UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended July 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 Number 1-12803
URSTADT BIDDLE PROPERTIES INC.
(Exact Name of Registrant in its 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) (ZipCode)
Registrant's telephone number, including area code: (203) 863-8200
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
As of September 11, 2003, the number of shares outstanding of each of the
Registrant's classes of Common Stock and Class A Common Stock was: 6,770,942
Common Shares, par value $.01 per share and 18,540,947 Class A Common Shares,
par value $.01 per share
THE SEC FORM 10-Q,FILED HEREWITH, CONTAINS 20 PAGES, NUMBERED CONSECUTIVELY
FROM 1 TO 20 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, 2003 and October 31, 2002.
Consolidated Statements of Income--Nine months ended July 31,
2003 and 2002; Three months ended July 31, 2003 and 2002
Consolidated Statements of Cash Flows--Nine months ended July
31, 2003 and 2002.
Consolidated Statements of Stockholders' Equity--Nine months
ended July 31, 2003.
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.
Item 4. Controls and Procedures
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,
2003 2002
---- ----
ASSETS (unaudited)
Real Estate Investments:
Core properties-- at cost, net of accumulated depreciation $331,542 $252,711
Non-core properties - at cost, net of accumulated depreciation 11,329 11,944
Mortgage notes and other receivables 2,201 3,447
------- -------
345,072 268,102
Cash and cash equivalents 13,881 46,342
Restricted cash 514 514
Short-term investments 16,873 25,145
Tenant receivables, net of allowances of $1,347 and $1,169 in 2003 and 2002, respectively 7,251 5,695
Deferred charges, net of accumulated amortization 3,451 3,294
Prepaid expenses and other assets 4,463 4,541
-------- --------
Total Assets $391,505 $353,633
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Mortgage notes payable $105,061 $106,429
Accounts payable and accrued expenses 1,915 1,021
Deferred officers' compensation 383 287
Other liabilities 4,788 4,218
------- -------
Total Liabilities 112,147 111,955
------- -------
Minority Interests 7,320 7,320
----- -----
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); 150,000 shares issued and outstanding in 2003 and 2002 14,341 14,341
8.50% Series C Senior Cumulative Preferred Stock, (liquidation preference of $100 per
share); 400,000 and -0- shares issued and outstanding in 2003 and 2002 38,465 -
------ ------
Total Preferred Stock 52,806 14,341
------ ------
Commitments and Contingencies
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;
6,770,942 and 6,578,572 issued and outstanding shares in 2003 and 2002, respectively 67 66
Class A Common stock, par value $.01 per share; 40,000,000 shares authorized;
18,540,947 and 18,449,472 issued and outstanding shares in 2003 and 2002, respectively 185 185
Additional paid in capital 257,611 254,266
Cumulative distributions in excess of net income (33,085) (30,487)
Unamortized restricted stock compensation and officers notes receivable (5,546) (4,013)
------- -------
Total Stockholders' Equity 219,232 220,017
------- -------
Total Liabilities and Stockholders' Equity $391,505 $353,633
======== ========
The accompanying notes to consolidated financial statements are an integral
part of these statements.
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,
--------- ---------
2003 2002 2003 2002
---- ---- ---- ----
Revenues:
Operating rents $43,288 $29,592 $15,112 $10,673
Lease termination income - 765 - 250
Interest and other 833 851 301 300
------ ------ ------ ------
44,121 31,208 15,413 11,223
------ ------ ------ ------
Operating Expenses:
Property expenses 13,040 9,150 4,476 3,354
Interest 6,083 3,530 2,020 1,650
Depreciation 7,247 5,386 2,555 2,038
Amortization 351 398 110 123
General and administrative expenses 2,466 2,136 658 626
Directors' fees and expenses 134 133 44 47
------ ------ ----- -----
29,321 20,733 9,863 7,838
------ ------ ----- -----
Operating Income before Minority Interests 14,800 10,475 5,550 3,385
Minority Interests 274 304 91 90
------ ------ ----- -----
Net Income 14,526 10,171 5,459 3,295
Preferred Stock Dividends (1,606) (1,161) (932) (337)
Excess of Carrying Value over Cost to Repurchase
Preferred Shares - 3,071 - -
------- ------- ------- ------
Net Income Applicable to Common and Class A Common Stockholders $12,920 $12,081 $4,527 $2,958
======= ======= ====== ======
Basic Earnings per Share:
Common $.49 $.67 $.17 $.15
==== ==== ==== ====
Class A Common $.54 $.75 $.19 $.17
==== ==== ==== ====
Diluted Earnings Per Share:
Common $.48 $.65 $.17 $.15
==== ==== ==== ====
Class A Common $.54 $.72 $.19 $.16
==== ==== ==== ====
Dividends Paid Per Share:
Common $.57 $.555 $.19 $.185
==== ===== ==== =====
Class A Common $.63 $.615 $.21 $.205
==== ===== ==== =====
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,
--------------------------
2003 2002
---- ----
Operating Activities:
Net income $14,526 $10,171
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 7,598 5,784
Amortization of restricted stock 821 705
Minority interests 274 304
Increase in tenant receivables (1,556) (1,278)
Decrease in accounts payable and accrued expenses (76) (427)
Decrease (increase) in other assets and other liabilities, net 751 (1,432)
------ -------
Net Cash Provided by Operating Activities 22,338 13,827
------ ------
Investing Activities:
Acquisitions of properties (83,188) (34,478)
Acquisition of minority interest - (1,258)
Sale (purchase) of short term investments 8,272 (15,752)
Improvements to properties and deferred charges (1,820) (2,141)
Distributions to limited partners of consolidated joint ventures (274) (304)
Payments to limited partners of unconsolidated joint venture - (600)
Payments received on mortgage notes and other receivables 1,246 43
Net proceeds from sales of properties - 275
-------- --------
Net Cash Used in Investing Activities (75,764) (54,215)
-------- --------
Financing Activities:
Net proceeds from sale of Series C Preferred Stock 38,465 -
Sales of additional Common and Class A Common shares 680 77,642
Dividends paid on Common and Class A Common shares (15,518) (9,914)
Dividends paid on Preferred Stock (1,606) (1,161)
Borrowings on revolving credit lines - 16,000
Repayments of revolving credit lines - (16,000)
Repurchase of preferred shares - (16,050)
Proceeds from mortgage notes payable - 1,200
Payments on mortgage notes payable (1,368) (816)
Repayment of officers notes receivable 312 -
------ ------
Net Cash Provided by Financing Activities 20,965 50,901
------ ------
Net (Decrease) Increase In Cash and Cash Equivalents (32,461) 10,513
Cash and Cash Equivalents at Beginning of Period 46,342 34,080
------- ------
Cash and Cash Equivalents at End of Period $13,881 $44,593
======= =======
Supplemental Cash Flow Disclosures:
Interest Paid $6,083 $3,530
====== ======
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
Restricted
Common Stock Class A Common Stock Stock
------------------- ------------------- (Cumulative Compensation
Outstanding Outstanding Additional Distributions & Officers
Number of Par Number of Par Paid In In Excess of Notes
Shares Value Shares Value Capital Net Income) Receivable Total
------ ----- ------ ----- ------- ------------- ----------- -----
Balances - October 31, 2002 578,572 $66 18,449,472 $185 $254,266 $(30,487) $(4,013) $220,017
Net Income applicable to Common and
Class A common stockholders - - - - - 12,920 - 12,920
Cash dividends paid:
Common Stock ($.57 per share) - - - - - (3,848) - (3,848)
Class A Common Stock ($.63 per share) - - - - - (11,670) - (11,670)
Sales of shares under dividend 18,370 - 14,198 - 416 - - 416
reinvestment plan
Shares granted under restricted stock plan 159,500 1 56,200 - 2,665 - (2,666) -
Amortization of restricted stock compensation - - - - - - 821 821
Exercise of stock options 14,500 - 21,077 - 264 - - 264
Repayment of notes receivable from officer - - - - - - 312 312
--------- --- ---------- ---- -------- --------- -------- --------
Balances - July 31, 2003 6,770,942 $67 18,540,947 $185 $257,611 $(33,085) $(5,546) $219,232
========= === ========== ==== ======== ========= ======== ========
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 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, 2003, the Company owned or had interests in 30
properties containing approximately 3.4 million 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
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, 2003 are not
necessarily indicative of the results that may be expected for the year ending
October 31, 2003. 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, 2002.
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. The balance sheet at October 31, 2002 has been derived from
audited financial statements at that date.
Reclassifications
Certain prior year amounts have been reclassified to conform to the current year
presentation.
Federal Income Taxes
The Company has elected to be treated as a real estate investment trust (REIT)
under the Internal Revenue Code, as amended. A REIT, that among other things,
distributes at least 90% 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.
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.
7
The following table sets forth the reconciliation between basic and diluted EPS
(in thousands):
Nine Months Ended Three Months Ended
July 31, July 31,
--------------------- -----------------
2003 2002 2003 2002
---- ---- ---- ----
Numerator
Net income applicable to common stockholders - basic $3,064 $4,061 $1,074 $913
Effect of dilutive securities:
Operating partnership units 110 120 40 37
------ ------ ------ ----
Net income applicable to common stockholders - diluted $3,174 $4,181 $1,114 $950
====== ====== ====== ====
Denominator
Denominator for basic EPS-weighted average common shares 6,252 6,039 6,263 6,093
Effect of dilutive securities:
Stock options 244 303 266 304
Operating partnership units 55 55 55 55
----- ----- ------ -----
Denominator for diluted EPS - weighted average common
equivalent shares 6,551 6,397 6,584 6,452
===== ===== ===== =====
Numerator
Net income applicable to Class A common Stockholders-basic $9,856 $8,020 $3,453 $2,045
Effect of dilutive securities:
Operating partnership units 164 152 51 53
------- ------ ------ ------
Net income applicable to Class A common Stockholders - diluted $10,020 $8,172 $3,504 $2,098
======= ====== ====== ======
Denominator
Denominator for basic EPS - weighted average Class A common shares
18,195 10,765 18,210 12,312
Effect of dilutive securities:
Stock options 203 206 220 216
Operating partnership units 310 310 310 310
------ ------ ------ ------
Denominator for diluted EPS - weighted average
Class A Common equivalent shares 18,708 11,281 18,740 12,838
====== ====== ====== ======
8
Segment Reporting
The Company operates in one industry segment, ownership of commercial real
estate properties which are located principally in the northeastern United
States. Management reviews operating and financial data for each property
separately and independently from all other properties when making resource
allocation decisions and measuring performance.
Recently Issued Accounting Pronouncements
In December 2002, the FASB issued SFAS No. 148 "Accounting for Stock-Based
Compensation-Transition and Disclosure." This statement amends SFAS No. 123 to
provide alternative methods of transition for a voluntary change to the fair
value based method of accounting for stock-based employee compensation and
amends the disclosure requirements of SFAS No. 123. The adoption of this
standard does not have an impact since the Company will continue to use the
intrinsic value method as set forth in APB No. 25.
In January 2003, the FASB issued Interpretation No. 46 "Consolidation of
Variable Interest Entities." This Interpretation clarifies the application of
existing accounting pronouncements to certain entities in which equity investors
do not have the characteristics of a controlling financial interest or do not
have sufficient equity at risk for the entity to finance its activities without
additional subordinated financial support from other parties. The provisions of
the Interpretation are effective for all variable interests in variable interest
entities created after January 31, 2003, and will apply to any existing variable
interests in variable interest entities no later than September 30, 2003. The
Company does not expect that this Interpretation will have a significant impact
on its financial statements.
2. CORE PROPERTIES
In December 2002, the Company acquired the Westchester Pavilion Shopping Center
in White Plains, New York, a 185,000 square foot property for $39.9 million and
the Orange Meadows Shopping Center in Orange, Connecticut, a 78,000 square foot
property for $11.3 million.
In February 2003, the Company acquired the Greens Farms Plaza Shopping Center,
in Westport, Connecticut, a 40,000 square foot property for $10.1 million.
In June 2003, the Company acquired 135,000 square feet of retail space in the
Somers Commons Shopping Center in Somers, New York for $21.65 million.
In connection with the purchase of the Orange Meadows property, the Company has
agreed to pay the seller on September 20, 2003 an additional amount pursuant to
an agreed formula but not less than $969,000. The minimum additional amount is
included in Accounts Payable in the accompanying consolidated balance sheet at
July 31, 2003.
The Company has adopted SFAS No. 141 "Business Combinations" and SFAS No. 142
"Goodwill and Other Intangibles,". As part of the acquisition of real estate
assets, the fair value of the real estate acquired is allocated to
the acquired tangible assets, consisting of land, building and building
improvements, and identified intangible assets and liabilities, consisting of
the value of above-market and below-market leases and other value of in-place
leases, based in each case on their fair values.
In connection with the Company's acquisitions of the Ridgeway Shopping Center in
Stamford, Connecticut and Airport Plaza in Danbury, Connecticut in fiscal 2002,
the Company evaluated the leases in place to determine whether they were
acquired at market, above market or below market. The Company's evaluations were
based on (i) the differences between contractual rentals and the estimated
market rents over the applicable lease term discounted back to the date of
acquisition utilizing a discount rate adjusted for the credit risk associated
with the respective tenants and (ii) the estimated cost of acquiring such leases
giving effect to the Company's history of providing tenant improvements and
paying leasing commissions, offset by a vacancy period during which such space
would be leased.
As of July 31, 2003, as a result of its evaluations, the Company has allocated
$192,000 to an asset associated with the net fair value assigned to the assumed
leases at the properties.
The Company is currently in the process of analyzing the fair value of in-place
leases for the acquisitions of the Westchester Pavilion, Orange Meadows, Greens
Farms Plaza, and Somers Commons properties, and consequently, no value has yet
been assigned to the leases. Accordingly, the purchase price allocation is
preliminary and may be subject to change.
9
3. MORTGAGE NOTES PAYABLE AND LINES OF CREDIT
At July 31, 2003, the Company had ten non-recourse first mortgage notes payable
totaling $105,061,000 due in installments over various terms extending to the
fiscal year 2011 at fixed rates of interest ranging from 6.29% to 8.375%. The
mortgage notes payable are collateralized by real estate investments having a
net carrying value of approximately $167,966,000 as of July 31, 2003.
The Company has a secured revolving line of credit with a bank which permits
borrowings up to $18.75 million. The agreement expires in October 2005 and is
secured by first mortgage liens on two properties. Interest on outstanding
borrowings is at a variable rate of prime + 1/2% or LIBOR + 1.5%. The agreement
requires the Company to maintain certain debt service coverage ratios during its
term and provides for a permanent reduction in the revolving credit loan amount
of $625,000 annually. The Company also has a $20 million unsecured line of
credit which expires in January 2004. Outstanding borrowings bear interest at
prime rate + 1/2 or LIBOR + 2 1/2%. Extensions of credit under the arrangement
are at the bank's discretion and subject to the bank's satisfaction of certain
conditions. There were no borrowings outstanding under either line of credit at
July 31, 2003.
4. PREFERRED STOCK
On May 29, 2003, the Company sold 400,000 shares of 8.5% Series C Senior
Cumulative Preferred Stock, par value $.01 per share (Series C Preferred Stock)
in a private placement. The Series C Preferred Stock has no stated maturity, is
non-voting and is not convertible into other securities of the Company. On or
after May 29, 2013, the Series C Preferred Stock may be redeemed by the Company,
at its option, at a redemption price of $100 per share. The Series C Preferred
Stock contains covenants which require the Company to maintain certain financial
coverages relating to fixed charge and capitalization ratios.
The net proceeds of the offering were approximately $38.5 million. The Company
used a portion of the net proceeds to purchase its interests in the Somers
Commons Shopping Center (See Note 2). The Company intends to use the balance of
the proceeds for future acquisitions of properties.
In May 2003, the FASB issued SFAS No. 150 "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity" ("Statement").
The Statement, which is effective for the Company's interim period ending
October 31, 2003, establishes standards for classifying and measuring as
liabilities certain financial instruments that embody obligations of the issuer
and have characteristics of both liabilities and equity. As the holders of the
Series B Preferred Stock and Series C Preferred Stock only have a contingent
right to require the Company to repurchase all or part of such holders interests
upon a Change of Control of the Company (as defined), the Series B Preferred
Stock and Series C Preferred Stock will continue to be classified as redeemable
equity instruments as a Change in Control is not certain to occur. The Company
expects to adopt the provisions of the Statement in the fourth quarter of fiscal
2003, and does not expect the Statement to have a material impact on the
Company's financial position or results from operations.
In November 2001, the Company repurchased 200,000 shares of its Series B
Preferred Stock for a purchase price of $16,050,000 in a negotiated transaction
with a holder of the preferred shares. The Company recorded the excess of the
carrying value over the cost to repurchase the preferred shares ($3,071,000) as
an increase to net income applicable to Common and Class A Common stockholders
in the accompanying consolidated statement of income for the nine months ended
July 31, 2002.
5. STOCKHOLDERS EQUITY
The Company has a restricted stock plan for key employees and directors of the
Company. The plan authorizes grants as an incentive for future services of up to
1,050,000 shares (350,000 shares each of Class A Common stock and Common stock
and 350,000 shares, which at the discretion of the Company's compensation
committee, maybe awarded in any combination of Class A Common or Common Stock).
In January 2003, the Company awarded 56,200 shares of Class A Common stock and
159,500 shares of Common stock to participants in the Plan. The shares vest
between five and ten years after the date of grant. As of July 31, 2003, the
Company has awarded 509,500 shares of Common stock and 339,250 shares of Class A
Common Stock to participants in the plan (of which 13,250 shares each of Common
Stock and Class A Common Stock are vested). 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 being amortized to
expense over the vesting period.
10
6. STOCK OPTION PLAN
The Company has a stock option plan whereby 824,093 Common shares and 743,003
Class A Common shares were reserved for issuance to key employees and
non-employee Directors of the Company. Options are granted at fair market value
on the date of grant, have a duration of ten years from the date of grant, and
vest over a maximum period of four years from the date of grant. There were no
grants of stock options in 2003 or 2002. At July 31, 2003, options to purchase
59,376 Common shares and 45,733 Class A Common shares, respectively were
outstanding (All outstanding grants are fully vested). Had compensation cost for
stock options granted been determined based on fair value on the grant date
consistent with the provisions of SFAS 123, there would have been no effect on
the Company's net income and earnings per share in each of the nine month and
three month periods ended July 31, 2003 and 2002.
7. PRO FORMA FINANCIAL INFORMATION
The unaudited pro forma financial information set forth below is based upon the
Company's historical consolidated statements of income for the nine months ended
July 31, 2003 and 2002 adjusted to give effect to the acquisitions of the
Ridgeway Shopping Center, (June 2002) Westchester Pavilion Shopping Center
(December 2002), Orange Meadows (December 2002), Greens Farms (February 2003),
and Somers Commons (June 2003) as though these transactions were completed on
November 1, 2001. The pro forma information also gives effect to the issuance of
8,050,000 shares of Class A Common stock (July 2002) and 400,000 shares of
Series C Preferred Stock (May 2003) as though these transactions were also
completed on November 1, 2001.
The pro forma financial information is presented for informational purposes only
and may not be indicative of what the actual results of operations would have
been had the transactions occurred as of November 1, 2001, nor does it purport
to represent the results of future operations. (Amounts in thousands, except per
share figures).
Nine Months Ended July 31,
2003 2002
---- ----
Pro forma revenues: $47,062 $45,503
Pro forma net income applicable to Common
And Class A Common Stockholders: $12,408 $14,001
Pro forma basic shares outstanding:
Common and Common Equivalent 6,252 6,039
===== =====
Class A Common and Class A Common Equivalent 18,195 18,071
====== ======
Pro forma diluted shares outstanding:
Common and Common Equivalent 6,551 6,397
===== =====
Class A Common and Class A Common Equivalent 18,708 18,588
====== ======
Pro forma earnings per share:
Basic:
Common $0.47 $0.54
===== =====
Class A Common $0.52 $0.60
===== =====
Diluted:
Common $0.47 $0.53
===== =====
Class A Common $0.51 $0.59
===== =====
8. CONTINGENCIES
In the normal course of business, from time to time, the Company is involved in
legal actions relating to the ownership and operations of its properties. In
management's opinion, the liabilities, if any that may ultimately result from
such legal actions are not expected to have a material adverse effect on the
consolidated financial position, results of operations or liquidity of the
Company.
11
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Liquidity and Capital Resources
General
Urstadt Biddle Properties Inc. (Company), a real estate investment trust (REIT),
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 real estate assets include office
and retail buildings and industrial properties. The Company's major tenants
include supermarket chains and other retailers who sell basic necessities. At
July 31, 2003, the Company owned or had interest in 30 properties containing a
total of 3.4 million square feet of leasable area.
This report includes certain statements that may be deemed to be
"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. All statements, other than statements of historical facts, included
in this report that address activities, events or developments that the Company
expects, believes or anticipates will or may occur in the future, including such
matters as future capital expenditures, dividends and acquisitions (including
the amount and nature thereof), expansion and other development trends of the
real estate industry, business strategies, expansion and growth of the Company's
operations and other such matters are forward-looking statements. These
statements are based on certain assumptions and analyses made by the Company in
light of its experience and its perception of historical trends, current
conditions, expected future developments and other factors it believes are
appropriate. Such statements are subject to a number of assumptions, risks and
uncertainties, general economic and business conditions, the business
opportunities that may be presented to and pursued by the Company, changes in
laws or regulations and other factors, many of which are beyond the control of
the Company. Any such statements are not guarantees of future performance and
actual results or developments may differ materially from those anticipated in
the forward-looking statements.
Sources of Capital
The Company's sources of 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. 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 expects to meet its short-term liquidity requirements
primarily by generating net cash from the operations of its properties. The
Company believes that its net cash provided by operations will be sufficient to
fund its short-term liquidity requirements for fiscal 2003 and to meet its
dividend requirements necessary to maintain its REIT status. For the nine months
ended July 31, 2003 and 2002, net cash provided by operations amounted to $22.3
million and $13.8 million, respectively. Dividends paid to stockholders of the
Company in the comparable periods amounted to $17.1 million and $11.1 million,
respectively. The Company derives substantially all of its revenues from tenants
under existing leases at its properties. The Company's operating cash flow
therefore depends on the rents that it is able to charge to its tenants, and the
ability of its tenants to make rental payments. The Company believes that the
nature of the properties in which it typically invests - primarily
grocery-anchored neighborhood and community shopping centers - provides a more
stable revenue flow in uncertain economic times, in that consumers still need to
purchase basic staples and convenience items. However, even in the geographic
areas in which the Company owns properties, general economic downturns may
adversely impact the ability of the Company's tenants to make lease payments and
the Company's ability to re-lease space as leases expire. In either of these
cases, the Company's cash flow could be adversely affected.
The Company expects to fund its long-term liquidity requirements such as
property acquisitions, repayment of indebtedness and capital expenditures
through other long-term indebtedness (including indebtedness assumed in
acquisitions), proceeds from sales of non-core properties and/or the issuance of
equity securities. The Company believes that these sources of capital will
continue to be available to it in the future to fund its long-term capital
needs; however, there are certain factors that may have a material adverse
effect on its access to capital sources. The Company's ability to incur
additional debt is dependent upon its existing leverage, the value of its
unencumbered assets and borrowing limitations imposed by existing lenders. The
Company's ability to raise funds through sales of equity securities is dependent
on, among other things, general market conditions for REITs, market perceptions
about the Company and its stock price in the market. The Company's ability to
sell properties in the future to raise cash will be dependent upon market
conditions at the time of sale.
12
At July 31, 2003, the Company had cash and cash equivalents of $13.9 million
compared to $46.3 million at October 31, 2002. The Company also had $16.9
million and $25.1 million in liquid short-term investments at July 31, 2003 and
October 31, 2002, respectively. The Company's cash positions and short-term
investments reflect the temporary investment of a portion of the net proceeds
received from the sales of additional shares of the Company's Class A Common
stock in fiscal 2002 and issuance of a new Series C Preferred Stock in May 2003.
Financings
In May 2003, the Company sold 400,000 shares of Series C Cumulative Preferred
Stock (Series C Preferred Stock) in a private offering and realized net proceeds
of $38.5 million from the sale. The preferred shares are redeemable at the
option of the Company on or after May 29, 2013. The Series C Preferred Stock
issue entitles the holders to a 8.5% cumulative dividend.
In June 2003, the Company utilized $21.65 million of the net proceeds of the
Series C Preferred Stock sale to purchase its interests in the Somers Commons
Shopping Center in Somers, New York. The balance of the net proceeds are
expected to be used to acquire additional income producing properties consistent
with the Company's current business strategy and to fund renovations on, or
capital improvements in connection with, the Company's existing properties,
including tenant improvements. Pending such use of the net proceeds, the Company
may use the net proceeds to make investments in short-term income-producing
securities.
At July 31, 2003, the Company had a $18.75 million secured revolving credit
facility with a bank which expires in fiscal 2005 and a conditional $20 million
unsecured revolving line of credit with the same bank. In January 2003, the
unsecured credit line was extended on the same terms as the expiring arrangement
for an additional one year period. The unsecured credit line expires in January
2004. Both revolving credit lines are available to finance future acquisitions,
management and/or development of commercial real estate, refinance indebtedness
and for working capital purposes. Extensions of credit under the unsecured
credit line are at the bank's discretion and subject to the bank's satisfaction
of certain conditions. There were no borrowings during fiscal 2003 under either
credit line and there were no outstanding borrowings on either line of credit at
July 31, 2003.
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.
At July 31, 2003, the Company's contractual obligations for borrowings are as
follows:
Payments Due by Period Amount
Less than 1 year $ 473,000
1 to 3 years $ 4,124,000
4 to 5 years $20,153,000
After 5 years $80,311,000
Borrowings consist of $105,061,000 of fixed rate mortgage loan indebtedness with
a weighted average interest rate of 7.53% at July 31, 2003. The mortgage loans
are secured by fourteen properties and have fixed rates of interest ranging from
6.29% to 8.375%. The Company may refinance certain of these borrowings, at or
prior to maturity, through new mortgage loans on real estate. The ability to do
so, however, is dependent upon various factors, including the income level of
the properties, interest rates and credit conditions within the commercial real
estate market. Accordingly, there can be no assurance that such refinancings can
be achieved.
Capital Expenditures
The Company invests in its existing properties and regularly incurs capital
expenditures in the ordinary course of business to maintain its properties. The
Company believes that such expenditures enhance the competitiveness of its
properties. During the first nine months of fiscal 2003, the Company spent
approximately $1.8 million for capital expenditures principally related to
tenant allowances and commissions in connection with the Company's leasing
activities. The amounts of these expenditures can vary significantly depending
on tenant negotiations, market conditions and rental rates. The Company has
budgeted an additional $2 million for known capital improvement and leasing
costs in the balance of fiscal 2003. These expenditures are generally funded
from operating cash flows or borrowings.
13
Acquisitions and Sales
In December 2002, the Company acquired the Westchester Pavilion Shopping Center
in White Plains, New York, a 185,000 square foot property for $39.9 million and
the Orange Meadows Shopping Center in Orange, Connecticut, a 78,000 square foot
property for $11.3 million. In February 2003, the Company acquired the Greens
Farms Plaza in Westport, Connecticut, a 40,000 square foot property for $10.1
million and in June 2003, the Company acquired seven retail building units
totaling 135,000 square feet in the Somers Commons Shopping Center for $21.65
million.
In a prior year, the Company's 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. The Company intends to sell the
non-core properties as opportunities become available. The Company has
selectively effected asset sales to generate cash proceeds over the last several
years. The Company's ability to generate cash from asset sales is dependent upon
market conditions and will necessarily be limited if market conditions make such
sales unattractive. At July 31, 2003, the remaining non-core properties total
four properties with a net book value of approximately $11.3 million and consist
of two distribution service facilities, one office building and one retail
property (all of which are located outside of the northeast region of the United
States).
Funds from Operations
The Company considers Funds from Operations ("FFO") as defined by the National
Association of Real Estate Investment Trusts ("NAREIT") to be one supplemental
financial measure of an equity REIT's operating performance. FFO is calculated
as net income (computed in accordance with generally accepted accounting
principles (GAAP)), plus real estate related depreciation and amortization,
excluding gains (or losses) from sales of property and debt restructuring and
after adjustments for unconsolidated joint ventures. FFO does not represent cash
flows from operations as defined by GAAP and should not be considered an
alternative to net income as an indication of the Company's operating
performance or for cash flows as a measure of liquidity or 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 for the nine months ended July 31,
2003 and 2002 (amounts in thousands).
Nine Months Ended July 31,
-------------------------
2003 2002
---- ----
Net Income applicable to Common and Class A common stockholders $12,920 $12,081
Plus: Real property depreciation 5,734 3,741
Amortization of tenant improvements and allowances 1,513 1,645
Amortization of deferred leasing costs 351 398
Minority interest 274 304
Less: Excess of carrying value over cost to repurchase preferred shares - (3,071)
------- -------
Funds from Operations (Diluted) $20,792 $15,098
======= =======
Net Cash Provided by Operating Activities $ 22,338 $ 13,827
======== ========
Net Cash Used in Investing Activities $ (75,764) $ (54,215)
========== ===========
Net Cash Provided by Financing Activities $ 20,965 $ 50,901
======== ========
14
Results of Operations
Comparison of the Nine Months and Three Months Ended July 31, 2003 to
the Nine Months and Three Months Ended July 31, 2002
Revenues
Operating rents increased 46.3% to $43.2 million in the nine months ended July
31, 2003 compared to $29.6 million in the corresponding period of fiscal 2002.
For the three months ended July 31, 2003 revenues from operating rents increased
41.6% to $15.1 million as compared to $10.7 million in the corresponding period
in fiscal 2002. The increase in operating rents this year resulted from
additional rental revenues from property acquisitions and new leasing at certain
the Company's core properties. In fiscal 2003, the Company acquired four
properties containing 438,000 square feet of leasable space. Rents from these
properties increased operating rent income by $5.2 million and $2.2 million
during the nine month and three month periods in fiscal 2003. In fiscal 2002,
the Company acquired two properties containing 393,000 square feet of leasable
space. These two properties contributed $8.1 million and $1.7 million in
operating rent income during the nine-month periods ended July 31, 2003 and
2002. Recoveries from tenants (which are included in operating rent income)
represent reimbursements from tenants for property operating expenses and
property taxes. Such amounts increased by $3.7 million and $1.2 million in the
nine months and three month periods ended July 31, 2003 from additional expense
and property tax recovery amounts attributable to recent properties acquired and
higher recoverable expenses at the Company's core properties during the year.
At July 31, 2003, the overall leasing at the Company's properties was 96%
compared to 98% leased at the end of fiscal 2002. During the first nine months
of fiscal 2003, the Company leased or renewed approximately 304,000 square feet
of space.
In the nine month and three months ended July 31, 2002, the Company recorded
lease cancellation payments in the amount of $765,000 and $250,000, respectively
from tenants who terminated their leases during the periods. The vacant spaces
were subsequently re-leased during the year.
Interest income in fiscal 2003 increased from the temporary investment into
short-term liquid investments of the net proceeds from sales of the Company's
equity securities during the periods.
Expenses
Operating expenses, including depreciation and amortization, increased to $29.3
million and $9.9 million in the nine month and three month periods ended July
31, 2003, respectively compared to $20.7 million and $7.8 million in the same
periods in the previous year. Property expenses increased to $13.0 million and
$4.5 million in the nine-month and three-month periods ended July 31, 2003,
respectively compared to $9.2 million and $3.4 million in the fiscal 2002
periods.
Property expenses attributable to recently acquired properties increased
property expenses by $3.4 million and $1.1 million in the nine month and three
month periods ended July 31, 2003, respectively. Property expenses for
properties owned during both periods of fiscal 2003 and 2002 increased by
$495,000 or 5.7% and $108,000 or 3.6% from higher property taxes, insurance
costs, and snow removal expenses.
Interest expense in the fiscal 2003 periods increased from approximately $60
million in first mortgage loans assumed in connection with property acquisitions
in fiscal 2002.
Depreciation expense increased $1.9 million and $ 517,000 in the nine month and
three month periods ended July 31, 2003 compared to the same periods last year
from additional depreciation on recent property acquisitions.
General and administrative expenses increased $330,000 and $32,000 in the fiscal
2003 periods from higher staff compensation costs.
In fiscal 2002, the Company repurchased 200,000 shares of its Series B Preferred
Stock for a purchase price of $16,050,000 in a negotiated transaction with a
holder of the preferred shares. The Company has recorded the excess of the
carrying value over the cost to repurchase the preferred shares of $3,071,000 as
an increase in net income applicable to Common and Class A Common stockholders
in that period.
15
Application of Critical Accounting Policies
Critical accounting policies are those that are both important to the
presentation of the Company's financial condition and results of operations and
require management's most difficult, complex or subjective judgments. The
Company's critical accounting policies are those applicable to the evaluation of
the collectibility of accounts and notes receivable and the evaluation of
impairment of long-term assets.
The allowance for doubtful accounts and notes receivable is established based on
quarterly analysis of the risk of loss on specific accounts. The analysis places
particular emphasis on past-due accounts and considers information such as the
nature and age of the receivables, the payment history of the tenants or other
debtors, the financial condition of the tenants and management's assessment of
their ability to meet their lease obligations, the basis for any disputes and
the status of related negotiations, among other things. Management's estimates
of the required allowance is subject to revision as these factors change and is
sensitive to the effects of economic and market conditions on tenants,
particularly those at retail centers.
Rental revenue is recognized on a straight-line basis over the term of the
lease. The excess of rents recognized over amounts contractually due pursuant to
the underlying leases is included in tenant receivables on the accompanying
balance sheets. It is the Company's policy to maintain an allowance for future
tenant credit losses of approximately 10% of the deferred straight line rent
receivable balance.
On a periodic basis, management assesses whether there are any indicators that
the value of the real estate properties and mortgage notes receivable may be
impaired. To the extent impairment has occurred, the loss is measured as the
excess of the carrying amount of the property over the fair value of the asset.
Management does not believe that the value of any of its rental properties or
mortgage notes receivable is impaired at July 31, 2003.
Inflation
The Company's long-term leases contain provisions to mitigate the adverse impact
of inflation on its operating results. Such provisions include clauses entitling
the Company to receive (i) scheduled base rent increases and (ii) percentage
rents based upon tenants' gross sales, which generally increase as prices rise.
In addition, many of the Company's non-anchor leases are for terms of less than
ten years, which permits the Company to seek increases in rents upon renewal at
then current market rates if rents provided in the expiring leases are below
then existing market rates. Most of the Company's leases require tenants to pay
a share of operating expenses, including common area maintenance, real estate
taxes, insurance and utilities, thereby reducing the Company's expose to
increases in costs and operating expenses resulting from inflation.
Environmental Matters
Based upon management's ongoing review of its Properties, management is not
aware of any environmental condition with respect to any of the Company's
properties which would be reasonably likely to have a material adverse effect on
the Company. There can be no assurance, however, that (i) the discovery of
environmental conditions, which were previously unknown, (ii) changes in law,
(iii) the conduct of tenants or (iv) activities relating to properties in the
vicinity of the Company's properties, will not expose the Company to material
liability in the future. Changes in laws increasing the potential liability for
environmental conditions existing on properties or increasing the restrictions
on discharges or other conditions may result in significant unanticipated
expenditures or may otherwise adversely affect the operations of the Company's
tenants, which would adversely affect the Company's financial condition and
results of operations.
16
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.
During the nine months period ended July 31, 2003 and 2002, the Company had no
outstanding borrowings under either of its secured or unsecured lines of credit
arrangements.
The Company has not, and does not plan to, enter into any derivative financial
instruments for trading or speculative purposes. As of July 31, 2003 the Company
had no other material exposure to market risk.
17
Item 4 CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Based on their evaluation at the end of the period covered by this Quarterly
Report on Form 10-Q, the Company's principal executive officer and principal
financial officer have concluded that its disclosure and controls procedures (as
defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) are effective
to ensure that information required to be disclosed by us in reports that we
file or submit under the Exchange Act is recorded, processed, summarized and
reported within the time periods specified in SEC rules and forms.
Changes in Internal Controls
During the third quarter of fiscal 2003, there were no changes in the Company's
internal control over financial reporting that have materially affected, or are
reasonably likely to materially affect, the Company's internal control over
financial reporting.
Part II - Other Information
Item 1. Legal Proceedings
The Company is not 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 a 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
(a) Exhibits
31.1 Certification of the Chief Executive Officer of Urstadt
Biddle Properties Inc. pursuant to Rule 13a-14(a)
of the Securities Exchange Act of 1934, as amended.
31.2 Certification of the Chief Financial Officer of Urstadt
Biddle Properties Inc. pursuant to Rule 13a-14(a)
of the Securities Exchange Act of 1934, as amended.
32 Certification of the Chief Executive Officer and Chief
Financial Officer of Urstadt Biddle Properties Inc.
pursuant to Section 906 of Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K:
During the quarter ended July 31, 2003, the Registrant filed
with the Commission:
(1) A Current Report on Form 8-K dated June 11, 2003. Such
report referred under Item 9 to a press release published
by the Company on June 11, 2003 setting forth the
Company's results of operations for the quarter ended
April 30, 2003.
(2) A Current Report on Form 8-K dated July 29, 2003. Such
report referred under Item 5 to the acquisition of
certain building units totaling 134,854 square feet of
leasable space in the Somers Commons Shopping Center in
Somers, New York for a purchase price of $21.65 million.
18
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 11, 2003 and Principal Accounting Officer)
19
EXHIBIT INDEX
Exhibit No.
31.1 Certification of the Chief Executive Officer of Urstadt Biddle
Properties Inc. pursuant to Rule 13a-14(a) of the Securities
Exchange Act of 1934, as amended.
31.2 Certification of the Chief Financial Officer of Urstadt Biddle
Properties Inc. pursuant to Rule 13a-14(a) of the Securities
Exchange Act of 1934, as amended.
32 Certification of the Chief Executive Officer and Chief Financial
Officer of Urstadt Biddle Properties Inc. pursuant to Section
906 of Sarbanes-Oxley Act of 2002.
20