SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20594
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended January 31, 1995 Commission File No. 2-48728
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
INDEX
Part I: Financial Information
Item 1: Financial Statements
a.) Combined Balance Sheets for January 31, 1995 and
October 31, 1994;
b.) Combined Statements of Income and
Undistributed Earnings For Three Months Ended January
31, 1995 and 1994;
c.) Combined Statements of Cash Flows for Three Months Ended
January 31, 1995 and 1994;
Item 2: Management's Discussion and Analysis of
Financial Condition and
Results of Operations
Part II: Other Information
Item 5. Other Information
FIRST REAL ESTATE INVESTMENT TRUST
OF NEW JERSEY AND AFFILIATE
COMBINED BALANCE SHEETS
JANUARY 31, 1995 AND OCTOBER 31, 1994
(Unaudited)
January October
31, 1995 31, 1994
-------- --------
(In Thousands
of Dollars)
ASSETS
Real estate, at cost, net of accumulated
depreciation (Notes 3, 4 and 5) ...................... $ 62,930 $ 63,176
Equipment, at cost, net of accumulated
depreciation of $506,000 and $491,000 ................ 212 214
Cash ..................................................... 405 238
Tenants' security accounts ............................... 882 867
Sundry receivables ....................................... 299 325
Prepaid expenses and other assets ........................ 508 601
Deferred charges, net .................................... 234 192
-------- --------
Totals ......................................... $ 65,470 $ 65,613
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Mortgages payable (Note 4) ........................... $ 33,870 $ 34,019
Note payable - bank (Note 5) ........................... 5,932 5,428
Accounts payable and accrued expenses ................ 267 344
Tenants' security deposits ........................... 985 964
Other liabilities ...................................... 94 77
Deferred revenue ..................................... 122 137
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Total liabilities .............................. 41,270 40,969
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Minority interest ........................................ 3,520 3,496
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Commitments and contingencies (Note 6)
Shareholders' equity:
Shares of beneficial interest without par
value; 1,560,000 shares authorized;
1,559,788 shares issued and outstanding .............. 19,314 19,314
Undistributed earnings ............................... 1,366 1,834
-------- --------
Total shareholders' equity ..................... 20,680 21,148
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Totals ........................................ $ 65,470 $ 65,613
======== ========
See Notes to Combined Financial Statements.
FIRST REAL ESTATE INVESTMENT TRUST
OF NEW JERSEY AND AFFILIATE
COMBINED STATEMENTS OF INCOME AND UNDISTRIBUTED EARNINGS
THREE MONTHS ENDED JANUARY 31, 1995 AND 1994
(Unaudited)
1995 1994
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(In Thousands
of Dollars,
Except per
Share Amounts)
INCOME
Rental revenue:
Rental income (Note 6) ....................... $ 2,905 $ 2,234
Real estate taxes reimbursed ................. 174 168
Common area maintenance reimbursed ........... 104 79
Sundry income ................................ 41 70
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Totals ................................... 3,224 2,551
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Rental expenses:
Operating expenses ........................... 703 593
Management fees (Note 7) ....................... 136 109
Real estate taxes ............................ 384 301
Interest ..................................... 767 574
Depreciation ................................. 375 294
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Totals ................................... 2,365 1,871
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Income from rental operations .................... 859 680
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Other income (expense):
Interest income .............................. 2 2
Interest expense ............................. (91) (62)
General and administrative ................... (60) (46)
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Totals ................................... (149) (106)
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Income before minority interest .................. 710 574
Minority interest ................................ (24) --
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Net income ....................................... $ 686 $ 574
======= =======
Earnings per share (Note 8) ...................... $ .44 $ .37
======= =======
UNDISTRIBUTED EARNINGS
Balance, beginning of period ..................... $ 1,834 $ 1,978
Net income ...................................... 686 574
Less dividends paid .............................. (1,154) (1,029)
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Balance, end of period ........................... $ 1,366 $ 1,523
======= =======
Dividends paid per share ......................... $ .74 $ .66
======= =======
See Notes to Combined Financial Statements.
FIRST REAL ESTATE INVESTMENT TRUST
OF NEW JERSEY AND AFFILIATE
COMBINED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED JANUARY 31, 1995 AND 1994
(Unaudited)
1995 1994
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(In Thousands
of Dollars)
Operating activities:
Net income ........................................................ $ 686 $ 574
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization ................................. 397 298
Deferred revenue .............................................. (15) (48)
Minority interest 24 Changes in operating assets and liabilities:
Tenants' security accounts ................................. (15) (24)
Sundry receivables, prepaid expenses and other
assets ........................................................ 119 35
Deferred charges .............................................. (64)
Accounts payable and accrued expenses ...................... (77) (89)
Tenants' security deposits ................................. 21 29
Other liabilities .......................................... 17
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Net cash provided by operating activities .............. 1,093 775
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Investing activities - capital expenditures ........................... (127) (60)
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Financing activities:
Dividends paid .................................................... (1,154) (1,029)
Proceeds from note payable - bank ................................. 504
Repayment of mortgages ............................................ (149) (84)
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Net cash used in financing activities .................... (799) (1,113)
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Net increase (decrease) in cash ....................................... 167 (398)
Cash, beginning of period ............................................. 238 928
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Cash, end of period ................................................... $ 405 $ 530
======= =======
Supplemental disclosure of cash flow data:
Interest paid ..................................................... $ 858 $ 636
======= =======
See Notes to Combined Financial Statements.
FIRST REAL ESTATE INVESTMENT TRUST
OF NEW JERSEY AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS
Note 1 - Organization and significant accounting policies:
Organization:
First Real Estate Investment Trust of New Jersey (the
"Trust") was organized November 1, 1961 as a New Jersey
Business Trust.
The Trust has elected to be taxed as a Real Estate
Investment Trust under the provisions of Sections 856-860
of the Internal Revenue Code, as amended. Accordingly,
the Trust does not pay Federal income tax on income
whenever income distributed to shareholders is equal to
at least 95% of real estate investment trust taxable
income. Further, the Trust pays no Federal income tax on
capital gains distributed to shareholders.
The Trust is subject to Federal income tax on
undistributed taxable income and capital gains. The Trust
may make an annual election under Section 858 of the
Internal Revenue Code to apply part of the regular
dividends paid in each respective subsequent year as a
distribution for the immediately preceding year.
Basis of presentation:
The combined financial information included herein as at
January 31, 1995 and for the three months ended January
31, 1995 and 1994 is unaudited and, in the opinion of the
Trust, reflects all adjustments (which include only
normal recurring accruals) necessary for a fair
presentation of the combined financial position as of
that date and the combined results of operations for
those periods. The information in the combined balance
sheet as of October 31, 1994 was derived from the Trust's
audited annual report for 1994.
Principles of combination:
The combined financial statements include the accounts of
the Trust and Westwood Hills, LLC (the "Affiliate"),
which have been combined on the basis of common control.
The Af-filiate is a limited liability company that is
40%-owned by the Trust and managed by Hekemian & Co.,
Inc. ("Hekemian"), a company which manages all of the
Trust's properties and in which one of the trustees of
the Trust is the chairman of the board. Certain other
members of the Affiliate are either trustees of the Trust
or their families or officers of Hekemian. The combined
financial statements include 100% of the Affiliate's
assets, liabilities, operations and cash flows with the
60% interest owned by the other members of the Affiliate
reflected as "minority interest." All significant
intercompany accounts and transactions have been
eliminated in combination.
Cash:
The Trust and its Affiliate maintain their cash in bank
deposit accounts which, at times, may exceed Federally
insured limits. The Trust considers all highly liquid
debt instruments purchased with a maturity of three
months or less to be cash equivalents. At January 31,
1995 and October 31, 1994, the Trust had no cash
equivalents.
Depreciation:
Real estate and equipment are depreciated on the
straight-line method by annual charges to operations
calculated to absorb costs of assets over their estimated
useful lives.
Revenue recognition:
Income from leases is recognized on a straight-line basis
regardless of when payment is due. Lease agreements
between the Trust and commercial tenants generally
provide for additional rentals based on such factors as
percentage of tenants' sales in excess of specified
volumes, increases in real estate taxes, Consumer Price
Indices and common area maintenance charges. These
additional rentals are generally included in income when
reported to the Trust, when billed to tenants or ratably
over the appropriate period.
Deferred charges:
Deferred charges consist of mortgage costs and leasing
commissions. Deferred mortgage costs are amortized on the
straight-line method by annual charges to operations over
the terms of the mortgages. Deferred leasing commissions
are amortized on the straight-line method over the terms
of the applicable leases.
Income taxes:
The Affiliate, with the consent of its members, elected
to be treated as a limited liability company under the
applicable sections of the Internal Revenue Code. Under
these sections, income or loss, in general, is allocated
to the members for inclusion in their individual income
tax returns. Accordingly, there is no provision for
income taxes applicable to the operations of the
Affiliate in the accompanying combined financial
statements.
Earnings per share:
Earnings per share are computed based on the weighted
average number of shares outstanding. The weighted
average number of shares outstanding was 1,559,788 for
each of the three month periods ended January 31, 1995
and 1994.
Note 2 - Acquisition:
During May 1994, the Trust became a 40% member of the
Affiliate, a newly formed limited liability company.
On June 2, 1994, the Affiliate consummated the purchase of
Westwood Properties, a residential apartment complex located
in Westwood, New Jersey (the "Apartment Complex"). The cost
of the Apartment Complex was approximately $15,419,000 of
which $5,899,000 was paid in cash and $9,520,000 was
financed by the proceeds of a mortgage.
The following unaudited proforma information (in thousands
of dollars, except per share amounts) shows the results of
operations for the three months ended January 31, 1994 as
though the Apartment Complex had been acquired at the
beginning of fiscal 1994:
Rental revenue .............. $ 3,084
Rental expenses ............. 2,342
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Income from rental operations 742
Other expenses, net ......... (106)
Minority interest ........... (38)
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Net income .................. $ 598
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Earnings per share .......... $ .38
=======
In addition to combining the historical results of
operations, the unaudited proforma results include
adjustments for depreciation based on the purchase price and
increased interest expense related to obligations incurred
to complete the transaction.
The unaudited proforma results of operations set forth above
are based on information furnished by the Trust's
management. Such proforma information is not necessarily
indicative of the results that would have occurred had the
acquisition been made at the beginning of fiscal 1994 or of
future results of operations of the combined properties.
Note 3 - Real estate:
Real estate consists of the following:
Range
of Estimated January October
Useful Lives 31, 1995 31, 1994
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(In Thousands
of Dollars)
Land .............................. $ 21,112 $ 21,112
Unimproved land ................... 2,459 2,459
Apartment buildings ............... 7-40 years 20,820 20,749
Commercial buildings .............. 25-31.5 years 58 58
Shopping centers .................. 15-50 years 26,777 26,769
Construction in
progress ........................ 773 737
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71,999 71,884
Less accumulated depreciation ..... 9,069 8,708
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Totals ........................ $ 62,930 $ 63,176
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Note 4 - Mortgages payable:
Mortgages payable consist of the following:
January October
31, 1995 31, 1994
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(In Thousands
of Dollars)
State Mutual Life Assurance Company
of America (A) .................. $ 18,560 $ 18,624
Aetna Life Insurance Company (B) .. 5,530 5,557
United Jersey Bank (C) ............ 9,416 9,455
United Jersey Bank (D) ............ 364 383
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Totals ........................ $ 33,870 $ 34,019
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(A) Payable in monthly installments of $160,925
including interest at 9% through August 1997 at
which time the outstanding balance is due. The
mortgage is secured by a shopping center in
Frederick, Maryland having a net book value of
approximately $26,784,000.
(B) Payable in monthly installments of $55,287
including interest at 10% through September 2001
at which time the outstanding balance is due. The
mortgage is secured by a shopping center in
Westwood, New Jersey having a net book value of
approximately $12,177,000.
(C) Payable in monthly principal installments of
$12,989 plus interest at a variable rate through
June 2000 at which time the outstanding balance is
due. The mortgage is secured by the Apartment
Complex in Westwood, New Jersey having a net book
value of approximately $15,244,000. One of the
directors of the bank is a trustee of the Trust.
(D) Payable in monthly installments of $8,555
including interest at 7.625% through March 1999 at
which time the outstanding balance is due. The
mortgage is secured by an apartment building in
Spring Lake, New Jersey having a net book value of
approximately $646,000.
Principal amounts (in thousands of dollars) due under the
above obligations in each of the five years subsequent to
January 31, 1995 are as follows:
Year Ending
January 31, Amount
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1996 $ 621
1997 665
1998 18,379
1999 409
2000 343
Note 5 - Note payable - bank:
Note payable - bank consists of borrowings under a
$20,000,000 revolving line of credit agreement with United
Jersey Bank which expires on February 10, 1997. The first
$10,000,000 of borrowings under the line of credit bear
interest at either the prime rate or the LIBOR rate plus 200
basis points. Any excess borrowings bear interest at either
the prime rate plus 1/2% or the LIBOR rate plus 250 basis
points. Outstanding borrowings are secured by all of the
Trust's properties except the shopping centers located in
Frederick, Maryland and Westwood, New Jersey and any vacant
land owned by the Trust.
Note 6 - Commitments and contingencies:
Leases:
Commercial tenants:
The Trust leases commercial space having a net book
value of approximately $40,071,000 at January 31,
1995 to tenants for periods of up to twenty years.
Most of the leases contain clauses for reimbursement
of real estate taxes, maintenance, insurance and
certain other operating expenses of the properties.
Minimum rental income (in thousands of dollars) to be
received from noncancelable operating leases in years
subsequent to January 31, 1995 are as follows:
Year Ending
January 31, Amount
----------- -------
1996 $ 4,502
1997 3,880
1998 3,670
1999 2,987
2000 2,504
Thereafter 12,850
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Total $30,393
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The above amounts assume that all leases which expire
are not renewed and, accordingly, neither minimal
rentals nor rentals from replacement tenants are
included. Minimum future rentals do not include
contingent rentals which may be received under
certain leases on the basis of percentage of reported
tenants' sales volume or increases in Consumer Price
Indices. Contingent rentals included in income for
each of the three month periods ended January 31,
1995 and 1994 were not material.
Residential tenants:
Lease terms for residential tenants are usually one
year or less.
Environmental concerns:
A landfill which is considered a superfund site is
located next to a vacant parcel of land which is owned by
the Trust. The New Jersey Department of Environmental
Protection and Energy ("NJDEPE") had advised the Trust
that it was investigating the property for contamination
as a result of the migration of environmentally sensitive
materials from the landfill. In August 1994, the Trust
was advised that, although the soil had not been
environmentally impaired and a clean-up of the property
would not be required, the NJDEPE did determine that the
groundwater in the area of the landfill, including below
the Trust's property, is contaminated as a result of the
activity at the landfill. Accordingly, the NJDEPE is
currently in the process of enforcing remediation of the
groundwater by the responsible parties. As the Trust is
not a responsible party, management anticipates that it
will bear no liability for the cost of the groundwater
remediation.
Note 7 - Management agreement:
The properties owned by the Trust and the Affiliate are
currently managed by Hekemian. The management agreement
requires fees equal to a percentage of rents collected. Such
fees were approximately $136,000 and $109,000 for the three
months ended January 31, 1995 and 1994, respectively.
Note 8 - Earnings per share:
Earnings per share, based on the weighted average number of
shares outstanding during each period, are comprised of
ordinary income.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
The following discussion should be read in conjunction
with the attached financial statements and notes thereto, and the
Registrant's audited financial statements and notes thereto for Fiscal
Year ended October 31, 1994.
Results of Operations
The earnings per share were $0.44 for the First Quarter
1995 as compared to $0.37 per share for the First Quarter of 1994, which
increase was due, primarily, to the following three factors:
1) The acquisition of a forty (40%) percent
interest in the Westwood Hills, L.L.C., the
owners of an apartment complex in Westwood, New
Jersey, has contributed to the earnings of the
Registrant since its purchase in June 1994; and
2) Last winter was severe in the northeast portion
of the United States with significant snow falls
resulting in higher than normal heating and snow
removal costs for the first half of Fiscal Year
1994. The winter during the First Quarter 1995,
in contrast, has been mild resulting in the
diminished heating and snow removal costs when
compared to the First Quarter of 1994; and
3) The Registrant's shopping center located in
Frederick, Maryland, consisting of approximately
250,000 square feet of leasable space, is fully
leased for the first time since its acquisition
in 1992, which has made a substantial
contribution to the rental income.
Financial Condition
The Registrant continues to generate cash sufficient to
meet all of its operational needs. Registrant does not anticipate that it
will be required to borrow funds to sustain the anticipated dividend
payment which has been increased from $0.32 per share to $0.35 per share
for the first three quarters of Fiscal Year 1995.
PART II. OTHER INFORMATION
Item 5. Other Information
A) Franklin Lakes, New Jersey Shopping Center
("Greentree Shopping Plaza" or "Greentree"
The Registrant intends to close the Greentree Shopping Center in
September or October of 1995. Thereafter, the Registrant intends
to demolish all of the existing structures consisting of
approximately 33,320 square feet of leasable space and replace
the existing center. The new shopping center will have
approximately 88,000 square feet of leasable space.
The Registrant anticipates that construction will take
approximately nine (9) months. During the period of construction
Registrant will receive no rental income. Registrant expects to
finance the construction of the new shopping center by securing
construction and permanent mortgage financing in the amount of
approximately $10.0 million.
As reported in the 10-K/A and 8-K filed by the Registrant dated
February 17, 1995, Grand Union, a current tenant at the existing
shopping center, leases approximately 15,960 square feet of
space. That lease expires by its terms on August 31, 1995. Grand
Union has filed for Chapter 11 protection pursuant to the Federal
Bankruptcy Laws. Grand Union has expressed an interest in renting
approximately 40,000 square feet in the proposed Greentree
Shopping Center.
The Registrant anticipates that it will not commence construction
of the new shopping center until: (1) a suitable lease is secured
with one or more anchor tenants; (2) suitable financing is
secured; and (3) all governmental approvals are secured.
Registrant has received both local and county governmental
approvals as of the date hereof to construct the Greentree
Shopping Center. Registrant must secure certain approvals and
permits to allow construction from the State of New Jersey,
Department of Environmental Protection, including approval for
the construction of a private treatment works, stream
encroachment permits and approval to construct the proposed
center in an area adjacent to certain designated wetlands. The
Registrant expects to secure all necessary State of New Jersey
approvals and permits to allow construction of the proposed
center within the next ninety (90) days.
B) Westwood, New Jersey
As reported in the 8-K filed February 17, 1995, Grand Union
occupies 28,000 square feet of space at the Registrant's
Westwood, New Jersey shopping center (the "Westwood Shopping
Center") which has a total of 173,854 square feet of leasable
space. The Grand Union lease for the Westwood Shopping Center
expires on September 30, 2002. Pursuant to the terms of the
Lease, however, Grand Union has several options which it may
exercise to extend the term of the Lease beyond September 30,
2002.
The Registrant has received all lease payments due from Grand
Union through March 1995.
The Registrant does not know at this time the full implications
of the Chapter 11 filing by Grand Union on the lease for
Westwood.
The Registrant does not anticipate, however, any interruption in
its rental income from the Westwood Shopping Center although
Grand Union could seek to terminate its lease at the Center. The
Grand Union base rental represents slightly less than 10% of the
total income from the Center. In the event the lease was
terminated by the Bankruptcy Court, Registrant estimates that its
income for Fiscal 1995 would be reduced by approximately $.08 per
share given the fact all rentals due under the lease have been
received through March 1995.
In addition, Registrant has received a request from an adjacent
property owner to gain access to a portion of the Westwood
Shopping Center in order to verify that no petroleum materials
have migrated from its underground storage tanks onto
Registrant's Center.
No tests have been performed at the Center through the date
hereof. There is no obvious evidence, however, of any
contamination at the Center as of the date hereof.
Further, it is the opinion of the Registrant that if any
hazardous substances have migrated onto its shopping center that:
(a) any remediation would be performed at the sole cost of the
adjacent property owner; and (b) any remediation activity
required would not materially interfere with the operation of the
Center.
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 7, 1995
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/s/William R. DeLorenzo, Jr.
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(Signature)*
William R. DeLorenzo, Jr.
Executive Secretary and Treasurer
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*Print name and title of the signing officer under his signature.