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 July 31, 2001 Commission File No. 2-27018
FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY
-------------------------------------------------------
(exact name of registrant as specified in its charter)
New Jersey 22-1697095
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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
INDEX
Part I: Financial Information
Item 1: Unaudited Condensed Consolidated Financial Statements
a.) Condensed Consolidated Balance Sheets as at July 31, 2001 and
October 31, 2000;
b.) Condensed Consolidated Statements of Income, Comprehensive
Income and Undistributed Earnings for the Nine and Three
Months Ended July 31, 2001 and 2000;
c.) Condensed Consolidated Statements of Cash Flows for the Nine
Months Ended July 31, 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.
Item 1: Financial Statements
FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
July 31, October 31,
2001 2000
---- ----
(Unaudited) (See Note 1)
----------- ------------
(In Thousands of Dollars)
-------------------------
ASSETS
------
Real estate and equipment, at cost, net of accumulated
depreciation $ 77,247 $ 78,038
Investments in marketable securities 4,518 9,451
Cash & cash equivalents 8,712 2,925
Due from related party -- 1,066
Tenants' security accounts 871 766
Sundry receivables 2,585 1,794
Prepaid expenses and other assets 1,994 1,361
Deferred charges, net 1,265 1,380
-------- --------
Totals $ 97,192 $ 96,781
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Liabilities:
Mortgages payable $ 69,575 $ 70,214
Accounts payable and accrued expenses 1,449 854
Cash distributions in excess of earnings and investment in affiliate 378 352
Dividends payable 936 1,794
Tenants' security deposits 1,223 1,073
Deferred revenue 431 303
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Total liabilities 73,992 74,590
-------- --------
Minority interest 1,273 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 2,595 1,879
Accumulated other comprehensive income (loss) 18 (49)
-------- --------
Total shareholders' equity 21,927 21,144
-------- --------
Totals $ 97,192 $ 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
NINE AND THREE MONTHS ENDED JULY 31, 2001 AND 2000
(Unaudited)
Nine Months Three Months
Ended July 31, Ended July 31,
----------------------- ------------------------
2001 2000 2001 2000
(In Thousands of Dollars,except Per Share Amounts)
INCOME
Revenue:
Rental income $ 11,737 $ 10,703 $ 3,962 $ 3,873
Reimbursements 1,936 1,555 650 561
Equity in income of affiliate 118 107 56 35
Net Investment Income 593 620 189 204
Sundry income 263 326 179 219
-------- -------- -------- --------
Totals 14,647 13,311 5,036 4,892
-------- -------- -------- --------
Expenses:
Operating expenses 3,023 2,530 930 769
Management fees 570 512 187 193
Real estate taxes 1,745 1,603 587 565
Financing costs 4,074 3,779 1,300 1,400
Depreciation 1,653 1,442 551 542
Minority interest 47 17 31 11
-------- -------- -------- --------
Totals 11,112 9,883 3,586 3,480
-------- -------- -------- --------
Income before state income taxes 3,535 3,428 1,450 1,412
Provision for state income taxes 11 10 4 3
-------- -------- -------- --------
Net income $ 3,524 $ 3,418 $ 1,446 $ 1,409
======== ======== ======== ========
- --------------------------------------------------------------------------------------------------------------------------
Basic earnings per share $ 2.26 $ 2.19 $ 0.93 $ 0.90
Diluted earnings per share $ 2.25 $ 2.19 $ 0.92 $ 0.90
- --------------------------------------------------------------------------------------------------------------------------
Basic weighted average shares outstanding 1,560 1,560 1,560 1,560
Diluted weighted average shares outstanding 1,565 1,560 1,571 1,560
- --------------------------------------------------------------------------------------------------------------------------
COMPREHENSIVE INCOME
Net income $ 3,524 $ 3,418 $ 1,446 $ 1,409
Other comprehensive income (loss)-
unrealized gain (loss) on marketable securities 67 (120) (12) 49
-------- -------- -------- --------
Comprehensive income $ 3,591 $ 3,298 $ 1,434 $ 1,458
======== ======== ======== ========
UNDISTRIBUTED EARNINGS
Balance, beginning of period $ 1,879 $ 1,253 $ 2,085 $ 1,703
Net income 3,524 3,418 1,446 1,409
Less dividends (2,808) (2,339) (936) (780)
-------- -------- -------- --------
Balance, end of period $ 2,595 $ 2,332 $ 2,595 $ 2,332
======== ======== ======== ========
Dividends per share $ 1.80 $ 1.50 $ 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
NINE MONTHS ENDED JULY 31, 2001 AND 2000
2001 2000
---- ----
(In Thousands of Dollars)
-------------------------
Operating activities:
Net Income $ 3,524 $ 3,418
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 1,813 1,581
Equity in income of affiliate (118) (107)
Deferred revenue 127 57
Minority interest 47 17
Changes in operating assets and liabilities:
Tenants' security accounts (105) 16
Sundry receivables, prepaid expenses and other assets (1,295) (858)
Deferred charges (45) (151)
Accounts payable and accrued expenses 595 320
Tenants' security deposits 150 78
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Net cash provided by operating activities 4,694 4,371
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Investing activities:
Capital expenditures (862) (706)
Distributions from affiliate 144 172
Sale of marketable securities 5,000 5,000
Acquisition of partnership interests (4,728)
Good faith deposits (129)
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Net cash used in investing activities 4,153 (262)
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Financing activities:
Received from sale of 25% minority interest in Olney 1,066
Capital contribution by minority interest in Olney 179
Dividends Paid (3,666) (3,197)
Repayment of mortgages (639) (573)
Deferred mortgage costs (62)
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Net cash provided by (used) in financing activities (3,060) (3,832)
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Net increase in cash and cash equivalents 5,787 277
Cash and cash equivalents, beginning of period 2,925 2,083
------- -------
Cash and cash equivalents, end of period $ 8,712 $ 2,360
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Supplemental disclosure of cash flow data:
Interest paid $ 3,980 $ 3,699
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Income taxes paid $ 11 $ 10
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Dividends declared but not paid $ 936 $ 780
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Supplement schedule of non cash investing and financing activities:
During the nine months ended July 31, 2000, the Trust 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 nine and three months
ended July 31, 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 nine and
three months ended July 31, 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 and diluted earnings per share, based on the weighted average
number of shares outstanding during each period, are comprised of
ordinary income.
Note 2 - Investment in affiliate:
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 family members
are trustees of FREIT or officers of Hekemian. WHLLC owns a residential
apartment complex located in Westwood, New Jersey.
Summarized unaudited financial information of WHLLC as of July 31, 2001
and October 31, 2000, and for the nine and three months ended July 31,
2001 and 2000 is as follows:
July 31, October 31,
2001 2000
---- ----
(In thousands of dollars)
Balance sheet data:
Assets:
Real estate and equipment, net $ 13,752 $ 13,942
Other 806 756
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Total assets $ 14,558 $ 14,698
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Liabilities and members' deficiency:
Liabilities:
Mortgage payable $ 15,044 $ 15,185
Other 459 398
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Total liabilities 15,503 15,583
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Members' deficiency:
FREIT (378) (352)
Others (567) (533)
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Total members' deficiency (945) (885)
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Total liabilities and members' deficiency $ 14,558 $ 14,698
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Nine Months Ended Three Months Ended
July 31, July 31,
------------------- -------------------
2001 2000 2001 2000
---- ---- ---- ----
(In thousands of dollars)
Income statement data:
Rental revenue $2,256 $2,129 $ 765 $ 721
Expenses 1,960 1,862 626 634
------ ------ ------ ------
Net income $ 296 $ 267 $ 139 $ 87
====== ====== ====== ======
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 98,900 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 on the same basis and cost to FREIT. FREIT advanced on behalf
of this group $1,016,000 towards their purchase price of S and A. The
monies advanced by FREIT, plus interest, have been repaid.
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 types of 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 revenue 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 revenue, operating expenses, NOI, and recurring
capital improvements for the reportable segments are summarized below
and reconciled to consolidated Net Income for the nine months and three
months ended July 31, 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.
Nine Months Ended Three Months Ended Years Ended
----------------------- ----------------------- ------------------------
7/31/01 7/31/00 7/31/01 7/31/00 10/31/00 10/31/99
------- ------- ------- ------- -------- --------
Real Estate Rental Revenue:
Retail $ 8,622 $ 7,545 $ 2,977 $ 2,935 $ 10,338 $ 8,472
Residential 4,986 4,705 1,705 1,587 6,353 6,167
----------------------- ----------------------- -----------------------
13,608 12,250 4,682 4,522 16,691 14,639
----------------------- ----------------------- -----------------------
Real Estate Operating Expenses:
Retail 2,751 2,187 894 792 3,015 2,526
Residential 2,306 2,193 722 670 2,834 2,717
----------------------- ----------------------- -----------------------
5,057 4,380 1,616 1,462 5,849 5,243
----------------------- ----------------------- -----------------------
Net Operating Income:
Retail 5,871 5,358 2,083 2,143 7,323 5,946
Residential 2,680 2,512 983 917 3,519 3,450
----------------------- ----------------------- -----------------------
$ 8,551 $ 7,870 $ 3,066 $ 3,060 $ 10,842 $ 9,396
======================= ======================= =======================
Recurring Capital Improvements:
Residential $ 348 $ 126 $ 123 $ 11 $ 342 $ 261
======================= ======================= =======================
Reconciliation To Consolidated
Net Income:
Segments NOI $ 8,551 $ 7,870 $ 3,066 $ 3,060 $ 10,842 $ 9,396
Deferred Rents - Straight Lining 301 319 99 123 $ 436 $ 399
Net Investment Income 593 620 189 204 834 742
Other Income 25 14 8 8 23
Equity In Income Of Affiliate (1) 118 107 56 35 173 (52)
General & Administrative Expenses (289) (274) (89) (68) (365) (434)
Depreciation (1,653) (1,442) (551) (542) (1,988) (1,716)
Financing Costs (4,074) (3,779) (1,300) (1,400) (5,165) (4,620)
Minority Interest (48) (17) (32) (11) (31)
----------------------- ----------------------- -----------------------
Net Income $ 3,524 $ 3,418 $ 1,446 $ 1,409 $ 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
$69,500,000 at July 31, 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 $ 1,954
2002 7,723
2003 7,262
2004 6,509
2005 6,020
Thereafter 46,879
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Total $76,347
=======
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 nine and three
months ended July 31, 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 July 31, 2001, approximately $68,000 of fees has
been deferred along with accrued interest of $2,000.
Note 6 - Camden, NJ Apartment Complex Sale:
On May 18, 2001, FREIT entered into a contract for the sale of its
Camden, NJ apartment complex. The purchasers have elected not to
purchase the property.
* * *
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.
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Results of Operations:
Nine Months and Quarters Ending July 31, 2001 and 2000
Net Income for the nine months ended 7/31/01 increased 3.1% to $3,524,000 on
revenues of $14,647,000 compared to Net Income of $3,418,000 on revenue of
$13,311,000 for the nine-month period ended 7/31/00. For
the quarter ended 7/31/01 Net Income increased 2.6% to $1,446,000 on revenue of
$5,036,000 compared to Net Income of $1,409,000 on revenue of $4,892,000 for the
prior year's 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 depreciation and financing costs (See Note 3 to the
condensed consolidated financial statements). The following table sets forth
comparative operating data separately for the Retail properties owned before the
Olney acquisition ("Same Properties") and Olney:
Nine Months Ended Three Months Ended
--------------------------- ---------------------------
7/31/01 7/31/00 7/31/01 7/31/00
------- ------- ------- -------
Real Estate Rental Revenue
Retail - Same Properties $ 6,986 $ 6,842 $ 2,424 $ 2,408
Olney (purchased 3/29/00) 1,636 703 553 527
--------------------------- ---------------------------
Total Retail 8,622 7,545 2,977 2,935
Real Estate Operating Expenses
Retail - Same Properties 2,212 1,964 715 618
Olney (purchased 3/29/00) 539 223 179 174
--------------------------- ---------------------------
Total Retail 2,751 2,187 894 792
Net Operating Income
Retail - Same Properties 4,774 4,878 1,709 1,790
Olney (purchased 3/29/00) 1,097 480 374 353
--------------------------- ---------------------------
Total Retail $ 5,871 $ 5,358 $ 2,083 $ 2,143
--------------------------- ---------------------------
Rental revenue at FREIT's "Same Properties" increased modestly by 2.1% for the
nine-month period and .7% for the three-month period. Tenants taking occupancy
of their space during July (annual rentals of $200,000) raised occupancy to
96.7%. This compares to occupancy at 7/31/00 of 95.7%. New leases signed/or
pending will raise occupancy to 98.3% when the tenants take occupancy over the
next few months. Initial year rents for these tenants aggregate $203,000.
The increase in revenues was more than offset by expenses not chargeable back to
tenants via CAM charges: $106,000 of tenant account receivable write-offs (1st
half of year), and $50,000 of roof repairs (third quarter).
Occupancy at Olney remains unchanged at 92%, as the vacant space is being kept
vacant pending the expansion (see below).
Olney Expansion
Olney is a 98,900 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. Through 7/31/01 approximately $230,000 of
pre-construction development costs have been expended. 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
Nine Months Ended Three Months Ended
-------------------------- ------------------------
7/31/01 7/31/00 7/31/01 7/31/00
------- ------- ------- -------
Rental Revenue: $ 4,986 $ 4,705 $ 1,705 $ 1,587
Operating Expenses: 2,306 2,193 722 670
-------------------------------------------------------
Net Operating Income: $ 2,680 $ 2,512 $ 983 $ 917
=======================================================
Recurring Capital Improvements $ 348 $ 126 $ 123 $ 11
=======================================================
Residential revenue increased 6.0% and 7.4% for the nine months and three months
ended 7/31/01 compared to the comparable prior year's periods. Revenue is
principally composed of monthly apartment rental income. Total apartment rental
income is a factor of occupancy and monthly apartment rents. For the nine months
ended 7/31/01, average occupancy was 93.9% and average monthly apartment rents
were $885. For the nine months ended 7/31/00, average occupancy was 93.1% and
average monthly rents were $834. The higher monthly rents are a combination of
rental increases initiated in the prior fiscal year and 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 nine months ended 7/31/01 operating expenses increased 5.2% over the
same period last year. The principal causes were higher utility costs and snow
removal related costs. The higher utility costs resulted from a combination of
higher utility rates and a colder winter than last year. As a percentage of
revenue, operating costs were 46.2% this year compared to 46.6% last year.
Capital improvements over the balance of the fiscal year are expected to
aggregate between $50,000 - $60,000 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 garden apartment units on the site. 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. Through 7/31/01 approximately $145,000 of pre-construction
development costs have been expended.
FREIT entered into a contract for the sale of its Camden, NJ apartment complex.
The buyers have elected not to proceed with the purchase.
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
advances (now repaid) 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 nine and three months ended 7/31/01 and 7/31/00 are as follows:
Nine Months Ended Three Months Ended
7/31/01 7/31/00 7/31/01 7/31/00
------- ------- ------- -------
($000)
Government Agency Bonds And
Institutional Money Market:
Interest Earned $ 545 $ 656 $ 179 $ 181
Realized Loss -- (68) -- --
Related Party Loans 48 28 10 21
Other -- 4 -- 2
---------------- ----------------
$ 593 $ 620 $ 189 $ 204
================ ================
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 170 basis points
since the start of the year. FREIT's current investment portfolio includes a $2
million bond paying interest at 6.5%, with a call date of 10/29/01. FREIT
expects this bond to be called. These rate reductions coupled with the repayment
of the related party loan is expected to result in lower Net Investment Income
over the balance of the year compared to the nine months ended 7/31/01 and
compared to fiscal 2000. (See "FINANCING COSTS" below for potential offsetting
benefits.)
EQUITY IN INCOME OF AFFILIATE
FREIT's share of earnings at it 40% owned affiliate, Westwood Hills LLC, which
owns a 210 unit apartment community in Westwood, NJ, increased 10.3% to $118,000
from $107,000 last year. The increase is principally attributable to average
monthly rents increasing 6.4% to $1,217 from $1,144 last year. Average occupancy
at 7/31/01 compared to 7/31/00 is virtually unchanged at 97.4% and 97.7%
respectively.
FINANCING COSTS
Financing Costs for the nine months ended 7/31/01 increased 7.8% to $4.1 million
from $3.8 million for the prior comparable period. The increase is wholly
attributable to the Olney financing costs. Olney was acquired on March 29, 2000,
and was included in operations for only four months of the nine months ended
7/31/00. The increase attributable to Olney was partially offset by reduced
interest costs at the Same Properties as a result of lower mortgage balances
from normal loan amortization. In addition FREIT's $10.9 million floating rate
mortgage benefited from the lower interest rate environment this year compared
to last year (interest charged on this
loan was 8.03% at 10/31/00 compared to 5.81% at 7/31/01). The impact of reduced
debt levels and lower interest rates are reflected in the reduced financing
costs of $100,000 during the current quarter ended 7/31/01 compared to last
year's quarter.
DEPRECIATION
Depreciation expense increased 14.6% to $1.7 million during the nine months
ended 7/31/01 compared to $1.4 million for last year's nine month period. Almost
all of this increase is attributable to Olney being included in operations for
only four months during the nine-month period ended 7/31/00.
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):
Nine Months Ended Three Months Ended
7/31/01 7/31/00 7/31/01 7/31/00
------- ------- ------- -------
Net Income $ 3,524 $ 3,418 $ 1,446 $ 1,409
Depreciation - Real Estate 1,653 1,442 551 542
Amortization of Deferred Mtg Costs 93 80 30 32
Deferred Rents (301) (319) (99) (123)
Capital Improvements - Apartments (348) (230) (123) (115)
Minority Interest 47 17 31 11
Other 77 73 23 34
--------------------- ---------------------
Total FFO $ 4,745 $ 4,481 $ 1,859 $ 1,790
===================== =====================
FFO does not represent cash generated from operating activities in accordance
with accounting principles generally accepted in the United States of America,
and therefore should not be considered a substitute for net income as a measure
of results of operations or for cash flow from operations as a measure of
liquidity. Additionally, the application and calculation of FFO by certain other
REITs may vary materially from that of FREIT's, and therefore FREIT's FFO and
the FFO of other REITs may not be directly comparable.
LIQUIDITY AND CAPITAL RESOURCES
Net Cash Provided By Operating Activities increased 7.4% to $4.7 million for the
nine months ended 7/31/01 compared to $4.4 million for the prior year's nine
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 7/31/01 FREIT had cash, cash equivalents and marketable securities
totaling $13.2 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 7/31/01 FREIT aggregate outstanding mortgage debt was $69.6 million.
Approximately $58.6 million bears a fixed weighted average interest rate of
7.512%, and an average life of approximately 9.5 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 July 31, 2001 and October 31, 2000:
July 31, October 31,
(In Millions) 2001 2000
------------- ---- ----
Fair Value $69.7 $71.0
Carrying Value $69.6 $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 July 31, 2001, FREIT has declared a dividend of $.60 per
share payable on September 18, 2001 to shareholders of record on September 4,
2001. This raises total dividends for the 2001 fiscal year to $1.80 per share
compared to last year's dividends per share of $1.50 for the nine months ended
7/31/00.
Item 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
See "Liquidity and Capital Resources" above.
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: September ___, 2001
/s/ William R. DeLorenzo, Jr.
------------------------------
(Signature)
William R. DeLorenzo, Jr.
Executive Secretary and Treasurer