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 January 31, 2002 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 XX No
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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 January 31, 2002 and
October 31, 2001
b.) Condensed Consolidated Statements of Income, Comprehensive Income and
Undistributed Earnings for the Three Months Ended January 31, 2002 and
2001;
c.) Condensed Consolidated Statements of Cash Flows for the Three Months
Ended January 31, 2002 and 2001;
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
January 31, October 31,
2002 2001
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(Unaudited) (See Note 1)
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(In Thousands of Dollars)
-------------------------
ASSETS
------
Real estate and equipment, at cost, net of depreciation $76,547 $76,955
Investments in marketable securities -- 500
Cash and cash equivalents 13,392 13,187
Tenants' security accounts 807 873
Sundry receivables 2,544 2,512
Prepaid expenses and other assets 1,205 1,262
Deferred charges, net 1,170 1,206
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$95,665 $96,495
Totals ======================
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Liabilities:
Mortgages payable $69,093 $69,354
Accounts payable and accrued expenses 645 819
Cash distributions in excess of earnings and investment in affiliate 335 386
Dividends payable 936 1,497
Tenants' security deposits 1,153 1,219
Deferred revenue 271 322
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Total liabilities 72,433 73,597
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Minority interest 1,242 1,310
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Commitments and contingencies
Shareholders' equity:
Shares of beneficial interest without par value:
4,000,000 shares authorized
3,119,576 shares issued and outstanding: 19,314 19,314
Undistributed earnings 2,676 2,274
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Total shareholders' equity 21,990 21,588
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Totals $95,665 $96,495
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See Notes to Consolidated Financial Statements
FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME, COMPREHENSIVE INCOME
AND UNDISTRIBUTED EARNINGS
THREE MONTHS ENDED JANUARY 31, 2002 AND 2001
2002 2001
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(In Thousands of Dollars,
Except Per Share Amounts)
INCOME
Revenue:
Rental income $4,037 $3,869
Reimbursements 745 656
Equity in income of affiliate 51 30
Net Investment Income 68 218
Sundry income 45 45
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Totals 4,946 4,818
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Expenses:
Operating expenses 974 1,006
Management fees 209 175
Real estate taxes 605 579
Financing costs 1,216 1,378
Depreciation 552 548
Minority interest 47 10
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Totals 3,603 3,696
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Income before state income taxes 1,343 1,122
Provision for state income taxes 5 5
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Net income $1,338 $1,117
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Basic earnings per share $ 0.43 $ 0.36
Diluted earnings per share $ 0.42 $ 0.36
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Basic weighted average shares outstanding 3,120 3,120
Diluted weighted average shares outstanding 3,188 3,120
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COMPREHENSIVE INCOME
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Net income $ 1,338 $ 1,117
Other comprehensive income -
Unrealized gain on marketable securities -- 55
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Comprehensive income $ 1,338 $ 1,172
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UNDISTRIBUTED EARNINGS
----------------------
Balance, beginning of period $ 2,274 $ 1,879
Net income 1,338 1,117
Less dividends (936) (936)
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Balance, end of period $ 2,676 $ 2,060
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Dividends per share $ 0.30 $ 0.30
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See Notes to Consolidated Financial Statements
FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY AND SUBSIDIARY
CONDENSED CONSOLIDTED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED JANUARY 31, 2002 AND 2001
2002 2001
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(thousands of Dollars)
Operating activities:
Net Income $ 1,338 $ 1,117
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 604 601
Equity in income of affiliate (51) (30)
Deferred revenue (51) (72)
Minority interest 47 10
Changes in operating assets and liabilities:
Tenants' security accounts 66 (10)
Sundry receivables, prepaid expenses and other assets 9 (154)
Accounts payable and accrued expenses (174) (18)
Tenants' security deposits (66) 2
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Net cash provided by operating activities 1,722 1,446
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Investing activities:
Capital expenditures (144) (173)
Distributions from affiliate -- 64
Marketable security redeemed 500
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Net cash provided by (used) in investing activities 356 (109)
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Financing activities:
Repayment of mortgages (261) (209)
Dividends Paid (1,497) (1,794)
Distribution to Minority Interest (115)
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Net cash used in financing activities (1,873) (2,003)
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Net increase in cash and cash equivalents 205 (666)
Cash and cash equivalents, beginning of period 13,187 2,925
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Cash and cash equivalents, end of period $ 13,392 $ 2,259
======== ========
Supplemental disclosure of cash flow data:
Interest paid $ 1,185 $ 1,347
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Income taxes paid $ 5 $ 5
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Dividends declared but not paid $ 936 $ 936
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See Notes to Consolidated Financial Statements.
FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - 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 three months ended January
31, 2002 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, 2001.
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 January 31, 2002
and October 31, 2001, and for the three months ended January 31, 2002 and
2001 is as follows:
January 31, October 31,
2002 2001
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(In thousands of dollars)
Balance sheet data:
Assets:
Real estate and equipment, net $ 13,838 $ 13,806
Other 681 676
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Total assets 14,519 14,482
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Liabilities and members' deficiency:
Liabilities:
Mortgage payable $ 14,947 $ 14,996
Other 412 455
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Total liabilities 15,359 15,451
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Members' deficiency;
FREIT (335) (386)
Others (505) (583)
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Total members' deficiency (840) (969)
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Total liabilities and members' deficiency $ 14,519 $ 14,482
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Three Months Ended
January 31,
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2002 2001
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(In thousands of dollars)
Income statement data:
Rental revenue $ 784 $ 738
Expenses 657 662
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Net income $ 127 $ 76
======== ========
Note 3 - Earnings per share:
The Trust has presented "basic" and "diluted" 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"). Basic earnings per share is calculated by dividing net income
by the weighted average number of 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 shares that would have been outstanding if all
potentially dilutive shares, such as those issuable upon the exercise of
stock options and warrants, were issued during the period.
In computing diluted earnings per share for each of the three month periods
ended January 31, 2002 and 2001, the assumed exercise of all of the Trust's
outstanding stock options, adjusted for application of the treasury stock
method, would have increased the weighted average number of shares
outstanding as shown in the table below:
2002 2001
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Basic weighted average shares
outstanding 3,119,576 3,119,576
Shares arising from assumed
exercise of stock options 68,301
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Dilutive weighted average shares
outstanding 3,187,877 3,119,576
========= =========
Basic and diluted earnings per share, based on the weighted average number of
shares outstanding during each period, are comprised of ordinary income.
Note 4- 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 460,000 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
Upon ratification of the Plan on April 7,1999, the Trust issued 377,000
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 $15 per
share. The options, all of which are outstanding at January 31, 2002, are
exercisable through September 2008.
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 the Trust'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.
Note 5- Share split:
On September 26, 2001, the Board of Trustees approved a two-for-one share
split in the form of a share dividend. In connection with the share
dividend, the Board of Trustees also approved an increase in the authorized
number of shares of beneficial interest from 1,790,000 to 4,000,000.
Financial information contained herein, including the number of options,
has been adjusted to retroactively reflect the impact of the split
Note 6- Segment information:
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information", established 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.
The Trust 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 contains eight properties. The accounting
policies of the segments are the same as those described in Note 1 in
FREIT's Annual Report on Form 10-K.
The chief operating decision-making group of the Trust's retail segment,
residential segment and corporate/other is comprised of the Trust's
Executive Committee of the Board of Trustees.
The Trust 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 flows 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 three months ended January
31, 2002 and 2001. Asset information is not reported since the Trust does
not use this measure to assess performance.
Three Months Ended
January 31,
2002 2001
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(in thousands of dollars)
Real estate revenue:
Retail $3,033 $2,828
Residential 1,701 1,635
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Totals 4,734 4,463
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Real estate operating expenses:
Retail 862 906
Residential 816 775
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Totals 1,678 1,681
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Net operating income:
Retail 2,171 1,922
Residential 885 860
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Totals $3,056 $2,782
====== ======
Recurring capital improvements:
Residential $ 90 $ 100
====== ======
Three Months Ended
January 31,
2002 2001
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(in thousands of dollars)
Reconciliation to consolidated
net income:
Segment NOI $ 3,056 $ 2,782
Deferred rents - straight-lining 93 107
Net investment income 68 218
Equity in income of affiliate 51 30
General and administrative expenses (115) (84)
Depreciation (552) (548)
Financing costs (1,216) (1,378)
Minority interest (47) (10)
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Net Income $ 1,338 $ 1,117
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Management's Discussion and Analysis of Financial Condition and Results of
Operations.
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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 condensed consolidated financial statements of
FREIT (including related notes thereto) appearing elsewhere in this Form
10-Q, and in FREIT's most recently filed Form 10-K. 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.
Overview
FREIT is an equity real estate investment trust ("REIT") that owns a portfolio
of residential apartment and retail properties. Our revenues consist primarily
of fixed rental income and additional rent in the form of expense reimbursements
derived from its income producing retail properties. We also receive income from
our 40% owned affiliate, Westwood Hills, which owns a residential apartment
property. Our policy has been to acquire real property for long-term investment.
Results of Operations:
Quarters Ended January 31, 2002 and 2001
Revenues for the quarter increased by $128,000 or 2.7% to $4,946,000 from
$4,818,000 for the prior year's quarter. The principle causes of the revenue
increase is a $257,000 or 5.7% increase in revenues from real estate operations,
offset by a $150,000 decline in net investment income (see discussions below).
Net income increased 19.8% to $1,338,000 for the current quarter compared to
$1,117,000 for the prior year's quarter. The increase in net income is a
combination of higher revenues and lower expenses. The consolidated results of
operations for the three months ended January 31, 2002 are not necessarily
indicative of the results to be expected for the full year.
RETAIL SEGMENT
NOI as used in this discussion reflects operating revenue and expenses directly
associated with the operations of the real estate properties, but excludes
straight lining of rents, depreciation and financing costs (See Note 6 to the
condensed consolidated financial statements).
FREIT's retail properties consist of six (6) properties totaling approximately
685,000 sq. ft. Four are multi-tenanted shopping centers and two are single
tenanted stores. Their operations are summarized below.
Retail Segment
Quarter Ended January 31,
-------------------------
2002 2001
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(thousands of dollars)
Rental Revenue $3,033 $2,828
Operating Expenses 862 906
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Net Operating Income $2,171 $1,922
====== ======
Rental revenue at FREIT's Retail properties for the quarter ended January 13,
2002 ("Current Quarter") increased by $205,000 or 7.2% over the quarter ended
January 31, 2001 ("Prior Quarter"). The increase resulted from increased base
rents, higher occupancy, and increased, one time, expense pass-reimbursements.
Average occupancy for the Current Quarter was 97.4% compared 94.5% for the Prior
Quarter
Expenses: Adjusting for a $44,000 account receivable write-off during the Prior
Quarter, expense levels were flat.
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. We are
planning an approximately 59,000 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 $11 million,
including lost rents from relocation of tenants. Through 1/31/02 approximately
$264,000 of pre-construction development costs have been expended and deferred.
If all governmental approvals are received and tenant leasing acceptable, we
expect to finance the expansion, in part, from construction financing and, in
part, from funds available from our institutional money market investment.
We continue to evaluate the economics of the timing of the expansion and may
defer it to coincide with the expiration of particular leases. If we decide to
defer the expansion, we will immediately make the space we have kept vacant
available for leasing.
RESIDENTIAL SEGMENT
FREIT operates eight (8) multi-family apartment communities totaling 639
apartment units. The NOI of our residential properties is summarized below
Residential Segment
Quarter Ended January 31,
2002 2001
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(thousands of dollars)
Rental Revenue $1,701 $1,635
Operating Expenses 816 775
------ ------
Net Operating Income $ 885 $ 860
====== ======
Recurring Capital Improvements $ 90 $ 100
====== ======
Residential revenue increased 4% to $1,701,000 from $1,635,000 last year.
Revenue is principally composed of monthly apartment rental income. Total
apartment rental income is a factor of occupancy and monthly apartment rents.
For instance, at our current rental rates and occupancy levels at 1/31/02, a 1%
decrease in average occupancy will cause an annual $72,000 reduction in
revenues, while a 1% increase in occupancy will increase revenues by $68,000. A
1% rental rate increase or decrease over the 1/31/02 average rental rates will
increase or decrease annual revenues by $68,000.
Average occupancy (by apartment count) for the Current Quarter was 94.3%
compared to 93.3% for the Prior Quarter. However, the recession has affected the
apartment mix of the vacancies. The Current Quarter has experienced a larger
number of higher rent apartments being vacant than during the Prior Quarter.
This results in a larger dollar loss attributable to vacancies. This change is a
product of the recession; which we feel will correct it self as the economy
improves.
During the Current Quarter operating expenses increased 5.3% over the Prior
Quarter. As a percentage of revenue, operating expenses were 47.9% of revenue
compared to 47.4% last year. Reductions in snow removal and utility costs, as a
result of the mild winter being experienced, were offset by account receivable
write-offs.
We own 20 +/- acres of undeveloped land in Rockaway, NJ. Site plan approval has
been received from the Township for the construction of 129 garden apartment
units. Development costs are estimated at $13.8 million that we will finance, in
part, from construction financing and, in part, from funds available in our
institutional money funds. Construction is expected to commence during the
summer of 2002 and is expected to last twelve to eighteen months. Through
1/31/02 approximately $280,000 of pre-construction development costs have been
expended and deferred.
NET INVESTMENT INCOME
Net investment income is principally interest earned from our 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 quarters ended January 31, 2002 and 2001 are as follows:
Quarters Ended
---------------
January 31,
---------------
2002 2001
---- ----
Government Agency Bonds And
Institutional Money Market:
Interest Income $ 68 $196
Related Party Loans 22
---- ----
$ 68 $218
==== ====
As a result of the lower interest rate environment over the course of the last
fiscal year all of FREIT's higher yielding government agency bonds were called
and the funds invested in an institutional money market account. Our annualized
yield on these funds was 1.8% as of January 31, 2002. This interest rate yield
reduction coupled with the repayment of the related party loan is expected to
result in lower Net Investment Income over the current fiscal year than the
past year. (See "FINANCING COSTS" below for partial offsetting benefits.)
EQUITY IN INCOME OF AFFILIATE
FREIT's share of earnings of its 40% owned affiliate, Westwood Hills LLC, which
owns a 210 unit apartment community in Westwood, NJ, increased 70% to $51,000
during the Current Quarter from $30,000 for the Prior Quarter. The increase is
principally attributable to revenues increasing 6.2%, because of higher rents
during the Current Quarter compared to the Prior Quarter, and expenses being .8%
lower as a result of the mild winter. Average occupancy over for the Current
Quarter and the Prior Quarter was unchanged at 97%.
FINANCING COSTS
Financing Costs for the Current Quarter decreased 11.8% to $1,216,000 from
$1.378,000 for the Prior Quarter. The decrease is principally attributable to
reduced interest costs resulting from lower mortgage balances from normal loan
amortization and because of FREIT's $10.9 million floating rate mortgage (Olney)
benefiting from the lower interest rate environment this year compared to last
year.
GENERAL ADMINISTRATIVE EXPENSES
Our G & A expenses increased to $110,000 during the Current Quarter from $79,000
for the Prior Quarter. Professional fees accounted for the bulk of the increase.
It is not expected that the Current Quarter level of these fees will recur over
the course to this fiscal year.
FUNDS FROM OPERATIONS ("FFO")
FFO is considered by many as a standard measurement of a REIT's performance. We
compute FFO as follows (in thousands of dollars):
Quarter Ended
------------------------
January 31,
2002 2001
---- ----
Net Income $ 1,338 $ 1,117
Depreciation - Real Estate 552 548
Amortization of Deferred Mtg. Costs 32 32
Deferred Rents (93) (107)
Capital Improvements - Apartments (90) (100)
Minority Interest 47 10
Other (11) 26
------- -------
Total FFO $ 1,775 $ 1,526
======= =======
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
Our financial condition remains strong. Net Cash Provided By Operating
Activities increased 19.1% during the Current Quarter to $1.7 million from $1.5
million for the Prior Quarter. We expect 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
(90% of taxable income).
As at 1/31/02 we had cash and cash equivalents totaling $13.4 million compared
to $13.7 million at 10/31/01. These funds are available for construction,
property acquisitions, and general needs.
As described in the segment analysis above, we are 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. We expect
to finance these costs, in part, from construction and mortgage financing and,
in part, from funds available in our institutional money market investment.
At 1/31/02 FREIT's aggregate outstanding mortgage debt was $69.1 million, which
is secured by properties with a net book value of approximately $63 million.
Approximately $58.2 million bears a fixed weighted average interest rate of
7.512%, and an average life of approximately 9 years. Approximately $10.9
million of mortgage debt bears an interest rate equal to 175 basis points over
LIBOR and resets at our option every 30, 60 or 90 days. This mortgage note is
due at the end of March 2002 , but can be extended for one year. We have elected
to extend the mortgage 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 $ --
2005 $ 17.5
2007 $ 15.7
2010 $ 9.2
2013 $ 17.5
The following table shows the estimated fair value and carrying value of our
long-term debt at January 31, 2002 and October 31, 2001:
January 31, October 31,
(In Millions) 2002 2001
------------- ---- ----
Fair Value $70.4 $71.7
Carrying Value $69.1 $69.3
Fair values are estimated based on market interest rates at January 31, 2002 and
October 31, 2001 and 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. To this extent we have exposure to interest rate risk on our
fixed rate debt obligations. 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. For example, a one percent interest rate
increase would reduce the Fair Value of our debt by $3.1 million, and a one
percent decrease would increase the Fair Value by $3.3 million.
Additionally, we have exposure on our floating rate debt. A one percent change
in rates, up or down, will decrease or increase income and cash flow by
approximately $109,000.
We believe that the values of our properties will be adequate to command
re-financing proceeds equal to, or higher than the mortgage debt to be
re-financed. We continually review our debt levels to determine if additional
debt can prudentially be utilized for property acquisition additions to our real
estate portfolio that will increase income and cash flow to shareholders.
$14 Million Line of Credit - During the fourth quarter of last fiscal year FREIT
-------------------------------- reached an agreement with a financial
institution on the terms for a $14 million, two-year revolving line of credit.
Interest rates on draws will be 175 basis points over our choice of the 30, 60,
or 90-day LIBOR rate and will reset at the end of every rate renewal period. The
line of credit will be secured by mortgages on several of our un-leveraged (debt
free) properties. While we feel this line of credit will be formalized shortly,
it is subject to the lenders satisfaction of appraisals, title searches, and
environmental reports. While the line of credit may shortly be formalized, we do
not expect to draw down on this line in the short term. We plan to use it
opportunistically, for future acquisitions and/or development opportunities.
INFLATION
Inflation can impact the financial performance of FREIT in various ways. Our
retail tenant leases normally provide that the tenants bear all or a portion of
most operating expenses, which can reduce the impact of inflationary increases
on FREIT. Apartment leases are normally for a one-year term, which may allow us
to seek increased rents as leases renew or when new tenants are obtained.
ACQUISITION
FREIT has reached an agreement in principle with a group consisting primarily of
Hekemian & Co., Inc. employees (i.e., the Hekemian Group) to become the Managing
Member and acquire a 40% interest in a limited liability company formed to
acquire a 320,000 square foot neighborhood shopping center in northern New
Jersey. Total acquisition costs will approximate $33 million. The agreement in
principle is subject to the execution of a definitive written agreement that is
expected to be prepared and executed in the near term. The Hekemian Group is
currently involved in the due-diligence analysis, and is reviewing acquisition
financing alternatives. If the due-diligence review proves satisfactory, the
purchase will close sometime during the first half of 2002. Depending on the
mortgage acquisition-financing alternative selected, FREIT's 40% equity
participation will be between $3.2 million and $4.2 million. These funds will be
provided from FREIT's money market investments. Hekemian & Co., Inc. will be
designated Managing Agent of the property.
Item 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
See "Liquidity and Capital Resources" above.
PART II:
Item 5 Other Matters
FREIT has reached an agreement in principle with Hekemian & Co., Inc. for a new
management agreement for a two-year period commencing retroactive to November 1,
2001 and ending October 31, 2003. The agreement designates Hekemian & Co., Inc.
as the exclusive agent for the management of all of FREIT's properties, and as a
non-exclusive agent for other activities such as leasing, debt placement, and
identifying potential property acquisitions. Property management fees will be a
percentage of certain revenues at each property, and fees for the non-exclusive
activities are to be outlined in the agreement. It is anticipated that a formal
written agreement will be executed prior to March 20, 2002 or any other
extension of the termination date of the present agreement.
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
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(Registrant)
Date: March 18, 2002
/s/ Robert S. Hekemian
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(Signature)
Robert S. Hekemian.
Chairman of the Board, Chief Executive
Officer, Trustee, and Financial/Accounting Officer