Total net financing costs for Fiscal 2018 increased
18.4% as compared to Fiscal 2017 which was primarily attributable to a $1.2 million loan prepayment cost related to the Pierre
Towers, LLC loan refinancing with a consolidated impact to FREIT of approximately $0.8 million and an increase in interest associated
with the refinancing of Grande Rotunda LLC’s loan on the Rotunda property. (See Note 5 to FREIT’s consolidated financial
statements for more details.)
Investment income for Fiscal 2018 was $267,000
as compared to $206,000 for the prior year’s period. Investment income is principally derived from interest earned from cash
on deposit in institutional money market funds and interest earned from secured loans receivable (loans made to Hekemian employees,
including certain members of the immediate family of Robert S. Hekemian, FREIT’s former Chairman and Chief Executive Officer
and currently a consultant of FREIT, Robert S. Hekemian, Jr., the Chief Executive Officer and a Trustee of FREIT, and David Hekemian,
a Trustee of FREIT, for their equity investments (through Rotunda 100, LLC) in Grande Rotunda, LLC, a limited liability company
in which FREIT owns a 60% equity interest, and for their equity investments (through Damascus 100, LLC) in Damascus Centre, LLC,
a limited liability company in which FREIT owns a 70% equity interest). The secured loan receivable (including accrued interest)
from Damascus 100 was repaid in the fourth quarter of Fiscal 2018.
During Fiscal 2018, G & A was $2,305,000
as compared to $2,129,000 for the prior year’s period. The primary components of G&A are accounting/auditing fees, legal
and professional fees, Trustees’ and consulting fees.
Depreciation expense from operations for Fiscal
2018 was $11,515,000 as compared to $10,669,000 for the prior year’s period. The increase in depreciation was primarily attributable
to additional retail tenant improvements at the Rotunda property being placed into service as the property continues to lease-up
and the acquisition of Station Place in December 2017.
Real estate revenue for Fiscal 2017 increased
11.6% to $51,634,000 compared to $46,254,000 for Fiscal 2016. The increase in revenue was primarily attributable to an increase
in the average occupancy rates at the Rotunda property resulting from the lease-up of the new residential units and retail space
at the property. This increase was partially offset by the loss of revenue from (1) the rejection of the lease for the Pathmark
store at FREIT’s Patchogue, New York property as a result of A&P’s bankruptcy filing, (2) the loss of revenue from
the Rochelle Park property following the sale of that property in June 2016, (2) the loss of revenue from the Hammel Gardens property
following the sale of that property in June 2017, and (4) the termination of the lease for the Macy’s store at the Preakness
Shopping Center in Wayne, New Jersey as a result of Macy’s vacating that space in April 2017.
Net income attributable to common equity (“net
income-common equity”) for Fiscal 2017 was $13,116,000 ($1.92 per share basic and diluted), compared to $3,005,000 ($0.44
per share basic and diluted) for Fiscal 2016. Excluding the impact of the sale of the Hammel Gardens property, net income common-equity
was a loss of $1,140,000 or ($0.17) per share. Fiscal 2017 net income common-equity includes the following: a $15.4 million gain
from the sale of FREIT’s Hammel Gardens property on June 12, 2017 offset by a $1.1 million loan prepayment cost related to
this sale; a loss of $4.6 million at the Rotunda property driven by the substantial completion of the major redevelopment and expansion
project at the property in the third quarter of Fiscal 2016, resulting in the cessation of capitalization of certain costs in the
current year; and a $620,000 termination fee payment made by Wayne PSC to terminate the lease and take possession of the Macy’s
space at the Preakness Shopping Center in Wayne, New Jersey, which impacted net income-common equity by approximately ($250,000)
based on FREIT’s 40% ownership in Wayne PSC. Fiscal 2016 net income common-equity includes the following: a loss of $1.4
million at the Rotunda property driven by the substantial completion of the major redevelopment and expansion project at the property
in the third quarter of Fiscal 2016, resulting in the cessation of capitalization of certain costs in fourth quarter of Fiscal
2016; and a $314,000 gain relating to the sale of FREIT’s Rochelle Park, New Jersey property on June 17, 2016.
The schedule below provides a detailed analysis of the major changes
that impacted revenue and net income-common equity for Fiscal 2017 and Fiscal 2016:
Adjusted net income/(loss) for
Fiscal 2017 was a loss of $2,953,000 or ($0.43) per share basic and diluted, compared to income of $2,785,000 or $0.41 per
share basic and diluted for Fiscal 2016. Adjusted income is a non-GAAP measure, which management believes is a useful and
meaningful gauge to investors of our operating performance, since it excludes the impact of unusual and infrequent items
specifically, a gain and loan prepayment costs related to the sale of Hammel Gardens in Maywood, New Jersey in Fiscal 2017; a
lease termination fee paid in Fiscal 2017; and a gain related to the sale of Rochelle Park, New Jersey in Fiscal 2016. (Refer
to the segment disclosure below for a more detailed discussion on the financial performance of FREIT’s commercial and
residential segments.)
*
Average occupancy rate excludes the Maywood, New Jersey ("Hammel Gardens") property from all periods presented as the property
was sold in June 2017.
The commercial segment contains nine
(9) separate properties. Seven are multi-tenanted retail or office centers, and two are single tenanted – a building formerly
occupied as a supermarket and land located in Rockaway, New Jersey owned by FREIT from which it receives monthly rental income
from a tenant who has built and operates a bank branch on the land. On June 17, 2016, FREIT sold its property at Rochelle Park,
New Jersey, which had a carrying value of approximately $2.7 million (including a straight line rent receivable of approximately
$0.5 million) to Lakeland Bank (as successor by merger to Pascack Community Bank) for a purchase price of $3.1 million resulting
in a gain of approximately $0.3 million net of sales fees. This sale resulted in FREIT’s loss of future annual rents of approximately
$241,000, which would have increased periodically through September 2023.
As indicated in the table above under
the caption Segment Information, total revenue and NOI from FREIT’s commercial segment for Fiscal 2017 increased by 6.3%
and 2.4%, respectively, as compared to Fiscal 2016. The increase in revenue and NOI was primarily attributable to an increase in
occupancy at the Rotunda property resulting from the lease-up of the office and new retail space partially offset by the loss of
revenue from a lease with Pathmark (a subsidiary of A&P) at the Patchogue, New York property, which was rejected as of December
31, 2015 as a result of A&P’s bankruptcy filing, the loss of revenue from the Rochelle Park property following the sale
of that property in June 2016 and the loss of revenue from the termination of the lease for the Macy’s store at the Preakness
Shopping Center in Wayne, New Jersey as a result of Macy’s vacating that space in April 2017.
Same Property Operating Results: FREIT’s
commercial segment contains eight (8) same properties. Since the Rotunda property was part of a major redevelopment and expansion
project that was substantially completed in the third quarter of Fiscal 2016 and was in operation for less than a full year in
the prior year and the Rochelle Park property was sold in the prior year, both have been excluded from same property results for
all periods presented. For Fiscal 2017, same property revenue and NOI for FREIT’s commercial segment decreased by 2.1% and
6%, respectively, as compared to Fiscal 2016 primarily driven by the rejection of the Pathmark lease at the Patchogue, New York
property and the termination of the Macy’s lease at the Preakness Shopping Center.
Leasing: The following tables reflect
leasing activity at FREIT’s commercial properties for comparable leases (leases executed for spaces in which there was a
tenant at some point during the previous twelve-month period) and non-comparable leases for Fiscal 2017. The 8.5% decline in the
retail weighted average lease rate is primarily attributable to the Stop & Shop lease modification whereby annual rent was
reduced by approximately $250,000 (see Note 15 to FREIT’s consolidated financial statements for further details).
(a) These leasing costs are presented as annualized costs per square foot and are allocated uniformly over the initial lease term.
(b) This includes
new tenant leases and/or modifications/extensions of existing tenant leases.
The US economic recovery continued to show
signs of improvement while there continues to be some uncertainty in the retail environment. Average occupancy rates for Fiscal
2017, increased 0.7% from last year’s comparable period which was primarily attributed to an increase in occupancy at the
Rotunda property due to continued lease up at the property offset by the decline in occupancy at the Preakness Shopping Center
due to Macy’s vacating its space there in April 2017 and the decline in occupancy at the Patchogue property due to the rejection
of the Pathmark lease in December 2015. Excluding the impact of the Rotunda property, average occupancy for Fiscal 2017 decreased
5% from the prior year’s comparable period which was primarily driven by the rejection of the Pathmark lease at the Patchogue,
New York property and the termination of the Macy’s lease at the Preakness Shopping Center.
As of October 31, 2017, approximately 75.9%
of the retail space at the Rotunda property is leased and 63.5% is occupied.
FREIT operates seven (7) multi-family
apartment buildings or complexes totaling 1,392 apartment units, excluding the Hammel Gardens property, which was sold in June
2017. (See Note 2 to FREIT’s consolidated financial statements.) As indicated in the table above under the caption Segment
Information, total revenue and NOI from FREIT’s residential segment for Fiscal 2017 increased by 17.1% and 5.3%, respectively,
as compared to Fiscal 2016. The increase in revenue and NOI for Fiscal 2017 was primarily attributable to: (a) the addition of
the operating results of the Icon, which is the residential property located at the Rotunda in Baltimore, Maryland (See discussion
below), (b) an increase in base rent, (c) an increase in the average occupancy level of 12.2% as compared to the prior year partially
offset by (d) loss of income resulting from the sale of the Hammel Gardens property in June 2017.
Same Property Operating Results: FREIT’s
residential segment currently contains six (6) same properties. The Icon was excluded from same property results for all periods
presented because this property was part of a major redevelopment and expansion project that was substantially completed in the
third quarter of Fiscal 2016 and was in operation for less than a full year in the prior year. The Hammel Gardens property was
excluded from same property results for all periods presented because this property was sold in June 2017. Same property revenue
and NOI increased by 4% and 2.1%, respectively, from Fiscal 2016. The changes resulted from the factors discussed in the immediately
preceding paragraph. Exclusive of the Icon property, average occupancy for Fiscal 2017 increased 0.8% over the prior year’s
comparable period.
FREIT’s residential revenue is
principally composed of monthly apartment rental income. Total rental income is a factor of occupancy and monthly apartment rents.
Monthly average residential rents, excluding for both fiscal years presented the Hammel Gardens property which was sold in June
2017 and the Rotunda Icon property which is still in lease-up and not operating at full capacity, at the end of Fiscal 2017 and
Fiscal 2016 were $1,863 and $1,810, respectively. A 1% decline in annual average occupancy, or a 1% decline in average rents from
current levels, results in an annual revenue decline of approximately $226,000 and $219,000, respectively.
(a) Includes the
effect of interest rate swap contracts which effectively convert the floating interest rate to a fixed interest rate over the
term of the loan.
Total net financing costs for Fiscal 2017 increased
8.4% as compared to Fiscal 2016 which was primarily attributable to the Rotunda construction loan of approximately $115.3 million.
Interest costs with respect to the Rotunda project can no longer be capitalized because the Rotunda project was substantially completed
in the third quarter of Fiscal 2016. (See Note 5 to FREIT’s consolidated financial statements for more details.)
Investment income for Fiscal 2017 was $206,000
as compared to $150,000 for the prior year’s period. Investment income is principally derived from interest earned from cash
on deposit in institutional money market funds and interest earned from secured loans receivable (loans made to Hekemian employees,
including certain members of the immediate family of Robert S. Hekemian, FREIT’s former Chairman and Chief Executive Officer
and currently a consultant of FREIT, Robert S. Hekemian, Jr., the Chief Executive Officer and a Trustee of FREIT, and David Hekemian,
a Trustee of FREIT, for their equity investments (through Rotunda 100, LLC) in Grande Rotunda, LLC, a limited liability company
in which FREIT owns a 60% equity interest, and for their equity investments (through Damascus 100, LLC) in Damascus Centre, LLC,
a limited liability company in which FREIT owns a 70% equity interest).
During Fiscal 2017, G & A was $2,129,000
as compared to $2,034,000 for the prior year’s period. The primary components of G&A are accounting/auditing fees, legal
and professional fees and Trustees’ fees.
Depreciation expense from operations for Fiscal
2017 was $10,669,000 as compared to $7,852,000 for the prior year’s period. The increase in depreciation was primarily attributable
to the depreciation related to assets at the Rotunda property becoming operational as the major redevelopment and expansion project
at this property was substantially completed in the third quarter of Fiscal 2016.
Net cash provided by operating activities
was $10.8 million for Fiscal 2018 compared to $4.7 million for Fiscal 2017. FREIT expects that cash provided by operating activities
and cash reserves will be adequate to cover mandatory debt service payments (including payments of interest, but excluding balloon
payments), real estate taxes, recurring capital improvements at properties and other needs to maintain its status as a REIT for
at least a period of one year from the date of filing of this Form 10-K.
As at October 31, 2018, FREIT had cash
and cash equivalents totaling $21.7 million compared to $7.9 million at October 31, 2017. The increase in cash for Fiscal 2018
is primarily attributable to $19.1 million in net cash provided by financing activities and $10.8 million in net cash provided
by operating activities, offset by $16.1 million used in investing activities including capital expenditures.
On June 12, 2017, FREIT sold its Hammel
Gardens property, a residential property located in Maywood, New Jersey, for a sales price of $17 million. The sale of this property,
which had a carrying value of approximately $0.7 million, resulted in a capital gain of approximately $15.4 million net of sales
fees and commissions. As a result of this sale, FREIT incurred a loan
prepayment cost of approximately $1.1 million and paid off
the related mortgage on the Hammel Gardens property in the amount of approximately $8 million from the proceeds of the sale. FREIT
structured this sale in a manner that qualified it as a like-kind exchange of real estate pursuant to Section 1031 of the Internal
Revenue Code. The 1031 exchange transaction resulted in a deferral for income tax purposes of the $15.4 million capital gain. The
net proceeds from this sale, which were approximately $7 million, were held in escrow until a replacement property was purchased.
(See Note 2 to FREIT’s consolidated financial statements.)
On December 7, 2017, FREIT completed
the acquisition of Station Place, a residential apartment complex consisting of one building with 45 units, located in Red Bank,
New Jersey through Station Place on Monmouth, LLC (FREIT’s 100% owned consolidated subsidiary). FREIT identified Station
Place as a replacement property for the Hammel Gardens property that FREIT sold on June 12, 2017 to complete the like-kind exchange
transaction under Section 1031 of the Internal Revenue Code. Station Place is part of FREIT’s residential segment. The acquisition
cost was $19,550,000 (inclusive of approximately $550,000 of transaction costs capitalized as part of the asset acquisition), which
was funded in part with $7 million in net proceeds from the sale of the Hammel Gardens property, and the remaining balance of $12,350,000
(inclusive of the transaction costs) was funded by Station Place on Monmouth, LLC through long-term financing for this property
from Provident Bank. (See Note 3 to FREIT’s consolidated financial statements.)
On June 17, 2016, FREIT sold its property
in Rochelle Park, New Jersey to Lakeland Bank (as successor by merger to Pascack Community Bank) for a purchase price of $3.1 million
resulting in a gain of approximately $0.3 million net of sales fees. This sale resulted in FREIT’s loss of future annual
rents from the property of approximately $241,000, which would have increased periodically through September 2023.
On April 25, 2017, Wayne PSC announced
it had agreed to a termination of Macy’s lease for the 81,160 square foot Macy’s store at the Preakness Shopping Center,
effective as of April 15, 2017. To terminate the lease and take possession of the space, Wayne PSC paid Macy’s a termination
fee of $620,000. Wayne PSC expects to re-position this space and re-lease to a new tenant (or multiple tenants) at market rents,
which are currently higher than the rent provided for under the terminated Macy’s lease. FREIT will lose total consolidated
annual rental income, including reimbursements, of approximately $0.2 million until such time as the space is fully re-leased.
FREIT anticipates increased revenue from the space when it is re-leased. (See Note 15 to FREIT’s consolidated financial
statements.)
FREIT owns and operates an 87,661 square
foot shopping center located in Franklin Lakes, New Jersey, the anchor tenant of which is Stop & Shop. On July 26, 2017, Stop
& Shop entered into a lease modification with FREIT whereby the tenant exercised its option to renew the lease for a ten-year
period with a right of the tenant to terminate the lease at any time during the fifth year if the store does not meet certain sales
volume levels set forth in the modification. This lease modification, which provided for a $250,000 reduction in annual rent, has
adversely affected and will adversely affect FREIT’s future operating results.
After careful consideration of FREIT’s
projected operating results and cash needs, the Board of Trustees declared a fourth quarter dividend of $0.05 per share which will
be paid on December 14, 2018 to shareholders of record on December 1, 2018. The Board will continue to evaluate the dividend on
a quarterly basis.
Credit Line: On October 27, 2017, FREIT’s
revolving line of credit provided by the Provident Bank was renewed for a three-year term ending on October 27, 2020 at which point
no further advances shall be permitted and provided the line of credit is not renewed by the lender, the outstanding principal
balance of the line of credit shall convert to a commercial term loan maturing on October 31, 2022. Draws against the credit line
can be used for working capital needs and standby letters of credit. Draws against the credit line are secured by mortgages on
FREIT’s Franklin Crossing Shopping Center in Franklin Lakes, New Jersey and retail space in Glen Rock, New Jersey. The total
line of credit was increased from $12.8 million to $13 million and the interest rate on the amount outstanding will be at a floating
rate of 275 basis points over the 30-day LIBOR with a floor of 3.75%. During Fiscal 2017, FREIT utilized $3 million of its credit
line to fund tenant improvements for new retail tenants at the Rotunda property. As of October 31, 2017, approximately $3.1 million
was outstanding (including closing costs of approximately $0.1 million related to the renewal of the line). In February 2018, FREIT
repaid the line of credit in the amount of $3.1 million. As of October 31, 2018, there was no amount outstanding and $13 million
was available under the line of credit.
The Rotunda property in Baltimore, Maryland
(owned by FREIT’s 60% owned consolidated affiliate Grande Rotunda, LLC) is an 11.5 acre site containing a building with approximately
136,000 sq. ft. of office space and approximately 83,000 sq. ft. of retail space on the lower level of the building. In September
2013, FREIT began construction to redevelop and expand this property and, with the exception of retail tenant improvements, the
redevelopment was substantially completed in the third quarter of Fiscal 2016. The redevelopment and expansion plans included a
modernization of the office building and smaller adjacent buildings, construction of 379 residential apartment rental units, an
additional 73,000 square feet of new retail space, and 864 above level parking spaces. By the end of the third quarter of Fiscal
2018, the residential section reached a stabilized level of occupancy of approximately 94%. The retail space continues to lease-up
and is approximately 84.1% leased as of October 31, 2018. FREIT expects Rotunda’s operations to stabilize in 2019.
With regard to the funding of the Rotunda
redevelopment project, Wells Fargo Bank, a previous lender, required that Grande Rotunda, LLC contribute not less than $14,460,000
toward the construction before any construction loan proceeds could be disbursed. To secure these funds Grande Rotunda, LLC made
a capital call on its members, which are FREIT and Rotunda
100, LLC (“Rotunda 100”). FREIT’s share (60%) amounted
to approximately $8.7 million, and the Rotunda 100 members’ share (40%) amounted to approximately $5.8 million. FREIT, pursuant
to previous agreements, made secured loans to the Rotunda 100 members of approximately $2.1 million towards their share of the
$5.8 million capital call. The balance of Rotunda 100’s capital call of approximately $3.7 million was initially made by
FREIT until it was repaid by Rotunda 100 in August 2014. These loans bear an interest rate of 225 basis points over the 90 day
LIBOR, and had a maturity date of June 19, 2015. On June 4, 2015, FREIT’s Board of Trustees approved an extension of the
maturity date to occur the earlier of (a) June 19, 2018 or (b) five days after the closing of a permanent mortgage loan secured
by the Rotunda property. On December 7, 2017, the Board approved a further extension of the maturity dates of these loans to the
date or dates upon which distributions of cash are made by Grande Rotunda, LLC to its members as a result of the refinancing or
sale of Grande Rotunda, LLC or the Rotunda property. Rotunda 100 is principally owned by employees of Hekemian & Co., including
certain members of the immediate family of Robert S. Hekemian, FREIT’s former Chairman and Chief Executive Officer and currently
a consultant of FREIT, Robert S. Hekemian, Jr., Chief Executive Officer and a Trustee of FREIT, and David Hekemian, a Trustee of
FREIT. As of October 31, 2018, FREIT and Rotunda 100 have made their required capital call contributions of $8.7 million and $5.8
million, respectively, towards the Rotunda construction financing. Both FREIT and the Rotunda 100 members are treating their required
capital call contributions as additional investments in Grande Rotunda, LLC.
In Fiscal 2017, Grande Rotunda, LLC incurred
substantial expenditures at the Rotunda property related to retail tenant improvements, leasing costs and operating expenditures
which, in the aggregate, exceeded revenues as the property was still in the rent up phase and the construction loan held with Wells
Fargo at that time was at its maximum level, with no additional funding available to draw. Accordingly, the equity owners in Grande
Rotunda, LLC (FREIT with a 60% ownership and Rotunda 100 with a 40% ownership) contributed their respective pro-rata share of any
cash needs through loans to Grande Rotunda, LLC. As of October 31, 2018 and 2017, Rotunda 100 has funded Grande Rotunda, LLC with
approximately $5.4 million and $5.2 million (including interest), respectively, which is included in “Due to affiliate”
on the accompanying consolidated balance sheets.
On February 7, 2018, Grande Rotunda,
LLC refinanced its $115.3 million construction loan held by Wells Fargo with a new loan held by Aareal Capital Corporation in the
amount of approximately $118.5 million with additional funding available for retail tenant improvements and leasing costs in the
amount of $3,380,000. This refinancing paid off the loan previously held by Wells Fargo, funded loan closing costs and paid the
amount due to Hekemian Development Resources for a development fee of $900,000 plus accrued interest of approximately $45,000 (See
Note 9 to FREIT’s consolidated financial statements for further details on this fee). This loan is secured by the Rotunda
property, bears a floating interest rate at 285 basis points over the one-month LIBOR rate and has a maturity date of February
6, 2021 with two one-year renewal options. As part of this transaction, Grande Rotunda, LLC purchased an interest rate cap on LIBOR
for the full amount that can be drawn on this loan of $121.9 million, capping the one-month LIBOR rate at 3% for the first two
years of this loan. As of October 31, 2018, approximately $118.5 million of this loan facility was drawn down and the interest
rate was approximately 5.13%. (See Notes 5 and 6 to FREIT’s consolidated financial statements for further details).
As at October 31, 2018, FREIT’s
aggregate outstanding mortgage debt was $350.5 million, which bears a weighted average interest rate of 4.02% and an average life
of approximately 4.3 years. FREIT’s fixed rate mortgages are subject to amortization schedules that are longer than the
terms of the mortgages. As such, balloon payments (unpaid principal amounts at mortgage due date) for all mortgage debt will be
required as follows:
(A) Two loans aggregating approximately $39.5M are extendable for a period of one (1) year.
(B) Includes Rotunda loan in the amount of approximately $118.5 million refinanced with Aareal Capital Corporation on February 7, 2018.
(C) Assumes
modification of Station Place loan document. See Note 5 to consolidated financial statements for further details.
The following table shows the estimated
fair value and carrying value of FREIT’s long-term debt at October 31, 2018 and 2017:
Fair values are estimated based on market
interest rates at the end of each fiscal year and on discounted cash flow analysis. Changes in assumptions or estimation methods
may significantly affect these fair value estimates. The fair value is based on observable inputs (level 2 in the fair value hierarchy
as provided by authoritative guidance).
FREIT expects to refinance the individual
mortgages with new mortgages when their terms expire. To this extent FREIT has exposure to interest rate risk. If interest rates,
at the time any individual mortgage note is due, are higher than the current fixed interest rate, higher debt service may be required,
and/or refinancing proceeds may be less than the amount of mortgage debt being retired. For example, at October 31, 2018, a 1%
interest rate increase would reduce the fair value of FREIT’s debt by $8.6 million, and a 1% decrease would increase
the fair value by $9.2 million.
FREIT believes that the values of its
properties will be adequate to command refinancing proceeds equal to or higher than the mortgage debt to be refinanced. FREIT continually
reviews its debt levels to determine if additional debt can prudently be utilized for property acquisitions to our real estate
portfolio that will increase income and cash flow to shareholders.
The loan on the Patchogue, New York property
in the amount of approximately $5.2 million became due on March 1, 2018. FREIT is currently operating under the same terms and
conditions of the existing agreement while working with the lender, Oritani Bank, to extend the maturity date of the loan and to
provide for monthly payments of principal and interest. Until such time as a definitive agreement providing for an extension of
the loan is entered into, there can be no assurance the loan will be extended.
On January 8, 2018, Pierre Towers (which
is owned by S&A, a consolidated subsidiary of FREIT), refinanced its $29.1 million loan held by State Farm with a new mortgage
loan from New York Life Insurance in the amount of $48 million. Pierre Towers paid New York Life Insurance a good faith deposit
in the amount of $960,000 (which was included in prepaid expenses and other assets on the accompanying consolidated balance sheet
as of October 31, 2017) and was reimbursed by New York Life when the loan was closed in January 2018. The new loan has a term of
ten years and bears a fixed interest rate equal to 3.88%. Interest-only payments are required each month for the first five years
of the term and thereafter, principal payments plus accrued interest will be required each month through maturity. This refinancing
resulted in: (i) a reduction in the annual interest rate from a fixed rate of 5.38% to a fixed rate of 3.88%; and (ii) net refinancing
proceeds of approximately $17.2 million (after giving effect to a $1.2 million loan prepayment cost to pay-off the loan held by
State Farm) that were distributed to the partners in S&A with FREIT receiving approximately $11.2 million, based on its 65%
membership interest in S&A, which can be used for capital expenditures and general corporate purposes.
On December 7, 2017, Station Place on
Monmouth, LLC (owned 100% by FREIT) closed on a mortgage loan in the amount of $12,350,000 held by Provident Bank to purchase
the Station Place property in Red Bank, New Jersey. Interest-only payments are required each month for the first two years of
the term and thereafter, principal payments plus accrued interest will be required each month through maturity. The loan bears
a floating interest rate equal to 180 basis points over the one-month BBA LIBOR with a maturity date of December 15, 2027. In
order to minimize interest rate volatility during the term of the loan, Station Place on Monmouth, LLC entered into an interest
rate swap agreement that, in effect, converted the floating interest rate to a fixed interest rate of 4.35% over the term of the
loan. The interest rate swap is considered a derivative financial instrument that will be used only to reduce interest rate risk,
and not held or used for trading purposes. (See Note 6 to FREIT’s consolidated financial statements for additional information
relating to the interest rate swap contract.) As of October 31, 2018, Station Place on Monmouth, LLC was not, and is not currently,
in compliance with a loan covenant contained in the mortgage loan held by Provident Bank. The lender waived compliance with the
loan covenant through October 31, 2018. The lender has agreed in principle to modifications of the loan covenant that will allow
Station Place on Monmouth, LLC to comply with the covenant going forward, subject to execution of a definitive agreement providing
for the modifications. Until such time as a definitive agreement is entered into, there can be no assurance the loan covenant
will be modified.
On April 28, 2017, WestFREIT Corp., a
consolidated subsidiary, refinanced its $22 million mortgage loan held by Wells Fargo Bank, with a new mortgage loan from Manufacturer’s
and Traders Trust Company in the amount of $23.5 million. The new loan bears a floating interest rate equal to 275 basis points
over the one-month LIBOR and has a maturity date of April 28, 2019 with the option to extend for 12 months. This refinancing resulted
in: (i) a reduction in the annual interest rate from a fixed rate of 5.55% to a variable rate and (ii) net refinancing proceeds
of approximately $1.1 million which have been used for general corporate purposes.
On September 29, 2016, Wayne PSC refinanced
its $24,200,000 mortgage loan held by Metropolitan Life Insurance Company, with a new mortgage loan from People’s United
Bank in the amount of $25,800,000. The new loan bears a floating interest rate equal to 220 basis points over the one-month BBA
LIBOR with a maturity date of October 1, 2026. In order to minimize interest rate volatility during the term of the loan, Wayne
PSC entered into an interest rate swap agreement that, in effect, converted the floating interest rate to a fixed interest rate
of 3.625% over the term of the loan. This refinancing resulted in: (i) a reduction in interest rate from 6.04% to 3.625% and (ii)
net refinancing proceeds of approximately $1 million that were distributed to the partners in Wayne PSC with FREIT receiving $0.4
million based on it 40% membership interest in Wayne PSC. (See Note 6 to FREIT’s consolidated financial statements for additional
information relating to the interest rate swap contract.)
On April 22, 2016, Damascus Centre, LLC
was able to take down a second tranche of its loan held with People’s United Bank in the amount of $2,320,000, of which approximately
$470,000 was readily available and the remaining $1,850,000 was held in escrow (included in prepaid expenses and other assets in
the consolidated balance sheet as of October 31, 2017) and would be available to Damascus Centre, LLC once certain tenants opened
and began paying rent. In July 2018, these funds totaling $1,850,000 were released from escrow by the bank and became readily available
to Damascus Centre, LLC. Damascus Centre, LLC distributed amounts due to FREIT and Damascus 100 and Damascus 100 in turn repaid
FREIT the secured loans receivable plus accrued interest in the amount of approximately $1.9 million.
Interest rate swap contracts: To reduce
interest rate volatility, FREIT uses a “pay fixed, receive floating” interest rate swap to convert floating interest
rates to fixed interest rates over the term of a certain loan. FREIT enters into these swap contracts with a counterparty that
is usually a high-quality commercial bank. In essence, FREIT agrees to pay its counterparties a fixed rate of interest on a dollar
amount of notional principal (which corresponds to FREIT’s mortgage debt) over a term equal to the term of the mortgage notes.
FREIT’s counterparties, in return, agree to pay FREIT a short-term rate of interest - generally LIBOR - on that same notional
amount over the same term as the mortgage notes.
FREIT has variable interest rate mortgages
securing its Damascus Center, Regency, Preakness Shopping Center and Station Place properties. To reduce interest rate fluctuations,
FREIT entered into interest rate swap contracts for each of these loans.
These interest rate swap contracts effectively converted
variable interest rate payments to fixed interest rate payments. The contracts were based on a notional amount of approximately
$22,320,000 ($19,906,000 at October 31, 2018) for the Damascus Center swaps, a notional amount of approximately $16,200,000 ($15,922,000
at October 31, 2018) for the Regency swap, a notional amount of approximately $25,800,000 ($24,487,000 at October 31, 2018) for
the Preakness Shopping Center swap and a notional amount of approximately $12,350,000 ($12,350,000 at October 31, 2018) for the
Station Place swap.
Interest rate cap contract: To limit
exposure on interest rate volatility, FREIT uses an interest rate cap contract to cap a floating interest rate at a set pre-determined
rate. FREIT enters into cap contracts with a counterparty that is usually a high-quality commercial bank. In essence, so long as
the floating interest rate is below the cap rate, FREIT agrees to pay its counterparties a variable rate of interest on a dollar
amount of notional principal (which corresponds to FREIT’s mortgage debt). Once the floating interest rate rises above the
cap rate, FREIT’s counterparties, in return, agree to pay FREIT a short-term rate of interest above the cap on that same
notional amount.
FREIT has a variable interest rate loan
securing its Rotunda property. As part of the refinancing of Grande Rotunda, LLC’s construction loan held by Wells Fargo
with a new loan from Aareal Capital Corporation, Grande Rotunda, LLC purchased an interest rate cap on LIBOR for the full amount
that can be drawn on this loan of $121.9 million, capping the one-month LIBOR rate at 3% for the first two years of this loan.
The cap contract was based on a notional amount of approximately $121,900,000 ($121,900,000 at October 31, 2018) and a term of
two years with the loan being hedged against having a balance of approximately $118,520,000 and a term of three years.
Current GAAP requires FREIT to mark-to-market
its interest rate swap and cap contracts. As the floating interest rate varies from time-to-time over the term of the contract,
the value of the contract will change upward or downward. If the floating rate is higher than the fixed rate, the value of the
contract goes up and there is a gain and an asset. If the floating rate is less than the fixed rate, there is a loss and a liability.
The interest rate swaps are accounted for as effective cash flow hedges with the corresponding gains or losses on these contracts
not affecting FREIT’s income statement; changes in the fair value of these cash flow hedges will be reported in other comprehensive
income and appear in the equity section of the balance sheet. The interest rate cap is for accounting purposes deemed to be accounted
for as an ineffective cash flow hedge with a corresponding gain or loss being recorded in FREIT’s income statement. This
gain or loss represents the economic consequence of liquidating fixed rate swaps or the cap contract and replacing them with like-duration
funding at current market rates, something we would likely never do. Periodic cash settlements of these contracts will be accounted
for as an adjustment to interest expense.
FREIT has the following derivative-related
risks with its swap and cap contracts (“contract”): 1) early termination risk, and 2) counterparty credit risk.
Early Termination Risk: If FREIT
wants to terminate its contract before maturity, it would be bought out or terminated at market value; i.e., the difference in
the present value of the anticipated net cash flows from each of the contract’s parties. If current variable interest rates
are significantly below FREIT’s fixed interest rate payments, this could be costly. Conversely, if interest rates rise above
FREIT’s fixed interest payments and FREIT elected early termination, FREIT would realize a gain on termination. At October
31, 2018, the interest rate cap contract for the Rotunda property and the swap contracts for the Damascus Center, Regency, Preakness
Shopping Center and Station Place properties were in FREIT’s favor. If FREIT had terminated these contracts at that date
it would have realized gains of approximately $2,452,000 for the Preakness Shopping Center swap, $955,000 for the Damascus Center
swaps, $408,000 for the Regency swap, $460,000 for the Station Place swap and $159,000 for the Rotunda cap, all of which have been
included as an asset in FREIT’s consolidated balance sheet as at October 31, 2018. The change in the fair value for the interest
rate swap contracts (gain or loss) during such period has been included in comprehensive income and for the year ended October
31, 2018, FREIT recorded an unrealized gain of $3,113,000 in comprehensive income. The change in the fair value of the Rotunda
interest rate cap contract (gain or loss) during such period has been included in the consolidated statement of income and for
the year ended October 31, 2018, FREIT recorded an unrealized gain of approximately $72,000. For the year ended October 31, 2017,
FREIT recorded an unrealized gain of $2,952,000 in comprehensive income representing the change in fair value of the swaps during
such period with a corresponding asset of approximately $1,325,000 for the Preakness Shopping Center swap and $275,000 for the
Damascus Center swaps and a corresponding liability of $439,000 for the Regency swap as at October 31, 2017.
Counterparty Credit Risk: Each
party to a cap or swap contract bears the risk that its counterparty will default on its obligation to make a periodic payment.
FREIT reduces this risk by entering into swap or cap contracts only with major financial institutions that are experienced market
makers in the derivatives market.
(a) Represents draws on line of credit with Provident Bank.
(b) Assumes
modification of Station Place loan document. See Note 5 to consolidated financial statements for further details.
FREIT’s annual estimated cash requirements
related to interest on its line of credit and mortgage loans in place as of October 31, 2018 are as follows:
(a) Includes estimated interest on the Rotunda loan held with Aareal Capital through maturity.
Funds From Operations (“FFO”)
is a non-GAAP measure defined by the National Association of Real Estate Investment Trusts (“NAREIT”). FREIT does
not include distributions from equity/debt sources in its computation of FFO. Although many consider FFO as the standard measurement
of a REIT’s performance, FREIT modified the NAREIT computation of FFO to include other adjustments to GAAP net income that
are not considered by management to be the primary drivers of its decision making process. These adjustments to GAAP net income
are straight-line rents, recurring capital improvements on FREIT’s residential apartments and lease termination fees paid
to buyout a lease. The modified FFO computation is referred to as Adjusted Funds From Operations (“AFFO”). FREIT believes
that AFFO is a superior measure of its operating performance. FREIT computes FFO and AFFO as follows:
(b) FFO excludes the distribution of proceeds to minority interest in the amount of approximately $6 million related to the refinancing of the loan for Pierre Towers, LLC, owned by S And A Commercial Associates Limited Partnership which is a consolidated subsidiary and the distribution of funds to minority interest in the amount of approximately $1.6 million received from Damascus Centre, LLC for funds which were previously held in escrow. See Note 5 to the consolidated financial statements for further details.
(c) Revised
AFFO for Fiscal 2016 to exclude the distribution of procceds in the amount of $0.6 million related to the refinancing of the loan
for the Wayne Preakness Shopping center.
FFO and AFFO do not represent cash generated
from operating activities in accordance with GAAP, and therefore should not be considered a substitute for net income as a measure
of results of operations or for cash flow from operations as a measure of liquidity. Additionally, the application and calculation
of FFO and AFFO by certain other REITs may vary materially from that of FREIT’s, and therefore FREIT’s FFO and AFFO
may not be directly comparable to those of other REITs.
Since its inception in 1961, FREIT has
elected to be treated as a REIT for federal income tax purposes. In order to qualify as a REIT, FREIT must satisfy a number of
highly technical and complex operational requirements, including a requirement that FREIT must distribute to its shareholders at
least 90% of its REIT taxable income. Although cash used to make distributions reduces amounts available for capital investment,
FREIT generally intends to distribute not less than the minimum of REIT taxable income necessary to satisfy the applicable REIT
requirement as set forth in the Internal Revenue Code. With respect to the Jobs and Growth Tax Relief Reconciliation Act of 2003,
the reduction of the tax rate on dividends does not apply to FREIT dividends other than capital gains dividends, which are subject
to capital gains rates. FREIT’s policy is to pass on at least 90% of its ordinary taxable income to shareholders. FREIT’s
taxable income is untaxed at the trust level to the extent distributed to shareholders. FREIT’s dividends of ordinary taxable
income will be taxed as ordinary income to its shareholders and FREIT’s capital gains dividends will be taxed as capital
gains to its shareholders. FREIT’s Board of Trustees evaluates the dividend to be paid (if any) on a quarterly basis. FREIT
paid/declared a dividend of $0.15 per share in Fiscal 2018.
The following tables list the quarterly
dividends declared for the three most recent fiscal years and the dividends as a percentage of taxable income for those periods.
|
|
Fiscal Years Ended October 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
First Quarter
|
|
$
|
—
|
|
|
$
|
0.15
|
|
|
$
|
0.30
|
|
Second Quarter
|
|
$
|
0.05
|
|
|
$
|
—
|
|
|
$
|
0.30
|
|
Third Quarter
|
|
$
|
0.05
|
|
|
$
|
—
|
|
|
$
|
0.30
|
|
Fourth Quarter
|
|
$
|
0.05
|
|
|
$
|
—
|
|
|
$
|
0.30
|
|
Total For Year
|
|
$
|
0.15
|
|
|
$
|
0.15
|
|
|
$
|
1.20
|
|
|
|
|
|
|
(in thousands of dollars)
|
|
|
Dividends
|
Fiscal
|
|
Per
|
|
|
Total
|
|
|
Ordinary
|
|
|
Capital Gain
|
|
|
Taxable
|
|
|
as a % of
|
Year
|
|
Share
|
|
|
Dividends
|
|
|
Income-Tax Basis
|
|
|
Income-Tax Basis
|
|
|
Income
|
|
|
Taxable Income
|
2018
|
|
$
|
0.15
|
|
|
$
|
1,035
|
|
|
$
|
762
|
*
|
|
$
|
—
|
|
|
$
|
762
|
*
|
|
135.8%
|
2017
|
|
$
|
0.15
|
|
|
$
|
1,024
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
0.0%
|
2016
|
|
$
|
1.20
|
|
|
$
|
8,152
|
|
|
$
|
2,466
|
|
|
$
|
2,569
|
|
|
$
|
5,035
|
|
|
161.9%
|
*Estimated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INFLATION
Inflation can impact the financial performance
of FREIT in various ways. FREIT’s commercial tenant leases normally provide that the tenants bear all or a portion of
most operating expenses, which can reduce the impact of inflationary increases on FREIT. Apartment leases are normally for a one-year
term, which may allow FREIT to seek increased rents as leases renew or when new tenants are obtained, subject to prevailing market
conditions.
ITEM 7A
|
QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
|
See
“Liquidity and Capital Resources”
and
“Segment Information”
in Item 7 above.
ITEM 8
|
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
|
The consolidated financial statements
and supplementary data of FREIT are submitted as a separate section of this Form 10-K. See
“Index to Consolidated Financial
Statements”
on page 44 of this Form 10-K.
ITEM 9
|
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
|
None.
ITEM 9A
|
CONTROLS AND PROCEDURES
|
At the end of the period covered by this
report, we carried out an evaluation of the effectiveness of the design and operation of FREIT’s disclosure controls and
procedures. This evaluation was carried out under the supervision and with participation of FREIT’s management, including
FREIT’s Chief Executive Officer and Chief Financial Officer, who concluded that FREIT’s disclosure controls and procedures
are effective as of October 31, 2018. There have been no significant changes in FREIT’s internal controls or in other factors,
which could significantly affect internal controls subsequent to the date we carried out our evaluation.
Disclosure controls and procedures are
controls and other procedures that are designed to ensure that information required to be disclosed in FREIT’s reports filed
or submitted under the Exchange Act is recorded, processed, summarized, and reported, within the time periods specified in the
SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to
ensure that information required to be disclosed in FREIT’s reports filed under the Exchange Act is accumulated and communicated
to management, including FREIT’s Chief Executive Officer and Chief Financial Officer as appropriate, to allow timely decisions
regarding required disclosure.
Management’s Annual Report on
Internal Control Over Financial Reporting
— FREIT’s
management, under the supervision of FREIT’s Chief Executive Officer and Chief Financial Officer, is responsible for establishing
and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) or 15d-15(f) under the Exchange
Act). Management evaluated the effectiveness of FREIT’s internal control over financial reporting based on the framework
in
Internal Control — Integrated Framework (2013)
issued by the Committee of Sponsoring Organizations of the
Treadway Commission. Based on that evaluation, management has concluded that FREIT’s internal control over financial reporting
was effective as of October 31, 2018. EisnerAmper LLP, FREIT’s independent registered public accounting firm for Fiscal 2018,
audited FREIT’s financial statements contained in this Form 10-K, and has issued the attestation report on FREIT’s
internal control over financial reporting provided on the following page.
Changes in Internal Control Over Financial
Reporting
— FREIT’s management, with the participation
of FREIT’s Chief Executive Officer and Chief Financial Officer, has evaluated whether any change in FREIT’s internal
control over financial reporting occurred during the fourth quarter of Fiscal 2018. Based on that evaluation, management concluded
that there has been no change in FREIT’s internal control over financial reporting during the fourth quarter of Fiscal 2018
that has materially affected, or is reasonably likely to materially affect, FREIT’s internal control over financial reporting.
REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
To the Trustees and Shareholders
First Real Estate Investment Trust of New Jersey
Opinion on Internal Control over Financial
Reporting
We have audited First Real Estate Investment
Trust of New Jersey and Subsidiaries' (the "Company") internal control over financial reporting as of October 31, 2018,
based on criteria established in the
Internal Control - Integrated Framework
(2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission ("COSO"). In our opinion, the Company maintained, in all material respects,
effective internal control over financial reporting as of October 31, 2018, based on criteria established in the
Internal Control
- Integrated Framework
(
2013
) issued by COSO.
We also have audited, in accordance with the
standards of the Public Company Accounting Oversight Board (United States) ("PCAOB"), the consolidated balance sheets
of First Real Estate Investment Trust of New Jersey and Subsidiaries as of October 31, 2018 and 2017, and the related consolidated
statements of income, comprehensive income, equity, and cash flows for each of the years in the three-year period ended October
31, 2018, and the related notes and the financial statement schedule identified in Item 15 and our report dated January 11, 2019
expressed an unqualified opinion.
Basis for Opinion
The Company's management is responsible for
maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control
over financial reporting, included in the accompanying Management's Annual Report on Internal Control over Financial Reporting.
Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit. We are
a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance
with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the
PCAOB.
We conducted our audit in accordance with the
standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether
effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over
financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a
material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed
risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that
our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal
Control over Financial Reporting
An entity's internal control over financial
reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance with generally accepted accounting principles. An entity's internal
control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in
reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the entity; (ii) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally
accepted accounting principles, and that receipts and expenditures of the entity are being made only in accordance with authorizations
of management and trustees of the entity; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the entity's assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal
control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness
to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
/s/ EisnerAmper LLP
EISNERAMPER LLP
New York, New York
January 11, 2019
ITEM 9B
|
OTHER INFORMATION
|
None.
PART III
Certain information required by Part
III is incorporated by reference to FREIT's definitive proxy statement (the "Proxy Statement") to be filed with the Securities
and Exchange Commission no later than 120 days after the end of FREIT's fiscal year covered by this Annual Report. Only those sections
of the Proxy Statement that specifically address the items set forth in this Annual Report are incorporated by reference from the
Proxy Statement into this Annual Report.
ITEM 10
|
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
|
The information required by this item
is incorporated herein by reference to the sections titled "Election of Trustees" and “Section 16(a) Beneficial
Ownership Reporting Compliance" in FREIT's Proxy Statement for its Annual Meeting to be held in April 2019.
ITEM 11
|
EXECUTIVE COMPENSATION
|
The information required by this item
is incorporated herein by reference to the section titled “Executive Compensation" in FREIT's Proxy Statement for its
Annual Meeting to be held in April 2019.
ITEM 12
|
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
|
The information required by this item
is incorporated herein by reference to the section titled "Security Ownership of Certain Beneficial Owners and Management"
in FREIT's Proxy Statement for its Annual Meeting to be held in April 2019.
ITEM 13
|
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
|
The information required by this item
is incorporated herein by reference to the section titled "Certain Relationships and Related Party Transactions; Director
Independence" in FREIT's Proxy Statement for its Annual Meeting to be held in April 2019.
ITEM 14
|
PRINCIPAL ACCOUNTANT FEES AND SERVICES
|
The information required by this item
is incorporated by reference to the sections titled “Audit Fees,” “Audit-Related Fees,” “Tax Fees”
and “All Other Fees” contained in FREIT’s Proxy Statement for its Annual Meeting to be held in April 2019.
PART IV
ITEM 15:
|
EXHIBITS, FINANCIAL STATEMENTS AND SCHEDULES
|
(a) Financial Statements:
|
Page
|
|
|
(i) Report of Independent Registered Public Accounting Firm
|
46
|
|
|
(ii) Consolidated Balance Sheets as of October 31, 2018 and 2017
|
47
|
|
|
(iii) Consolidated Statements of Income for the years ended October 31, 2018, 2017 and 2016
|
48
|
|
|
(iv) Consolidated Statements of Comprehensive Income for the years ended October 31, 2018, 2017 and 2016
|
49
|
|
|
(v) Consolidated Statements of Equity for the years ended
October 31, 2018, 2017 and 2016
|
50
|
(vi) Consolidated Statements of Cash Flows for the years ended October 31, 2018, 2017 and 2016
|
51
|
|
|
(vii) Notes to Consolidated Financial Statements
|
52
|
|
|
(b) Financial Statement Schedule:
|
|
|
|
(i) III - Real Estate and Accumulated Depreciation
|
67/68
|
|
|
(c) Exhibits:
|
|
|
|
See Index to Exhibits.
|
69
|
SIGNATURES
In accordance with Section 13 or 15(d) of the
Securities Exchange Act of 1934, FREIT has duly caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
|
|
First Real Estate Investment Trust of New Jersey
|
|
Dated: January 11, 2019
|
|
By: /s/ Robert S. Hekemian, Jr.
|
|
|
|
Robert S. Hekemian, Jr.
Chief Executive Officer
(Principal Executive Officer)
|
|
|
|
By: /s/ Donald W. Barney
|
|
|
|
Donald W. Barney
President, Treasurer and Chief Financial Officer
(Principal Financial/Accounting Officer)
|
|
KNOW ALL MEN BY THESE PRESENTS, that
each person whose signature appears below constitutes and appoints each of Robert S. Hekemian, Jr. and Donald W. Barney his true
and lawful attorney-in-fact and agent for him and in his name, place an stead, in any and all capacities, to sign any and all amendments
to this Annual Report on Form 10-K, and to file the same, with all exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent full power and authority to do and perform
each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes
as they might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent may lawfully do or
cause to be done by virtue hereof.
In accordance with Section 13 or
15(d) of the Exchange Act, the Registrant has caused this report to be signed by the following persons in the capacities and on
the dates stated.
Signatures
|
Title
|
Date
|
/s/ Robert S. Hekemian,
Jr.
|
Chief Executive Officer (Principal
|
January 11, 2019
|
Robert S. Hekemian, Jr.
|
Executive Officer) and Trustee
|
|
/s/ Donald W. Barney
|
President, Treasurer, Chief Financial
|
January 11, 2019
|
Donald W. Barney
|
Officer (Principal Financial /
Accounting Officer) and Trustee
|
|
/s/ Ronald J. Artinian
|
|
|
Ronald J. Artinian
|
Chairman of the Board and Trustee
|
January 11, 2019
|
/s/ Alan L. Aufzien
|
Trustee
|
January 11, 2019
|
Alan L. Aufzien
|
|
|
/s/ David F. McBride
|
Trustee
|
January 11, 2019
|
David F. McBride
|
|
|
/s/ John A. Aiello
|
Trustee
|
January 11, 2019
|
John A. Aiello
|
|
|
/s/ Justin F. Meng
|
Trustee
|
January 11, 2019
|
Justin F. Meng
|
|
|
/s/ David B. Hekemian
|
Trustee
|
January 11, 2019
|
David Hekemian
|
|
|
/s/ Richard J. Aslanian
|
Trustee
|
January 11, 2019
|
Richard J. Aslanian
|
|
|
REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
To the Trustees and Shareholders of
First Real Estate Investment Trust of New Jersey
Opinion on the Financial Statements
We have audited the accompanying consolidated
balance sheets of First Real Estate Investment Trust of New Jersey and Subsidiaries (the "Company") as of October 31,
2018 and 2017, and the related consolidated statements of income, comprehensive income, equity, and cash flows for each of the
years in the three-year period ended October 31, 2018, and the related notes and the financial statement schedule identified in
Item 15 (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly,
in all material respects, the consolidated financial position of the Company as of October 31, 2018 and 2017, and the consolidated
results of their operations and their cash flows for each of the years in the three-year period ended October 31, 2018, in conformity
with accounting principles generally accepted in the United States of America.
We also have audited, in accordance with the
standards of the Public Company Accounting Oversight Board (United States) ("PCAOB"), the Company's internal control
over financial reporting as of October 31, 2018, based on criteria established in
Internal Control - Integrated Framework
(
2013
) issued by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO"), and our report
dated January 11, 2019 expressed an unqualified opinion.
Basis for Opinion
These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits.
We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance
with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the
PCAOB.
We conducted our audits in accordance with
the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement, whether due to error or fraud.
Our audits included performing procedures to
assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures
that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures
in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made
by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a
reasonable basis for our opinion.
/s/ EisnerAmper LLP
We have served as the Company's auditor since
2006.
EISNERAMPER LLP
New York, New York
January 11, 2019
FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY AND SUBSIDIARIES
CONSOLIDATED BALANCE
SHEETS
|
|
October 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
(In Thousands of Dollars)
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate, at cost, net of accumulated depreciation
|
|
$
|
344,532
|
|
|
$
|
331,965
|
|
Construction in progress
|
|
|
159
|
|
|
|
129
|
|
Cash and cash equivalents
|
|
|
21,747
|
|
|
|
7,899
|
|
Tenants' security accounts
|
|
|
2,212
|
|
|
|
2,007
|
|
Receivables arising from straight-lining of rents
|
|
|
3,964
|
|
|
|
3,359
|
|
Accounts receivable, net of allowance for doubtful accounts of $276 and
|
|
|
2,298
|
|
|
|
1,767
|
|
$175 as of October 31, 2018 and 2017, respectively
|
|
|
|
|
|
|
|
|
Secured loans receivable
|
|
|
4,000
|
|
|
|
5,451
|
|
Prepaid expenses and other assets
|
|
|
6,034
|
|
|
|
9,135
|
|
Qualified intermediary deposit - 1031 exchange
|
|
|
—
|
|
|
|
6,965
|
|
Deferred charges, net
|
|
|
2,693
|
|
|
|
2,680
|
|
Interest rate cap and swap contracts
|
|
|
4,434
|
|
|
|
1,600
|
|
Total Assets
|
|
$
|
392,073
|
|
|
$
|
372,957
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Mortgages payable
|
|
$
|
350,504
|
|
|
$
|
323,435
|
|
Less unamortized debt issuance costs
|
|
|
3,498
|
|
|
|
1,863
|
|
Mortgages payable, net (Note 5)
|
|
|
347,006
|
|
|
|
321,572
|
|
|
|
|
|
|
|
|
|
|
Due to affiliate
|
|
|
5,417
|
|
|
|
5,172
|
|
Deferred trustee compensation payable
|
|
|
8,457
|
|
|
|
9,078
|
|
Accounts payable and accrued expenses
|
|
|
1,910
|
|
|
|
3,870
|
|
Dividends payable
|
|
|
338
|
|
|
|
—
|
|
Tenants' security deposits
|
|
|
3,232
|
|
|
|
2,960
|
|
Deferred revenue
|
|
|
1,369
|
|
|
|
1,276
|
|
Interest rate swap contract
|
|
|
—
|
|
|
|
439
|
|
Total Liabilities
|
|
|
367,729
|
|
|
|
344,367
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (Note 8)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity:
|
|
|
|
|
|
|
|
|
Common equity:
|
|
|
|
|
|
|
|
|
Shares of beneficial interest without par value:
|
|
|
|
|
|
|
|
|
8,000,000 shares authorized; 6,993,152 shares issued plus 157,395 and
|
|
|
28,288
|
|
|
|
27,651
|
|
122,092 vested share units granted to Trustees at October 31, 2018
|
|
|
|
|
|
|
|
|
and 2017, respectively
|
|
|
|
|
|
|
|
|
Treasury stock, at cost: 235,536 and 253,083 shares at October 31, 2018
|
|
|
(4,941
|
)
|
|
|
(5,273
|
)
|
and 2017, respectively
|
|
|
|
|
|
|
|
|
Dividends in excess of net income
|
|
|
(4,376
|
)
|
|
|
(4,824
|
)
|
Accumulated other comprehensive income
|
|
|
2,517
|
|
|
|
284
|
|
Total Common Equity
|
|
|
21,488
|
|
|
|
17,838
|
|
Noncontrolling interests in subsidiaries
|
|
|
2,856
|
|
|
|
10,752
|
|
Total Equity
|
|
|
24,344
|
|
|
|
28,590
|
|
Total Liabilities and Equity
|
|
$
|
392,073
|
|
|
$
|
372,957
|
|
See Notes to Consolidated Financial Statements.
FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS
OF INCOME
|
|
Years Ended October 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
|
|
(In Thousands of Dollars, Except Per Share Amounts)
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental income
|
|
$
|
51,267
|
|
|
$
|
45,357
|
|
|
$
|
40,780
|
|
Reimbursements
|
|
|
6,093
|
|
|
|
5,597
|
|
|
|
5,158
|
|
Sundry income
|
|
|
637
|
|
|
|
680
|
|
|
|
316
|
|
Total revenue
|
|
|
57,997
|
|
|
|
51,634
|
|
|
|
46,254
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
16,245
|
|
|
|
15,848
|
|
|
|
13,734
|
|
Lease termination fee
|
|
|
—
|
|
|
|
620
|
|
|
|
—
|
|
Management fees
|
|
|
2,547
|
|
|
|
2,375
|
|
|
|
2,046
|
|
Real estate taxes
|
|
|
8,396
|
|
|
|
10,139
|
|
|
|
8,051
|
|
Depreciation
|
|
|
11,515
|
|
|
|
10,669
|
|
|
|
7,852
|
|
Total expenses
|
|
|
38,703
|
|
|
|
39,651
|
|
|
|
31,683
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
19,294
|
|
|
|
11,983
|
|
|
|
14,571
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment income
|
|
|
267
|
|
|
|
206
|
|
|
|
150
|
|
Unrealized gain on interest rate cap contract
|
|
|
72
|
|
|
|
—
|
|
|
|
—
|
|
Gain on sale of property
|
|
|
—
|
|
|
|
15,395
|
|
|
|
314
|
|
Loan prepayment costs relating to property sale
|
|
|
—
|
|
|
|
(1,139
|
)
|
|
|
—
|
|
Interest expense including amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
of deferred financing costs
|
|
|
(18,667
|
)
|
|
|
(15,762
|
)
|
|
|
(11,936
|
)
|
Net income
|
|
|
966
|
|
|
|
10,683
|
|
|
|
3,099
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (income) loss attributable to noncontrolling
|
|
|
|
|
|
|
|
|
|
|
|
|
interests in subsidiaries
|
|
|
517
|
|
|
|
2,433
|
|
|
|
(94
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to common equity
|
|
$
|
1,483
|
|
|
$
|
13,116
|
|
|
$
|
3,005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share - basic and diluted:
|
|
$
|
0.21
|
|
|
$
|
1.92
|
|
|
$
|
0.44
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
6,883
|
|
|
|
6,833
|
|
|
|
6,783
|
|
Diluted
|
|
|
6,883
|
|
|
|
6,833
|
|
|
|
6,784
|
|
See Notes to Consolidated Financial Statements.
FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS
OF COMPREHENSIVE INCOME
|
|
Years Ended October 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
|
|
(In Thousands of Dollars)
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
966
|
|
|
$
|
10,683
|
|
|
$
|
3,099
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain (loss) on interest rate swap contracts
|
|
|
|
|
|
|
|
|
|
|
|
|
before reclassifications
|
|
|
3,043
|
|
|
|
2,424
|
|
|
|
(1,346
|
)
|
Amount reclassified from accumulated other
|
|
|
|
|
|
|
|
|
|
|
|
|
comprehensive income to interest expense
|
|
|
70
|
|
|
|
528
|
|
|
|
621
|
|
Net unrealized gain (loss) on interest rate swap contracts
|
|
|
3,113
|
|
|
|
2,952
|
|
|
|
(725
|
)
|
Comprehensive income
|
|
|
4,079
|
|
|
|
13,635
|
|
|
|
2,374
|
|
Net (income) loss attributable to noncontrolling interests
|
|
|
517
|
|
|
|
2,433
|
|
|
|
(94
|
)
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized (gain) loss on interest rate swap contracts
|
|
|
|
|
|
|
|
|
|
|
|
|
attributable to noncontrolling interests
|
|
|
(880
|
)
|
|
|
(978
|
)
|
|
|
65
|
|
Comprehensive income (loss) attributable to noncontrolling interests
|
|
|
(363
|
)
|
|
|
1,455
|
|
|
|
(29
|
)
|
Comprehensive income attributable to common equity
|
|
$
|
3,716
|
|
|
$
|
15,090
|
|
|
$
|
2,345
|
|
See Notes to Consolidated Financial Statements.
FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EQUITY
|
|
Common Equity
|
|
|
|
|
|
|
|
|
|
Shares of
Beneficial
Interest
|
|
|
Treasury
Stock at
Cost
|
|
|
Dividends in
Excess of Net
Income
|
|
|
Accumulated
Other
Comprehensive
Income (Loss)
|
|
|
Total
Common
Equity
|
|
|
Noncontrolling
Interests
|
|
|
Total Equity
|
|
|
|
(In Thousands of Dollars, Except Share and Per Share Amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at October 31, 2015
|
|
$
|
25,860
|
|
|
$
|
(5,517
|
)
|
|
$
|
(11,769
|
)
|
|
$
|
(1,030
|
)
|
|
$
|
7,544
|
|
|
$
|
13,693
|
|
|
$
|
21,237
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock based compensation expense
|
|
|
94
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
94
|
|
|
|
|
|
|
|
94
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested share units granted to Trustees
|
|
|
759
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
759
|
|
|
|
|
|
|
|
759
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options exercised
|
|
|
|
|
|
|
244
|
|
|
|
|
|
|
|
|
|
|
|
244
|
|
|
|
|
|
|
|
244
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions to noncontrolling interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
|
(1,095
|
)
|
|
|
(1,095
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
3,005
|
|
|
|
|
|
|
|
3,005
|
|
|
|
94
|
|
|
|
3,099
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends declared, including $76 payable in share units ($1.20 per share)
|
|
|
|
|
|
|
|
|
|
|
(8,152
|
)
|
|
|
|
|
|
|
(8,152
|
)
|
|
|
|
|
|
|
(8,152
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized loss on interest rate swaps
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(660
|
)
|
|
|
(660
|
)
|
|
|
(65
|
)
|
|
|
(725
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at October 31, 2016
|
|
|
26,713
|
|
|
|
(5,273
|
)
|
|
|
(16,916
|
)
|
|
|
(1,690
|
)
|
|
|
2,834
|
|
|
|
12,627
|
|
|
|
15,461
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock based compensation expense
|
|
|
122
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
122
|
|
|
|
|
|
|
|
122
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested share units granted to Trustees
|
|
|
816
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
816
|
|
|
|
|
|
|
|
816
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions to noncontrolling interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
|
(420
|
)
|
|
|
(420
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
|
|
|
|
|
|
|
|
13,116
|
|
|
|
|
|
|
|
13,116
|
|
|
|
(2,433
|
)
|
|
|
10,683
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends declared, including $13 payable in share units ($0.15 per share)
|
|
|
|
|
|
|
|
|
|
|
(1,024
|
)
|
|
|
|
|
|
|
(1,024
|
)
|
|
|
|
|
|
|
(1,024
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized gain on interest rate swaps
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,974
|
|
|
|
1,974
|
|
|
|
978
|
|
|
|
2,952
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at October 31, 2017
|
|
|
27,651
|
|
|
|
(5,273
|
)
|
|
|
(4,824
|
)
|
|
|
284
|
|
|
|
17,838
|
|
|
|
10,752
|
|
|
|
28,590
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock based compensation expense
|
|
|
130
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
130
|
|
|
|
|
|
|
|
130
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested share units granted to Trustees and consultant
|
|
|
839
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
839
|
|
|
|
|
|
|
|
839
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested share units issued to consultant and retired Trustee *
|
|
|
(332
|
)
|
|
|
332
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions to noncontrolling interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
|
(8,259
|
)
|
|
|
(8,259
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
|
|
|
|
|
|
|
|
1,483
|
|
|
|
|
|
|
|
1,483
|
|
|
|
(517
|
)
|
|
|
966
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends declared, including $21 payable in share units ($0.15 per share)
|
|
|
|
|
|
|
|
|
|
|
(1,035
|
)
|
|
|
|
|
|
|
(1,035
|
)
|
|
|
|
|
|
|
(1,035
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized gain on interest rate swaps
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,233
|
|
|
|
2,233
|
|
|
|
880
|
|
|
|
3,113
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at October 31, 2018
|
|
$
|
28,288
|
|
|
$
|
(4,941
|
)
|
|
$
|
(4,376
|
)
|
|
$
|
2,517
|
|
|
$
|
21,488
|
|
|
$
|
2,856
|
|
|
$
|
24,344
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* Represents the issuance of treasury shares to consultant and retired Trustee for share units earned.
See Notes to Consolidated Financial Statements.
FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS
OF CASH FLOWS
|
|
Years Ended October 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
|
|
(In Thousands of Dollars)
|
|
Operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
966
|
|
|
$
|
10,683
|
|
|
$
|
3,099
|
|
Adjustments to reconcile net income to net cash provided by
|
|
|
|
|
|
|
|
|
|
|
|
|
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
11,515
|
|
|
|
10,669
|
|
|
|
7,852
|
|
Amortization
|
|
|
1,789
|
|
|
|
1,932
|
|
|
|
952
|
|
Unrealized gain on interest rate cap contract
|
|
|
(72
|
)
|
|
|
—
|
|
|
|
—
|
|
Stock based compensation expense
|
|
|
130
|
|
|
|
122
|
|
|
|
94
|
|
Trustee fees, consultant fee and related interest paid in stock units
|
|
|
818
|
|
|
|
803
|
|
|
|
683
|
|
Gain on sale of property
|
|
|
—
|
|
|
|
(15,395
|
)
|
|
|
(314
|
)
|
Deferred rents - straight line rent
|
|
|
(605
|
)
|
|
|
(634
|
)
|
|
|
(608
|
)
|
Bad debt expense
|
|
|
198
|
|
|
|
196
|
|
|
|
196
|
|
Net amortization of acquired leases
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Tenants' security accounts
|
|
|
67
|
|
|
|
11
|
|
|
|
109
|
|
Accounts receivable, prepaid expenses and other assets
|
|
|
(2,256
|
)
|
|
|
(2,780
|
)
|
|
|
(793
|
)
|
Accounts payable, accrued expenses and deferred
|
|
|
|
|
|
|
|
|
|
|
|
|
trustee compensation
|
|
|
(1,808
|
)
|
|
|
(1,021
|
)
|
|
|
(3,264
|
)
|
Deferred revenue
|
|
|
93
|
|
|
|
142
|
|
|
|
54
|
|
Net cash provided by operating activities
|
|
|
10,835
|
|
|
|
4,728
|
|
|
|
8,060
|
|
Investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from sale of property
|
|
|
—
|
|
|
|
9,135
|
|
|
|
3,059
|
|
Capital improvements - existing properties
|
|
|
(5,335
|
)
|
|
|
(10,058
|
)
|
|
|
(9,927
|
)
|
Acquisition of Station Place, net of proceeds released from escrow related to 1031 exchange
|
|
|
(12,585
|
)
|
|
|
—
|
|
|
|
—
|
|
Proceeds from payment of secured loans receivable inclusive of accrued interest
|
|
|
1,870
|
|
|
|
—
|
|
|
|
—
|
|
Construction and pre-development costs
|
|
|
—
|
|
|
|
—
|
|
|
|
(13,535
|
)(a)
|
Net cash used in investing activities
|
|
|
(16,050
|
)
|
|
|
(923
|
)
|
|
|
(20,403
|
)
|
Financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Repayment of mortgages and construction loan
|
|
|
(148,680
|
)
|
|
|
(34,254
|
)
|
|
|
(28,314
|
)
|
Proceeds from/(repayment of) credit line
|
|
|
(3,121
|
)
|
|
|
3,121
|
|
|
|
—
|
|
Proceeds from mortgage loan refinancings
|
|
|
166,520
|
|
|
|
23,500
|
|
|
|
25,800
|
|
Proceeds from acquisition mortgage loan
|
|
|
12,350
|
|
|
|
—
|
|
|
|
—
|
|
Proceeds from additional tranche of loan
|
|
|
—
|
|
|
|
—
|
|
|
|
2,320
|
|
Restricted loan proceeds held in/(released from) escrow
|
|
|
1,850
|
|
|
|
—
|
|
|
|
(1,850
|
)
|
Refinancing good faith deposit
|
|
|
960
|
|
|
|
(960
|
)
|
|
|
—
|
|
Proceeds from construction loan
|
|
|
—
|
|
|
|
1,349
|
|
|
|
21,093
|
|
Advanced funding for construction loan reserve
|
|
|
647
|
|
|
|
(647
|
)
|
|
|
—
|
|
Proceeds from exercise of stock options
|
|
|
—
|
|
|
|
—
|
|
|
|
244
|
|
Deferred financing costs
|
|
|
(2,685
|
)
|
|
|
(640
|
)
|
|
|
(377
|
)
|
Interest rate cap contract cost
|
|
|
(88
|
)
|
|
|
—
|
|
|
|
—
|
|
Dividends paid
|
|
|
(676
|
)
|
|
|
(3,033
|
)
|
|
|
(8,072
|
)
|
Due to affiliate
|
|
|
245
|
|
|
|
5,172
|
|
|
|
—
|
|
Distributions to noncontrolling interests
|
|
|
(8,259
|
)
|
|
|
(420
|
)
|
|
|
(1,095
|
)
|
Net cash provided by (used in) financing activities
|
|
|
19,063
|
|
|
|
(6,812
|
)
|
|
|
9,749
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
13,848
|
|
|
|
(3,007
|
)
|
|
|
(2,594
|
)
|
Cash and cash equivalents, beginning of year
|
|
|
7,899
|
|
|
|
10,906
|
|
|
|
13,500
|
|
Cash and cash equivalents, end of year
|
|
$
|
21,747
|
|
|
$
|
7,899
|
|
|
$
|
10,906
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow data:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid, net of amounts capitalized including $1,139 in loan prepayment costs related to property sale in 2017
|
|
$
|
17,040
|
|
|
$
|
15,160
|
|
|
$
|
11,100
|
|
Supplemental schedule of non cash activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Transfer from construction in progress to real estate for completion of Rotunda
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
124,423
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from sale of property, held in escrow pending 1031 exchange
|
|
$
|
—
|
|
|
$
|
6,965
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued capital expenditures, construction costs, pre-development costs and interest
|
|
$
|
82
|
|
|
$
|
413
|
|
|
$
|
3,130
|
|
Financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends declared but not paid
|
|
$
|
338
|
|
|
$
|
—
|
|
|
$
|
2,022
|
|
Dividends paid in share units
|
|
$
|
21
|
|
|
$
|
13
|
|
|
$
|
76
|
|
(a) Includes $4,213 that was incurred and accrued in fiscal 2015; paid in fiscal 2016.
See Notes to Consolidated Financial Statements.
FIRST REAL ESTATE INVESTMENT TRUST OF NEW
JERSEY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Organization and significant accounting
policies:
Organization:
First Real Estate Investment Trust
of New Jersey ("FREIT" or the “Company”) was organized on November 1, 1961 as a New Jersey Business Trust.
FREIT is engaged in owning residential and commercial income producing properties located primarily in New Jersey, Maryland and
New York.
FREIT has elected to be taxed as
a Real Estate Investment Trust under the provisions of Sections 856-860 of the Internal Revenue Code, as amended. Accordingly,
FREIT does not pay federal income tax on income whenever income distributed to shareholders is equal to at least 90% of real estate
investment trust taxable income. Further, FREIT pays no federal income tax on capital gains distributed to shareholders.
FREIT is subject to federal income
tax on undistributed taxable income and capital gains. FREIT may make an annual election under Section 858 of the Internal Revenue
Code to apply part of the regular dividends paid in each respective subsequent year as a distribution for the immediately preceding
year.
Recently issued accounting standards:
In May 2014, the Financial Accounting
Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) No. 2014-09, “
Revenue from
Contracts with Customers
”, which is codified as ASC 606 and effective for fiscal years, and interim periods within those
years, beginning on or after December 15, 2017. ASC 606 outlines a new, single comprehensive model for entities to use in accounting
for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry
specific guidance. Based on the nature of FREIT’s operations and sources of revenue, FREIT does not expect the adoption of
this new accounting guidance to have a significant impact on its consolidated financial statements and footnote disclosures.
In February 2016, the FASB issued
ASU 2016-02, “
Leases (Topic 842)
”, which supersedes the existing guidance for lease accounting, “
Leases
(Topic 840)
”. ASU 2016-02 requires lessees to recognize leases on their balance sheets, and leaves lessor accounting
largely unchanged. The amendments in this ASU are effective for fiscal years beginning after December 15, 2018 and interim periods
within those fiscal years with early adoption permitted. ASU 2016-02 requires a modified retrospective approach for all leases
existing at, or entered into after, the date of initial application, with an option to elect to use certain transition relief.
The Leasing Standard was amended by ASU 2018-11,
“Targeted Improvements
”
(the “Practical Expedient
Amendment”)
in July of 2018 by allowing lessors to elect to combine lease and associated nonlease components, by classes
of underlying asset, in contracts meeting certain criteria. The Company expects to qualify for the practical expedient as allowed
by the Practical Expedient Amendment. Given that this standard has minimal impact on real estate operating lessors, FREIT does
not expect the adoption of this new accounting guidance to have a significant impact on its consolidated financial statements and
footnote disclosures. Based on this new accounting guidance, the Company will no longer be able to capitalize certain leasing costs,
such as legal expenses, as it relates to activities before a lease is entered into.
In November 2016, the FASB issued
ASU No. 2016-18, “
Statement of Cash Flows (Topic 230): Restricted Cash
”, which requires companies to include
cash and cash equivalents that have restrictions on withdrawal or use in total cash and cash equivalents on the statement of cash
flows. ASU 2016-18 is effective for fiscal years beginning after December 15, 2017 and interim periods within those years and early
adoption is permitted including adoption in an interim period. The standard should be applied using a retrospective transition
method to each period presented. FREIT does not expect the adoption of this new accounting guidance to have a significant impact
on its consolidated financial statements and footnote disclosures.
In January 2017, the FASB issued
ASU 2017-01, “
Business Combinations: Clarifying the Definition of a Business
”, which amends guidance that assists
preparers in evaluating whether a transaction will be accounted for as an acquisition of an asset or a business, likely resulting
in more acquisitions being accounted for as asset acquisitions. There are certain differences in accounting under these models,
including the capitalization of transaction expenses and application of a cost accumulation model in an asset acquisition. The
standard is effective for annual periods beginning after December 15, 2017, including interim periods within those periods with
early adoption permitted for certain transactions. Early application of this new accounting guidance is allowed for transactions
for which the acquisition date occurs before the effective date of the amendment, only when the transaction has not been previously
reported in financial statements. FREIT acquired a new property, Station Place, located in Red Bank, New Jersey on December 7,
2017. As such, FREIT early adopted this new accounting guidance in the first quarter of Fiscal 2018 and accounted for this transaction
as an acquisition of an asset capitalizing approximately $550,000 of transaction expenses.
In August 2017, the FASB issued
ASU 2017-12, “
Targeted Improvements to Accounting for Hedging Activities to ASC Topic 815, Derivatives and Hedging ("ASC
815")
” which amends the hedge accounting recognition and presentation requirements in ASC 815. The update is intended
to more closely align hedge accounting with
companies’ risk management strategies, simplify the application of hedge accounting
and increase transparency as to the scope and results of hedge programs. ASU 2017-12 requires subsequent changes in fair value
of a hedging instrument that has been designated and qualifies as a cash flow hedge to be recognized as a component of "other
comprehensive income (loss)." ASU 2017-12 is effective for interim and annual reporting periods in fiscal years beginning
after December 15, 2018, with early adoption permitted. FREIT does not expect the adoption of this new accounting guidance to have
a significant impact on its consolidated financial statements and footnote disclosures.
Principles of consolidation:
The consolidated financial statements
include the accounts of FREIT and the following subsidiaries in which FREIT has a controlling financial interest, including two
LLCs in which FREIT is the managing member with a 40% ownership interest:
Subsidiary
|
|
Owning
Entity
|
|
%
Ownership
|
|
Year
Acquired/Organized
|
|
|
|
|
|
|
|
|
|
|
|
|
Westwood Hills, LLC
|
|
|
FREIT
|
|
|
40%
|
|
|
1994
|
|
S and A Commercial Associates Limited Partnership ("S and A")
|
|
|
FREIT
|
|
|
65%
|
|
|
2000
|
|
Wayne PSC, LLC
|
|
|
FREIT
|
|
|
40%
|
|
|
2002
|
|
Damascus Centre, LLC
|
|
|
FREIT
|
|
|
70%
|
|
|
2003
|
|
Pierre Towers, LLC
|
|
|
S and A
|
|
|
100%
|
|
|
2004
|
|
Grande Rotunda, LLC
|
|
|
FREIT
|
|
|
60%
|
|
|
2005
|
|
WestFREIT, Corp
|
|
|
FREIT
|
|
|
100%
|
|
|
2007
|
|
FREIT Regency, LLC
|
|
|
FREIT
|
|
|
100%
|
|
|
2014
|
|
Station Place on Monmouth, LLC
|
|
|
FREIT
|
|
|
100%
|
|
|
2017
|
|
The consolidated financial statements
include 100% of each subsidiary’s assets, liabilities, operations and cash flows, with the interests not owned by FREIT reflected
as "noncontrolling interests in subsidiaries”. All significant inter-company accounts and transactions have been eliminated
in consolidation.
Use of estimates:
The preparation of financial statements
in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management
to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ
from those estimates.
Cash and cash equivalents:
Financial instruments that potentially
subject FREIT to concentrations of credit risk consist primarily of cash and cash equivalents. FREIT considers all highly liquid
investments purchased with an original maturity of three months or less to be cash equivalents. FREIT maintains its cash and cash
equivalents in bank and other accounts, the balances of which, at times, may exceed federally insured limits of $250,000.
Real estate development
costs:
It is FREIT’s policy to capitalize
pre-development costs, which generally include legal and other professional fees and other directly related third-party costs.
Real estate taxes and interest costs incurred during the development and construction phases are also capitalized. FREIT ceases
capitalization of these costs when the project or portion thereof becomes operational, or when construction has been postponed.
In the event of a postponement, capitalization of these costs will recommence once construction on the project resumes.
Depreciation:
Real estate and equipment are depreciated
on the straight-line method by annual charges to operations calculated to absorb costs of assets over their estimated useful lives.
Impairment of long-lived assets:
Impairment losses on long-lived assets,
such as real estate and equipment, are recognized when events or changes in circumstances indicate that the undiscounted cash flows
estimated to be generated by such assets are less than their carrying value and, accordingly, all or a portion of such carrying
value may not be recoverable. Impairment losses are then measured by comparing the fair value of assets to their carrying amounts.
For the fiscal years ended October 31, 2018, 2017 and 2016, there were no impairments of long-lived assets.
Deferred charges:
Deferred charges consist of leasing
commissions which are amortized on the straight-line method over the terms of the applicable leases.
Debt issuance costs:
Debt issuance costs are amortized
on the straight-line method by annual charges to income over the terms of the mortgages. Amortization of such costs is included
in interest expense and approximated $1,050,000, $1,298,000 and $543,000 in 2018, 2017 and 2016, respectively. Unamortized debt
issuance costs are a direct deduction from mortgages payable on the consolidated balance sheets.
Revenue recognition:
Income from leases is recognized
on a straight-line basis regardless of when payment is due. Lease agreements between FREIT and commercial tenants generally provide
for additional rentals and reimbursements based on
such factors as increases in real estate taxes, Consumer Price Indices, common
area maintenance charges and percentage of tenants' sales in excess of specified volumes. These additional rentals are generally
included in income when reported to FREIT, when earned, or ratably over the appropriate period.
Interest rate cap and swap contracts:
FREIT utilizes derivative financial
instruments to reduce interest rate risk. FREIT does not hold or issue derivative financial instruments for trading purposes. FREIT
recognizes all derivatives as either assets or liabilities in the consolidated balance sheets and measures those instruments at
fair value. Changes in fair value of those instruments, which qualify as effective cash flow hedges, are reported in other comprehensive
income. Changes in fair value of those instruments, which qualify as ineffective cash flow hedges, are reported in the statement
of income (see Note 6 to FREIT’s consolidated financial statements).
Advertising:
FREIT expenses the cost of advertising
and promotions as incurred. Advertising costs charged to operations amounted to approximately $296,000, $386,000 and $257,000 in
2018, 2017 and 2016, respectively.
Stock-based compensation:
FREIT has a stock-based
compensation plan that was approved by FREIT’s Board of Trustees (the “Board”), and ratified by
FREIT’s shareholders. Stock based awards under the plan to employees are accounted for based on their grant-date fair
value (see Note 11 to FREIT’s consolidated financial statements). Stock-based awards to nonemployees are accounted for
based on the fair value of the equity instruments on the vesting date. The fair value is based on observable inputs (level 2
in the fair value hierarchy as provided by authoritative guidance).
Note 2 – Property sales:
On January 11, 2016, FREIT was
notified by Lakeland Bank (as successor by merger to Pascack Community Bank) of its election to exercise the option under its lease
to purchase the property leased by FREIT to Lakeland Bank located in Rochelle Park, New Jersey. Pursuant to the Lease Agreement,
Lakeland Bank had the right to exercise this option at a price equal to the greater of $3 million or the fair market value of the
property as determined by mutual agreement between tenant and landlord. FREIT and Lakeland Bank agreed to a purchase price of $3.1
million. On June 17, 2016, FREIT sold this property, having a carrying amount of approximately $2.7 million (including a straight-line
rent receivable in the amount of approximately $0.5 million), to Lakeland Bank for $3.1 million resulting in a gain of approximately
$0.3 million net of sales fees. This sale resulted in FREIT’s loss of future annual rents from the property of approximately
$241,000, which would have increased periodically through September 2023.
On June 12, 2017, FREIT sold its
Hammel Gardens property, a residential property located in Maywood, New Jersey, for a sale price of $17 million. The sale of this
property, which had a carrying value of approximately $0.7 million, resulted in a capital gain of approximately $15.4 million net
of sales fees and commissions. As a result of this sale, FREIT incurred a loan prepayment cost of approximately $1.1 million and
paid off the related mortgage on the Hammel Gardens property in the amount of approximately $8 million from the proceeds of the
sale. FREIT structured this sale in a manner that qualified it as a like-kind exchange of real estate pursuant to Section 1031
of the Internal Revenue Code. The 1031 exchange transaction resulted in a deferral for income tax purposes of the $15.4 million
capital gain. The net proceeds from this sale, which were approximately $7 million, were held in escrow until a replacement property
was purchased. A replacement property to complete this like-kind exchange was acquired on December 7, 2017, and the sale proceeds
held in escrow were applied to the purchase price of such property (See Note 3 to FREIT’s consolidated financials for further
details).
As the disposal of the Rochelle
Park and Hammel Gardens properties did not represent a strategic shift that would have a major impact on FREIT’s operations
or financial results, the properties’ operations were not reflected as discontinued operations in the accompanying consolidated
financial statements.
Note 3 – Property acquisition:
On December 7, 2017, FREIT completed
the acquisition of Station Place, a residential apartment complex consisting of one building with 45 units, located in Red Bank,
New Jersey through Station Place on Monmouth, LLC (FREIT’s 100% owned consolidated subsidiary). FREIT identified Station
Place as the replacement property for the Hammel Gardens property located in Maywood, New Jersey that FREIT sold on June 12, 2017,
which completed the like-kind exchange pursuant to Section 1031 of the Internal Revenue Code (See Note 2 to FREIT’s consolidated
financial statements). Station Place is part of FREIT’s residential segment. The acquisition cost was $19,550,000 (inclusive
of approximately $550,000 of transaction costs capitalized as part of the asset acquisition), which was funded in part with $7
million in net proceeds from the sale of the Hammel Gardens property, and the remaining balance of $12,350,000 (inclusive of the
transaction costs) was funded by Station Place on Monmouth, LLC through long-term financing for this property from Provident Bank.
The acquisition cost of $19.6 million
has been allocated as follows: $10.8 million to the building and $8.8 million to the land.
Note 4 - Real estate:
Real estate consists of the following:
|
|
Range of
|
|
|
|
|
|
|
|
|
Estimated
|
|
October 31,
|
|
|
|
Useful Lives
|
|
2018
|
|
|
2017
|
|
|
|
|
|
(In Thousands of Dollars)
|
|
Land
|
|
|
|
$
|
86,225
|
|
|
$
|
77,432
|
|
Unimproved land
|
|
|
|
|
405
|
|
|
|
405
|
|
Apartment buildings
|
|
7-40 years
|
|
|
201,793
|
|
|
|
190,554
|
|
Commercial buildings/shopping centers
|
|
5-40 years
|
|
|
165,986
|
|
|
|
162,837
|
|
Equipment/Furniture
|
|
5-15 years
|
|
|
2,090
|
|
|
|
1,931
|
|
Total real estate, gross
|
|
|
|
|
456,499
|
|
|
|
433,159
|
|
Less: accumulated depreciation
|
|
|
|
|
111,967
|
|
|
|
101,194
|
|
Total real estate, net
|
|
|
|
$
|
344,532
|
|
|
$
|
331,965
|
|
Note 5 – Mortgages payable and credit line:
|
|
October 31, 2018
|
|
|
October 31, 2017
|
|
|
|
Principal
|
|
|
Unamortized
Debt Issuance
Costs
|
|
|
Principal
|
|
|
Unamortized
Debt Issuance
Costs
|
|
|
|
(In Thousands of Dollars)
|
|
|
(In Thousands of Dollars)
|
|
Rockaway, NJ (A)
|
|
$
|
16,152
|
|
|
$
|
80
|
|
|
$
|
16,660
|
|
|
$
|
109
|
|
Westwood, NJ (B)
|
|
|
19,611
|
|
|
|
134
|
|
|
|
20,220
|
|
|
|
166
|
|
Patchogue, NY (C)
|
|
|
5,231
|
|
|
|
15
|
|
|
|
5,231
|
|
|
|
2
|
|
Wayne, NJ (D)
|
|
|
17,334
|
|
|
|
18
|
|
|
|
17,705
|
|
|
|
44
|
|
River Edge, NJ (E)
|
|
|
10,243
|
|
|
|
87
|
|
|
|
10,456
|
|
|
|
104
|
|
Red Bank, NJ (F)
|
|
|
12,350
|
|
|
|
138
|
|
|
|
—
|
|
|
|
—
|
|
Westwood, NJ (G)
|
|
|
20,134
|
|
|
|
67
|
|
|
|
20,628
|
|
|
|
101
|
|
Wayne, NJ (H)
|
|
|
24,432
|
|
|
|
274
|
|
|
|
25,102
|
|
|
|
308
|
|
Hackensack, NJ (I)
|
|
|
48,000
|
|
|
|
572
|
|
|
|
29,198
|
|
|
|
98
|
|
Damascus, MD (J)
|
|
|
19,865
|
|
|
|
296
|
|
|
|
20,357
|
|
|
|
362
|
|
Middletown, NY (K)
|
|
|
15,922
|
|
|
|
203
|
|
|
|
16,200
|
|
|
|
236
|
|
Total fixed rate
|
|
|
209,274
|
|
|
|
1,884
|
|
|
|
181,757
|
|
|
|
1,530
|
|
Frederick, MD (L)
|
|
|
22,710
|
|
|
|
70
|
|
|
|
23,241
|
|
|
|
209
|
|
Baltimore, MD (M)
|
|
|
118,520
|
|
|
|
1,439
|
|
|
|
115,316
|
|
|
|
—
|
|
Line of credit - Provident Bank (N)
|
|
|
—
|
|
|
|
105
|
|
|
|
3,121
|
|
|
|
124
|
|
Total variable rate
|
|
|
141,230
|
|
|
|
1,614
|
|
|
|
141,678
|
|
|
|
333
|
|
Total
|
|
$
|
350,504
|
|
|
$
|
3,498
|
|
|
$
|
323,435
|
|
|
$
|
1,863
|
|
|
(A)
|
Payable in monthly installments of $115,850 including interest at 5.37% through February 2022 at which time the outstanding balance is due. The mortgage is secured by a residential building in Rockaway, New Jersey having a net book value of approximately $15,590,000 as of October 31, 2018.
|
|
(B)
|
On January 14, 2013, FREIT refinanced
its Westwood Plaza mortgage loan in the amount of $8.0 million, with a new mortgage loan in the amount of $22,750,000, which is
payable in monthly installments of $129,702 including interest at 4.75% through January 2023 at which time the outstanding balance
is due. The new mortgage is secured by a retail building in Westwood, New Jersey having a net book value of approximately $7,359,000
as of October 31, 2018.
|
|
(C)
|
The loan, modified effective January 1, 2016, was reduced to interest only payments based on a rate of 4.5% resulting in monthly payments of approximately $19,600. This loan became due on March 1, 2018. FREIT is currently operating under the same terms and conditions of the existing agreement while working with the lender, Oritani Bank, to extend the maturity date of the loan and to provide for monthly payments of principal and interest. Until such time as a definitive agreement providing for an extension of the loan is entered into, there can be no assurance the loan will be extended. The mortgage is secured by a retail building in Patchogue, New York having a net book value of approximately $6,268,000 as of October 31, 2018.
|
|
(D)
|
Payable in monthly installments of $121,100 including interest at 6.09% through September 1, 2019 at which time the outstanding balance is due with an automatic one-year extension of this loan. The mortgage is secured by an apartment building in Wayne, New Jersey having a net book value of approximately $1,663,000 as of October 31, 2018.
|
|
(E)
|
On November 19, 2013, FREIT refinanced mortgage loans scheduled to mature on December 1, 2013 with a new mortgage loan in the amount of $11,200,000 payable in monthly installments of $57,456 including interest at 4.54% through December 1, 2023 at which time the outstanding balance is due. The mortgage is secured by an apartment building in River Edge, New Jersey having a net book value of approximately $804,000 as of October 31, 2018.
|
|
(F)
|
On
December 7, 2017, Station Place on Monmouth, LLC (owned 100% by FREIT) closed on a mortgage loan in the amount of $12,350,000
held by Provident Bank to purchase the Station Place property in Red Bank, New Jersey (see Note 3 to FREIT’s consolidated
financial statements). Interest-only payments are required each month for the first two years of the term and thereafter, principal
payments plus accrued interest will be required each month through maturity. The loan bears a floating interest rate equal to
180 basis points over the one-month BBA LIBOR with a maturity date of December 15, 2027. In order to minimize interest
rate volatility during the term of the loan, Station Place on Monmouth, LLC entered into an interest rate swap agreement that,
in effect, converted the floating interest rate to a fixed interest rate of 4.35% over the term of the loan. (See Note 6 to FREIT’s
consolidated financial statements for additional information relating to the interest rate swap.) The mortgage is secured by an
apartment building in Red Bank, New Jersey having a net book value of approximately $19,303,000 as of October 31, 2018.
As of October 31, 2018, Station Place on Monmouth, LLC was not,
and is not currently, in compliance with a loan covenant contained in the mortgage loan held by Provident Bank. The lender waived
compliance with the loan covenant through October 31, 2018. The lender has agreed in principle to modifications of the loan covenant
that will allow Station Place on Monmouth, LLC to comply with the covenant going forward, subject to execution of a definitive
agreement providing for the modifications. Until such time as a definitive agreement is entered into, there can be no assurance
the loan covenant will be modified.
|
|
(G)
|
Payable in monthly
installments of $120,752 including interest of 4.62% through November 1, 2020
at which time the outstanding balance is due. The mortgage is secured by
an apartment building in Westwood, New Jersey having a net book value
of approximately $9,231,000 as of October 31, 2018.
|
|
(H)
|
On September 29, 2016, Wayne PSC, LLC refinanced its $24,200,000 mortgage loan held by Metropolitan Life Insurance Company, with a new mortgage loan from People’s United Bank in the amount of $25,800,000. The new loan bears a floating interest rate equal to 220 basis points over the one-month BBA LIBOR with a maturity date of October 1, 2026. In order to minimize interest rate volatility during the term of the loan, Wayne PSC, LLC entered into an interest rate swap agreement that, in effect, converted the floating interest rate to a fixed interest rate of 3.625% over the term of the loan. This refinancing resulted in: (i) a reduction in interest rate from 6.04% to 3.625% and (ii) net refinancing proceeds of approximately $1 million that were distributed to the partners in Wayne PSC, LLC with FREIT receiving $0.4 million based on it 40% membership interest in Wayne PSC, LLC. (See Note 6 to FREIT’s consolidated financial statements for additional information relating to the interest rate swap.) The mortgage is secured by a shopping center in Wayne, New Jersey having a net book value of approximately $25,034,000 as of October 31, 2018 including approximately $0.2 million classified as construction in progress.
|
|
(I)
|
On January 8, 2018, Pierre Towers, (which
is owned by S And A Commercial Associates Limited Partnership (“S&A”), a consolidated subsidiary of FREIT), refinanced
its $29.1 million loan held by State Farm with a new mortgage loan from New York Life Insurance in the amount of $48 million. Pierre
Towers paid New York Life Insurance a good faith deposit in the amount of $960,000 (which was included in prepaid expenses and
other assets on the accompanying consolidated balance sheet as of October 31, 2017) and was reimbursed by New York Life when the
loan was closed in January 2018. This refinancing resulted in: (i) a reduction in the annual interest rate from a fixed rate of
5.38% to a fixed rate of 3.88%; and (ii) net refinancing proceeds of approximately $17.2 million (after giving effect to a $1.2
million loan prepayment cost to pay-off the loan held by State Farm) that were distributed to the partners in S&A with FREIT
receiving approximately $11.2 million, based on its 65% membership interest in S&A, which can be used for capital expenditures
and general corporate purposes.
The loan is interest-only for the first
five years of the term with monthly installments of $155,200 each month through January 2023. Thereafter, monthly installments
of principal plus interest totaling $225,851.10 will be required each month until January 2028 at which time the unpaid balance
is due. The mortgage is secured by an apartment building in Hackensack, New Jersey having a net book value of approximately $37,619,000
as of October 31, 2018.
|
|
(J)
|
On December 26, 2012, Damascus Centre,
LLC refinanced its construction loan with long-term financing provided by People’s United Bank and the first tranche of the
new loan was taken-down in the amount of $20 million. Based on leasing and net operating income at the shopping center, People’s
United Bank agreed to a take down of the second tranche of this loan on April 22, 2016 in the amount of $2,320,000, of which approximately
$470,000 was readily available and the remaining $1,850,000 was held in escrow (included in prepaid expenses and other assets in
the accompanying consolidated balance sheet as of October 31, 2017) and would be available to Damascus Centre, LLC once certain
tenants opened and began paying rent. In July 2018, these funds totaling $1,850,000 were released from escrow by the bank and became
readily available to Damascus Centre, LLC. Damascus Centre, LLC distributed amounts due to FREIT and certain members of Damascus
100.
The loan has a maturity date of January
3, 2023 and bears a floating interest rate equal to 210 points over the BBA LIBOR. In order to minimize interest rate volatility
during the term of this loan, Damascus Centre, LLC entered into an interest rate swap agreement that, in effect, converted the
floating interest rate to a fixed interest rate on each tranche of this loan, resulting in a fixed rate of 3.81% over the term
of the first tranche of this loan and a fixed rate of 3.53% over the term of the second tranche of this loan. (See Note 6 to FREIT’s
consolidated financial statements for additional information relating to the interest rate swaps.) The shopping center securing
the loan has a net book value of approximately $26,774,000 as of October 31, 2018.
|
|
(K)
|
On December 29, 2014, FREIT
Regency, LLC closed on a $16.2 million mortgage loan with Provident Bank. The loan bears a floating interest rate equal to 125
basis points over the one-month BBA LIBOR and the loan will mature on December 15, 2024. Interest-only payments had been required
each month through December 15, 2017 and thereafter, principal payments of $27,807 (plus accrued interest) are required each month
through maturity. In order to minimize interest rate volatility during the term of the loan, FREIT Regency, LLC entered into an
interest rate swap agreement that, in effect, converted the floating interest rate to a fixed interest rate of 3.75% over the
term of the loan. (See Note 6 to FREIT’s consolidated financial statements for additional information relating to the interest
rate swap.) The mortgage is secured by an apartment complex in Middletown, New York having a net book value of $19,231,000 as
of October 31, 2018.
|
|
(L)
|
On April 28, 2017, WestFREIT Corp., a consolidated subsidiary, refinanced its $22 million mortgage loan held by Wells Fargo Bank, with a new mortgage loan from Manufacturer’s and Traders Trust Company in the amount of $23.5 million. The new loan bears a floating interest rate equal to 275 basis points over the one-month LIBOR and has a maturity date of April 28, 2019 with the option to extend for 12 months. This refinancing resulted in: (i) a reduction in the annual interest rate from a fixed rate of 5.55% to a variable rate and (ii) net refinancing proceeds of approximately $1.1 million which have been used for general corporate purposes. The new loan is payable in monthly installments of interest (as defined above) plus principal of $43,250 through May 2018 and principal of $45,250 from June 2018 through May 2019 at which time the outstanding balance is due. The mortgage is secured by a retail building in Frederick, Maryland having a net book value of approximately $14,195,000 as of October 31, 2018.
|
|
(M)
|
The original Rotunda acquisition loan
for $22.5 million, which was subsequently reduced to $19.5 million on February 1, 2010, was acquired by FREIT on May 28, 2013.
FREIT subsequently sold this loan to Wells Fargo Bank. On December 9, 2013, Grande Rotunda, LLC, a consolidated subsidiary, closed
with Wells Fargo Bank on a construction loan of up to $120 million to be used to redevelop and expand the Rotunda property in Baltimore,
Maryland with a term of four (4) years, with one twelve-month extension, at a rate of 225 basis points over the monthly LIBOR.
On November 23, 2016, the following terms
and conditions of this loan were modified: (i) the total amount that could have been drawn on this loan was decreased from $120
million to $116.1 million, allowing for an additional draw of $2.1 million over the then existing balance of approximately $114
million to be used for retail tenant improvements and leasing commissions; (ii) leasing benchmarks were no longer required to be
met including the waiver of the leasing benchmarks FREIT was not in compliance with as of June 30, 2016; (iii) Grande Rotunda,
LLC provided an interest reserve to Wells Fargo Bank in the amount of $2 million for the purpose of funding interest payments,
and was obliged to replenish the account balance to $1 million if it should fall below $500,000; (iv) the maturity date of the
loan was changed from December 31, 2017 to October 31, 2017 with no option to extend; and (v) the interest rate on the amount outstanding
on the loan was increased by 25 basis points to 250 basis points over the monthly LIBOR. The following terms and conditions of
this loan were modified and effective as of October 31, 2017: (i) the maturity date of the loan was extended 120 days from October
31, 2017 to February 28, 2018; (ii) the interest rate on the amount outstanding on the loan was increased by 35 basis points to
285 basis points over the monthly LIBOR through December 31, 2017; and (iii) the interest rate on the amount outstanding on the
loan was increased by 65 basis points to 315 basis points over the monthly LIBOR from January 1, 2018 through February 28, 2018.
On February 7, 2018, Grande Rotunda,
LLC refinanced its $115.3 million construction loan held by Wells Fargo with a new loan held by Aareal Capital Corporation in the
amount of approximately $118.5 million with additional funding available for retail tenant improvements and leasing costs in the
amount of $3,380,000. This refinancing paid off the loan previously held by Wells Fargo, funded loan closing costs and paid the
amount due to Hekemian Development Resources for a development fee of $900,000 plus accrued interest of approximately $45,000 (See
Note 9 to FREIT’s consolidated financial statements for further details on this fee). This loan is secured by the Rotunda
property, bears a floating interest rate at 285 basis points over the one-month LIBOR rate and has a maturity date of February
6, 2021 with two one-year renewal options. As part of this transaction, Grande Rotunda, LLC purchased an interest rate cap on LIBOR
for the full amount that can be drawn on this loan of $121.9 million, capping the one-month LIBOR rate at 3% for the first two
years of this loan. As of October 31, 2018, approximately $118.5 million of this loan facility was drawn down and the interest
rate was approximately 5.13%. The loan is secured by the Rotunda property, which has a net book value of approximately $154,526,000
as of October 31, 2018.
|
|
(N)
|
Credit line: On October 27, 2017, FREIT’s revolving line of credit provided by the Provident Bank was renewed for a three-year term ending on October 27, 2020 at which point no further advances shall be permitted and provided the line of credit is not renewed by the lender, the outstanding principal balance of the line of credit shall convert to a commercial term loan maturing on October 31, 2022. Draws against the credit line can be used for working capital needs and standby letters of credit. Draws against the credit line are secured by mortgages on FREIT’s Franklin Crossing Shopping Center in Franklin Lakes, New Jersey and retail space in Glen Rock, New Jersey. The total line of credit was increased from $12.8 million to $13 million and the interest rate on the amount outstanding will be at a floating rate of 275 basis points over the 30-day LIBOR with a floor of 3.75%. During Fiscal 2017, FREIT utilized $3 million of its credit line to fund tenant improvements for new retail tenants at the Rotunda property. As of October 31, 2017, approximately $3.1 million was outstanding (including closing costs of approximately $0.1 million related to the renewal of the line). In February 2018, FREIT repaid the line of credit in the amount of $3.1 million. As of October 31, 2018, there was no amount outstanding and $13 million was available under the line of credit.
|
Certain of the
Company’s mortgage loans and the Credit Line contain financial covenants. Except as noted in Note 5F above, the
Company was in compliance with all of its financial covenants as of October 31, 2018.
Fair value of long-term debt:
The following table shows the
estimated fair value and carrying value of FREIT’s long-term debt at October 31, 2018 and 2017:
|
|
October 31,
|
|
October 31,
|
($ in Millions)
|
|
2018
|
|
2017
|
Fair Value
|
|
$338.3
|
|
$317.8
|
|
|
|
|
|
Carrying Value
|
|
$347.0
|
|
$321.6
|
Fair values are estimated based
on market interest rates at the end of each fiscal year and on discounted cash flow analysis. Changes in assumptions or estimation
methods may significantly affect these fair value estimates. The fair value is based on observable inputs (level 2 in the fair
value hierarchy as provided by authoritative guidance).
Principal amounts (in thousands
of dollars) due under the above obligations in each of the five years subsequent to October 31, 2018 are as follows:
Year Ending
October 31,
|
|
Amount
|
|
2019
|
|
$
|
48,440
|
(a)(c)
|
2020
|
|
$
|
3,727
|
|
2021
|
|
$
|
141,018
|
(b)
|
2022
|
|
$
|
17,388
|
|
2023
|
|
$
|
36,878
|
|
|
|
|
|
|
|
(a)
|
Two loans approximating $39.5 million are extendable for a period of one (1) year.
|
|
(b)
|
Includes Rotunda loan in the amount of approximately $118.5 million refinanced with Aareal Capital Corporation on February
7, 2018. (See Note 5(M) )
|
|
(c)
|
Excludes $12.3 million attributable to Station Place assuming amendment of loan document.
|
Note 6 - Interest
rate cap and swap contracts:
On February 7, 2018, Grande Rotunda,
LLC, a consolidated subsidiary, refinanced its $115.3 million construction loan held by Wells Fargo with a new loan held by Aareal
Capital Corporation in the amount of approximately $118.5 million with additional funding available for retail tenant improvements
and leasing costs in the amount of $3,380,000. This loan bears a floating interest rate at 285 basis points over the one-month
LIBOR rate and has a maturity date of February 6, 2021. At October 31, 2018, the total amount outstanding on this loan was approximately
$118.5 million. As part of this transaction, Grande Rotunda, LLC purchased an interest rate cap on LIBOR for the full amount that
can be drawn on this loan of $121.9 million, capping the one-month LIBOR rate at 3% for the first two years of this loan. At October
31, 2018, the derivative financial instrument has a notional amount of $121.9 million and a maturity date of March 5, 2020.
On December 7, 2017, Station Place
on Monmouth, LLC (owned 100% by FREIT) closed on a $12,350,000 mortgage loan with Provident Bank. The loan bears a floating interest
rate equal to 180 basis points over the one-month BBA LIBOR with a maturity date of December 15, 2027. At October 31, 2018, the
total amount outstanding on this loan was $12,350,000. In order to minimize interest rate volatility during the term of this loan,
Station Place on Monmouth, LLC entered into an interest rate swap agreement that, in effect, converted the floating interest rate
to a fixed interest rate of 4.35% over the term of the loan. At October 31, 2018, the derivative financial instrument has a notional
amount of $12,350,000 and a maturity date of December 2027.
On September 29, 2016, Wayne PSC,
LLC, a consolidated subsidiary, refinanced its $24.2 million mortgage loan held by Metropolitan Life Insurance Company, with a
new mortgage loan from People’s United Bank in the amount of $25.8 million. The new loan bears a floating interest rate equal
to 220 basis points over the one-month BBA LIBOR with a maturity date of October 1, 2026. At October 31, 2018, the total amount
outstanding on this loan was approximately $24.4 million. In order to minimize interest rate volatility during the term of the
loan, Wayne PSC, LLC entered into an interest rate swap agreement that, in effect, converted the floating interest rate to a fixed
interest rate of 3.625% over the term of the loan. At October 31, 2018, the derivative financial instrument has a notional amount
of approximately $24.4 million and a maturity date of October 2026.
On December 26, 2012, Damascus
Centre, LLC refinanced its construction loan with long-term financing provided by People’s United Bank and the first tranche
of the new loan was taken down in the amount of $20 million. Based on leasing and net operating income at the shopping center,
People’s United Bank agreed to a take down of the second tranche of this loan on April 22, 2016 in the amount of $2,320,000.
The total amount outstanding for both tranches of this loan held with People’s United Bank as of October 31, 2018 was approximately
$19.9 million. The loan has a maturity date of January 3, 2023 and bears a floating interest rate equal to 210 basis points over
the one-month BBA LIBOR. In order to minimize interest rate volatility during the term of this loan, Damascus Centre, LLC entered
into an interest rate swap agreement that, in effect, converted the floating interest rate to a fixed interest rate on each tranche
of this loan, resulting in a fixed rate of 3.81% over the term of the first tranche of this loan and a
fixed rate of 3.53% over
the term of the second tranche of this loan. At October 31, 2018, the derivative financial instrument has a notional amount of
approximately $19.9 million and a maturity date of January 2023.
On December 29, 2014, FREIT Regency,
LLC closed on a $16.2 million mortgage loan with Provident Bank. The loan bears a floating interest rate equal to 125 basis points
over the one-month BBA LIBOR and the loan will mature on December 15, 2024. At October 31, 2018, the total amount outstanding on
this loan was approximately $15.9 million. In order to minimize interest rate volatility during the term of the loan, FREIT Regency,
LLC entered into an interest rate swap agreement that, in effect, converted the floating interest rate to a fixed interest rate
of 3.75% over the term of the loan. At October 31, 2018, the derivative financial instrument has a notional amount of approximately
$15.9 million and a maturity date of December 2024.
In accordance with ASC 815, “
Accounting
for Derivative Instruments and Hedging Activities
”, FREIT is accounting for the Damascus Centre, LLC, FREIT Regency,
LLC, Wayne PSC, LLC and Station Place on Monmouth, LLC interest rate swaps as effective cash flow hedges marking these contracts
to market, taking into account present interest rates compared to the contracted fixed rate over the life of the contract and recording
the unrealized gain or loss on the swaps in comprehensive income. For the year ended October 31, 2018, FREIT recorded an unrealized
gain of approximately $3,113,000 in comprehensive income representing the change in the fair value of these cash flow hedges during
such period with a corresponding asset of approximately $955,000 for the Damascus Centre swaps, $2,452,000 for the Wayne PSC swap,
$408,000 for the Regency swap and $460,000 for the Station Place on Monmouth swap as of October 31, 2018. For the year ended October
31, 2017, FREIT recorded an unrealized gain of $2,952,000 in comprehensive income representing the change in the fair value of
these cash flow hedges during such period with a corresponding asset of approximately $275,000 for the Damascus Centre swaps, $1,325,000
for the Wayne PSC swap and a corresponding liability of approximately $439,000 for the Regency swap as of October 31, 2017. For
the year ended October 31, 2016, FREIT recorded an unrealized loss of $725,000 in comprehensive income representing the change
in the fair value of the swaps during such period with a corresponding liability of $521,000 for the Damascus Centre swaps and
$1,361,000 for the Regency swap and a corresponding asset of $91,000 for the Wayne PSC swap as of October 31, 2016.
The Grande Rotunda, LLC interest
rate cap is for accounting purposes deemed to be accounted for as an ineffective cash flow hedge with a corresponding gain or loss
being recorded in FREIT’s income statement. For the year ended October 31, 2018, FREIT recorded an unrealized gain in the
consolidated statement of income of approximately $72,000 for the Grande Rotunda, LLC interest rate cap representing the change
in the fair value of this ineffective cash flow hedge during such period with a corresponding asset of approximately $159,000 as
of October 31, 2018.
The fair values are based on observable
inputs (level 2 in the fair value hierarchy as provided by authoritative guidance).
Note 7 - Capitalized interest
Interest costs associated with
amounts expended for the Rotunda development were capitalized and included in the cost of the project. Capitalization of interest
ceased upon substantial completion of the project which occurred as of the end of the third quarter of Fiscal 2016. There was no
interest capitalized in Fiscal 2018 and Fiscal 2017. Interest capitalized during the year ended October 31, 2016 amounted to approximately
$2,611,000.
Note 8 - Commitments and contingencies:
Leases:
Commercial tenants:
FREIT leases commercial space having
a net book value of approximately $152.6 million at October 31, 2018 to tenants for periods of up to twenty-five years. Most of
the leases contain clauses for reimbursement of real estate taxes, maintenance, insurance and certain other operating expenses
of the properties.
Minimum rental income (in thousands
of dollars) to be received from non-cancelable operating leases in years subsequent to October 31, 2018 is as follows:
Year Ending October 31,
|
|
Amount
|
|
2019
|
|
$
|
19,511
|
|
2020
|
|
|
18,725
|
|
2021
|
|
|
16,825
|
|
2022
|
|
|
13,483
|
|
2023
|
|
|
10,924
|
|
Thereafter
|
|
|
52,561
|
|
Total
|
|
$
|
132,029
|
|
The above amounts assume that all
leases which expire are not renewed and, accordingly, neither minimal rentals nor rentals from replacement tenants are included.
Minimum future rentals do not include
contingent rentals, which may be received under certain leases on the basis of percentage of reported tenants' sales volume or
increases in Consumer Price Indices. Rental income that
is contingent on future events is not included in income until the contingency
is resolved. Contingent rentals included in income for each of the three years for the period ended October 31, 2018 were
not material.
Residential tenants:
Lease terms for residential tenants
are usually one to two years.
Environmental concerns:
The Westwood Plaza Shopping Center
property is in a Flood Hazard Zone. FREIT maintains flood insurance in the amount of $500,000 for the subject property, which is
the maximum available under the Flood Program for the property. Any reconstruction of that portion of the property situated in
the flood hazard zone is subject to regulations promulgated by the New Jersey Department of Environmental Protection ("NJDEP"),
which could require extraordinary construction methods.
Prior to its purchase in November
2002 by Wayne PSC, LLC, a 40% owned consolidated affiliate of FREIT (“Wayne PSC”), a Phase I and Phase II Environmental
Assessment of the Preakness shopping center revealed soil and ground water contamination with Percloroethylene (Dry Cleaning Fluid)
caused by the mishandling of this chemical by a former dry cleaner tenant. The seller of the center to Wayne PSC has paid for and
completed all required remediation work in accordance with the NJDEP standards, and this matter is now closed. In prior years,
FREIT conducted environmental audits for all of its properties except for its undeveloped land and retail properties in Franklin
Lakes (Franklin Crossing) and Glen Rock, New Jersey. Except as noted above, the environmental reports secured by FREIT have not
revealed any environmental conditions on its properties, which require remediation pursuant to any applicable federal or state
law or regulation.
FREIT has determined that several
of its properties contain lead based paint (“LBP”). FREIT believes that it complies with all federal, state and local
requirements as they pertain to LBP.
FREIT does not believe that the
environmental conditions described above will have a material adverse effect upon the capital expenditures, revenues, earnings,
financial condition or competitive position of FREIT.
Note 9 - Management agreement, fees and transactions with
related party:
On April 10, 2002, FREIT and Hekemian
& Co., Inc. (“Hekemian”) executed a Management Agreement whereby Hekemian would continue as Managing Agent for
FREIT. The term of the Management Agreement was renewed on November 1, 2017 for a two-year term which will expire on October 31,
2019. The Management Agreement automatically renews for successive periods of two years unless either party gives not less than
six (6) months prior notice to the other of non-renewal.
Hekemian currently manages all
the properties owned by FREIT and its affiliates, except for the office building at The Rotunda located in Baltimore, Maryland,
which is managed by an independent third party management company. However, FREIT may retain other managing agents to manage properties
acquired after April 10, 2002 and to perform various other duties such as sales, acquisitions, and development with respect to
any or all properties. Hekemian does not serve as the exclusive property acquisition advisor to FREIT and is not required to offer
potential acquisition properties exclusively to FREIT before acquiring those properties for its own account. The Management Agreement
includes a detailed schedule of fees for those services, which Hekemian may be called upon to perform. The Management Agreement
provides for a termination fee in the event of a termination or non-renewal of the Management Agreement under certain circumstances.
The Management Agreement with Hekemian,
effective November 1, 2001, requires the payment of management fees equal to 4% to 5% of rents collected. Such fees, charged to
operations, were approximately $2,438,000, $2,216,000, and $1,930,000 in Fiscal 2018, 2017 and 2016, respectively. In addition,
the Management Agreement provides for the payment to Hekemian of leasing commissions, as well as the reimbursement of operating
expenses incurred on behalf of FREIT. Such commissions and reimbursements amounted to approximately $742,000, $1,191,000 and $577,000
in Fiscal 2018, 2017 and 2016, respectively. Total Hekemian management fees outstanding at October 31, 2018 and 2017 were approximately
$212,000 and $200,000, respectively, and included in accounts payable on the accompanying consolidated balance sheets. FREIT also
uses the resources of the Hekemian insurance department to secure various insurance coverages for its properties and subsidiaries.
Hekemian is paid a commission for these services. Such commissions were charged to operations and amounted to approximately $178,000,
$175,000 and $164,000 in Fiscal 2018, 2017 and 2016, respectively.
Damascus Centre, LLC owns and operates
the Damascus Center. During Fiscal 2005, the Board authorized an investor group, Damascus 100, LLC (“Damascus 100”),
to acquire a 30% equity interest in Damascus Centre, LLC. The sale price, based on the fair market value of the
shopping center, reduced FREIT’s equity interest to 70%. The sale was completed on October 31, 2006, at a sales price of
$3,224,000, of which FREIT financed approximately $1,451,000. The sale price was equivalent to the book value of the interest sold.
Grande Rotunda, LLC owns and operates
the Rotunda property. FREIT owns a 60% equity interest in Grande Rotunda, LLC and Rotunda 100, LLC (“Rotunda 100”)
owns a 40% equity interest in Grande Rotunda, LLC.
The equity owners of Rotunda 100
and Damascus 100 are principally employees of Hekemian. To incentivize the employees of Hekemian, FREIT advanced, only to employees
of Hekemian, up to 50% of the amount of the equity contributions that the Hekemian employees were required to invest in Rotunda
100 and Damascus 100. These advances were in the form of secured loans that bear interest that will float at 225 basis points over
the ninety (90) day LIBOR, as adjusted each November 1, February 1, May 1 and August 1. These loans are secured by the Hekemian
employees’ interests in Rotunda 100 and Damascus 100, and are full recourse loans. Interest only payments are required to
be made when billed.
No principal payments are required
during the term of the notes, except that the borrowers are required to pay to FREIT all refinancing proceeds and other cash flow
they receive from their interests in Damascus Centre, LLC and Grande Rotunda, LLC. These payments shall be applied first to accrued
and unpaid interest and then any outstanding principal. The notes had maturity dates at the earlier of (a) ten (10) years after
issue (Grande Rotunda, LLC– 6/19/2015, Damascus Centre, LLC – 9/30/2016), or, (b) at the election of FREIT, ninety
(90) days after the borrower terminates employment with Hekemian, at which time all outstanding unpaid principal is due. On May
8, 2008, the Board approved amendments to the existing loan agreements with the Hekemian employees, relative to their interests
in Rotunda 100, to increase the aggregate amount that FREIT may advance to such employees from $2 million to $4 million. On June
4, 2015, the Board approved an extension of the maturity date of the secured loans to occur the earlier of (a) June 19, 2018 or
(b) five days after the closing of a permanent mortgage loan secured by the Rotunda property. On December 7, 2017, the Board approved
a further extension of the maturity dates of these loans to the date or dates upon which distributions of cash are made by Grande
Rotunda, LLC to its members as a result of a refinancing or sale of Grande Rotunda, LLC or the Rotunda property.
In the fourth quarter of Fiscal
2018, the Damascus 100 members repaid their secured notes outstanding in full for a total payment of $1,870,000 which was composed
of principal in the amount of $1,451,000 and accrued interest in the amount of approximately $419,000. As of October 31, 2018,
only the principal and accrued interest on the secured notes receivable with Rotunda 100 members was outstanding. As such, the
aggregate outstanding principal balance of the notes at October 31, 2018 and 2017 was $4,000,000 and $5,451,000, respectively.
The accrued but unpaid interest related to these notes for Fiscal 2018 and Fiscal 2017 amounted to approximately $862,000 and $1,068,000,
respectively, and is included in accounts receivable on the accompanying consolidated balance sheets.
With regard to the funding of the
Rotunda redevelopment project, Wells Fargo Bank, a previous lender, required that Grande Rotunda, LLC contribute not less than
$14,460,000 towards the construction before any construction loan proceeds could be disbursed. To secure these funds, Grande Rotunda,
LLC made a capital call on its members, which are FREIT and Rotunda 100. FREIT’s share (60%) amounted to approximately $8.7
million, and the Rotunda 100 members’ share (40%) amounted to approximately $5.8 million. FREIT, pursuant to previous agreements,
made secured loans to the Rotunda 100 members of approximately $2.1 million towards their share of the $5.8 million capital call,
which were in addition to the loans that FREIT made to the Rotunda 100 members in connection with their initial equity contribution
to Rotunda 100 (described above). The balance of Rotunda 100’s capital call of approximately $3.7 million was initially made
by FREIT until it was repaid by Rotunda 100 in August 2014. As of October 31, 2018, FREIT and Rotunda 100 have made their required
capital call contributions of $8.7 million and $5.8 million, respectively, towards the Rotunda construction financing. Both FREIT
and the Rotunda 100 members are treating their required capital call contributions as additional investments in Grande Rotunda,
LLC.
In Fiscal 2017, Grande Rotunda,
LLC incurred substantial expenditures at the Rotunda property related to retail tenant improvements, leasing costs and operating
expenditures which, in the aggregate, exceeded revenues as the property was still in the rent up phase and the construction loan
held with Wells Fargo at that time was at its maximum level, with no additional funding available to draw. Accordingly, the equity
owners in Grande Rotunda, LLC (FREIT with a 60% ownership and Rotunda 100 with a 40% ownership) contributed their respective pro-rata
share of any cash needs through loans to Grande Rotunda, LLC. As of October 31, 2018 and 2017, Rotunda 100 has funded Grande Rotunda,
LLC with approximately $5.4 million and $5.2 million (including interest), respectively, which is included in “Due to affiliate”
on the accompanying consolidated balance sheets.
From time to time, FREIT engages
Hekemian to provide additional services, such as consulting services related to development, property sales and financing activities
of FREIT. Separate fee arrangements are negotiated between Hekemian and FREIT with respect to such additional services. Such fees
incurred to Hekemian and Resources during Fiscal 2018, 2017 and 2016 were $1,195,000, $467,500 and $443,000, respectively. Fees
incurred during Fiscal 2018 related to commissions to Hekemian for the following: $522,500 for the purchase of the Station Place
property; $400,000 for the refinancing of the Grande Rotunda, LLC loan; $240,000 for the refinancing of the Pierre Towers, LLC
loan; $32,500 for the renewal of FREIT’s line of credit. Fees incurred in Fiscal 2017 related to commissions to Hekemian
relating to the sale of the Hammel Gardens property. Fees incurred in Fiscal 2016 related to the Rotunda development project and
were capitalized and included in the cost of the project.
In Fiscal 2007, FREIT’s Board
of Trustees approved and FREIT executed a development fee agreement for the Rotunda redevelopment project for the development services
to be provided by Hekemian Development Resources, LLC (“Resources”), a wholly-owned subsidiary of Hekemian. The development
fee agreement, as amended, for the Rotunda provided for Resources to receive a fee equal to 6.375% of the development costs as
defined in the
development agreement, less the amount of $3 million previously paid to Hekemian for the Rotunda project. As part
of this agreement, the Board approved the payment of a fee to Resources in the amount of $1.4 million in connection with the revision
to the scope of the Rotunda redevelopment project. Grande Rotunda, LLC paid $500,000 of this fee to Resources in Fiscal 2013 and
the balance of $900,000 became due upon the issuance of a certificate of occupancy for the multi-family portion of this project.
A final certificate of occupancy was issued in Fiscal 2016; however Resources agreed to defer the payment of the $900,000 balance
of this fee (the $900,000 was included in accounts payable on FREIT’s consolidated balance sheet at October 31, 2017). Grande
Rotunda, LLC paid the $900,000 portion of this fee to Resources in February 2018 in connection with the refinancing of the Wells
Fargo construction loan for the Rotunda property with a new loan from Aareal Capital Corporation. Additionally, Grande Rotunda,
LLC paid Resources the amount of approximately $45,000 representing a mutually agreed upon amount of interest on the $900,000 portion
of the fee for the period during which Hekemian Resources had agreed to defer payment thereof.
Robert S. Hekemian, the Chairman
of the Board and Chief Executive Officer of Hekemian, is the former Chairman and Chief Executive Officer of FREIT. Mr. Hekemian
retired as Chairman and Chief Executive Officer of FREIT effective upon the conclusion of FREIT’s 2018 Annual Meeting of
Shareholders held on April 5, 2018 (the “2018 Annual Meeting”). Robert S. Hekemian, Jr., the President of Hekemian,
is a Trustee of FREIT, and succeeded Robert S. Hekemian as Chief Executive Officer of FREIT effective upon the conclusion of the
2018 Annual Meeting. David Hekemian, a Principal of Hekemian, was elected as a Trustee of FREIT at the 2018 Annual Meeting.
Trustee fee expense (including
interest) incurred by FREIT for Fiscal 2018, 2017 and 2016 was approximately $365,000, $538,000 and $532,000, respectively, for
Robert S. Hekemian, $149,000, $65,000 and $65,000, respectively, for Robert S. Hekemian, Jr. and $26,000, $0 and $0, respectively,
for David Hekemian. (See Note 12 to FREIT’s consolidated financial statements).
Pursuant to the terms of a Consulting
Agreement between Robert S. Hekemian and the Trust, Mr. Hekemian will continue to serve the Trust in a consulting capacity effective
upon conclusion of FREIT’s 2018 Annual Meeting. The Consulting Agreement has a term of four years and obliges Mr. Hekemian
to provide advice and consultation with respect to matters pertaining to FREIT and its subsidiaries, affiliates, assets and business
for no fewer than 30 hours per month during the term of the agreement. FREIT will pay Mr. Hekemian a consulting fee of $5,000 per
month during the term of the Consulting Agreement, which shall be payable in the form of Shares on a quarterly basis (i.e. in quarterly
installments of $15,000). The number of Shares to be issued for each quarterly installment of the consulting fee will be determined
by dividing the dollar amount of the consulting fee by the closing price of one Share on the OTC Pink Open Market as of the close
of trading on the last trading day of the calendar quarter with respect to which such consulting fee is payable. For Fiscal 2018,
consulting fee expense for Robert S. Hekemian was approximately $34,200.
Note 10 - Income taxes:
There was no ordinary taxable income
for the fiscal years ended October 31, 2018 and 2017 for FREIT to distribute to its shareholders. As described in Notes 2 and 3
to FREIT’s consolidated financial statements, FREIT completed a like-kind exchange with respect to the sale of the Maywood,
New Jersey property, which was sold on June 12, 2017 resulting in a capital gain of approximately $15.4 million. The tax basis
of Station Place in Red Bank, New Jersey, which was the replacement property in the like-kind exchange, was approximately $18.9
million lower than the acquisition cost of approximately $19.6 million recorded for financial reporting purposes. Accordingly,
no provision for federal or state income taxes related to such gain was recorded in FREIT’s consolidated financial statements
for the fiscal years ended October 31, 2018 and 2017.
FREIT distributed 100% of its ordinary
taxable income for the fiscal year ended October 31, 2016 to its shareholders as dividends. FREIT also distributed 100% of the
capital gain in Fiscal 2016 from the sale of the property in Rochelle Park, New Jersey (See Note 2 to FREIT’s consolidated
financial statements) to its shareholders as dividends. Accordingly, no provision for federal or state income taxes related to
such ordinary taxable income or gain was recorded in FREIT’s consolidated financial statements for the fiscal year ended
October 31, 2016.
As of October 31, 2018, FREIT had
no material uncertain income tax positions. The tax years subsequent to and including the fiscal year ended October 31, 2015 remain
open to examination by the major taxing jurisdictions to which FREIT is subject.
Note 11 - Equity
incentive plan:
On September 10, 1998, the Board
approved FREIT's Equity Incentive Plan (the "Plan") which was ratified by FREIT's shareholders on April 7, 1999, whereby
up to 920,000 of FREIT's shares of beneficial interest (adjusted for stock splits) may be granted to key personnel in the form
of stock options, restricted share awards and other share-based awards. In connection therewith, the Board approved an increase
of 920,000 shares in FREIT's number of authorized shares of beneficial interest. Key personnel eligible for these awards include
trustees, executive officers and other persons or entities including, without limitation, employees, consultants and employees
of consultants, who are in a position to make significant contributions to the success of FREIT. Under the Plan, the exercise price
of all
options will be the fair market value of the shares on the date of grant. The consideration to be paid for restricted share
and other share-based awards shall be determined by the Board, with the amount not to exceed the fair market value of the shares
on the date of grant. The maximum term of any award granted may not exceed ten years. The Board will determine the actual terms
of each award.
On April 4, 2007, FREIT shareholders
approved amendments to the Plan as follows: (a) reserving an additional 300,000 shares for issuance under the Plan; and (b) extending
the term of the Plan until September 10, 2018. On April 5, 2018, FREIT shareholders approved an amendment to FREIT’s Equity
Incentive Plan reserving an additional 300,000 shares for issuance under the Plan. As of October 31, 2018, 447,020 shares are available
for issuance under the Plan.
On September 4, 2014, the Board
approved the grant of 246,000 non-qualified share options under the Plan to certain FREIT executive officers, the members of the
Board and certain employees of Hekemian & Co., Inc., FREIT’s managing agent. The options have an exercise price of $18.45
per share, will vest in equal annual installments over a 5-year period and will expire 10 years from the date of grant, which will
be September 3, 2024.
On November 10, 2016, the Board
approved the grant of 38,000 non-qualified share options under the Plan to two members of the Board who were appointed to the Board
during Fiscal 2016. The options have an exercise price of $21.00 per share, will vest in equal annual installments over a 5-year
period and will expire 10 years from the date of grant, which will be November 9, 2026.
On May 3, 2018, the Board approved
the grant of 38,000 non-qualified share options under the Equity Incentive Plan to two members of the Board who were appointed
to the Board during Fiscal 2018. The options have an exercise price of $15.50 per share, will vest in equal annual installments
over a 5-year period and will expire 10 years from the date of grant, which will be May 2, 2028.
The following table summarizes
stock option activity for Fiscal 2018:
|
|
Year Ended October 31,
|
|
|
|
2018
|
|
|
|
No. of Options
|
|
|
Exercise
|
|
|
|
Outstanding
|
|
|
Price
|
|
Options outstanding at beginning of year
|
|
|
267,780
|
|
|
$
|
18.81
|
|
Options granted during year
|
|
|
38,000
|
|
|
$
|
15.50
|
|
Options forfeited/cancelled during year
|
|
|
—
|
|
|
$
|
—
|
|
Options outstanding at end of year
|
|
|
305,780
|
|
|
$
|
18.40
|
|
Options vested and expected to vest
|
|
|
299,140
|
|
|
|
|
|
Options exercisable at end of year
|
|
|
200,260
|
|
|
|
|
|
The estimated fair value of options granted during Fiscal
2018 was $2.09 per option. Such value was estimated on the grant date using a binomial lattice option pricing model using the following
assumptions:
|
·
|
Expected volatility – 27.6%
|
|
·
|
Risk-free interest rate – 2.94%
|
|
·
|
Imputed option life – 6.6 years
|
|
·
|
Expected dividend yield – 4.7%
|
The estimated fair value of options
granted during Fiscal 2017 was $3.54 per option. Such value was estimated on the grant date using a binomial lattice option pricing
model using the following assumptions:
|
·
|
Expected volatility – 30.30%
|
|
·
|
Risk-free interest rate – 2.23%
|
|
·
|
Imputed option life – 6.3 years
|
|
·
|
Expected dividend yield – 4.66%
|
The expected volatility over the
options’ expected life was based on the historical volatility of the weekly closing price of the Company’s stock over
a five (5) year period. The risk-free interest rate was based on the annual yield on the grant date of a zero-coupon U.S. Treasury
Bond the maturity of which equals the option’s expected life. The imputed option life was based on the simplified expected
term calculation permitted by the SEC, which defines the expected life as the average of the contractual term of the options and
the weighted-average vesting period for all option tranches. The expected dividend yield was based on the Company’s historical
dividend yield, exclusive of capital gain dividends. The fair value is based on observable inputs (level 2 in the fair value hierarchy
as provided by authoritative guidance).
For Fiscal 2018, 2017 and 2016,
compensation expense related to stock options granted amounted to $130,000, $122,000 and $94,000, respectively. At October 31,
2018, there was approximately $229,000 of unrecognized
compensation cost relating to outstanding non-vested stock options to be
recognized over the remaining weighted average vesting period of approximately 2.6 years.
The aggregate intrinsic value of
options vested and expected to vest and options exercisable at October 31, 2018 was approximately $14,000 and $0, respectively.
Note 12 - Deferred
fee plan:
During Fiscal 2001, the Board adopted
a deferred fee plan for its officers and trustees, which was amended and restated in Fiscal 2009 to make the deferred fee plan
compliant with Section 409A of the Internal Revenue Code and the regulations promulgated thereunder (the "Deferred Fee Plan").
Pursuant to the Deferred Fee Plan, any officer or trustee may elect to defer receipt of any fees that would be due them. These
fees include annual retainer and meeting attendance fees as determined by the full Board of Trustees. Prior to the amendments to
the Deferred Fee Plan that went into effect November 1, 2014 (described in the following paragraph), amounts deferred under the
Deferred Fee Plan accrued interest at a rate of 9% per annum, compounded quarterly. Any such deferred fee is to be paid to the
Participants at the later of: (i) the retirement age specified in the deferral election; (ii) actual retirement; or (iii) upon
cessation of a Participant's duties as an officer or trustee.
On September 4, 2014, the Board
approved amendments, effective November 1, 2014, to the FREIT Deferred Fee Plan for its Executive Officers and Trustees, one of
which provides for the issuance of share units payable in FREIT shares in respect of (i) deferred amounts of all Trustee fees on
a prospective basis; (ii) interest on Trustee fees deferred prior to November 1, 2014 (payable at a floating rate, adjusted quarterly,
based on the average 10-year Treasury Bond interest rate plus 150 basis points); and (iii) dividends payable in respect of share
units allocated to participants in the Deferred Fee Plan as a result of deferrals described above. The number of share units credited
to a participant’s account will be determined by the closing price of FREIT shares on the date as set forth in the Deferred
Fee Plan.
All fees payable to Trustees for
the year ended October 31, 2018 were deferred under the Deferred Fee Plan except for fees payable to three Trustees, who elected
to receive such fees in cash. All fees payable to Trustees for the year ended October 31, 2017 were deferred under the Deferred
Fee Plan except for the fees payable to one Trustee, who elected to receive such fees in cash. As a result of the amendment to
the Deferred Fee Plan described above, for the years ended October 31, 2018 and 2017, the aggregate amounts of deferred Trustee
fees together with related interest and dividends were approximately $805,800 and $815,800, respectively, which have been paid
through the issuance of 51,109 and 44,548, vested FREIT share units, respectively, based on the closing price of FREIT shares on
the dates as set forth in the Deferred Fee Plan.
For the years ended October 31,
2018 and 2017, FREIT has charged as expense approximately $784,000 and $802,800, respectively, representing deferred Trustee fees
and interest, and the balance of approximately $21,800 and $13,000, respectively, representing dividends payable in respect of
share units allocated to Plan participants, has been charged to equity.
The Deferred Fee Plan, as amended,
provides that cumulative fees together with accrued interest deferred as of November 1, 2014 will be paid in a lump sum or in annual
installments over a period not to exceed 10 years, at the election of the Participant. As of October 31, 2018 and 2017, approximately
$4,881,000 and $5,224,000, respectively of fees has been deferred together with accrued interest of approximately $3,576,000 and
$3,854,000, respectively.
Note 13 - Dividends and earnings per share:
FREIT declared dividends of approximately
$1,035,000 ($0.15 per share), $1,024,000 ($0.15 per share) and $8,152,000 ($1.20 per share) to shareholders of record during Fiscal
2018, 2017 and 2016.
Basic earnings per share is calculated
by dividing net income attributable to common equity (numerator) by the weighted average number of shares and vested share units
(See Note 12 to FREIT’s consolidated financial statements) outstanding during each period (denominator). The calculation
of diluted earnings per share is similar to that of basic earnings per share, except that the denominator is increased to include
the number of additional shares that would have been outstanding if all potentially dilutive shares, such as those issuable upon
the exercise of stock options, were issued during the period using the Treasury Stock method. Under the Treasury Stock method,
the assumption is that the proceeds received upon exercise of the options, including the unrecognized stock option compensation
expense attributed to future services, are used to repurchase FREIT’s stock at the average market price during the period,
thereby reducing the number of shares to be added in computing diluted earnings per share.
For Fiscal 2018 and 2017, the outstanding
stock options were anti-dilutive with no impact on diluted earnings per share. For Fiscal 2016, the outstanding stock options increased
the average dilutive shares outstanding by approximately 1,627 shares with no impact on earnings per share.
Note 14
- Segment information:
ASC 280-10,
"
Disclosures about Segments of an Enterprise and Related Information
", established standards for reporting financial
information about operating segments in interim and annual financial reports and provides for a "management approach"
in identifying the reportable segments.
FREIT has determined that it
has two reportable segments: commercial properties and residential properties. These reportable segments offer different types
of space, have different types of tenants, and are managed separately because each requires different operating strategies and
management expertise.
During the fiscal years ended
October 31, 2018, 2017 and 2016, the commercial segment is comprised of nine (9) properties after giving effect to the sale of
a property on June 17, 2016 (See Note 2 to FREIT’s consolidated financial statements). The residential segment is comprised
of eight (8) properties during the fiscal year ended October 31, 2018, which is inclusive of the property acquired in Fiscal 2018
(Station Place). The residential segment is comprised of seven (7) properties after giving effect to the sale of a property on
June 12, 2017 (See Note 2 to FREIT’s consolidated financial statements) during the fiscal year ended October 31, 2017. The
residential segment is comprised of eight (8) properties during the fiscal year ended October 31, 2016, which includes the 379-unit
apartment complex constructed as part of the redevelopment and expansion project at the Rotunda which was completed in the third
quarter of Fiscal 2016.
The accounting policies of the segments
are the same as those described in Note 1. The chief operating and decision-making group of FREIT's commercial segment, residential
segment and corporate/other is comprised of FREIT’s Board of Trustees.
FREIT assesses and measures segment
operating results based on net operating income ("NOI"). NOI, a standard used by real estate professionals, is based
on operating revenue and expenses directly associated with the operations of the real estate properties, but excludes: deferred
rents (straight lining), depreciation, financing costs and other items. NOI is not a measure of operating results or cash flows
from operating activities as measured by accounting principles generally accepted in the United States of America, and is not necessarily
indicative of cash available to fund cash needs and should not be considered an alternative to cash flows as a measure of liquidity.
Real estate rental revenue, operating
expenses, NOI and recurring capital improvements for the reportable segments are summarized below and reconciled to consolidated
net income attributable to common equity for each of the years in the three-year period ended October 31, 2018. Asset information
is not reported since FREIT does not use this measure to assess performance.
|
|
Years Ended October 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
|
|
(In Thousands of Dollars)
|
|
Real estate rental revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
25,464
|
|
|
$
|
24,114
|
|
|
$
|
22,694
|
|
Residential
|
|
|
31,928
|
|
|
|
26,886
|
|
|
|
22,952
|
|
Total real estate rental revenue
|
|
|
57,392
|
|
|
|
51,000
|
|
|
|
45,646
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
11,861
|
|
|
|
11,791
|
|
|
|
10,661
|
|
Residential
|
|
|
13,022
|
|
|
|
14,442
|
|
|
|
11,136
|
|
Total real estate operating expenses
|
|
|
24,883
|
|
|
|
26,233
|
|
|
|
21,797
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
13,603
|
|
|
|
12,323
|
|
|
|
12,033
|
|
Residential
|
|
|
18,906
|
|
|
|
12,444
|
|
|
|
11,816
|
|
Total net operating income
|
|
$
|
32,509
|
|
|
$
|
24,767
|
|
|
$
|
23,849
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recurring capital improvements - residential
|
|
$
|
(738
|
)
|
|
$
|
(798
|
)
|
|
$
|
(898
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation to consolidated net income attributable to common equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment NOI
|
|
$
|
32,509
|
|
|
$
|
24,767
|
|
|
$
|
23,849
|
|
Gain on sale of property
|
|
|
—
|
|
|
|
15,395
|
|
|
|
314
|
|
Loan prepayment costs relating to property sale
|
|
|
—
|
|
|
|
(1,139
|
)
|
|
|
—
|
|
Deferred rents - straight lining
|
|
|
605
|
|
|
|
634
|
|
|
|
608
|
|
Lease termination fee
|
|
|
—
|
|
|
|
(620
|
)
|
|
|
—
|
|
Investment income
|
|
|
267
|
|
|
|
206
|
|
|
|
150
|
|
Unrealized gain on interest rate cap contract
|
|
|
72
|
|
|
|
—
|
|
|
|
—
|
|
General and administrative expenses
|
|
|
(2,305
|
)
|
|
|
(2,129
|
)
|
|
|
(2,034
|
)
|
Depreciation
|
|
|
(11,515
|
)
|
|
|
(10,669
|
)
|
|
|
(7,852
|
)
|
Financing costs
|
|
|
(18,667
|
)
|
|
|
(15,762
|
)
|
|
|
(11,936
|
)
|
Net income
|
|
|
966
|
|
|
|
10,683
|
|
|
|
3,099
|
|
Net (income) loss attributable to noncontrolling interests
|
|
|
517
|
|
|
|
2,433
|
|
|
|
(94
|
)
|
Net income attributable to common equity
|
|
$
|
1,483
|
|
|
$
|
13,116
|
|
|
$
|
3,005
|
|
Note 15-
Anchor tenant termination and modification of lease:
FREIT owns and operates an 87,661
square foot shopping center located in Franklin Lakes, New Jersey, the anchor tenant of which is The Stop & Shop Supermarket
Company, LLC (“Stop & Shop”). On July 26, 2017, Stop & Shop entered into a lease modification with FREIT whereby
the tenant exercised its option to renew the lease for a ten-year period with a right of the tenant to terminate the lease at any
time during the fifth year if the store does not meet certain sales volume levels set forth in the modification. This lease modification,
which provided for a $250,000 reduction in annual rent, has adversely affected and will adversely affect FREIT’s future operating
results.
On January 4, 2017, Macy’s,
Inc. announced its intention to close several of its department stores across the United States, including the approximately 81,160
square foot Macy’s anchor store located at the Preakness Shopping Center in Wayne, New Jersey. Wayne PSC, LLC (“Wayne
PSC”), a 40% owned consolidated affiliate of FREIT, owns and operates this shopping center in which Macy’s operated
its store under a long-term lease and was paying annual rent of approximately $234,000 ($2.88 per square foot) with no future rent
escalations for the remaining term and option periods of the lease. On April 25, 2017, Wayne PSC announced it had agreed to a termination
of Macy’s lease effective as of April 15, 2017. To terminate the lease and take possession of the space, Wayne PSC paid Macy’s
a termination fee of $620,000, which was fully expensed in the second quarter of Fiscal 2017. Wayne PSC expects to re-position
this space and re-lease it to a new tenant (or multiple tenants) at market rents, which are currently higher than the rent provided
for under the terminated Macy’s lease. FREIT will lose total consolidated rental income, including reimbursements, of approximately
$0.2 million until such time as the space is re-leased. FREIT anticipates increased revenue from the space when it is fully
re-leased.
Note 16- Selected quarterly financial
data (unaudited):
The following summary represents
the results of operations for each quarter for the years ended October 31, 2018 and 2017 (in thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018:
|
|
Quarter Ended
|
|
|
Year Ended
|
|
|
|
January 31,
|
|
|
April 30,
|
|
|
July 31,
|
|
|
October 31,
|
|
|
October 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
14,194
|
|
|
$
|
14,325
|
|
|
$
|
14,631
|
|
|
$
|
14,847
|
|
|
$
|
57,997
|
|
Expenses
|
|
|
15,114
|
(a)
|
|
|
12,898
|
(b)
|
|
|
14,520
|
|
|
|
14,499
|
|
|
|
57,031
|
|
Net income (loss)
|
|
|
(920
|
)
|
|
|
1,427
|
|
|
|
111
|
|
|
|
348
|
|
|
|
966
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (income) loss attributable to noncontrolling interests in subsidiaries
|
|
|
563
|
|
|
|
(312
|
)
|
|
|
181
|
|
|
|
85
|
|
|
|
517
|
|
Net income (loss) attributable to common equity
|
|
$
|
(357
|
)
|
|
$
|
1,115
|
|
|
$
|
292
|
|
|
$
|
433
|
|
|
$
|
1,483
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share - basic and diluted
|
|
$
|
(0.05
|
)(a)
|
|
$
|
0.16
|
(b)
|
|
$
|
0.04
|
|
|
$
|
0.06
|
|
|
$
|
0.21
|
|
Dividends declared per share
|
|
$
|
—
|
|
|
$
|
0.05
|
|
|
$
|
0.05
|
|
|
$
|
0.05
|
|
|
$
|
0.15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017:
|
|
Quarter Ended
|
|
|
Year Ended
|
|
|
|
January 31,
|
|
|
April 30,
|
|
|
July 31,
|
|
|
October 31,
|
|
|
October 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
12,599
|
|
|
$
|
12,664
|
|
|
$
|
12,680
|
|
|
$
|
13,691
|
|
|
$
|
51,634
|
|
Expenses
|
|
|
12,943
|
|
|
|
14,365
|
(c)
|
|
|
(421
|
)(d)
|
|
|
14,064
|
|
|
|
40,951
|
|
Net income (loss)
|
|
|
(344
|
)
|
|
|
(1,701
|
)
|
|
|
13,101
|
|
|
|
(373
|
)
|
|
|
10,683
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to noncontrolling interests in subsidiaries
|
|
|
407
|
|
|
|
1,002
|
|
|
|
653
|
|
|
|
371
|
|
|
|
2,433
|
|
Net income (loss) attributable to common equity
|
|
$
|
63
|
|
|
$
|
(699
|
)
|
|
$
|
13,754
|
|
|
$
|
(2
|
)
|
|
$
|
13,116
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share - basic and diluted
|
|
$
|
0.01
|
|
|
$
|
(0.10
|
)(c)
|
|
$
|
2.01
|
(d)
|
|
$
|
—
|
|
|
$
|
1.92
|
|
Dividends declared per share
|
|
$
|
0.15
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
0.15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) Includes $1.2 million loan prepayment cost related to refinancing of the loan for Pierre Towers, LLC, owned by S And A Commercial Associates Limited Partnership, which is a consolidated subsidiary. ($0.11 per share)
|
(b) Includes $1.5 million in real estate tax refunds and credits related to tax years 2017 through second quarter of Fiscal 2018 at the Icon property, owned by Grande Rotunda, LLC, which is a consolidated subsidiary. ($0.13 per share)
|
(c) Includes expense for lease termination fee paid in the amount of $620,000 to Macy's to terminate the lease and take possession of the space at the Preakness Shopping center located in Wayne, NJ ($0.03 per share)
|
(d) Includes a $15.4 million gain from the sale of the Maywood, New Jersey property ("Hammel Gardens") on June 12, 2017 offset by a $1.1 million loan prepayment cost related to this sale ($2.08 per share)
|
FIRST REAL ESTATE INVESTMENT TRUST OF NEW
JERSEY AND SUBSIDIARIES
SCHEDULE III – REAL ESTATE AND ACCUMULATED
DEPRECIATION
OCTOBER 31, 2018
(In Thousands of Dollars)
Column A
|
Column B
|
|
Column C
|
|
Column D
|
|
Column E
|
|
Column F
|
|
Column G
|
Column H
|
Column I
|
|
|
|
Initial Cost
|
|
Costs Capitalized
|
|
Gross Amount at Which
|
|
|
|
|
|
|
|
|
|
to Company
|
|
Subsequent
to Acquisition
|
|
Carried at
Close of Period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Life on
|
|
|
|
|
|
Buildings
|
|
|
|
|
|
|
|
|
|
Buildings
|
|
|
|
|
|
|
|
Which
|
|
Encum-
|
|
|
|
and
|
|
|
|
Improve-
|
|
Carrying
|
|
|
|
and
|
|
|
|
Accumulated
|
|
Date of
|
Date
|
Depreciation
|
Description
|
brances
|
|
Land
|
|
Improvements
|
|
Land
|
|
ments
|
|
Costs
|
|
Land
|
|
Improvements
|
|
Total (1)
|
|
Depreciation
|
|
Construction
|
Acquired
|
is Computed
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential Properties:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Steuben Arms, River Edge, NJ
|
$
|
10,243
|
|
$
|
364
|
|
$
|
1,773
|
|
$
|
—
|
|
$
|
1,490
|
|
|
|
|
$
|
364
|
|
$
|
3,263
|
|
$
|
3,627
|
|
$
|
2,823
|
|
1966
|
1975
|
7-40 years
|
Berdan Court, Wayne, NJ
|
|
17,334
|
|
|
250
|
|
|
2,206
|
|
|
—
|
|
|
4,626
|
|
|
|
|
|
250
|
|
|
6,832
|
|
|
7,082
|
|
|
5,419
|
|
1964
|
1965
|
7-40 years
|
Westwood Hills, Westwood, NJ
|
|
20,134
|
|
|
3,849
|
|
|
11,546
|
|
|
—
|
|
|
2,667
|
|
|
|
|
|
3,849
|
|
|
14,213
|
|
|
18,062
|
|
|
8,831
|
|
1965-70
|
1994
|
7-39 years
|
Pierre Towers, Hackensack, NJ
|
|
48,000
|
|
|
8,390
|
|
|
37,486
|
|
|
19
|
|
|
9,254
|
|
|
|
|
|
8,409
|
|
|
46,740
|
|
|
55,149
|
|
|
17,530
|
|
1970
|
2004
|
7-40 years
|
Boulders - Rockaway, NJ
|
|
16,152
|
|
|
1,632
|
|
|
—
|
|
|
3,386
|
|
|
15,835
|
|
|
|
|
|
5,018
|
|
|
15,835
|
|
|
20,853
|
|
|
5,314
|
|
2005-2006
|
1963/1964
|
7-40 years
|
Regency Club - Middletown, NY
|
|
15,922
|
|
|
2,833
|
|
|
17,792
|
|
|
—
|
|
|
713
|
|
|
|
|
|
2,833
|
|
|
18,505
|
|
|
21,338
|
|
|
2,107
|
|
2003
|
2014
|
7-40 years
|
Icon - Baltimore, MD
|
|
65,186
|
|
|
5,871
|
|
|
—
|
|
|
—
|
|
|
87,667
|
|
|
|
|
|
5,871
|
|
|
87,667
|
|
|
93,538
|
|
|
4,927
|
|
2016
|
2005
|
7-40 years
|
Station Place - Red Bank, NJ
|
|
12,350
|
|
|
8,793
|
|
|
10,757
|
|
|
—
|
|
|
—
|
|
|
|
|
|
8,793
|
|
|
10,757
|
|
|
19,550
|
|
|
247
|
|
2015
|
2017
|
7-40 years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Properties:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Damascus Shopping Center,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Damascus, MD
|
|
19,865
|
|
|
2,950
|
|
|
6,987
|
|
|
6,296
|
|
|
17,454
|
|
|
|
|
|
9,246
|
|
|
24,441
|
|
|
33,687
|
|
|
6,913
|
|
1960's
|
2003
|
5-39.5 years
|
Franklin Crossing, Franklin Lakes, NJ
|
|
—
|
|
|
29
|
|
|
—
|
|
|
3,382
|
|
|
7,407
|
|
|
|
|
|
3,411
|
|
|
7,407
|
|
|
10,818
|
|
|
3,996
|
|
1963/75/97
|
1966
|
5-39.5 years
|
Glen Rock, NJ
|
|
—
|
|
|
12
|
|
|
36
|
|
|
—
|
|
|
219
|
|
|
|
|
|
12
|
|
|
255
|
|
|
267
|
|
|
177
|
|
1940
|
1962
|
5-25 years
|
Building formerly occupied by supermarket
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Patchogue, NY
|
|
5,231
|
|
|
2,128
|
|
|
8,818
|
|
|
—
|
|
|
(8
|
)
|
|
|
|
|
2,128
|
|
|
8,810
|
|
|
10,938
|
|
|
4,670
|
|
1997
|
1997
|
15-39.5 years
|
Westridge Square S/C, Frederick, MD
|
|
22,710
|
|
|
9,135
|
|
|
19,159
|
|
|
(1
|
)
|
|
4,682
|
|
|
|
|
|
9,134
|
|
|
23,841
|
|
|
32,975
|
|
|
18,780
|
|
1986
|
1992
|
5-31.5 years
|
Westwood Plaza, Westwood, NJ
|
|
19,611
|
|
|
6,889
|
|
|
6,416
|
|
|
—
|
|
|
2,453
|
|
|
|
|
|
6,889
|
|
|
8,869
|
|
|
15,758
|
|
|
8,399
|
|
1981
|
1988
|
5-31.5 years
|
Preakness S/C, Wayne, NJ
|
|
24,432
|
|
|
9,280
|
|
|
24,217
|
|
|
—
|
|
|
2,374
|
|
|
|
|
|
9,280
|
|
|
26,591
|
|
|
35,871
|
|
|
11,123
|
|
1955/89/00
|
2002
|
5-39.5 years
|
The Rotunda, Baltimore, MD
|
|
53,334
|
|
|
10,392
|
|
|
14,634
|
|
|
232
|
|
|
51,368
|
|
|
|
|
|
10,624
|
|
|
66,002
|
|
|
76,626
|
|
|
10,711
|
|
1920/2016
|
2005
|
5-40 years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land Leased:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rockaway, NJ
|
|
—
|
|
|
114
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
114
|
|
|
—
|
|
|
114
|
|
|
—
|
|
|
1963/1964
|
|
Vacant Land:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Franklin Lakes, NJ
|
|
—
|
|
|
224
|
|
|
—
|
|
|
(156
|
)
|
|
—
|
|
|
|
|
|
68
|
|
|
—
|
|
|
68
|
|
|
—
|
|
|
1966/93
|
|
Wayne, NJ
|
|
—
|
|
|
286
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
286
|
|
|
—
|
|
|
286
|
|
|
—
|
|
|
2002
|
|
Rockaway, NJ
|
|
—
|
|
|
51
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
51
|
|
|
—
|
|
|
51
|
|
|
—
|
|
|
1963/1964
|
|
|
$
|
350,504
|
|
$
|
73,472
|
|
$
|
161,827
|
|
$
|
13,158
|
|
$
|
208,201
|
|
$
|
—
|
|
$
|
86,630
|
|
$
|
370,028
|
|
$
|
456,658
|
|
$
|
111,967
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Total cost for each property is the same for federal income tax purposes, with the exception of Pierre Towers, the Regency
Club, Station Place and the Rotunda properties (Icon and The Rotunda) whose cost for federal income tax purposes is approximately
$42.7 million, $13.3 million, $4.2 million and $168.7 million, respectively.
|
FIRST REAL ESTATE INVESTMENT TRUST OF NEW
JERSEY AND SUBSIDIARIES
SCHEDULE III - REAL ESTATE AND ACCUMULATED
DEPRECIATION
(In Thousands of Dollars)
Reconciliation of Real Estate and Accumulated Depreciation:
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
|
2016
|
|
|
|
|
|
|
|
|
Real estate:
|
|
|
|
|
|
|
|
|
|
Balance, Beginning of year
|
$
|
433,288
|
|
$
|
429,445
|
|
$
|
409,297
|
|
|
|
|
|
|
|
|
|
|
|
Additions - Buildings and improvements
|
|
4,562
|
|
|
6,602
|
|
|
26,206
|
|
|
|
|
|
|
|
|
|
|
|
Disposal - Buildings and improvements
|
|
(742
|
)
|
|
(443
|
)
|
|
(3,513
|
)
|
|
|
|
|
|
|
|
|
|
|
Acquisition (Sale) of property
|
|
19,550
|
|
|
(2,316
|
)
|
|
(2,545
|
)
|
|
|
|
|
|
|
|
|
|
|
Balance, end of year
|
$
|
456,658
|
|
$
|
433,288
|
|
$
|
429,445
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated depreciation:
|
|
|
|
|
|
|
|
|
|
Balance, beginning of year
|
$
|
101,194
|
|
$
|
92,547
|
|
$
|
88,452
|
|
|
|
|
|
|
|
|
|
|
|
Additions - Charged to operating expenses
|
|
11,515
|
|
|
10,667
|
|
|
7,852
|
|
|
|
|
|
|
|
|
|
|
|
Disposal - Buildings and improvements
|
|
(742
|
)
|
|
(409
|
)
|
|
(3,466
|
)
|
|
|
|
|
|
|
|
|
|
|
Sale of property
|
|
—
|
|
|
(1,611
|
)
|
|
(291
|
)
|
|
|
|
|
|
|
|
|
|
|
Balance, end of year
|
$
|
111,967
|
|
$
|
101,194
|
|
$
|
92,547
|
|
FIRST REAL ESTATE INVESTMENT TRUST OF NEW
JERSEY (“FREIT”)
EXHIBIT INDEX
Exhibit
No.
|
|
|
3.1
|
|
Amended and Restated Declaration of Trust of FREIT. (Incorporated by reference to Exhibit 3.1 to FREIT’s Form 8-K filed with the SEC on March 10, 2008)
|
3.2
|
|
Amendment to Amended and Restated Declaration of Trust, dated May 31, 1994. (Incorporated by reference to Exhibit 3.2 to FREIT’s Form 10-K for the year ended October 31, 2013 and filed with the SEC on January 14, 2014.)
|
3.3
|
|
Amendment to Amended and Restated Declaration of Trust, dated September 10, 1998. (Incorporated by reference to Exhibit 3.3 to FREIT’s Form 10-K for the year ended October 31, 2013 and filed with the SEC on January 14, 2014.)
|
3.4
|
|
Amendment to Amended and Restated Declaration of Trust, dated January 21, 2004. (Incorporated by reference to Exhibit 3.4 to FREIT’s Form 10-K for the year ended October 31, 2013 and filed with the SEC on January 14, 2014.)
|
3.5
|
|
Amendment to Amended and Restated Declaration of Trust, dated May 15, 2007. (Incorporated by reference to Exhibit 3.5 to FREIT’s Form 10-K for the year ended October 31, 2013 and filed with the SEC on January 14, 2014.)
|
3.6
|
|
Amendment to Amended and Restated Declaration of Trust, dated March 4, 2008. (Incorporated by reference to Exhibit 3.6 to FREIT’s Form 10-K for the year ended October 31, 2013 and filed with the SEC on January 14, 2014.)
|
3.7
|
|
Amendment to Amended and Restated Declaration of Trust, dated December 4, 2013. (Incorporated by reference to Exhibit 3.7 to FREIT’s Form 10-K for the year ended October 31, 2013 and filed with the SEC on January 14, 2014.)
|
3.8
|
|
Amendment to Amended and Restated Declaration of Trust, dated December 7, 2017. (Incorporated by reference to Exhibit 3.1 to FREIT’s 8-K dated December 7, 2017 and filed with the SEC on December 11, 2017)
|
4
|
|
Form of Specimen Share Certificate, Beneficial Interest in FREIT.
|
10.1
|
|
Management Agreement dated April 10, 2002, by and between FREIT and Hekemian & Co., Inc. (Incorporated by reference to Exhibit 10.1 to FREIT’s Form 10-K for the fiscal year ended October 31, 2009 and filed with the SEC on January 14, 2010)
|
10.2
|
|
Indemnification Agreements by Damascus 100, LLC and Rotunda 100, LLC to FREIT. (Incorporated by reference to
Exhibits 10.1
and
10.2
, respectively, to FREIT’s 10-Q for the quarter ended April 30, 2008 and filed with the SEC on June 9, 2008)
|
10.3
|
|
Notes
to Hekemian employees relative to their investments in each of Grande Rotunda, LLC and Damascus Centre, LLC and the related
documents (pledge and security agreements and amendments). (Incorporated by reference to
Exhibits 10.3.1
,
10.3.2
,
10.3.3
,
10.3.4
,
10.3.5
,
10.3.6
,
10.3.7
,
10.3.8
,
10.3.9
,
10.3.10
,
10.3.11
,
10.3.12
,
10.3.13
,
10.3.14
,
10.3.15
,
10.4.1
,
10.4.2
,
10.4.3
,
10.4.4
,
10.4.5
,
10.4.6
,
10.4.7
,
10.4.8
,
10.4.9
and
10.4.10
, respectively, to
FREIT’s 10-Q for the quarter ended April 30, 2008 and filed with the SEC on
June 9, 2008)
|
10.4
|
|
Agency Agreement dated August 13, 2008 between Damascus Centre, LLC and Hekemian Development Resources, LLC. (Incorporated by reference to Exhibit 10.1 to FREIT’s 10-Q for the quarter ended July 31, 2008 and filed with the SEC on September 9, 2008)
|
10.5
|
|
Agency Agreement dated November 10, 2009 between Grande Rotunda, LLC and Hekemian Development Resources, LLC. (Incorporated by reference to Exhibit 10.1 to FREIT’s Form 10-Q for the quarter ended April 30, 2010 and filed with the SEC on June 9, 2010)
|
10.6
|
|
Amendment No. 1 to Agency Agreement dated as of July 24, 2012 between Grande Rotunda, LLC and Hekemian Resources Development, LLC. (Incorporated by reference to Exhibit 10.6 to FREIT’s Form 10-K for the year ended October 31, 2013 and filed with the SEC on January 14, 2014)
|
10.7
|
|
Line of Credit Note in the principal amount of $18 million executed by FREIT as Borrower, and delivered to The Provident Bank, as Lender, in connection with the Credit Facility provided by The Provident Bank to FREIT. (Incorporated by reference to Exhibit 10.6 to FREIT’s Form 10-K for the fiscal year ended October 31, 2009 and filed with the SEC on January 14, 2010.)
|
10.8
|
|
Amended and Restated Deferred Fee Plan, adopted as of October 31, 2014. (Incorporated by reference to Exhibit 10.8 to FREIT’s Form 10-K for the year ended October 31, 2014 and filed with the SEC on January 14, 2015)
|
10.9
|
|
Amendment No.2 to Amended and Restated Deferred Fee Plan, adopted May 7, 2015. (Incorporated by reference to Exhibit 10.1 to FREIT’s Form 10-Q for the quarter ended July 31, 2015 and filed with the SEC on September 9, 2015)
|
21
|
|
Subsidiaries of FREIT
|
22
|
|
Consent of EisnerAmper LLP
|
31.1
|
|
Rule 13a-14(a) - Certification of Chief Executive Officer
|
31.2
|
|
Rule 13a-14(a) - Certification of Chief Financial Officer
|
32.1
|
|
Section 1350 Certification of Chief Executive Officer
|
32.2
|
|
Section 1350 Certification of Chief Financial Officer
|
101
|
|
The following materials from FREIT’s
annual report on Form 10-K for the fiscal year ended October 31, 2018, formatted in Extensible Business Reporting Language (“XBRL”):
(i) consolidated balance sheets; (ii) consolidated statements of income; (iii) consolidated statements of comprehensive income;
(iv) consolidated statements of equity; (v) consolidated statements of cash flows; and (vi) notes to consolidated financial statements.
|
* FREIT will furnish a copy of any exhibit not included herewith
upon request and upon payment of FREIT’s reasonable expenses in furnishing such exhibit.
EXHIBIT 21
SUBSIDIARIES OF REGISTRANT
Name
|
|
State of Formation and Organization
|
|
Trade Name
|
|
|
|
|
|
S And A Commercial Associates Limited Partnership
|
|
Maryland
|
|
None
|
|
|
|
|
|
Pierre Towers, LLC *
|
|
New Jersey
|
|
Pierre Towers
|
|
|
|
|
|
Damascus Centre, LLC
|
|
New Jersey
|
|
Damascus Center
|
|
|
|
|
|
Westwood Hills, LLC
|
|
New Jersey
|
|
Westwood Hills
|
|
|
|
|
|
Wayne PSC, LLC
|
|
New Jersey
|
|
Preakness S/C
|
|
|
|
|
|
Grande Rotunda, LLC
|
|
Maryland
|
|
The Rotunda/Icon
|
|
|
|
|
|
WestFREIT Corp
|
|
Maryland
|
|
Westridge Square
|
|
|
|
|
|
FREIT Regency, LLC
|
|
New Jersey
|
|
Regency Club
|
|
|
|
|
|
Station Place on Monmouth, LLC
|
|
New Jersey
|
|
Station Place
|
|
|
|
|
|
* Owned 100% by S And A Commercial Associates
EXHIBIT 22
CONSENT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
We consent to the incorporation
by reference in the Registration Statements of First Real Estate Investment Trust of New Jersey and Subsidiaries on Form
S-8 (No. 333-79555, No. 333-142675, No. 333-201922, and No. 333-224712) of our reports dated January 11, 2019, on our audits
of the consolidated financial statements as of October 31, 2018 and 2017 and for each of the years in the three-year
period ended October 31, 2018, the financial statement schedule listed in index Item 15, and the effectiveness of First Real
Estate Investment Trust of New Jersey and Subsidiaries’ internal control over financial reporting as of October 31,
2018, which reports are included in this Annual Report on Form 10-K to be filed on or about January 11, 2019.
/s/ EisnerAmper LLP
EISNERAMPER LLP
New York, New York
January 11, 2019
EXHIBIT 31.1
CERTIFICATION
I, Robert S. Hekemian, Jr., certify
that:
1. I have reviewed this
report on Form 10-K of First Real Estate Investment Trust of New Jersey;
2. Based on my knowledge,
this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by
this report;
3. Based on my knowledge,
the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s
other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed
such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision,
to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in which this report is being prepared;
(b) Designed
such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated
the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about
the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation;
and
(d) Disclosed
in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s
most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected,
or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s
other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting,
to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing
the equivalent functions):
(a) All
significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which
are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information;
and
(b) Any
fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s
internal control over financial reporting.
Date: January 11, 2019
|
|
/s/ Robert S. Hekemian, Jr.
|
|
|
|
Robert S. Hekemian, Jr.
|
|
|
|
Chief Executive Officer
|
|
EXHIBIT 31.2
CERTIFICATION
I, Donald W. Barney, certify that:
1. I have reviewed this
report on Form 10-K of First Real Estate Investment Trust of New Jersey;
2. Based on my knowledge,
this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by
this report;
3. Based on my knowledge,
the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s
other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed
such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision,
to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in which this report is being prepared;
(b) Designed
such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated
the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about
the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation;
and
(d) Disclosed
in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s
most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected,
or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s
other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting,
to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing
the equivalent functions):
(a) All
significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which
are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information;
and
(b) Any
fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s
internal control over financial reporting.
Date: January 11, 2019
|
|
/s/ Donald W. Barney
|
|
|
|
Donald W. Barney
|
|
|
|
President, Treasurer and Chief Financial Officer
|
|
EXHIBIT 32.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF
2002
In connection with the Annual Report of First
Real Estate Investment Trust of New Jersey (the “Company”) on Form 10-K for the year ended October 31, 2018 (the “Report”),
I, Robert S. Hekemian, Jr., Chief Executive Officer of the Company, do hereby certify, pursuant to 18 U.S.C. § 1350, as adopted
pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
(1)
|
the Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, 15 U.S.C. § 78m(a) or 78o(d), and,
|
(2)
|
the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
|
Date: January 11, 2019
|
|
/s/ Robert S. Hekemian, Jr.
|
|
|
|
Robert S. Hekemian
, Jr.
|
|
|
|
Chief Executive Officer
|
|
EXHIBIT 32.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF
2002
In connection with the Annual Report of First
Real Estate Investment Trust of New Jersey (the “Company”) on Form 10-K for the year ended October 31, 2018 (the “Report”),
I, Donald W. Barney, President, Treasurer and Chief Financial Officer of the Company, do hereby certify, pursuant to 18 U.S.C.
§ 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
(1)
|
the Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, 15 U.S.C. § 78m(a) or 78o(d), and,
|
(2)
|
the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
|
Date: January 11, 2019
|
|
/s/ Donald W. Barney
|
|
|
|
Donald W. Barney
|
|
|
|
President, Treasurer and Chief Financial Officer
|
|
L to R from back row: Ronald Artinian, Robert Hekemian, Robert Hekemian, Jr., Justin Meng,
Richard Aslanian, Donald Barney (retired in February 2019), Alan Aufzien, David McBride,
David Hekemian, John Aiello.
symbol: FREVS
auditors
EisnerAmper, LLP New York, NY
transFer agent
Computershare, Jersey City, NJ
annual meeting
The Annual Meeting of Shareholders
is scheduled for Thursday,
April 4, 2019 at 7:30 p.m. to be
held at the offices of First Real
Estate Investment Trust of
New Jersey, 505 Main Street,
Hackensack, NJ 07601.
corporate
headquarters
505 Main Street
Hackensack, NJ 07601
T: 201.488.6400
F: 201.487.1798
www.freitnj.com
managing agent
Hekemian & Co., Inc.
Hackensack, NJ
T: 201.487.1500
F: 201.487.7881
www.hekemian.com
oFFicers
Ronald J. Artinian
Chairman of the Board
Robert S. Hekemian, Jr.
President and Chief Executive Officer
Allan Tubin
Treasurer and Chief Financial Officer
John A. Aiello, Esq.
Secretary and Executive Secretary
trustees
John A. Aiello, Esq.
Shareholder and Officer,
Giordano, Halleran & Ciesla, P.C.
Ronald J. Artinian (1) (2) (6)
Private Investor
Richard Aslanian (2) (4) (6)
Co-founder, Welcome Home Brands, LLC
Alan L. Aufzien (2) (4)
Chairman, Norall Organisation
David B. Hekemian
Executive Vice President,
Hekemian & Co.,Inc.
Robert S. Hekemian, Jr. (6)
President and COO,
Hekemian & Co., Inc.
David F. McBride, Esq. (2) (3) (4) (6)
CEO, McBride Enterprises, Inc.
Justin F. Meng (4) (5) (6)
Co-founder and Managing Partner,
V3 Capital Management, LP
consultant to the trust
Robert S. Hekemian
CEO, Hekemian & Co., Inc.
(1) Chairman of the Audit Committee
(2) Member of the Audit Committee
(3) Chairman of the Compensation Committee
(4) Member of the Compensation Committee
(5) Chairman of the Long-term Planning Committee
First Real Estate Investment Trust
of New Jersey
www.freitnj.com
First Real Estate Invest... (PK) (USOTC:FREVS)
過去 株価チャート
から 6 2024 まで 7 2024
First Real Estate Invest... (PK) (USOTC:FREVS)
過去 株価チャート
から 7 2023 まで 7 2024