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 Quarter Ended April 30, 2001 Commission File No. 2-27018
FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY
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(exact name of registrant as specified in its charter)
New Jersey 22-1697095
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(State or other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
505 Main Street, P.O. Box 667, Hackensack, New Jersey 07602
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 201-488-6400
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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 [ ]
FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY
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INDEX
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Part I: Financial Information
Item 1: Unaudited Condensed Consolidated Financial Statements
a.) Condensed Consolidated Balance Sheets as at April 30, 2001
and October 31, 2000;
b.) Condensed Consolidated Statements of Income, Comprehensive
Income and Undistributed Earnings For the Six and Three
Months Ended April 30, 2001 and 2000;
c.) Condensed Consolidated Statements of Cash Flows for the
Six Months Ended April 30, 2001 and 2000;
d.) Notes to Condensed Consolidated Financial Statements.
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 4. Submission of Matters to a Vote of Security Holders.
Item 6. Exhibits and Reports on Form 8-K
Item 1: Financial Statements
FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
April 30, October 31,
2001 2000
---- ----
(Unaudited) (See Note 1)
(In Thousands of Dollars)
ASSETS
------
Real estate and equipment, at cost, net of accumulated
depreciation $ 77,364 $ 78,038
Investments in marketable securities 4,530 9,451
Cash and cash equivalents 7,779 2,925
Due from related party 1,103 1,066
Tenants' security accounts 817 766
Sundry receivables 1,678 1,794
Prepaid expenses and other assets 1,172 1,361
Deferred charges, net 1,299 1,380
-------- --------
Totals $ 95,742 $ 96,781
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Liabilities:
Mortgages payable $ 69,792 $ 70,214
Accounts payable and accrued expenses 938 854
Cash distributions in excess of earnings and investment in affiliate 394 352
Dividends payable 936 1,794
Tenants' security deposits 1,154 1,073
Deferred revenue 36 303
-------- --------
Total liabilities 73,250 74,590
-------- --------
Minority interest 1,063 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 2,085 1,879
Accumulated other comprehensive income (loss) 30 (49)
-------- --------
Total shareholders' equity 21,429 21,144
-------- --------
Totals $ 95,742 $ 96,781
======== ========
See Notes to Condensed Consolidated Financial Statements.
FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME, COMPREHENSIVE INCOME
AND UNDISTRIBUTED EARNINGS
SIX AND THREE MONTHS ENDED APRIL 30, 2001 AND 2000
(Unaudited)
Six Months Three Months
Ended April 30, Ended April 30,
-------------------- ----------------------
2001 2000 2001 2000
---- ---- ---- ----
(In Thousands of Dollars,
Except Per Share Amounts)
INCOME
------
Revenue:
Rental income $ 7,775 $ 6,830 $ 3,906 $ 3,496
Reimbursements 1,286 994 630 518
Equity in income of affiliate 62 72 32 48
Net investment income 404 416 186 162
Sundry income 84 106 39 56
------- ------- ------- -------
Totals 9,611 8,418 4,793 4,280
------- ------- ------- -------
Expenses:
Operating expenses 2,093 1,760 1,088 826
Management fees 383 319 208 166
Real estate taxes 1,158 1,038 579 527
Financing costs 2,774 2,379 1,396 1,229
Depreciation 1,102 900 554 468
Minority interest 16 6 5 6
------- ------- ------- -------
Totals 7,526 6,402 3,830 3,222
------- ------- ------- -------
Income before state income taxes 2,085 2,016 963 1,058
Provision for state income taxes 7 7 2 4
------- ------- ------- -------
Net income $ 2,078 $ 2,009 $ 961 $ 1,054
======= ======= ======= =======
Basic earnings per share $ 1.33 $ 1.29 $ 0.62 $ 0.68
======= ======= ======= =======
Basic weighted average shares outstanding 1,560 1,560 1,560 1,560
======= ======= ======= =======
COMPREHENSIVE INCOME
--------------------
Net income $ 2,078 $ 2,009 $ 961 $ 1,054
Other comprehensive income (loss)-
unrealized gain (loss) on marketable securities 79 (122) 24 17
------- ------- ------- -------
Comprehensive income $ 2,157 $ 1,887 $ 985 $ 1,071
======= ======= ======= =======
UNDISTRIBUTED EARNINGS
----------------------
Balance, beginning of period $ 1,879 $ 1,253 $ 2,060 $ 1,428
Net income 2,078 2,009 961 1,054
Less dividends (1,872) (1,559) (936) (779)
======= ======= ======= =======
Balance, end of period $ 2,085 $ 1,703 $ 2,085 $ 1,703
======= ======= ======= =======
Dividends per share $ 1.20 $ 1.00 $ 0.60 $ 0.50
======= ======= ======= =======
See Notes to Condensed Consolidated Financial Statements
FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED APRIL 30, 2001 AND 2000
(Unaudited)
2001 2000
---- ----
(In Thousands of Dollars)
-----------------------
Operating activities:
Net Income $ 2,078 $ 2,009
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 1,209 985
Equity in income of affiliate (62) (72)
Deferred revenue (267) (181)
Minority interest 16 6
Changes in operating assets and liabilities:
Tenants' security accounts (51) 20
Sundry receivables, prepaid expenses and other assets 371 (501)
Deferred charges -- (71)
Accounts payable and accrued expenses 84 340
Tenants' security deposits 81 21
------- -------
Net cash provided by operating activities 3,459 2,556
------- -------
Investing activities:
Capital expenditures (428) (491)
Distributions from affiliate 104 132
Sale of marketable securities 5,000 5,000
Acquisition of partnership interests -- (4,728)
Good faith deposits (129) --
------- -------
Net cash provided by (used in) investing activities 4,547 (87)
------- -------
Financing activities:
Dividends Paid (2,730) (2,417)
Repayment of mortgages (422) (391)
Deferred mortgage costs -- (62)
------- -------
Net cash used in financing activities (3,152) (2,870)
------- -------
Net increase (decrease) in cash and cash equivalents 4,854 (401)
Cash and cash equivalents, beginning of period 2,925 2,083
------- -------
Cash and cash equivalents, end of period $ 7,779 $ 1,682
======= =======
Supplemental disclosure of cash flow data:
Interest paid $ 2,711 $ 2,331
======= =======
Income taxes paid $ 7 $ 7
======= =======
Dividends declared but not paid $ 779 $ 779
======= =======
Supplemental schedule of non cash investing and financing activities:
During the six months ended April 30, 2000, FREIT completed an
acquisition of a 98,900 square foot retail property in Olney, MD
for approximately $15,648,000, in part, with the proceeds of a
$10,920,000 mortgage.
See Notes to Condensed Consolidated Financial Statements.
FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Organization and significant accounting policies:
First Real Estate Investment Trust of New Jersey ("FREIT") was
organized November 1, 1961 as a New Jersey Business Trust. FREIT is
engaged in owning residential and commercial income producing
properties located primarily in New Jersey, Maryland and New York.
FREIT has elected to be taxed as a Real Estate Investment Trust
("REIT") under the provisions of Sections 856-860 of the Internal
Revenue Code, as amended. Accordingly, FREIT does not pay Federal
income tax on income whenever income distributed to shareholders is
equal to at least 95% of real estate investment trust taxable
income. Further, FREIT pays no Federal income tax on capital gains
distributed to shareholders.
Basis of presentation:
The accompanying condensed consolidated financial statements have
been prepared without audit, in accordance with accounting
principles generally accepted in the United States of America for
interim financial statements and pursuant to the rules of the
Securities and Exchange Commission. Accordingly, certain information
and footnotes required by accounting principles generally accepted
in the United States of America for complete financial statements
have been omitted. It is the opinion of management that all
adjustments considered necessary for a fair presentation have been
included, and that all such adjustments are of a normal recurring
nature.
The consolidated results of operations for the six and three months
ended April 30, 2001 are not necessarily indicative of the results
to be expected for the full year. The unaudited condensed
consolidated financial statements should be read in conjunction with
the consolidated financial statements and related notes included in
FREIT's Annual Report on Form 10-K for the year ended October 31,
2000.
Principles of consolidation:
The condensed consolidated financial statements include the accounts
of FREIT and, subsequent to March 29, 2000, its 75%-owned subsidiary
S and A Commercial Associates Limited Partnership ("S and A"). The
condensed consolidated financial statements include 100% of S and
A's assets, liabilities, operations and cash flows with the 25%
interest not owned by FREIT reflected as "minority interest." All
significant intercompany accounts and transactions have been
eliminated in consolidation.
Earnings per share:
FREIT has presented "basic" earnings per share in the accompanying
condensed 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, 2001 and 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.
Basic earnings per share, based on the weighted average number of
shares outstanding during each period, are comprised of ordinary
income.
Note 2 - Investment in affiliates:
FREIT is a 40% member of Westwood Hills, LLC ("WHLLC"), a limited
liability company that is managed by Hekemian & Co., Inc.
("Hekemian"), a company which manages all of FREIT's properties and
in which one of the trustees of FREIT is the chairman of the board.
Certain other members of WHLLC are either trustees of FREIT or their
families or officers of Hekemian. WHLLC owns a residential apartment
complex located in Westwood, New Jersey.
Summarized unaudited financial information of WHLLC as of April 30,
2001 and October 31, 2000, and for the six and three months ended
April 30, 2001 and 2000 is as follows:
April 30, October 31,
2001 2000
---- ----
(In thousands of dollars)
Balance sheet data:
Assets:
Real estate and equipment, net 13,822 $ 13,942
Other 666 756
-------- --------
Total assets $ 14,488 $ 14,698
======== ========
Liabilities and members' deficiency:
Liabilities:
Mortgage payable 15,092 $ 15,185
Other 384 398
-------- --------
Total liabilities 15,476 15,583
-------- --------
Members' deficiency;
FREIT (394) (352)
Others (594) (533)
-------- --------
Total members' deficiency (988) (885)
-------- --------
Total liabilities and members' deficiency $ 14,488 $ 14,698
======== ========
Six Months Ended Three Months Ended
April 30, April 30,
-------------------- --------------------
2001 2000 2001 2000
---- ---- ---- ----
(In thousands of dollars)
Income statement data:
Rental revenue $1,491 $1,407 753 711
Expenses 1,335 1,227 673 591
------ ------ ------ ------
Net income $ 156 $ 180 $ 80 $ 120
====== ====== ====== ======
On March 29, 2000, FREIT 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. FREIT sold a 25% interest in S and A as of
March 29, 2000 to a group consisting principally of employees of
Hekemian ("Related Party") on the same basis and cost to FREIT.
FREIT paid on behalf of this group $1,016,000 towards their purchase
price of S and A. The advance accrues interest at LIBOR plus 175
basis points and amounted to approximately $38,000 and $16,000
during the six and three months ended April 30, 2001, and $7,000
during the six and three months ended April 30, 2000. As of April
30, 2001, the group owes an aggregate amount of $1,103,000. The
receivable and accrued interest is expected to be paid within the
next quarter.
Note 3- Segment Information
SFAS No. 131, "Disclosures about Segments of an Enterprise and
Related Information," establishes standards for reporting financial
information about operating segments in interim and annual financial
reports and provides for a "management approach" in identifying the
reportable segments.
FREIT has determined that it has two reportable segments: Retail
Properties and Residential Properties. These reportable segments
offer different products, have different customers and are managed
separately because each requires different operating strategies and
management expertise. The Retail segment contains six separate
properties and the Residential segment eight properties. The
accounting policies of the segments are the same as those described
in Note 1- Significant Accounting Policies.
The chief operating decision-making group for FREIT's Retail,
Residential segments and Corporate/Other is comprised of FREIT's
Executive Committee of the Board of Trustees. FREIT assesses and
measures segment operating results based on Net Operating Income
("NOI"). NOI is based on operating revenues and expenses directly
associated with the operations of the real estate properties, but
excludes deferred rents (Straight Lining), depreciation and
financing costs. NOI is not a measure of operating results or cash
flow from operating activities as measured by accounting principles
generally accepted in the United States of America, and is not
necessarily indicative of cash available to fund cash needs and
should not be considered an alternative to cash flows as a measure
of liquidity.
Real estate rental revenues, operating expenses, NOI, and recurring
capital improvements for the reportable segments are summarized
below and reconciled to consolidated Net Income for the six and
three months ended April 30, 2001 and 2000, and for the years ended
October 31, 2000 and 1999. Asset information is not reported, since
FREIT does not use this measure to assess performance.
Six Months Ended Three Months Ended Years Ended
---------------------- ---------------------- ----------------------
4/30/01 4/30/00 4/30/01 4/30/00 10/31/00 10/31/99
------- ------- ------- ------- -------- --------
Real Estate Rental Revenue:
Retail $ 5,645 $ 4,610 $ 2,826 $ 2,409 $ 10,338 $ 8,472
Residential 3,281 3,118 1,645 1,552 6,353 6,167
-------- -------- -------- -------- -------- --------
8,926 7,728 4,471 3,961 16,691 14,639
-------- -------- -------- -------- -------- --------
Real Estate Operating Expenses:
Retail 1,857 1,395 952 713 3,015 2,526
Residential 1,584 1,523 809 722 2,834 2,717
-------- -------- -------- -------- -------- --------
3,441 2,918 1,761 1,435 5,849 5,243
-------- -------- -------- -------- -------- --------
Net Operating Income:
Retail 3,788 3,215 1,874 1,696 7,323 5,946
Residential 1,697 1,595 836 830 3,519 3,450
-------- -------- -------- -------- -------- --------
5,485 4,810 2,710 2,526 10,842 9,396
-------- -------- -------- -------- -------- --------
Recurring Capital Improvements - Residential $ 225 $ 115 $ 124 $ 82 $ 342 $ 261
======== ======== ======== ======== ======== ========
Reconciliation To Consolidated
Net Income:
Segments NOI $ 5,485 $ 4,810 $ 2,710 $ 2,526 $ 10,842 $ 9,396
Deferred Rents - Straight Lining 202 196 95 103 436 399
Net Investment Income 404 416 186 162 834 742
Other Income 17 6 9 6 23
Equity In Income Of Affiliate (1) 62 72 32 48 173 (52)
General & Administrative Expenses (200) (206) (115) (88) (365) (434)
Depreciation (1,102) (900) (554) (468) (1,988) (1,716)
Financing Costs (2,774) (2,379) (1,396) (1,229) (5,165) (4,620)
Minority Interest (16) (6) (6) (6) (31)
-------- -------- -------- -------- -------- --------
Net Income $ 2,078 $ 2,009 $ 961 $ 1,054 $ 4,759 $ 3,715
======== ======== ======== ======== ======== ========
(1) See Note 2 to the Condensed Consolidated Financial Statements.
Note 4 - Commitments and contingencies:
Leases:
Retail tenants:
FREIT leases retail space having a net book value of
approximately $69,667,000 at April 30, 2001 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 noncancelable operating leases in years
subsequent to October 31, 2000 is as follows:
Year Ending
October 31, Amount
------------ -------
2001 $ 3,937
2002 7,723
2003 7,262
2004 6,509
2005 6,020
Thereafter 46,879
--------
Total $78,330
========
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, which are not
included in income until the amounts are fixed and
determinable, were not material for the six and three months
ended April 30, 2001 and 2000.
Residential tenants:
Lease terms for residential tenants are usually one year or
less.
Environmental concerns:
In accordance with applicable regulations, FREIT reported to
the New Jersey Department of Environmental Protection
("NJDEP") that a historical discharge of hazardous material
was discovered in 1997 at the renovated Franklin Lakes
shopping center (the "Center").
In November 1999, FREIT received a no further action letter
from the NJDEP concerning the historical discharge at the
Center. However, FREIT is required to continue monitoring such
discharge, the cost of which will not be material.
Note 5 - Deferred fee plan:
The Board of Trustees adopted a deferred fee plan (the "Plan")
for its Officers and its Trustees. Pursuant to the Plan, any
Officer or Trustee may elect to defer receipt of any fees that
would be due them. The Trust has agreed to pay any participant
in the Plan ("Participant"), interest on any deferred fee at
the rate of nine percent (9%) per annum, compounded quarterly.
Any such deferred fee is to be paid to Participants at the
later of: (i) the retirement age specified in the deferral
election; (ii) actual retirement; or (iii) upon cessation of a
Participant's duties as an Officer or Trustee. The Plan
provides that any such deferral fee will be paid in a lump sum
or in annual installments over a period not to exceed 10
years, at the election of the Participant. As of April 30,
2001, approximately $49,000 has been deferred.
Note 6 - Subsequent Event:
On May 18, 2001, FREIT entered in to a contract for the sale
of its Camden, NJ apartment complex. The purchasers are
currently conducting their due-diligence review. The sale, if
consummated, will not have a material impact on FREIT's
financial condition or its continuing operations.
* * *
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
Overview
First Real Estate Investment Trust of New Jersey ("FREIT") is an equity real
estate investment trust ("REIT") that owns a portfolio of residential apartment
and retail properties. FREIT's revenues consist primarily of fixed rental income
and additional rent in the form of expense reimbursements derived from its
income producing retail properties. FREIT also receives income from its 40%
owned affiliate, Westwood Hills, which owns a residential apartment property.
FREIT's policy has been to acquire real property for long-term investment
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Cautionary Statement Identifying Important Factors That Could
Cause FREIT's Actual Results to Differ From Those Projected in Forward Looking
Statements.
Readers of this discussion are advised that the discussion should be read in
conjunction with the consolidated financial statements of FREIT (including
related notes thereto) appearing elsewhere in this Form 10-Q. Certain statements
in this discussion may constitute "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking
statements reflect FREIT's current expectations regarding future results of
operations, economic performance, financial condition and achievements of FREIT,
and do not relate strictly to historical or current facts. FREIT has tried,
wherever possible, to identify these forward-looking statements by using words
such as "believe," "expect," "anticipate," "intend, " "plan," " estimate," or
words of similar meaning.
Although FREIT believes that the expectations reflected in such forward-looking
statements are based on reasonable assumptions, such statements are subject to
risks and uncertainties, which may cause the actual results to differ materially
from those projected. Such factors include, but are not limited to, the
following: general economic and business conditions, which will, among other
things, affect demand for rental space, the availability of prospective tenants,
lease rents and the availability of financing; adverse changes in FREIT's real
estate markets, including, among other things, competition with other real
estate owners, risks of real estate development and acquisitions; governmental
actions and initiatives; and environmental/safety requirements.
- --------------------------------------------------------------------------------
Results of Operations:
Six Months and Quarters Ending April 30, 2001 and 2000
Net Income for the Six Months ended 4/30/01 increased 3.4% to $2,078,000 ($1.33
PS) compared to $2,009,000 ($1.29 PS) for the prior period. For the quarter
ended 4/30/01 Net Income fell 8.8% to $961,000 ($.62 PS) from $1,054,000 ($.68
PS) for the prior quarter.
RETAIL SEGMENT
Changes in the Retail Segment Revenue and Net Operating Income ("NOI") have been
effected principally by the acquisition of the Olney Town Center, Olney, MD
("Olney") on March 29, 2000. NOI as used in this discussion reflects operating
revenue and expenses directly associated with the operations of the real estate
properties, but excludes deferred rent, depreciation and financing costs (See
Note 3 to the condensed consolidated financial statements). The following table
sets forth comparative operating data for "Same Properties" and Olney:
Six Months Ended Three Months Ended
-------------------------- ----------------------------
4/30/01 4/30/00 4/30/01 4/30/00
------- ------- ------- -------
Real Estate Rental Revenue
- --------------------------
Retail - Same Properties $ 4,562 $ 4,434 $ 2,276 $ 2,233
Olney (purchased 3/29/00) 1,083 176 550 176
-------------------------- ---------------------------
Total Retail 5,645 4,610 2,826 2,409
Real Estate Operating Expenses
- ------------------------------
Retail - Same Properties 1,497 1,346 764 664
Olney (purchased 3/29/00) 360 49 188 49
-------------------------- ---------------------------
Total Retail 1,857 1,395 952 713
Net Operating Income
- --------------------
Retail - Same Properties 3,065 3,088 1,512 1,569
Olney (purchased 3/29/00) 723 127 362 127
-------------------------- ---------------------------
Total Retail $ 3,788 $ 3,215 $ 1,874 $ 1,696
-------------------------- ---------------------------
Rental revenue at FREIT's "Same Properties" increased modestly by 2.9% for the
six-month period and 1.9% for the three-month period. The increase in revenues
is a result of higher base rents and phase in of the increased occupancy at the
Franklin Crossing Shopping Center during the fiscal year ended 10/31/00. These
increases were offset by a tenant lease termination during the third quarter of
fiscal 10/31/00 that had not been replaced at 4/30/01, and by tenants going out
of business during the first and second quarters of the current fiscal year that
have not yet been replaced.
Occupancy at the Retail property was 94.3% as at 4/30/01 compared to 95.3% at
4/30/00. This occupancy reduction affected not only base rents but also resulted
in lower expense reimbursements. New leases signed and/or pending will raise
occupancy to 96.7% when the tenants take occupancy over the next several months.
Initial year rents for these tenants aggregate $ 335,000, and are expected to
increase revenues as the tenants take occupancy.
In addition to revenue losses from tenants going out of business during the six
and three months ended 4/30/01, NOI was also negatively effected by FREIT
experiencing account receivable write-offs for these tenants for past rents and
expense reimbursements aggregating approximately $106,000, and reflected in
"Same Properties" operating expenses. As a result of the operating expenses at
"same properties" increasing more than revenues, NOI at these properties
declined.
As previously reported FREIT had two Grand Union super markets, one in Franklin
Crossing, Franklin Lakes, NJ, and one in Westwood Plaza, Westwood, NJ. The
leases for these super markets were acquired by Stop and Shop. Stop and Shop has
remodeled and is operating the Franklin Crossing super market and is considering
expanding the super market. Stop and Shop has closed the Westwood Plaza super
market and has told FREIT that it has no plans to re-open and operate the store,
although it is obligated and is paying its rental obligations. FREIT is in
negotiations with Stop and Shop to determine the use and ownership of the space
covered by this lease. It is too early at this time to determine the out come of
these negotiations.
Olney Expansion
Olney is a 98,800 sq. ft. neighborhood shopping center. FREIT is planning an
approximately 32,000 sq. ft. expansion and modernization that is expected to add
to revenues, net earnings, and value to FREIT's real estate portfolio. The
expansion is subject to the expansion plans being approved by the required
governmental agencies, satisfactory pre-leasing of the new expanded space, and
the acceptance of current tenants to be relocated in the expanded center. The
expansion and modernization costs are estimated at $12 million, including lost
rents from relocation of tenants. If all governmental approvals are received and
tenant leasing acceptable, FREIT expects to finance the expansion, in part, from
construction financing and, in part, from funds available in its marketable
securities portfolio and institutional money market funds.
RESIDENTIAL SEGMENT
Six Months Ended Three Months Ended
----------------- -------------------
4/30/01 4/30/00 4/30/01 4/30/00
------- ------- ------- -------
Real Estate Rental Revenue
Residential $3,281 $3,118 $1,645 $1,552
Real Estate Operating Expenses
Residential 1,584 1,523 809 722
------ ------ ------ ------
Net Operating Income
Residential $1,697 $1,595 $ 836 $ 830
====== ====== ====== ======
Recurring Capital Improvements $ 225 $ 115 $ 124 $ 82
====== ====== ====== ======
Residential revenues increased 5.2% and 6.0% for the six months and three months
ended 4/30/01 compared to the comparable prior years periods. Revenues are
principally composed of monthly apartment rental income. Total apartment rental
income is a factor of occupancy and monthly apartment rents. For the six months
ended 4/30/01, average occupancy was 93.0% and average monthly apartment rents
were $879. For the six months ended 4/30/00, average occupancy was 92.9% and
average monthly rents were $845. The higher monthly rents are a combination of
rental increases initiated in the prior fiscal year, and to a lesser degree
current fiscal year increases. While occupancy is holding and rental increases
being accepted, the economic downturn may slow rent increases and lower
occupancy rates.
During the six month period ended 4/30/01 seasonal snow removal costs were
$48,000 compared to $25,000 for the same period last year. Utility costs
increased to $395,000 for the current six-month period compared to $314,000 last
year. Historically, for the final six months of each year the elimination of
seasonal snow removal costs and reduced utility costs tend to increase NOI.
Capital improvements over the balance of the fiscal year are expected to
aggregate $190,000 and will be paid out of cash provided from the Residential
Segment's operations.
FREIT owns 20 +/- acres of undeveloped land in Rockaway, NJ. Plans have been
submitted to the Township seeking site plan approval and zoning variances for
the development and construction of 152 garden apartment units. If all approvals
are received, development costs are estimated at $13.8 million that FREIT will
finance, in part, from construction financing and, in part, from funds available
in its marketable securities portfolio and institutional money market funds.
FREIT has entered into a contract for the sale of its Camden, NJ apartment
complex. The buyers are currently conducting their due-diligence. The sale, if
ultimately consummated, will have no significant future impact on the
Residential Segment's NOI.
NET INVESTMENT INCOME
Net investment income is principally interest earned from FREIT's investments in
Government Agency Bonds, and an Institutional Money Market fund, and from loans
to related parties for the sale to them of a 25% interest in S&A Commercial
Associates LP (which owns Olney). Earnings received from these sources for the
six and three months ended 4/30/01 and 4/30/00 are as follows:
Six Months Ended Three Months Ended
-------------------- ------------------
4/30/01 4/30/00 4/30/01 4/30/00
------- ------- ------- -------
($000)
Government Agency Bonds And
Institutional Money Market:
Interest Earned $ 366 $ 475 $ 170 $ 222
Realized Loss (68) (68)
Related Party Loans 38 7 16 7
Other 2 1
----------------- ----------------
$ 404 $ 416 $ 186 $ 162
================= ================
As a result of the current lower interest rate environment than existed at the
beginning of FREIT's fiscal year, $5 million of Government Agency Bonds have
been called, reducing the current yield on investments by over 100 basis points
since the start of the year. This, coupled with the shortly expected repayment
of the Related Party loan (now that the transaction has closed), is expected to
result in lower Net Investment Income over the balance of the year compared to
the first six months and compared to fiscal 2000.
EQUITY IN INCOME OF AFFILIATE
FREIT's share of earnings at its 40% owned affiliate, Westwood Hills LLC, which
owns a 210 unit garden apartment community in Westwood, NJ, fell 14% to $62,000
for the six months ended 4/30/01 from $72,000 for the prior year period, and
fell 33.3% to $32,000 for the current quarter compared to $48,000 last year.
While
revenues for the six months ended 4/30/01 increased 6%, operating expenses
increased 19%, principally, seasonal expenses such as utility and snow removal
related costs.
FINANCING COSTS
Financing Costs for the six months ended 4/30/01 increased 16.6% to $2.8 million
from $2.4 million for the prior years comparable period. All of this increase is
attributable to the financing costs attributable to Olney, which was acquired on
March 29, 2000, and included in operations for one month for the six months
ended 4/30/00.
DEPRECIATION
Depreciation expense increased 22.4% to $1.1 million during the six months ended
4/30/01 compared to $1 million for last year's six month period. Almost all of
this increase is attributable to Olney - see "Financing Costs" above.
FUNDS FROM OPERATIONS ("FFO")
FFO is considered by many as a standard measurement of a REIT's performance.
FREIT computes FFO as follows (in thousands of dollars):
Six Months Ended Three Months Ended
--------------------- ---------------------
4/30/01 4/30/00 4/30/01 4/30/00
------- ------- ------- -------
Net Income $ 2,078 $ 2,009 $ 961 $ 1,054
Depreciation - Real Estate 1,102 900 554 468
Amortization of Deferred Mtg Costs 63 48 31 25
Deferred Rents (202) (196) (95) (103)
Capital Improvements - Apartments (225) (115) (124) (82)
Minority Interest 16 6 5 6
Other 54 39 25 16
--------------------- ---------------------
Total FFO $ 2,886 $ 2,691 $ 1,357 $ 1,384
===================== =====================
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 FREIT's, and therefore FREIT's FFO and the FFO of other REITs may
not be directly comparable.
LIQUIDITY AND CAPITAL RESOURCES
Net Cash Provided By Operating Activities increased 35% to $3.5 million for the
six months ended 4/30/01 compared to $2.6 million for the prior year's six month
period. It is expected that cash provided by operating activities will be
adequate to cover mandatory debt service payments, recurring capital
improvements and dividends necessary to retain qualification as a REIT (95% of
taxable income for fiscal year 2001 and 90% of taxable income thereafter).
As at 4/30/01 FREIT had cash, cash equivalents and marketable securities
totaling $12.3 million compared to $12.4 million at 10/31/00. These funds are
available for construction and property acquisitions.
As described in the segment analysis above, FREIT is planning the expansion of
Olney and the construction of apartment rental units in Rockaway, NJ. The total
capital required for these two projects is estimated at $25.8 million. FREIT
expects to finance these costs, in part, from construction and mortgage
financing and, in part, from funds available in its marketable securities
portfolio and institutional money market funds.
At 4/30/01 FREIT aggregate outstanding mortgage debt was $69.8 million.
Approximately $58.9 million bears a fixed weighted average interest cost of
7.512%, and an average life of approximately 9.7 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 note is due in March 2002, but can
be extended for one year. The fixed rate mortgages are subject to amortization
schedules that are longer than the term of the mortgages. As such, balloon
payments for all mortgage debt will be required as follows:
Year $ Millions
---- ----------
2002 $ 10.9
2005 $ 6.6
2007 $ 15.7
2010 $ 9.2
2013 $ 17.5
The following table shows the estimated fair value and carrying value of FREIT's
long-term debt at April 30, 2001 and October 31, 2000:
April 30, October 31,
(In Millions) 2001 2000
------------- ---- ----
Fair Value $70.7 $71.0
Carrying Value $69.8 $70.2
Fair values are estimated based on discounted cash flow analysis. Changes in
assumptions or estimation methods may significantly affect these fair value
estimates.
FREIT expects to re-finance the individual mortgages with new mortgages when
their terms expire. If interest rates, at the time any individual mortgage note
is due, are higher than the current fixed interest rate, higher debt service may
be required, and/or re-financing proceeds may be less than the amount of
mortgage debt being retired. FREIT believes that the values of its properties
will be adequate to command re-financing proceeds equal to, or higher than the
mortgage debt to be re-financed.
DIVIDENDS
For the quarter ended April 30, 2001, FREIT has declared a dividend of $.60 per
share payable on June 19,2001 to shareholders of record on June 4, 2001. This
raises total dividends for the 2001 fiscal year to $1.20 per share compared to
last year's dividends per share of $1.00 for the six months ended 4/30/00.
Item 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
See "Liquidity and Capital Resources" above.
Part II: Other Information
Item 4. Submission of Matters to a Vote of Security Holders.
The following matter was submitted to a vote of security holders
at the Registrant's Annual Meeting of Shareholders held on April
11, 2001. Election of Trustees: The Shareholders re-elected
Messrs. Donald W. Barney, Ronald J. Artinian and Alan L. Aufzien,
each to serve as Trustees for an additional three (3) year term.
The balloting for election was as follows: Each nominee received
1,388,338 votes, representing 88.3% of the total number of issued
and outstanding shares of FREIT, and was duly elected.
Item 6. Exhibits and Reports of Form 8-K
On March 1, 2001, the Registrant filed a Report on Form 8-K,
which is incorporated herein by reference. The Form 8-K reported
the Registrant's first quarter dividend declaration and included
a copy of its results of its operations for the three months
ended January 31, 2001 that was sent to shareholders on March 1,
2001.
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 14, 2001
/s/ William R. DeLorenzo, Jr.
---------------------------------
William R. DeLorenzo, Jr.
Executive Secretary and Treasurer