FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
Quarterly Report under Section 13 or 15(d) of
The Securities Exchange Act of 1934
For Quarter Ended July 31,2001 Commission File Number 1-12803
------------ -------
URSTADT BIDDLE PROPERTIES INC.
------------------------------
(Exact Name of Registrant as Specified in Charter)
MARYLAND 04-2458042
- -------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
321 RAILROAD AVENUE, GREENWICH, CT 06830
- ----------------------------------- --------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (203) 863-8200
The number of shares of Registrant's Common Stock and Class A Common Stock
outstanding as of the close of period covered by this report were: 6,238,750
Common Shares, par value $.01 per share and 5,451,955 Class A Common Shares, par
value $.01 per share
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
---
THE SEC FORM 10-Q, FILED HEREWITH, CONTAINS 19 PAGES, NUMBERED CONSECUTIVELY
FROM 1 TO 19 INCLUSIVE, OF WHICH THIS PAGE IS 1.
1
INDEX
URSTADT BIDDLE PROPERTIES INC.
PART I. FINANCIAL INFORMATION
- ------------------------------
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets--July 31,2001 and October 31, 2000.
Consolidated Statements of Income--Three months ended July 31, 2001
and 2000; Nine months ended July 31, 2001 and 2000.
Consolidated Statements of Cash Flows--Nine months ended July 31,
2001 and 2000.
Consolidated Statements of Stockholders' Equity--Nine months ended
July 31, 2001 and 2000.
Notes to Consolidated Financial Statements.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
PART II. OTHER INFORMATION
- ---------------------------
Item 1. Legal Proceedings
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
- ----------
2
URSTADT BIDDLE PROPERTIES INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
July 31 October 31
---------------- -----------------
ASSETS 2001 2000
---- ----
(unaudited)
Real Estate Investments:
Properties owned-- at cost, net of accumulated depreciation $159,717 $146,851
Properties available for sale - at cost, net of accumulated
depreciation and recoveries 11,099 12,158
Properties held for sale 746 -
Investment in unconsolidated joint venture 8,537 9,167
Mortgage notes receivable 2,321 2,379
----- -----
182,420 170,555
Cash and cash equivalents 2,779 1,952
Interest and rent receivable, net 5,185 3,853
Deferred charges, net of accumulated amortization 3,560 2,824
Other assets 2,360 1,916
-------- --------
$196,304 $181,100
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Unsecured revolving credit loans $11,500 $ -
Mortgage notes payable 54,323 51,903
Accounts payable and accrued expenses 2,608 1,222
Deferred officers' compensation 181 102
Other liabilities 2,181 2,090
-------- --------
70,793 55,317
-------- --------
Minority Interests 4,127 5,140
-------- --------
Preferred Stock, par value $.01 per share; 20,000,000 shares authorized; 8.99%
Series B Senior Cumulative Preferred stock, (liquidation preference of
$100 per share); 350,000 shares issued and outstanding in 2001 and 2000 33,462 33,462
-------- --------
Stockholders' Equity:
Excess stock, par value $.01 per share; 10,000,000 shares authorized;
none issued and outstanding - -
Common stock, par value $.01 per share; 30,000,000 shares authorized;
6,238,750 and 5,557,387 issued and outstanding shares in 2001 and 2000, respectively 62 55
Class A Common stock, par value $.01 per share; 40,000,000 shares authorized;
5,451,955 and 5,356,249 issued and outstanding shares in 2001 and 2000, respectively 54 54
Additional paid in capital 127,866 122,448
Cumulative distributions in excess of net income (34,965) (33,397)
Unamortized restricted stock compensation and notes receivable
from officers/stockholders (5,095) (1,979)
-------- --------
87,922 87,181
-------- --------
$196,304 $181,100
======== ========
The accompanying notes to consolidated financial statements are an integral part
of these balance sheets.
3
URSTADT BIDDLE PROPERTIES INC.
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(In thousands, except per share data)
Nine Months Ended Three Months Ended
July 31 July 31
------------------------- -------------------------
2001 2000 2001 2000
---- ---- ---- ----
REVENUES:
Operating leases $25,279 $22,455 $8,611 $7,353
Lease termination proceeds 1,137 - 1,137 -
Interest and other 572 605 249 242
Equity in income of unconsolidated joint venture (22) 223 (14) 11
------- ------- ------ ------
26,966 23,283 9,983 7,606
------- ------- ------ ------
OPERATING EXPENSES:
Property expenses 8,430 7,548 2,847 2,554
Interest 3,269 3,183 1,123 1,062
Depreciation and amortization 5,429 4,569 2,087 1,491
General and administrative expenses 1,984 1,921 580 541
Directors' fees and expenses 103 125 29 34
------- ------- ------ ------
19,215 17,346 6,666 5,682
------- ------- ------ ------
OPERATING INCOME BEFORE MINORITY INTERESTS 7,751 5,937 3,317 1,924
MINORITY INTERESTS IN RESULTS OF CONSOLIDATED JOINT VENTURES 332 338 106 113
------- ------- ------ ------
OPERATING INCOME 7,419 5,599 3,211 1,811
GAINS ON SALES OF REAL ESTATE INVESTMENTS - 1,067 - -
------- ------- ------ ------
NET INCOME 7,419 6,666 3,211 1,811
Preferred Stock Dividends 2,360 2,360 787 787
------- ------- ------ ------
NET INCOME APPLICABLE TO COMMON AND CLASS A COMMON
STOCKHOLDERS $5,059 $4,306 $2,424 $1,024
======= ======= ====== ======
BASIC EARNINGS PER SHARE:
Common $.44 $.39 $.21 $.09
======= ======= ====== ======
Class A Common $.48 $.44 $.23 $.10
======= ======= ====== ======
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING:
Common 5,840 5,342 5,995 5,326
======= ======= ====== ======
Class A Common 5,192 5,054 5,208 5,028
======= ======= ====== ======
DILUTED EARNINGS PER SHARE:
Common $.43 $.39 $.20 $.09
======= ======= ====== ======
Class A Common $.47 $.43 $.22 $.10
======= ======= ====== ======
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING:
Common and Common Equivalent 5,984 5,416 6,176 5,393
======= ======= ====== ======
Class A Common and Class A Common Equivalent 5,618 5,519 5,611 5,485
======= ======= ====== ======
The accompanying notes to consolidated financial statements are an integral part
of these statements.
4
URSTADT BIDDLE PROPERTIES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands)
Nine Months Ended
July 31,
-------------------------
2001 2000
---- ----
OPERATING ACTIVITIES:
Net income $7,419 $6,666
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 5,429 4,569
Compensation expense relating to issuance of grants of restricted stock 573 465
Recovery of investment in properties owned subject to financing leases 191 1,024
Equity in loss (income) of unconsolidated joint venture 22 (223)
Gains on sales of real estate investments - (1,067)
(Increase) in interest and rent receivable (1,332) (293)
Increase (decrease) in accounts payable and accrued expenses 1,386 (348)
(Increase) in other assets and other liabilities, net (303) (679)
-------- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES 13,385 10,114
-------- -------
INVESTING ACTIVITIES:
Acquisition of minority interest (1,013) -
Acquisitions of properties (5,606) -
Deposits on acquisitions - (100)
Improvements to properties and deferred charges (9,222) (3,728)
Investment in unconsolidated joint venture (392) (366)
Distributions received from unconsolidated joint venture 1,000 1,200
Payments received on mortgage notes receivable 58 101
Net proceed from sales of properties 100 3,921
-------- -------
NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES (15,075) 1,028
-------- -------
FINANCING ACTIVITIES:
Sales of additional Common and Class A Common shares 1,736 1,387
Payments on mortgage notes payable and bank loans (6,682) (7,662)
Proceeds from mortgage notes payable and bank loans 16,450 6,500
Dividends paid - Common and Class A Common shares (6,627) (5,783)
Dividends paid - Preferred Stock (2,360) (2,360)
Purchases of Common and Class A Common shares - (1,929)
-------- -------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 2,517 (9,847)
-------- -------
NET INCREASE IN CASH AND CASH EQUIVALENTS 827 1,295
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 1,952 2,758
-------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $2,779 $4,053
======== =======
The accompanying notes to consolidated financial statements are an integral part
of these statements.
5
URSTADT BIDDLE PROPERTIES INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (UNAUDITED)
(In thousands, except shares and per share data)
Unamortized
Common Stock Class A Common Stock Restricted
------------ -------------------- (Cumulative Stock
Outstanding Outstanding Additional Distributions Compensation
Number of Par Number of Par Paid In In Excess of and Notes
Shares Value Shares Value Capital Net Income) Receivable Total
------ ----- ------ ----- ------- ----------- ---------- -----
BALANCES - OCTOBER 31, 1999 5,531,845 $55 5,184,039 $52 $120,964 $(31,127) $(1,907) $88,037
Net Income Applicable to Common and
Class A Common stockholders - - - - - 4,306 - 4,306
Cash dividends paid :
Common Stock ($.525 per share) - - - - - (2,818) - (2,818)
Class A Common Stock ($.585per share) - - - - - (2,965) - (2,965)
Sales of shares 29,400 - 123,400 1 1,159 - - 1,160
Sales of shares under dividend 15,987 - 16,266 - 227 - - 227
reinvestment plan
Shares issued under restricted stock 48,375 1 48,375 1 700 - (702) -
plan
Amortization of restricted stock - - - - - - 465 465
compensation
Purchases of Common and Class A
Common shares (108,600) (1) (154,600) (2) (1,926) - - (1,929)
--------- --- --------- --- ------- -------- ------- -------
BALANCES - JULY 31, 2000 5,517,007 $55 5,217,480 $52 $121,124 $(32,604) $(2,144) $86,483
========= === ========= === ======== ========= ======== =======
BALANCES - OCTOBER 31, 2000 5,557,387 $55 5,356,249 $54 $122,448 $(33,397) $(1,979) $87,181
Net Income Applicable to Common and
Class A Common stockholders - - - - - 5,059 - 5,059
Cash dividends paid :
Common Stock ($.54 per share) - - - - - (3,364) - (3,364)
Class A Common Stock ($.60 per share) - - - - - (3,263) - (3,263)
Sales of shares 200,000 2 5,000 - 1,433 - - 1,435
Sales of shares under dividend 14,363 - 17,847 - 256 - - 256
reinvestment plan
Shares issued under restricted stock 48,000 - 48,000 - 686 - (686) -
plan
Exercise of stock options 419,000 5 24,859 - 3,043 - - 3,048
Amortization of restricted stock - - - - - - 573 573
compensation
Note from officer from exercise of (3,003) (3,003)
stock options
--------- --- --------- --- -------- --------- ------- -------
BALANCES - JULY 31, 2001 6,238,750 $62 5,451,955 $54 $127,866 $(34,965) $(5,095) $87,922
========= === ========= === ======== ========= ======== =======
The accompanying notes to consolidated financial statements are an integral part
of these statements.
6
URSTADT BIDDLE PROPERTIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. SIGNIFICANT ACCOUNTING POLICIES
Business
- --------
Urstadt Biddle Properties Inc., (the "Company") is a Maryland corporation that
has elected to be treated as a real estate investment trust (REIT) under the
Internal Revenue Code, as amended. A REIT, among other things, that distributes
at least 95% (90% for taxable years beginning on or after January 1, 2001) of
its REIT taxable income will not be taxed on that portion of its taxable income
which is distributed. The Company believes it qualifies and intends to continue
to qualify as a REIT. The Company is engaged in the acquisition, ownership and
management of commercial real estate, primarily neighborhood and community
shopping centers in the northeastern part of the United States. Other assets
include office and retail buildings and industrial properties. The Company's
major tenants include supermarket chains and other retailers who sell basic
necessities. As of July 31, 2001, the Company owned 25 properties containing a
total of 2.8 million gross leasable square feet.
Basis of Presentation
- ---------------------
The accompanying unaudited consolidated financial statements include the
accounts of the Company, its wholly-owned subsidiaries, and joint ventures in
which the Company has the ability to control the affairs of the venture. All
significant intercompany transactions and balances have been eliminated. The
Company's investment in an unconsolidated joint venture in which it does not
exercise control is accounted for by the equity method of accounting. The
financial statements have been prepared in accordance with generally accepted
accounting principles for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X. Certain information
and footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been omitted. In
the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Results of operations for the nine-month period ended July 31, 2001 are not
necessarily indicative of the results that may be expected for the year ending
October 31, 2001. It is suggested that these financial statements be read in
conjunction with the financial statements and notes thereto included in the
Company's annual report on Form 10-K for the fiscal year ended October 31, 2000.
The preparation of financial statements requires management to make use of
estimates and assumptions that affect amounts reported in the financial
statements as well as certain disclosures. Actual results could differ from
those estimates.
Income Recognition
- ------------------
In December 1999, the Securities and Exchange Commission released Staff
Accounting Bulletin No. 101, "Revenue Recognition ("SAB No. 101"), to provide
guidance on the recognition, presentation and disclosure of revenue in financial
statements. Specifically, SAB No. 101, among other things, provides guidance on
lessors' accounting for contingent rent. SAB No. 101 did not require the Company
to change existing revenue recognition policies and therefore had no impact on
the Company's financial position or results of operations.
7
Earnings Per Share
- ------------------
Basic EPS excludes the impact of dilutive shares and is computed by dividing net
income applicable to Common and Class A Common stockholders by the weighted
number of Common shares and Class A Common shares outstanding for the period.
Diluted EPS reflects the potential dilution that could occur if securities or
other contracts to issue Common shares or Class A Common shares were exercised
or converted into Common shares or Class A Common shares and then shared in the
earnings of the Company. Since the cash dividends declared on the Company's
Class A Common stock are higher than the dividends declared on the Common Stock,
basic and diluted EPS have been calculated using the "two-class" method. The
two-class method is an earnings allocation formula that determines earnings per
share for each class of common stock according to the weighted average of the
dividends declared, outstanding shares per class and participation rights in
undistributed earnings.
The following table sets forth the reconciliation between basic and diluted EPS
(in thousands):
Nine Months Three Months
July 31, July 31,
------------------- ------------------
2001 2000 2001 2000
---- ---- ---- ----
NUMERATOR
Net income applicable to Common stockholders - basic $2,546 $2,099 $1,233 $499
Effect of dilutive securities:
Operating partnership units 13 14 (5) 13
------ ------ ------ ------
Net income applicable to Common Stockholders - diluted $2,559 $2,113 $1,228 $512
====== ====== ====== ======
DENOMINATOR
Denominator for basic EPS-weighted average Common shares 5,840 5,342 5,995 5,326
Effect of dilutive securities:
Stock options and awards 144 74 181 67
------ ------ ------ ------
Denominator for diluted EPS - weighted average Common equivalent shares 5,984 5,416 6,176 5,393
====== ====== ====== ======
NUMERATOR
Net income applicable to Class A Common stockholders - basic $2,513 $2,207 $1,191 $ 525
Effect of dilutive securities:
Operating partnership units 155 192 50 55
------ ------ ------ ------
Net income applicable to Class A Common stockholders - diluted $2,668 $2,399 $1,241 $580
====== ====== ====== ======
DENOMINATOR
Denominator for basic EPS - weighted average Class A Common shares 5,192 5,054 5,208 5,028
Effect of dilutive securities:
Stock options and awards 124 82 148 74
Operating partnership units 302 383 255 383
------ ------ ------ ------
Denominator for diluted EPS - weighted average Class A Common equivalent shares
5,618 5,519 5,611 5,485
====== ====== ====== ======
The weighted average Common equivalent shares and Class A Common equivalent
shares for the nine months and three months ended July 31, 2001 and 2000 each
exclude 54,553 shares. These shares were not included in the calculation of
diluted EPS because the effect would be anti-dilutive.
8
Derivative Instruments and Hedging Activities
- ---------------------------------------------
The Company adopted the provisions of Financial Accounting Standards Board
Statement # 133, "Accounting for Derivative Instruments and Hedging Activities"
in the first quarter of fiscal 2001. The statement generally requires that all
derivative instruments be reflected in the financial statements at their
estimated fair value. The Company does not generally enter into derivative
contracts for either investment or hedging purposes and accordingly there was no
effect on the Company's financial position or results of operations as a result
of the adoption of this statement.
2. PROPERTIES OWNED
During fiscal 2001, the Company entered into separate Purchase Agreements to
acquire an office property in Greenwich, Connecticut and a shopping center in
Briarcliff Manor, New York (the "Properties") for purchase prices of $2,330,000
and $7,167,000, respectively. Pursuant to the safe harbor provisions for
tax-deferred reverse like-kind exchanges under Section 1031 of the Internal
Revenue Code, the Properties were conveyed to single member limited liability
companies controlled by unrelated title insurance companies (the "LLCs") until
such time as the Company completes the sale of one or more of its currently
owned properties (the "Relinquished Properties"). Pursuant to certain Exchange
Agreements between the Company and the LLCs (the "Exchange Agreements"), the
Company loaned the net purchase prices of the respective Properties to the LLCs
to complete the purchase of the Properties. The loans which total $5,622,000 are
secured by mortgages on the Properties. The loans are payable monthly with
interest at interest rates of 8% and 9% per annum and are due six months from
the dates of the assignment of the Purchase Agreements. The LLCs have net leased
the Properties to the Company for lease payments equal to the debt service due
on the mortgage each month. The Exchange Agreements also provide that on the
earlier of the closing of the sale of the Relinquished Properties or six months
from the date of the assignment of the Purchase Agreements, and at the election
of the Company, the LLCs will either assign their interests in the LLCs to the
Company or convey the Properties directly to the Company in satisfaction of the
loans.
In connection with the acquisition of the shopping center property, the Company
assumed a first mortgage of $4.2 million. The assumption of the first mortgage
represents a non-cash investing activity and is therefore not included in the
accompanying 2001 consolidated statement of cash flows.
As the Company has effectively all the risks and rewards of ownership, the net
leases and mortgage loans with the LLCs referred to above have been given no
accounting recognition and the transactions have been recorded as purchases of
the properties. Accordingly, the properties are reflected at their respective
purchase costs and are included in "Properties Owned" in the accompanying
consolidated balance sheet at July 31, 2001.
The Company has entered into a settlement agreement whereby a former tenant
agreed to pay $1.21 million to the Company in satisfaction of all claims against
the tenant arising from the tenant's filing of a petition in bankruptcy and the
tenant's rejection of its lease at one of the Company's properties. The
settlement amount has been reflected in revenues in the accompanying
consolidated statements of income for the three month and nine month periods
ended July 31, 2001.
9
3. PROPERTIES AVAILABLE FOR SALE
In fiscal 2001, the Company sold a warehouse facility to the property's sole
tenant for $100,000, an amount which equaled the property's net book carrying
amount at the date of sale. The property was sold pursuant to a purchase option
contained in the tenant's lease on the property.
In the nine month ended period July 31, 2000, the Company sold two properties
for net gains on the sales of $1,067,000.
The net operating income of the properties sold in the nine month and three
month periods ended July 31, 2001 and 2000 was not material.
4. PROPERTIES HELD FOR SALE
At July 31, 2001, properties held for sale consists of one industrial property
located in Dallas, Texas. The Company is in negotiations to sell this industrial
property. Properties held for sale are carried at the lower of cost or fair
value less cost to sell. Depreciation and amortization are suspended during the
period held for sale. It is the Company's policy to classify properties
available for sale as properties held for sale upon determination that such
properties will be sold within one year.
5. MORTGAGE NOTES PAYABLE AND LINES OF CREDIT
During fiscal 2001, the Company repaid two mortgage notes payable totaling $6.1
million secured by two of the Company's properties which matured during the
period.
The Company has a $20 million secured revolving credit loan agreement which
expires in October 2005 and is secured by first mortgage liens on two
properties. At July 31, 2001, the Company had borrowings of $16.8 million
outstanding under this agreement. The Company also has a conditional unsecured
line of credit arrangement with a bank which was increased to $20 million in
June 2001. The line of credit expires in fiscal 2002 and outstanding borrowings
bear interest at LIBOR + 2.5%. Extensions of credit under the arrangement are at
the bank's discretion and subject to the bank's satisfaction of certain
conditions. At July 31, 2001, the Company had borrowings of $11.5 million
outstanding and interest on outstanding borrowings currently bear interest at an
average annual rate of 6.4%.
6. MINORITY INTERESTS
The Company is the general partner in Scarborough Associates LP, a consolidated
joint venture that owns the Arcadian Shopping Center in Briarcliff, New York. In
a prior year, the limited partners contributed the property to the joint venture
in exchange for operating partnership units (OPUs) of the joint venture. The
OPUs are exchangeable into an equivalent number of shares of the Company's Class
A Common Stock or cash, at the option of the Company, after a certain period of
years or upon the occurrence of certain events. In February 2001, the Company
redeemed 127,548 OPUs for approximately $1.0 million, which represented the
Company's net book value of such OPUs as reflected in the caption "Minority
Interest"in the accompanying consolidated balance sheets.
10
7. STOCKHOLDERS EQUITY
In January 2001, the Company sold 200,000 shares of Common Stock and 5,000
shares of Class A Common Stock for total cash proceeds of $1.435 million in a
private placement to two entities controlled by an officer of the Company.
In January 2001, an officer of the Company exercised non-qualified stock options
to purchase 419,000 shares of Common Stock and 19,000 shares of Class A Common
Stock at various exercise prices ranging from $6.81 per share to $7.71 per
share. The officer signed a note in the amount of $3,003,000 to the Company to
purchase the shares. The note bears interest at a fixed rate of 6.92%, is due in
2011 and is secured by the shares issued upon exercise of the stock options. The
note is shown as a reduction in stockholders equity as "Notes receivable from
officers/stockholders". The exercise of the stock options and the note
receivable from officer represent non-cash financing activities and are
therefore not included in the accompanying 2001 consolidated statement of cash
flows.
The Company has a Restricted Stock Plan (Plan) which provides for the grant of
restricted stock awards to key employees and directors of the Company. The Plan,
as amended, allows for restricted stock awards of up 350,000 shares each of
Class A Common Stock and Common Stock. During the nine months ended July 31,
2001, the Company awarded 48,000 shares each of Class A Common Stock and Common
Stock (48,375 shares each of Class A Common Stock and Common Stock in fiscal
2000) to participants in the Plan as an incentive for future services. The
shares vest after five years. Dividends on vested and non-vested shares are paid
as declared. The market value of shares awarded has been recorded as unamortized
restricted stock compensation and is shown as a separate component of
stockholders equity. Unamortized restricted stock compensation is being
amortized to expense over the five year vesting period.
8. SEGMENT REPORTING
For financial reporting purposes, the Company has grouped its real estate
investments into two segments: equity investments and mortgage loans. Equity
investments are managed separately from mortgage loans as they require a
different operating strategy and management approach. The Company assesses and
measures operating results for each of its segments, based on net operating
income. For equity investments, net operating income is calculated as rental
revenues of the property less its rental expenses (such as common area expenses,
property taxes, insurance, etc.) and, for mortgage loans, net operating income
consists of interest income less direct expenses, if any.
The revenues, net operating income and assets for each of the reportable
segments are summarized in the following tables for the nine month and three
month periods ended July 31, 2001 and 2000. Non-segment assets include certain
cash and cash equivalents, interest receivable, and other assets. The
non-segment revenues consist principally of interest income on temporary
investments. The accounting policies of the segments are the same as those
described in Note 1. (In thousands)
11
EQUITY MORTGAGE NON
THREE MONTHS ENDED JULY 31 INVESTMENTS LOANS SEGMENT TOTAL
- -----------------------------------------------------------------------------------------
2001
Total Revenues $ 9,833 $ 74 $ 76 $ 9,983
======== ======== ======== ========
Net Operating Income $ 6,880 $ 74 $ 76 $ 7,030
======== ======== ======== ========
Total Assets $192,716 $ 2,321 $ 1,267 $196,304
======== ======== ======== ========
2000
Total Revenues $ 7,402 $ 119 $ 85 $ 7,606
======== ======== ======== ========
Net Operating Income $ 4,735 $ 119 $ 85 $ 4,939
======== ======== ======== ========
Total Assets $175,752 $ 2,399 $ 2,635 $180,786
======== ======== ======== ========
NINE MONTHS ENDED JULY 31,
2001
Total Revenues $ 26,533 $ 229 $ 204 $ 26,966
======== ======== ======== ========
Net Operating Income $ 17,771 $ 229 $ 204 $ 18,204
======== ======== ======== ========
Total Assets $192,716 $ 2,321 $ 1,267 $196,304
======== ======== ======== ========
2000
Total Revenues $ 22,782 $ 299 $ 202 $ 23,283
======== ======== ======== ========
Net Operating Income $ 14,896 $ 299 $ 202 $ 15,397
======== ======== ======== ========
Total Assets $175,752 $ 2,399 $ 2,635 $180,786
======== ======== ======== ========
The reconciliation to net income for the combined segments and for the Company
is as follows:
Nine Months Three Months
Ended July 31, Ended July 31,
--------------------- ----------------------
2001 2000 2001 2000
---- ----- ----- ----
Net operating income from reportable segments $18,204 $15,397 $7,030 $4,939
------- ------- ------ ------
Addition:
Gains on sales of real estate investments - 1,067 - -
------- ------- ------ ------
Deductions:
General and administrative expenses 2,087 609 575
2,046
Interest expense 3,269 1,123 1,062
3,183
Depreciation and amortization 5,429 4,569 2,087 1,491
------- ------- ------ ------
Total Deductions 10,785 9,798 3,819 3,128
------- ------- ------ ------
Net Income 7,419 6,666 3,211 1,811
Preferred Stock Dividends 2,360 2,360 787 787
------- ------- ------ ------
Net Income Applicable to Common
and Class A Common Stockholders $5,059 $4,306 $2,424 $1,024
======= ======= ====== ======
12
9. SUBSEQUENT EVENTS AND COMMITMENTS
Countryside Square Limited Partnership, an unconsolidated joint venture in which
the Company has an interest, has contracted to sell its Countryside Square
shopping center. The Company will record its proportionate share of the gain
upon the closing of the sale of the property.
In August 2001, the Company received commitments from two major commercial banks
totaling $11 million in first mortgage loans to be secured by five office
properties in Greenwich, Connecticut and one shopping center in Carmel, New
York. The loans will be for seven and ten year terms and will bear interest at a
fixed rate of 2% over certain treasury rates. The transactions are expected to
close in September 2001.
On August 24, 2001, the Company sold approximately 4.2 acres of undeveloped land
in Denver, Colorado for $1.2 million. The Company will report a gain on the sale
of the property in the fourth quarter of fiscal 2001.
13
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
FORWARD LOOKING STATEMENTS
This quarterly report on Form 10-Q, together with other statements and
information publicly disseminated by the Company contains certain
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended. The Company intends such forward-looking statements to be covered by
the safe harbor provisions for forward-looking statements contained in the
Private Securities Litigation Reform Act of 1995 and include this statement for
purposes of complying with these safe harbor provisions. Forward-looking
statements, which are based on certain assumptions and describe the Company's
future plans, strategies and expectations, are generally identifiable by use of
the words "believe," "expect," "intend," "anticipate," "estimate," "project" or
rely on forward-looking statements since they involve known and unknown risks,
uncertainties and other factors which are, in some cases, beyond the Company's
control and which could materially affect actual results, performances or
achievements. Factors which may cause actual results to differ materially from
current expectations include, but are not limited to, (i) general economic and
local real estate conditions, (ii) financing risks, such as the inability to
obtain equity or debt financing on favorable terms, (iii) changes in
governmental laws and regulations, (iv) the level and volatility of interest
rates, (v) the availability of suitable acquisition opportunities and (vi)
increases in operating costs. Accordingly, there is no assurance that the
Company's expectations will be realized.
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity and capital resources include its cash and cash
equivalents, proceeds from bank borrowings and long-term mortgage debt, capital
financings and sales of real estate investments. The Company expects to meet its
short-term liquidity requirements primarily by generating net cash from the
operations of its properties. Payments of expenses related to real estate
operations, debt service, management and professional fees, and dividend
requirements place demands on the Company's short-term liquidity. The Company
believes that its net cash provided by operations is sufficient to fund its
short-term liquidity needs in the near term. The Company expects to meet its
long-term liquidity requirements such as property acquisitions, debt maturities
and capital improvements through long-term secured indebtedness, proceeds from
sales of real estate investments and/or the issuance of additional equity
securities.
At July 31, 2001, the Company had cash and cash equivalents of $2.8 million
compared to $2.0 million at October 31 2000. The Company also has a $20 million
secured revolving credit facility with a bank which expires in fiscal 2005. The
facility is secured by first mortgage liens on two retail properties having a
net book value of $30.4 million. The Company also has a conditional unsecured
revolving line of credit with the same bank which was increased by $5 million to
$20 million in June 2001 and expires in fiscal 2002. The revolving credit lines
are available to finance the acquisition, management and/or development of
commercial real estate, refinance indebtedness and for working capital purposes.
Extensions of credit under the unsecured revolving credit line are at the bank's
discretion and subject to the bank's satisfaction of certain conditions. In
fiscal 2001, the Company utilized borrowings from the secured revolving credit
line to repay a $1.95 million mortgage note which matured and finance the
acquisition of real property. At July 31, 2001, long-
14
term debt consists of mortgage notes payable totaling $54.3 million, including
$16.8 million outstanding under the secured revolving credit facility. The
Company also had $11.5 million outstanding on the unsecured revolving credit
line at July 31, 2001. Borrowings from the unsecured revolving credit line in
fiscal 2001 were used to fund tenant improvement costs, repay mortgage
indebtedness and finance the acquisition of real property.
During fiscal 2001, the Company sold 200,000 shares of Common Stock and 5,000
Class A Common Stock in a private placement issue with two entities controlled
by an officer of the Company. The Company realized $1.435 million in cash
proceeds from the equity sale.
The Company is the general partner in a consolidated joint venture that owns the
Arcadian Shopping Center in Briarcliff, New York. In a prior year, the limited
partners contributed the property in exchange for operating partnership units
(OPU's) in the venture. The OPU's are exchangeable into an equivalent number of
shares of the Company's Class A Common Stock or cash, at the option of the
Company. In February 2001, the Company redeemed 127,548 OPU's for $1.0 million,
an amount that equaled the Company's net book value of such OPUs.
In a prior year, the Board of Directors expanded and refined the strategic
objectives of the Company to refocus its real estate portfolio into one of
self-managed retail properties located in the Northeast and authorized a plan to
sell the non-core properties of the Company in the normal course of business
over a period of several years. In February 2001, a tenant at the Company's
warehouse facility in Albany, Georgia , exercised an option to purchase the
property at a price of $100,000, an amount which equaled the property's net book
carrying amount.
In August 2001, the Company sold 4.2 acres of undeveloped land in Denver,
Colorado for $1.2 million. The Company will report a gain on the sale of this
property in the fourth quarter of fiscal 2001.
Countryside Square Limited Partnership, an unconsolidated joint venture in which
the Company is the general partner, has contracted to sell its Countryside
Square Shopping Center in Clearwater, Florida. Upon closing, the transaction
will result in a gain to the joint venture and ultimately to the Company.
At July 31, 2001, the non-core properties have a net carrying value of
$20,382,000 and consists of two industrial facilities, one office building, two
retail properties and the 4.2 acres of undeveloped land.
The Company expects to make real estate investments periodically. In fiscal
2001, the Company acquired two properties for a total purchase price of $9.5
million. One property was acquired subject to a first mortgage loan of $4.2
million. The balance of the purchase prices were financed from available cash
and bank borrowings. The Company also invests in its existing properties and, in
the first nine months of fiscal 2001, spent approximately $9.2 million to
complete tenant improvements and related tenant allowances in connection with
the Company's core property leasing activities. The Company expects to spend
approximately $3.0 million to complete its known leasing related costs over the
next six months.
15
FUNDS FROM OPERATIONS
The Company considers Funds From Operations (FFO) to be an appropriate
supplemental financial measure of an equity REIT's operating performance since
such measure does not recognize depreciation and amortization of real estate
assets as reductions of income from operations.
The National Association of Real Estate Investment Trusts (NAREIT) defines FFO
as net income (computed in accordance with generally accepted accounting
principles (GAAP)) plus depreciation and amortization excluding gains (or
losses) from sales of property and after adjustments for unconsolidated joint
ventures. The Company considers recoveries of investments in properties subject
to finance leases to be analogous to amortization for purposes of calculating
FFO. FFO does not represent cash flows from operations as defined by GAAP and
should not be considered a substitute for net income as an indicator of the
Company's operating performance, or for cash flows as a measure of liquidity or
of its dividend paying capacity. Furthermore, FFO as disclosed by other REITs
may not be comparable to the Company's calculation of FFO. The table below
provides a reconciliation of net income in accordance with GAAP to FFO as
calculated under the current NAREIT guidelines for the nine month periods ended
July 31, 2001 and 2000 (amounts in thousands):
Nine months ended July 31,
--------------------------
2001 2000
---- ----
Net Income Applicable to Common and Class A Common Stockholders $5,059 $4,306
Plus: Real property depreciation 3,299 3,173
Amortization of tenant improvements and allowances 1,651 899
Amortization of deferred leasing costs 464 409
Recoveries of investments in properties subject to finance leases 91 734
Adjustments for unconsolidated joint venture 473 365
Less: Gains on sales of real estate investments - (1,067)
------- ------
FUNDS FROM OPERATIONS $11,037 $8,819
======= ======
RESULTS OF OPERATIONS
Revenues
- --------
For the nine months ended July 31, 2001 operating lease revenues increased 12.6%
to $25.3 million as compared with $22.5 million in the corresponding nine month
period in fiscal 2000. Revenues from operating leases increased 17.1% to $8.6
million for the three months ended July 31, 2001, as compared with $7.4 million
for the corresponding three month period in fiscal 2000.The increase in
operating lease revenues results from, among other things, new leasing of
previously vacant space, higher tenant base rent renewal rates at certain of the
Company's properties, higher recoveries of property operating, real estate taxes
and other recoverable costs and the reclassification of rents received from
properties previously accounted for under the direct finance lease method of
accounting. Revenues from leases previously accounted for as direct finance
leases increased operating rents by $656,000 and $228,000 in the nine-month and
three-month periods ended July 31, 2001 as a result of the reclassification of
rents received from
16
these properties. During fiscal 2001 and 2000, three of the Company's properties
were accounted for as direct finance leases in accordance with the provisions of
FAS Statement # 13 "Accounting for Leases". Direct financing leases are carried
on the balance sheet at the aggregate minimum lease payments to be received over
the terms of the leases, plus an estimated residual value, less unearned income.
The income component of rental payments received, which is based upon the
interest rate implicit in the lease, is reflected as financing lease revenues
and the remaining portion of the rent is reflected as a recovery of the
financing lease asset. In fiscal 2001, one of the properties accounted for as
direct finance leases was sold. The initial lease terms for the remaining two
properties expired in fiscal 2001. The leases were renegotiated and are
accounted for as operating leases under FAS Statement # 13.
The Company entered into a settlement with a former tenant in bankruptcy,
whereby the former tenant paid $1.21 million in satisfaction of the Company's
claims against the tenant arising from the tenant's filing a petition in
bankruptcy and rejection of its lease at one of the Company's properties. The
settlement has been reflected in revenues in the accompanying consolidated
statements of income for the three month and nine month periods ended July 31,
2001.
The Company's core properties contain more than 1.8 million square feet of gross
leasable area and were 97% leased at July 31, 2001. The Company leased or
renewed 179,000 square feet of gross leaseable area ("GLA") in the first nine
months of fiscal 2001 compared to 235,000 square feet of space of GLA in the
comparable period a year ago.
Expenses
- --------
For the nine months ended July 31, 2001 total expenses increased 10.8% to $19.2
million from $17.3 million for the comparable period in fiscal 2000. Total
expenses, including depreciation and amortization, increased 17.3% to $6.7
million in the third quarter of fiscal 2001 compared to $5.7 million in the same
period last year.The largest expense category is Property Expenses of the real
estate properties. The increase in property expenses resulted principally from
increased snow removal expenses and higher property taxes at certain of the
Company's core properties in fiscal 2001.
Interest expense increased in the nine month and three month periods ended July
31, 2001 from additional borrowings totaling $16.5 million on the Company's
unsecured and secured revolving credit lines in fiscal 2001. The increase in
interest expense was offset by mortgage loans totaling $12.7 million that were
refinanced at lower interest costs during fiscal 2001 and 2000.
Depreciation and amortization increased $860,000 and $596,000 in the nine month
and three month periods ended July 31, 2001 respectively, compared to the same
periods in fiscal 2000. The increases resulted from additional depreciation and
amortization charges related to $12.95 million of capital improvements, tenant
allowances and other leasing costs and $11.1 million of properties acquired in
fiscal 2001 and 2000. In the three-month period ended July 31, 2001, the Company
wrote off $287,000 for unamortized tenant allowances relating to a tenant who
vacated its leased space at one of the Company's properties during the quarter.
17
ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to interest rate risk primarily through its borrowing
activities. There is inherent rollover risk for borrowings as they mature and
are renewed at current market rates. The extent of this risk is not quantifiable
or predictable because of the variability of future interest rates and the
Company's future financing requirements.
As of July 31, 2001, the Company had approximately $28.3 million of variable
rate debt outstanding under its secured and unsecured lines of credit
arrangements. The interest rate risk related to the secured line of credit can
be mitigated by electing a fixed rate interest option at any time prior to the
last year of the credit agreement which expires in 2005. During the nine month
periods ended July 31, 2001 and 2000, the average variable rate indebtedness
outstanding during such periods had combined weighted average interest rates of
7.5% and 7.7% respectively. Had the weighted average interest rate been 100
basis points higher, the Company's net income would have been lower by $123,000
and $89,000 in the nine month periods ended July 31, 2001 and 2000,
respectively, and approximately $52,000 and $30,000 in the three month periods
ended July 31, 2001 and 2000, respectively.
The Company has not, and does not plan to, enter into any derivative financial
instruments for trading or speculative purposes. As of July 31, 2001 the Company
had no other material exposure to market risk.
18
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
------------------
The Company is not presently involved in any litigation, nor
to its knowledge is any litigation threatened against the
Company or its subsidiaries, that in management's opinion,
would result in any material adverse affect on the Company's
ownership, management or operation of its properties, or which
is not covered by the Company's liability insurance.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
Reports on Form 8-K
There were no reports on Form 8-K filed with the Securities
and Exchange Commission during the Registrant's fiscal quarter
ended July 31, 2001.
S I G N A T U R E S
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.
URSTADT BIDDLE PROPERTIES INC.
------------------------------
(Registrant)
By /s/ Charles J. Urstadt
------------------------------
Charles J. Urstadt
Chairman and
Chief Executive Officer
By: /s/ James R. Moore
------------------------------
James R. Moore
Executive Vice President/
Chief Financial Officer
(Principal Financial Officer
Dated: September 14, 2001 and Principal Accounting Officer)
19