SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarterly Period Ended April 30, 2000
Commission File No. 2-27018
FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY
----------------------------------------------------
(exact name of registrant as specified in its charter)
New Jersey 22-1697095
- ------------------------------- -----------------
(State or other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
505 Main Street, P.O. Box 667, Hackensack, New Jersey 07602
- ----------------------------------------------------- -----------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 201-488-6400
------------
- --------------------------------------------------------------------------------
Former name, former address and former fiscal year, if changed since last
report.
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [ X ] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
There were 1,559,788 shares of beneficial interest outstanding
at June 12, 1999.
FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY
INDEX
Part I: Financial Information
Item 1: Consolidated Financial Statements
a.) Balance Sheets as at April 30, 2000 (unaudited) and October
31, 1999;
b.) Statements of Income, Comprehensive Income and
Undistributed Earnings for the Six Months and
Three Months Ended April 30, 2000 and 1999 (unaudited);
c.) Statements of Cash Flows for the Six Months Ended
April 30, 2000 and 1999 (unaudited);
d.) Notes to Financial Statements (unaudited).
e.) Report of Independent Public Accountants
Item 2: Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Item 3: Quantitative and Qualitative Disclosures of Market Risk.
Part II: Other Information
Item 1. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders.
Item 5. Other Events.
Item 6. Exhibits and Reports on Form 8-K
Item 1: Financial Statements
FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
April 30, October 31,
2000 1999
---- ----
(Unaudited) (See Note 1)
----------- -----------
(In Thousands of Dollars)
-------------------------
ASSETS
------
Real estate and equipment, at cost, net of accumulated
depreciation $ 78,680 $ 63,441
Investments in marketable securities 9,331 14,453
Cash and cash equivalents 1,682 2,083
Note receivable - related party 1,023
Tenants' security accounts 751 771
Sundry receivables 1,734 1,326
Prepaid expenses and other assets 1,090 1,004
Deferred charges, net 1,398 1,350
--------------- ------------------
Totals $ 95,689 $ 84,428
=============== ==================
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Liabilities:
Mortgages payable $ 70,600 $ 60,071
Accounts payable and accrued expenses 843 503
Cash distributions in excess of earnings and investment in affiliate 355 294
Dividends payable 779 1,638
Tenants' security deposits 1,021 1,000
Deferred revenue 221 402
--------------- ------------------
Total liabilities 73,819 63,908
--------------- ------------------
Minority interest 1,022
---------------
Commitments and contingencies
Shareholders' equity:
Shares of beneficial interest without par value; 1,790,000
shares authorized; 1,559,788 shares issued and outstanding 19,314 19,314
Undistributed earnings 1,703 1,253
Accumulated other comprehensive income (loss) (169) (47)
--------------- ------------------
Total shareholders' equity 20,848 20,520
--------------- ------------------
Totals $ 95,689 $ 84,428
=============== ==================
See Notes to Consolidated Financial Statements
FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME, COMPREHENSIVE INCOME AND UNDISTRIBUTED EARNINGS
SIX AND THREE MONTHS ENDED APRIL 30, 2000 AND 1999
(Unaudited)
Six Months Three Months
Ended April 30, Ended April 30,
--------------------------------- ----------------------------------
2000 1999 2000 1999
---- ---- ---- ----
(In Thousands of Dollars,
Except Per Share Amounts)
INCOME
------
Revenue:
Rental income $ 6,830 $ 6,433 $ 3,496 $ 3,219
Reimbursements 994 877 518 482
Equity in income (loss) of affiliate 72 (136) 48 6
Net investment income 416 306 162 162
Sundry income 106 95 56 51
----------- ----------- ----------- -----------
Totals 8,418 7,575 4,280 3,920
----------- ----------- ----------- -----------
Expenses:
Operating expenses 1,760 1,660 826 866
Management fees 319 306 166 153
Real estate taxes 1,038 899 527 454
Financing costs 2,379 2,309 1,229 1,160
Depreciation 900 845 468 424
Minority interest 6 6
----------- ----------- ----------- -----------
Totals 6,402 6,019 3,222 3,057
----------- ----------- ----------- -----------
Income before state income taxes 2,016 1,556 1,058 863
Provision for state income taxes 7 5 4 2
----------- ----------- ----------- -----------
Net income $ 2,009 $ 1,551 $ 1,054 $ 861
=========== =========== =========== ===========
Basic earnings per share $ 1.29 $ 0.99 $ 0.68 $ 0.55
=========== =========== =========== ===========
Basic weighted average shares outstanding 1,559,788 1,559,788 1,559,788 1,559,788
=========== =========== =========== ===========
COMPREHENSIVE INCOME
--------------------
Net income $ 2,009 $ 1,551 $ 1,054 $ 861
Other comprehensive income -
unrealized (loss) gain on marketable securities (122) 17
----------- ----------- ----------- -----------
Comprehensive income $ 1,887 $ 1,551 $ 1,071 $ 861
=========== =========== =========== ===========
Six Months Three Months
Ended April 30, Ended April 30,
--------------------------------- ----------------------------------
2000 1999 2000 1999
---- ---- ---- ----
(In Thousands of Dollars,
Except Per Share Amounts)
UNDISTRIBUTED EARNINGS
----------------------
Balance, beginning of period $ 1,253 $ 1,048 $ 1,428 $ 1,114
Net income 2,009 1,551 1,054 861
Less dividends (1,559) (1,248) (779) (624)
----------- ----------- ----------- -----------
Balance, end of period $ 1,703 $ 1,351 $ 1,703 $ 1,351
=========== =========== =========== ===========
Dividends per share $ 1.00 $ 0.80 $ 0.50 $ 0.40
=========== =========== =========== ===========
See Notes to Consolidated Financial Statements
FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED APRIL 30, 2000 AND 1999
(Unaudited) 2000 1999
---- ----
(In Thousands of Dollars)
-------------------------
Operating activities:
Net income $ 2,009 $ 1,551
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 985 918
Equity in (income) loss of affiliate (72) 136
Deferred revenue (181) (20)
Minority interest 6
Changes in operating assets and liabilities:
Tenants' security accounts 20 (51)
Sundry receivables, prepaid expenses and other assets (501) (34)
Deferred charges (71) (106)
Accounts payable and accrued expenses 340 (23)
Tenants' security deposits 21 41
-------- --------
Net cash provided by operating activities 2,556 2,412
-------- --------
Investing activities:
Capital expenditures (491) (240)
Distributions from affiliate 132 2,120
Repayment from affiliate -- 100
Sale of marketable securities 5,000
Acquisition of partnership interest (4,728)
-------- --------
Net cash provided by (used in) investing activities (87) 1,980
-------- --------
Financing activities:
Dividends paid (2,417) (2,059)
Net proceeds from mortgage refinancing -- 3,671
Proceeds from mortgage borrowings -- 9,275
Repayment of mortgages (391) (351)
Deferred mortgage costs (62) (185)
-------- --------
Net cash provided by (used in) financing activities (2,870) 10,351
-------- --------
Net increase (decrease) in cash and cash equivalents (401) 14,743
Cash and cash equivalents, beginning of period 2,083 793
-------- --------
Cash and cash equivalents, end of period $ 1,682 $ 15,536
======== ========
2000 1999
---- ----
(In Thousands of Dollars)
-------------------------
Supplemental disclosure of cash flow data:
Interest paid $ 2,331 $ 2,309
======== ========
Income taxes paid $ 7 $ 3
======== ========
Supplemental disclosure of noncash investing and financing activities:
During the six months ended April 30, 2000, the Trust completed an
acquisition of a 98,800 square foot retail property in Olney, MD for
approximately $15,648,000, in part, with the proceeds of a $10,920,000
mortgage (see Note 2).
During the six months ended April 30, 2000 and 1999, the Trust had
dividends declared but not paid of $779,000 and $624,000,
respectively.
See Notes to Consolidated Financial Statements
FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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.
Basis of presentation:
The financial information included herein as at April 30, 2000 and for the six
and three months ended April 30, 2000 and 1999 is unaudited and, in the opinion
of the Trust, reflects all adjustments (which include only normal recurring
accruals) necessary for a fair presentation of the financial position as of that
date and the results of operations for those periods. The information in the
balance sheet as of October 31, 1999 was derived from the Trust's audited annual
report for 1999.
The results of the Trust's operations for the six and three months ended April
30, 2000 are not necessarily indicative of the results of operations for the
full year ending October 31, 2000.
Principles of consolidation: The consolidated financial statements include the
accounts of the Trust and subsequent to March 29, 2000 its 75%-owned subsidiary,
S and A Commercial Associates Limited Partnership ("S and A") a Maryland limited
partnership. The consolidated financial statements include 100% of S and A's
assets, liabilities, operations and cash flows with the 25% interest not owned
by the Trust reflected as "minority interest." All significant intercompany
accounts and transactions have been eliminated in consolidation (see Note 2).
Investment in affiliate:
The Trust's 40% investment in Westwood Hills, LLC ("WHLLC") is accounted for
using the equity method.
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.
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 (loss) within shareholders' equity.
Cash and cash equivalents:
Financial instruments which potentially subject the Trust to concentrations of
credit risk consist primarily of cash 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 April 30, 2000, such cash and cash equivalent balances
exceeded Federally insured limits by approximately $1,582,000. Exposure to
credit risk is reduced by placing such deposits with high credit quality
financial institutions.
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 financing costs and approximated $48,000 and $44,000 for the six
months ended April 30, 2000 and 1999, respectively, and approximately $25,000
and $23,000 for the three months ended April 30, 2000 and 1999, respectively.
Deferred leasing commissions are amortized on the straight-line method over the
terms of the applicable leases.
Revenue recognition:
Income from leases is recognized on a straight-line basis regardless of when
payment is due. Lease agreements between 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
$32,000 for each of the six months ended April 30, 2000 and 1999, and
approximately $19,000 and $23,000 for the three months ended April 30, 2000 and
1999, respectively.
Earnings per share: The Trust presented "basic" earnings per share in the
accompanying consolidated 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 the six and three
months ended April 30, 2000, 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 six and three months ended April 30, 1999, the Trust had no potentially
dilutive common shares.
Note 2 - Investment in affiliates:
The Trust is a 40% member of WHLLC, 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 WHLLC are either trustees of the Trust or their
families or officers of Hekemian. WHLLC owns a residential apartment complex
located in Westwood, New Jersey.
Summarized financial information of WHLLC as of April 30, 2000 and October 31,
1999 and for the six and three months ended April 30, 2000 and 1999 is as
follows:
April 30, October 31,
2000 1999
---- ----
(In thousands of dollars)
Balance sheet data:
Assets:
Real estate and equipment, net $ 14,086 $ 14,190
Other 673 812
--------------- ----------------
Total assets $ 14,759 $ 15,002
=============== ================
Liabilities and equity:
Liabilities:
Mortgage payable $ 15,275 $ 15,362
Other 371 378
--------------- ----------------
Total liabilities 15,646 15,740
--------------- ----------------
Members' deficiency:
Trust (355) (294)
Others (532) (444)
--------------- ----------------
Total members' deficiency (887) (738)
--------------- ----------------
Total liabilities and members' deficiency $ 14,759 $ 15,002
=============== ================
Six Months Ended Three Months Ended
April 30, April 30,
------------------------------- --------------------------
2000 1999 2000 1999
---- ---- ---- ----
(In thousands of dollars)
Income statement data:
Rental revenue $ 1,407 $ 1,334 711 $ 675
Expenses 1,227 1,233 591 662
-------------- ------------- ------------ -----------
Income from rental operations 180 101 120 13
Prepayment penalty on mortgage refinancing (442)
-------------- ------------- ------------ -----------
Net income (loss) $ 180 $ (341) $ 120 $ 13
============== ============= ============ ===========
On March 29, 2000, the Trust acquired 100% of S and A, whose only asset is a
neighborhood shopping center in Olney, MD. The shopping center contains 98,848
square feet of gross leaseable area situated on approximately 13 acres of land.
Approximately 11 acres of the land are subject to a ground lease expiring in
2078, and approximately 2 acres are owned in Fee simple.
The purchase price of S and A was approximately $15,648,000 of which $4,728,000
was paid in cash and $10,920,000 was financed by the proceeds of a mortgage. The
Trust agreed to sell a 25% interest in S and A, as of March 29, 2000, to a group
consisting of shareholders of the Trust and employees of Hekemian on the same
basis and cost as to the Trust. The unpaid purchase price of the 25% interest
accrues interest at the Trust's prevailing borrowing rate and the receivable and
interest is anticipated to be repaid within the next quarter.
The accompanying consolidated financial statements reflect the operations of the
shopping center since acquisition.
The following unaudited pro forma information (in thousands of dollars, except
per share amounts) shows the results of operations for the six and three months
ended April 30, 2000 and 1999 as through S and A had been acquired at the
beginning of fiscal 1999:
Six Months Ended Three Months Ended
April 30, April 30,
------------------------------ ----------------------------
2000 1999 2000 1999
---- ---- ---- ----
(In thousands of dollars)
Rental revenue $ 9,176 $ 8,588 4,588 $ 4,442
Expenses 7,220 7,002 3,574 3,541
------------- ------------- ----------- -------------
Income before minority interest 1,956 1,586 1,014 901
Minority interest 12 24 3 18
------------- ------------- ----------- -------------
Net income $ 1,944 $ 1,562 $ 1,011 $ 883
============= ============= =========== =============
Earnings per share $ 1.25 $ 1.00 $ 0.65 $ 0.57
============= ============= =========== =============
The unaudited pro forma results include adjustments for depreciation based on
the purchase price, increased interest expense, and reduced net investment
income related to assets utilized to make the acquisition, and obligations
incurred to complete the transaction.
The unaudited pro forma results of operations set forth above are not
necessarily indicative of the results that would have occurred had the
acquisition been made at the beginning of fiscal 1999 or of future results of
operations of the Trust's combined properties.
Note 3 - Investments in marketable securities:
At April 30, 2000, 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 April 30, 2000 are as follows:
Amortized
Cost Fair Value
----------------- ------------------
(In Thousands of Dollars)
One to five years $ 9,000 $ 8,876
Five to ten years 500 455
----------------- ------------------
Totals $ 9,500 $ 9,331
================= ==================
Note 4 - Real estate and equipment:
Real estate and equipment consists of the following:
Range of
Estimated April 30, October 31,
Useful Lives 2000 1999
------------- ---- ----
(In Thousands of Dollars)
Land $ 23,830 $ 22,773
Unimproved land 2,356 2,354
Apartment buildings 7-40 years 10,847 10,764
Commercial buildings and
shopping centers 15-50 years 56,139 40,723
Construction in progress 973 1,426
Equipment 3-15 years 553 522
-------------- --------------
94,698 78,562
Less accumulated deprecition 16,018 15,121
-------------- --------------
Totals $ 78,680 $ 63,441
============== ==============
Note 5 - Mortgages payable:
Mortgages payable consist of the following:
April 30, October 31,
2000 1999
---- ----
(In thousands of Dollars)
Nothern Life Insurance Cos. - Frederick, MD (A) $ 18,467 $ 18,609
National Realty Funding L.C. - Westwood, NJ (B) 10,364 10,420
Larson Financial Resources, Inc. - Spring Lake, NJ (C) 3,643 3,664
Summit Bank - Patchogue, NY (D) 7,234 7,295
Larson Financial Resources, Inc. - Wayne, NJ (E) 10,839 10,898
Larson Financial Resources, Inc. - River Edge, NJ (F) 5,293 5,323
Larson financial Resources, Inc. - Maywood, NJ (G) 3,840 3,862
Summit Bank - Olney, MD (H) 10,920
---------------- ----------------
Totals $ 70,600 $ 60,071
================ ================
(A) 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 retail building in Frederick, Maryland having a
net book value of approximately $23,627,000.
(B) 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 a retail building in Westwood, New Jersey having a
net book value of approximately $11,266,000.
(C) Payable in monthly installments of $23,875 including interest at 6.70%
through 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 $502,000.
(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 retail building in Patchogue, New York having a
net book value of approximately $10,373,000.
(E) Payable in monthly instalments 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 $1,613,000.
(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 $1,271,000.
(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 $916,000.
(H) Interest only is payable monthly at 175 basis points over the 90 day LIBOR
rate, and resets every 90 days. The current rate is 8.03%. The mortgage,
which is due on March 28, 2002, is secured by a shopping center in Olney,
MD having a net book value of approximately $15,632,000.
Principal amounts (in thousands of dollars) due under the above obligations in
each of the five years subsequent to April 30, 2000 are as follows:
Year Ending
April 30, Amount
----------- --------
2001 $ 779
2002 11,761
2003 907
2004 979
2005 7,557
Based on borrowing rates currently available to the Trust, the fair value of the
mortgage debt approximates carrying value at April 30, 2000.
Note 6 - Line of credit agreement:
The Trust had an $8,000,000 revolving line of credit agreement that expired in
May 2000. The Trust is currently negotiating to extend the credit agreement to
May 2001.
Note 7 - Commitments and contingencies:
Leases:
Retail tenants:
The Trust leases retail space having a net book value of approximately
$71,093,000 at April 30, 2000 to tenants for periods of up to twenty-five years.
Most of the leases contain clauses for reimbursement of real estate taxes,
maintenance, insurance and certain other operating expenses of the properties.
Minimum rental income (in thousands of dollars) to be received from
non-cancelable operating leases in years subsequent to April 30, 2000 are as
follows:
Year Ending
April 30, Amount
----------- --------
2001 $ 7,900
2002 7,677
2003 7,449
2004 6,698
2005 6,066
Thereafter 49,597
--------
Total $ 85,387
========
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 the six and three months ended April 30, 2000 and 1999 were not
material.
Residential tenants:
Lease terms for residential tenants are usually one year or less.
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 discovered in 1997 at the renovated Franklin Lakes
shopping center (the "Center"). In November 1999, the Trust received a no
further action letter from the NJDEP concerning the historical discharge at the
Center. However, the Trust is required to continue monitoring such discharge,
the cost of which will not be material.
Ground lease:
The Trust's shopping center in Olney, MD is on approximately 13 acres of land.
Two acres are owned by the Trust in Fee Simple, and the balance of the land (11
acres) is subject to a ground lease expiring in 2078. Under the terms of the
ground lease, the Trust is obligated to pay a fixed annual rental of $79,956
plus 2-1/2% of annual net rental collections. The Trust is also obligated for
the payment of real estate taxes and insurance.
Note 8 - Management agreement and related party transactions:
Hekemian manages the properties owned by the Trust. The management agreement
requires fees equal to a percentage of rents collected. Such fees were
approximately $319,000 and $306,000 for the six months ended April 30, 2000 and
1999; and approximately $167,000 and $153,000 for the three months ended April
30, 2000 and 1999, respectively. In addition, Hekemian charged the Trust fees
and commissions in connection with the acquisition of the retail center in
Olney, MD and various mortgage refinancing and lease acquisition fees. Such fees
and commissions amounted to approximately $499,000 and $121,000 for the six
months ended April 30, 2000 and 1999; and $485,000 and $55,000 for the three
months ended April 30, 2000 and 1999, respectively.
Note 9 - 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.
Note 10- Equity incentive plan:
On September 10, 1998, the Board of Trustees approved the Trust's Equity
Incentive Plan (the "Plan") which was ratified by the Trust's 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 Board of Trustees will determine the
actual terms of each award. 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.
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 pro forma 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.
In the opinion of management, if compensation cost for the stock options granted
in 1999 had been determined based on the fair value of the options at the grant
date under the provisions of SFAS 123 using the Black-Scholes option pricing
model and assuming a risk-free interest rate of 5.25%, expected option lives of
ten years, expected 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.
* * *
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
----------------------------------------
To the Trustees and Shareholders
First Real Estate Investment Trust of
New Jersey
We have reviewed the accompanying consolidated balance sheet of FIRST REAL
ESTATE INVESTMENT TRUST OF NEW JERSEY AND SUBSIDIARY as of April 30, 2000, and
the related consolidated statements of income, comprehensive income and
undistributed earnings for the six and three months ended April 30, 2000 and the
consolidated statement of cash funds for the six months ended April 30, 2000.
These consolidated financial statements are the responsibility of the Trust's
management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review of the consolidated financial statements referred to above,
we are not aware of any material modifications that should be made to
accompanying consolidated financial statements for them to be in conformity with
generally accepted accounting principles.
We have previously audited, In accordance with generally accepted auditing
standards, the balance sheet of the Trust as of October 31, 1999, and the
related statements of income, comprehensive income and undistributed earnings
and cash flows for the year then ended which are not presented herein, and in
our report dated November 22, 1999, we expressed an unqualified opinion on those
financial statements. In our opinion, the information set forth in the
accompanying balance sheet as of October 31, 1999 is fairly stated, in all
material respects, in relation to the balance sheet from which it has been
derived.
The accompanying statements of income, comprehensive income and undistributed
earnings for the six and three months ended April 30, 1999 and the statement of
cash flows for the six months ended April 30, 1999 were not audited or reviewed
by us and accordingly, we do not express an opinion or any other form of
assurance of them.
J. H. Cohn LLP
Roseland, New Jersey
May 16, 2000
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Overview
The Registrant is an equity REIT that owns a portfolio of residential apartment
and retail properties, and undeveloped land. The Registrant's revenues consist
primarily of fixed rental income and additional rent in the form of percentage
rents and expense reimbursements derived from its income producing retail
properties. The registrant also receives income form its 40% owned affiliate,
Westwood Hill LLC, which owns a residential apartment property. The Registrant's
policy has been to acquire real property for long-term investment.
The following discussion should b read in conjunction with the Registrant's
financial statements and related notes included elsewhere in this Form 10-Q.
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 Form 10-Q, which could cause actual results to differ
materially from those projected.
Results of Operations
Six months ended April 30, 2000 vs. 1999
Acquisition
On March 29, 2000, the Registrant completed the acquisition of the Olney Town
Center ("Olney"), in Olney, MD. Olney is a 98,848 sq. ft. neighborhood shopping
center with expansion potential to 131,000 sq. ft. The center is 91.5% occupied.
The shopping center is situated on approximately 12.9 acres of land.
Approximately 10.9 areas are subject to a ground lease expiring in 2078, and
approximately 2 acres are owned in Fee simple.
The center was acquired by purchasing 100% of the partnership units of S and A
Commercial Associates Limited Partnership ("S and A"). S and A's only asset at
the purchase closing date was the shopping center. The purchase price of the
center, approximately $15,648,000, was financed, in part, with the proceeds of a
$10,920,000 mortgage, with the balance of the purchase price being supplied from
the proceeds from liquidating a portion of the Registrant's marketable
securities.
The Registrant has agreed to sell, as of March 29, 2000, a 25% interest in S and
A to a group consisting of shareholders of the Registrant and employees of
Hekemian & Co., Inc. on the same basis and cost as to the Registrant. The
accompanying consolidated financial statements include the operations of Olney
since the acquisition date which are summarized as follows:
Six and Three Months % Of Consolidated
Ended Period Ended 4/30/00
4/30/00 Six Months Three Months
------- ---------- ------------
Selected Income Statement Data:
Revenues $ 185,000 2.2% 4.3%
--------------
Expenses 49,000 1.6% 3.2%
Depreciation 31,000 3.4% 6.6%
Financing Costs 83,000 3.5% 6.8%
Minority Interest 6,000 100.0% 100.0%
--------------
Total Expenses 169,000 2.6% 5.2%
--------------
Net Earnings $ 16,000 0.8% 1.5%
============== ============ ===============
Earnings Per Share $ 0.01 0.8% 1.5%
============== ============ ===============
As At As At
4/30/00 4/30/00
------- -------
Selected Balance Sheet Data:
Real Estate $ 15,632,000 19.9%
Other Assets 194,000 1.1%
Mortgages Payable 10,920,000 15.5%
Other Liabilities 555,000 17.2%
Revenues
For the six months ended April 30, 2000 ("Current Period"), total revenues
increased 11.1% to $8,418,000 from $7,575,000 for the six months ended April 30,
1999 ("Prior Period"). The revenue increase results, in part, from a $525,000
increase in revenues from the Registrant's operating properties, a $110,000
increase in net investment income from investing the Registrant's cash
equivalents and marketable securities, and a positive swing in the Registrant's
share of operations at the Registrant's 40% owned affiliate of $208,000.
Real Estate Operations: Revenues from real estate operations for the Current
Period increased 7.1% to $7,930,000 from $7,405,000 for the Prior Period. The
increase came, in part, from higher revenues at the Registrant's residential
properties from higher per unit net rental collections off-setting a 2.2%
decline to 92.9% in overall occupancy; and increased revenues at the
Registrant's retail properties. The increase at the Registrant's retail
properties resulted primarily from increased fixed rents and expense
reimbursements. These increases resulted, primarily, from increased occupancy at
the Registrant's Franklin Crossing (Franklin Lakes, NJ) shopping center and
Olney.
Net Investment Income: The increase in net investment income results from
earning higher interest rates from the redeployment (during the quarter ended
October 31, 1999) of funds from institutional money market pools to fixed
income, short-to-intermediate term Government Agency bonds. The increase of
$110,000 for the Current Period is net of a $68,000 loss from the sale of bonds
used for the cash portion of the purchase price of Olney.
Earnings From 40% Owned Affiliate: During the Prior Period the Registrant's 40%
owned affiliate, Westwood Hills LLC, refinanced its mortgage loan incurring
one-time refinancing costs of $440,000. The Registrant's 40% share of these
costs ($176,000) was charged against income during the Prior Period. No such
comparable costs were incurred during the Current Period contributing to the
positive earnings swing of $208,000.
Expenses:
For the Current Period, overall expenses increased $383,000 (6.4%) to $6,402,000
from $6,019,000 for the Prior Period. The major increases and percentage
increases came in the following areas: Real estate operations $162,000 (11.6%);
real estate taxes $139,000 (15.4%) and depreciation $55,000 (6.5%). Corporate
administrative expenses fell $61,000 (23.8%).
The majority of expense increases came from the acquisition of Olney during the
Current Period, and the consolidation of its operations. Overall expenses
excluding Olney increased 3.6%.
Net Income
For the Current Period Net Income increased $458,000 (29.5%) to $2,009,000
($1.29 per share) from $1,551,000 ($.99 per share) for the Prior Period.
The earning component increases during the Current Period over the Prior Period
are as follows:
Current Period
Changes
Real Estate Operations $ 204,000
Net Investment Income 110,000
Equity In Income of Affiliate 208,000
Financing Costs (70,000)
Depreciation (55,000)
Administrative Costs 61,000
------------------
Increase In Net Income $ 458,000
==================
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 or increase 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:
Six Months Ended Three Months Ended
----------------------------- ----------------------------
4/30/00 4/30/99 4/30/00 4/30/99
------- ------- ------- -------
Net Income $ 2,009 $ 1,551 $ 1,054 $ 861
Depreciation - Real Estate 900 845 468 424
Amortization of Deferred Mortgage Costs 48 44 25 23
Deferred Rents (196) (207) (103) (103)
Capital Improvement - Apartments (115) (84) (82) (35)
Other 45 225 22 26
------------- -------------- -------------- ------------
Funds From Operations $ 2,691 $ 2,374 $ 1,384 $1,196
============= ============== ============== ============
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 REIT's may vary materially
from that of the Registrant, and therefore the Registrant's FFO and the FFO of
other REIT's may not be directly comparable.
Liquidity and Capital Resources
At April 30, 2000, the Registrant's cash, cash equivalents and marketable
securities totaled $11,013,000 compared to $16,536,000 at October 31, 1999. The
principal reason for the reduction was the liquidation of marketable securities
to be used for the cash purchase price of Olney. These funds and the funds
available from the Registrant's revolving credit line are available for property
acquisitions. At April 30, 2000, the Registrant's aggregate outstanding mortgage
debt was approximately $70.6 million. Approximately $59.7 million has a fixed
weighted average interest rate of 7.513%, and an average life of 10.73 years.
Approximately $10.9 million of mortgage debt bears an interest rate equal to 175
basis points over LIBOR and resets every 90 days. This mortgage is due March 28,
2002 and can be extended for one additional year. 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. The
Registrant believes that its exposure to market risk relating to interest rate
risk is not material since most of its mortgage debt is long term with fixed
rate financing. 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 Registrant has
invested approximately $9.5 million in short-to-intermediate fixed rate
Government Agency Bonds. These bonds yield a weighted average interest of 6.483%
and have a weighted maturity of 25.9 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 (See Net Investment Income above).
The Registrant makes capital improvements to its 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
expenditure during fiscal 2000 other than in the ordinary course of business.
Results of Operations
Three months ended April 30, 2000 vs. 1999
Revenues
For the three months ended April 30, 2000 ("Current Quarter") total revenues
increased 9.2% to $4,280,000 from $3,920,000 for the three months ended April
30, 1999 ("Prior Quarter"). The revenue increase results, for the most part,
from $318,000 of increased revenues at the Registrant's operating properties,
which include $185,000 at Olney. The balance of the revenue increase of $42,000
comes from the Registrant's share of its equity in improved operating results at
its 40% owned affiliate, Westwood Hills LLC.
To fund the cash purchase price of the Olney shopping center the Registrant sold
fixed income marketable securities prior to their maturity dates. As a result of
the current higher interest rate environment than when the securities were
purchased, the sale resulted in a loss of $68,000, which was charged against Net
Investment Income.
Expenses
Expenses for the Current Quarter increased $165,000 (5.4%) to $3,222,000 from
$3,057,000 for the Prior Quarter. Almost the entire increase is attributable to
the consolidation of Olney's operations. (See Acquisition). Without Olney,
expenses would have been flat, with reductions in real estate operating expenses
offsetting slight increases in the other categories.
Net Income
Net Income for the Current Quarter increased 22.4% to $1,054,000 ($.68 per
share) from $861,000 ($.55 per share) for the Prior Quarter. The increase was
attributable to higher earnings at the operating properties and increased
earnings from the Registrant's 40% owned affiliate.
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 REIT taxable income in order to satisfy the applicable REIT
requirement as set forth in the Internal Revenue Code.
It has been the Registrant's policy to pay fixed quarterly dividends for the
first three quarters of each fiscal year, and a final fourth quarter dividend
based on the fiscal year's net income and taxable income. For the Registrant's
preceding fiscal years ended October 31, 1999 and 1998, the fourth quarter
dividend was $1.05 and $.92 per share respectively.
Cash dividends declared through the six months ended April 30, 2000 and 1999 are
as follows:
- -----------------------------------------------------------------------
FISCAL 2000 FISCAL 1999
----------- -----------
First Quarter $ .50 $ .40
Second Quarter $ .50 $ .40
-------- --------
Year To Date $1.00 $ .80
-------- --------
- ----------------------------------------------------------------------
Inflation
The Registrant anticipates that the U.S. Mid-Atlantic States 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.
Item 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
See "Liquidity and Capital Resources" above.
Part II: Other Information
Item 1. Legal Proceedings
None.
Item 4. Submission of Matters to a Vote of Security Holders.
The following maters were submitted to a vote of security
holders at the Registrant's Annual Meeting of Shareholders
held on April 12, 2000.
Election of Trustees
The Shareholders re-elected Mr. Herbert C. Klein to serve as
Trustees for an additional three (3) term. The balloting for
election was as follows:
NOMINEE FOR AGAINST ABSTAINED
- --------------------------- ------------------- --------------- ---------------
Herbert C. Klein 1,405,155 0 154,633
- --------------------------- ------------------- --------------- ---------------
Item 5. Other Events
None
Item 6. Exhibits and Reports of Form 8-K
No reports on Form 8-K have been filed during the six months
ended April 30, 2000.
Exhibit Numbers
---------------
27. Financial Data Schedule
SIGNATURES
Pursuant to the requirements 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
----------------------------
(Registrant)
Date June 12, 2000
/s/ William R. DeLorenzo, Jr.
----------------------------
William R. DeLorenzo, Jr.
Executive Secretary and Treasurer
*Print name and title of the signing officer under his signature.