Message to Our Shareholders
- --------------------------------------------------------------------------------
OPERATING RESULTS
Net income for the year ended October 31, 2000 increased 28% to $4,759,000
($3.05 per share) from $3,715,000 ($2.38 per share) for the prior year. Revenues
increased 15% to $18,158,000 from $15,727,000 for the prior year. The revenue
increase results principally from the inclusion of operations from theOlney Town
Center acquired on March 29, 2000, and increased occupancy and revenue from
Franklin Crossing. Net investment income also increased, as did the Trust's
share of the earnings of its 40% owned affiliate, Westwood Hills LLC.
Total expenses increased $1,387,000 (11.5%) to $13,399,000 in fiscal 2000 from
$12,012,000 for the prior fiscal year. This increase was principally
attributable to expenses at the newly acquired Olney Town Center aggregating
$1,200,000.
- --------------------------------------------------------------------------------
HIGHLIGHTS THIS PAST YEAR:
o Net Income increased 28% to $3.05 per share.
o Dividends increased 18% to $2.65 per share.
o Funds From Operations (FFO) increased 21% to $3.99 per share.
o The Trust completed its acquisition of the 98,000 sq. ft. Olney Town
Center in Olney, MD.
- --------------------------------------------------------------------------------
RESIDENTIAL PROPERTIES: The apartment communities continue to generate increased
contributions to net income. Net Earnings (before financing costs) from
residential properties - including the Trust's 40% owned affiliate - increased
4.4% to $4,497,000 from $4,309,000 for the prior year. This increase resulted
from the positive spread between rental income increases and operating expense
increases. Average rental income increased 3.7% while average expenses increased
2.9%.
Net Earnings
(before financing costs)
($000)
1997 1998 1999 2000
------ ------ ------ ------
Residential* $3,708 $4,108 $4,309 $4,498
Retail $3,214 $4,785 $5,114 $6,261
(* includes Affiliate)
The Trust owns 19 plus/minus acres of undeveloped land in Rockaway, NJ, that is
zoned for residential and commercial use. The Trust is in the planning stages,
and is seeking approvals to develop garden apartment rental units on this site.
RETAIL PROPERTIES: Revenues from retail operations increased 21.7% to
$10,796,000 in fiscal 2000 from $8,870,000 in the prior year. Net Earnings
(before financing costs) increased 22.9% to $6,283,000 this year from $5,114,000
for the prior year. Overall occupancy has increased to 95.1% vs. 94% last year.
The major factors for the increased revenues and net earnings increase were
higher occupancy levels at the Franklin Crossing shopping center and, of course,
the acquisition of the Olney Town Center shopping center.
In October 2000, Grand Union declared bankruptcy and subsequently announced that
it is going out of business. The Trust has two Grand Union supermarkets
aggregating 70,200 sq. ft. At a bankruptcy auction in November 2000, a major
grocery wholesaler emerged as the successful bidder for these leases. While it
is expected that these leases will be assigned to an established supermarket
operator in the Northeast, the final determination is not yet known.
Olney Town Center, Olney, MD, is a 98,800 sq. ft. neighborhood shopping center
with expansion potential to 131,000 sq. ft. The center is situated on 13
plus/minus acres of land of which, 11 acres are subject to a ground lease
expiring in 2078, with the balance of the land, 2 acres, owned in fee simple.
The center was acquired by purchasing 100% of the ownership units of the
partnership that owns the center. The purchase price of $15,648,000 was financed
in part with the proceeds of a $10,920,000 mortgage, with the balance of the
purchase price paid in cash. As of the purchase date, the Trust agreed in
principal to sell a 25% equity interest in Olney to a group consisting
principally of employees of Hekemian & Co., Inc., the Trust's management agent,
on the same basis and cost as the Trust. The Trust's financial statements
reflect this agreement.
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The Trust is planning an expansion of the Olney center during fiscal 2001-2002
that we expect will ultimately add to revenues, net earnings, and value to the
Trust's portfolio. If the expansion plans are approved by the required
governmental agencies, and leasing completed, a number of existing tenants will
be moved to new locations. This tenant relocation will cause a temporary, though
significant, loss of rental income to the Trust during the expansion period.
FUNDS FROM OPERATIONS / DIVIDENDS
Funds From Operations ("FFO") is regarded by many as a standard measurement of a
REIT's performance. During fiscal 2000 FFO increased 21% to $6,217,000 ($3.99
per share) from $5,135,000 ($3.29 per share) last year.
The fourth quarter 2000 dividend was $1.15 per share, which raised dividends for
the fiscal year to $2.65 per share. This compares to $2.25 per share for fiscal
1999. Dividends for fiscal 2000 represent 87% of Net Income (100.3% of taxable
income) and 66% of FFO compared to 94% and 64% respectively for the prior year.
Three Year Comparison
($000)
1998 1999 2000
------ ------ ------
FFO $5,299 $5,442 $6,217
Net Earnings $3,685 $3,715 $4,759
Dividends $3,307 $3,510 $4,133
It is the Trust'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
total fiscal year's operating results. For its fiscal year beginning November 1,
2000, the Trust will increase its fixed quarterly dividend to $.60 per share
from $.50 per share. The fourth quarter dividend will be adjusted to reflect its
total operating results for the year ending October 31, 2001.
FUTURE OUTLOOK
The Trust's financing program undertaken during the two previous fiscal years
strengthened its balance sheet by providing liquidity and long-term capital at
fixed rates. As at October 31, 2000 cash, cash equivalents, and marketable
securities totaled $12.4 million - 13% of assets.
This capital and the funds generated from operations will assist the Trust as it
continues to pursue new investment opportunities in the Northeast and
Mid-Atlantic States area. While the National economy is showing signs of
slowing, we expect modest growth from our core residential properties in spite
of higher fuel/energy costs. An economic slow down will have an effect on our
retail properties; however, at this time it is too early to assess the effects
of such a slow down.
The Board of Trustees looks forward to seeing you at the Annual Meeting
scheduled for Tuesday, April 10, 2000, at 7:30 p.m. at the Trust's headquarters
located at 505 Main Street, Hackensack, NJ.
Sincerely,
/s/ Robert S. Hekemian /s/ Donald W. Barney
Robert S. Hekemian Donald W. Barney
Chairman President
The statements in this report that relate to future earnings or performance are
forward-looking. Actual results might differ materially and be adversely
affected by such factors as longer than anticipated lease-up periods or the
inability of tenants to pay increased rents. Additional information about these
factors is contained in the Trust's filings with the SEC including the Trust's
most recently filed report on Form 10-K under the section "Management's
Discussion and Analysis of Financial Condition and Results of Operations," also
included elsewhere in this report.
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Properties
- --------------------------------------------------------------------------------
Portfolio of Real Estate Investments
Apartment Buildings
BERDAN COURT APARTMENTS Wayne, New Jersey
GRANDVIEW APARTMENTS Hasbrouck Heights, New Jersey
HAMMEL GARDENS Maywood, New Jersey
HEIGHTS MANOR APARTMENTS Spring Lake Heights, New Jersey
LAKEWOOD APARTMENTS Lakewood, New Jersey
PALISADES MANOR Palisades Park, New Jersey
SHERIDAN APARTMENTS Camden, New Jersey
STEUBEN ARMS River Edge, New Jersey
WESTWOOD HILLS* Westwood, New Jersey
Shopping Centers/Commercial Buildings
FRANKLIN CROSSING SHOPPING CENTER Franklin Lakes, New Jersey
WESTRIDGE SQUARE SHOPPING CENTER Frederick, Maryland
WESTWOOD PLAZA SHOPPING CENTER Westwood, New Jersey
SINGLE TENANT STORE Glen Rock, New Jersey
PATHMARK CENTER Patchogue, New York
OLNEY TOWN CENTER** Olney, Maryland
Vacant Land
33 ACRES, INDUSTRIAL ZONE South Brunswick, New Jersey 19.26 ACRES,
MULTI-FAMILY ZONE Rockaway, New Jersey 4.27 ACRES, RESIDENTIAL ZONE
Franklin Lakes, New Jersey
* The Trust holds a 40% interest in Westwood Hills LLC, a New Jersey Limited
Liability Company, which owns the 210-unit apartment community.
** The Trust holds a 75% interest in S and A Commercial Associates LP, which
owns the Olney Town Center.
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FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY AND SUBSIDIARY
- --------------------------------------------------------------------------------
Consolidated Balance Sheets (in thousands)
- ----------------------------------------------------------------------------------------------------------------------
October 31, 2000 1999
- ----------------------------------------------------------------------------------------------------------------------
Assets
Real estate and equipment, at cost, net of accumulated depreciation . . . . . . . . . . . $78,038 $63,441
Investments in marketable securities . . . . . . . . . . . . . . . . . . . . . . . . . .. 9,451 14,453
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,925 2,083
Due from related party . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 1,066 --
Tenants' security accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 766 771
Sundry receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 1,794 1,326
Prepaid expenses and other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,361 1,004
Deferred charges, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,380 1,350
- ----------------------------------------------------------------------------------------------------------------------
Totals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . ... $96,781 $84,428
- ----------------------------------------------------------------------------------------------------------------------
Liabilities and Shareholders' Equity
Liabilities:
Mortgages payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $70,214 $60,071
Accounts payable and accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . 854 503
Cash distributions in excess of investment in affiliate . . . . . . . . . . . . . . . . 352 294
Dividends payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,794 1,638
Tenants' security deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 1,073 1,000
Deferred revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 303 402
- ----------------------------------------------------------------------------------------------------------------------
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 74,590 63,908
- ----------------------------------------------------------------------------------------------------------------------
Minority interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,047 --
- ----------------------------------------------------------------------------------------------------------------------
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 1,879 1,253
Accumulated other comprehensive income (loss) . . . . . . . . . . . . . . . . . . . . . (49) (47)
- ----------------------------------------------------------------------------------------------------------------------
Total shareholders' equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,144 20,520
- ----------------------------------------------------------------------------------------------------------------------
Totals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . $96,781 $84,428
- ----------------------------------------------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements.
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FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY AND SUBSIDIARY
- --------------------------------------------------------------------------------
Consolidated Statements of Income, Comprehensive Income and
Undistributed Earnings
(in thousands except per share amounts)
- ----------------------------------------------------------------------------------------------------------------------
Years ended October 31, 2000 1999 1998
- ----------------------------------------------------------------------------------------------------------------------
Revenue
Rental income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 14,575 $ 13,083 $ 12,450
Reimbursements . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 2,179 1,750 1,576
Equity in income (loss) of affiliate . . . . . . . . . . . . . . . . .. 173 (52) 213
Net investment income . . . . . . . . . . . . . . . . . . . . . . . . . 834 742 6
Sundry income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 397 204 187
- ----------------------------------------------------------------------------------------------------------------------
Totals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 18,158 15,727 14,432
- ----------------------------------------------------------------------------------------------------------------------
Expenses
Operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . .. 3,315 3,118 2,989
Management fees . . . . . . . . . . . . . . . . . . . . . . . . . . ... 697 623 576
Real estate taxes . . . . . . . . . . . . . . . . . . . . . . . . . ... 2,187 1,922 1,758
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 5,165 4,620 3,762
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 1,988 1,716 1,650
Minority interest . . . . . . . . . . . . . . . . . . . . . . . . . ... 31 -- --
- ----------------------------------------------------------------------------------------------------------------------
Totals. . . . . . . . . . . . . . . . . . . . . . . . . . . . . ... 13,383 11,999 10,735
- ----------------------------------------------------------------------------------------------------------------------
Income before state income taxes . . . . . . . . . . . . . . . . . . . .. 4,775 3,728 3,697
Provision for state income taxes . . . . . . . . . . . . . . . . . . . .. 16 13 12
- ----------------------------------------------------------------------------------------------------------------------
Net income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ... $ 4,759 $ 3,715 $ 3,685
- ----------------------------------------------------------------------------------------------------------------------
Basic earnings per share. . . . . . . . . . . . . . . . . . . . . . . ... $ 3.05 $ 2.38 $ 2.36
- ----------------------------------------------------------------------------------------------------------------------
Basic weighted average shares outstanding . . . . . . . . . . . . . . ... 1,559,788 1,559,788 1,559,788
- ----------------------------------------------------------------------------------------------------------------------
Comprehensive Income
Net income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ... $ 4,759 $ 3,715 $ 3,685
Other comprehensive income (loss):
Unrealized holding losses on marketable securities . . . . . . . . ... (70) (47) --
Reclassification adjustment for losses included in net income . . .... 68 -- --
- ----------------------------------------------------------------------------------------------------------------------
Other comprehensive income (loss) . . . . . . . . . . . . . . . . . . ... (2) (47) --
- ----------------------------------------------------------------------------------------------------------------------
Comprehensive income. . . . . . . . . . . . . . . . . . . . . . . . . ... $ 4,757 $ 3,668 $ 3,685
- ----------------------------------------------------------------------------------------------------------------------
Undistributed Earnings
Balance, beginning of year . . . . . . . . . . . . . . . . . . . . . .... $ 1,253 $ 1,048 $ 670
Net income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..... 4,759 3,715 3,685
Less dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . .... (4,133) (3,510) (3,307)
- ----------------------------------------------------------------------------------------------------------------------
Balance, end of year . . . . . . . . . . . . . . . . . . . . . . . . .... $ 1,879 $ 1,253 $ 1,048
- ----------------------------------------------------------------------------------------------------------------------
Dividends per share . . . . . . . . . . . . . . . . . . . . . . . . . ... $ 2.65 $ 2.25 $ 2.12
- ----------------------------------------------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements.
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FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY AND SUBSIDIARY
- --------------------------------------------------------------------------------
Consolidated Statements of Cash Flows (in thousands)
- ----------------------------------------------------------------------------------------------------------------------
Years ended October 31, 2000 1999 1998
- ----------------------------------------------------------------------------------------------------------------------
Operating Activities
Net income . . . . . . . . . . . . . . . . . . . . . . . . . .. $ 4,759 $ 3,715 $ 3,685
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization . . . . . . . . . . . . . . . . 2,182 1,878 1,777
Equity in (income) loss of affiliate . . . . . . . . . . . .. (173) 52 (213)
Deferred revenue . . . . . . . . . . . . . . . . . . . . . .. (99) 147 --
Minority interest. . . . . . . . . . . . . . . . . . . . . .. 31 -- --
Realized loss on marketable securities. . . . . . . . . . . . 68 -- --
Changes in operating assets and liabilities:
Tenants' security accounts . . . . . . . . . . . . . . . .. 5 (19) (33)
Sundry receivables, prepaid expenses and other assets . . . (1,030) (429) (150)
Accounts payable and accrued expenses . . . . . . . . . . . 351 102 (8)
Tenants' security deposits . . . . . . . . . . . . . . . . 73 31 64
- ----------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities . . . . . . . . 6,167 5,477 5,122
- ----------------------------------------------------------------------------------------------------------------------
Investing Activities
Capital expenditures . . . . . . . . . . . . . . . . . . . .. (937) (536) (5,347)
Distributions from affiliate. . . . . . . . . . . . . . . . . 231 2,160 200
Purchase of marketable securities . . . . . . . . . . . . . . -- (14,500) --
Proceeds from sale of marketable securities . . . . . . . . . 4,932 -- --
Repayment from (loan to) affiliate . . . . . . . . . . . . .. -- 100 (100)
Acquisition of partnership interest . . . . . . . . . . . . . (4,728) -- --
- ----------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities . . . . . . . . . . (502) (12,776) (5,247)
- ----------------------------------------------------------------------------------------------------------------------
Financing Activities
Dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . (3,977) (3,307) (3,198)
Repayments of note payable - bank . . . . . . . . . . . . . .. . -- -- (11,429)
Net proceeds from mortgage refinancing . . . . . . . . . . . -- 3,671 5,443
Proceeds from mortgage borrowings . . . . . . . . . . . . . .. . -- 9,275 11,100
Repayment of mortgages . . . . . . . . . . . . . . . . . . . . . (777) (728) (619)
Deferred mortgage costs . . . . . . . . . . . . . . . . . . .. . (69) (322) (607)
- ----------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities. . . (4,823) 8,589 690
- ----------------------------------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents . . . . . . . . . .. . 842 1,290 565
Cash and cash equivalents, beginning of year . . . . . . . . . . 2,083 793 228
- ----------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of year . . . . . . . . . . . . . $ 2,925 $ 2,083 $ 793
- ----------------------------------------------------------------------------------------------------------------------
Supplemental Disclosure of Cash Flow Data
Interest paid, net of capitalized interest of $68,000 in 1998. $ 5,053 $ 4,530 $ 3,763
- ----------------------------------------------------------------------------------------------------------------------
Income taxes paid . . . . . . . . . . . . . . . . . . . . . .. $ 16 $ 13 $ 12
- ----------------------------------------------------------------------------------------------------------------------
Supplemental schedule of noncash investing and financing activities:
Dividends declared but not paid amounted to $1,794,000, $1,638,000 and
$1,435,000 in 2000, 1999 and 1998, respectively.
During 2000, the Trust completed its acquisition of a 98,800 square foot retail
property in Olney, Maryland for approximately $15,648,000, in part, with the
proceeds of a $10,920,000 mortgage. In connection with the acquisition, the
Trust advanced the holders of the 25% interest which is not owned by the Trust
approximately $1,016,000 in order for them to fund their pro rata portion of the
purchase price.
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.
See Notes to Consolidated Financial Statements.
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Notes to Consolidated 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 2000, 1999 and 1998, the Trust made such an
election.
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"). 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).
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 ("WHLLC") 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. The cost of securities sold is based on the specific identification
method.
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 October 31, 2000, such cash
and cash equivalent balances exceeded Federally insured limits by
approximately $2,730,000. 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 interest expense and approximated $112,000, $90,000
and $67,000 in 2000, 1999 and 1998, respectively. Deferred leasing
commissions are amortized on the straight-line method over the terms of the
applicable leases.
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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
in 2000 and 1999 and $73,000 in 1998.
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 the years ended October
31, 2000 and 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 year ended October 31, 1998, the Trust had no
potentially dilutive common shares.
Recent accounting pronouncements:
The Financial Accounting Standards Board has issued certain pronouncements
as of October 31, 2000 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.
- --------------------------------------------------------------------------------
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 October 31, 2000 and 1999 and for each
of the three years in the period ended October 31, 2000 is as follows:
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- --------------------------------------------------------------------------------
2000 1999
- --------------------------------------------------------------------------------
(In Thousands
of Dollars)
Balance sheet data:
Assets:
Real estate and equipment, net . . . . . . . . . . $13,942 $14,190
Other .. . . . . . . . . . . . . . . . . . . . . . 756 812
- --------------------------------------------------------------------------------
Total assets. . . . . . . . . . . . . . . . . . $14,698 $15,002
- --------------------------------------------------------------------------------
Liabilities and members' deficiency:
Liabilities:
Mortgage payable. . . . . . . . . . . . . . . . .. $15,185 $15,362
Other. . . . . . . . . . . . . . . . . . . . . . . 398 378
- --------------------------------------------------------------------------------
Totals. . . . . . . . . . . . . . . . . . . . . 15,583 15,740
- --------------------------------------------------------------------------------
Members' deficiency:
Trust. . . . . . . . . . . . . . . . . . . . . . . (352) (294)
Others. . . . . . . . . . . . . . . . . . . . . .. (533) (444)
- --------------------------------------------------------------------------------
Totals. . . . . . . . . . . . . . . . . . . . . (885) (738)
- --------------------------------------------------------------------------------
Total liabilities and members' deficiency. . .. $14,698 $15,002
- --------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
2000 1999 1998
- -----------------------------------------------------------------------------------------------
(In Thousands of Dollars)
Income statement data:
Rental revenue. . . . . . . . . . . . . . . . . . . .. $ 2,863 $ 2,728 $ 2,617
Rental expenses. . . . . . . . . . . . . . . . . . . . 2,430 2,415 2,086
- -----------------------------------------------------------------------------------------------
Income from rental operations. . . . . . . . . . . . . 433 313 531
Prepayment penalty on mortgage refinancing. . . . . .. -- (442) --
- -----------------------------------------------------------------------------------------------
Net income (loss). . . . . . . . . . . . . . . . . . . $ 433 $ (129) $ 531
- -----------------------------------------------------------------------------------------------
On March 29, 2000, the Trust acquired 100% of S and A, whose primary asset is a
neighborhood shopping center in Olney, Maryland. The shopping center contains
approximately 98,800 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 has agreed in principle to sell a 25% interest in S and A, as of March 29,
2000, to a group consisting principally of employees of Hekemian on the same
basis and cost to the Trust. The Trust advanced this group $1,016,000 towards
the purchase price of S and A. The advance accrues interest at what the Trust's
borrowing rate would be under its expired line of credit and amounted to
approximately $50,000 during the year ended October 31, 2000. As of October 31,
2000, the group owes an aggregate amount of $1,066,000. The receivable and
accrued interest are expected to be paid within the next quarter.
The accompanying consolidated financial statements reflect the operations of the
shopping center since its acquisition.
The following unaudited pro forma information (in thousands of dollars, except
per share amounts) shows the results of operations for the years ended October
31, 2000, 1999 and 1998 as though S and A had been acquired at the beginning of
fiscal 1998:
9
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-----
- --------------------------------------------------------------------------------
2000 1999 1998
- --------------------------------------------------------------------------------
(In Thousands of Dollars)
Revenue. . . . . . . . . . . . . . .. $18,915 $17,649 $16,508
Expenses. . . . . . . . . . . . . . . 14,196 13,950 12,857
- --------------------------------------------------------------------------------
Income before minority interest. . .. 4,719 3,699 3,651
Minority interest. . . . . . . . . .. (36) (32) (49)
- --------------------------------------------------------------------------------
Net income. . . . . . . . . . . . . . $ 4,683 $ 3,667 $ 3,602
- --------------------------------------------------------------------------------
Earnings per share. . . . . . . . . . $ 3.00 $ 2.35 $ 2.31
- --------------------------------------------------------------------------------
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 1998 or of future results
of operations of the Trust's combined properties.
- --------------------------------------------------------------------------------
Note 3 - Investments In Marketable Securities:
At October 31, 2000 and 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, 2000 and 1999 are as follows:
- -----------------------------------------------------------------------------------------------------------
2000 1999
- -----------------------------------------------------------------------------------------------------------
(In Thousands of Dollars)
Amortized Amortized
Cost Fair Value Cost Fair Value
- -----------------------------------------------------------------------------------------------------------
One to five years. . . . . . . $9,000 $8,978 $14,000 $13,986
Five to ten years. . . . . . . 500 473 500 467
- -----------------------------------------------------------------------------------------------------------
Totals. . . . . . . . . .. $9,500 $9,451 $14,500 $14,453
- -----------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Note 4 - Real estate and equipment:
Real estate and equipment consists of the following:
Range
of Estimated
Useful Lives 2000 1999
- --------------------------------------------------------------------------------
(In Thousands of Dollars)
Land $ 23,831 $ 22,773
Unimproved land 2,384 2,354
Apartment buildings 7-40 years 11,045 10,764
Commercial buildings and
shopping centers 15-50 years 56,510 40,723
Construction in progress 795 1,426
Equipment 3-15 years 582 522
- --------------------------------------------------------------------------------
95,147 78,562
Less accumulated depreciation 17,109 15,121
- --------------------------------------------------------------------------------
Totals $ 78,038 $ 63,441
- --------------------------------------------------------------------------------
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- --------------------------------------------------------------------------------
Note 5 - Mortgages payable:
Mortgages payable consist of the following:
2000 1999
- --------------------------------------------------------------------------------
(In Thousands of Dollars)
Northern Life Insurance Cos. - Frederick, MD (A) $ 18,319 $ 18,609
National Realty Funding L.C. - Westwood, NJ (B) 10,306 10,420
Larson Financial Resources, Inc. - Spring Lake, NJ (C) 3,621 3,664
Summit Bank - Patchogue, NY (D) 7,191 7,295
Larson Financial Resources, Inc. - Wayne, NJ (E) 10,777 10,898
Larson Financial Resources, Inc. - River Edge, NJ (F) 5,262 5,323
Larson Financial Resources, Inc. - Maywood, NJ (G) 3,818 3,862
Summit Bank - Olney, MD (H) 10,920 --
- --------------------------------------------------------------------------------
Totals $ 70,214 $ 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 $23,312,000.
(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 $11,142,000.
(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 $489,000.
(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 $10,276,000.
(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 $1,693,000.
(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 $1,236,000.
(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 $906,000.
(H) Interest only is payable monthly at 175 basis points over the 90 day LIBOR
rate (an effective rate of 8.367% at October 31, 2000) and resets every 90
days. The mortgage, which is due in March 2002 (and may be extended for one
year), is secured by a shopping center in Olney, Maryland having a net book
value of $15,543,000.
Principal amounts (in thousands of dollars) due under the above obligations
in each of the five years subsequent to October 31, 2000 are as follows:
Year Ending
October 31, Amount
----------------------------------
2001 $ 850
2002 11,836
2003 990
2004 1,068
2005 7,627
Based on borrowing rates currently available to the Trust, the fair value
of the mortgage debt approximates carrying value at October 31, 2000.
- --------------------------------------------------------------------------------
Note 6 - Line of credit agreement:
The Trust had an $8,000,000 revolving line of credit agreement with Summit
Bank which expired during May 2000. The line of credit bore interest at the
bank's floating base rate plus .25% or the LIBOR rate plus 175 basis
points. Outstanding borrowings were secured by apartment buildings in
Hasbrouck Heights, New Jersey, Lakewood, New Jersey and Palisades Park, New
Jersey as well as a retail building in Franklin Lakes, New Jersey. There
were no outstanding borrowings under the agreement at October 31, 1999. One
of the directors of the bank is a trustee of the Trust.
11
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-----
- --------------------------------------------------------------------------------
Note 7 - Commitments and contingencies:
Leases:
Retail tenants:
The Trust leases retail space having a net book value of approximately
$70,447,000 at October 31, 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 October 31,
2000 are as follows:
Year Ending
October 31, Amount
----------------------------------
2001 $ 7,946
2002 7,723
2003 7,262
2004 6,509
2005 6,020
Thereafter 46,879
----------------------------------
Total $82,339
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, 2000 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.
- --------------------------------------------------------------------------------
Note 8 - 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 $697,000, $623,000 and $576,000 in
2000, 1999 and 1998, respectively. In addition, Hekemian charged the Trust
fees and commissions in connection with the acquisitions of the commercial
buildings in Olney, Maryland in 2000 and Patchogue, New York in 1998 and
various mortgage refinancing and lease acquisition fees. Such fees and
commissions amounted to approximately $527,000, $208,000 and $718,000 in
2000, 1999 and 1998, 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.
12
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-----
- --------------------------------------------------------------------------------
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
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, 2000, 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 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.
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.
13
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Report of Independent Public Accountants
- --------------------------------------------------------------------------------
J. H. Cohn LLP BRONXVILLE, NY
75 EISENHOWER PARKWAY LAWRENCEVILLE, NJ
ROSELAND, NJ 07068-1697 METRO PARK, NJ
(973) 228-3500 NEW YORK, NY
ROSELAND, NJ SAN
DIEGO, CA
To the Trustees and Shareholders
First Real Estate Investment Trust of New Jersey and Subsidiary
We have audited the accompanying consolidated balance sheets of FIRST REAL
ESTATE INVESTMENT TRUST OF NEW JERSEY AND SUBSIDIARY as of October 31, 2000 and
1999, and the related consolidated statements of income, comprehensive income,
undistributed earnings and cash flows for each of the three years in the period
ended October 31, 2000. These financial statements are the responsibility of the
Trust's management. Our responsibility is to express an opinion on these
consolidated 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 consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of First Real
Estate Investment Trust of New Jersey and Subsidiary as of October 31, 2000 and
1999, and their results of operations and cash flows for each of the three years
in the period ended October 31, 2000, in conformity with generally accepted
accounting principles.
Roseland, New Jersey /s/ J. H. Cohn LLP
November 22, 2000 J. H. Cohn LLP
14
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FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY
- --------------------------------------------------------------------------------
Selected Financial Data
(in thousands except per share amounts)
Income Statement Data:
- --------------------------------------------------------------------------------------------------------------------------
Year ended October 31, 2000 1999 1998 1997 1996
- --------------------------------------------------------------------------------------------------------------------------
Revenues:
Revenues from Real Estate Operations $ 17,151 $ 15,037 $ 14,213 $ 11,553 $ 11,377
Net Investment Income . . . . . . . . . . . . . 834 742 6 6 10
Equity In Earnings (Loss) of Affiliate (1). . . 173 (52) 213 139 92
----------------------------------------------------------------------
18,158 15,727 14,432 11,698 11,479
----------------------------------------------------------------------
Expenses:
Real Estate Operations . . . . . . . . . . . . . 5,881 5,244 5,026 4,499 4,571
Financing Costs. . . . . . . . . . . . . . . . . 5,165 4,620 3,762 2,629 2,749
General Expenses . . . . . . . . . . . . . . . . 365 432 309 288 202
Depreciation . . . . . . . . . . . . . . . . . . 1,988 1,716 1,650 1,319 1,295
----------------------------------------------------------------------
13,399 12,012 10,747 8,735 8,817
----------------------------------------------------------------------
Net Income . . . . . . . . . . . . . . . . . . . $ 4,759 $ 3,715 $ 3,685 $ 2,963 $ 2,662
----------------------------------------------------------------------
Earnings Per Share:. . . . . . . . . . . . . .
Basic. . . . . . . . . . . . . . . . . . . . . $ 3.05 $ 2.38 $ 2.36 $ 1.90 $ 1.71
----------------------------------------------------------------------
Diluted . . . . . . . . . . . . . . . . . . .. $ 3.05 $ 2.38 $ 2.36 $ 1.90 $ 1.71
----------------------------------------------------------------------
Cash Dividends Declared Per
Common Share . . . . . . . . . . . . . . . . . $ 2.65 $ 2.25 $ 2.12 $ 1.90 $ 1.71
----------------------------------------------------------------------
Balance Sheet Data:
Total Assets . . . . . . . . . . . . . . . . . . $ 96,781 $ 84,428 $ 71,275 $ 59,233 $ 51,674
----------------------------------------------------------------------
Long-Term Obligations . . . . . . . . . . . . .. $ 70,214 $ 60,071 $ 47,853 $ 24,429 $ 23,609
----------------------------------------------------------------------
Secured Note Payable . . . . . . . . . . . . . . $ -- $ -- $ -- $ 11,429 $ 5,662
----------------------------------------------------------------------
Shareholders' Equity . . . . . . . . . . . . . . $ 21,144 $ 20,520 $ 20,362 $ 19,984 $ 19,984
----------------------------------------------------------------------
Weighted Average Number of Shares Outstanding. . 1,559 1,559 1,559 1,559 1,559
- --------------------------------------------------------------------------------------------------------------------------
(1) Westwood Hills LLC is accounted for using the equity method of accounting.
Fiscal year ended 1996 has been restated to reflect this accounting method.
15
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Management's Discussion and Analysis of Financial Condition and Results of
Operations
- --------------------------------------------------------------------------------
Overview
The Trust is an equity REIT that owns a portfolio of residential apartment
and retail properties. The Trust'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 Trust also receives income from its
40% owned affiliate, Westwood Hills, which owns a residential apartment
property. The Trust's policy has been to acquire real property for long-term
investment.
The following discussion should be read in conjunction with the Trust'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 Trust 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, 2000 and 1999
Acquisition
On March 29, 2000, the Trust acquired the Olney Town Center ("Olney"), in
Olney, MD. Olney is a 98,800 sq. ft. neighborhood shopping center with expansion
potential to 131,000 sq. ft. The center is 91.5% occupied. Olney is situated on
approximately 13 acres of land. Approximately 11 acres 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% ownership interest of S And A
Commercial Associates Limited Partnership ("S and A"). S and A's only asset at
the closing date was the shopping center. The purchase price, 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 by the proceeds from
liquidating a portion of the Trust's marketable securities.
The Trust has agreed in principal to sell, as of March 29, 2000, a 25%
interest in S and A to a group consisting principally of employees of Hekemian &
Co., Inc. on the same basis and cost to the Trust. The accompanying financial
statements include the operations of Olney since the acquisition date which are
summarized as follows:
16
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- --------------------------------------------------------------------------------
Period From % Of
3/29/00 Consolidated
To Year Ended
10/31/00 10/31/00
- --------------------------------------------------------------------------------
Selected Income Statement Data:
Revenues $ 1,291 7.1%
Operating Expenses 385 6.2%
Financing Costs 567 11.0%
Depreciation 218 11.0%
Minority Interest 30 100.0%
------------------------------------
Total Expenses 1,200 9.0%
------------------------------------
Net Earnings $ 91 1.9%
------------------------------------
Earnings Per Share $ 0.06 1.9%
------------------------------------
Revenues
For the fiscal year ended October 31, 2000 ("Current Year"), total revenues
increased $2,431,000 (15.5%) to $18,158,000 from $15,727,000 for fiscal ended
October 31, 1999 ("Prior Year"). $2,110,000 or 86.9% of this increase is
attributable to revenues from real estate operations. The balance of the revenue
increase is from the Trust's share of the earnings from its affiliate ($225,000)
and from increased investment income ($92,000).
Real Estate Operations: The $2,110,000 (14%) increase in revenues from real
estate operations is primarily attributable to Olney ($1,291,000), which has
been included in operations since March 29, 2000, and increased revenues from
Franklin Crossing ($309,000) as a result of higher occupancy. Revenue at retail
properties other than Olney and Franklin Crossing increased 4.4%, and included a
$150,000 lease termination fee at the Westridge Square Shopping Center.
Revenue at the residential properties increased 3% despite a modest decline
in occupancy. The decline in occupancy having been offset by increased apartment
rentals.
Net Investment Income: Net investment income, which is principally derived
from the Trust's investment in marketable securities (U.S. Treasury Notes and
Government Agency bonds), and money market funds, increased 12.4% to $834,000.
Earnings from 40% Owned Affiliate: Equity in Earnings of the Trust's 40%
owned affiliate, Westwood Hills L.L.C. was $173,000 for the Current Year
compared to a loss of $52,000 for the Prior Year. This positive swing of
$225,000 resulted from an 8% increase in the affiliate's NOI (Net Income before
depreciation and debt service), and the non-reoccurrence of mortgage refinancing
costs of $440,000 incurred during the Prior Year.
17
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-----
- --------------------------------------------------------------------------------
Expenses:
For the Current Year overall expenses increased $1,387,000 (11.5%) to
$13,399,000 from $12,012,000 for the Prior Year. The principal areas of increase
and percentage increase were in the following areas: Real estate operations
$271,000 (8.2%), real estate taxes $265,000 (13.8%), financing costs $545,000
(11.8%), and depreciation $272,000 (15.9%). The inclusion of Olney's operations
during the Current Year accounted for $1,200,00 (87%) of the overall expense
increase- see table on preceding page for the amount and % of the categories
attributed to Olney. Administrative costs declined 15.3% in the Current Year.
Net Income:
Net Income for the Current Year increased 28.1% to $4,759,000 ($3.05 per
share) compared to $3,715,000 ($2.38 per share) for the Prior Year. The earnings
component increases during the Current Year over the Prior Year are as follows:
Current Year
Changes
--------------------------------------------------
Real Estate Operations $1,205,000
Net Investment Income 92,000
Equity in Income of Affiliate 225,000
Financing Costs (545,000)
Administrative Costs 67,000
--------------------------------------------------
$1,044,000
--------------------------------------------------
The increase in Net Income from Real Estate Operations is attributable to a
2.1% increase at the Trust's residential properties and a 22.4% increase at the
Retail properties. The increase in Net Income at the Retail properties is
principally attributable to the inclusion of Olney and increased occupancy at
Franklin Crossing.
Going Forward:
The Trust feels its operating properties are well positioned in their
markets and should continue making positive contributions to earnings and Funds
From Operation ("FFO"). However, as we enter the new fiscal year, the following
factors may negatively impact the Trust's operating results:
o Increased fuel and snow removal costs. The effect of increased utility
rates and prospects for a severe winter may increase these expenses
above the levels experienced the past several years. To the extent
these expenses occur at the Trust's Residential properties, as opposed
to the Retail properties, they cannot be passed on to tenants.
o Olney Town Center. The Trust is planning an expansion of the Olney
center during fiscal 2001-2002 that the Trust expects will ultimately
add to revenues, net income, and value to the Trust's portfolio when
completed. If the expansion plans are approved by the required
governmental agencies, and the leasing completed, a number of existing
tenants will be relocated. The relocation of these tenants will cause
a temporary, although significant, loss of rental income and expense
reimbursements to the Trust during the expansion period.
18
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-----
- --------------------------------------------------------------------------------
Results of Operations:
Fiscal Years ended October 31, 1999 and 1998
Revenues
For the fiscal year ended October 31, 1999, total revenues increased
$1,296,000 (8.9%) to $15,727,000 from $14,431,000 for fiscal 1998. $824,000 of
the increase comes from the Trust's real estate operations, and $736,000 from
increased interest income. These increases were offset by a negative swing of
$265,000 in the Trust'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 Trust's
residential and retail properties. Higher per unit rental collections were
experienced at the Trust's residential properties. Increased revenues at the
Trust's retail properties came primarily from the Patchogue, NY, property (in
for the full fiscal 1999 year compared to 101/2 months for fiscal 1998), and
increased occupancy during fiscal 1999 at the Franklin Crossing shopping center.
Net Investment Income: The mortgage financings that took place during
fiscal 1999 and 1998 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 Trust redeployed $14 million from the money market pools
into short-to-intermediate term Government Agency bonds.
Earnings From 40% Owned Affiliate: The Trust'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 Trust'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 Trust'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 increase
came in the following areas: Real estate operations: $219,000 (4.4%); 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 (9.3%). 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).
19
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- --------------------------------------------------------------------------------
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 Trust 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 Earnings 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 principal reasons for this increase
were higher per unit rents at the Trust's residential properties and increased
earnings from Trust'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 Trust'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 Trust believes that in fiscal 2000 the continued economic strength in
the employment markets in which its properties are located should allow the
Trust 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 Trust computes FFO as follows:
Year Ended October 31,
-----------------------------------------------------------------------
2000 1999
-----------------------------------------------------------------------
Net Income $ 4,759 $ 3,715
Depreciation - Real Estate 1,988 1,716
Amortization of Deferred
Mortgage Costs 111 90
Deferred Rents (436) (399)
Capital Improvements -
Apartments (340) (262)
Other 135 275
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Funds From Operations $ 6,217 $ 5,135
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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 Trust, and therefore the Trust's FFO and the
FFO of other REITs may not be directly comparable.
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Liquidity and Capital Resources
At October 31, 2000, the Trust's cash, cash equivalents and marketable
securities totaled $12,376,000 compared to $16,536,000 at October 31, 1999. The
principal reason for the reduction was the liquidation of $5 million of
marketable securities used for the cash portion of the purchase price of Olney.
Significant portions of these funds are available for property acquisitions.
At October 31, 2000, the Trust's aggregate outstanding mortgage debt was
approximately $70.2 million. Approximately $59.3 million bear a fixed weighted
average interest cost of 7.512%, and an average life of 10.22 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 Trust anticipates that the
cash flow from operations will be more than sufficient to meet the Trust's
operational needs and the increased mortgage obligations. The Trust 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 rates. 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 Trust's increased
debt-carrying costs, the Trust has invested approximately $9.4 million in
short-to-intermediate fixed rate Government Agency Bonds. These bonds yield a
weighted average interest of 6.52% and have a weighted maturity of 29 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 Trust(See Net Investment Income above).
The Trust 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 Trust's current cash flow. The Trust is
now experiencing the benefits of these expenditures by preserving the physical
integrity of its properties and securing increased rentals. Other than the
capital improvement program described above, the Trust has made no commitments
and has no understandings for any material capital expenditure during fiscal
2001 other than in the ordinary course of business.
Distributions to Shareholders
Since its inception in 1961, the Trust has elected to be treated as a REIT
for Federal income tax purposes. In order to qualify as a REIT, the Trust must
satisfy a number of highly technical and complex operational requirements
including that it must distribute to its shareholders at least 95% (ninety
percent (90%) for taxable years beginning after 2000) of its REIT taxable
income. The Trust 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 Trust generally intends to distribute not
less than the minimum of REIT taxable income necessary to satisfy the applicable
REIT requirement as set forth in the Internal Revenue Code.
It has been the Trust'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. The following tables
list the quarterly dividends paid or declared for the three most recent fiscal
years and the percent the dividends were of taxable income.
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FISCAL FISCAL FISCAL
2000 1999 1998
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First Quarter $ .50 $ .40 $ .40
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Second Quarter $ .50 $ .40 $ .40
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Third Quarter $ .50 $ .40 $ .40
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Fourth Quarter $ 1.15 $ 1.05 $ .92
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Year To Date $ 2.65 $ 2.25 $ 2.12
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Dividends
($000) as a % of
Total Taxable Taxable
Per Share Dividends Income Income
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2000 $2.65 $4,133 $4,122 100.3%
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1999 $2.25 $3,509 $3,332 105.3%
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1998 $2.12 $3,307 $3,170 104.3%
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Inflation
The Trust 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 Trust in at least two areas: (i) the interest
costs of any new mortgage financing; and (ii) higher real estate operating
costs, especially in those areas where such costs are not chargeable to
commercial tenants.
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Shares of Beneficial Interest
- --------------------------------------------------------------------------------
Beneficial interests in the Trust are represented by shares without par
value (the "Shares"). The Shares represent the Trust's only authorized, issued
and outstanding class of equity. As of January 15, 2001 there were approximately
500 holders of record of the Shares.
The Shares are traded in the over-the-counter market through use of the OTC
Bulletin Board(R) Service (the "OTC Bulletin Board") provided by NASD, Inc. The
Trust 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
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Fiscal Year Ended October 31, 2000
First Quarter $28 $26
Second Quarter $25 1/2 $25
Third Quarter $26 $24 1/2
Fourth Quarter $30 $26
High Low Fiscal Year Ended October 31, 1999
First Quarter $30 $29
Second Quarter $30 $29
Third Quarter $29 $27
Fourth Quarter $27 1/2 $27
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.
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Corporate Information
Trustees General Information
ROBERT S. HEKEMIAN Corporate Headquarters
Chairman and Chief Executive Officer, 505 Main Street, P.O. Box 667
Hekemian & Co., Inc. Hackensack, New Jersey 07602
(201) 488-6400
DONALD W. BARNEY
Consultant and Investor Market Maker
Janney Montgomery Scott, LLC
JOHN B. VOSKIAN, M.D. Hackensack, New Jersey
Physician
Managing Agent
HERBERT C. KLEIN, Esq. Hekemian & Co., Inc.
Partner, Hackensack, New Jersey
Nowell, Amoroso, Klein, Bierman, P.A.
Auditors
RONALD J. ARTINIAN J. H. Cohn LLP
Private Investor Roseland, New Jersey
ALAN L. AUFZIEN Transfer Agent
Chairman, Norall Organisation Registrar and Transfer Company
Cranford, New Jersey
Officers Annual Meeting
The Annual Meeting of Shareholders is
Robert S. Hekemian scheduled for Tuesday, April 10, 2001,
Chairman of the Board at 7:30 p.m. to be held at the offices
of First Real Estate Investment Trust
Donald W. Barney of New Jersey, 505 Main Street,
President Hackensack, New Jersey.
John B. Voskian, M.D. Form 10-K
Secretary A copy of Form 10-K filed with the
Securities and Exchange Commission is
William R. DeLorenzo, Jr. available to shareholders upon
Executive Secretary and Treasurer written request.
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