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, 2002
Commission File No. 2-27018
FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY
(exact name of registrant as specified in its charter)
New Jersey 22-1697095
(State or other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
505 Main Street, P.O. Box 667, Hackensack, New Jersey 07602
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 201-488-6400
- --------------------------------------------------------------------------------
Former name, former address and former fiscal year, if changed since last
report.
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [ X ] No [ ]
As of June 13, 2002, there were 3,119,576 shares of beneficial interest issued
and outstanding.
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 April 30, 2002 and October 31, 2001:
b.) Condensed Consolidated Statements of Income, Comprehensive Income and Undistributed
Earnings for the Six and Three Months Ended April 30, 2002 and 2001;
c.) Condensed Consolidated Statements of Cash Flows for the Six Months Ended
April 30, 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.
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
CONSOLIDATED BALANCE SHEETS
April 30, October 31,
2002 2001
(Unaudited) (See Note 1)
(In Thousands of Dollars)
---------------------------
ASSETS
------
Real estate, at cost, net of accumulated
depreciation $76,121 $76,955
Investments in marketable securities -- 500
Cash & cash equivalents 13,935 13,187
Tenants' security accounts 828 873
Sundry receivables 2,560 2,512
Prepaid expenses and other assets 1,040 1,262
Deferred charges, net 1,199 1,206
------- -------
Totals $95,683 $96,495
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Liabilities:
Mortgages payable $68,866 $69,354
Accounts payable and accrued expenses 663 819
Cash distributions in excess of earnings and investment in affiliate 317 386
Dividends payable 936 1,497
Tenants' security deposits 1,193 1,219
Deferred revenue 93 322
------- -------
Total liabilities 72,068 73,597
------- -------
Minority interest 1,225 1,310
------- -------
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 3,076 2,274
------- -------
Total shareholders' equity 22,390 21,588
------- -------
Totals $95,683 $96,495
======= =======
See Notes to Consolidated Financial Statements
FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME, COMPREHENSIVE INCOME
AND UNDISTRIBUTED EARNINGS
SIX AND THREE MONTHS ENDED APRIL 30, 2002 AND 2001
Six Months Three Months
Ended April 30, Ended April 30,
2002 2001 2002 2001
---- ---- ---- ----
(In Thousands of Dollars,
Except Per Share Amounts)
INCOME
Revenue:
Rental income $ 8,133 $ 7,775 $ 4,096 $ 3,906
Reimbursements 1,355 1,286 610 630
Equity in income of affiliate 109 62 58 32
Net Investment Income 123 404 55 186
Sundry income 168 84 123 39
------- ------- ------- -------
Totals 9,888 9,611 4,942 4,793
------- ------- ------- -------
Expenses:
Operating expenses 1,943 2,093 969 1,088
Management fees 413 383 204 208
Real estate taxes 1,211 1,158 606 579
Financing costs 2,441 2,774 1,225 1,396
Depreciation 1,104 1,102 552 554
Minority interest 92 16 45 5
------- ------- ------- -------
Totals 7,204 7,526 3,601 3,830
------- ------- ------- -------
Income before state income taxes 2,684 2,085 1,341 963
Provision for state income taxes 10 7 5 2
------- ------- ------- -------
Net income $ 2,674 $ 2,078 $ 1,336 $ 961
======= ======= ======= =======
- ------------------------------------------------------------- -------------------------------------------------
Basic earnings per share $ 0.86 $ 0.67 $ 0.43 $ 0.31
Diluted earnings per share $ 0.84 $ 0.67 $ 0.42 $ 0.31
- ------------------------------------------------------------- -------------------------------------------------
Basic weighted average shares outstanding 3,120 3,120 3,120 3,120
Diluted weighted average shares outstanding 3,178 3,120 3,188 3,120
- ------------------------------------------------------------- -------------------------------------------------
COMPREHENSIVE INCOME
--------------------
Net income $ 2,674 $ 2,078 $ 1,336 $ 961
Other comprehensive income -
Unrealized gain on marketable securities -- 79 -- 24
------- ------- ------- -------
Comprehensive income $ 2,674 $ 2,157 $ 1,336 $ 985
======= ======= ======= =======
UNDISTRIBUTED EARNINGS
----------------------
Balance, beginning of period $ 2,274 $ 1,879 $ 2,676 $ 2,060
Net income 2,674 2,078 1,336 961
Less dividends (1,872) (1,872) (936) (936)
------- ------- ------- -------
Balance, end of period $ 3,076 $ 2,085 $ 3,076 $ 2,085
======= ======= ======= =======
Dividends per share $ 0.60 $ 0.60 $ 0.30 $ 0.30
======= ======= ======= =======
See Notes to Consolidated Financial Statements
FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED APRIL 30, 2002 AND 2001
2002 2001
---- ----
(In Thousands of Dollars)
-------------------------
Operating activities:
Net Income $ 2,674 $ 2,078
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 1,219 1,209
Equity in income of affiliate (109) (62)
Deferred revenue (229) (267)
Minority interest 92 16
Changes in operating assets and liabilities:
Tenants' security accounts 45 (51)
Sundry receivables, prepaid expenses and other assets 66 371
Accounts payable and accrued expenses (156) 84
Tenants' security deposits (26) 81
-------- --------
Net cash provided by operating activities 3,576 3,459
-------- --------
Investing activities:
Capital expenditures (270) (428)
Distributions from affiliate 40 104
Marketable securities redeemed 500 5,000
Good faith deposits (129)
-------- --------
Net cash provided by investing activities 270 4,547
-------- --------
Financing activities:
Repayment of mortgages (488) (422)
Dividends Paid (2,433) (2,730)
Distribution to Minority Interest (177)
-------- --------
Net cash used in financing activities (3,098) (3,152)
-------- --------
Net increase in cash and cash equivalents 748 4,854
Cash and cash equivalents, beginning of period 13,187 2,925
-------- --------
Cash and cash equivalents, end of period $ 13,935 $ 7,779
======== ========
Supplemental disclosure of cash flow data:
Interest paid $ 2,379 $ 2,711
======== ========
Income taxes paid $ 10 $ 7
======== ========
Dividends declared but not paid $ 936 $ 936
======== ========
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 instructions to Form 10-Q and Rule 10-01
of Regulation S-X. 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, 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 April 30, 2002
and October 31, 2001, and for the six and three months ended April 30,
2002 and 2001 is as follows:
April 30, October 31,
2002 2001
---- ----
(In Thousands of dollars)
Balance sheet data:
Assets:
Real estate and equipment, net $ 13,834 $ 13,806
Other 668 676
-------- --------
Total assets $ 14,502 $ 14,482
======== ========
Liabilities and members' deficiency:
Liabilities:
Mortgage payable $ 14,897 $ 14,996
Other 400 455
-------- --------
Total liabilities 15,297 15,451
-------- --------
Members' deficiency:
FREIT (317) (386)
Others (478) (583)
-------- --------
Total members' deficiency (795) (969)
-------- --------
Total liabilities and members' deficiency $ 14,502 $ 14,482
======== ========
Six Months Ended Three Months Ended
April 30, April 30,
----------------------- --------------------------
2002 2001 2002 2001
---- ---- ---- ----
(In thousands of dollars)
Income statement data:
Rental revenue $ 1,570 $ 1,491 $ 786 $ 753
Real estate operating expenses (605) (643) (294) (327)
------- ------- ------- -------
Net operating Income 965 848 492 426
Financing costs (507) (514) (253) (256)
Depreciation (185) (178) (93) (89)
------- ------- ------- -------
Net income $ 273 $ 156 $ 146 $ 81
======= ======= ======= =======
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 the six and three months
ended April 30, 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:
Six Months Ended Three Months Ended
April 30, April 30,
-------------------------- ----------------------------
2002 2001 2002 2001
---- ---- ---- ----
Basic weighted average shares
outstanding 3,119,576 3,119,576 3,119,576 3,119,576
Shares arising from assumed
exercise of stock options 58,851 -- 67,957 --
Dilutive weighted average shares
--------- --------- --------- ---------
outstanding 3,178,427 3,119,576 3,187,533 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 April
30, 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 for the year ended October 31, 2001.
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 six and three months ended
April 30, 2002 and 2001. Asset information is not reported since the
Trust does not use this measure to assess performance.
Six Months Ended Three Months Ended
April 30, April 30,
2002 2001 2002 2001
---- ---- ---- ----
(in thousands of dollars)
Real estate revenue:
Retail $ 6,023 $ 5,663 $ 2,990 $ 2,835
Residential 3,447 3,281 1,746 1,646
------- ------- ------- -------
Totals 9,470 8,944 4,736 4,481
------- ------- ------- -------
Real estate operating expenses:
Retail 1,764 1,859 902 953
Residential 1,596 1,584 780 809
------- ------- ------- -------
Totals 3,360 3,443 1,682 1,762
------- ------- ------- -------
Net operating income:
Retail 4,259 3,804 2,088 1,882
Residential 1,851 1,697 966 837
------- ------- ------- -------
Totals $ 6,110 $ 5,501 $ 3,054 $ 2,719
======= ======= ======= =======
Recurring capital improvements:
Residential $ 150 $ 224 $ 60 $ 124
======= ======= ======= =======
Reconciliation to consolidated
net income:
Segment NOI $ 6,110 $ 5,501 $ 3,054 $ 2,719
Deferred rents - straight-lining 187 202 94 94
Net investment income 123 404 55 186
Equity in income of affiliate 109 62 58 32
General and administrative expenses (218) (199) (103) (115)
Depreciation (1,104) (1,102) (552) (554)
Financing costs (2,441) (2,774) (1,225) (1,396)
Minority interest (92) (16) (45) (5)
------- ------- ------- -------
Net Income $ 2,674 $ 2,078 $ 1,336 $ 961
======= ======= ======= =======
Note 7- Contingency:
In connection with FREIT's plans to develop 129 rental apartment units in
Rockaway, NJ, FREIT posted an $80,000 Letter Of Credit with the township
to guarantee completion of certain improvements.
Note 8- Subsequent Event:
Subsequent to April 30, 2002, FREIT entered into an agreement for the
sale of its 132-apartment unit complex in Camden, NJ. The purchaser is
currently in due-diligence review. The sale, if it closes, will have no
material financial affect on FREIT's future operating results.
oOoOoOo
Item 2: Management's Discussion and Analysis of Financial Condition and Results
of Operations.
- --------------------------------------------------------------------------------
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 and under Section 21E of
the Securities Exchange Act of 1934, as amended. 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.
SIGNIFICANT ACCOUTNING POLICIES AND ESTIMATES
Our discussion and analysis of our financial condition and results of operation
are based upon on our consolidated financial statements, the preparation of
which takes into account estimates based on judgments and assumptions that
affect certain reported amounts and disclosures. Accordingly, actual results
could differ from those estimates.
The accounting policies and estimates used and outlined in FREIT's previously
filed Form 10K for the year ended 10/31/01 have been applied consistently for
the six and three months ended April 30, 2002.
Results of Operations:
Six Months and Quarters Ended April 30, 2002 and 2001
Net Income for the six months ended April 30, 2002 ("Current Year") increased
28.7% to $2,674,000 on revenues of $9,888,000 compared to Net Income of
$2,078,000 on revenues of $9,611,000 for the six months ended April 30, 2001
("Prior Year"). The $277,000 revenue increase is composed of increases in real
estate operating revenues of $511,000 (5.6%), a $47,000 (75.8%) increase in
FREIT's equity in the earnings of its affiliate, and offset by a $281,000
(-69.6%)reduction in Net Investment Income.
For the three months ended April 30, 2002 ("Current Quarter") Net Income
increased 39% to $1,336,000 on revenues of $4,942,000 compared to Net Income for
the three months ended April 30, 2001 ("Prior Quarter") of $961,000 on revenues
of $4,793,000. The revenue increase for the Current Quarter was principally due
to the $254,000 (5.6%) increase in real estate operating revenues.
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 Six Months Ended Three Months Ended
April 30, April 30,
2002 2001 2002 2001
---- ---- ---- ----
(in thousands of dollars)
Revenues:
Rents $4,541 $4,329 $2,282 $2,184
Reimbursements/Other 1,482 1,334 708 651
------ ------ ------ ------
Total Revenues 6,023 5,663 2,990 2,835
------ ------ ------ ------
Operating Expenses 1,764 1,859 902 953
------ ------ ------ ------
Net operating income $4,259 $3,804 $2,088 $1,882
====== ====== ====== ======
Average Occupancy % 97.3% 94.8% 97.3% 95.2%
====== ====== ====== ======
The increases in rental income and reimbursements for the Current Year (6.4%)
and Current Quarter (5.5%) over the prior comparable periods are principally due
to the higher average occupancy during the current periods, and to a lesser
degree, scheduled rent increases.
The reduction in Operating Expenses result principally to the mild 2001/2002
winter compared to the prior years winter. As a result of this snow removal and
utility costs were significantly lower.
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 4/30/02 approximately $264,000
(principally for building permits) 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 Six Months Ended Three Months Ended
April 30, April 30,
2002 2001 2002 2001
---- ---- ---- ----
(in thousands of dollars)
Revenues $3,447 $3,281 $1,746 $1,646
Operating Expenses 1,596 1,584 780 809
------ ------ ------ ------
Net operating income $1,851 $1,697 $ 966 $ 837
====== ====== ====== ======
Average Occupancy % 94.9% 93.0% 95.3% 92.5%
====== ====== ====== ======
Recurring capital
improvements $ 150 $ 224 $ 60 $ 124
====== ====== ====== ======
Residential revenue increased 5.1% to $3,447,000 for the Current Year from
$3,281,000 for the Prior Year; and 6.1% to $1,746,000 for the Current Quarter
from $1,646,000 for the Prior Quarter. 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 4/30/02, a 1% increase or decrease in average occupancy
will cause a $71,000 increase or reduction in revenue. A 1% rental rate increase
or decrease over the 4/30/02 average rental rates will increase or decrease
annual revenues by $68,000.
While average occupancy has increased, so have average monthly rents. Average
monthly rents have increased 4.7% for the Current Year over the Prior Year, and
4.9% for the Current Quarter over the Prior Quarter. We believe that the
acceptance of higher Current Quarter increases reflects increased consumer
confidence.
During the Current Year operating expenses increased .8% over the Prior Year;
and decreased 3.6% for the Current Quarter compared to the Prior Quarter. As a
result of the mild winter, significant savings were experienced in the areas of
snow removal costs and heating costs. As a percentage of revenue, operating
expenses were 46.3% of revenue for the Current Year compared to 48.3% for the
Prior Year.
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 from funds
available in our institutional money market fund. Construction is expected to
commence during late 2002 or early 2003, and is expected to last twelve to
eighteen months. Through 4/30/02, approximately $364,000 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 six and three months ended April 30, 2002 and 2001 are as
follows:
Six Months Ended Three Months Ended
April 30, April 30,
--------------------- --------------------
2002 2001 2002 2001
---- ---- ---- ----
(thousands of dollars)
Government agency bonds and
institutional Money Market $122 $366 $ 54 $170
Related Party Loans 38 16
Other 1 1
---- ---- ---- ----
$123 $404 $ 55 $186
==== ==== ==== ====
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 approximately 1.8% as of April 30, 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 75.8% to $109,000
during the Current Year from $62,000 for the Prior Year; and increased 81.3% to
$58,000 for the Current Quarter compared to $32,000 for the Prior Quarter. The
increase is principally attributable to revenues for the Current Year increasing
5.2%, because of higher rents during the Current Quarter and expenses being .3%
lower as a result of the mild winter. Average occupancy for the Current Year was
96.9% compared to 97.3% for the Prior Year.
FINANCING COSTS
Financing costs are summarized as follows:
Six Months Ended Three Months Ended
April 30, April 30,
-------------------- ---------------------
2002 2001 2002 2001
(thousands of dollars)
Fixed rate mortgages $2,233 $2,266 $1,115 $1,131
Floating rate mortgage 203 508 107 265
Other 5 3
------ ------ ------ ------
$2,441 $2,774 $1,225 $1,396
====== ====== ====== ======
Financing Costs for the Current Year and Current Quarter decreased 12.0% and
12.2% respectively. 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 $218,000 during the Current Year from $199,000
during the Prior Year. During the Current Quarter, G & A expenses decreased to
$103,000 from $115,000 for the Prior Quarter. Professional fees accounted for
the bulk of the increase.
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):
Six Months ended Three Months Ended
4/30/02 4/30/01 4/30/02 4/30/01
------- ------- ------- -------
Net Income $ 2,674 $ 2,078 $ 1,336 $ 961
Depreciation - Real Estate 1,104 1,102 552 554
Amortization of Deferred Mtg Costs 45 47 14 16
Deferred Rents (187) (202) (94) (95)
Capital Improvements - Apartments (150) (224) (60) (124)
Minority Interest 92 16 45 6
Other (8) 51 3 25
------- ------- ------- -------
Total FFO $ 3,570 $ 2,868 $ 1,796 $ 1,343
======= ======= ======= =======
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 3.4% to $3.6 million during the Current Year compared to
$3.5 million for the Prior Year. 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 4/30/02 we had cash and cash equivalents totaling $13.9 million compared
to $13.7 million (including Marketable Securities) 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 4/30/02 FREIT's aggregate outstanding mortgage debt was $68.9 million, which
is secured by properties with a net book value of approximately $63 million.
Approximately $57.8 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. The rate in effect at
4/30/02 was 3.661%. This mortgage note was due at the end of March 2002, but was
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 $ --
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 April 30, 2002 and October 31, 2001:
April 30, October 31,
(In Millions) 2002 2001
---- ----
Fair Value $69.9 $71.7
Carrying Value $68.9 $69.3
Fair values are estimated based on market interest rates at April 30, 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 $3.0 million, and a one
percent decrease would increase the Fair Value by $3.2 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. We expect this
credit line to be closed during July 2002. While the line of credit may shortly
be finalized, 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
On April 10, 2002, FREIT entered into a joint venture agreement with H-TPKE,
LLC, a group consisting primarily of Hekemian & Co., Inc. employees' 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. Hekemian, &
Co, is currently involved in the due-diligence analysis, and is reviewing
acquisition financing alternatives. The results will be submitted to the joint
venture partners for their review. If the due-diligence review proves
satisfactory, the purchase will close in the near term. 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.
ASSET SALE
Subsequent to April 30, 2002, FREIT entered into an agreement for the sale of
its 132-apartment unit complex in Camden, NJ. The purchaser is currently in
due-diligence review. The sale, if it closes, will have no material financial
affect on FREIT's future operating results.
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
FREIT's Annual Meeting of Shareholders held on April 10, 2002.
Election of Trustee
-------------------
The Shareholders re-elected Mr. Robert S. Hekemian to serve as Trustee
for an additional three (3) year term. The balloting for election was as
follows: Mr. Hekemian received 2,775,225 votes, representing 89% of the
total number of issued and outstanding shares of FREIT, and was duly
elected. 11,436 votes were withheld and 332,913 abstained.
Item 6. Exhibits and Reports on Form 8-K.
(a) On March 8, 2002, FREIT filed a report on Form 8-K, which is
incorporated herein by reference. The Form 8-K included a copy of the
press release that was sent to shareholders on March 4, 2002, reporting
FREIT's operating results for the quarter ended January 31, 2002.
(b) On April 29, 2002, FREIT filed a report on Form 8-K, which is
incorporated herein by reference. The Form 8-K reported the execution of
a new Management Agreement and the execution of a Joint Venture Agreement
for the purpose of acquiring the Wayne-Preakness Shopping Center. The
Form 8-K included copies of both agreements.
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, 2002
By: /s/ Robert S. Hekemian.
-----------------------
(Signature)
Robert S. Hekemian.
Chairman of the Board, Chief Executive
Officer, Trustee, and Financial/Accounting Officer