate
environment. In addition, Westwood Hills, in which the Registrant has a 40%
equity interest, also refinanced its existing mortgage during the first quarter
of fiscal 1999. See "Fiscal Year 19981999 Developments - Mortgage Financings and
Amendment and Extension of Credit Facility." As a result of these mortgage
financings and as a result of the Registrant's purchase of the Pathmark
supermarket super store property in Patchogue, New York, which was largely
financed by a $7.5 million mortgage loan, the Registrant is currently, and will
continue to be for the foreseeable future, more highly leveraged than it has
been in the past. This increased level of indebtedness also presents an
increased risk of default on the obligations of the Registrant and an increase
in debt service requirements that could adversely affect the financial condition
and results of operations of the Registrant. A number of the Registrant's
mortgage loans, including several of the recent loans, are being amortized over
a period that is greater than the terms of such loans; thereby requiring balloon
payments at the expiration of the terms of such loans. The Registrant 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 loans.
The Registrant is subject to the normal risks associated with debt
financing, including the risk that the Registrant'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 the Registrant
were unable to refinance its indebtedness on acceptable terms, or at all, the
Registrant might be forced to dispose of one or more of its properties on
disadvantageous terms which might result in losses to the Registrant. These
losses could have a material adverse effect on the Registrant 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 indebtedness and the Registrant 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
the Registrant. Further, payment obligations on the Registrant's mortgage loans
will not be reduced if there is a decline in the economic performance of any of
the Registrant's properties. If any such decline in economic performance occurs,
the Registrant's revenues, earnings and funds available for distribution to
shareholders would be adversely affected.
Neither the Declaration of Trust nor any policy statement formally
adopted by the Registrant's Board of Trustees limits either the total amount of
indebtedness or the specified percentage of indebtedness (based on the total
capitalization of the Registrant) which may be incurred by the Registrant.
Accordingly, the Registrant 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 the
Registrant could bear interest at rates, which are higher than the rates on the
Registrant's existing debt. Future debt incurred by the Registrant could also
bear interest at a variable rate. Increases in interest rates would increase the
Registrant's variable interest costs (to the extent that the related
indebtedness was not protected by interest rate protection arrangements), which
could have a material adverse effect on the Registrant and its ability to make
distributions to shareholders and to pay amounts due on its debt or cause the
Registrant to be in default under its debt. Further, in the future, the
Registrant 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 whichthat are acceptable to the Registrant. In such
event, the Registrant might elect to defer certain projects unless alternative
sources of capital were available, such as through an equity or debt offering by
the Registrant.
Competitive Conditions
The Registrant is subject to normal competition with other investors to
acquire real property and to profitably manage such property. Numerous other
REIT(s), banks, insurance companies and pension funds, as well as corporate and
individual developers and owners of real estate, compete with the Registrant in
seeking properties for acquisition and for tenants. During the 1990s, the
Registrant has concentrated upon the acquisition and development of multi-family
residential and retail shopping center properties whichthat are substantially larger
than those real estate assets the Registrant had historically sought to include
in its investment portfolio. As a result, the Registrant has encountered
increasing competition for investment grade real estate from other entities and
persons whichthat have investment objectives similar to those of the Registrant. Such
competitors may have significantly greater financial resources than the
Registrant, may derive funding from foreign and domestic sources, and may have
larger staffs than the Registrant to find, evaluate and secure new properties.
In addition, retailers at the Registrant's Retail 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 the Registrant's retail
properties overlap with the trade areas of other shopping centers. Renovations
and expansions at those competing shopping centers and malls could negatively
affect the Registrant's retail 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 the Registrant's tenants, and any new retail real estate
competition developed in the future could potentially have an adverse effect on
the revenues of and earnings from the Registrant's retail properties.
(A) General Factors Affecting Investment in Retail and Apartment
Complex Properties; Effect on Economic and Real Estate
Conditions
The revenues and value of the Registrant's retail 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 retail 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) Retail Shopping Center Properties' Dependence on Anchor Stores
and Satellite Tenants
The Registrant 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 the Registrant's
multi-store shopping center properties could not be leased or if anchor store
tenants or satellite tenants failed to meet their lease obligations. The success
of the Registrant'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 the Registrant's
investments in its shopping center properties. If the sales of stores operating
in the Registrant'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 the Registrant. In addition,
any lease provisions providing for additional rent based on a percentage of
sales
particularly with respect to the Registrant's food supermarket tenants, could be rendered moot. In the event of default by a tenant, the
Registrant could suffer a loss of rent and experience extraordinary delays while
incurring additional costs in enforcing its rights under the lease, which may or
may not be recaptured by the Registrant. As at October 31, 1999 the following
anchor tenants account for approximately 67% of the total fixed rent at the
Registrant's Retail properties:
Tenant Center Sq. Ft.
------ ------ -------
Burlington Coat Factory Westridge Square 85,992
Kmart Corporation Westwood Plaza 84,254
Pathmark Stores Patchoque 63,932
Giant Of Maryland Westridge Square 55,330
Grand Union Franklin Crossing 42,173
Grand Union Westwood Plaza 28,000
Westridge Cinema (Hoyts) Westridge Square 27,336
(C) Renewal of Leases and Reletting of Space
There is no assurance that the Registrant will be able to retain
tenants at its retail properties upon expiration of their leases. Upon
expiration or termination of leases for space located in the Registrant's retail
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 the Registrant 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, the Registrant's
revenues and earnings; the Registrant's ability to service its debt; and the
Registrant's ability to make expected distributions to its shareholders, could
be adversely affected. There are no leases whichthat the Registrant considers
material or significant in terms of any single property in the Registrant's real
estate portfolio which expired during the fiscal year 19981999 or which are
scheduled to expire in the fiscal year 1999.2000.
(D) Illiquidity of Real Estate Investments; Possibility that Value
of the Registrant's Interests may be less than its Investment
Equity real estate investments are relatively illiquid. Accordingly,
the ability of the Registrant to vary its portfolio in response to changed
economic, market or other conditions is limited. Also, the Registrant's interest
in Westwood Hills is subject to transfer constraints imposed by the operating
agreement, which governs the Registrant's investment in Westwood Hills. Even
without such restrictions on the transfer of its interest, the Registrant
believes that there would be a limited market for its interest in Westwood
Hills.
If the Registrant 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 the
Registrant from any such sale of the assets in the Registrant'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
The Registrant'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
or property damages and the owner's liability therefor 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 the Registrant
incurred any such liability, it could reduce the Registrant'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, the Registrant is aware of the following environmental
matters affecting its properties:
(i) Vacant Land Located in Rockaway Township, N.J.
The property located in Rockaway Township contains wetlands and
associated transition areas. Pursuant to New Jersey law, transition areas may
not be developed. The Registrant has not formally determined the full impact
that the wetlands and associated transition areas will have on the development
of the property pursuant to the applicable laws and regulations of New Jersey.
However, it is believed that future development of the property will not be
substantially restricted as a result of the presence of wetlands and the
associated transition areas.
Under the current zoning ordinances, the property can be developedis zoned for
residential use, only. The Registrant has no present plan to develop the
property.with a small portion zoned for commercial use. Any development
would be subject to all of the then applicable governmental rules and
regulations. However, if the Registrant chose to develop this property, it does
not believe that this environmental condition would prevent it from developing a
material portion of the property.
(ii) Westwood Plaza Shopping Center, Westwood, N.J.
This property is in a HUD Flood Hazard Zone and serves as a local flood
retention basin for part of Westwood, New Jersey. The Registrant 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.
(iii) Franklin Crossing, Franklin Lakes, N.J.
The new 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. The Registrant is engaged in completingcompleted the remediation
required by the NJDEP.
In November 1999, the Registrant received a remediation process underNo Further Action Letter from the
supervisionNJDEP concerning the contaminated soil at Franklin Crossing. Monitoring of the
NJDEP. The Registrant
anticipates that: (a) the historicalwater discharge will have no significant impact
upon the operations at Franklin Crossing; (b) the discharge materials appearcontinue pursuant to
be isolated and have been excavated; (c) it will be required to monitor the
discharge; and
(d) that the cost of the investigation and monitoring will not be material. The
Registrant is in the process of securing a Classification Exception Area for
groundwater use restriction fromnotice
with the NJDEP pursuant to its Memorandum of
Agreement Program.NJDEP.
(iv) Other
The State of New Jersey has adopted an underground fuel storage tank
law and various regulations which impact upon the Registrant's responsibilities
with respect to underground storage tanks maintained on its properties. The
Registrant does have underground storage tanks located on two (2) of its
properties used in connection with the heating of apartment units.
The Registrant periodically visually inspects the location of each
underground storage tank for evidence of any spills or discharges. Based upon
these inspections, the Registrant knows of no underground storage tanks whichthat are
discharging material into the soil at the present time. Current state law does
not require the Registrant to submit its underground storage tanks to tightness
testing. The Registrant has conducted no such tests.
The Registrant 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 Lakewood, Camden, Palisades Park and Hasbrouck Heights,
New Jersey. Except as noted in subparagraph (iii) above, the environmental
reports secured by the Registrant have not revealed any environmental conditions
on its properties whichthat require remediation pursuant to any applicable Federal or
state law or regulation.
The Registrant does not believe that the environmental conditions
described in subparagraphs(i)subparagraphs (i) - (iv) above will have a materially adverse
effect upon the capital expenditures, revenues, earnings, financial condition or
competitive position of the Registrant.
(B) Rent Control Ordinances
Each of the apartment buildings or complexes owned by the Registrant is
subject to some form of rent control ordinance which limits the amount by which
the Registrant can increase the rent for renewed leases, and in some cases,
limits the amount of rent which the Registrant can charge for vacated units.
Westwood Hills is not subject to any rent control law or regulation.
(C) Zoning Ordinances
Local zoning ordinances may prevent the Registrant from developing its
unimproved properties, or renovating, expanding or converting its existing
properties, for their highest and best use as determined by the Registrant's
Board of Trustees, which could diminish the values of such properties.
(d)
(D) Financial Information about Foreign and Domestic Operations
and Export Sales
The Registrant does not engage in operations in foreign countries and it does
not derive any portion of its revenues from customers in foreign countries.
ITEM 2. PROPERTIES
Portfolio of Investments
The following charts set forth certain information relating to each of
the Registrant's real estate investments. Ininvestments in addition to the specific mortgages
which may be
indicated below, the following Registrant properties: Franklin Crossing and the
residential apartment properties located in Lakewood, Palisades Park and
Hasbrouck Heights, New Jersey, are subject to a lien from Summit Bank pursuant
to the line of credit in the face amount of $8 million.
Apartment Properties as of DecemberOctober 31, 1998:
- ---------------------------------------------1999:
Depreciated Cost
Occupancy Rate Mortgage of Occupancy Buildings Rateand
(% of Mortgage and
Property and Year No. of No. of Balance Equipment
Property and Location Year Acquired No. of Units Units) (000's) (000's)
- -------- -------- ----- ------ ------- -------------------------------------- -------------- ---------------- ----------------- --------------- ------------------
Lakewood Apts. Lakewood, NJ 1962 40 91.0%92.5% None $ 181164
Lakewood, NJ
Palisades Manor
Palisades Park, NJ 1962 12 93.6%91.7% None $ 6660
Grandview Apts.
Hasbrouck Heights, NJ 1964 20 94.2%100.0% None $ 151141
Heights, NJ
Heights Manor
Spring Lake Heights, NJ 1971 79 96.3% $3,69793.7% $3,664 $ 551519
Hammel Gardens
Maywood, NJ 1972 80 97.4% $3,89698.8% $3,862 $ 939933
Sheridan Apts.
Camden, NJ 1964 132 91.1%86.4% None $ 647
Steuben Arms
River Edge, NJ 1975 100 96.7% $5,370 $ 1,359608
Berdan Court
Wayne, NJ 1965 176 97.4% $10,99397.2% $10,898 $ 1,6281,631
Westwood Hills
Westwood, NJ (1) 1994 210 97.9%94.3% $15,500 $14,374
(1) The Registrant owns a 40% equity interest in Westwood Hills. See "Item 1(c)
Narrative Description of Business - Investment in Affiliate."
Retail Properties as of DecemberOctober 31, 1998:
- ------------------------------------------1999:
Mortgage
Leasable Space Occupancy Rate Balance or Depreciated Mortgage Cost
of
Leasable Occupancy Balance Buildings
Space - Rate-Approximate (% of orSquare Bank Loan of Buildings and
Property and Location Year Approximate Square Loan Equipment
Location Acquired Square Feet Feet) (000's) Equipment (000's)
- -------- -------- ----------- ----- ------- -------------------------------------- -------------- ---------------- ----------------- --------------- ------------------
Franklin Crossing 1966(1) 87,041 71.5% None $ 9,954
Franklin Lakes, NJ 1966(1) 87,041 68.6% None $10,064
Westwood Plaza
Westwood, NJ 1988 173,854 96.5% $10,505 $11,47198.4% $10,420 $11,347
Westridge Square
Frederick, Maryland 1992 256,620 99.8% $18,833 $24,40598.8% $18,609 $23,921
Pathmark Super Store
Patchogue, New York 1997 63,932 100% $ 7,392 $10,663
7,295 $10,486
Property has
been vacant
since
February 28,
Glen Rock, NJ 1962 4,800 1998since February None $ 24
28, 1998
(1) See "Item 1(a) General Development of Business - Fiscal Year 1998
Developments; Completion of New Development of Franklin Crossing Shopping
Center."The original 33,000 square foot shopping center was replaced by a new
87,041 square foot center, which opened in October 1987.
Vacant Land as of DecemberOctober 31, 1998:
- ------------------------------------1999:
Permitted Use Mortgage Balance
per Mortgage Local Acreage Balanceper or
Current Zoning per Bank Loan
Location Acquired Current Use Zoning Laws Parcel (000's)
- -------- -------- --- ---- ------ -------------------------------------- -------------- ---------------- ----------------- --------------- ------------------
Franklin Lakes, NJ 1966 None LimitedResidential 4.27 None
OfficeResidential /
Rockaway, NJ 1964/1963 None ResidentialRetail 19.26 None
South Brunswick, NJ 1964 Leased as CommercialIndustrial 33 None
farmland
qualifying for
state farmland
assessment tax
treatment
The Registrant believes that it has a diversified portfolio of
residential and retail properties. The Registrant's business is not materially
dependent upon any single tenant or any one of its properties. Several ofThe following
Table lists the Registrant's properties that have contributed 15% or more of the
Registrant's total revenue in one or more of the last threethree- (3) fiscal years.
For the fiscal years
ended October 31, 1996,Percentage Contribution to Revenues
Fiscal Years
-----------------------------
1999 1998 1997
and 1998, (i) the---- ---- ----
Westridge Square Shopping Center
in Frederick, Maryland contributed23.9% 29.8%, 30.2% and 26.2%, respectively, of the
Registrant's total revenues; (ii) the
Westwood Plaza Shopping Center in
Westwood, New Jersey contributed 20.4%,14.1% 15.3% 18.9% and 15.3%, respectively, of the
Registrant's total revenues; and (iii) the
Berdan Court apartment complex in
Wayne, New Jersey contributed 17.4%, 17% and 14.3%, respectively, of the
Registrant's total revenues. 14.3% 17.0%
Although the Registrant's general investment policy is to hold
properties as long-term investments, the Registrant could selectively sell
certain properties if it determines that any such sale is in the Registrant's
and its shareholders best interests. With respect to the Registrant's future
acquisition and development activities, the Registrant will evaluate various
real estate opportunities whichthat the Registrant believes would increase the
Registrant's revenues and earnings as well as compliment and increase the
overall value of the Registrant's existing investment portfolio.
Except for the Pathmark supermarket super store located in Patchogue,
Long Island, and the single tenant store located in Glen Rock, New Jersey, all
of the Registrant's retail properties have multiple tenants. The sole tenant in
the Glen Rock store location terminated its lease effective as of February 28,
1998. The Registrant is actively engaged in effortsstore has been re-let to secure a replacement
tenant. However,single tenant subject to the Registrant does not believe that the absenceterms of a
tenant
for this property for any periodfive (5) year lease. Rent commencement is expected during the first quarter of
time will have a material effect on the
Registrant's operating results as the property is not a significant part of the
Registrant's real estate portfolio.fiscal 2000.
The Registrant's retail shopping center properties have anchor tenants,
which occupy a significant amount of the leasable space in each such property.
The Westwood Plaza shopping center in Westwood, New Jersey is anchored by a
Kmart Store and a Grand Union supermarket and has eighteen (18)nineteen (19) satellite
stores. A Giant Supermarket and Burlington Coat Factory store anchor the
Westridge Square shopping center in Frederick, Maryland, which also has twenty-six(26)twenty
five (25) satellite stores and a six (6) screen movie theater complex. In the newly constructed and expanded
Franklin Crossing shopping center in Franklin Lakes, New Jersey, the anchor
tenant is a Grand Union supermarket which occupies approximately 41,00042,000 square
feet of the approximately 87,000 square feet available for lease. Franklin
Crossing also has seven (7)(when all tenants take occupancy) ten (10) satellite stores
and there is approximately 32,30013,000 square feet of available leasable space.
With respect to most of the Registrant's retail 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
contain clauses for reimbursement of real estate taxes, maintenance, insurance
and certain other operating expenses of the properties. During the last three
(3) completed fiscal years, the Registrant's retail properties have averaged a
98.5%97.8% occupancy rate with respect to the Registrant's available leasable space.
This excludes Franklin Crossing since the old shopping center was closed and
demolished in December 1996 and the new and expanded shopping center was not
reopened for business until October 1997.1997, and Patchoque, which was acquired
during fiscal 1998.
Leases for the Registrant's apartment buildings and complexes are
usually one (1) year in duration. Even though the residential units are leased
on a short termshort-term basis, the Registrant has averaged, during the last three (3)
completed fiscal years, a 94.9% occupancy rate with respect to the Registrant's
available apartment units.
The Registrant does not believe that any seasonal factors materially
affect the Registrant's business operations and the leasing of its retail and
apartment properties. The Registrant does not lease space to any Federal, state
or local government entity.
The Registrant believes that its properties are covered by adequate
fire and property insurance provided by reputable companies and with
commercially reasonable deductibles and limits.
ITEM 3 LEGAL PROCEEDINGS
There are no material pending legal proceedings to which the Registrant
is a party or of which any of its properties is the subject. There is, however,
ordinary and routine litigation involving the Registrant's business including
various tenancy and related matters. Notwithstanding the environmental
conditions disclosed in "Item 1(c) 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 the Registrant.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during
the fourth quarter of the Registrant's 19981999 fiscal year.
ITEM 4A EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Registrant as of January 15, 1999 are25, 2000 listed
below. Brief summaries of their business experience and certain other
information with respect to each of them is set forth in the following table and
in the information which follows the table.
As a result of Hekemian & Co. being responsible for managing the day to
day operations of the Registrant's properties and providing personnel to manage
the Registrant's properties, the executive officers are not required to devote a
significant part of their business activities to their duties as executive
officers of the Registrant. No executive officer of the Registrant directly
devotes more than ten percent (10%) of his business activities to the
Registrant's business, except for Mr. Hekemian, Chairman of the Board, who
devotes approximately twenty-five percent (25%) of his business activities to
the Registrant. See "Item 1(c) Narrative Description of Business - Management
Agreement." Except for Mr. DeLorenzo, Executive Secretary and Treasurer of the
Registrant, each of the executive officers is also a Trustee of the Registrant.
The executive officers of the Registrant are as follows:
Name Age Position
- ---- --- --------
Robert S. Hekemian 67 Chairman of the Board
and Chief Executive
Officer
Donald W. Barney 58 President
John B. Voskian, M.D. 74 Secretary
William R. DeLorenzo, Jr., Esq. 54
Name Age Position
- ------------------------------------- ------------- --------------------------------------------
Robert S. Hekemian 68 Chairman of the Board and Chief
Executive Officer
Donald W. Barney 59 President
John B. Voskian, M.D. 75 Secretary
William R. DeLorenzo, Jr., Esq. 55 Executive Secretary and Treasurer
ROBERT
Robert S. HEKEMIANHekemian has been active in the real estate industry for more
than forty-five(45)forty-six (46) years. Mr. Hekemian has served as Chairman of the Board and
Chief Executive Officer of the Registrant since 1991 and as a Trustee since
1980. From 1981 to 1991, Mr. Hekemian was President of the Registrant. Mr.
Hekemian directly devotes approximately twenty-five percent (25%) of his time to
execute his duties as an executive officer of the Registrant. Mr. Hekemian is
also the Chairman of the Board and Chief Executive Officer of Hekemian & Co. See
"Item 1(c) Narrative Description of Business - Management Agreement." Mr.
Hekemian is a director of Summit Bancorp.Bank. Mr. Hekemian is also a director, partner
and officer in numerous private real estate corporations and partnerships. Mr.
Hekemian is the brother-in-law of Dr. Voskian.
DONALDDonald W. BARNEYBarney has served as President of the Registrant since 1993
and as a Trustee since 1981. Mr. Barney devotes approximately fiveten percent (5%(10%)
of his time to execute his duties as an executive officer of the Registrant. Mr.
Barney has been associated with Union Camp Corporation, a diversified
manufacturer of paper, packaging products, chemicals and wood products, since
1969, most recently, and until December 31, 1998, as Vice President and
Treasurer. Mr. Barney is alsowas a director of Ramapo Financial Corporation until it
was acquired, in May 1999 by another financial institution, and is a partner and
director in several other private real estate investment companies. Mr. Barney
was formerly the brother-in-law of Mr. DeLorenzo.
DR. JOHNDr. John B. VOSKIANVoskian has served as Secretary and a Trustee of the
Registrant since 1968. Dr. Voskian spends less than five percent (5%) of his
time with respect to his duties as an executive officer of the Registrant. A
physician, Dr. Voskian has retired from the practice of medicine. Dr. Voskian is
also a director and an officer in a number of private real estate companies. Dr.
Voskian is the brother-in-law of Mr. Hekemian.
WILLIAMWilliam R. DELORENZO, JR.DeLorenzo, Jr., an attorney, has served as the Treasurer and
Executive Secretary of the Registrant since 1974. Mr. DeLorenzo devotes
approximately five percent (5%) of his time to his activities as an executive
officer of the Registrant. Since 1996, Mr. DeLorenzo has been in private
practice with the law firm of Nowell Amoroso Klein Bierman, P.A., with offices
in Hackensack, New Jersey and New York City. From 1990 to 1994, Mr. DeLorenzo
was the Chairman of the New Jersey Commission on Capital Budget and Planning.
Mr. DeLorenzo was formerly the brother-in-law of Mr. Barney.
PART II
-------
ITEM 5 MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SECURITY
HOLDER MATTERS
Shares of Beneficial Interest
Beneficial interests in the Registrant are represented by shares
without par value (the "Shares"). The Shares represent the Registrant's only
authorized, issued and outstanding class of equity. As of January 15,December 6, 1999 there
were 429404 holders of record of the Shares.
The Shares are traded in the over-the-counter market through use of the
OTC Bulletin Board(R) Service (the "OTC Bulletin Board") provided by NASD, Inc.
The Registrant 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, for the periods
indicated, the high and low bid quotations for the Shares on the OTC Bulletin
Board.
High Low
---- ---
Fiscal Year Ended October 31, 1998
- ----------------------------------
First Quarter 25-1/2 25
Second Quarter 26 25-1/2
Third Quarter 28 26
Fourth Quarter 30 27
Fiscal Year Ended October 31, 1997
- ----------------------------------
First Quarter 21-7/8 21-1/2
Second Quarter 22-3/4 22-1/4
Third Quarter 24-1/2 24
Fourth Quarter 25-1/8 25-1/8
Dividends
High Low Per Share
---- --- ---------
Fiscal Year Ended October 31, 1999
- ----------------------------------
First Quarter $ 30 $ 29 $ 0.40
Second Quarter $ 30 $ 29 $ 0.40
Third Quarter $ 29 $ 27 $ 0.40
Fourth Quarter $ 27 1/2 $ 27 $ 1.05
Dividends
High Low Per Share
---- --- ---------
Fiscal Year Ended October 31, 1998
- ----------------------------------
First Quarter $ 25 1/2 $ 25 $ 0.40
Second Quarter $ 26 $ 25 1/2 $ 0.40
Third Quarter $ 28 $ 26 $ 0.40
Fourth Quarter $ 30 $ 27 $ 0.92
The bid quotations set forth above for the Shares reflect inter-dealer prices,
without retail mark-up, mark-down or commission and may not necessarily
represent actual transactions. The source of the bid quotations is Janney
Montgomery Scott, Inc., members of the New York Stock Exchange and other
national securities exchanges.
Dividends
The holders of Shares are entitled to receive distributions as may be
declared by the Registrant'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-five percent (95%) of the Registrant'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 19971998 and fiscal
1998,1999, the Registrant paid or declared aggregate total dividends of $1.90$2.12 and
$2.12$2.25 per share, respectively, to the holders of Shares. See "Item 7
Management's Discussion and Analysis of Financial Condition and Results of
Operations - REIT Distributions to Shareholders."
ITEM 6 SELECTED FINANCIAL DATA
The selected consolidated financial data for the Registrant for each of
the five (5) fiscal years in the period ended October 31, 19981999 are derived from
financial statements that have been audited and reported upon by J.H. Cohn LLP,
independent public accountants for the Registrant. This data should be read in
conjunction with "Item 7 Management's Discussion and Analysis of Financial
Condition and Results of Operations" of this Annual Report and with the
Registrant's financial statements and related notes included in this Annual
Report.
Income Statement Data:
YearsINCOME STATEMENT DATA:
Year Ended October 31:
-------------------------------------------------------31, 1999 1998 1997 1996 1995
1994
------- ------- ------- ------- --------------- -------- -------- -------- --------
(in thousands)thousands, except per share data)
REVENUES:
Revenues from Real Estate Operatons 15,037 14,213 11,553 11,377 11,113
Interest Income 742 6 6 10 5
Equity in
IncomeIn Earnings (Loss) of Affiliate (1) ............... $(52) 213 $ 139 $ 92 $ 81
$ 51
======= ======= ======= ======= =======
Total Revenue ............... $14,432 $11,698 $11,417 $11,124 $10,335
======= ======= ======= ======= =======
Total Expenses............... $10,747 $15,727 14,432 11,698 11,479 11,199
EXPENSES:
Real Estate Operations 5,244 5,026 4,499 4,571 4,110
Financing Costs 4,620 3,762 2,629 2,749 2,818
General Expenses 432 309 288 202 251
Depreciation 1,716 1,650 1,319 1,295 1,234
12,012 10,747 8,735 $ 8,755 $ 8,338 $ 7,952
======= ======= ======= ======= =======8,817 8,413
-------- -------- -------- -------- --------
Net Income ..................$ 3,715 $ 3,685 $ 2,963 $ 2,662 $ 2,786
$ 2,383
======= ======= ======= ======= =======
Balance Sheet Data:
As of October 31:
-----------------
(in thousands, except per share data)
1998 1997 1996 1995 1994
------- ------- ------- ------- -------
Total Assets $71,275 $59,233 $51,674 $51,838 $52,398
======= ======= ======= ======= =======
Long-Term
Obligations $47,853 $24,429 $23,609 $24,110 $24,564
======= ======= ======= ======= =======
Shareholders'
Equity $20,362 $19,984 $19,984 $19,989 $21,148
======= ======= ======= ======= =======
Per Share
Data:
Basic======== ======== ======== ======== ========
Earnings Per ShareShare:
Basic $ 2.38 $ 2.36 $ 1.90 $ 1.71 $ 1.79
======== ======== ======== ======== ========
Cash Dividends Declared Per
Common Share $ 1.53
======= ======= ======= ======= =======
Dividends
Per Share2.25 $ 2.12 $ 1.90 $ 1.71 $ 2.53
======== ======== ======== ======== ========
BALANCE SHEET DATA:
Year Ended October 31, 1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
Total Assets: $ 1.62
======= ======= ======= =======84,428 $ 71,275 $ 59,233 $ 51,674 $ 51,838
======== ======== ======== ======== ========
Long-Term Obligations $ 60,071 $ 47,853 $ 24,429 $ 23,609 $ 24,110
======== ======== ======== ======== ========
Secured Note Payable $ -- $ -- $ 11,429 $ 5,662 $ 5,169
======== ======== ======== ======== ========
Shareholders' Equity $ 20,520 $ 20,362 $ 19,984 $ 19,984 $ 19,989
======== ======== ======== ======== ========
Weighted Average Number of
Shares Outstanding 1,559 1,559 1,559 1,559 1,559
======= ======= ======= =============== ======== ======== ======== ========
(1) All of the financial data set forth above has been statedWestwood Hills L.L.C. is accounted for the
fiscal years ended October 31, 1998 and 1997 and restated for each of
the fiscal years ended October 31, 1994 through 1996 using the equity method of
accounting. Fiscal years ended 1996 and 1995 have been restated to reflect
this accounting for Westwood Hills. See "First Real Estate
Investment Trust Of New Jersey Notes to Financial Statements - Notes 1
and 2."method.
ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Overview
The Registrant is an equity REIT which owns a portfolio of residential
apartment and retail properties. The Registrant's revenues consist primarily of
fixed rental income and additional rent in the form of expense reimbursements
derived from its income producing retail properties. The Registrant also
receives income from its 40% owned affiliate, Westwood Hills, which owns a
residential apartment property. The Registrant's policy has been to acquire real
property for long-term investment.
During the period covering fiscal 1996 through the first quarter of
fiscal 1999, the events which had the most significant impact on the
Registrant's operations were (i) the closing and demolition of the old Franklin
Lakes shopping center in December 1996 and the completion of construction of the
new and expanded (approximately 87,000 square feet) Franklin Crossing shopping
center in the fourth quarter of fiscal 1997; (ii) the acquisition in December
1997 of the Patchogue, New York single tenant retail property which has a large
Pathmark supermarket super store (63,900 square feet) as its tenant; and (iii)
the series of mortgage financings which the Registrant closed during fiscal 1998
and the first quarter of fiscal 1999.
The following discussion should be read in conjunction with the
Registrant's financial statements and related notes included elsewhere in this
Annual Report. Certain statements in this "Management's Discussion and Analysis
of Financial Condition and Results of Operations" may constitute forward-looking
statements within the meaning of Section 27A of the Securities Act and Section
21E of the Exchange Act. Although the Registrant believes that the expectations
reflected in such forward-looking statements are based on reasonable
assumptions, such statements are subject to risks and uncertainties, including
those discussed elsewhere in this Annual Report, that could cause actual results
to differ materially from those projected.
Results of Operations:
Fiscal Years ended October 31, 1999 and 1998
Revenues
For the fiscal year ended October 31, 1999, total revenues increased $1,295,000
(8.9%) to $15,727,000 from $14,432,000 for fiscal 1998. $824,000 of the increase
comes from the Registrant's real estate operations, and $736,000 from increased
interest income. These increases were offset by a negative swing of $265,000 in
the Registrant's share of earnings from its 40% owned affiliate from a profit of
$213,000 for fiscal 1998 to a loss of $52,000 for fiscal 1999.
Real Estate Operations: The increase in revenues from real estate operations
(5.8%) results primarily from higher revenues from the Registrant's residential
and retail properties. Higher per unit rental collections were experienced at
the Registrant's residential properties. Increased revenues at the Registrant's
retail properties came primarily from the Patchogue, NY, property (in for the
full fiscal 1999 year compared to 10 1/2 months for fiscal 1998), and increased
occupancy during fiscal 1999 at the Franklin Crossing shopping center.
Interest Income: The mortgage financings that took place during the first
quarter of fiscal 1999 (See "Item (ii) Fiscal Year 1999 Developments.")
generated funds of approximately $14.8 million. These funds were invested in
institutional money market pools that generated the bulk of the increased
interest income. During the fourth quarter of 1999, in order to increase yields,
the Registrant redeployed $14 million from the money market pools into
short-to-intermediate term Government Agency bonds.
Earnings From 40% Owned Affiliate: The Registrant's 40% owned affiliate,
Westwood Hills L.L.C. refinanced a $10+ million, 7.8% mortgage for a $15.5
million, 6.693% mortgage. One-time refinancing costs of $440,000 were incurred.
The Registrant's share of these refinancing costs was $176,000. This one-time
financing cost coupled with reduced earnings due to higher debt service resulted
in the negative swing of $264,000 in the Registrant's share of its affiliate's
earnings.
Expenses:
For the fiscal year ended October 31, 1999 overall expenses increased $1,265,000
(11.8%) to $12,012,000 from $10,747,000 for fiscal 1998. The increases and
percentage increases came in the following areas: Real estate operations:
$218,000 (4.3%); financing costs: $858,000 (22.8%); General expenses: $123,000
(39.8%); and, Depreciation expense: $66,000 (4.0%).
Real Estate Operations: Direct operating expenses increased $55,000 (1.7%),
while real estate taxes increased $164,000 (9.4%). The majority of these
increases came from the new properties at Patchogue and Franklin Crossing.
Financing Costs: The increase in Financing Costs of $858,000 result from the
increased debt levels from the refinancings during fiscal 1999 and 1998. These
increased costs are offset by the increased interest income earned of $736,000
(see above).
General Administrative Expense: The increase in these category results primarily
from higher Trustee fees, a function of a greater number of meetings, and, legal
fees incurred in connection with the Registrant becoming a 34 Act reporting
company. Much of this cost increase is considered non-recurring.
Depreciation Expense: Higher depreciation results primarily from depreciation at
the newer properties at Patchogue and Franklin Crossing.
Net Income
For the fiscal year ended October 31, 1999 Net Income was $3,715,000 ($2.38 per
share) compared to Net Income of $3,685,000 ($2.36 per share) for the fiscal
year ended October 31, 1998. Earnings at operating real estate properties
increased 7.2% to $8,077,000 from $7,538,000 last fiscal year. This earnings
increase at the real estate operating properties is a combination of a 5.8%
increase in revenues outpacing a 4.27% increase in operating expenses. The
principle reasons for this increase were higher per unit rents at the
Registrant's residential properties and increased earnings from Registrant's
retail properties in Patchogue, NY, and at Franklin Crossing shopping center in
Franklin Lakes, NJ.
The real estate operating gains were offset by (1) the negative swing in the
Registrant's share of the loss at it's 40% owned affiliate, (2) higher financing
costs not completely offset by higher interest earnings, and, (3) higher General
Administrative expenses.
The Registrant believes that in fiscal 2000 the continued economic
strength in the employment markets in which its properties are located should
allow the Registrant to realize its current occupancy rates for its apartment
properties with a sound support base for its retail properties.
Funds From Operations ("FFO")
FFO is considered by many as a standard measurement of a REIT's
performance. The Registrant computes FFO as follows:
Year Ended October 31,
-----------------------
1999 1998
---- ----
Net Income $ 3,715 $ 3,685
Depreciation 1,716 1,650
Amortization of Deferred
Mortgage Costs 90 67
Deferred Rents (399) (378)
Debt Retirement Cost 130
Other 320 145
------- -------
Funds From Operations $ 5,442 $ 5,299
======= =======
FFO does not represent cash generated from operating activities in
accordance with generally accepted accounting principles ("GAAP"), 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 the Registrant, and therefore the Registrant's FFO
and the FFO of other REITs may not be directly comparable.
Fiscal Years ended October 31, 1998 and October 31, 1997
Revenues
For the fiscal year ended October 31, 1998, total revenue increased
$2,734,000(23.4%) from $11,698,000 in fiscal 1997 to $14,432,000. $2,313,000 of
the increase in revenues is due, primarily, to the December 1997 acquisition of
the property in Patchogue, New York and the reopening of the new and expanded
Franklin Crossing shopping center in the fourth quarter of fiscal 1997. Grand
Union, which leases approximately 47% of the available leasable space and
operates a supermarket at Franklin Crossing, commenced paying rent in October
1997. At October 31, 1998, Franklin Crossing was 60% occupied and 65% leased.
The balance of the revenue increase is attributable to increased revenues at the
Registrant's other properties and its 40% equity in the earnings of Westwood
Hills.
Expenses
For the year ended October 31, 1998, total expenses increased
$2,012,000 (23.0%) from $8,735,000 in fiscal 1997 to $10,747,000 in fiscal 1998.
$1,133,000 of this increase is attributable to an increase in financing costs
(including a one-time debt retirement charge of $130,000) resulting from the
Registrant's increased debt level. See "Item 1(a) General Development of
Business - Fiscal 1998 Developments; Mortgage Financings and Amendment and
Extension of Credit Facility." Real estate operating expenses increased
$528,000 (11.7%) from $4,498,000 in fiscal 1997 to $5,026,000 in fiscal 1998,
primarily due to $470,000 attributable to the operations at Patchogue and
Franklin Crossing. Depreciation increased $331,000 (25.1%) from $1,319,000 in
fiscal 1997 to $1,650,000 in fiscal 1998 primarily due to additional
depreciation taken on the Patchogue and Franklin Crossing properties. In fiscal
1999, the Registrant expects its rental revenues to continue to grow at a faster
rate than its expenses. Under the terms of their leases, retail tenants
reimburse the Registrant for the majority of the operating expenses and real
estate taxes incurred at the retail properties. Varying occupancy rates affect
the amount of reimbursements received by the Registrant. For the past three
fiscal years, average occupancy at the retail properties has been 98.5%.
Net Income and Funds from Operations
For the fiscal year ended October 31, 1998, the Registrant's net income
increased $722,000 (24.4%) from $2,963,000 in fiscal 1997 to $3,685,000.
Earnings per share increased from $1.90 per share in fiscal 1997 to $2.36 per
share in fiscal 1998. Earnings at operating properties increased $1,801,000
(31.5%) to $7,538,000 from $5,733,000 for the prior year. Earnings at same
properties increased 5.9% as a result of high, stable occupancy levels, and
revenue increases (3.7%) outpacing expense increases (1.4%). Earnings from the
Registrant's new retail property in Patchogue, New York and the reopened
Franklin Crossing shopping center accounted for the majority of the earnings
increases. Funds from Operations ("FFO") increased $900,000 (20.5%) from
$4,399,000 ($2.82 per share) in fiscal 1997 to $5,299,000 ($3.40 per share) in
fiscal 1998.
The Registrant believes that in fiscal 1999 the continued economic
strength in the employment markets in which its properties are located should
allow the Registrant to realize its current occupancy rates for its apartment
properties with a sound support base for its retail properties. The Registrant
expects that continued increasing occupancy at Franklin Crossing should generate
increased earnings and FFO in fiscal 1999.
FFO is a standard measurement of a REIT's performance. It is an
indication of a REIT's financial results and its ability to pay dividends. FFO
is defined by the Registrant as net income, excluding (i) deferred rents and
gains and losses from property sales and (ii) real estate related depreciation
and amortization. FFO does not represent cash generated from operating
activities in accordance with generally accepted accounting principles ("GAAP"),
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 the Registrant, and therefore the
Registrant's FFO and the FFO of other REITs may not be directly comparable. As
an example, the definition of FFO adopted by the National Association of Real
Estate Investment Trusts ("NAREIT") encourages including the "straight lining"
of rents. The Registrant does not incorporate straight line rents in determining
FFO which results in lesser amounts of FFO reported by the Registrant than if it
used the method of calculation adopted by NAREIT.
Fiscal Years ended October 31, 1997 and October 31, 1996
Revenues
The Registrant's total revenue increased $281,000 (2.5%) from
$11,417,000 in fiscal 1996 to $11,698,000 in fiscal 1997. The Registrant's
shopping center in Franklin Lakes, New Jersey was closed and demolished in
December 1996. As a practical matter, the shopping center was really closed for
the last quarter of fiscal 1996, since the Registrant did not renew leases as
they expired. Construction on the new and expanded Franklin Crossing was not
completed until August 1997 and did not reopen until the end of fiscal 1997.
Rental income would have been greater in fiscal 1996 and fiscal 1997 if the
Franklin Lakes shopping center had not been closed. However, the Registrant
expects that the new and expanded Franklin Crossing shopping center will provide
a more significant contribution to the Registrant's revenues and income than was
provided by the previous shopping center.
Expenses
For the fiscal year ended October 31, 1997, the Registrant's total
expenses decreased by $20,000 from $8,743,000 in fiscal 1996 to $8,723,000. The
decrease in expenses in fiscal 1997 was mainly a result of certain increased
costs in fiscal 1996 incurred during the harsh winter of 1996 such as snow
removal costs and utility costs that were not incurred during fiscal 1997.
Property taxes are a major component of operating expenses. The Registrant
continues to vigorously appeal real estate assessments where appropriate in an
effort to assure that its properties are fairly assessed for real estate tax
purposes.
During the demolition and the construction of the new Franklin Crossing
shopping center, various costs were incurred by the Registrant. In accordance
with GAAP, the costs relating to construction were capitalized during the period
of construction. The effect of capitalizing construction costs is that while the
Registrant is experiencing cash outflows with respect to such costs, there is an
immaterial effect on the Registrant's fiscal 1997 Statement of Income and
Undistributed Earnings with respect to such capitalized costs.
Net Income and Funds from Operations
For the fiscal year ended October 31, 1997, the Registrant's net income
increased $301,000 (11.3%) from $2,662,000 in fiscal 1996 to $2,963,000.
Earnings per share for fiscal 1997 was $1.90 as compared to $1.71 for fiscal
1996. FFO increased $231,000 (5.5%) in fiscal 1997 from $4,158,000 ($2.67 per
share) in fiscal 1996 to $4,399,000 ($2.82 per share). Earnings at operating
properties increased 4.3%.
Liquidity and Capital Resources
At October 31, 1998,1999, the Registrant's cash, and cash equivalents and
marketable securities totaled $793,000$16,536,000 as compared to $228,000$793,000 at October 31,
1997. At December 31, 1998, cash
and cash equivalents totaled $14,942,000. Net cash inflows1998. The majority of this increase ($14.8 million) resulted from the Registrant's
operations amounted to $5.1 million in fiscal 1998 as compared to $3.7 million
in fiscal 1997 and $3.3 million in fiscal 1996. In fiscal 1997, the Registrant
recognized the declining cost trend of fixed rate, long-term financing, and
developed a plan to replace its reliance on its short-term, variable rate
financing with long-term, fixed rate financing.
During fiscal 1998, the Registrant mortgaged a previously debt free
property for $11,100,000, and refinanced an existing $5,157,000 mortgage
for
$10,600,000. The net proceeds from these financings of approximately $16,065,000
were used to repay the then outstanding balance under the Summit Bank line of
credit, fund construction costs at Franklin Crossing, and pay the cash portion
of the Patchogue acquisition. See "Item 1(a) General Development of Business -
Fiscal Year 1998 Developments." Inthat took place during the first quarter of fiscal 1999. See "Item
(ii), Fiscal Year 1999 Developments." These funds, and the Registrant closed on a series of mortgage financings which yielded net cash
proceeds of $12,706,000 to the Registrant. In addition,funds available from
the Registrant's 40%
owned affiliate, Westwood Hills, also completed a mortgage financing in the
first quarter of fiscal 1999 which yielded approximately $4,900,000 in net cash
proceeds. Approximately $2 million of these proceeds was distributed to the
Registrant in accordance with its equity ownership.
As a result of the various mortgage financings, and reflecting the
reduced collateralrevolving credit line are available the Registrant's line of credit from Summit Bank
was reduced from $20 million at October 31, 1997, to $12.3 million at October
31, 1998, and to $8 million at November 30, 1998. The Registrant may use this
line of credit to finance the acquisition or development of additional
properties and for general business purposes.property acquisitions.
At October 31, 1998 and December
31, 1998, there were no outstanding borrowings under the line of credit as
compared to $11.4 million which was outstanding at October 31, 1997.
At October 31, 1998,1999, the Registrant's aggregate outstanding mortgage
debt was approximately $47.9$60 million, as compared to approximately $24.4 million
atwith a fixed weighted average interest cost
of 7.513%, and an average life of 11.22 years. At October 31, 1997 and approximately $34 million at October 31, 1996. At
December 31, 1998, the
Registrant's aggregate outstanding mortgage debt was $60.69 million. Cash flow from operations has been sufficient to meet all
operational needsapproximately $47.8 million, with a fixed
weighted interest cost of the Registrant.7.826%, and an average life of 8.12 years. The
Registrant anticipates that the cash flow from operations will be more than
sufficient to meet the Registrant's operational needs and the increased mortgage
obligations. As a result of the long-term fixed rate financing, the Registrant
believes that its exposure to market risk relating to interest rate risk is not
material. However, to the extent the proceeds from the various financings cannot
be redeployed to earn more than the stated interest costs, there will be a
negative impact on earnings and cash flow available to pay dividends. To offset
the Registrant's increased debt-carrying costs, the funds generated from the
financings have been invested first in short term institutional money market
pools, and, during October 1999, $14 million was redeployed into
short-to-intermediate fixed rate Government Agency Bonds. These bonds yield a
weighted average interest of 6.475% and have a weighted maturity of 27.9 months.
Since the market value of these bonds are interest rate sensitive, a sale of all
or a portion of these bonds prior to maturity in a high interest rate
environment, may result in a loss to the Registrant. Since the bonds are
relatively short-term in nature, the Registrant believes that the interest rate
risk is not material.
The Registrant continues to makemakes capital improvements to, primarily, its apartment
properties when it deems such improvements to be necessary or appropriate. The
short term impact of such capital outlays will be to depress the Registrant's
current cash flow. The Registrant is now experiencing the benefits of these
expenditures by preserving the physical integrity of its properties and securing
increased rentals. Other than the apartment rehabilitation program described
above, the Registrant has made no commitments and has no understandings for any
material capital expenditures during fiscal 19992000 other than in the ordinary
course of business.
REIT Distributions to Shareholders
Since its inception in 1961, the Registrant has elected to be treated
as a REIT for Federal income tax purposes. In order to qualify as a REIT, the
Registrant must satisfy a number of highly technical and complex operational
requirements including, that it must distribute to its shareholders at least 95%
of its REIT taxable income. The Registrant anticipates 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, the Registrant generally
intends to distribute not less than 95% of the Registrant's REIT taxable income
in order to satisfy the applicable REIT requirement as set forth in the Code.
Cash dividends are paid to shareholders on a quarterly basis. Dividends
per share were $2.12, $1.90 and $1.71 inThe following
table lists the fiscal years ended October 31,
1998, 1997 and 1996, respectively. Total dividends paid to shareholders during
theseor declared for the three most recent fiscal
years were $3,306,750, $2,963,597 and $2,667,237,
respectively, representingyears:
($000) Dividends
---------------------- as a % of
Total Taxable Taxable
Per Share Dividends Income Income
--------- --------- ------ ------
1999 $ 2.25 $ 3,509 $ 3,332 105.3%
1998 $ 2.12 $ 3,307 $ 3,170 104.3%,
1997 $ 1.90 $ 2,964 $ 2,813 105.4% and 99.3% of the Registrant's REIT
taxable income of $3,171,000, $2,813,000, and $2,686,000, respectively, for each
such fiscal year. Although the Registrant receives most of its rental payments
on a monthly basis, it has and intends to continue to make regular quarterly
dividend payment distributions. The funds accumulated for dividend distributions
may be invested by the Registrant in short-term marketable instruments.
Inflation
The Registrant anticipates that the U.S. Mid-Atlantic statesStates will
continue to experience moderate growth with limited inflation. Any sustained
inflation may, however, negatively impact the Registrant in at least two areas:
(i) the interest costs of any new mortgage financing or the use of the Summit
Bank line of credit may be higher than rates currently in effect; and (ii)
higher real estate operating costs, especially in those areas where such costs
are not chargeable to commercial tenants.
Year 2000 Issue
The Registrant and Hekemian & Co., which manages the Registrant's
developed properties and provides other serviceshas not experienced any disruptions to the Registrant, have
undertaken a comprehensive assessment of the Registrant'sits business
exposure
relative tooperations resulting from the Y2K issue. While the Registrant does not own or use any computer
systems, the business managed by Hekemian & Co. is dependent on computer
hardware, software, systems and processes. Hekemian & Co. has advised the
Registrant that all of its major Non-IT systems are Y2K compliant and that it
expects that all major IT systems will be compliant before the end of 1999. The
Registrant expects that any costs incurred by it to assess the Y2K issue and to
remediate any Y2K problems will not have a significant adverse effect on the
Registrant's operating results or financial condition. Hekemian & Co. has also
contacted the Registrant's tenants and all other critical external entities to
determine their exposure to the Y2K issue and how and if such exposure may
impact the Registrant's business. To date, no party responding to this inquiry
has indicated that it expects its business operations to be significantly
affected by the Y2K issue. At this time, the Registrant does not expect that the
Y2K issue will have a material adverse effect on its properties, business,
operating results, or financial condition. See "Item 1(a) General Development of
Business - Fiscal Year 1998 Developments; Year 2000 Issue."
ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As a result of the Registrant having replaced short-term, variable rate
financing with long-term fixed rate financing during fiscal 1998Reference is made to "Item 7 - Liquidity and the first
quarter of fiscal 1999, the Registrant believes that its exposure to market risk
relating to interest rate risk is not material. The Registrant's only variable
rate financing is the Summit Bank line of credit under which there was no
outstanding balance as of December 31, 1998. The Registrant believes that its
business operations are not exposed to market risk relating to foreign currency
exchange risk, commodity price risk or equity price risk.Capital
Resources."
ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary data of the Registrant and
of its affiliate, Westwood Hills, are submitted as a separate section of this
Annual Report. See "Index to Financial Statements" on page F-1 of this Annual
Report.
ITEM 9 CHANGES IN AND DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not Applicable.
PART III
- --------
Certain information required by Part III is incorporated by reference
to the Registrant'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 the Registrant's fiscal year covered by this Annual Report. Only
those sections of the Proxy Statement which specifically address the items set
forth in this Annual Report are incorporated by reference from the Proxy
Statement into this Annual Report.
ITEM 10 DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT
The information concerning the Registrant's trustees required by this
item is incorporated herein by reference to the sections titled "Election of
Trustees" and "Compliance with Section 16(a) of the Securities Exchange Act" in
the Registrant's Proxy Statement for its Annual Meeting to be held in April
1999.2000.
The information concerning the Registrant's executive officers required
by this item is set forth in Item 4A of Part I of this Annual Report under the
caption "Executive Officers of the Registrant."
ITEM 11 EXECUTIVE COMPENSATION
The information pertaining to executive compensation required by this
item is incorporated herein by reference to the section titled "Election of
Trustees - Executive Compensation" in the Registrant's Proxy Statement for its
Annual Meeting to be held in April 1999.2000.
ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated herein by
reference to the section titled "Security Ownership of Certain Beneficial Owners
and Management" in the Registrant's Proxy Statement for its Annual Meeting to be
held in April 1999.2000.
ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated herein by
reference to the section titled "Certain Relationships and Related Transactions"
in the Registrant's Proxy Statement for its Annual Meeting to be held in April
1999.2000.
PART IV
ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
(a) Financial Statements of Registrant and of Registrant's Affiliate,
Westwood Hills:
(i) Reports of Independent Public Accountants
for Registrant, J.H. Cohn, LLP
(ii) Balance Sheets as of October 31, 19981999 and
19971998
(iii) Statements of Income and Undistributed
Earnings for the years ended October 31,
1999, 1998 1997 and 19961997 for Registrant and
Statements of Income and Members' Equity for
the years ended October 31, 1999, 1998 1997 and
19961997 for Westwood Hills
(iv) Statements of Cash Flows for the years ended
October 31, 1999, 1998 1997 and 19961997
(v) Notes to Financial Statements
Financial Statement Schedules:
(i) Short-Term Borrowings.
(ii) Supplementary Income Statement Information.
(iii) Real Estate and Accumulated Depreciation.
Exhibits:
See Index to Exhibits immediately following the Financial
Statements.
(b) Reports on Form 8-K:
No report onOn October 21, 1999 the Registrant filed Form 8-K
was filed byreporting the Registrant duringdeclaration of its fourth quarter dividend in
the last quarteramount of the fiscal year ended October 31, 1998.$1.05 per share payable on December 15, 1999 to
shareholders of record as of December 6, 1999.
(c) Exhibits:
See Index to Exhibits.
(d) Financial Statement Schedules:
See Index to Financial Statements and Financial Statement
Schedules.
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant 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 28, 999 By: /s//s/ Robert S. Hekemian
---------------------------------------------------
Robert S. Hekemian,
Chairman of the Board and
Chief Executive Officer
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Robert S. Hekemian his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities, to sign any
and all amendments to this Annual Report, 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 as he
might or could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agent or his substitutes or substitute, may lawfully do or
cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
Signature Title Date
--------- ----- ----
/s/Robert S. Hekemian Chairman of the Board,
Chief January 28, 1999
- --------------------- Chief Executive Officer and
Robert S. Hekemian Trustee (Principal Executive
Officer)
/s/Donald W. Barney Trustee
January 28, 1999
- -------------------
Donald W. Barney
/s/John B. Voskian Trustee
January 28, 1999
- ------------------
John B. Voskian
/s/Herbert C. Klein Trustee January 28, 1999
- -------------------
Herbert C. Klein
Signature Title Date
--------- ----- ----
Trustee January , 1999
- -------------------
Charles J. Dodge
Trustee January , 1999
- -------------------------
Nicholas A. Laganella
/s/Ronald J. Artinian Trustee January 28, 1999
- ---------------------
Ronald J. Artinian
/s/Alan L. Aufzien Trustee
January 28, 1999
- -------------------
Alan L. Aufzien
/s/Nicholas A. Laganella Trustee
- -----------------------
Nicholas A. Laganella
/s/William R. DeLorenzo, Jr. Executive Secretary and January 28, 1999Treasurer
- ---------------------------- Treasurer (Principal Financial and Accounting
William R. DeLorenzo, Jr. Financial and Accounting Officer)
FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY
INDEX TO FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULES (ITEMS 8 AND 14(a))
PAGE
----
(A) FINANCIAL STATEMENTS OF REGISTRANT:
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
F-2
BALANCE SHEETS
OCTOBER 31, 19981999 AND 1997 F-31998
STATEMENTS OF INCOME, COMPREHENSIVE INCOME
AND UNDISTRIBUTED EARNINGS
YEARS ENDED OCTOBER 31, 1999, 1998 1997 AND 1996 F-4/51997
STATEMENTS OF CASH FLOWS
YEARS ENDED OCTOBER 31, 1999, 1998 1997 AND 1996 F-6/71997
NOTES TO FINANCIAL STATEMENTS F-8/16
(B) FINANCIAL STATEMENTS OF AFFILIATE:
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
F-17
BALANCE SHEETS
OCTOBER 31, 19981999 AND 1997 F-181998
STATEMENTS OF INCOMEOPERATIONS AND MEMBERS' EQUITY
YEARS ENDED OCTOBER 31, 1999, 1998 1997 AND 1996 F-191997
STATEMENTS OF CASH FLOWS
YEARS ENDED OCTOBER 31, 1999, 1998 1997 AND 1996 F-201997
NOTES TO FINANCIAL STATEMENTS F-21/23
(C) FINANCIAL STATEMENT SCHEDULES:
IX - SHORT-TERM BORROWINGS
S-1
X - SUPPLEMENTARY INCOME STATEMENT INFORMATION S-1
XI - REAL ESTATE AND ACCUMULATED DEPRECIATION S-2/4
Other schedules are omitted because of the absence of conditions under
which they are required or because the required information is given in
the financial statements or notes thereto.
F-1* * *
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Trustees and Shareholders
First Real Estate Investment Trust of New Jersey
We have audited the accompanying balance sheets of FIRST REAL ESTATE INVESTMENT
TRUST OF NEW JERSEY as of October 31, 19981999 and 1997,1998, and the related statements
of income, andcomprehensive income, undistributed earnings and cash flows for each
of the three years in the period ended October 31, 1998.1999. These financial
statements are the responsibility of the Trust's management. Our responsibility
is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of First Real Estate Investment
Trust of New Jersey as of October 31, 19981999 and 1997,1998, and its results of
operations and cash flows for each of the three years in the period ended
October 31, 1998,1999, in conformity with generally accepted accounting principles.
Our audits referred to above included the information in Schedules IX, X and XI
which present fairly, when read in conjunction with the financial statements,
the information required to be set forth therein.
/S/J.H. COHNCohn LLP
----------------
J.H. COHN-----------------
J.H Cohn LLP
Roseland, New Jersey
November 20, 1998
F-222, 1999
FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY
BALANCE SHEETS
OCTOBER 31, 1999 AND 1998
AND 1997
ASSETS1999 1998
1997
------- -------
(In-------- --------
Thousands
of Dollars)
ASSETS
Real estate and equipment, at cost, net of accumulated
depreciation ................ $64,432 $53,737
Equipment, at cost, net of accumulated depreciation of
$703,000 and $657,000 ............................................ 190 184$ 63,441 $ 64,622
Investment in affiliate .............................................. 1,918
1,905Investments in marketable securities 14,453
Cash and cash equivalents ............................................2,083 793 228
Tenants' security accounts ...........................................771 752 719
Note receivable - affiliate .......................................... 100
Sundry receivables ...................................................1,326 728 280
Prepaid expenses and other assets ....................................1,004 1,172 1,470
Deferred charges, net ................................................1,350 1,190
710
------- --------------- --------
Totals .................................................... $71,275 $59,233
======= =======$ 84,428 $ 71,275
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Mortgages payable ................................................ $47,853 $24,429
Note payable - bank .............................................. 11,429$ 60,071 $ 47,853
Accounts payable and accrued expenses ............................503 401
409
Construction liabilities ......................................... 496Cash distributions in excess of investment in affiliate 294
Dividends payable ................................................1,638 1,435 1,326
Tenants' security deposits .......................................1,000 969 905
Deferred revenue .................................................402 255
255
------- --------------- --------
Total liabilities .........................................63,908 50,913
39,249
------- --------------- --------
Commitments and contingencies
Shareholders' equity:
Shares of beneficial interest without par value; 1,790,000
and
1,560,000 shares authorized; 1,559,788 shares issued and outstanding .................................................. 19,314 19,314
Undistributed earnings ...........................................1,253 1,048
670
------- -------Accumulated other comprehensive income (loss) (47)
-------- --------
Total shareholders' equity ................................20,520 20,362
19,984
------- --------------- --------
Totals .................................................... $71,275 $59,233
======= =======
$ 84,428 $ 71,275
======== ========
See Notes to Financial Statements.
F-3
FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY
STATEMENTS OF INCOME, COMPREHENSIVE INCOME AND UNDISTRIBUTED EARNINGS
YEARS ENDED OCTOBER 31, 1999, 1998 AND 1997
1999 1998 1997 AND 1996
INCOME 1998 1997 1996
----------- ----------- -----------
(In Thousands of Dollars,
Except per Share Amounts)
INCOME
Revenue:
Rental income ..................................$ 13,083 $ 12,450 $ 9,982
$ 9,589
Reimbursements .................................1,750 1,576 1,433 1,568
Equity in income (loss) of affiliate ..................(52) 213 139
92Interest income 742 6 6
Sundry income .................................. 193 144 168204 187 138
----------- ----------- -----------
Totals .....................................15,727 14,432 11,698 11,417
----------- ----------- -----------
Expenses:
Operating expenses .............................3,118 2,989 2,588
2,483
Management fees ................................623 576 495 476
Real estate taxes ..............................1,922 1,758 1,692
1,739
Interest .......................................4,620 3,762 2,629
2,750
Depreciation ...................................1,716 1,650 1,319 1,295
----------- ----------- -----------
Totals .....................................11,999 10,735 8,723 8,743
----------- ----------- -----------
Income before state income taxes ...................3,728 3,697 2,975 2,674
Provision for state income taxes ................... 1213 12 12
----------- ----------- -----------
Net income .........................................$ 3,715 $ 3,685 $ 2,963 $ 2,662
=========== =========== ===========
Basic earnings per share ...........................$ 2.38 $ 2.36 $ 1.90 $ 1.71
=========== =========== ===========
Basic weighted average shares outstanding ..........1,559,788 1,559,788 1,559,788
1,559,788=========== =========== ===========
COMPREHENSIVE INCOME
Net income $ 3,715 $ 3,685 $ 2,963
Other comprehensive income (loss) - unrealized
loss on marketable securities (47)
----------- ----------- -----------
Comprehensive income $ 3,668 $ 3,685 $ 2,963
=========== =========== ===========
F-4
FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY
STATEMENTS OF INCOME, COMPREHENSIVE INCOME AND UNDISTRIBUTED EARNINGS
YEARS ENDED OCTOBER 31, 1999, 1998 AND 1997
1999 1998 1997 AND 1996
(continued)
1998 1997 1996
----------- ----------- -----------
(In Thousands of Dollars,
Except per Share Amounts)
UNDISTRIBUTED EARNINGS
Balance, beginning of year .........................$ 1,048 $ 670 $ 670
$ 675
Net income .........................................3,715 3,685 2,963
2,662
Less dividends .....................................(3,510) (3,307) (2,963) (2,667)
----------- ----------- -----------
Balance, end of year ...............................$ 1,253 $ 1,048 $ 670 $ 670
=========== =========== ===========
Dividends per share ................................$ 2.25 $ 2.12 $ 1.90 $ 1.71
=========== =========== ===========
See Notes to Financial Statements.
F-5
FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY
STATEMENTS OF CASH FLOWS
YEARS ENDED OCTOBER 31, 1999, 1998 AND 1997
1999 1998 1997 AND 1996
1998 1997 1996
-------- -------- --------
(In Thousands of Dollars)
Operating activities:
Net income ...................................................$ 3,715 $ 3,685 $ 2,963 $ 2,662
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization ............................1,878 1,777 1,356
1,333
Equity in income(income) loss of affiliate ............................52 (213) (139)
(92)
Deferred revenue .........................................147 (4) 2
Changes in operating assets and liabilities:
Tenants' security accounts ............................(19) (33) 35 (28)
Sundry receivables, prepaid expenses and other assets .(429) (150) (712) (585)
Accounts payable and accrued expenses .................102 (8) 131 (54)
Tenants' security deposits ............................31 64 52 26
-------- -------- --------
Net cash provided by operating activities .........5,477 5,122 3,682 3,264
-------- -------- --------
Investing activities:
Capital expenditures .........................................(536) (5,347) (7,723) (880)
Distributions from affiliate .................................2,160 200 160
140
Loan toPurchase of marketable securities (14,500)
Repayment from (loan to) affiliate ............................................100 (100)
-------- -------- --------
Net cash used in investing activities .............(12,776) (5,247) (7,563) (740)
-------- -------- --------
Financing activities:
Dividends paid ...............................................(3,307) (3,198) (2,667) (2,792)
Proceeds (repayments) of note payable - bank ................. (11,429) 5,767 493
Net proceeds from mortgage refinancing .......................3,671 5,443 1,314
Proceeds from mortgage borrowings ............................9,275 11,100
Repayment of mortgages .......................................(728) (619) (494) (501)
Deferred mortgage costs ......................................(322) (607)
-------- -------- --------
Net cash provided by (used in) financing activities 8,589 690 3,920 (2,800)
-------- -------- --------
Net increase (decrease) in cash and cash equivalents .............1,290 565 39 (276)
Cash and cash equivalents, beginning of year .....................793 228 189 465
-------- -------- --------
Cash and cash equivalents, end of year ...........................$ 2,083 $ 793 $ 228 $ 189
======== ======== ========
Supplemental disclosure of cash flow data:
Interest paid, net of capitalized interest of $68,000 in 1998
and $158,000 in 1997 .....................................$ 4,530 $ 3,763 $ 2,589 $ 2,883
======== ======== ========
Income taxes paid ............................................$ 13 $ 12 $ 12
$ 8
======== ======== ========
F-6
FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY
STATEMENTS OF CASH FLOWS
YEARS ENDED OCTOBER 31, 1999, 1998 1997 AND 19961997
Supplemental schedule of noncash investing and financing activities:
During 1998, the Trust completed its acquisition of a 64,000 square foot
commercial property in Patchogue, New York for approximately $11,000,000,
in part, with the proceeds of a $7,500,000 mortgage.
Dividends declared but not paid amounted to $1,638,000, $1,435,000 and
$1,326,000 in 1999, 1998 and $1,029,000 in 1998, 1997, and 1996, respectively.
Capital expenditures incurred but not paid amounted to $496,000 in 1997.
See Notes to Financial Statements.
F-7
FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY
NOTES TO FINANCIAL STATEMENTS
Note 1 - Organization and significant accounting policies:
Organization:
First Real Estate Investment Trust of New Jersey (the
"Trust") was organized November 1, 1961 as a New Jersey
Business Trust. The Trust is engaged in owning residential
and commercial income producing properties located primarily
in New Jersey, Maryland and New York.
The Trust 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, the
Trust does not pay Federal income tax on income whenever
income distributed to shareholders is equal to at least 95%
of real estate investment trust taxable income. Further, the
Trust pays no Federal income tax on capital gains
distributed to shareholders.
The Trust is subject to Federal income tax on undistributed
taxable income and capital gains. The Trust 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. For fiscal 1999, 1998 1997 and 1996,1997,
the Trust made such an election.
Use of estimates:
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect certain
reported amounts and disclosures. Accordingly, actual
results could differ from those estimates.
Investment in affiliate:
The Trust's 40% investment in Westwood Hills, LLC (the
"Affiliate") is accounted for using the equity method.
Investments in marketable securities:
Investments in marketable debt securities classified as
"available for sale" are recorded at fair value and
unrealized gains and losses are reported as accumulated
other comprehensive income within shareholders' equity.
Cash and cash equivalents:
TheFinancial instruments which potentially subject the Trust maintains itsto
concentrations of credit risk consist primarily of cash in bank deposit accounts which,
at times, may exceed Federally insured limits.and
cash equivalents. The Trust considers all highly liquid
investments purchased with a maturity of three months or
less to be cash equivalents. The Trust maintains its cash
and cash equivalents in bank and other accounts, the
balances of which, at times, may exceed Federally insured
limits. At October 31, 1999, such cash and cash equivalent
balances exceeded Federally insured limits by approximately
$1,983,000. Exposure to credit risk is reduced by placing
such deposits with high credit quality financial
institutions.
FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY
NOTES TO FINANCIAL STATEMENTS
Note 1 - Organization and significant accounting policies (concluded):
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.
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 $90,000,
$67,000 and $40,000 in 1999, 1998 and $85,000 in 1998, 1997, and 1996, respectively.
Deferred leasing commissions are amortized on the
straight-line method over the terms of the applicable
leases.
F-8
FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY
NOTES TO FINANCIAL STATEMENTS
Note 1 - Organization and significant accounting policies (concluded):
Revenue recognition:
Income from leases is recognized on a straight-line basis
regardless of when payment is due. Lease agreements between
the Trust and commercial tenants generally provide for
additional rentals 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 the Trust, when billed
to tenants or ratably over the appropriate period.
Advertising:
The Trust expenses the cost of advertising and promotions as
incurred. Advertising costs charged to operations amounted
to approximately $58,000, $73,000 and $33,000 in 1999, 1998
and $49,000 in 1998, 1997,
and 1996, respectively.
Earnings per share:
The Trust has presented "basic" earnings per share in the
accompanying statements of income in accordance with the
provisions of Statement of Financial Accounting Standards
No. 128, Earnings per Share ("SFAS 128"). SFAS 128 also
requires the presentation of "diluted" earnings per share if
the amount differs from basic earnings per share. Basic
earnings per share is calculated by dividing net income by
the weighted average number of common 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 common shares that would have been outstanding if
all potentially dilutive common shares, such as those
issuable upon the exercise of stock options and warrants,
were issued during the period. For each of the three years
in the periodyear ended October
31, 1999, diluted earnings per share have not been presented
because prices of all of the outstanding stock options
approximated the average fair market value and there were no
additional shares derived from the assumed exercise of stock
options and the application of the treasury stock method.
For the years ended October 31, 1998 and 1997, the Trust had
no potentially dilutive common shares.
FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY
NOTES TO FINANCIAL STATEMENTS
Note 1 - Organization and significant accounting policies (concluded):
Comprehensive income:
Effective November 1, 1998, the Trust adopted Statement of
Financial Accounting Standards No. 130, Reporting
Comprehensive Income ("SFAS 130"), which establishes new
rules for the reporting and display of comprehensive income
and its components; however, the adoption had no impact on
the Trust's net income. SFAS 130 requires unrealized gains
or losses on the Trust's available-for-sale securities, to
be included in other comprehensive income.
Other recent accounting pronouncements:
The Financial Accounting Standards Board has issued certain
other pronouncementspronounce-ments as of October 31, 19981999 that will
become effective in subsequent periods; however, management
does not believe that any of those pronouncements will
effect any financial accounting measurements or disclosures
the Trust will be required to make.
Reclassifications:
Certain amounts in the 1997 and 1996 financial statements
have been reclassified to conform with the current
presentation.
F-9
FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY
NOTES TO FINANCIAL STATEMENTS
Note 2 - Investment in affiliate:
The Trust is a 40% member of the Affiliate, a limited liability
company that is managed by Hekemian & Co., Inc. ("Hekemian"), a
company which manages all of the Trust's properties and in which
one of the trustees of the Trust is the chairman of the board.
Certain other members of the Affiliate are either trustees of
the Trust or their families or officers of Hekemian. The
Affiliate owns a residential apartment complex located in
Westwood, New Jersey.
Summarized financial information of the Affiliate as of October
31, 19981999 and 19971998 and for each of the three years in the period
ended October 31, 19981999 is as follows:
1998 1997
------- -------
(In Thousands
of Dollars)
Balance sheet data:
Assets:
Real estate and equipment, net ... $14,416 $14,696
Other ............................ 976 551
------- -------
Total assets ............... $15,392 $15,247
======= =======
Liabilities and equity:
Liabilities:
Mortgage payable .............. $10,025 $10,192
Other ......................... 576 295
------- -------
Totals ..................... 10,601 10,487
------- -------
Members' equity:
Trust ......................... 1,918 1,905
Others ........................ 2,873 2,855
------- -------
Totals ..................... 4,791 4,760
------- -------
Total liabilities and equity $15,392 $15,247
======= =======
1998 1997 1996
------ ------ ------
(In Thousands of Dollars)
Income statement data:
Rental revenue ... $2,617 $2,497 $2,360
Rental expenses .. 2,086 2,149 2,130
------ ------ ------
Net income ....... $ 531 $ 348 $ 230
====== ====== ======
F-10
1999 1998
-------- --------
(In Thousands
of Dollars)
Balance sheet data:
Assets:
Real estate and equipment, net $ 14,190 $ 14,416
Other 812 976
-------- --------
Total assets $ 15,002 $ 15,392
======== ========
Liabilities and equity:
Liabilities:
Mortgage payable $ 15,362 $ 10,025
Other 378 576
-------- --------
Totals 15,740 10,601
-------- --------
Members' equity (deficiency):
Trust (294) 1,918
Others (444) 2,873
-------- --------
Totals (738) 4,791
-------- --------
Total liabilities and equity $ 15,002 $ 15,392
======== ========
FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY
NOTES TO FINANCIAL STATEMENTS
Note 2 - Investment in affiliate (concluded):
1999 1998 1997
------- ------- -------
(In Thousands of Dollars)
Income statement data:
Rental revenue $ 2,728 $ 2,617 $ 2,497
Rental expenses 2,415 2,086 2,149
------- ------- -------
Income from rental operations 313 531 348
Prepayment penalty on mortgage refinancing (442)
------- ------- -------
Net income (loss) $ (129) $ 531 $ 348
======= ======= =======
At October 31, 1998, the Trust had a $100,000 note receivable
from the Affiliate that is due on demand and bearswas repaid during the year ended October
31, 1999 with interest at 7%. Interest income was not material
for the yearyears ended October 31, 1999 and 1998.
Note 3 - Real estate:Investments in marketable securities:
At October 31, 1999, the Trust's investment in marketable debt
securities, all of which were classified as available for sale,
consisted of government agency bonds. The maturities for all
securities held at October 31, 1999 are as follows:
Amortized
Cost Fair Value
----------- -----------
One to five years $14,000,000 $13,986,000
Five to ten years 500,000 467,000
----------- -----------
Totals $14,500,000 $14,453,000
=========== ===========
Note 4 - Real estate and equipment:
Real estate and equipment consists of the following:
Range of
Estimated
Useful Lives 1999 1998 1997
------------ ------- -------
(In Thousands
of Dollars)
Land $22,773 $20,244$22,773
Unimproved land 2,354 2,305 2,310
Apartment buildings 7-40 years 10,764 11,013 10,711
Commercial buildings and shopping
centers 15-50 years 40,723 39,931 30,328
Construction in progress 1,426 2,053
2,126Equipment 3-15 years 522 893
------- -------
78,075 65,71978,562 78,968
Less accumulated depreciation 13,643 11,98215,121 14,346
------- -------
Totals $64,432 $53,737$63,441 $64,622
======= =======
FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY
NOTES TO FINANCIAL STATEMENTS
Note 45 - Mortgages payable:
Mortgages payable consist of the following:
1998 1997
------- -------
(In Thousands
of Dollars)
Northern Life Insurance Cos. - Frederick, MD (A) ..... $18,876 $19,123
Travelers Insurance - Westwood, NJ (B) ............... 5,181
National Realty Funding L.C. - Westwood, NJ (B) ...... 10,526
Summit Bank - Springlake, NJ (C) ..................... 29 125
Summit Bank - Patchogue, NY (D) ..................... 7,410
Federal Home Loan Mortgage Corporation - Wayne, NJ (E) 11,012
------- -------
Totals ......................................
1999 1998
------- -------
(In Thousands
of Dollars)
Northern Life Insurance Cos. - Frederick, MD (A) $18,609 $18,876
National Realty Funding L.C. - Westwood, NJ (B) 10,420 10,526
Larson Financial Resources, Inc. - Spring Lake, NJ (C) 3,664
Summit Bank - Spring Lake, NJ (C) 29
Summit Bank - Patchogue, NY (D) 7,295 7,410
Larson Financial Resources, Inc. - Wayne, NJ (E) 10,898 11,012
Larson Financial Resources, Inc. - River Edge, NJ (F) 5,323
Larson Financial Resources, Inc. - Maywood, NJ (G) 3,862
------- -------
Totals $60,071 $47,853 $24,429
======= =======
(A) The mortgage is payable in monthly installments of
$152,153 including interest at 8.31% through June
2007 at which time the outstanding balance is due.
The mortgage is secured by a shopping
centerretail building in
Frederick, Maryland having a net book value of
approximately $24,510,000.
F-11
FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY
NOTES TO FINANCIAL STATEMENTS
Note 4 - Mortgages payable (concluded):$23,886,000.
(B) On January 9, 1998, the Trust repaid the existing
mortgage on the Westwood, New Jersey shopping center
utilizing proceeds from a new mortgage in the amount
of $10,600,000 with National Realty Funding L.C. The
new mortgage is payable in monthly installments of
$73,248 including interest at 7.38% through February
2013 at which time the outstanding balance is due.
The mortgage is secured by the shopping centera retail building in
Westwood, New Jersey having a net book value of
approximately $11,510,000.$11,300,000.
(C) PayableOn November 19, 1998, the Trust repaid the
outstanding mortgage on the Spring Lake, New Jersey
apartment building utilizing proceeds from a new
mortgage in the amount of $3,700,000. The new
mortgage is payable in monthly installments of
$8,555$23,875 including interest at 7.625%6.70% through March 1999.December
2013 at which time the outstanding balance is due.
The mortgage is secured by an apartment building in
Spring Lake, New Jersey having a net book value of
approximately $532,000. One of the directors of the bank is a
trustee of the Trust (see Note 10).$519,000.
(D) Payable in monthly installments of $54,816 including
interest at 7.375% through January 2005 at which time
the outstanding balance is due. The mortgage is
secured by a commercialretail building in Patchogue, New York
having a net book value of approximately $10,700,000.$10,486,000.
(E) Payable in monthly installments of $76,023 including
interest at 7.29% through July 2010 at which time the
outstanding balance is due. The mortgage is secured
by an apartment building in Wayne, New Jersey having
a net book value of approximately $1,573,000.$1,631,000.
FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY
NOTES TO FINANCIAL STATEMENTS
Note 5 - Mortgages payable (concluded):
(F) Payable in monthly installments of $34,862 including
interest at 6.75% through December 2013 at which time
the outstanding balance is due. The mortgage is
secured by an apartment building in River Edge, New
Jersey having a net book value of approximately
$1,301,000.
(G) Payable in monthly installments of $25,295 including
interest at 6.75% through December 2013 at which time
the outstanding balance is due. The mortgage is
secured by an apartment building in Maywood, New
Jersey having a net book value of approximately
$933,000.
Principal amounts (in thousands of dollars) due under the above
obligations in each of the five years subsequent to October 31,
19981999 are as follows:
Year Ending
October 31, Amount
----------- ------
1999 $630
2000 650$ 797
2001 702860
2002 759927
2003 8201,000
2004 1,079
Based on borrowing rates currently available to the Trust, the
fair value of the mortgage debt is approximately $50,000,000approximates carrying value at
October 31, 1998.
F-12
FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY
NOTES TO FINANCIAL STATEMENTS1999.
Note 56 - Note payable - bank:
At October 31, 1997, note payable - bank consistedLine of borrowings
undercredit agreement:
The Trust has a revolving line of credit agreement with Summit
Bank which expiredexpires on April 30, 1998, at which time the agreement was
renegotiated and extended to May 31,December 1, 1999. Maximum allowable
borrowings under the agreement were $12,310,000$8,000,000 and $20,000,000$12,310,000
at October 31, 19981999 and 1997,1998, respectively. The line of credit
bears interest at the bank's floating base rate plus .25% or the
LIBOR rate plus 175 basis points. Outstanding borrowings are
secured by all of the Trust's properties except commercial
property locatedapartment buildings in Frederick, Maryland, Westwood,Hasbrouck Heights, New Jersey,
Lakewood, New Jersey and Patchogue, New York, apartment buildings in Wayne,Palisades Park, New Jersey River Edge,as well as a
retail building in Franklin Lakes, New Jersey and Maywood, New Jersey and any
vacant land owned by the Trust.Jersey. There were no
outstanding borrowings under the agreement at October 31, 1999
and 1998. In connection with new financing discussed inOne of the directors of the bank is a trustee of the
Trust.
FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY
NOTES TO FINANCIAL STATEMENTS
Note 10, maximum
borrowings under the line of credit agreement were reduced to
$8,000,000 effective November 19, 1998.
Note 67 - Commitments and contingencies:
Leases:
Retail tenants:
The Trust leases retail space having a net book value
of approximately $56,791,000$55,727,000 at October 31, 19981999 to
tenants for periods of up to twentytwenty-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
noncancelable operating leases in years subsequent to
October 31, 19981999 are as follows:
Year Ending
October 31, Amount
----------- ------
19992000 $ 6,331
2000 6,0636,440
2001 5,9046,299
2002 5,5605,979
2003 5,1765,631
2004 5,016
Thereafter 50,039
--------46,143
-------
Total $ 79,073
========
F-13
FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY
NOTES TO FINANCIAL STATEMENTS
Note 6 - Commitments and contingencies (concluded):
Leases (concluded)
Retail tenants (concluded):$75,508
=======
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.
Contingent rentals included in income for each of the
three years in the period ended October 31, 19981999 were
not material.
Residential tenants:
Lease terms for residential tenants are usually one
year or less.
Standby letters of credit:
At October 31, 1998, the Trust is obligated under
irrevocable standby letters of credit of approximately
$60,000 in connection with certain required land
improvements at the Franklin Lakes shopping center.
Environmental concerns:
In accordance with applicable regulations, the Trust
reported to the New Jersey Department of Environmental
Protection ("NJDEP") that a historical discharge of
hazardous material was recently discovered in 1997 at the newly renovated
Franklin Lakes shopping center (the "Center").
At present,In November 1999, the Trust received a no further action
letter from the NJDEP concerning the historical discharge material appears to be
isolated and management believes there will be no
significant effect on the operations ofat
the Center. In connection therewith,However, the Trust is required to investigate and monitorcontinue
monitoring such discharge, the cost of which will not be
material.
FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY
NOTES TO FINANCIAL STATEMENTS
Note 78 - Management agreement and related party transactions:
The properties owned by the Trust are currently managed by
Hekemian. The management agreement requires fees equal to a
percentage of rents collected. Such fees were approximately
$623,000, $576,000 and $495,000 in 1999, 1998 and $476,000 in 1998, 1997, and 1996,
respectively. In addition, Hekemian charged the Trust fees and
commissions in connection with the acquisition of the commercial
building in Patchogue, New York and various mortgage refinancing
and lease acquisition fees. Such fees and commissions amounted
to approximately $208,000 and $718,000 in 1998.1999 and 1998,
respectively.
Note 89 - Basic earnings per share:
Basic earnings per share, based on the weighted average number
of shares outstanding during each period, are comprised of
ordinary income.
F-14
FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY
NOTES TO FINANCIAL STATEMENTS
Note 9 -10- Equity incentive plan:
On September 10, 1998, the Board of Trustees approved the
Trust's Equity Incentive Plan (the "Plan") whereby, subject to
ratification of the Planwhich was ratified by
the Trust's stockholders,shareholders on April 7, 1999, whereby up to 230,000
of the Trust's shares of beneficial interest 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 230,000 shares in
the Trust'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 the Trust. Under the Plan, the
exercise price of all options will be the fair market value of
the shares on the date of grant. The consideration to be paid
for restricted share and other share-based awards shall be
determined by the Board of Trustees, with the amount not to
exceed the fair market value of the shares on the date of grant.
The maximum term of any award granted may not exceed ten years.
The actual terms of each award will be determined by the Board
of Trustees.
Upon ratification of the Plan on April 7,1999, the Trust issued
188,500 stock options which it had previously granted to key
personnel on September 10, 1998. The fair value of the options
on the date of grant was $30 per share. The options, all of
which are outstanding at October 31, 1999, are exercisable
through September 2008.
FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY
NOTES TO FINANCIAL STATEMENTS
Note 10- Equity incentive plan (concluded):
In accordance with the provisions of Accounting Principles Board
Opinion No. 25, Accounting for Stock Issued to Employees ("APB
25"), the Trust will recognize compensation costs as a result of
the issuance of restricted share and other share-based awards
based on the excess, if any, of the fair value of the underlying
stock at the date of grant or award (or at an appropriate
subsequent measurement date) over the amount the recipient must
pay to acquire the stock. Therefore, the Trust will not be
required to recognize compensation expense as a result of any
grants of stock options, restricted share and other share-based
awards at an exercise price that is equivalent to or greater
than fair value. The Trust will also make proforma disclosures,
as required by Statement of Financial Accounting Standards No.
123, Accounting for Stock-Based Compensation ("SFAS 123"), of
net income or loss as if a fair value based method of accounting
for stock options had been applied instead if such amounts
differ materially from the historical amounts.
Note 10- Subsequent events:
On November 2, 1998,In the Trust closedopinion of management, if compensation cost for the stock
options granted in 1999 had been determined based on a $5,375,000 mortgage
with Larson Financial Resources, Inc. The mortgage is payable in
monthly installments of $43,711 including interest at 6.75%
through December 2013 at which time the outstanding balance is
due. The mortgage is secured by an apartment building in River
Edge, New Jersey having a net bookfair
value of approximately
$1,369,000.
On November 2, 1998, the Trust also closed on a $3,900,000
mortgage with Larson Financial Resources, Inc. The mortgage is
payable in monthly installments of $33,676 including interestoptions at 6.75% through December 2013 at which time the outstanding
balance is due. The mortgage is secured by an apartment building
in Maywood, New Jersey having a net book value of approximately
$949,000.
F-15
FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY
NOTES TO FINANCIAL STATEMENTS
Note 10- Subsequent events (concluded):
On November 19, 1998, the Trust repaid the outstanding mortgage
on the Spring Lake, New Jersey apartment building (approximately
$29,000 - see Note 4) utilizing proceeds from a new mortgage in
the amount of $3,700,000 with Larson Financial Resources, Inc.
The new mortgage is payable in monthly installments of $29,863
including interest at 6.70% through December 2013 at which time
the outstanding balance is due.
Principal amounts (in thousands of dollars) duegrant date under the above
obligations in eachprovisions of
SFAS 123 using the fiveBlack-Scholes option pricing model and
assuming a risk-free interest rate of 5.25%, expected option
lives of ten years, subsequent to October 31,
1998 are as follows:
Year Ending
October 31, Amount
----------- ------
1999 $115
2000 147
2001 157
2002 168
2003 179expected volatility of 1% and expected
dividends of 7.13%, the Company's pro forma net income and pro
forma basic net income per share arising from such computation
would not have differed materially from the corresponding
historical amounts.
* * *
F-16
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Members
Westwood Hills, LLC
We have audited the accompanying balance sheets of WESTWOOD HILLS, LLC as of
October 31, 19981999 and 1997,1998, and the related statements of incomeoperations and members'
equity and cash flows for each of the three years in the period ended October
31, 1998.1999. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Westwood Hills, LLC as of
October 31, 19981999 and 1997,1998, and its results of operations and cash flows for each
of the three years in the period ended October 31, 1998,1999, in conformity with
generally accepted accounting principles.
/S//s/J.H. COHNCohn LLP
----------------
J.H. COHNCohn LLP
Roseland, New Jersey
November 18, 1998
F-1722, 1999
WESTWOOD HILLS, LLC
(A New Jersey Limited Liability Company)
BALANCE SHEETS
OCTOBER 31, 1999 AND 1998
AND 1997
ASSETS1999 1998
1997
------- --------------- --------
(In Thousands
of Dollars)
ASSETS
Real estate, at cost, net of accumulated depreciation of
$1,683,000 and $1,362,000 and $1,044,000 .................................................. $14,330 $14,611$ 14,084 $ 14,330
Equipment, at cost, net of accumulated depreciation of
$56,000 and $37,000 and $22,000 .....................................................106 86
85
Cash .................................................................186 51 107
Tenants' security accounts ...........................................302 284 256
Prepaid expenses and other assets ....................................136 106
112
Refundable deposit ................................................... 465
Deferred charges, net ................................................188 70
76
------- --------------- --------
Totals ...................................................... $15,392 $15,247
======= =======$ 15,002 $ 15,392
======== ========
LIABILITIES AND MEMBERS' EQUITY
Liabilities:
Mortgage payable ................................................ $10,025 $10,192$ 15,362 $ 10,025
Notes payable - related parties ................................. 250
Accounts payable and accrued expenses ...........................74 41 27
Tenants' security deposits ......................................304 285
268
------- --------------- --------
Total liabilities ...........................................15,740 10,601 10,487
Members' equity ......................................................(deficiency) (738) 4,791
4,760
------- --------------- --------
Totals ...................................................... $15,392 $15,247
======= =======$ 15,002 $ 15,392
======== ========
See Notes to Financial Statements.
F-18
WESTWOOD HILLS, LLC
(A New Jersey Limited Liability Company)
STATEMENTS OF INCOMEOPERATIONS AND MEMBERS' EQUITY
YEARS ENDED OCTOBER 31, 1999, 1998 AND 1997
1999 1998 1997 AND 1996
INCOME 1998 1997 1996
------- ------- -------
(In Thousands of
Dollars)
OPERATIONS
Revenue:
Rental income ....................................$ 2,703 $ 2,592 $ 2,479
$ 2,343
Sundry income ....................................25 25 18 17
------- ------- -------
Totals .......................................2,728 2,617 2,497 2,360
------- ------- -------
Expenses:
Operating expenses ...............................583 508 546 547514
Management fees ..................................135 131 123 105
Real estate taxes ................................325 292 352
350
Interest .........................................1,033 822 802 813834
Depreciation .....................................339 333 326 315
------- ------- -------
Totals .......................................2,415 2,086 2,149
2,130------- ------- -------
Income from rental operations 313 531 348
Prepayment penalty on mortgage refinancing (442)
------- ------- -------
Net income ............................................(loss) (129) 531 348 230
MEMBERS' EQUITY
Balance, beginning of year ............................4,791 4,760 4,812
4,931
Less distributions ....................................(5,400) (500) (400) (349)
------- ------- -------
Balance (deficit), end of year ..................................$ (738) $ 4,791 $ 4,760 $ 4,812
======= ======= =======
See Notes to Financial Statements.
F-19
WESTWOOD HILLS, LLC
(A New Jersey Limited Liability Company)
STATEMENTS OF CASH FLOWS
YEARS ENDED OCTOBER 31, 1999, 1998 AND 1997
1999 1998 1997
AND 1996
1998 1997 1996
----- ----- ------------ ------- -------
(In Thousands of Dollars)
Operating activities:
Net income ................................................(loss) $ (129) $ 531 $ 348
$ 230
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization .........................398 363 358 349
Changes in operating assets and liabilities:
Tenants' security accounts .......................(18) (28) (11) (24)
Prepaid expenses and other assets ................(30) 6 25 (11)
Accounts payable and accrued expenses ............33 14 (42) 40
Tenants' security deposits .......................19 17 23
24
----- ----- ------------ ------- -------
Net cash provided by operating activities ....273 903 701
608
----- ----- ------------ ------- -------
Investing activities - capital expenditures ....................(113) (51) (94)
(131)
----- ----- ------------ ------- -------
Financing activities:
Distributions paid ........................................(5,400) (500) (400)
(349)
Proceeds from(repayments) of notes payable - related parties .............(250) 250
Net proceeds from mortgage refinancing 5,475
Repayment of mortgage .....................................(138) (167) (154) (142)
Deferred mortgage costs ...................................(177) (26)
Refundable deposit ........................................465 (465)
----- ----- ------------ ------- -------
Net cash used in financing activities ........(25) (908) (554)
(491)
----- ----- ------------ ------- -------
Net increase (decrease) in cash ................................135 (56) 53 (14)
Cash, beginning of year ........................................51 107 54
68
----- ----- ------------ ------- -------
Cash, end of year ..............................................$ 186 $ 51 $ 107
$ 54
===== ===== ============ ======= =======
Supplemental disclosure of cash flow data:
Interest paid .............................................$ 1,033 $ 822 $ 802
$ 813
===== ===== ============ ======= =======
Supplemental schedule of noncash financing activities:
During 1999, the Company utilized $10,025,000 of a new
mortgage to repay its existing mortgage.
See Notes to Financial Statements.
F-20
WESTWOOD HILLS, LLC
(A New Jersey Limited Liability Company)
NOTES TO FINANCIAL STATEMENTS
Note 1 - Organization and significant accounting policies:
Organization:
Westwood Hills, LLC (the "Company") was formed in May 1994
as a New Jersey limited liability company for the purpose of
acquiring a residential apartment complex in Westwood, New
Jersey. The Company is 40%-owned by First Real Estate
Investment Trust of New Jersey (the "Trust") and managed by
Hekemian & Co., Inc. ("Hekemian"), a company which manages
all of the Trust's properties and in which one of the
trustees of the Trust is the chairman of the board. Certain
other members of the Company are either trustees of the
Trust or their families or officers of Hekemian.
The Company will be dissolved on the earlier of April 2024
or upon the sale of substantially all of it assets.
Use of estimates:
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect certain
reported amounts and disclosures. Accordingly, actual
results could differ from those estimates.
Cash:
The Company maintains its cash in bank deposit accounts
which, at times, may exceed Federally insured limits. The
Company considers all highly liquid debt instruments
purchased with a maturity of three months or less to be cash
equivalents. At October 31, 19981999 and 1997,1998, the Company had
no cash equivalents.
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 ranging from 7 to 40 years.
Deferred charges:
Deferred charges consist of mortgage costs which are
amortized on the straight-line method by annual charges to
operations over the term of the mortgage. Amortization of
such costs is included in interest expense and approximated
$59,000 in 1999 and $32,000 in both 1998 and 1997.
Advertising:
The Company expenses the cost of advertising and promotions
as incurred. Advertising costs charged to operations were
not material.
Income taxes:
The Company, with the consent of its members, elected to be
treated as a limited liability company under the applicable
sections of the Internal Revenue Code. Under these sections,
income or loss, in general, is allocated to the members for
inclusion in their individual income tax returns.
Accordingly, there is no provision for income taxes in the
accompanying financial statements.
F-21
WESTWOOD HILLS, LLC
(A New Jersey Limited Liability Company)
NOTES TO FINANCIAL STATEMENTS
Note 2 - Real estate:
Real estate consists of the following:
1998 1997
------- -------
(In Thousands
of Dollars)
Land ........................ $ 3,849 $ 3,849
Apartment buildings ......... 11,843 11,806
------- -------
15,692 15,655
Less accumulated depreciation 1,362 1,044
------- -------
Totals .................
1999 1998
------- -------
(In Thousands
of Dollars)
Land $ 3,849 $ 3,849
Apartment buildings 11,918 11,843
------- -------
15,767 15,692
Less accumulated depreciation 1,683 1,362
------- -------
Totals $14,084 $14,330 $14,611
======= =======
Note 3 - Mortgage payable:
In December 1998, the Company entered into an agreement with
Larson Financial Resources, Inc. to refinance its existing
mortgage with a new mortgage in the amount of $15,500,000. The
new mortgage is payable in monthly installments of $79,655$99,946
including interest at 7.8%6.693% through October 2002January 2014 at which time
the outstanding balance is due (see Note 6). The mortgage is
secured by the apartment complex.due. Principal amounts (in thousands
of dollars) due under the above obligation in each of the five
years subsequent to October 31, 19981999 are as follows:
Year Ending
October 31, Amount
----------- ------
19992000 $ 180
2000 195177
2001 211189
2002 9,439202
2003 216
2004 231
Based on borrowing rates currently available to the Company, the
fair value of the mortgage approximates $10,400,000$15,000,000 at October
31, 1998.1999.
Note 4 - Notes payable - related parties:
At October 31, 1998, the Company had outstanding notes payable
to the Trust and an affiliated partnership owned by the
Hekemians totaling $100,000 and $150,000, respectively. The
notes are due on demand and bearwere repaid during the year ended October 31, 1999 with
interest at 7%. Interest on such borrowings was not material for
the yearyears ended October 31, 1999 and 1998.
F-22
WESTWOOD HILLS, LLC
(A New Jersey Limited Liability Company)
NOTES TO FINANCIAL STATEMENTS
Note 5 - Management agreement:
The apartment complex is currently managed by Hekemian. The
management agreement requires fees equal to a percentage of
rents collected. Such fees were approximately $135,000, $131,000
and $123,000 in 1999, 1998 and $105,000 in 1998, 1997, and 1996, respectively.
Note 6 - Subsequent event:
On November 20, 1998, the Company entered into an agreement with
Larson Financial Resources, Inc. ("Larson") to refinance its
existing mortgage with a new mortgage in the amount of
$15,500,000. The new mortgage will bear interest at 6.693% and
be payable in monthly installments of principal and interest
through January 2014 at which time the outstanding balance will
be due. Closing of the loan is expected to take place on or
before December 4, 1998. In connection therewith, prior to
October 31, 1998, the Company was required to post a refundable
deposit in the amount of $465,000 with Larson.
* * *
F-23
FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY
SCHEDULE IX - SHORT-TERM BORROWINGS
(In Thousands of Dollars)
Column A Column B Column C Column D Column E Column F
-------- -------- -------- -------- -------- --------
Maximum Average
Amount Amount Weighted
Out- Out- Average
Category of Balance Weighted standing standing Interest
Aggregate at Average During During Rate
Short-Term End of Interest the the During the
Borrowings (A) Period Rate Period Period Period (B)
-------------- ------ ---- ------ ------ ----------
1999:
Note payable - bank $ - - % $ - $ - - %
======== ======= ======== ======= ========
1998:
Note payable - bank $ -- --- - % $12,755 $ 1,860$1,860 7.875%
======== ==== ======= ======== ============ ========
1997:
Note payable - bank $ 11,429$11,429 7.75% $11,429 $ 7,703$7,703 7.7%
======== ==== ======= ======== =====
1996:
Note payable - bank $ 5,662 7.98% $ 6,362 $ 5,683 8.2%
======== ==== ======= ======== =====
- ---------------------
(A) See Note 56 of notes to financial statements.
(B) Calculated using average monthly loan balances and actual interest expense.
SCHEDULE X - SUPPLEMENTARY INCOME STATEMENT INFORMATION
(In Thousands of Dollars)
Column A Column B
-------- --------
Charged to Costs
and Expenses
------------------------------------------
Item (A) 1998 1997 1996
Maintenance and repairs ....... $ 373 $ 269 $ 252
SCHEDULE X - SUPPLEMENTARY INCOME STATEMENT INFORMATION
(In Thousands of Dollars)
Column A Column B
-------- --------
Charged to Costs
Item (A) and Expenses
-------- ------------
1999 1998 1997
------ ------ ------
Maintenance and repairs $ 299 $ 373 $ 269
====== ====== ======
Real estate taxes $1,922 $1,758 $1,692
====== ====== ======
Real estate taxes ............. $1,758 $1,691 $1,739
====== ====== ======
- ---------------------------------
(A) Amounts for other items were less than 1% of revenue in all years.
S-1
FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY
SCHEDULE XI - REAL ESTATE AND ACCUMULATED DEPRECIATION
OCTOBER 31, 1999
(In Thousands of Dollars)
Column A Column B Column C Column D
-------- -------- -------- --------
Costs
Capitalized
Initial Cost Subsequent
to Company to Acquisition
----------------------- ------------------------------
Buildings
Encum- and Improve- Carrying
Description brances Land Improvements Land ments Costs
----------- ------- ---- ------------ ---- ----- -----
Garden apartments:
Sheridan Apts., Camden, NJ $ 117 $ 360 $ 935
Grandview Apts., Hasbrouck
Heights, NJ 22 180 174
Lakewood Apts., Lakewood, NJ 11 396 187
Hammel Gardens, Maywood, NJ $ 3,862 313 728 600
Palisades Manor, Palisades
Park, NJ 12 81 69
Steuben Arms, River Edge, NJ 5,323 364 1,773 341
Heights Manor, Spring Lake
Heights, NJ 3,664 109 974 251
Berdan Court, Wayne, NJ 10,898 250 2,206 1,509
Retail properties:
Franklin Lakes Shopping Center,
Franklin Lakes, NJ 29 $3,382 6,810
Glen Rock, NJ 12 36 22
Patchogue Shopping Center,
Patchogue, NY 7,295 2,128 8,818 (47)
Westridge Shopping Center,
Frederick, MD 18,609 9,135 19,159 374
Westwood Shopping Center,
Westwood, NJ 10,420 6,889 6,416 561
Vacant land:
Franklin Lakes, NJ 224 (158)
Rockaway, NJ 1,683 $429
South Brunswick, NJ 80 96
------- ------- ------- ------ ------- ----
Totals $60,071 $21,378 $41,127 $3,224 $11,786 $525
======= ======= ======= ====== ======= ====
FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY
SCHEDULE XI - REAL ESTATE AND ACCUMULATED DEPRECIATION
OCTOBER 31, 1999
(In Thousands of Dollars)
Column A Column E Column F Column G Column H Column I
-------- -------- -------- -------- -------- --------
Gross Amount at Which
Carried at Close of Period
---------------------------------- Life on
Buildings Which De-
and Accumulated Date of Date preciation
Description Land Improvements Total(1) Depreciation Construction Acquired is Computed
----------- ---- ------------ -------- ------------ ------------ -------- -----------
Garden apartments:
Sheridan Apts., Camden, NJ $ 117 $ 1,295 $ 1,412 $ 820 1950 1964 7-40 years
Grandview Apts., Hasbrouck
Heights, NJ 22 354 376 242 1925 1964 7-40 years
Lakewood Apts., Lakewood, NJ 11 583 594 444 1960 1962 7-40 years
Hammel Gardens, Maywood, NJ 313 1,328 1,641 719 1949 1972 7-40 years
Palisades Manor, Palisades
Park, NJ 12 150 162 104 1935/70 1962 7-40 years
Steuben Arms, River Edge, NJ 364 2,114 2,478 1,217 1966 1975 7-40 years
Heights Manor, Spring Lake
Heights, NJ 109 1,225 1,334 843 1967 1971 7-40 years
Berdan Court, Wayne, NJ 250 3,715 3,965 2,400 1964 1965 7-40 years
Retail properties:
Franklin Lakes Shopping Center,
Franklin Lakes, NJ 3,411 6,810 10,221 272 1963/75/97 1966 10-50 years
Glen Rock, NJ 12 58 70 46 1940 1962 10-31.5 years
Patchogue Shopping Center,
Patchogue, NY 2,128 8,771 10,899 413 1997 1997 39 years
Westridge Shopping Center,
Frederick, MD 9,135 19,533 28,668 4,747 1986 1992 15-31.5 years
Westwood Shopping Center,
Westwood, NJ 6,889 6,977 13,866 2,519 1981 1988 15-31.5 years
Vacant land:
Franklin Lakes, NJ 66 66 1966/93
Rockaway, NJ 2,112 2,112 1964/92/93
South Brunswick, NJ 176 176 1964
------- ------- ------- -------
Totals $25,127 $52,913 $78,040 $14,786
======= ======= ======= =======
(1) Aggregate cost is the same for Federal income tax purposes.
FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY
SCHEDULE XI - REAL ESTATE AND ACCUMULATED DEPRECIATION
(In Thousands of Dollars)
Reconciliation of real estate and accumulated depreciation:
1999 1998 1997 1996
-------- -------- --------
Real estate:
Balance, beginning of year ....................$ 78,075 $ 65,719 $ 57,879
$ 57,035
Additions:
Building and improvements .................382 12,363 8,002
824
Carrying costs ............................49 (7) (162)
20Deletions - building and improvements (466)
-------- -------- --------
Balance, end of year ..........................$ 78,040 $ 78,075 $ 65,719 $ 57,879
======== ======== ========
Accumulated depreciation:
Balance, beginning of year ....................$ 13,643 $ 11,982 $ 11,043 $ 9,780
Additions - charged to operating expenses .....1,609 1,661 1,277
1,263
Deletions .....................................(466) (338)
-------- -------- --------
Balance, end of year ..........................$ 14,786 $ 13,643 $ 11,982
$ 11,043
======== ======== ========
S-2
FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY
SCHEDULE XI - REAL ESTATE AND ACCUMULATED DEPRECIATION
OCTOBER 31, 1998
(In Thousands of Dollars)
Column A Column B Column C Column D Column E
-------- -------- -------- -------- --------
Costs
Capitalized
Initial Cost Subsequent Gross Amount at Which
to Company to Acquisition Carried at Close of Period
--------------------- ------------------------ ------------------------------
Buildings Buildings
Encum- and Improve- Carrying and
Description brances Land Improvements Land ments Costs Land Improvements Total(1)
----------- ------- ---- ------------ ---- ----- ----- ---- ------------ --------
Garden apartments:
Sheridan Apts., Camden, NJ $ 117 $ 360 $ 938 $ 117 $ 1,298 $ 1,415
Grandview Apts., Hasbrouck
Heights, NJ 22 180 197 22 377 399
Lakewood Apts., Lakewood, NJ 11 396 209 11 605 616
Hammel Gardens, Maywood, NJ 313 728 668 313 1,396 1,709
Palisades Manor, Palisades
Park, NJ 12 81 85 12 166 178
Steuben Arms, River Edge, NJ 364 1,773 395 364 2,168 2,532
Heights Manor, Spring Lake
Heights, NJ $ 29 109 974 337 109 1,311 1,420
Berdan Court, Wayne, NJ 11,012 250 2,206 1,486 250 3,692 3,942
Retail properties:
Franklin Lakes Shopping Center,
Franklin Lakes, NJ 29 $3,382 6,704 3,411 6,704 10,115
Glen Rock, NJ 12 36 22 12 58 70
Patchogue Shopping Center,
Patchogue, NY 7,410 2,128 8,818 2,128 8,818 10,946
Westridge Shopping Center,
Frederick, MD 18,876 9,135 19,159 338 9,135 19,497 28,632
Westwood Shopping Center,
Westwood, NJ 10,526 6,889 6,416 491 6,889 6,907 13,796
Vacant land:
Franklin Lakes, NJ 224 (168) 56 56
Rockaway, NJ 1,683 $394 2,077 2,077
South Brunswick, NJ 80 92 172 172
------- ------- ------- ------ ------- ---- ------- ------- -------
Totals $47,853 $21,378 $41,127 $3,214 $11,870 $486 $25,078 $52,997 $78,075
======= ======= ======= ====== ======= ==== ======= ======= =======
S-3
Column F Column G Column H Column I
-------- -------- -------- --------
Life on
Which De-
Accumulated Date of Date preciation
Depreciation Construction Acquired is Computed
------------ ------------ -------- -----------
Garden apartments:
Sheridan Apts., Camden, NJ $ 767 1950 1964 7-40 years
Grandview Apts., Hasbrouck
Heights, NJ 252 1925 1964 7-40 years
Lakewood Apts., Lakewood, NJ 444 1960 1962 7-40 years
Hammel Gardens, Maywood, NJ 773 1949 1972 7-40 years
Palisades Manor, Palisades
Park, NJ 117 1935/70 1962 7-40 years
Steuben Arms, River Edge, NJ 1,207 1966 1975 7-40 years
Heights Manor, Spring Lake
Heights, NJ 888 1967 1971 7-40 years
Berdan Court, Wayne, NJ 2,369 1964 1965 7-40 years
Retail properties:
Franklin Lakes Shopping Center,
Franklin Lakes, NJ 126 1963/75/97 1966 10-50 years
Glen Rock, NJ 46 1940 1962 10-31.5 years
Patchogue Shopping Center,
Patchogue, NY 246 1997 1997 39 years
Westridge Shopping Center,
Frederick, MD 4,122 1986 1992 15-31.5 years
Westwood Shopping Center,
Westwood, NJ 2,286 1981 1988 15-31.5 years
Vacant land:
Franklin Lakes, NJ 1966/93
Rockaway, NJ 1964/92/93
South Brunswick, NJ 1964
-------
Totals $13,643
=======
(1) Aggregate cost is the same for Federal income tax purposes.
S-4
FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY
EXHIBIT INDEX
Exhibit No. Exhibit
*3- ----------- -------
3* Amended and Restated Declaration of Trust of First Real Estate
Investment Trust of New Jersey, dated November 7, 1993, as
amended on May 31, 1994 and on September 10, 1998.
44** Form of Specimen Share Certificate, Beneficial Interest in
First Real Estate Investment Trust of New Jersey.
1010** Management Agreement, dated December 20, 1961, by and between
the Registrant and Hekemian & Co., as amended.
23 Consent of J.H. Cohn L.L.P.
24 Power of Attorney (filed with signature pages).
27 Financial Data Schedule.Schedule (see EDGAR version).
* Incorporated by reference to Exhibit No. 1 to Registrant's Registration
Statement on Form 8-A filed with the Securities and Exchange Commission on
November 6, 1998.
E-1** Incorporated by reference to Registrant's Annual Report on form 10-K for
the fiscal year ended October 31, 1998.