SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly period ended January 31, 2003
or
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________________ to ___________________.
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. |X| Yes |_| No
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). |_| 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 January 31, 2003
and October 31, 2002;
b.) Condensed Consolidated Statements of Income, Comprehensive
Income and Undistributed Earnings for the Three Months Ended
January 31, 2003 and 2002;
c.) Condensed Consolidated Statements of Cash Flows for the Three
Months Ended January 31, 2003 and 2002;
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 4: Controls and Procedures
Part II: Other Information
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
January 31, October 31,
2003 2002
------- -------
(Unaudited) (See Note 1)
----------- ------------
(In Thousands of Dollars)
ASSETS
Real estate, at cost, net of accumulated
depreciation $74,287 $74,687
Investment in affiliates 2,003 3,283
Cash and cash equivalents 12,606 11,930
Tenants' security accounts 821 788
Sundry receivables 2,566 2,555
Prepaid expenses and other assets 1,280 1,306
Deferred charges, net 1,172 1,166
------- -------
Totals $94,735 $95,715
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Mortgages payable $68,176 $68,393
Accounts payable and accrued expenses 853 778
Dividends payable 1,092 2,090
Tenants' security deposits 1,155 1,122
Deferred revenue 282 332
Interst rate swap contract 236 --
------- -------
Total liabilities 71,794 72,715
------- -------
Minority interest 1,096 1,097
------- -------
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
Accumulated other comprehensive loss (236) --
Undistributed earnings 2,767 2,589
------- -------
Total shareholders' equity 21,845 21,903
------- -------
Totals $94,735 $95,715
======= =======
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 THREE MONTHS ENDED JANUARY 31, 2003 AND 2002
2003 2002
------- -------
(In Thousands of Dollars,
Except Per Share Amounts)
INCOME
Revenue:
Rental income $ 3,978 $ 3,884
Reimbursements 664 745
Equity in income of affiliates 81 51
Net Investment Income 53 68
Sundry income 56 47
------- -------
Totals 4,832 4,795
------- -------
Expenses:
Operating expenses 957 821
Management fees 201 200
Real estate taxes 621 591
Financing costs 1,194 1,216
Depreciation 532 535
Minority interest 49 47
------- -------
Totals 3,554 3,410
------- -------
Income from continuing operations before state income taxes 1,278 1,385
Provision for state income taxes 8 5
------- -------
Income from continuing operations 1,270 1,380
Discontinued operations -- (42)
------- -------
Net income $ 1,270 $ 1,338
======= =======
- --------------------------------------------------------------------------------------
Basic earnings (loss) per share:
Continuing operations $ 0.41 $ 0.44
Discontinued operations -- (0.01)
------- -------
Net income $ 0.41 $ 0.43
======= =======
- --------------------------------------------------------------------------------------
Diluted earnings (loss) per share:
Continuing operations $ 0.39 $ 0.43
Discontinued operations -- (0.01)
------- -------
Net income $ 0.39 $ 0.42
======= =======
- --------------------------------------------------------------------------------------
Basic weighted average shares outstanding 3,120 3,120
Diluted weighted average shares outstanding 3,275 3,188
- --------------------------------------------------------------------------------------
COMPREHENSIVE INCOME
Net Income $ 1,270 $ 1,338
Other comprehensive income(loss):
(loss) on interest rate
swap contract (236) --
------- -------
Other comprehensive income(loss) (236) --
------- -------
Comprehensive income $ 1,034 $1,3389
======= ========
UNDISTRIBUTED EARNINGS
Balance, beginning of period $ 2,589 $ 2,274
Net income 1,270 1,338
Less dividends (1,092) (936)
------- -------
Balance, end of period $ 2,767 $ 2,676
======= =======
Dividends per share $ 0.35 $ 0.30
======= =======
See Notes to Consolidated Financial Statements
FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED JANUARY 31, 2003 AND 2002
2003 2002
---- ----
(In thousands of Dollars)
Operating activities:
Net Income $ 1,270 $ 1,338
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 608 604
Equity in income of affiliates (81) (51)
Deferred revenue (50) (51)
Minority interest 49 47
Changes in operating assets and liabilities:
Tenants' security accounts (33) 66
Sundry receivables, prepaid expenses and other assets (67) 9
Accounts payable and accrued expenses 76 (174)
Tenants' security deposits 33 (66)
-------- --------
Net cash provided by operating activities 1,805 1,722
-------- --------
Investing activities:
Capital expenditures (132) (144)
Distributions from affiliate 1,360 --
Marketable security redeemed 500
-------- --------
Net cash provided by investing activities 1,228 356
-------- --------
Financing activities:
Repayment of mortgages (217) (261)
Dividends Paid (2,090) (1,497)
Distribution to Minority Interest (50) (115)
-------- --------
Net cash used in financing activities (2,357) (1,873)
-------- --------
Net increase in cash and cash equivalents 676 205
Cash and cash equivalents, beginning of period 11,930 13,187
-------- --------
Cash and cash equivalents, end of period $ 12,606 $ 13,392
======== ========
Supplemental disclosure of cash flow data:
Interest paid $ 1,118 $ 1,185
======== ========
Income taxes paid $ 8 $ 5
======== ========
Dividends declared but not paid $ 1,092 $ 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 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, 2003 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, 2002.
Certain accounts in the 2002 financial statements have been reclassified
to conform to the current presentation.
Interest rate awap contract:
FREIT utilizes derivative financial instruments to reduce interest rate
risk. FREIT does not hold or issue derivative financial instruments for
trading purposes. Effective November 1, 2002, FREIT adopted Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"), which establishes
accounting and reporting standards for derivative instruments and hedging
activities. As required by SFAS 133, FREIT recognizes all derivatives as
either assets or liabilities in the consolidated balance sheet and measures
those instruments at fair value. Changes in the fair value of those
instruments will be reported in earnings or other comprehensive income
depending on the use of the derivative and whether it qualifies for hedge
accounting. The accounting for gains and losses associated with changes in
the fair value of the derivative and the effect on the consolidated
financial statements will depend on its hedge designation and whether the
hedge is highly effective in achieving offsetting changes in the fair value
of cash flows on the assets or liabilty hedged.
Note 2 - Investment in Affiliates:
Certain investments, where FREIT's ownership interest is 50% or less, but
can exercise significant influence, are accounted for by the equity
method. Under the equity method, the investment, originally recorded at
cost, is adjusted to recognize FREIT's share of the net earnings or losses
of the affiliates as they occur. These investments include:
Ownership
Interest
--------
Westwood Hills, LLC 40%
(owns a 210 unit apartment community
in Westwood, NJ)
Wayne PSC, LLC 40%
(effective November 1, 2002 acquired
the 323,000 +/- sq. ft. Preakness Shopping Center
in Wayne, NJ)
Summarized combined balance sheet as at January 31, 2003 and October 31,
2002, and income statement information for the three months ended January
31, 2003 and 2002 of the above affiliates that are accounted for using the
equity method are as follows:
(thousands) January 31, October 31,
Balance Sheet Data 2003 2002
---- ----
Assets
Real estate $ 47,009 13,673
Other assets 3,358 9,779
-------- --------
Total assets $ 50,367 $ 23,452
======== ========
Liabilities and members'
equity (deficiency):
Mortgages payable $ 44,510 $ 14,794
Other liabilities 850 455
-------- --------
Totals 45,360 15,249
-------- --------
Members' Capital:
Westwood Hills -deficiency (4,112) (797)
Wayne PSC Capital 9,119 9,000
-------- --------
Totals 5,007 8,203
-------- --------
Total liabilities and capital $ 50,367 $ 23,452
======== ========
FREIT - Investment in affiliates $ 2,003 $ 3,283
======== ========
Three Months ended
Income Data January 31,
-----------------------
2003 2002
---- ----
Rental Revenues $ 1,873 $ 784
Expenses 1,670 657
-------- --------
Net income $ 203 $ 127
======== ========
FREIT - Equity in income $ 81 $ 51
======== ========
On November 1, 2002 our newly formed 40% owned affiliate, Wayne PSC, LLC,
completed the acquisition of the 323,000 sq. ft. Preakness Shopping Center
in Wayne, NJ. Total acquisition costs of $35.5 million (including a $1.3
million capital improvement reserve) were financed in part by a $26.5
million first mortgage loan, and by $9 million of equity contributions
provided pro rata by the members of Wayne PSC, LLC, with FREIT's
contribution being $3.6 million.
During January 2003, Westwood Hill placed a second mortgage in the amount
of $3.4 million on it's garden apartment property. The net proceeds of the
second mortgage was distributed to its members, of which FREIT received
approximately $1.4 million.
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, 2003 and 2002, 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:
2003 2002
--------- ---------
Basic weighted average shares
outstanding 3,119,576 3,119,576
Shares arising from assumed
exercise of stock options 155,429 68,301
--------- ---------
Dilutive weighted average shares
outstanding 3,275,005 3,187,877
========= =========
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,
2003, 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- 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.
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 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 FREIT's retail segment,
residential segment and corporate/other is comprised 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 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, 2003 and 2002. Asset information is not reported since the Trust does
not use this measure to assess performance.
Three Months ended
January 31,
2003 2002
---- ----
(in thousands of dollars)
Real estate revenue:
Retail $ 3,031 $ 3,033
Residential 1,612 1,542
------- -------
Total 4,643 4,575
------- -------
Real estate operating expenses:
Retail 971 862
Residential 717 632
------- -------
Total 1,688 1,494
------- -------
Net operating income:
Retail 2,060 2,171
Residential 895 910
------- -------
Total $ 2,955 $ 3,081
======= =======
Recurring capital improvements:
Residential $ 104 $ 79
======= =======
Reconciliation to consolidated
net income:
Segment NOI $ 2,955 $ 3,081
Discontinued operations -- (42)
Deferred rents - straight lining 48 93
Net investment income 53 68
Equity in income of affiliates 81 51
General and administrative expenses (92) (115)
Depreciation (532) (535)
Financing costs (1,194) (1,216)
Minority interest (49) (47)
------- -------
Net income $ 1,270 $ 1,338
======= =======
Note 6-Interest Rate Swap Contract:
During November 2002, FREIT renegotiated the fixed interest rate on a first
mortgage secured by its Patchogue, NY property. To reduce the impact of
interest rate fluctuations, FREIT entered into an interest rate swap. In
accordance with SFAS 133, FREIT recorded a liability for the net present
value of the increase in interest cost over the remaining terms of the debt
of $236,000. Such amount is included in comprehensive income.
Note 7- Discontinued operations:
On August 9, 2002, FREIT sold the Sheridan Apartments in Camden, NJ for
cash of $1,050,000 and recognized a gain of approximately $475,000. FREIT
has owned and operated the property since 1964.
Summarized operating results included in discontinued operations in the
accompanying consolidated statements of income for the quarter ended
January 31, 2002 is as follows (in thousands):
Revenue $ 160
Expenses (202)
-----
Net Loss $ (42)
=====
* * *
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 unaudited condensed consolidated financial statements of
FREIT (including related notes thereto) appearing elsewhere in this Form 10-Q,
and the consolidated financial statements included 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 our income producing retail properties. We also receive income from
our 40% owned affiliate, Westwood Hills, LLC ("Westwood Hills") that owns a
residential apartment property. Starting in fiscal 2003, we also receive income
from our 40% owned affiliate Wayne PSC, L.L.C. ("WaynePCS") that owns the
Preakness shopping center. Our policy has been to acquire real property for
long-term investment.
SIGNIFICANT ACCOUNTING POLICIES AND ESTIMATES
The Securities and Exchange Commission ("SEC") recently issued disclosure
guidance for "Critical Accounting Policies." The SEC defines Critical Accounting
Policies as those that require the application of Management's most difficult,
subjective, or complex judgments, often because of the need to make estimates
about the effect of matters that are inherently uncertain and may change in
subsequent periods.
Our discussion and analysis of our financial condition and results of operations
are based upon our consolidated financial statements, the preparation of which
takes into account estimates based on judgments and assumptions that affect
certain amounts and disclosures. Accordingly, actual results could differ from
these estimates. The accounting policies and estimates used and outlined in Note
1 to our Consolidated Financial Statements included in our annual report on Form
10-K, have been applied consistently as at January 31, 2003 and October 31,
2002, and for the three months ended January 31, 2003 and 2002. We believe that
the following accounting policies or estimates require the application of
Management's most difficult, subjective, or complex judgments:
Revenue Recognition: Base rents, additional rents based on tenants' sales volume
and reimbursement of the tenants' share of certain operating expenses are
generally recognized when due from tenants. The straight-line basis is used to
recognize base rents under leases if they provide for varying rents over the
lease terms. Straight-line rents represent unbilled rents receivable to the
extent straight-line rents exceed current rents billed in accordance with lease
agreements. Before FREIT can recognize revenue, it is required to assess, among
other things, its collectibility. If we incorrectly determine the collectibility
of revenue, our net income and assets could be overstated.
Valuation of Long-Lived Assets: We periodically assess the carrying value of
long-lived assets whenever we determine that events or changes in circumstances
indicate that their carrying amount may not be recoverable. When FREIT
determines that the carrying value of long-lived assets may be impaired, the
measurement of any impairment is based on a projected discounted cash flows
method determined by FREIT's management. While we believe that our discounted
cash flow methods are reasonable, different assumptions regarding such cash
flows may significantly affect the measurement of impairment.
In October 2001, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 144, "Accounting for
the Impairment or Disposal of Long-Lived Assets." SFAS No. 144 requires the
reporting of discontinued operations to include components of an entity that
have either been disposed of or are classified as held for sale. FREIT has
adopted SFAS No. 144. On August 9, 2002 FREIT sold its Camden, NJ property.
FREIT has reclassified the net income (loss) from the operation of the property
as Discontinued Operations for all periods presented. The adoption of SFAS No.
144 did not have an impact on net income, but only impacted the presentation of
this property within the consolidated statements of income.
We feel that net income from continuing operations (which excludes the
operations of the Camden property) is the most significant element of net
income. Accordingly, all references and comparisons refer to income from
continuing operations unless otherwise stated. All references to per share
amounts are on a diluted basis (unless otherwise indicated)and refer to earnings
per share from continuing operations.
Results of Operations:
Quarters Ended January 31, 2003 and 2002
Revenue for the quarter increased slightly to $4,832,000 from $4,795,000 for the
prior year's quarter. Income from continuing operations dipped to $1,270,000
this quarter from $1,380,000 for the prior year's quarter. The charts below
detail the changes in revenue and expense components and the components of
income from continuing operations.
Quarter Ended
--------------------------------
January 31,
----------------- Increase
2003 2002 (Decrease)
---- ---- ----------
Revenue ($000)
Real estate operations $ 4,698 $ 4,676 $ 22
Equity in income of affiliates 81 51 30
Net investment income 53 68 (15)
------------------------------
Total revenue 4,832 4,795 37
------------------------------
Expenses
Real estate operations 2,276 2,084 192
Financing costs 1,194 1,216 (22)
General and administrative expenses 92 115 (23)
------------------------------
Total expenses 3,562 3,415 147
------------------------------
Income from continuing operations $ 1,270 $ 1,380 $ (110)
==============================
Quarter Ended
--------------------------------
January 31,
------------------ Increase
2003 2002 (Decrease)
---- ---- ----------
($000)
Net income components:
Real estate operations $ 2,422 $ 2,592 $(170)
Equity in income of affiliates 81 51 30
Net investment income 53 68 (15)
Financing costs (1,194) (1,216) 22
General and administrative expenses (92) (115) 23
-------------------------------
Income from continuing operations $ 1,270 $ 1,380 $(110)
===============================
The consolidated results of operations for the three months ended January 31,
2003 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
686,000 sq. ft. Four are multi-tenanted shopping centers and two are single
tenanted stores. Their operations are summarized in thousands below.
Retail Segment
Quarter ended
January 31, Increase (Decrease)
---------------- -------------------
2003 2002 $ %
---- ---- - -
Revenues
Minimum & percentage Rents $2,328 $2,259 $ 69 3.1%
Reimbursements 691 766 (75) -9.8%
Other 12 8 4 50.0%
------ ------ ----- -----
Total revenue 3,031 3,033 (2) -0.1%
------ ------ ----- -----
Operating expenses 971 862 109 12.6%
------ ------ ----- -----
Net operating income $2,060 $2,171 $(111) -5.1%
====== ====== ===== =====
Average occupancy % 93.0% 97.4% -4.40%
------ ------ -----
Minimum and percentage rents at FREIT's retail properties increased 3.1% during
the quarter ended January 31, 2003 ("Current Quarter") compared to the quarter
ended January 31, 2002 ("Prior Quarter"). The increase in rents resulted from
increased base rents, and rents from tenant's that were not in occupancy for the
full quarter last year. These increases, however, were not large enough to cover
reimbursement losses due to higher vacancy or overcome the one time expense
recovery booked during the Prior Quarter.
The increases in operating expenses are principally weather related, with higher
snow removal costs and utility costs accounting for 88% of the increase.
In February 2003, without any notice, a major tenant in one of our shopping
centers closed their store and ceased paying rent and additional rent, and is in
default of both monetary and non-monetary provisions of their lease. Annual rent
and other charges from this tenant approximate $400,000 per year. FREIT intends
to vigorously enforce the provisions of the lease. As of the date of this report
it is too early to determine the effect to FREIT of this tenant's default.
RESIDENTIAL SEGMENT
FREIT operates seven (7) multi-family apartment communities totaling 507
apartment units. The NOI of our residential properties is summarized in
thousands below
Residential Segment
Quarter Ended
January 31, Increase (Decrease)
------------------- ------------------------
2003 2002 $ %
---- ---- - -
Revenues
Rents $1,596 $1,525 $ 71 4.7%
Other 16 17 (1) -5.9%
------ ------ ---- ----
Total revenue 1,612 1,542 70 4.5%
------ ------ ---- ----
Operating expenses 717 632 85 13.4%
------ ------ ---- ----
Net operating income $ 895 $ 910 $(15) -1.6%
====== ====== ==== ====
Average occupancy % 96.0% 96.0% 0.0%
------ ------ ----
Residential revenue for the current quarter increased 4.5% to $1,612,000 from
$1,542,000 last year. Higher monthly rents were the principal reason for the
increase. 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 rental rates and occupancy levels at January 31, 2003, a
1% increase or decrease in average occupancy will cause an annual $66,700
increase or reduction in revenues, while a 1% increase or decrease in rental
rates will cause an annual $63,400 increase or decrease in annual revenues.
Average occupancy for the Current Quarter was unchanged at 96% from the Prior
Quarter.
During the Current Quarter operating expenses increased 13.4% over the Prior
Quarter. As a percentage of revenue, operating expenses were 44.4% of revenue
compared to 41% last year. Increases in snow removal and utility costs, because
of the current severe winter being experienced, were the principal reasons for
the expense increase. Higher than average snow removal and utility costs are
expected to prevail into the second fiscal quarter.
EQUITY IN INCOME OF AFFILIATES
Prior to October 31, 2002 FREIT shared in the earnings of its 40% owned
affiliate, Westwood Hills which owns a 210 unit apartment community in Westwood,
NJ. Effective November 1, 2002, FREIT will also share in the earnings of its 40%
owned affiliate, Wayne PSC, which purchased the 323,000 sq. ft. Preakness
Shopping Center in Wayne, NJ, on November 1, 2002.
Net income at Westwood Hills during the Current Quarter fell to $83,000 from
$127,000 for the Prior Quarter. This resulted in FREIT's share of the affiliates
income to fall to $33,000 for the Current Quarter from $51,000 for the Prior
Quarter. While revenue at Westwood Hills increased 2.7%, the increase was not
sufficient to cover the 13.3% increase in operating expenses - principally snow
removal and utility costs - and the 8.6% increase in financing costs that
resulted from placing a $3.4 million second mortgage on Westwood Hills garden
apartment property. FREIT received 40% of the net mortgage proceeds. The effect
of this financing will be to add approximately $212,000 of financing costs to
Westwood Hills operations in fiscal 2003.
On November 1, 2002, Wayne PSC closed on the acquisition of the Preakness
shopping Center. For the Current Quarter, the Net income from the Center's
operations was $119,000. FREIT's share of this income was $48,000 (40%). FREIT's
share of income from this affiliate is expected to grow, as Stop and Shop, one
of the major anchors opened its super market on February 13, 2003.
FINANCING COSTS
Financing Costs for the Current Quarter decreased 1.8% to $1,194,000 from
$1,216,000 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 decreased approximately 20% during the Current Quarter to
$92,000 from $115,000 from the Prior Quarter. Reductions in professional fees
and Trustee's fees were the principal factors.
LIQUIDITY AND CAPITAL RESOURCES
Our financial condition remains strong. Net Cash Provided By Operating
Activities increased 4.8% to $1.8 million for the Current Quarter from $1.7
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 January 31, 2003, we had cash and cash equivalents totaling $12.6 million
compared to $11.9 million at October 31, 2002. During January 2003 FREIT
received approximately $1.4 million as a distribution from Westwood Hills as its
share of Westwood Hills second mortgage financing proceeds. These funds are
available for construction, property acquisitions, and general needs.
As previously reported, we are planning the construction of 129 apartment rental
units in Rockaway, NJ. The total capital required for this project is estimated
at $13.8 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 January 31, 2003 FREIT's aggregate outstanding mortgage debt was $68.2
million. Approximately $57.3 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 2003. Our lender has indicated a desire to extend the
loan for an additional three years and will be due and payable at the end of
March 2006. 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:
Fiscal Year $ Millions
----------- ----------
2007 $ 15.7
2008 $ 16.8
2010 $ 9.2
2013 $ 8.0
2014 $ 9.4
The following table shows the estimated fair value and carrying value of our
long-term debt at January 31, 2003 and October 31, 2002:
January 31, October 31,
(In Millions) 2003 2002
------------- ---- ----
Fair Value $72.6 $73.5
Carrying Value $68.2 $68.4
Fair values are estimated based on market interest rates at January 31, 2003 and
October 31, 2002 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.
FREIT also has the ability to draw, if needed, against its $14 million, two-year
revolving line of credit. To date, no draws have been made against this credit
line.
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.
Item 3: Quantitative and Qualitative Disclosures About Market Risk
See "Liquidity and Capital Resources" above.
Item 4: Controls and Procedures
Within the ninety (90) days prior to the filing date of this quarterly report on
Form 10-Q, we carried out an evaluation of the effectiveness of the design and
operation of FREIT's disclosure controls and procedures. This evaluation was
carried out under the supervision and with participation of FREIT's management,
including FREIT's Chairman and Chief Executive Officer and Chief Financial
Officer, who concluded that FREIT's disclosure controls and procedures are
effective. There have been no significant changes in FREIT's internal controls
or in other factors, which could significantly affect internal controls
subsequent to the date we carried out our evaluation.
Disclosure controls and procedures are controls and other procedures that are
designed to ensure that information required to be disclosed in FREIT's reports
filed or submitted under the Exchange Act is recorded, processed, summarized,
and reported, within the time periods specified in the SEC's rules and forms.
Disclosure controls and procedures include, without limitation, controls and
procedures designed to ensure that information required to be disclosed in
FREIT's reports filed under the Exchange Act is accumulated and communicated to
management, including FREIT's Chief Executive Officer and Chief Financial
Officer as appropriate, to allow timely decisions regarding required disclosure.
Part II Other Information
Item 6. Exhibits and Reports on Form 8-K
During the first quarter ended January 31,m 2003, the following reports on
Form 8-K were filed with the SEC:
(a) On November 1, 2002, FREIT filed a report on Form 8-K announcing
that its affiliate Wayne PSC, LLC completed the acquisition of the
Preakness Shopping Center in Wayne, NJ. A copy of the press release
was attached.
(b) On November 27, 2002, FREIT filed a report on Form 8-K announcing
its operating results for the year and quarter ended October 31,
2002. A copy of the press release was attached.
Exhibit Index
Exhibit 99.1 Certification of Chief Executive Officer
Exhibit 99.2 Certification of Chief Financial Officer
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: March 19, 2003
/s/ Robert S. Hekemian
------------------------------------------------
(Signature)
Robert S. Hekemian.
Chairman of the Board and
Chief Executive Officer
/s/ Donald W. Barney
------------------------------------------------
(Signature)
Donald W. Barney
President, Treasurer and Chief Financial Officer
(Principal Financial/Accounting Officer)
CERTIFICATION
I, Robert S. Hekemian, Chairman of the Board and Chief Executive Officer
of First Real Estate Investment Trust of New Jersey certify that:
1. I have reviewed this quarterly report on Form 10-Q of First Real Estate
Investment Trust of New Jersey;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of the registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: March 19, 2003 /s/ Robert S. Hekemian
-------------------------------------------------
Robert S. Hekemian
Chairman of the Board and Chief Executive Officer
CERTIFICATION
I, Donald W. Barney, President, Treasurer and Chief Financial Officer of
First Real Estate Investment Trust of New Jersey certify that:
1. I have reviewed this quarterly report on Form 10-Q of First Real Estate
Investment Trust of New Jersey;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of the registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: March 19, 2003 /s/ Donald W. Barney
------------------------
Donald W. Barney
President, Treasurer and
Chief Financial Officer