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.
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 41 of this Form 10-K.
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, 2019. The Company implemented a new accounting and reporting system
and updated the relevant controls in the third quarter of Fiscal 2019. The change in FREIT’s internal control over
financial reporting during the period covered by this report has neither materially affected, nor is reasonably likely to
materially affect, FREIT’s internal control over financial reporting.
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.
We have audited First Real Estate Investment
Trust of New Jersey and Subsidiaries' (the "Company") internal control over financial reporting as of October 31, 2019,
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, 2019, 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, 2019 and 2018, and the related
consolidated statements of income, comprehensive (loss) income, equity, and cash flows for each of the years in the
three-year period ended October 31, 2019, and the related notes and the financial statement schedule identified in Item 15
and our report dated January 21, 2020 expressed an unqualified 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.
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.
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.
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 2020.
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 2020.
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 2020.
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 2020.
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 2020.
PART IV
ITEM 15:
|
EXHIBITS, FINANCIAL STATEMENTS AND SCHEDULES
|
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 21, 2020
|
|
By: /s/ Robert S. Hekemian, Jr.
|
|
|
|
Robert S. Hekemian, Jr.
President and Chief Executive Officer
(Principal Executive Officer)
|
|
|
|
By: /s/ Allan Tubin
|
|
|
|
Allan Tubin
Chief Financial Officer and Treasurer
(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 Allan Tubin 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.
|
President, Chief Executive Officer
|
January 21, 2020
|
Robert S. Hekemian, Jr.
|
(Principal Executive Officer) and
Trustee
|
|
/s/ Allan Tubin
|
Chief Financial Officer and
|
January 21, 2020
|
Allan Tubin
|
Treasurer (Principal Financial /
Accounting Officer)
|
|
/s/ Ronald J. Artinian
|
Chairman of the Board and Trustee
|
January 21, 2020
|
Ronald J. Artinian
|
|
|
/s/ David F. McBride
|
Trustee
|
January 21, 2020
|
David F. McBride
|
|
|
/s/ John A. Aiello
|
Trustee
|
January 21, 2020
|
John A. Aiello
|
|
|
/s/ Justin F. Meng
|
Trustee
|
January 21, 2020
|
Justin F. Meng
|
|
|
/s/ David B. Hekemian
|
Trustee
|
January 21, 2020
|
David Hekemian
|
|
|
/s/ Richard J. Aslanian
|
Trustee
|
January 21, 2020
|
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, 2019 and 2018, and the related consolidated statements of income, comprehensive (loss) income, equity, and
cash flows for each of the years in the three-year period ended October 31, 2019, 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, 2019 and 2018, and the consolidated results of their operations and their cash flows for each of the years in the
three-year period ended October 31, 2019, 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, 2019, 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 21, 2020 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 21, 2020
FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY AND SUBSIDIARIES
CONSOLIDATED BALANCE
SHEETS
|
|
October 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
(In Thousands of Dollars)
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate, at cost, net of accumulated depreciation
|
|
$
|
330,108
|
|
|
$
|
344,532
|
|
Construction in progress
|
|
|
395
|
|
|
|
159
|
|
Cash and cash equivalents
|
|
|
38,075
|
|
|
|
21,747
|
|
Tenants' security accounts
|
|
|
2,278
|
|
|
|
2,212
|
|
Receivables arising from straight-lining of rents
|
|
|
4,374
|
|
|
|
3,964
|
|
Accounts receivable, net of allowance for doubtful accounts of $379 and
|
|
|
|
|
|
|
|
|
$276 as of October 31, 2019 and 2018, respectively
|
|
|
1,741
|
|
|
|
1,436
|
|
Secured loans receivable
|
|
|
5,053
|
|
|
|
4,862
|
|
Prepaid expenses and other assets
|
|
|
5,951
|
|
|
|
6,034
|
|
Deferred charges, net
|
|
|
2,643
|
|
|
|
2,693
|
|
Interest rate cap and swap contracts
|
|
|
—
|
|
|
|
4,434
|
|
Total Assets
|
|
$
|
390,618
|
|
|
$
|
392,073
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Mortgages payable
|
|
$
|
352,790
|
|
|
$
|
350,504
|
|
Less unamortized debt issuance costs
|
|
|
2,886
|
|
|
|
3,498
|
|
Mortgages payable, net (Note 5)
|
|
|
349,904
|
|
|
|
347,006
|
|
|
|
|
|
|
|
|
|
|
Due to affiliate
|
|
|
5,705
|
|
|
|
5,417
|
|
Deferred trustee compensation payable
|
|
|
7,610
|
|
|
|
8,457
|
|
Accounts payable and accrued expenses
|
|
|
3,097
|
|
|
|
1,910
|
|
Dividends payable
|
|
|
1,357
|
|
|
|
338
|
|
Tenants' security deposits
|
|
|
3,381
|
|
|
|
3,232
|
|
Deferred revenue
|
|
|
1,390
|
|
|
|
1,369
|
|
Interest rate swap contract
|
|
|
2,126
|
|
|
|
—
|
|
Total Liabilities
|
|
|
374,570
|
|
|
|
367,729
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (Note 7)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity:
|
|
|
|
|
|
|
|
|
Common equity:
|
|
|
|
|
|
|
|
|
Shares of beneficial interest without par value:
|
|
|
|
|
|
|
|
|
8,000,000 shares authorized; 6,993,152 shares issued plus 192,122 and
|
|
|
28,847
|
|
|
|
28,288
|
|
157,395 vested share units granted to Trustees at October 31, 2019
|
|
|
|
|
|
|
|
|
and 2018, respectively
|
|
|
|
|
|
|
|
|
Treasury stock, at cost: 206,408 and 235,536 shares at October 31, 2019
|
|
|
(4,330
|
)
|
|
|
(4,941
|
)
|
and 2018, respectively
|
|
|
|
|
|
|
|
|
Dividends in excess of net income
|
|
|
(6,762
|
)
|
|
|
(4,376
|
)
|
Accumulated other comprehensive (loss) income
|
|
|
(2,040
|
)
|
|
|
2,517
|
|
Total Common Equity
|
|
|
15,715
|
|
|
|
21,488
|
|
Noncontrolling interests in subsidiaries
|
|
|
333
|
|
|
|
2,856
|
|
Total Equity
|
|
|
16,048
|
|
|
|
24,344
|
|
Total Liabilities and Equity
|
|
$
|
390,618
|
|
|
$
|
392,073
|
|
See Notes to Consolidated Financial Statements.
FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS
OF INCOME
|
|
Years Ended October 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
|
|
(In Thousands of Dollars, Except Per Share Amounts)
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
Rental income
|
|
$
|
53,326
|
|
|
$
|
51,267
|
|
|
$
|
45,357
|
|
Reimbursements
|
|
|
6,429
|
|
|
|
6,093
|
|
|
|
5,597
|
|
Sundry income
|
|
|
522
|
|
|
|
637
|
|
|
|
680
|
|
Total revenue
|
|
|
60,277
|
|
|
|
57,997
|
|
|
|
51,634
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
17,917
|
|
|
|
16,245
|
|
|
|
15,848
|
|
Lease termination fee
|
|
|
—
|
|
|
|
—
|
|
|
|
620
|
|
Management fees
|
|
|
2,603
|
|
|
|
2,547
|
|
|
|
2,375
|
|
Real estate taxes
|
|
|
9,591
|
|
|
|
8,396
|
|
|
|
10,139
|
|
Depreciation
|
|
|
11,339
|
|
|
|
11,515
|
|
|
|
10,669
|
|
Total expenses
|
|
|
41,450
|
|
|
|
38,703
|
|
|
|
39,651
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
18,827
|
|
|
|
19,294
|
|
|
|
11,983
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment income
|
|
|
360
|
|
|
|
267
|
|
|
|
206
|
|
Unrealized (loss) gain on interest rate cap contract
|
|
|
(160
|
)
|
|
|
72
|
|
|
|
—
|
|
Gain on sale of property
|
|
|
836
|
|
|
|
—
|
|
|
|
15,395
|
|
Loan prepayment costs relating to property sale
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,139
|
)
|
Interest expense including amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
of deferred financing costs
|
|
|
(18,070
|
)
|
|
|
(18,667
|
)
|
|
|
(15,762
|
)
|
Net income
|
|
|
1,793
|
|
|
|
966
|
|
|
|
10,683
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (income) loss attributable to noncontrolling
|
|
|
|
|
|
|
|
|
|
|
|
|
interests in subsidiaries
|
|
|
(6
|
)
|
|
|
517
|
|
|
|
2,433
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to common equity
|
|
$
|
1,787
|
|
|
$
|
1,483
|
|
|
$
|
13,116
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share - basic and diluted:
|
|
$
|
0.26
|
|
|
$
|
0.21
|
|
|
$
|
1.92
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
6,940
|
|
|
|
6,883
|
|
|
|
6,833
|
|
See Notes to Consolidated Financial Statements.
FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS
OF COMPREHENSIVE (LOSS) INCOME
|
|
Years Ended October 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
|
|
(In Thousands of Dollars)
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
1,793
|
|
|
$
|
966
|
|
|
$
|
10,683
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive (loss) income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized (loss) gain on interest rate swap contracts
|
|
|
|
|
|
|
|
|
|
|
|
|
before reclassifications
|
|
|
(6,081
|
)
|
|
|
3,043
|
|
|
|
2,424
|
|
Amount reclassified from accumulated other
|
|
|
|
|
|
|
|
|
|
|
|
|
comprehensive income to interest expense
|
|
|
(319
|
)
|
|
|
70
|
|
|
|
528
|
|
Net unrealized (loss) gain on interest rate swap contracts
|
|
|
(6,400
|
)
|
|
|
3,113
|
|
|
|
2,952
|
|
Comprehensive (loss) income
|
|
|
(4,607
|
)
|
|
|
4,079
|
|
|
|
13,635
|
|
Net (income) loss attributable to noncontrolling interests
|
|
|
(6
|
)
|
|
|
517
|
|
|
|
2,433
|
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized loss (gain) on interest rate swap contracts
|
|
|
|
|
|
|
|
|
|
|
|
|
attributable to noncontrolling interests
|
|
|
1,843
|
|
|
|
(880
|
)
|
|
|
(978
|
)
|
Comprehensive income (loss) attributable to noncontrolling interests
|
|
|
1,837
|
|
|
|
(363
|
)
|
|
|
1,455
|
|
Comprehensive (loss) income attributable to common equity
|
|
$
|
(2,770
|
)
|
|
$
|
3,716
|
|
|
$
|
15,090
|
|
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, 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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock based compensation expense
|
|
|
124
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
124
|
|
|
|
|
|
|
|
124
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested share units granted to Trustees and consultant
|
|
|
1,046
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,046
|
|
|
|
|
|
|
|
1,046
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested share units issued to consultant and retired Trustees *
|
|
|
(611
|
)
|
|
|
611
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions to noncontrolling interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
|
(686
|
)
|
|
|
(686
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
1,787
|
|
|
|
|
|
|
|
1,787
|
|
|
|
6
|
|
|
|
1,793
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends declared, including $106 payable in share units ($0.60 per share)
|
|
|
|
|
|
|
|
|
|
|
(4,173
|
)
|
|
|
|
|
|
|
(4,173
|
)
|
|
|
|
|
|
|
(4,173
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized loss on interest rate swaps
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,557
|
)
|
|
|
(4,557
|
)
|
|
|
(1,843
|
)
|
|
|
(6,400
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at October 31, 2019
|
|
$
|
28,847
|
|
|
$
|
(4,330
|
)
|
|
$
|
(6,762
|
)
|
|
$
|
(2,040
|
)
|
|
$
|
15,715
|
|
|
$
|
333
|
|
|
$
|
16,048
|
|
* Represents the issuance
of treasury shares to consultant and retired Trustee(s) 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,
|
|
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
|
|
(In Thousands of Dollars)
|
|
Operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
1,793
|
|
|
$
|
966
|
|
|
$
|
10,683
|
|
Adjustments to reconcile net income to net cash provided by
|
|
|
|
|
|
|
|
|
|
|
|
|
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
11,339
|
|
|
|
11,515
|
|
|
|
10,669
|
|
Amortization
|
|
|
1,750
|
|
|
|
1,789
|
|
|
|
1,932
|
|
Unrealized loss (gain) on interest rate cap contract
|
|
|
160
|
|
|
|
(72
|
)
|
|
|
—
|
|
Stock based compensation expense
|
|
|
124
|
|
|
|
130
|
|
|
|
122
|
|
Trustee fees, consultant fee and related interest paid in stock units
|
|
|
940
|
|
|
|
818
|
|
|
|
803
|
|
Gain on sale of property
|
|
|
(836
|
)
|
|
|
—
|
|
|
|
(15,395
|
)
|
Deferred rents - straight line rent
|
|
|
(410
|
)
|
|
|
(605
|
)
|
|
|
(634
|
)
|
Bad debt expense
|
|
|
263
|
|
|
|
198
|
|
|
|
196
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Tenants' security accounts
|
|
|
149
|
|
|
|
272
|
|
|
|
142
|
|
Accounts receivable, prepaid expenses and other assets
|
|
|
(1,537
|
)
|
|
|
(371
|
)
|
|
|
(4,160
|
)
|
Accounts payable, accrued expenses and deferred
|
|
|
|
|
|
|
|
|
|
|
|
|
trustee compensation
|
|
|
64
|
|
|
|
(1,808
|
)
|
|
|
(1,021
|
)
|
Deferred revenue
|
|
|
21
|
|
|
|
93
|
|
|
|
142
|
|
Net cash provided by operating activities
|
|
|
13,820
|
|
|
|
12,925
|
|
|
|
3,479
|
|
Investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from sale of property, net
|
|
|
7,060
|
|
|
|
—
|
|
|
|
16,100
|
|
Capital improvements - existing properties
|
|
|
(3,087
|
)
|
|
|
(5,335
|
)
|
|
|
(10,058
|
)
|
Acquisition of Station Place
|
|
|
—
|
|
|
|
(19,550
|
)
|
|
|
—
|
|
Proceeds from payment of secured loans receivable inclusive of accrued interest
|
|
|
—
|
|
|
|
1,870
|
|
|
|
—
|
|
Net cash provided by (used in) investing activities
|
|
|
3,973
|
|
|
|
(23,015
|
)
|
|
|
6,042
|
|
Financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Repayment of mortgages and construction loan
|
|
|
(26,529
|
)
|
|
|
(148,680
|
)
|
|
|
(34,254
|
)
|
(Repayment of)/proceeds from credit line
|
|
|
—
|
|
|
|
(3,121
|
)
|
|
|
3,121
|
|
Proceeds from mortgage loan refinancings
|
|
|
28,815
|
|
|
|
166,520
|
|
|
|
23,500
|
|
Proceeds from acquisition mortgage loan
|
|
|
—
|
|
|
|
12,350
|
|
|
|
—
|
|
Proceeds from construction loan
|
|
|
—
|
|
|
|
—
|
|
|
|
1,349
|
|
Deferred financing costs
|
|
|
(539
|
)
|
|
|
(2,685
|
)
|
|
|
(640
|
)
|
Interest rate cap contract cost
|
|
|
—
|
|
|
|
(88
|
)
|
|
|
—
|
|
Dividends paid
|
|
|
(3,048
|
)
|
|
|
(676
|
)
|
|
|
(3,033
|
)
|
Due to affiliate
|
|
|
288
|
|
|
|
245
|
|
|
|
5,172
|
|
Distributions to noncontrolling interests
|
|
|
(686
|
)
|
|
|
(8,259
|
)
|
|
|
(420
|
)
|
Net cash (used in) provided by financing activities
|
|
|
(1,699
|
)
|
|
|
15,606
|
|
|
|
(5,205
|
)
|
Net increase in cash, cash equivalents and restricted cash
|
|
|
16,094
|
|
|
|
5,516
|
|
|
|
4,316
|
|
Cash, cash equivalents and restricted cash, beginning of year
|
|
|
26,394
|
|
|
|
20,878
|
|
|
|
16,562
|
|
Cash, cash equivalents and restricted cash, end of year
|
|
$
|
42,488
|
|
|
$
|
26,394
|
|
|
$
|
20,878
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
$
|
16,337
|
|
|
$
|
17,040
|
|
|
$
|
15,160
|
|
Supplemental schedule of non cash activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued capital expenditures, construction costs, pre-development costs and interest
|
|
$
|
157
|
|
|
$
|
82
|
|
|
$
|
413
|
|
Financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends declared but not paid
|
|
$
|
1,357
|
|
|
$
|
338
|
|
|
$
|
—
|
|
Dividends paid in share units
|
|
$
|
106
|
|
|
$
|
21
|
|
|
$
|
13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the balance sheet:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
38,075
|
|
|
$
|
21,747
|
|
|
$
|
7,899
|
|
Tenants' security accounts
|
|
|
2,278
|
|
|
|
2,212
|
|
|
|
2,007
|
|
Qualified intermediary deposit
|
|
|
—
|
|
|
|
—
|
|
|
|
6,965
|
|
Mortgage escrows (included in prepaid expenses and other assets)
|
|
|
2,135
|
|
|
|
2,435
|
|
|
|
4,007
|
|
Total cash, cash equivalents and restricted cash
|
|
$
|
42,488
|
|
|
$
|
26,394
|
|
|
$
|
20,878
|
|
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.
On November 1, 2018, FREIT adopted
ASU No. 2014-09 using the modified retrospective approach. Since FREIT’s primary source of revenue is operating leases, which
fall under the scope of “Leases, Topic 840” and will be under the scope of “Leases, Topic 842”
once adopted in November 2019, the adoption of ASU No. 2014-09 did not have a significant impact on its consolidated financial
statements and footnote disclosures. Additionally, the Company has elected to adopt the practical expedient under ASU 2018-11,
to not separate nonlease components from the associated lease and, instead, to account for those non-lease components as a single
lease component if the nonlease components otherwise would be accounted for under the new revenue guidance. The adoption of ASU
No. 2014-09 did not have a significant impact on the consolidated financial statements and FREIT did not record any cumulative
adjustment as of the adoption date of November 1, 2018 in connection with the implementation of ASU No. 2014-09.
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 June 2016, the FASB issued ASU
No. 2016-13 "Financial Instruments – Credit Losses (Topic 326)", which amends the current approach to estimate
credit losses on certain financial assets, including trade and other receivables, available-for-sale securities, and other financial
instruments. Generally, this amendment requires entities to establish a valuation allowance for the expected lifetime losses of
these certain financial assets. Subsequent changes in the valuation allowance are recorded in current earnings and reversal of
previous losses are permitted. Currently, U.S. GAAP requires entities to write down credit losses only when losses are probable
and loss reversals are not permitted. The ASU is effective for fiscal years, and interim periods within those fiscal years, beginning
after December 15, 2019, with early adoption permitted for all organizations for fiscal years, and interim periods within those
fiscal years, beginning after December 15, 2018. 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 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 adopted this new accounting guidance in the
first quarter of Fiscal 2019, which changed the presentation of cash and cash equivalents to include restricted cash on the consolidated
statement of cash flows.
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.
The SEC's Disclosure Update and
Simplification rule (Release 33-10532) amends the interim financial statement requirements to require a reconciliation of changes
in stockholders' equity in the notes or as a separate statement. This analysis should reconcile the beginning balance to the ending
balance of each caption in stockholders' equity for each period for which an income statement is required to be filed and comply
with the remaining content requirements of Rule 3-04 of Regulation S-X. As a result, registrants will have to provide the reconciliation
for both the year-to-date and quarterly periods and comparable periods in Form 10-Q but only for the year-to-date periods in registration
statements. The rule does not prescribe the format of the presentation as long as the appropriate periods are provided. Per a Compliance
and Disclosure Interpretation (Q 105.09, Exchange Act Forms, 10-Q), "The amendments are effective for all filings made on
or after November 5, 2018. In light of the timing of effectiveness of the amendments and proximity of effectiveness to the filing
date for most filers' quarterly reports, the staff would not object if the filer's first presentation of the changes in shareholders'
equity is included in its Form 10-Q for the quarter that begins after the effective date of the amendments." This essentially
made the requirements effective for the Company's first quarter 2019 filing. FREIT has adopted this guidance in the first quarter
of Fiscal 2019 by presenting a reconciliation of changes in stockholders’ equity for the current and prior period as a separate
statement.
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
|
|
Berdan Court, LLC
|
|
|
FREIT
|
|
|
100%
|
|
|
2019
|
|
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.
Reclassification:
Certain prior year balance
sheet accounts have been reclassified to conform to the current year presentation.
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.
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, 2019, 2018 and 2017, 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 $1,139,000, $1,050,000 and $1,298,000 in 2019, 2018 and 2017, 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 do not qualify as effective cash flow hedges for accounting purposes,
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 $281,000, $296,000 and $386,000 in
2019, 2018 and 2017, 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 10 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.
Note 2 – Property dispositions:
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).
On February 8, 2019, FREIT sold
a commercial building, formerly occupied as a Pathmark supermarket in Patchogue, New York for a sales price of $7.5 million. The
sale of this property, which had a carrying value of approximately $6.2 million, resulted in a gain of approximately $0.8 million
net of sales fees and commissions. Net cash proceeds of approximately $2 million were realized after paying off the related mortgage
on this property in the amount of approximately $5.2 million. FREIT distributed and paid approximately $676,000 of this gain by
way of a one-time special dividend in connection with and in anticipation of the closing of the sale of the Patchogue property
of $0.10 per share. The sale of this property eliminates an operating loss of approximately $0.8 million ($0.12 per share) incurred,
annually, since Pathmark vacated the building in December 2015.
As the disposal of the Hammel Gardens
and Patchogue 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
|
|
2019
|
|
|
2018
|
|
|
|
|
|
(In Thousands of Dollars)
|
|
Land
|
|
|
|
$
|
84,097
|
|
|
$
|
86,225
|
|
Unimproved land
|
|
|
|
|
405
|
|
|
|
405
|
|
Apartment buildings
|
|
7-40 years
|
|
|
202,486
|
|
|
|
201,793
|
|
Commercial buildings/shopping centers
|
|
5-40 years
|
|
|
159,186
|
|
|
|
165,986
|
|
Equipment/Furniture
|
|
5-15 years
|
|
|
2,297
|
|
|
|
2,090
|
|
Total real estate, gross
|
|
|
|
|
448,471
|
|
|
|
456,499
|
|
Less: accumulated depreciation
|
|
|
|
|
118,363
|
|
|
|
111,967
|
|
Total real estate, net
|
|
|
|
$
|
330,108
|
|
|
$
|
344,532
|
|
Note 5 – Mortgages payable and credit line:
|
|
October 31, 2019
|
|
|
October 31, 2018
|
|
|
|
Principal
|
|
|
Unamortized
Debt Issuance
Costs
|
|
|
Principal
|
|
|
Unamortized
Debt Issuance
Costs
|
|
|
|
(In Thousands of Dollars)
|
|
|
(In Thousands of Dollars)
|
|
Rockaway, NJ (A)
|
|
$
|
15,615
|
|
|
$
|
51
|
|
|
$
|
16,152
|
|
|
$
|
80
|
|
Westwood, NJ (B)
|
|
|
18,973
|
|
|
|
103
|
|
|
|
19,611
|
|
|
|
134
|
|
Patchogue, NY (C)
|
|
|
—
|
|
|
|
—
|
|
|
|
5,231
|
|
|
|
15
|
|
Wayne, NJ (D)
|
|
|
28,815
|
|
|
|
475
|
|
|
|
17,334
|
|
|
|
18
|
|
River Edge, NJ (E)
|
|
|
10,021
|
|
|
|
70
|
|
|
|
10,243
|
|
|
|
87
|
|
Red Bank, NJ (F)
|
|
|
12,350
|
|
|
|
123
|
|
|
|
12,350
|
|
|
|
138
|
|
Westwood, NJ (G)
|
|
|
19,617
|
|
|
|
34
|
|
|
|
20,134
|
|
|
|
67
|
|
Wayne, NJ (H)
|
|
|
23,737
|
|
|
|
240
|
|
|
|
24,432
|
|
|
|
274
|
|
Hackensack, NJ (I)
|
|
|
48,000
|
|
|
|
509
|
|
|
|
48,000
|
|
|
|
572
|
|
Damascus, MD (J)
|
|
|
19,354
|
|
|
|
231
|
|
|
|
19,865
|
|
|
|
296
|
|
Middletown, NY (K)
|
|
|
15,588
|
|
|
|
170
|
|
|
|
15,922
|
|
|
|
203
|
|
Total fixed rate
|
|
|
212,070
|
|
|
|
2,006
|
|
|
|
209,274
|
|
|
|
1,884
|
|
Frederick, MD (L)
|
|
|
22,200
|
|
|
|
28
|
|
|
|
22,710
|
|
|
|
70
|
|
Baltimore, MD (M)
|
|
|
118,520
|
|
|
|
800
|
|
|
|
118,520
|
|
|
|
1,439
|
|
Line of credit - Provident Bank (N)
|
|
|
—
|
|
|
|
52
|
|
|
|
—
|
|
|
|
105
|
|
Total variable rate
|
|
|
140,720
|
|
|
|
880
|
|
|
|
141,230
|
|
|
|
1,614
|
|
Total
|
|
$
|
352,790
|
|
|
$
|
2,886
|
|
|
$
|
350,504
|
|
|
$
|
3,498
|
|
|
(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 $15,276,000 as of October 31, 2019.
|
|
(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 $7,121,000
as of October 31, 2019.
|
|
(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 and operated under the same terms and conditions of the then existing agreement until the property was sold on February 8, 2019. A portion of the proceeds from the sale were used to pay-off the $5.2 million then outstanding balance plus accrued interest and fees.
|
|
(D)
|
On August 26, 2019, Berdan Court, LLC (“Berdan
Court”), (owned 100% by FREIT), refinanced its $17 million loan (which matured on September 1, 2019) with the lender in the
amount of $28,815,000. This refinancing resulted in: (i) a reduction in the annual interest rate from a fixed rate of 6.09% to
a fixed rate of 3.54% and (ii) net refinancing proceeds of approximately $11.6 million 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 approximately $85,004 each month through September 1, 2024. Thereafter, monthly
installments of principal plus interest totaling approximately $130,036 will be required each month until September 1, 2029 at
which time the unpaid balance is due. The mortgage is secured by an apartment building in Wayne, New Jersey having a net book value
of approximately $1,622,000 as of October 31, 2019.
|
|
(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 $755,000 as of October 31, 2019.
|
|
(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 $19,035,000 as of October 31, 2019.
On January 21, 2019, Station Place on
Monmouth, LLC entered into a modification agreement with Provident Bank. The material terms of the modification were: (i) FREIT
guarantees $2,350,000 of the outstanding principal balance of the loan; and (ii) the loan’s Debt Service Coverage Ratio (“DSCR”)
covenants are reduced to a single test that will be tested semi-annually (commencing with the six-month period ending April 30,
2019) and require a DSCR of 1.2 / 1.0 based on actual
|
|
|
debt service. Prior to this modification, the loan’s DSCR covenants
were calculated using the greater of the actual debt service or other hypothetical debt service measures, as provided in the loan
agreement, that were to be tested quarterly. As previously disclosed in FREIT’s current report on Form 8-K filed with the
SEC on January 24, 2019, Station Place had not been in compliance with the loan covenants as of October 31, 2018, and the modification
waives all previous non-compliance. If the DSCR should fall below 1.2 / 1.0, Provident Bank, at its discretion, may require a current
appraisal of the Station Place property. If the loan balance exceeds 85% loan-to-value (“L-T-V”) based on the appraised
value, Station Place may be required to resize the loan to bring the L-T-V into compliance by paying down the outstanding principal
balance of the loan, posting a letter of credit, or providing additional collateral to Provident Bank. As of October 31, 2019,
Station Place was in compliance with this covenant.
|
|
(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 $8,934,000 as of October 31, 2019.
|
|
(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 $24,787,000 as of October 31, 2019 including approximately $0.4 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 reimbursed by New York Life when the
loan 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 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 $36,661,000
as of October 31, 2019.
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|
(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. 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 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. (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 $26,136,000 as of October 31, 2019.
|
|
(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 $18,735,000 as of October 31, 2019.
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|
(L)
|
On April 28, 2017, WestFREIT, Corp. (owned 100% by FREIT), 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 had a floating interest rate equal to 275 basis points over the one-month LIBOR and had 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 loan was 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
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|
|
time the outstanding balance became due. On April 3, 2019, WestFREIT, Corp. exercised its option to extend its loan held by M&T Bank, with a then outstanding balance of approximately $22.5 million, for twelve months. Effective beginning on June 1, 2019, the extension of this loan requires monthly principal payments of $47,250 plus interest based on a floating interest rate equal to 240 basis points over the one-month LIBOR and has a maturity date of May 1, 2020. The mortgage is secured by a retail building in Frederick, Maryland having a net book value of approximately $13,398,000 as of October 31, 2019.
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|
(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 8 to FREIT’s consolidated financial statements for further details on this fee). 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 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,
2019, approximately $118.5 million of this loan facility was drawn down and the interest rate was approximately 4.84%. The loan
is secured by the Rotunda property, which has a net book value of approximately $151,130,000 as of October 31, 2019.
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|
(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. In February 2018, FREIT repaid the line of credit in the amount of $3.1 million. As of October 31, 2019 and 2018, there was no amount outstanding and $13 million was available under the line of credit.
|
Certain of the Company’s mortgage
loans and the Credit Line contain financial covenants. The Company was in compliance with all of its financial covenants as of
October 31, 2019.
Fair value of long-term debt:
The following table shows the
estimated fair value and carrying value of FREIT’s long-term debt, net at October 31, 2019 and 2018:
|
|
October 31,
|
|
October 31,
|
($ in Millions)
|
|
2019
|
|
2018
|
Fair Value
|
|
$352.9
|
|
$338.3
|
|
|
|
|
|
Carrying Value, Net
|
$349.9
|
|
$347.0
|
Fair values are estimated based
on market interest rates at the end of each fiscal year and on a 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, 2019 are as follows:
Year Ending October 31,
|
|
Amount
|
|
2020
|
|
$
|
25,638
|
|
2021
|
|
$
|
141,018
|
(a)
|
2022
|
|
$
|
17,388
|
|
2023
|
|
$
|
36,878
|
|
2024
|
|
$
|
11,378
|
|
|
|
|
|
|
|
(a)
|
Includes Rotunda loan in the amount of approximately $118.5 million refinanced with Aareal Capital Corporation on February
7, 2018. (See Note 5(M))
|
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, 2019, 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, 2019, 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, 2019, 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, 2019, 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, 2019, the total amount
outstanding on this loan was approximately $23.7 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, 2019, the derivative financial instrument has a notional amount
of approximately $23.8 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, 2019 was approximately
$19.4 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, 2019, the derivative financial instrument has a notional amount of
approximately $19.4 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, 2019, the total amount outstanding
on this loan was approximately $15.6 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, 2019, the derivative financial instrument has a notional amount of approximately
$15.6 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, 2019, FREIT recorded an unrealized
loss of
approximately $6,400,000 in comprehensive income representing the change in the fair value of these cash flow hedges during
such period with a corresponding liability of approximately $179,000 for the Damascus Centre swaps, $53,000 for the Wayne PSC swap,
$860,000 for the Regency swap and $1,034,000 for the Station Place on Monmouth swap as of October 31, 2019. 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.
The Grande Rotunda, LLC interest
rate cap is, for accounting purposes, an ineffective cash flow hedge with a corresponding gain or loss being recorded in FREIT’s
income statement. For the year ended October 31, 2019, FREIT recorded an unrealized loss in the consolidated statement of income
of approximately $160,000 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 $0 as of October 31, 2019. 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 $160,000 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 - Commitments and contingencies:
Leases:
Commercial tenants:
FREIT leases commercial space having
a net book value of approximately $143 million at October 31, 2019 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, 2019 is as follows:
Year Ending October 31,
|
|
Amount
|
|
2020
|
|
$
|
20,055
|
|
2021
|
|
|
18,911
|
|
2022
|
|
|
15,624
|
|
2023
|
|
|
12,993
|
|
2024
|
|
|
10,838
|
|
Thereafter
|
|
|
46,412
|
|
Total
|
|
$
|
124,833
|
|
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. 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, 2019 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. FREIT acquired
the Westwood Plaza property in 1988, and the property has not experienced any flooding that gave rise to any claims under
FREIT’s flood insurance in this time period.
Within the last twelve
months, FREIT has conducted environmental audits for all of its properties. The environmental reports secured by FREIT have
not revealed any environmental conditions on its properties, which require any further 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 has obtained lead-free interior certifications with respect to all
properties that were found to contain LBP, certifying that such properties contain no LBP on the interior surfaces. 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 8 - 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, 2019 for a two-year term which will expire on October 31,
2021. The Management Agreement automatically renews for successive periods of two years unless either party gives not less than
six (6) months prior notice 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 $2,549,000, $2,438,000, and $2,216,000 in Fiscal 2019, 2018 and 2017, 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 $762,000, $742,000 and $1,191,000
in Fiscal 2019, 2018 and 2017, respectively. Total Hekemian management fees outstanding at October 31, 2019 and 2018 were approximately
$219,000 and $212,000, 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 $196,000,
$178,000 and $175,000 in Fiscal 2019, 2018 and 2017, respectively.
The Management Agreement was amended
on January 14, 2020. See Note 15 – Subsequent Events – Amendment to Management Agreement.
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 at rates that 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 originally 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 and interest
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, 2019 and
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 was $4,000,000 at both October 31, 2019 and 2018. The accrued but unpaid
interest related to these notes for Fiscal 2019 and Fiscal 2018 amounted to approximately $1,053,000 and $862,000, respectively,
and is included in secured loans 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, 2019, FREIT and Rotunda 100 have made their required
capital 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 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
previously held with Wells Fargo was at its maximum level resulting in no additional funding available to draw. Accordingly, during
Fiscal 2017 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, 2019 and 2018, Rotunda
100, LLC has funded Grande Rotunda, LLC with approximately $5.7 million and $5.4 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 during Fiscal 2019, 2018 and 2017 were $275,000, $1,195,000 and $467,500, respectively. Fees incurred during Fiscal 2019
related to commissions to Hekemian for the following: $131,250 for the sale of the Patchogue property; $144,075 for the refinancing
of the Berdan Court, LLC loan. 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.
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. 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. On
February 7, 2019, Donald W. Barney retired and resigned as President, Chief Financial Officer, Treasurer and a Trustee of FREIT.
The Board of Trustees appointed Allan Tubin, the Chief Financial Officer of Hekemian, as the Chief Financial Officer and Treasurer
of the Trust and Robert S. Hekemian, Jr. as President of the Trust. As a result, Robert S. Hekemian, Jr. holds the offices of
both Chief Executive Officer and President of FREIT.
Trustee fee expense (including
interest and dividends) incurred by FREIT for Fiscal 2019, 2018 and 2017 was approximately $214,000, $365,000 and $538,000, respectively,
for Robert S. Hekemian, $381,000, $149,000 and $65,000, respectively, for Robert S. Hekemian, Jr., $22,000, $0 and $0, respectively,
for Allan Tubin and $56,000, $26,000 and $0, respectively, for David Hekemian. (See Note 11 to FREIT’s consolidated financial
statements).
Pursuant to the terms of a Consulting
Agreement between Robert S. Hekemian and the Trust, Mr. Hekemian served the Trust in a consulting capacity effective April 5, 2018
through December 2019. The Consulting Agreement obliged 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 paid Mr. Hekemian a consulting fee of $5,000 per month during the term of the Consulting Agreement, which
was 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 was 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 was payable. For Fiscal 2019 and 2018, consulting fee expense for Robert S. Hekemian
was approximately $60,000 and $34,200, respectively.
Note 9 - Income taxes:
FREIT intends to distribute 100%
of its ordinary taxable income to its shareholders as dividends for the fiscal year ended October 31, 2019. Accordingly, no provision
for federal or state income taxes related to such ordinary taxable income was recorded in FREIT’s consolidated financial
statements.
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 Hammel
Gardens property in Maywood, New Jersey, 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.
As of October 31, 2019, FREIT had
no material uncertain income tax positions. The tax years subsequent to and including the fiscal year ended October 31, 2016 remain
open to examination by the major taxing jurisdictions to which FREIT is subject.
Note 10 - 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 amendments to the Plan to (a) increase the number of shares reserved for issuance thereunder by an additional
300,000 shares and (b) further extend the term of the Plan from September 10, 2018 to September 10, 2028. As of October 31, 2019,
442,060 shares are available for issuance under the Plan.
On September 4, 2014, the Board
approved the grant of an aggregate 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, fully vested on September 3, 2019 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 an aggregate 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 an aggregate of 38,000 non-qualified share options under the 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.
On March 4, 2019, the Board approved
the grant of an aggregate of 5,000 non-qualified share options under the Plan to the Chairman of the Board. The options have an
exercise price of $15.00 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 March 3, 2029.
The following table summarizes
stock option activity for Fiscal 2019:
|
|
Year Ended October 31,
|
|
|
|
2019
|
|
|
|
No. of Options
|
|
|
Exercise
|
|
|
|
Outstanding
|
|
|
Price
|
|
Options outstanding at beginning of year
|
|
|
305,780
|
|
|
$
|
18.40
|
|
Options granted during year
|
|
|
5,000
|
|
|
|
15.00
|
|
Options forfeited/cancelled during year
|
|
|
(40
|
)
|
|
|
18.45
|
|
Options outstanding at end of year
|
|
|
310,740
|
|
|
$
|
18.35
|
|
Options vested and expected to vest
|
|
|
308,310
|
|
|
|
|
|
Options exercisable at end of year
|
|
|
260,140
|
|
|
|
|
|
The estimated fair value of options granted during Fiscal
2019 was $2.43 per option. Such value was estimated on the grant date using a binomial lattice option pricing model using the following
assumptions:
|
·
|
Expected volatility – 27.69%
|
|
·
|
Risk-free interest rate – 2.72%
|
|
·
|
Imputed option life – 6.3 years
|
|
·
|
Expected dividend yield – 3.82%
|
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 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 2019, 2018 and 2017,
compensation expense related to stock options granted amounted to $124,000, $130,000 and $122,000, respectively. At October 31,
2019, there was approximately $117,000 of unrecognized compensation cost relating to outstanding non-vested stock options to be
recognized over the remaining weighted average vesting period of approximately 3.1 years.
The aggregate intrinsic value of
options vested and expected to vest and options exercisable at October 31, 2019 was approximately $77,100 and $13,600, respectively.
Note 11 - 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, 2019 were deferred under the Deferred Fee Plan except for fees payable to one Trustee, who elected to
receive such fees in cash. All fees payable to Trustees for the year ended October 31, 2018 were deferred under the Deferred Fee
Plan except for the fees payable to three Trustees, 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, 2019 and 2018, the aggregate amounts of deferred Trustee fees
together with related interest and dividends were approximately $986,000 and $805,800, respectively, which have been paid through
the issuance of 60,148 and 51,109, 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,
2019 and 2018, FREIT has charged as expense approximately $879,800 and $784,000, respectively, representing deferred Trustee fees
and interest, and the balance of approximately $106,200 and $21,800, 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, 2019 and 2018, approximately
$4,422,000 and $4,881,000, respectively, of fees has been deferred together with accrued interest of approximately $3,188,000 and
$3,576,000, respectively.
In connection with the
termination of Robert S. Hekemian’s service to the Trust under the Consulting Agreement between Mr. Hekemian and the
Trust in December 2019, Mr. Hekemian’s accrued plan benefits under the Deferred Fee Plan became payable to him in a
single lump sum in the amount of approximately $4.8 million.
Note 12 - Dividends and earnings per share:
FREIT declared dividends of approximately
$4,173,000 ($0.60 per share), $1,035,000 ($0.15 per share) and $1,024,000 ($0.15 per share) to shareholders of record during Fiscal
2019, 2018 and 2017, respectively.
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 11 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 attributable 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 2019, 2018 and 2017,
the outstanding stock options were anti-dilutive with no impact on diluted earnings per share.
Note 13
- 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 year ended
October 31, 2019, the commercial segment is comprised of eight (8) properties, excluding the land and building formerly occupied
as a Pathmark supermarket in Patchogue, New York, which was sold on February 8, 2019 (see Note 2 to FREIT’s consolidated
financial statements). During the fiscal years ended October 31, 2018 and 2017, the commercial segment is comprised of nine (9)
properties. The residential segment is comprised of eight (8) properties during the fiscal years ended October 31, 2019 and 2018.
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 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, 2019. Asset information
is not reported since FREIT does not use this measure to assess performance.
|
|
Years Ended October 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
|
|
(In Thousands of Dollars)
|
|
Real estate rental revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
26,692
|
|
|
$
|
25,464
|
|
|
$
|
24,114
|
|
Residential
|
|
|
33,175
|
|
|
|
31,928
|
|
|
|
26,886
|
|
Total real estate rental revenue
|
|
|
59,867
|
|
|
|
57,392
|
|
|
|
51,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
11,694
|
|
|
|
11,861
|
|
|
|
11,791
|
|
Residential
|
|
|
14,368
|
|
|
|
13,022
|
|
|
|
14,442
|
|
Total real estate operating expenses
|
|
|
26,062
|
|
|
|
24,883
|
|
|
|
26,233
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
14,998
|
|
|
|
13,603
|
|
|
|
12,323
|
|
Residential
|
|
|
18,807
|
|
|
|
18,906
|
|
|
|
12,444
|
|
Total net operating income
|
|
$
|
33,805
|
|
|
$
|
32,509
|
|
|
$
|
24,767
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recurring capital improvements - residential
|
|
$
|
(685
|
)
|
|
$
|
(738
|
)
|
|
$
|
(798
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation to consolidated net income attributable to common equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment NOI
|
|
$
|
33,805
|
|
|
$
|
32,509
|
|
|
$
|
24,767
|
|
Gain on sale of property
|
|
|
836
|
|
|
|
—
|
|
|
|
15,395
|
|
Loan prepayment costs relating to property sale
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,139
|
)
|
Deferred rents - straight lining
|
|
|
410
|
|
|
|
605
|
|
|
|
634
|
|
Lease termination fee
|
|
|
—
|
|
|
|
—
|
|
|
|
(620
|
)
|
Investment income
|
|
|
360
|
|
|
|
267
|
|
|
|
206
|
|
Unrealized (loss) gain on interest rate cap contract
|
|
|
(160
|
)
|
|
|
72
|
|
|
|
—
|
|
General and administrative expenses
|
|
|
(4,049
|
)
|
|
|
(2,305
|
)
|
|
|
(2,129
|
)
|
Depreciation
|
|
|
(11,339
|
)
|
|
|
(11,515
|
)
|
|
|
(10,669
|
)
|
Financing costs
|
|
|
(18,070
|
)
|
|
|
(18,667
|
)
|
|
|
(15,762
|
)
|
Net income
|
|
|
1,793
|
|
|
|
966
|
|
|
|
10,683
|
|
Net (income) loss attributable to noncontrolling interests
|
|
|
(6
|
)
|
|
|
517
|
|
|
|
2,433
|
|
Net income attributable to common equity
|
|
$
|
1,787
|
|
|
$
|
1,483
|
|
|
$
|
13,116
|
|
Note 14-
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
provided for a $250,000 reduction in annual rent over the renewed term.
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 15-
Subsequent events:
Purchase and Sale Agreement:
On January 14, 2020, FREIT and
certain of its affiliates (collectively, the “Sellers”), entered into a Purchase and Sale Agreement (the “Purchase
and Sale Agreement”) with an affiliate of the Kushner Companies (the “Purchaser”), pursuant to which the Sellers
will sell to the Purchaser 100% of Sellers’ ownership interests in seven apartment properties held by the Sellers in exchange
for the purchase price described therein, subject to the terms and conditions of the Purchase and Sale Agreement.
The Purchase and Sale Agreement
provides for the sale of the following seven properties: Berdan Court, located in Wayne, New Jersey; The Boulders at Rockaway,
located in Rockaway, New Jersey; Pierre Towers, located in Hackensack, New Jersey; The Regency Club, located in Middletown, New
York; Station Place, located in Red Bank, New Jersey; Steuben Arms, located in River Edge, New Jersey; and Westwood Hills, located
in Westwood, New Jersey. FREIT has a 100% ownership interest in each of these properties, except for (i) Pierre Towers, in which
FREIT has a 65% ownership interest, and (ii) Westwood Hills, in which FREIT has a 40% ownership interest.
The aggregate purchase price for
the 100% ownership interest in each of the properties is $266,500,000, subject to certain adjustments, including reductions for
the amount of certain mortgage loans assumed by the Purchaser aggregating approximately $76,815,000. After taking into account
FREIT’s 40% ownership interest in Westwood Hills and 65% ownership interest in Pierre Towers, the sale of all seven apartment
properties, if consummated, would result in approximately $208,325,000 in total cash consideration paid to FREIT (subject to adjustments),
and would be expected to result in a substantial gain to FREIT (as measured on a GAAP basis).
In connection with the entry into
the Purchase and Sale Agreement, the Purchaser delivered in escrow a deposit in the form of an unconditional, irrevocable letter
of credit in the amount of $15,000,000. Such deposit is non-refundable, except in connection with the termination of the Purchase
and Sale Agreement in certain circumstances.
Pursuant to the Purchase and Sale
Agreement, the Purchaser has agreed to assume, subject to lender approval, the outstanding mortgage loans on the Berdan Court and
Pierre Towers properties. In the event one or both of such mortgage loans are not assumed, then the Purchase and Sale Agreement
will be deemed to be terminated solely as to the property or properties associated with the mortgage loan or loans that are not
assumed by the Purchaser, such property or properties will be excluded from the transaction, and the purchase price will be reduced
by an amount equal to the amount(s) allocated to such property or properties in the Purchase and Sale Agreement. In addition, if
the ownership structure of Pierre Towers is not converted into a tenancy-in-common on or prior to February 28, 2020, then the Purchase
and Sale Agreement will be deemed to be terminated solely as to the Pierre Towers property, such property will be excluded from
the transaction, and the purchase price will be reduced by an amount equal to the amount allocated to such property in the Purchase
and Sale Agreement. Of the $266,500,000 aggregate purchase price, $42,000,000 has been allocated to Berdan Court, and $80,500,000
has been allocated to Pierre Towers.
The Purchase and Sale Agreement
also provides that The Regency Club may be excluded from the transaction (and the purchase price will be reduced by an amount equal
to the amount(s) allocated to such property in the Purchase and Sale Agreement) if certain title matters affecting such property
are not adequately addressed. Of the $266,500,000 aggregate purchase price, $27,250,000 has been allocated to The Regency Club.
The Board, following the recommendation
of the Special Committee of the Board, unanimously approved the Purchase and Sale Agreement and the transactions contemplated thereby.
The closing of the transactions contemplated by the Purchase and Sale Agreement is expected to occur in the second calendar quarter
of 2020.
The closing of the Purchase and
Sale Agreement is subject to various conditions, including the approval of the Purchase and Sale Agreement and the transactions
contemplated thereby by a majority of the votes cast by the holders of a majority of the outstanding shares of beneficial interest
of the Trust (“Shares”) present in person or
represented by proxy at a meeting of the Trust’s shareholders. Concurrently
with the execution of the Purchase and Sale Agreement, the Trustees of the Trust entered into voting agreements with the Purchaser
pursuant to which, among other things, the Trustees agreed to vote an aggregate of 839,839 Shares held by them and over which they
have voting control, which represent approximately 12.4% of the issued and outstanding Shares, in favor of the approval of the
Purchase and Sale Agreement and the transactions contemplated thereby.
The parties’ respective
obligations under the Purchase and Sale Agreement are subject to certain additional customary conditions. There is no due diligence
or financing contingency.
The Purchase and Sale Agreement
contains customary termination rights, including the right of either the Sellers or the Purchaser to terminate the agreement if
the closing has not occurred on or before June 14, 2020. In the event that the Purchase and Sale Agreement is terminated in certain
circumstances, the Trust will be required to pay the Purchaser a termination fee of $3.5 million and/or reimburse the Purchaser
for certain out-of-pocket expenses (subject to a cap of $2 million).
The Purchase and Sale Agreement
contains various representations, warranties and covenants of the parties customary for a transaction of this nature. Until the
earlier of the termination of the Purchase and Sale Agreement and the closing of the Purchase and Sale Agreement, the Sellers will
conduct their respective businesses with respect to the applicable properties in the ordinary course of business consistent with
past practice.
The Purchase and Sale Agreement
provides that the Trust will convene a meeting of its shareholders for the purpose of approving the Purchase and Sale Agreement
and the transactions contemplated thereby.
The Purchase and Sale Agreement
provides that following the closing of the Purchase and Sale Agreement, the Sellers, on the one hand, and the Purchaser, on the
other hand, will indemnify one another for certain liabilities, subject to certain limitations.
Amendment to Management
Agreement:
On January 14, 2020, in connection
with entering into the Purchase and Sale Agreement, FREIT and Hekemian entered into a First Amendment to Management Agreement (the
“First Amendment”), which amends the Management Agreement dated as of November 1, 2001 between FREIT and Hekemian.
The First Amendment will become effective if, and only if, the Plan of Liquidation becomes effective (as described below). The
First Amendment provides that upon the closing of any sale or other disposition of FREIT’s entire direct or indirect interest
in each real property owned directly or indirectly, in whole or in part, by FREIT (each a “Trust Property”), whether
pursuant to the Purchase and Sale Agreement or otherwise in furtherance of the Plan of Liquidation (as described below), (a) the
Management Agreement will automatically terminate and be of no further force or effect with respect to such Trust Property and
(b) FREIT will pay to Hekemian (i) any and all commissions and fees for management services and reimbursement required to be paid
by FREIT pursuant to the Management Agreement in respect of the applicable Trust Property up to the termination date, calculated
on a pro rata basis, plus (ii) a termination fee in respect to such Trust Property equal to the product of (x) the Trust’s
direct or indirect percentage ownership interest in such Trust Property, multiplied by (y) 1.25, multiplied by (z) one (1) year’s
Base Management Fee (as defined in the Management Agreement and First Amendment) in respect of such Trust Property.
In addition, the First Amendment
amends the Management Agreement to provide that upon the closing of any sale or other disposition of FREIT’s entire direct
or indirect interest in each Trust Property, whether pursuant to the Purchase and Sale Agreement or otherwise in furtherance of
the Plan of Liquidation, FREIT will pay to Hekemian a sales fee equal to 1.65% of the sales price for such Trust Property (reduced
from the existing range of 2.5% to 4.5% in the Management Agreement); provided, however, that in the event that a Trust Property
is not wholly owned, directly or indirectly, by FREIT, the sales fee payable to Hekemian will only be payable in respect of FREIT’s
percentage ownership share of the applicable Trust Property.
The First Amendment provides that
the foregoing fees will be paid in lieu of, and will supersede in their entirety, any other payments which otherwise would be payable
to Hekemian under the Management Agreement arising out of or attributable to the sale or other disposition of FREIT’s entire
direct or indirect interest in each Trust Property or the termination of the Management Agreement in respect of such Trust Property
(including, without limitation, any Termination Fee, M&A Termination Fee or Sale of Property Fee under the Management Agreement
(each as defined in the Management Agreement)).
Adoption of Plan
of Liquidation:
On January 14, 2020, the Board
adopted a Plan of Voluntary Liquidation with respect to FREIT (the “Plan of Liquidation”), which provides for the voluntary
dissolution, termination and liquidation of FREIT by the sale, conveyance, transfer or delivery of all of FREIT’s remaining
assets in accordance with the terms and conditions of the Plan of Liquidation and the Internal Revenue Code of 1986, as amended,
and the Treasury regulations thereunder. The Plan of Liquidation will become effective upon (i) approval by a majority of the votes
cast by FREIT’s shareholders present in person or represented by proxy at a duly called meeting of FREIT’s shareholders
at which a quorum is present and (ii) the consummation of the transactions contemplated by the Purchase and Sale Agreement.
Upon the effectiveness of the Plan
of Liquidation and pursuant thereto, FREIT is authorized to sell, or otherwise dispose of, all of FREIT’s remaining assets
for cash, notes or such other assets, upon such terms as the Board may deem advisable, and without further approval of FREIT’s
shareholders.
The Plan of Liquidation provides
that the proceeds from sales and dispositions of FREIT’s assets may be utilized to pay or create a reserve fund for the payment
of, or otherwise adequately provide for, all of the liabilities and obligations of FREIT, and will pay all expenses incidental
to the Plan of Liquidation, including all counsel fees, accountants’ fees, advisory fees and such other fees and taxes as
are necessary to effectuate the Plan of Liquidation. In addition, FREIT will distribute the remaining assets of FREIT, either in
cash or in kind, to FREIT’s shareholders in cancellation or redemption of their Shares in one or more distributions.
The Plan of Liquidation further
provides that upon a determination of the Board, FREIT may transfer any remaining assets, including any reserve fund or other cash
on hand, and liabilities to a liquidating trust (or other liquidating entity) and simultaneously with such transfer and assignment,
shares of beneficial interests in such liquidating trust (or other liquidating entity) will be deemed distributed to each of FREIT’s
shareholders.
Upon the adoption of the Plan
of Liquidation, FREIT will cease reporting on the going concern basis of accounting and reporting, and thereafter will report
on the liquidation basis of accounting and reporting.
Note 16- Selected quarterly financial
data (unaudited):
The following summary represents
the results of operations for each quarter for the years ended October 31, 2019 and 2018 (in thousands, except per share amounts):
2019:
|
|
Quarter Ended
|
|
|
Year Ended
|
|
|
|
January 31,
|
|
|
April 30,
|
|
|
July 31,
|
|
|
October 31,
|
|
|
October 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
14,928
|
|
|
$
|
14,786
|
|
|
$
|
15,255
|
|
|
$
|
15,308
|
|
|
$
|
60,277
|
|
Expenses
|
|
|
14,493
|
|
|
|
13,956
|
(a)
|
|
|
14,990
|
|
|
|
15,045
|
|
|
|
58,484
|
|
Net income
|
|
|
435
|
|
|
|
830
|
|
|
|
265
|
|
|
|
263
|
|
|
|
1,793
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income attributable to noncontrolling interests in subsidiaries
|
|
|
24
|
|
|
|
(44
|
)
|
|
|
(66
|
)
|
|
|
80
|
|
|
|
(6
|
)
|
Net income attributable to common equity
|
|
$
|
459
|
|
|
$
|
786
|
|
|
$
|
199
|
|
|
$
|
343
|
|
|
$
|
1,787
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share - basic and diluted
|
|
$
|
0.07
|
|
|
$
|
0.11
|
(a)
|
|
$
|
0.03
|
|
|
$
|
0.05
|
|
|
$
|
0.26
|
|
Dividends declared per share
|
|
$
|
0.15
|
|
|
$
|
0.125
|
|
|
$
|
0.125
|
|
|
$
|
0.20
|
|
|
$
|
0.60
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
(b)
|
|
|
12,898
|
(c)
|
|
|
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
|
)(b)
|
|
$
|
0.16
|
(c)
|
|
$
|
0.04
|
|
|
$
|
0.06
|
|
|
$
|
0.21
|
|
Dividends declared per share
|
|
$
|
—
|
|
|
$
|
0.05
|
|
|
$
|
0.05
|
|
|
$
|
0.05
|
|
|
$
|
0.15
|
|
(a) Includes $0.8 million gain on sale of the Patchogue, New York property sold on February 8, 2019. ($0.12 per share)
(b) 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)
(c) 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)
FIRST REAL ESTATE INVESTMENT TRUST OF NEW
JERSEY AND SUBSIDIARIES
SCHEDULE III – REAL ESTATE AND ACCUMULATED
DEPRECIATION
OCTOBER 31, 2019
(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
|
$ 10,021
|
$ 364
|
$ 1,773
|
$ -
|
$ 1,501
|
|
$ 364
|
$ 3,274
|
$ 3,638
|
$ 2,883
|
1966
|
1975
|
7-40 years
|
Berdan Court, Wayne, NJ
|
28,815
|
250
|
2,206
|
-
|
4,779
|
|
250
|
6,985
|
7,235
|
5,613
|
1964
|
1965
|
7-40 years
|
Westwood Hills, Westwood, NJ
|
19,617
|
3,849
|
11,546
|
-
|
2,808
|
|
3,849
|
14,354
|
18,203
|
9,269
|
1965-70
|
1994
|
7-39 years
|
Pierre Towers, Hackensack, NJ
|
48,000
|
8,390
|
37,486
|
19
|
9,653
|
|
8,409
|
47,139
|
55,548
|
18,887
|
1970
|
2004
|
7-40 years
|
Boulders - Rockaway, NJ
|
15,615
|
1,632
|
-
|
3,386
|
15,951
|
|
5,018
|
15,951
|
20,969
|
5,744
|
2005-2006
|
1963/1964
|
7-40 years
|
Regency Club - Middletown, NY
|
15,588
|
2,833
|
17,792
|
-
|
730
|
|
2,833
|
18,522
|
21,355
|
2,620
|
2003
|
2014
|
7-40 years
|
Icon - Baltimore, MD
|
65,186
|
5,871
|
-
|
-
|
87,726
|
|
5,871
|
87,726
|
93,597
|
7,135
|
2016
|
2005
|
7-40 years
|
Station Place - Red Bank, NJ
|
12,350
|
8,793
|
10,757
|
-
|
1
|
|
8,793
|
10,758
|
19,551
|
516
|
2015
|
2017
|
7-40 years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Properties:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Damascus Shopping Center,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Damascus, MD
|
19,354
|
2,950
|
6,987
|
6,296
|
17,630
|
|
9,246
|
24,617
|
33,863
|
7,727
|
1960's
|
2003
|
5-39.5 years
|
Franklin Crossing, Franklin Lakes, NJ
|
-
|
29
|
-
|
3,382
|
7,444
|
|
3,411
|
7,444
|
10,855
|
4,209
|
1963/75/97
|
1966
|
5-39.5 years
|
Glen Rock, NJ
|
-
|
12
|
36
|
-
|
235
|
|
12
|
271
|
283
|
198
|
1940
|
1962
|
5-25 years
|
Westridge Square S/C, Frederick, MD
|
22,200
|
9,135
|
19,159
|
(1)
|
4,788
|
|
9,134
|
23,947
|
33,081
|
19,683
|
1986
|
1992
|
5-31.5 years
|
Westwood Plaza, Westwood, NJ
|
18,973
|
6,889
|
6,416
|
-
|
2,374
|
|
6,889
|
8,790
|
15,679
|
8,558
|
1981
|
1988
|
5-31.5 years
|
Preakness S/C, Wayne, NJ
|
23,737
|
9,280
|
24,217
|
-
|
2,877
|
|
9,280
|
27,094
|
36,374
|
11,873
|
1955/89/00
|
2002
|
5-39.5 years
|
The Rotunda, Baltimore, MD
|
53,334
|
10,392
|
14,634
|
232
|
52,858
|
|
10,624
|
67,492
|
78,116
|
13,448
|
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
|
|
|
$ 352,790
|
$ 71,344
|
$ 153,009
|
$ 13,158
|
$ 211,355
|
$ -
|
$ 84,502
|
$ 364,364
|
$ 448,866
|
$ 118,363
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 $43.1 million, $13.3
million, $4.2 million and $169.9 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
Real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, Beginning of year
|
|
$
|
456,658
|
|
|
$
|
433,288
|
|
|
$
|
429,445
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions - Buildings and improvements
|
|
|
3,386
|
|
|
|
4,562
|
|
|
|
6,602
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Disposal - Buildings and improvements
|
|
|
(240
|
)
|
|
|
(742
|
)
|
|
|
(443
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition (Sale) of property
|
|
|
(10,938
|
)
|
|
|
19,550
|
|
|
|
(2,316
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of year
|
|
$
|
448,866
|
|
|
$
|
456,658
|
|
|
$
|
433,288
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated depreciation:
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of year
|
|
$
|
111,967
|
|
|
$
|
101,194
|
|
|
$
|
92,547
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions - Charged to operating expenses
|
|
|
11,339
|
|
|
|
11,515
|
|
|
|
10,667
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Disposal - Buildings and improvements
|
|
|
(217
|
)
|
|
|
(742
|
)
|
|
|
(409
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sale of property
|
|
|
(4,726
|
)
|
|
|
—
|
|
|
|
(1,611
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of year
|
|
$
|
118,363
|
|
|
$
|
111,967
|
|
|
$
|
101,194
|
|
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, 2019, 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
|
|
|
|
|
|
Berdan Court, LLC
|
|
New Jersey
|
|
Berdan Court
|
|
|
|
|
|
* 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 21, 2020, on our audits of the consolidated financial
statements as of October 31, 2019 and 2018 and for each of the years in the three-year period ended October 31, 2019, 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, 2019, which reports are included in this Annual Report on Form 10-K
to be filed on or about January 21, 2020.
/s/ EisnerAmper LLP
EISNERAMPER LLP
New York, New York
January 21, 2020
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 21, 2020
|
|
/s/ Robert S. Hekemian, Jr.
|
|
|
|
Robert S. Hekemian, Jr.
|
|
|
|
President and Chief Executive Officer
|
|
EXHIBIT 31.2
CERTIFICATION
I, Allan Tubin, 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 21, 2020
|
|
/s/ Allan Tubin
|
|
|
|
Allan Tubin
|
|
|
|
Chief Financial Officer and Treasurer
|
|
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, 2019 (the “Report”),
I, Robert S. Hekemian, Jr., President and 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 21, 2020
|
|
/s/ Robert S. Hekemian, Jr.
|
|
|
|
Robert S. Hekemian, Jr.
|
|
|
|
President and 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, 2019 (the “Report”),
I, Allan Tubin, Chief Financial Officer and Treasurer 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 21, 2020
|
|
/s/ Allan Tubin
|
|
|
|
Allan Tubin
|
|
|
|
Chief Financial Officer and Treasurer
|
|
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
Amendment No. 1
☒
|
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
For the Fiscal Year Ended October 31,
2019
☐
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
Commission File No. 000-25043
FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY
|
(Exact name of registrant as specified in its charter)
|
New Jersey
|
|
22-1697095
|
(State or other jurisdiction of incorporation or organization)
|
|
(I.R.S. Employer Identification No.)
|
|
|
|
505 Main Street, Hackensack, New Jersey
|
|
07601
|
(Address of principal executive offices)
|
|
(Zip Code)
|
201-488-6400
(Registrant's telephone number, including area
code)
Securities registered pursuant to Section
12(b) of the Act:
Title of each class
|
Trading Symbol(s)
|
Name of each exchange on which registered
|
--
|
--
|
--
|
Securities registered pursuant to Section
12(g) of the Act:
Shares of Beneficial Interest
(Title of class)
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes
☐ No ☒
Indicate
by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes
☐ No ☒
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No
☐
Indicate by check mark whether
the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation
S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required
to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant
is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth
company. See definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”,
and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large
Accelerated Filer ☐ Accelerated Filer ☒ Non-Accelerated Filer ☐ Smaller Reporting Company ☐
Emerging growth company ☐
If an emerging growth company, indicate
by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial
accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
☒
The aggregate market value of the registrant’s
shares of beneficial interest held by non-affiliates was approximately $95 million. Computation is based on the closing sales price
of such shares as quoted on the over-the-counter-market on April 30, 2019, the last business day of the registrant’s most
recently completed second quarter.
As of February 11, 2020, the number of
shares of beneficial interest outstanding was 6,856,651.
FORWARD-LOOKING STATEMENTS
Certain information included in this
Annual Report on Form 10-K, as amended, contains or may contain forward-looking statements within the meaning of Section 27A of
the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934,
as amended (the “Exchange Act”). The registrant cautions readers that forward-looking statements, including, without
limitation, those relating to the registrant’s investment policies and objectives; the financial performance of the registrant;
the ability of the registrant to borrow and service its debt; the economic and competitive conditions which affect the registrant’s
business; the ability of the registrant to obtain the necessary governmental approvals for the development, expansion or renovation
of its properties, the impact of environmental conditions affecting the registrant’s properties, and the registrant’s
liquidity and capital resources, are subject to certain risks and uncertainties. Actual results or outcomes may differ materially
from those described in the forward-looking statements and will be affected by a variety of risks and factors, including, without
limitation, the registrant’s future financial performance; the availability of capital; general market conditions; national
and local economic conditions, particularly long-term interest rates; federal, state and local governmental regulations that affect
the registrant; and the competitive environment in which the registrant operates, including, the availability of retail space and
residential apartment units in the areas where the registrant’s properties are located. In addition, the registrant’s
continued qualification as a real estate investment trust involves the application of highly technical and complex rules of the
Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”). The forward-looking statements are made as
of the date of this Annual Report on Form 10-K, as amended, and the registrant assumes no obligation to update the forward-looking
statements or to update the reasons actual results could differ from those projected in such forward-looking statements.
EXPLANATORY NOTE
First Real Estate Investment Trust of
New Jersey (the “Trust”) is filing this Amendment No. 1 on Form 10-K/A (this “Amendment”) to its Annual
Report on Form 10-K for the fiscal year ended October 31, 2019, which was filed with the Securities and Exchange Commission (the
“SEC”) on January 21, 2020 (the “Original Filing”).
This Amendment
is being filed for the purpose of providing the information required by Items 10 through 14 of Part III of Form 10-K. This
information was previously omitted from the Original Filing in reliance on General Instruction G(3) to Form 10-K, which permits
the above-referenced Items to be incorporated in the Annual Report on Form 10-K by reference from a definitive proxy
statement, if such definitive proxy statement is filed no later than 120 days after the last day of the Trust’s fiscal year
on October 31, 2019.
In accordance
with Rule 12b-15 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), the cover page
to the Original Filing and Items 10 through 14 of Part III of the Original Filing are hereby amended and restated in their entirety.
In addition, pursuant to Rule 12b-15 under the Exchange Act, the Trust is including Item 15 of Part IV, solely to file
the certifications required under Section 302 of the Sarbanes-Oxley Act of 2002 with this Amendment.
Except
as described above, no other changes have been made to the Original Filing. This Amendment does not affect any other section
of the Original Filing not otherwise discussed herein and continues to speak as of the date of the Original Filing. The
Trust has not updated the disclosures contained in the Original Filing to reflect any events that occurred subsequent to the date
of the Original Filing. Accordingly, this Amendment should be read in conjunction with the Trust’s other filings made
with the SEC subsequent to the filing of the Original Filing.
PART III
ITEM 10
|
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
|
Executive Officers and Trustees
The executive officers and trustees of the Trust are
as follows:
Name
|
Age
|
Position(s)
|
Robert S. Hekemian, Jr.
|
60
|
Chief Executive Officer, President and Trustee
|
Ronald J. Artinian
|
71
|
Chairman of the Board and Trustee
|
David F. McBride, Esq.
|
72
|
Trustee
|
John A. Aiello, Esq.
|
70
|
Executive Secretary, Secretary and Trustee
|
Justin F. Meng
|
41
|
Trustee
|
David B. Hekemian
|
53
|
Trustee
|
Richard J. Aslanian
|
59
|
Trustee
|
Allan Tubin
|
81
|
Chief Financial Officer and Treasurer
|
There are no family relationships
among the members of the Board of Trustees (the “Board”) and the executive officers, except that Robert S. Hekemian,
Jr., Chief Executive Officer, President and a trustee of the Trust, and David B. Hekemian, a trustee, are siblings and the sons
of the late Robert S. Hekemian, the Trust’s former Chairman and Chief Executive Officer and the former Chairman and Chief
Executive Officer of Hekemian & Co., Inc., the Trust’s managing agent (“Hekemian & Co.”). During the
past five years, none of the trustees or executive officers of the Trust have served as directors of any company with a class
of securities registered pursuant to Section 12 of the Exchange Act or subject to the requirements of Section 15(d) of the Exchange
Act or any company registered as an investment company under the Investment Company Act of 1940, as amended, except Robert S.
Hekemian, Jr., who was a director of Oritani Financial Corp. (ORIT), the holding company for Oritani Bank, of which he was also
a director, until Oritani Financial Corp. merged into Valley National Bancorp in December 2019, and Ronald J. Artinian, who served
as a director of CommonWealth REIT (now known as Equity Commonwealth) during 2014, and The Reserve, The Reserve Primary Fund in
Liquidation and The Reserve Yield Plus Fund in Liquidation, which are registered investment companies, from 2006 to 2016.
Each of the executive officers of the
Trust serves in his office(s) until such time as his successor is elected and qualified.
Biographical Information
Robert S. Hekemian, Jr. has
served as a trustee since 2007, and he was appointed as Chief Executive Officer of the Trust in April 2018 following the retirement
of the late Robert S. Hekemian as Chairman and Chief Executive Officer of the Trust. Mr. Hekemian was additionally appointed to
the office of President of the Trust in February 2019. Mr. Robert Hekemian, Jr.’s current term as a member of the Board is
scheduled to expire at the next annual meeting of the Trust’s shareholders, and his term as Chief Executive Officer will
expire at such time as his successor is appointed and qualifies. Mr. Hekemian has been involved in real estate activities for over
35 years, including property management, leasing, mortgage financing, construction and acquisitions of residential and commercial
properties located throughout the Northeast and Mid-Atlantic regions of the United States. He has served as President and Chief
Operating Officer of Hekemian & Co. since 2004, and is a member of the Executive Committee of Hekemian & Co. From 1983
to 2003, Mr. Hekemian served as Executive Vice President of Hekemian & Co. Mr. Hekemian is principally responsible for identifying
real estate acquisitions and evaluating the performance of the real estate properties managed by Hekemian & Co. with a view
toward maintaining or altering management and/or leasing strategies. Mr. Hekemian also serves on the Board of the New York Philharmonic.
Mr. Hekemian is Chairman of the Bergen Community College Foundation. He is a Member of the Board of Governors, Hackensack University
Medical Center, and a trustee of the Hackensack University Medical Center Foundation.
Ronald J. Artinian has
served as a trustee since 1992, and he was appointed as Chairman of the Trust in April 2018 following the retirement of the late
Robert S. Hekemian as Chairman and Chief Executive Officer of the Trust. Mr. Artinian’s current term as a member of the Board
is scheduled to expire in April 2022, and his term as Chairman will expire at such time as his successor is appointed and qualifies.
Mr. Artinian worked in the financial services industry for 26 years, including with Smith Barney, Inc. from 1989 to 1998, where
Mr. Artinian held positions as an Executive Vice President, Managing Director and National Sales Manager. Mr. Artinian retired
from Smith Barney in January 1998 in order to pursue other business interests as a private investor. Mr. Artinian joined the board
of The Reserve, a money market fund, in 2007 and served as lead
independent director from March 2009 through December 2016. Mr.
Artinian served as a member of the board of NYMAGIC, Inc., an insurance holding company specializing in commercial lines property
and casualty and ocean marine insurance, from 2008 until the sale of that company in 2010. He also served on the board of CommonWealth
REIT (now known as Equity Commonwealth), a real estate investment trust, during 2014.
David F. McBride, Esq.
has served as a trustee since 2007. His current term as a member of the Board is scheduled to expire at the next annual meeting
of the Trust. Mr. McBride has over 45 years of diversified real estate experience. He is the Chief Executive Officer of McBride
Enterprises, Inc., a family-owned real estate company started in 1898. Mr. McBride was responsible for the development of numerous
office and industrial properties, as well as residential projects in Northern New Jersey. He also oversaw the operations of his
family’s general construction company, the Alpert P. Schmidt Construction Company, civil engineering firm, Urban Planning
and Engineering Company, and commercial brokerage firm, McBride Corporate Real Estate. Mr. McBride was also instrumental in forming
the Keystone Property Trust (NYSE) in 1998 and served as its Chairman of the Board until its sale to ProLogis (NYSE) in 2004. Mr.
McBride has also been a Partner in and is presently Of Counsel to the law firm of Harwood Lloyd, LLC, specializing in real estate
matters. Since 1998, Mr. McBride has also served as the Chairman and President of the Mountain Club Inc., t/a The High Mountain
Golf Club. Mr. McBride also served on the Advisory Board of the McDonough School of Business at Georgetown University from 2008
to 2018.
John A. Aiello, Esq. has
served as the Secretary and Executive Secretary of the Trust since 2003 and as a member of the Board since December 2015. His current
term as a member of the Board of Trustees is scheduled to expire in April 2021. Mr. Aiello is an officer and shareholder of the
law firm of Giordano, Halleran & Ciesla, P.C., where he has practiced law for 46 years. He is Chairman of the law firm’s
Corporate and Securities practice group and concentrates his practice on corporate and securities law matters, including mergers
and acquisitions and various corporate finance transactions. See the section entitled “Certain Relationships and Related
Party Transactions” in this Proxy Statement. Mr. Aiello is an emeritus member and former Chairman of the Board of Directors
of the Business Law Section of the New Jersey State Bar Association and a former member of the Board of Directors of the New Jersey
chapter of the Association for Corporate Growth, a non-profit organization of professionals and business leaders in the middle
market mergers and acquisitions space. Mr. Aiello is also a member of the Advisory Board of the Leon Hess School of Business of
Monmouth University.
Justin F. Meng has served
as a member of the Board since February 2016. His current term as a member of the Board of Trustees is scheduled to
expire in April 2022. Mr. Meng is a Managing Partner and Co-Portfolio Manager at V3 Capital Management L.P., an investment firm
focused on publicly-traded real estate securities that he co-founded in 2011. Previously, he was Partner and Head of REIT
Research for High Rise Capital Management, L.P., where he worked from 2005 to 2011. From 2002 to 2005, Mr. Meng served as
an Associate at J.P. Morgan Asset Management in the Real Estate Investment Group, where he worked both in the acquisitions and
asset management departments. From 2000 to 2002, he served as an Analyst at J.P. Morgan Asset Management in their Fixed Income
Group. Mr. Meng is a CFA charterholder.
David B. Hekemian has served
as a member of the Board since April 2018. His current term as a member of the Board of Trustees is scheduled to expire in April
2021. Mr. Hekemian has served as a commercial real estate executive at Hekemian & Co. for over 30 years, holding positions
of increasing responsibilities throughout his tenure at the company focused on strategic business and investment planning, retail
development and leasing, asset profitability management and lender negotiations. From 1988 to 1992 he served as Property Manager,
and from 1992 to 1996 he served as Vice President-Salesperson. Since 1996 Mr. Hekemian has served as Principal/Broker-Salesperson,
Director of Commercial Brokerage and as a member of Hekemian & Co.’s Executive Committee. Mr. Hekemian is a member of
the Armenian Missionary Association of America, where he served as Assistant Treasurer and a member of the Budget and Finance Committee
from 1998 to 2007 and as Co-Chairman of the Investment Committee from 1996 to 2009, which included oversight and management of
a $100 million equity and fixed income portfolio.
Richard J. Aslanian has
served as a member of the Board since April 2018. His current term as a member of the Board of Trustees is scheduled to expire
in April 2021. Mr. Aslanian is the Co-Founder of Welcome Home Brands, LLC, a distributor of imported paper and plastic bakeware
products that services cruise lines, hotels, casinos and food service companies. He co-founded Welcome Home Brands, LLC in 2010.
From 2007 to 2009 Mr. Aslanian was the Chief Executive Officer, sole Managing Member and founder of Blue Ram Capital Management,
LLC, which managed an investment partnership of public equities in developed markets. In 2006, Mr. Aslanian retired from Goldman
Sachs & Co. as a Managing Director after having been with the firm since 1991, during which time he was co-head of one of the
most prominent wealth management teams of the firm. From 1985 to 1991 Mr. Aslanian was an attorney at the law firm of Paul, Weiss,
Rifkind, Wharton & Garrison LLP where he concentrated his practice on corporate and tax matters and public and private mergers
and acquisitions. Mr. Aslanian established the Richard J. Aslanian Scholarship Fund, an endowed scholarship, at the University
of Pennsylvania, and has served on the boards of several charitable organizations, including the Partnership for Inner-City Education,
the Harrison Educational Foundation and the Armenian Church Endowment Fund.
Allan Tubin was appointed as
Chief Financial Officer and Treasurer of the Trust in February 2019. Mr. Tubin is the Chief Financial Officer of Hekemian &
Co., the Trust’s managing agent. As Chief Financial Officer of Hekemian & Co., Mr. Tubin
is responsible for corporate
and project finance, budgeting and tax planning, accounting, and SEC compliance for both Hekemian & Co. and its affiliates.
He is a member of Hekemian & Co.’s Acquisitions and Development Due Diligence Team, where he is responsible for financial
forecasting and modeling. Mr. Tubin has over 25 years’ experience in real estate finance. Prior to joining Hekemian &
Co. in 1996, he served as the Chief Financial Officer for the international real estate activities of the investment bank Donaldson,
Lufkin & Jenrette, and served as a certified public accountant with Ernst & Young.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange
Act requires the Trust’s executive officers and trustees, and persons who own more than 10% of the Shares, to file reports
of ownership and changes in ownership on Forms 3, 4 and 5 with the SEC. Executive officers, trustees and greater than 10% Shareholders
are required by SEC regulation to furnish the Trust with copies of all Forms 3, 4 and 5 they file.
Based solely on the Trust’s review
of the copies of such forms it has received, the Trust believes that all of its trustees, executive officers and greater than 10%
Shareholders complied with all filing requirements applicable to them with respect to reports required to be filed by Section 16(a)
of the Exchange Act during fiscal 2019, except for a Form 3 for Allan Tubin in connection with his appointment as Chief Executive
Officer of the Trust, which has been filed with the SEC.
Code of Ethics
The Trust has adopted a Code of Ethics
that is applicable to all trustees, executive officers and management employees of the Trust, including, without limitation, the
Trust’s principal executive and senior financial officers. The Audit Committee is charged with administering and interpreting
the Code of Ethics. The Code of Ethics is available on the Trust’s website at www.freitnj.com under the “About
FREIT” and “Corporate Governance” tabs.
Audit Committee
The current members of the Audit
Committee of the Board of Trustees are Ronald J. Artinian, David F. McBride and Richard J. Aslanian. Ronald J. Artinian serves
as the Chairman of the Audit Committee. Each member of the Audit Committee satisfies the audit committee qualifications under the
NASDAQ Listing Rules and is independent, as independence for audit committee members is defined in the NASDAQ Listing Rules, and
they each meet the independence requirements of Exchange Act Rule 10A-3(b)(1).
The Audit Committee held four
meetings during fiscal 2019. The Audit Committee selects the independent registered public accounting firm (the “Independent
Auditors”) to audit the books and accounts of the Trust. In addition, the Audit Committee reviews and pre-approves the scope
and costs of all services (including non-audit services) provided by the Independent Auditors. The Audit Committee also monitors
the effectiveness of the audit effort and financial reporting and inquires into the adequacy of the Trust’s financial and
operating controls.
Based on its review of the criteria
of an Audit Committee Financial Expert under the rules of the Securities and Exchange Commission (the “SEC”), the Board
of Trustees does not believe that any of the members of the Trust’s Audit Committee qualifies as an Audit Committee Financial
Expert.
Each of Ronald J. Artinian, David
F. McBride and Richard J. Aslanian has made significant contributions and provided valuable service to the Trust and its Shareholders
as members of the Audit Committee. The Board of Trustees believes that each of Mr. Artinian, Mr. McBride and Mr. Aslanian has demonstrated
that he is capable of (i) understanding accounting principles generally accepted in the United States of America (“GAAP”),
(ii) assessing the general application of GAAP principles in connection with the accounting for estimates, accruals and reserves,
(iii) understanding financial statements and analyzing and evaluating the Trust’s financial statements, (iv) understanding
internal controls and procedures for financial reporting, and (v) understanding audit committee functions, all of which are attributes
of an Audit Committee Financial Expert under the rules of the SEC. Given the business experience and acumen of Mr. Artinian, Mr.
McBride and Mr. Aslanian, the Board of Trustees believes that each of them is qualified to carry out all duties and responsibilities
of the Trust’s Audit Committee. However, Mr. Artinian, Mr. McBride and Mr. Aslanian have not acquired these attributes through
the specific experience that is required for qualification as an Audit Committee Financial Expert under the rules of the SEC, such
as experience serving as, or experience actively supervising, a principal financial officer, principal accounting officer, controller,
public accountant or auditor, or experience overseeing or assessing the performance of companies or public accountants with respect
to the preparation, auditing or evaluation of financial statements. Therefore, the Board of Trustees does not believe that any
of its current members meets all of the requirements under the SEC rules for qualification as an Audit Committee Financial Expert.
The Board of Trustees believes
that Allan Tubin, the Trust’s Chief Financial Officer and Treasurer, meets all of the requirements under the rules of the
SEC for qualification as an Audit Committee Financial Expert. However, Mr. Tubin is
not a trustee of the Trust and would not meet
the requirements for qualification as an “independent director” under the NASDAQ Listing Rules due to the fact that
Mr. Tubin is an executive officer of the Trust and an executive officer of Hekemian & Co., the Trust’s managing agent.
As Chief Financial Officer of the Trust, Mr. Tubin will make the certifications required under the Sarbanes-Oxley Act of 2002 and
the related rules adopted by the SEC with respect to (i) the Trust’s financial statements and other financial information
included in periodic reports filed with the SEC, (ii) the Trust’s disclosure controls and procedures regarding the disclosure
to the certifying officers of material information relating to the Trust, and (iii) the Trust’s internal controls and the
adequacy of the design and operation of such internal controls. As a certifying officer of the Trust, Mr. Tubin will meet with
and make reports to the Audit Committee with respect to the items which are the subject matter of his certifications.
Based on the foregoing, the Board
of Trustees believes that the Audit Committee functions effectively and properly performs and discharges its duties, and the Board
does not believe that it is necessary at this time to actively search for an outside person to serve on the Board of Trustees who
would qualify as an Audit Committee Financial Expert.
ITEM 11
|
EXECUTIVE COMPENSATION
|
The Trust is externally managed
by Hekemian & Co. Hekemian & Co. is owned by members of the family of Robert S. Hekemian, Jr., Chief Executive Officer,
President and a trustee of the Trust, David B. Hekemian, a trustee of the Trust, and the late Robert S. Hekemian, a former consultant
to the Trust. As compensation for its management services, the Trust pays Hekemian & Co. management and other fees pursuant
to a Management Agreement between the Trust and Hekemian & Co. In addition, as an incentive to the employees of Hekemian &
Co. (including members of the Hekemian family) to identify and provide real estate investment opportunities for the Trust, the
Trust has advanced to such employees who are investors in certain joint venture projects a portion of the equity capital required
to be contributed by them to such joint ventures. The Management Agreement and these other incentives are more particularly described
in “Certain Relationships and Related Party Transactions; Director Independence” below.
In view of the Trust’s external
management structure, the Trust does not employ executive officers on a full-time basis. The following Compensation Discussion
and Analysis presents information regarding the Trust’s compensation policies and programs and the compensation of the Trust’s
executive officers.
Compensation Discussion and
Analysis
Overview
The Trust’s compensation
program is designed to properly compensate the executive officers commensurate with the duties and services that they are employed
to perform for the Trust, to reward their dedication, hard work and success and align their interests with the long-term interests
of the Trust. The Compensation Committee reviews the compensation paid to the executive officers in consideration of these objectives
and makes recommendations to the Board regarding its determinations. The various factors considered by the Compensation Committee
in reaching its determinations concerning the compensation of the executive officers are discussed under “Fiscal 2019 Compensation”
below.
Recovery of Erroneously Awarded
Compensation
The Board has adopted a policy
that provides that, in the event that the Trust is required to prepare an accounting restatement due to the Trust’s material
non-compliance with any financial reporting requirement, the Trust will require the reimbursement, cancellation or forfeiture,
as the case may be and to the fullest extent permitted by applicable law, of any incentive-based compensation paid to any current
or former executive officer during the three-year period preceding such restatement that was based on the erroneous data and that
was paid in excess of the compensation that would have been paid to the executive officer based on the accounting restatement.
The Trust will disclose any incentive-based compensation paid to any executive officer that is based on any measure of financial
performance or any other financial information in the Trust’s proxy statement for the annual meeting of Shareholders and
as required by the rules and regulations of the SEC.
As discussed under “Elements
of Executive Compensation” below, the Trust did not pay any incentive-based compensation to any of the executive officers
during the fiscal year ended October 31, 2019.
Hedging Policy
It is the policy of the Trust
that no employee or trustee of the Trust may purchase any financial instruments that are designed to hedge or offset any decrease
in the market value of the Trust’s Shares that (i) were previously awarded, or acquired pursuant to the exercise of any option
granted, to an employee or trustee by the Trust as part of the compensation of such employee or trustee or (ii) otherwise held,
directly or indirectly, by an employee or trustee, which financial instruments will include, without limitation, puts, calls, straddles,
equity swaps and any other derivative security that is directly linked to the Shares.
Elements of Executive Compensation
There are three elements to the
compensation of the executive officers of the Trust: (1) base salary; (2) the Equity Incentive Plan; and (3) the Amended and Restated
Deferred Fee Plan (the “Deferred Fee Plan”). The Compensation Committee and the Board believe that these elements allow
the Trust to accomplish its objectives of properly compensating the executive officers for their services to the Trust, rewarding
the dedication, hard work and success of executive officers and aligning the interests of executive officers with the long-term
interests of the Trust.
Except for base salary, benefits
under the Equity Incentive Plan and Deferred Fee Plan, and fees paid to the executive officers for their service as trustees, the
Trust does not pay any other compensation or benefits to its executive officers, whether it be in the form of bonus, long-term
incentive compensation, perquisites, rights, warrants, convertible securities, performance units, performance shares or other similar
instruments. The Equity Incentive Plan and the Deferred Fee Plan are the only employee benefit plans maintained by the Trust. There
are no employment contracts between the Trust and any of the executive officers, nor is there any compensatory plan or arrangement
between the Trust and any of the executive officers pursuant to which an executive officer would receive payments as the result
of his resignation or retirement as an executive officer, or any other event resulting in the termination of his relationship with
the Trust as an executive officer, or as a result of a change in control of the Trust. The Trust’s Deferred Fee Plan, discussed
below, provides that a participant may receive Shares with respect to amounts credited to such participant’s account under
the Deferred Fee Plan, including amounts deferred thereunder and accrued interest, upon such participant’s attainment of
the retirement age specified in the participant’s deferral election, such participant’s actual retirement, such participant’s
cessation of services prior to retirement, or the occurrence of a change in control of the Trust as defined under the Deferred
Fee Plan. The Trust’s Equity Incentive Plan provides that in the event of (i) a Change in Control (as such term is defined
in the Equity Incentive Plan), or (ii) a sale of all or substantially all of the assets of the Trust, other than a sale of assets
to a subsidiary or other affiliated entity of the Trust, all outstanding options granted under the Equity Incentive Plan will become
exercisable (to the extent not already exercisable) immediately before or contemporaneously with the occurrence of such change
in control or sale, and each outstanding restricted share award granted under the Equity Incentive Plan shall immediately become
free of all restrictions, conditions and forfeiture provisions.
As
previously reported by the Trust, on January 14, 2020, the Trust and certain of its affiliates entered into a Purchase and
Sale Agreement (the “Sale Agreement”), pursuant to which the Trust and its affiliates will sell 100% of their ownership
interests in seven real properties held by them. In addition, as previously reported by the Trust, on January 14, 2020, the Board
adopted a Plan of Voluntary Liquidation (the “Plan of Liquidation”), which provides for the voluntary termination and
liquidation of the Trust by the sale, conveyance, transfer and delivery of all of the Trust’s remaining assets. The Sale
Agreement and the Plan of Liquidation are both subject to the approval of the Trust’s shareholders. If the Sale Agreement
is approved by the Trust’s shareholders and the transactions contemplated therein are completed, but the Plan of Liquidation
is not approved by the Trust’s shareholders, then the vesting of options outstanding under our Equity Incentive Plan will
not accelerate but the Compensation Committee of our Board of Trustees may consider and approve a reduction of the exercise price
of outstanding options at such time as the Board approves a distribution to the Trust’s shareholders. However, if both the
Sale Agreement and the Plan of Liquidation are approved by the Trust’s shareholders (and the transactions contemplated in
the Sale Agreement are completed), then all unvested outstanding options will become vested upon the consummation of the transactions
contemplated in the Sale Agreement. As of October 31, 2019, there were 202,400 unexercised options collectively held by the executive
officers and trustees of the Trust that were outstanding. Additional information with respect to outstanding stock options is set
forth in the “Outstanding Equity Awards at Fiscal Year-End” table below.
Robert S. Hekemian, Jr., Chief
Executive Officer, President and a trustee of the Trust, is the President and Chief Operating Officer of Hekemian & Co. David
B. Hekemian, a trustee of the Trust, is the Principal/Broker – Salesperson and Director of Commercial Brokerage of Hekemian
& Co. Robert S. Hekemian, the former Chairman and Chief Executive Officer of the Trust, served as a consultant to the Trust
and Chairman of the Board and Chief Executive Officer of Hekemian & Co. prior to his death in December 2019. Pursuant to the
terms of the Management Agreement between Hekemian & Co. and the Trust, Hekemian & Co. is entitled to receive a termination
fee from the Trust under certain circumstances, including the non-renewal of the Management Agreement by the Trust, termination
of the Management Agreement by the Trust without cause, or termination of the Management Agreement by the Trust following an acquisition
of the Trust. See “Certain Relationships, Related Party Transactions; Director Independence” below.
Equity Incentive Plan
The Trust originally adopted the
Equity Incentive Plan in 1999 upon the approval of the Board and the shareholders. In 2007, the Board and shareholders approved
amendments to the Equity Incentive Plan to (a) increase the number of Shares reserved for issuance thereunder by 300,000 Shares
and (b) extend the term of the Equity Incentive Plan from September 10, 2008 to September 10, 2018. In 2018, the Board and shareholders
approved further amendments to the Equity Incentive Plan to (a) increase the number of Shares reserved for issuance thereunder
by an additional 300,000 Shares and (b) further extend the term of the Equity Incentive Plan from September 10, 2018 to September
10, 2028.
The purpose of the Equity Incentive
Plan is to allow the Trust to retain the services of individuals who have made, and/or who are expected to make, significant contributions
to the business of the Trust and its subsidiaries, to align such persons’ interests with the long-term interests of the Trust,
and to reward hard work, dedication and success by providing such individuals with an opportunity to acquire Shares of the Trust
or receive other Share-based awards. Eligible participants include executive officers, trustees and consultants of the Trust, including
employees of Hekemian & Co., the Trust’s managing agent.
The Board administers the Equity
Incentive Plan, with the full and exclusive power to interpret the plan, to adopt rules, regulations and guidelines relating to
the plan, to grant waivers of restrictions under the plan and to make all of the determinations necessary for the administration
of the plan. The Board’s authority to administer the Equity Incentive Plan includes the authority, within the limits set
forth in the plan, to determine the persons to whom awards may be granted, determine the number of Shares to be covered by each
award, establish the terms, conditions and provisions of the awards to be granted, and establish restrictions on the awards or
subsequently waive any such restriction or permit any such restriction to lapse.
The exercise price of options
granted under the Equity Incentive Plan will be equal to the Fair Market Value (as defined in the Equity Incentive Plan) of the
Shares on the date of the grant of the options. For any other form of award, the consideration, if any, to be paid in exchange
for the award will be determined by the Board, but in no event will such consideration be greater than the Fair Market Value of
the Shares on the date of grant. The term of awards will be determined by the Board, but will not exceed 10 years from the date
of grant. Awards will vest in accordance with terms fixed by the Board, and vesting of awards may accelerate upon the occurrence
of certain events, including a Change in Control (as defined in the Equity Incentive Plan), sale of all or substantially all of
the Trust’s assets, or the death, the Retirement (as defined in the Equity Incentive Plan) of the participant or the disability
of the participant.
The Board may terminate, modify
or amend the Equity Incentive Plan at any time, provided that any modification or amendment that increases the number of Shares
reserved for issuance thereunder is subject to the approval of the Trust’s shareholders, and any termination, modification
or amendment that adversely affects the terms of any outstanding awards is subject to the consent of the holders thereof.
The Board has charged the Compensation
Committee with the responsibility of making recommendations to the Board with respect to grants of awards under the Equity Incentive
Plan to eligible participants. While the Equity Incentive Plan provides that options to acquire Shares will be the principal form
of award under the plan, the plan also provides for grants of restricted Share awards and other Share-based awards.
During the 2019 fiscal year, upon
the recommendation of the Compensation Committee, the Board of Trustees granted options to acquire 5,000 Shares under the Equity
Incentive Plan to Ronald J. Artinian, the Chairman of the Board. The Compensation Committee did not recommend, and the Board of
Trustees did not make, any other grants of stock options or other equity-based awards under the Equity Incentive Plan during the
fiscal year ended October 31, 2019.
Amended and Restated Deferred
Fee Plan
Effective November 1, 2000, the
Board of trustees adopted the Deferred Fee Plan, which is intended to provide a benefit to executive officers and trustees who
have made, and/or who are expected to continue to make, significant contributions to the long-term success of the Trust. An election
to defer compensation is required to be made prior to the calendar year for which it will be effective, and is irrevocable with
respect to the calendar year to which it applies. The Deferred Fee Plan was amended and restated effective December
31, 2008, and further amended and restated effective November 1, 2014.
The original purpose of the Deferred
Fee Plan was to provide executive officers and trustees with a long-term savings opportunity. Prior to the amendments to the Deferred
Fee Plan that went into effect as of November 1, 2014, the Deferred Fee Plan permitted any executive officer or trustee to elect
to defer receipt of any compensation, including executive officer salary, trustee annual retainer fees, meeting attendance fees,
and property site inspection fees, and the rate of interest payable on any amounts deferred was fixed at 9% per annum, compounded
quarterly.
The amendments to the Deferred
Fee Plan that went into effect as of November 1, 2014 shifted the purpose of the Deferred Fee Plan from a long-term savings vehicle
for eligible participants to an opportunity for eligible participants to increase their equity position in the Trust. As amended
and restated effective November 1, 2014, the Deferred Fee Plan no longer permits trustees who are also executive officers of the
Trust to defer amounts payable to them as salary for their services as executive officers. Participants in the Deferred Fee Plan
are only permitted to defer amounts payable to them for their service as trustees. In addition, from and after November 1, 2014,
amounts deferred, together with the interest accrued on a participant’s entire balance, will be converted on the last day
of each calendar quarter into share units that are equivalent to Shares (“Share Units”), and credited to the participant’s
account. Amounts deferred under the Deferred Fee Plan are converted into Share Units on a quarterly basis, on the last day of each
calendar quarter. The number of Share Units to be credited with respect to amounts deferred during a calendar quarter will be determined
by the closing price of the Shares on the trading day immediately
preceding the last day of such calendar quarter. The participants’
existing balances as of October 31, 2014 will be preserved in the form of cash and will not be converted into Share Units, although
the interest that accrues on such existing balances from and after November 1, 2014 will be converted into Share Units. As of November
1, 2014, the interest rate on participants’ cash balances under the Deferred Fee Plan was changed from 9% per annum to the
average interest rate on ten-year Treasury bonds plus 150 basis points. In the event that any cash dividend is paid by the Trust
with respect to the Shares, each participant will be credited with a number of Share Units equal to (x) the amount of the cash
dividend paid with respect to one Share, (y) multiplied by the total number of Share Units credited to a participant’s account
as of the record date for the dividend, (z) divided by the fair market value of one Share on the trading day immediately preceding
the payment date of the dividend. In the event that any dividend is paid with respect to the Shares in Shares, each participant
will be credited with a number of Share Units equal to the number of full Shares that such participant would have received had
the participant been the owner, on the record date for the dividend, of a number of Shares equal to the number of Share Units credited
to the participant’s account.
A participant’s deferred
benefits under the Deferred Fee Plan will be paid to the participant at either: (i) the retirement age specified by the participant
in the deferral election; (ii) actual retirement of the participant; (iii) upon the earlier cessation of duties as a trustee of
the Trust prior to retirement; or (iv) upon a change in control of the Trust, as defined in the Deferred Fee Plan. On
the payment date, the Trust will issue to the participant a number of Shares equal to the number of Share Units credited to the
participant’s account, and will pay to the participant amounts maintained in the participant’s account as of October
31, 2014 as cash in either a lump sum or in a number of substantially equal annual installments over a period not to exceed 10
years, at the election of the participant, except if a participant elects to receive payment upon the occurrence of a change in
control, in which case all such amounts will be payable in a lump sum. The Trust has not created and will not create
a cash sinking fund for amounts deferred pursuant to the Deferred Fee Plan that are not payable in Shares. As a result,
any participant who elects to participate in the Deferred Fee Plan is an unsecured creditor of the Trust with respect to any amounts
deferred thereunder. The Deferred Fee Plan may be amended, suspended or terminated by resolution of the Board at any
time and from time to time, provided that no amendment, suspension or termination will operate to adversely affect the plan benefits
accrued or available for any participant.
As of October 31, 2019, an
aggregate amount of approximately $7,610,000 has been deferred under the Deferred Fee Plan, which represents an aggregate of
$4,422,000 of deferred fees and $3,188,000 of accrued deferred interest, which amounts will be maintained as cash in the
participants’ accounts under the Deferred Fee Plan and will not be converted into Share Units as described above.
Subsequent to October 31, 2019, the Trust paid an aggregate of $4,977,115, which former executive officers and trustees were
entitled to receive under the Deferred Fee Plan.
During the fiscal year ended October
31, 2019, participants deferred a total of approximately $879,800 under the Deferred Fee Plan, consisting of approximately $581,600
of deferred fees and approximately $298,200 of accrued deferred interest. Pursuant to the amendments to the Deferred Fee Plan that
became effective on November 1, 2014, the aggregate amount of $879,800 deferred by all participants converted into an aggregate
of 53,741 Share Units during the fiscal year ended October 31, 2019, which were credited to the participants’ accounts. In
addition, the participants were credited with an aggregate of 6,407 Share Units during fiscal 2019 representing dividends paid
with respect to the Share Units credited to their accounts. Additional information regarding the participants’ deferral of
fees and the conversion of deferred amounts into Share Units credited to their accounts is set forth under “Fiscal 2019 Nonqualified
Deferred Compensation” and “Fiscal 2019 Trustee Compensation” below.
The
Sale Agreement provides for the sale of a 100% interest in seven apartment properties owned by the Trust and certain of its affiliates;
however, there are circumstances in which certain apartment properties may be excluded from the transaction. If all of seven apartment
properties are sold pursuant to the Sale Agreement, the completion of the transaction will constitute a “change in control”
under the Deferred Fee Plan and entitle participants to receive a lump sum cash payment of their accrued benefits under the Deferred
Fee Plan. The terms of the Sale Agreement, including the circumstances in which certain apartment properties may be excluded from
the transaction, are described in further detail in the Trust’s Current Report on Form 8-K filed with the SEC on January
15, 2020.
Fiscal 2019 Compensation
The Compensation Committee recommended
to the Board that there be no adjustments to the compensation paid to the executive officers for the fiscal year ended October
31, 2016 from the compensation paid to them in the fiscal year ended October 31, 2015, and the Board accepted the Compensation
Committee’s recommendation and did not make any adjustments to the compensation paid to the executive officers for the fiscal
year ended October 31, 2016. The Compensation Committee similarly recommended to the Board that there be no adjustments to the
compensation paid to the executive officers for the fiscal year ended October 31, 2017, and the Board accepted the Compensation
Committee’s recommendation and did not make any adjustments to the compensation paid to the executive officers for the fiscal
year ended October 31, 2017.
Following Robert S.
Hekemian’s retirement as Chairman and Chief Executive Officer on April 5, 2018, the Board determined, upon the
recommendation of the Compensation Committee, to pay Robert S. Hekemian, Jr. a base salary for the fiscal year ended October
31, 2018 of $300,000 on a pro-rated basis for his services as Chief Executive Officer following his appointment to that
office in April 2018. Robert S. Hekemian was paid an annual base salary of $300,000 prior to his retirement in April
2018.
With respect to compensation for
the fiscal year ended October 31, 2019, the Compensation Committee recommended to the Board that the base salary paid to Robert
S. Hekemian, Jr. for his service as Chief Executive Officer of the Trust be increased to $400,000 per year from $300,000 per year,
and that there be no adjustments to the compensation paid to Allan Tubin as Chief Financial Officer and Treasurer of the Trust,
Ronald J. Artinian as Chairman of the Board of the Trust, or John A. Aiello as Executive Secretary, and the Board approved the
Compensation Committee’s recommendations.
With respect to compensation for
the fiscal year ending October 31, 2020, the Compensation Committee recommended to the Board that the base salary paid to Robert
S. Hekemian, Jr. for his service as Chief Executive Officer of the Trust be maintained at $400,000 per year, and that there be
no adjustments to the compensation paid to Allan Tubin as Chief Financial Officer and Treasurer of the Trust, Ronald J. Artinian
as the Chairman of the Board or John A. Aiello as Executive Secretary.
The Compensation Committee considers
the following factors, among other things, in the course of its review of the compensation for the executive officers: (a) compensation
paid by other real estate investment trusts, both as a component of operating expenses and to ensure that the Trust’s compensation
levels are competitive in the industry; (b) the duties and responsibilities of the executive officers and the value of the services
provided by them; (c) the Trust’s operating results and financial condition, as well as the condition and prospects of the
residential and commercial real estate markets; and (d) the results of the most recent shareholder advisory vote to approve the
compensation of the executive officers, which was conducted at the 2017 Annual Meeting. For the fiscal year ending October 31,
2020, the Compensation Committee also considered the roles of the executive officers with the Trust’s evaluation and pursuit
of the strategic alternatives being pursued by the Trust, including the Sale Agreement and Plan of Liquidation.
The Compensation Committee reviews
compensation paid by other real estate investment trusts in the most general way in view of the fact that unlike many other real
estate investment trusts, the Trust is externally managed. Therefore, the Trust does not retain the services of its executive officers
on a full-time, exclusive basis, and the executive officers do not spend full time in their respective positions or devote all
of their business activities to the Trust. The Compensation Committee and the Board take these considerations into account when
determining the compensation to be paid to the Trust’s executive officers, and the compensation paid to the executive officers
reflects what the Compensation Committee and the Board believe to be fair and reasonable compensation for the services that the
executive officers provide to the Trust and their commitment to serve as executive officers of the Trust under these circumstances.
The Compensation Committee and the Board also consider the size and scope of the Trust’s business and operations as reflected
on its balance sheet and income statement in relationship to other real estate investment trusts.
As required by the rules and regulations
of the SEC, at the 2017 Annual Meeting of Shareholders, the shareholders were asked to approve an advisory resolution approving
the compensation of the executive officers as disclosed and described in the Compensation Discussion and Analysis and the compensation
tables and narratives contained in the Trust’s proxy statement used in connection with the 2017 Annual Meeting. The advisory
resolution received the approval of approximately 97.7% of the votes cast on this proposal. The Compensation Committee and the
Board concluded from the strong approval of the advisory resolution that the shareholders believe that the Trust’s compensation
policies and the compensation paid to the executive officers are appropriate and reflective of the Trust’s objectives of
aligning the interests of the executive officers with the long-term interests of the Trust. In accordance with the rules and regulations
of the SEC, and based on the results of the vote by the shareholders at the 2017 Annual Meeting on the frequency of such vote,
the advisory vote by the shareholders to approve the compensation of the executive officers will occur again at a special meeting
of the Trust’s shareholders to approve the Sale Agreement and Plan of Liquidation, among other things, which the Trust expects
to hold in the second quarter of the fiscal year ending October 31, 2020.
Risk Management
The Compensation Committee does
not believe that the Trust’s executive compensation program gives rise to any risks that are reasonably likely to have a
material adverse effect on the Trust. Executive officers are compensated on a fixed salary basis and have not been awarded any
bonuses or other compensation that might encourage the taking of unnecessary or excessive risks that threaten the long-term value
of the Trust. In addition, the Compensation Committee and the Board have utilized, the Equity Incentive Plan to align the interests
of the trustees and executive officers with the long-term interests of the Trust and the shareholders through grants of stock options
and other equity-based awards, thereby giving the trustees and executive officers additional incentives to protect the long-term
value of the Trust.
Executive Compensation and
Financial Performance
As discussed above, the executive
officers of the Trust are compensated primarily on a fixed salary basis and have not been awarded any incentive-based cash bonuses,
and the compensation paid to the executive officers is not specifically dependent upon any particular measure of financial performance.
However, the Compensation Committee considers, in general terms, both the overall financial performance and condition of the Trust
and the Trust’s long-term prospects in the Committee’s determination of appropriate levels of executive salary, among
other factors and considerations discussed under “Fiscal 2019 Compensation” above.
Chief Executive Officer Compensation
and Employee Compensation
The table below sets forth comparative
information regarding (A) the total compensation of the Chief Executive Officer for the fiscal year ended October 31, 2019, (B)
the median of the total compensation of all other employees of the Trust, not including the Chief Executive Officer, for the fiscal
year ended October 31, 2019, and (C) the ratio of the Chief Executive Officer’s total compensation to the median of the total
compensation of all other employees (other than the Chief Executive Officer). As of October 31, 2019, excluding the Chief Executive
Officer, the Trust had forty-six employees, including thirty-two full-time employees, eleven part-time and seasonal employees,
and three executive officers.
Chief Executive Officer compensation (A)
|
$481,190
|
Median compensation of all employees (not including Chief Executive Officer) (B)
|
$39,888
|
Ratio of (A) to (B)
|
12.06
|
Compensation Committee Interlocks
and Insider Participation
For
the fiscal year ended October 31, 2019, David F. McBride, Justin F. Meng and Richard J. Aslanian served on the Compensation Committee
of the Board, with Mr. McBride serving as the Chairman of the Committee. None of the members of the Compensation Committee served
as an executive officer or employee of the Trust at any time during the fiscal year ended October 31, 2019, nor have any of them
ever served as an executive officer of the Trust in any prior year.
Compensation Committee Report
The Compensation
Committee has discussed and reviewed the foregoing Compensation Discussion and Analysis with management. Based upon this review
and discussion, the Compensation Committee recommended to the Board that the Compensation Discussion and Analysis be included in
this Amendment.
Submitted by:
|
David F. McBride, Chairman
|
|
Justin F. Meng
|
|
Richard J. Aslanian
|
SUMMARY COMPENSATION TABLE
The following
table sets forth information concerning the compensation of all of the named executive officers of the Trust (the “Executive
Officers”) as of October 31, 2019, October 31, 2018 and October 31, 2017 for services in all capacities to the Trust for
the 2019, 2018 and 2017 fiscal years, respectively. With respect to all compensation, the term “paid” will mean actually
paid or deferred.
Name and Principal
Position (1)
|
Year
|
Salary ($)(2)
|
Bonus
($)
|
Stock
Awards
($)
|
Option
Awards
($)
|
Non-Equity
Incentive Plan
Compensation ($)
|
Change in
Pension Value
and
Nonqualified
Deferred
Compensation
Earnings ($)
|
All Other
Compensation
($)
|
Total ($)
|
Robert S. Hekemian,
|
2019
|
--
|
--
|
--
|
--
|
--
|
--
|
--
|
--
|
Former Chairman of the Board
|
2018
|
$128,932 (4)
|
$ --
|
$ --
|
$ --
|
$ --
|
$ --
|
$235,806 (5)
|
$364,738 (6)
|
and Chief Executive Officer (3)
|
2017
|
$300,000
|
$ --
|
$ --
|
$ --
|
$ --
|
$ --
|
$237,745 (5)
|
$537,745
|
Robert S. Hekemian, Jr.,
|
2019
|
$400,000
|
$ --
|
$ --
|
$ --
|
$ --
|
$ --
|
$81,190 (9)
|
$481,190
|
President and Chief
|
2018
|
$171,781 (8)
|
$ --
|
$ --
|
$ --
|
$ --
|
$ --
|
$63,046 (9)
|
$234,827
|
Executive Officer (7)
|
2017
|
--
|
--
|
--
|
--
|
--
|
--
|
--
|
--
|
Allan Tubin,
|
2019
|
$21,863 (11)
|
$ --
|
$ --
|
$ --
|
$ --
|
$ --
|
$ --
|
$21,863
|
Treasurer and Chief
|
2018
|
--
|
--
|
--
|
--
|
--
|
--
|
--
|
--
|
Financial Officer (10)
|
2017
|
--
|
--
|
--
|
--
|
--
|
--
|
--
|
--
|
Donald W. Barney,
|
2019
|
$20,342 (13)
|
$ --
|
$ --
|
$ --
|
$ --
|
$ --
|
$87,211 (14)
|
$107,553
|
Former President, Treasurer
|
2018
|
$75,000
|
$ --
|
$ --
|
$ --
|
$ --
|
$ --
|
$119,515 (14)
|
$194,515
|
and
Chief Financial Officer (12)
|
2017
|
$75,000
|
$ --
|
$ --
|
$ --
|
$ --
|
$ --
|
$114,378 (14)
|
$189,378
|
John A. Aiello, Esq.,
|
2019
|
$40,000
|
$ --
|
$ --
|
$ --
|
$ --
|
$ --
|
$76,000 (15)
|
$116,000 (16)
|
Executive Secretary and
|
2018
|
$35,000
|
$ --
|
$ --
|
$ --
|
$ --
|
$ --
|
$68,000 (15)
|
$103,000 (16)
|
Secretary
|
2017
|
$30,000
|
$ --
|
$ --
|
$67,260
|
$ --
|
$ --
|
$71,800 (15)
|
$169,060 (16)
|
|
(1)
|
Represents the positions held by each Executive Officer for the fiscal years
ended October 31, 2019, October 31, 2018 and October 31, 2017.
|
|
(2)
|
Represents payment to the Executive Officers for their services as Executive
Officers of the Trust.
|
|
(3)
|
Robert S. Hekemian retired as Chairman, Chief Executive Officer and a trustee
of the Trust effective April 5, 2018. Mr. Hekemian did not serve as an Executive Officer of the Trust during the fiscal year ended
October 31, 2019.
|
|
(4)
|
Based on an annual base salary in the amount of $300,000, prorated for the
period beginning November 1, 2017 through the effective date of Robert S. Hekemian’s retirement as Chairman of the Board
and Chief Executive Officer on April 5, 2018.
|
|
(5)
|
Of these amounts, $200,955 and $177,958 represent accrued interest earned
in the fiscal years ended October 31, 2018 and 2017, respectively, on amounts previously deferred by Robert S. Hekemian for service
as an Executive Officer pursuant to the terms of the Deferred Fee Plan, pursuant to which payment of accrued interest is deferred
until such time that the deferred executive officer fees are paid to Mr. Hekemian; $27,642 and $55,800 represent annual retainer
fees, meeting fees and other fees paid to Mr. Hekemian in the fiscal years ended October 31, 2018 and 2017, respectively, as consideration
for his service on the Board of Trustees and, if applicable, its committees, but deferred pursuant to the terms of the Deferred
Fee Plan; and $7,209 and $3,987 represent dividends earned related to accrued interest and fees in the fiscal years ended October
31, 2018 and 2017, respectively. Pursuant to the amendments to the Deferred Fee Plan that became effective on November 1, 2014,
the aggregate amount of $235,806 deferred (including dividends earned on deferral) for the fiscal year ended October 31, 2018 converted
into an aggregate
|
|
|
|
of 14,921 Share Units, and the aggregate amount of $237,745 deferred (including dividends earned on deferral)
for the fiscal year ended October 31, 2017 converted into an aggregate of 12,917 Share Units. See “Amended and Restated Deferred
Fee Plan,” above.
|
|
(6)
|
In addition to amounts paid to Robert S. Hekemian for his service as Chairman
of the Board, Chief Executive Officer and a trustee of the Trust during the fiscal year ended October 31, 2018 until his retirement
as an Executive Officer and trustee on April 5, 2018, Mr. Hekemian entered into a Consulting Agreement with the Trust effective
April 5, 2018 and received compensation from the Trust for consulting services rendered thereunder. The compensation paid to Mr.
Hekemian under the Consulting Agreement during the fiscal years ended October 31, 2019 and 2018 is described in Item 13, “Certain
Relationships and Related Party Transactions; Trustee Independence.”
|
|
(7)
|
Robert S. Hekemian, Jr. was appointed as Chief Executive Officer of the Trust
effective April 5, 2018 and President of the Trust effective February 7, 2019. Mr. Hekemian did not serve as an Executive Officer
of the Trust during the fiscal year ended October 31, 2017.
|
|
(8)
|
Based on an annual base salary in the amount of $300,000, prorated for the
period beginning on the date of Robert S. Hekemian, Jr.’s appointment as Chief Executive Officer on April 5, 2018 through
the remainder of the fiscal year ended October 31, 2018.
|
|
(9)
|
Of these amounts, $9,840 and $11,080 represent accrued interest earned in
the fiscal years ended October 31, 2019 and 2018, respectively, on amounts previously deferred by Robert S. Hekemian, Jr. pursuant
to the terms of the Deferred Fee Plan, pursuant to which payment of accrued interest is deferred until such time that the deferred
fees are paid to Mr. Hekemian; $61,000 and $50,000 represent annual retainer fees, meeting fees and other fees paid to Mr. Hekemian
in the fiscal years ended October 31, 2019 and 2018, respectively, as consideration for his service on the Board of Trustees and,
if applicable, its committees, but deferred pursuant to the terms of the Deferred Fee Plan; and $10,350 and $1,966 represent dividends
earned related to accrued interest and fees in the fiscal years ended October 31 2019 and 2018, respectively. Pursuant to the amendments
to the Deferred Fee Plan that became effective on November 1, 2014, the aggregate amount of $81,190 deferred (including dividends
earned on deferral) for the fiscal year ended October 31, 2019 converted into an aggregate of 4,927 Share Units, and the aggregate
amount of $63,046 deferred (including dividends earned on deferral) for the fiscal year ended October 31, 2018 converted into an
aggregate of 4,002 Share Units. See “Amended and Restated Deferred Fee Plan,” above.
|
|
(10)
|
Allan Tubin was appointed as Chief Financial Officer and Treasurer of the
Trust effective February 7, 2019. Mr. Tubin did not serve as an executive officer of the Trust during fiscal 2018 or fiscal 2017.
|
|
(11)
|
Based on an annual base salary of $30,000 pro-rated for the period beginning
on the date of Mr. Tubin’s appointment as Chief Financial Officer and Treasurer on February 7, 2019 through the remainder
of the fiscal year ended October 31, 2019.
|
|
(12)
|
Donald W. Barney retired as President, Chief Financial Officer, Treasurer
and a trustee of the Trust effective February 7, 2019.
|
|
(13)
|
Based on an annual base salary of $75,000 prorated for the fiscal year ended
October 31, 2019 through the date of Mr. Barney’s retirement as Chief Financial Officer and Treasurer on February 7, 2019.
|
|
(14)
|
Of these amounts, $57,081, $65,992 and $58,440 represent accrued interest
earned on amounts previously deferred by Donald W. Barney for service as an Executive Officer pursuant to the terms of the Deferred
Fee Plan, pursuant to which payment of accrued interest is deferred until such time that the deferred executive officer fees are
paid to Mr. Barney in the fiscal years ended October 31, 2019, 2018 and 2017, respectively; $13,938, $50,000 and $54,000 represent
annual retainer fees, meeting fees and other fees paid to Mr. Barney in the fiscal years ended October 31, 2019, 2018 and 2017,
respectively, as consideration for his service on the Board and, if applicable, its committees, but deferred pursuant to the terms
of the Deferred Fee Plan; and $16,192, $3,523 and $1,938, represent dividends earned related to accrued interest and fees in the
fiscal years ended October 31, 2019, 2018 and 2017, respectively. Pursuant to the amendments to the Deferred Fee Plan that became
effective on November 1, 2014, the aggregate amount of $87,211 deferred (including dividends earned on deferral) for the fiscal
year ended October 31, 2019 converted into an aggregate of 5,363 Share Units, the aggregate amount of $119,515 deferred (including
dividends earned on deferral) for the fiscal year ended October 31, 2018 converted into an aggregate of 7,574 Share Units and the
aggregate amount of $114,378 deferred (including dividends earned on deferral) for the fiscal year ended October 31, 2017 converted
into an aggregate of 6,234 Share Units. See “Amended and Restated Deferred Fee Plan” above.
|
|
(15)
|
During the fiscal years ended October 31, 2019, October 31, 2018 and October
31, 2017, the Executive Secretary was entitled to receive (i) meeting attendance fees in the amount of $1,500 for each meeting
of the Board and its committees attended, $1,000 for each meeting participated in by teleconference; and (ii) property site inspection
fees in the amount of $1,000 for each site inspection attended and reimbursement of all reasonable and verified out-of-pocket expenses
incurred in connection with the site visit.
|
|
(16)
|
Mr. Aiello is an officer and shareholder in the law firm of Giordano, Halleran
& Ciesla, P.C. During the fiscal years ended October 31, 2019, 2018 and 2017, Mr. Aiello paid to the law firm the retainer
and meeting fees which he received in connection with his services as Secretary and Executive Secretary of the Trust during the
fiscal years ended October 31, 2019, 2018 and 2017.
|
The following table sets forth information concerning
the compensation of the Executive Officers that was deferred pursuant to the Deferred Fee Plan, described under “Amended
and Restated Deferred Fee Plan” above, for the fiscal year ended October 31, 2019:
FISCAL 2019 NONQUALIFIED DEFERRED
COMPENSATION
Name (1)
|
(a) (2)
Executive
Contributions
in Last FY
($)
|
(b) (2)
Registrant
Contributions
in Last FY
($)
|
(c)
Aggregate
Earnings
in Last FY
($)
|
(d)
Aggregate
Withdrawals/
Distributions
($)
|
(e) (2)
Aggregate
Balance
at Last FYE
($)
|
Robert S. Hekemian, Jr.
|
$61,000
|
$ ---
|
$20,190
|
$ ---
|
$605,194
|
Donald W. Barney (3)
|
$13,938
|
$ ---
|
$73,273
|
$207,908
|
$1,925,614
|
Allan Tubin
|
$ ---
|
$ ---
|
$ ---
|
$ ---
|
$ ---
|
John A. Aiello, Esq.
|
$ ---
|
$ ---
|
$ ---
|
$ ---
|
$ ---
|
|
(1)
|
Effective November 1, 2000, the Board of Trustees adopted the Deferred Fee Plan for its executive
officers and its trustees. The Deferred Fee Plan was amended and restated on December 30, 2008, effective as of December 31, 2008,
and further amended and restated on September 4, 2014, effective beginning November 1, 2014. Prior to the amendments that went
into effect beginning November 1, 2014, the Deferred Fee Plan permitted any executive officer or trustee to elect to defer receipt
of any executive officer, trustee retainer, meeting attendance, or property site inspection fee. As a result of the amendments
to the Deferred Fee Plan that went into effect on November 1, 2014, participants in the Deferred Fee Plan who are also Executive
Officers of the Trust are only permitted to defer amounts paid to them in their capacities as trustees, and are not permitted to
defer amounts paid to them in their capacities as Executive Officers. Please see the full discussion of the Deferred Fee Plan under
“Amended and Restated Deferred Fee Plan” above.
|
|
(2)
|
All amounts reported in columns (a) and (b) are reported as compensation to the named executive
officers in their capacities as members of the Board of Trustees in the fiscal year ended October 31, 2019 in the Summary Compensation
Table above.
|
|
(3)
|
Donald W. Barney retired as President, Chief Financial Officer, Treasurer and a trustee of the
Trust effective February 7, 2019.
|
The following table sets forth
information concerning the conversion into Share Units of deferred fees, accrued deferred interest and dividends payable with respect
to credited Share Units under the Deferred Fee Plan during the fiscal year ended October 31, 2019, and the aggregate number of
credited Share Units, for each executive officer individually.
Participant
|
Aggregate
Deferred
Fees for FY
2019
|
Accrued
Deferred
Interest for FY
2019
|
Dividends
Payable on
Credited Share
Units for FY
2019
|
Share Units
Credited for
FY 2019
|
Aggregate
Share Units
Credited
|
Robert S. Hekemian, Jr.
|
$61,000
|
$9,840
|
$10,350
|
4,927
|
19,025
|
Donald W. Barney
|
$13,938
|
$57,081
|
$16,192
|
5,363
|
28,008
|
Allan Tubin
|
$ ---
|
$ ---
|
$ ---
|
---
|
---
|
John A. Aiello, Esq.
|
$ ---
|
$ ---
|
$ ---
|
---
|
---
|
See “Amended and Restated Deferred Fee Plan”
above for more information concerning the terms and provisions of the Deferred Fee Plan and the information set forth in these
tables.
Securities Authorized for Issuance under Equity
Compensation Plans
The number
of stock options outstanding under the Equity Incentive Plan, the weighted-average exercise price of the outstanding options, and
the number of securities remaining available for issuance, as of October 31, 2019 were as follows:
EQUITY COMPENSATION PLAN TABLE
Plan category
|
Number of securities
to be issued upon
exercise of
outstanding options,
warrants and rights
(a)
|
Weighted-average
exercise price of
outstanding options,
warrants and rights
(b)
|
Number of securities
remaining available
for future issuance
under equity
compensation plans
(excluding securities
reflected in column (a))
(c)
|
Equity compensation plans approved by security holders (1)
|
310,740
|
$18.35
|
442,060
|
Equity compensation plans not approved by security holders
|
--
|
--
|
--
|
Total
|
310,740
|
$18.35
|
442,060
|
|
(1)
|
The Trust currently has no equity compensation plans other than the Equity Incentive Plan described
under “Compensation Discussion and Analysis” above.
|
OUTSTANDING EQUITY AWARDS AT
FISCAL YEAR-END
|
Option Awards
|
Stock Awards
|
Name
|
Number of
Securities
Underlying
Unexercised
Options (#)
Exercisable
|
Number of
Securities
Underlying
Unexercised
Options (#)
Unexercisable
|
Equity
Incentive Plan
Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options (#)
|
Option
Exercise
Price ($)
|
Option
Expiration
Date
|
Number
of
Shares
or Units
of Stock
That
Have
Not
Vested
(#)
|
Market
Value of
Shares
or Units
of Stock
That
Have
Not
Vested
(#)
|
Equity
Incentive Plan
Awards:
Number of
Unexercised
Shares, Units
or Other
Rights That
Have Not
Vested (#)
|
Equity
Incentive
Plan Awards:
Market or
Payout
Value of
Unearned
Shares,
Units or
Other
Rights That
Have Not
Vested (#)
|
Robert S. Hekemian, Jr.
|
19,000
|
---
|
---
|
$18.45 (1)
|
9/3/2024
|
---
|
---
|
---
|
---
|
|
4,000
|
---
|
---
|
$18.45 (1)
|
9/3/2024
|
---
|
---
|
---
|
---
|
Donald W. Barney
|
36,000
|
---
|
---
|
$18.45 (1)
|
9/3/2024
|
---
|
---
|
---
|
---
|
Allan Tubin
|
6,000
|
---
|
---
|
$18.45 (1)
|
9/3/2024
|
---
|
---
|
---
|
---
|
John A. Aiello, Esq.
|
11,400
|
7,600 (2)
|
---
|
$21.00 (1)
|
11/9/2026
|
---
|
---
|
---
|
---
|
|
(1)
|
The exercise price of this option is equal to the Fair Market Value of the Shares on the date of
grant (as defined in the Equity Incentive Plan), which is described under “Compensation Discussion and Analysis” above.
|
|
(2)
|
The unvested Shares underlying this option vest as follows: 3,800 Shares vest on September 4, 2020;
and 3,800 Shares vest on September 4, 2021.
|
Fiscal 2019 Option Exercises and Stock Vested
There were
no exercises of stock options or vesting of stock held by Executive Officers in the fiscal year ended October 31, 2019.
Trustee Compensation
For the fiscal year ended October
31, 2019, each trustee was entitled to receive (a) an annual retainer fee of $35,000 per year; (b) a per meeting attendance fee
of $1,500 per meeting of the Board and each committee of which a trustee is a member; (c) a $1,000 per meeting fee for telephonic
meetings of the Board and each committee; and (d) a site inspection fee of $1,000 per site inspection. The Chairman of the Board
was entitled to receive an additional annual retainer in the amount of $30,000 and a per meeting attendance fee of $1,800 per meeting
of the Board, and the Chairman of the Audit Committee, the Chairman of the Compensation Committee and the Chairman of the Long-term
Planning Committee were entitled to receive per meeting attendance fees of $1,800 per meeting of the Audit Committee, Compensation
Committee and Long-term Planning Committee, respectively. The Chairman of the Audit Committee was entitled to receive an additional
annual retainer fee of $10,000, and the Chairman of the Compensation Committee and the Chairman of the Long-term Planning Committee
were each entitled to receive an additional annual retainer fee of $7,500. The Chairman of the Special Committee was entitled to
receive an additional quarterly retainer fee of $15,000 and each other member of the Special Committee was entitled to a quarterly
retainer of $10,000.
The trustees are entitled to defer
all or any part of their retainer, meeting and property site inspection fees pursuant to the terms of the Deferred Fee Plan. For
the fiscal year ended October 31, 2019, trustees (including the trustees who were also Executive Officers during the fiscal year
ended October 31, 2019) elected to defer an aggregate amount of approximately $879,800 of annual retainer fees, meeting attendance
fees, site inspection fees and accrued interest payable to them for their services to the Board and its committees, which amount
was converted into an aggregate of 53,741 Share Units during the fiscal year ended October 31, 2019. In addition, the trustees
(including the trustees who were also Executive Officers during the fiscal year ended October 31, 2019) were credited with an aggregate
of 6,407 Share Units during fiscal 2019 from the conversion of dividends paid with respect to the Share Units credited to their
accounts. See “Elements of Executive Compensation – Amended and Restated Deferred Fee Plan” under “Compensation
Discussion and Analysis” above. For the fiscal year ended October 31, 2019, the Trust paid an aggregate of $60,000 of annual
retainer fees, meeting attendance fees and site inspection fees to the trustees in cash for their services to the Board of Trustees
and its committees.
FISCAL 2019 TRUSTEE
COMPENSATION (1)
Name
|
Fees Earned
or Paid in
Cash
($)
|
Stock Awards
($)
|
Option
Awards
($)
|
Non-Equity
Incentive Plan
Compensation ($)
|
Change in
Pension Value
and
Nonqualified
Deferred
Compensation
Earnings
($)(2)
|
All Other
Compensation ($)
|
Total
($)
|
Ronald J. Artinian
|
$186,964
|
$ ---
|
$12,150
|
$ ---
|
$ ---
|
$ ---
|
$199,114
|
Alan L. Aufzien (3)
|
$46,121 (4)
|
$ ---
|
$ ---
|
$ ---
|
$ ---
|
$ ---
|
$46,121
|
David F. McBride
|
$127,240
|
$ ---
|
$ ---
|
$ ---
|
$ ---
|
$ ---
|
$127,240
|
Justin F. Meng
|
$122,411
|
$ ---
|
$ ---
|
$ ---
|
$ ---
|
$ ---
|
$122,411
|
David B. Hekemian
|
$56,251
|
$ ---
|
$ --
|
$ ---
|
$ ---
|
$ ---
|
$56,251
|
Richard J. Aslanian
|
$98,651
|
$ ---
|
$ --
|
$ ---
|
$ ---
|
$ ---
|
$98,651
|
|
(1)
|
See the Summary Compensation Table above for information regarding compensation paid to each of
Robert S. Hekemian, Jr., Donald W. Barney and John A. Aiello during the fiscal year ended October 31, 2019 in connection with their
positions as trustees.
|
|
(2)
|
Effective November 1, 2014, the Deferred Fee Plan was amended to provide that the interest rate
was equal to the average interest rate on ten-year Treasury bonds plus 150 basis points. The Deferred Fee Plan was also amended
to provide that accrued deferred interest from and after November 1, 2014 would be converted into Share Units equivalent to Shares
on a monthly basis. See “Amended and Restated Deferred Fee Plan” above for a description of the amendments to the Deferred
Fee Plan.
|
|
(3)
|
Alan F. Aufzien retired as a trustee of the Trust upon the conclusion of the Trust’s 2019
Annual Meeting of Shareholders held on April 4, 2019.
|
|
(4)
|
The annual trustee retainer fee paid to Mr. Aufzien with respect to the 2019 fiscal year was pro-rated
through the date of his retirement as a trustee on April 4, 2019, based on a base annual retainer fee of $35,000.
|
The following table sets forth
information concerning the conversion of deferred fees and accrued deferred interest into Share Units under the Deferred Fee Plan
during the fiscal year ended October 31, 2019 for each trustee who participated in the Deferred Fee Plan during the fiscal year
ended October 31, 2019, except that the information concerning the participation of Robert S. Hekemian, Jr., Donald W. Barney and
John A. Aiello, Esq., in the Deferred Fee Plan in their capacities as trustees is set forth under “Executive Compensation”
above.
Participant
|
Aggregate
Deferred Fees
for FY 2019
|
Accrued
Deferred
Interest for FY
2019
|
Dividends Paid
on Credited
Share Units for
FY 2019
|
Share Units
Credited for
FY 2019
|
Aggregate
Share Units
Credited
|
Ronald J. Artinian
|
$108,317
|
$31,048
|
$17,599
|
9,473
|
32,962
|
Alan F. Aufzien
|
$30,944
|
$12,015
|
$3,162
|
3,004
|
--
|
David F. McBride
|
$104,617
|
$9,747
|
$12,876
|
7,675
|
24,391
|
Justin F. Meng
|
$115,796
|
$0
|
$6,615
|
7,357
|
13,797
|
David B. Hekemian
|
$53,500
|
$0
|
$1,251
|
3,285
|
3,285
|
Richard J. Aslanian
|
$93,517
|
$0
|
$2,134
|
5,746
|
5,746
|
Totals
|
$506,691
|
$52,810
|
$43,637
|
36,540
|
80,181
|
ITEM 12
|
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
|
The
following table sets forth certain information regarding the beneficial ownership of Shares for (i) each person who is a beneficial
owner of 5% or more of our outstanding Shares, (ii) each of our trustees and executive officers and (iii) all of our trustees and
executive officers as a group, each as of February 11, 2020 unless otherwise indicated in the table below.
Amount and Nature of Beneficial
Ownership
Name of Beneficial Owner (1)
|
|
(A)
Aggregate
Number of Shares
Beneficially
Owned (2)
|
|
(B)
Number of Shares
Acquirable within
60 Days
|
|
(C)
Aggregate
Number of Shares
Deemed to be
Beneficially
Owned
(Column A plus
Column B)
|
|
(D)
Percent
of Class (3)
|
Ronald J. Artinian (4)
|
|
|
443,392
|
(6)
|
|
|
23,400
|
(5)
|
|
|
466,792
|
(6)
|
|
|
6.8
|
%
|
David F. McBride, Esq. (4)
|
|
|
5,000
|
(7)
|
|
|
19,000
|
(5)
|
|
|
24,000
|
(7)
|
|
|
*
|
|
Robert S. Hekemian, Jr. (4)(8)
|
|
|
300,148
|
(9)
|
|
|
23,000
|
(5)
|
|
|
323,148
|
(9)
|
|
|
4.7
|
%
|
John A. Aiello, Esq. (4)(8)
|
|
|
5,000
|
|
|
|
11,400
|
(5)
|
|
|
16,400
|
|
|
|
*
|
|
Justin F. Meng (4)
|
|
|
15,000
|
(10)
|
|
|
11,400
|
(5)
|
|
|
26,400
|
(10)
|
|
|
*
|
|
David B. Hekemian (4)
|
|
|
405,546
|
(11)
|
|
|
18,800
|
(5)
|
|
|
424,346
|
(11)
|
|
|
6.2
|
%
|
Richard J. Aslanian (4)
|
|
|
10,200
|
|
|
|
3,800
|
(5)
|
|
|
14,000
|
|
|
|
*
|
|
Allan Tubin (8)
|
|
|
7,662
|
|
|
|
6,000
|
(5)
|
|
|
13,662
|
|
|
|
*
|
|
All trustees and executive officers as a group (8 persons) (6)(7)(9)(10)(11)(12)
|
|
|
1,089,732
|
(12)
|
|
|
116,800
|
(5)
|
|
|
1,206,532
|
(12)
|
|
|
17.3
|
%
|
*
Shares beneficially owned do not exceed 1% of the Trust’s issued and outstanding Shares.
|
(1)
|
All trustees and executive officers listed in this table, with the exception
of John A. Aiello, maintain a mailing address at 505 Main Street, P.O. Box 667, Hackensack, New Jersey 07602. John A. Aiello maintains
a mailing address at 125 Half Mile Road, Suite 300, Red Bank, New Jersey 07701.
|
|
(2)
|
Except as otherwise indicated, all of the Shares are held beneficially and
of record.
|
|
(3)
|
Based on 6,856,651 Shares outstanding as of February 11, 2020.
|
|
(4)
|
A trustee of the Trust.
|
|
(5)
|
Vested options to acquire Shares that are currently exercisable, or options
that vest and become exercisable within 60 days after February 11, 2020.
|
|
(6)
|
Includes 52,504 Shares held in Individual Retirement Accounts for the benefit
of Mr. Artinian. Also includes 4,250 Shares which are held by Mr. Artinian’s son, with respect to which Mr. Artinian disclaims
beneficial ownership.
|
|
(7)
|
Includes 4,000 Shares held by Mr. McBride’s wife.
|
|
(8)
|
An executive officer of the Trust.
|
|
(9)
|
Includes (i) an aggregate of 102,216 Shares which are held by certain partnerships
and limited liability companies in which Mr. Hekemian is a partner or member, (ii) 9,238 Shares which are held in trust by Mr.
Hekemian for the benefit of his children, and (iii) an aggregate of 11,000 Shares which are held in certain trusts for the benefit
of Mr. Hekemian’s nephews and of which Mr. Hekemian is trustee. Also includes 25,458 Shares held in a trust of which
|
|
|
|
Mr.
Hekemian is a beneficiary. Mr. Hekemian disclaims beneficial ownership of the foregoing Shares held in partnerships, limited liability
companies and trusts except to the extent of his pecuniary interest in such partnerships, limited liability companies and trusts.
|
|
(10)
|
Includes 2,400 Shares held by Mr. Meng’s wife, with respect to which
Mr. Meng disclaims beneficial ownership.
|
|
(11)
|
Includes (i) an aggregate of 102,216 Shares which are held by certain partnerships
and limited liability companies in which Mr. Hekemian is a partner or member, (ii) an aggregate of 17,638 Shares which are held
in certain trusts for the benefit of Mr. Hekemian’s nephews and niece and of which Mr. Hekemian is a trustee, (iii) 25,458
Shares held in a trust of which Mr. Hekemian is a beneficiary, (iv) an aggregate of 88,940 Shares held by the Robert and Mary Jane
Hekemian Foundation, Inc. of which Mr. Hekemian is the Vice President/Treasurer, and (v) 6,000 Shares held in trust by Mr. Hekemian
for the benefit of his children. Mr. Hekemian disclaims beneficial ownership of the foregoing Shares held in partnerships, limited
liability companies and trusts except to the extent of his pecuniary interest in such partnerships, limited liability companies
and trusts. Also includes 1,600 Shares held by Mr. Hekemian’s wife, with respect to which Mr. Hekemian disclaims beneficial
ownership.
|
|
(12)
|
Robert S. Hekemian, Jr. and David B. Hekemian are both deemed to be the beneficial
owner of 102,216 Shares held by certain partnerships and limited liability companies in which each of them is a partner or member.
Therefore, the total number of Shares beneficially owned by all executive officers and trustees as a group, which includes both
Robert S. Hekemian, Jr. and David B. Hekemian, is not merely the aggregate of the beneficial ownership of each executive officer
and trustee, since calculating the aggregate number of Shares beneficially owned by all executive officers and trustees as a group
on that basis would result in the 102,216 Shares of which both Robert S. Hekemian, Jr. and David B. Hekemian are deemed the beneficial
owner being double-counted. As disclosed above, Robert S. Hekemian, Jr. and David B. Hekemian disclaim beneficial ownership of
the 102,216 Shares except to the extent of their respective pecuniary interests in the partnerships and limited liability companies
that hold such Shares.
|
ITEM 13
|
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
|
Of the seven members of the Board,
Ronald J. Artinian, David F. McBride, Justin F. Meng and Richard J. Aslanian qualify as “independent directors” in
accordance with the applicable NASDAQ Listing Rules and SEC rules. The independence of the trustees serving on committees of the
Board is discussed under “Committees of the Board of Trustees” above.
The Board has adopted a written
charter for the Audit Committee (see “Audit Committee” under Item 10 above) whereby the Audit Committee oversees and
evaluates all related party transactions proposed to be entered into by the Trust. In addition, the Declaration of Trust contains
procedures in the event of any proposed purchase or sale of any properties between the Trust and any trustee, executive officer
or any firm, partnership or corporation in which a trustee or executive officer has or may have an interest. Further, the Trust
has adopted a Code of Ethics applicable to all trustees, executive officers and management employees of the Trust (see “Code
of Ethics” under Item 10 above), which Code of Ethics promotes the honest and ethical conduct, including the ethical handling
of actual or apparent conflicts of interest between personal and professional relationships.
Robert S. Hekemian, Jr., President
and Chief Executive Officer of the Trust and a trustee, and David B. Hekemian, a trustee, are shareholders of Hekemian & Co.
Robert S. Hekemian, Jr. and David B. Hekemian each hold a 33.3% equity interest in Hekemian & Co. The balance of the equity
interest in Hekemian & Co. is held by the estate of the late Robert S. Hekemian, the former Chairman of the Board and Chief
Executive Officer of the Trust, and Bryan S. Hekemian. Robert S. Hekemian was the father of Robert S. Hekemian, Jr., David B. Hekemian
and Bryan S. Hekemian. Robert S. Hekemian served as the Chairman of the Board and Chief Executive Officer of Hekemian & Co.;
Robert S. Hekemian, Jr. serves as the President and Chief Operating Officer of Hekemian & Co.; David B. Hekemian serves as
a Vice President and the Treasurer of Hekemian & Co.; and Bryan S. Hekemian serves as a Vice President and the Secretary of
Hekemian & Co..
On April 10, 2002, the Trust and
Hekemian & Co. entered into a Management Agreement replacing the Management Agreement dated December 20, 1961, as extended.
The term of the Management Agreement was automatically renewed as of November 1, 2019 for a two-year period, which will expire
on October 31, 2021. The term of the Management Agreement automatically renews for periods of two years unless either party gives
not less than six months prior notice to the other of non-renewal. The Trust may terminate the Management Agreement (i) without
cause upon one year’s prior written notice, (ii) for cause if Hekemian & Co. has not cured an event of default within
30 days of receipt of notice of termination from the Trust, or (iii) in the event of an acquisition of the Trust where the Trust
ceases to effectively exist as an operating entity. The Management Agreement provides for a termination fee in the event of a termination
by the Trust without cause or following a merger or acquisition of the Trust.
Under the Management Agreement,
Hekemian & Co. serves as Managing Agent for the Trust and the Trust’s properties which the Trust owned on November 1,
2001. The Trust may retain Hekemian & Co. or other managing agents to manage its properties acquired after November 1, 2001
and to perform various other duties such as sales, acquisitions, and development with respect to any or all of the Trust’s
properties. However, Hekemian & Co. currently manages all properties owned by the Trust and all subsidiaries and affiliates
of the Trust, except for the commercial office space of the Rotunda, a mixed use (office, retail and residential) property located
in Baltimore, Maryland that was acquired in July 2005 by Grande Rotunda, LLC (“Grande Rotunda”), a limited liability
company in which the Trust owns a 60% equity interest. An unaffiliated third party management company manages the commercial office
space at the Rotunda. Hekemian & Co. is not the exclusive advisor for the Trust to locate and recommend investments deemed
suitable for the Trust, and it is not required to offer potential acquisition properties exclusively to the Trust before acquiring
those properties for Hekemian & Co.’s own account or for others, including shareholders and employees of Hekemian &
Co.
On
January 14, 2020, in connection with the transactions contemplated in the Sale Agreement and the Plan of Liquidation, the Trust
and Hekemian & Co. entered into a First Amendment to Management Agreement, which will become effective upon the effectiveness
of the Plan of Liquidation and amends the Management Agreement. The First Amendment provides that upon the closing of any sale
or other disposition of the Trust’s entire direct or indirect interest in each Trust property, whether pursuant to the Sale
Agreement or otherwise in furtherance of the Plan of Liquidation, (a) the Management Agreement will automatically terminate and
be of no further force or effect with respect to such Trust Property and (b) the Trust will pay to Hekemian & Co. (i) any and
all commissions and fees for management services and reimbursement required to be paid by the Trust pursuant to the Management
Agreement in respect of the applicable Trust property up to the termination date, calculated on a pro rata basis, plus (ii) a termination
fee in respect of such Trust property in an amount equal to the product of (x) the Trust’s direct or indirect percentage
ownership interest in such Trust property, multiplied by (y) 1.25, multiplied by (z) one (1) year’s Base Management Fee (as
defined in the Management Agreement and First Amendment) in respect of such Trust property.
In addition,
the First Amendment amends the Management Agreement to provide that upon the closing of any sale or other disposition of the Trust’s
entire direct or indirect interest in each Trust property, whether pursuant to the Sale Agreement or otherwise in furtherance of
the Plan of Liquidation, the Trust will pay to Hekemian & Co. a sales fee equal to 1.65% of the sales
price for such Trust
property (reduced from the existing range of 2.5% to 4.5% in the Management Agreement); provided, however, that in the event that
a Trust property is not wholly owned, directly or indirectly, by the Trust, the sales fee payable to Hekemian & Co. will only
be payable in respect of the Trust’s percentage ownership share of the applicable Trust property.
The First Amendment provides that the
foregoing fees will be paid in lieu of, and shall supersede in their entirety, any other payments which otherwise would be payable
to Hekemian & Co. under the Management Agreement arising out of or attributable to the sale or other disposition of the of
the Trust’s entire direct or indirect interest in each Trust property or the termination of the Management Agreement in respect
of such Trust property (including, without limitation, any Termination Fee, M&A Termination Fee or Sale of Property Fee under
the Management Agreement (each as defined in the Management Agreement)). The First Amendment will become effective if, and only
if, the Plan of Liquidation becomes effective.
The Trust retained Hekemian &
Co. to manage the Preakness Shopping Center, which was acquired on November 1, 2002 by WaynePSC, LLC (“WaynePSC”),
a limited liability company in which the Trust owns a 40% membership interest, and the Damascus Shopping Center, which was acquired
on July 31, 2003 by Damascus Centre, LLC (“Damascus Centre”), a limited liability company in which the Trust owns a
70% equity interest. In the fiscal year ended October 31, 2004, the Trust retained Hekemian & Co. to manage The Pierre Towers,
an apartment complex acquired on April 15, 2004 by S And A Commercial Associates Limited Partnership (“S&A”), a
limited partnership in which the Trust owns a 65% equity interest. In the fiscal year ended October 31, 2005, the Trust retained
Hekemian & Co. to provide supervisory and management services to Grande Rotunda, although the Trust did not retain Hekemian
& Co. to manage the commercial office space at the Rotunda.
Pursuant to the terms of the Management
Agreement, the Trust pays Hekemian & Co. certain basic management fees, mortgage fees, administrative fees, other miscellaneous
fees and leasing commissions as compensation for its services. The Management Agreement includes a detailed schedule of such fees
and commissions for those services which the Managing Agent may be called upon to perform. During the fiscal year ended October
31, 2019, the Trust paid or accrued to Hekemian & Co. and Hekemian Development Resources, LLC, a wholly-owned subsidiary of
Hekemian & Co. (“Hekemian Resources”), management and other fees in the approximate aggregate amount of $3,587,000,
which includes the management fees of approximately $2,549,000 described in more detail below, and mortgage, leasing and other
fees in the approximate amount of $1,038,000. Included in other fees for the fiscal year ended October 31, 2019 are commissions
payable to Hekemian & Co. for the following transactions: $131,250 for the sale of the Patchogue property and $144,075 for
the refinancing of the Berdan Court, LLC loan.
The Trust also uses the resources
of Hekemian & Co.’s insurance department to secure insurance coverage for its properties and subsidiaries. Hekemian &
Co. is paid a commission for these services, which amounted to approximately $196,000 in the fiscal year ended October 31, 2019.
During the fourth quarter of the
fiscal year ended October 31, 2007, the Board approved development fee arrangements for supervising the Rotunda and Damascus Shopping
Center redevelopment projects. Hekemian Resources entered into Agency Agreements with each of Grande Rotunda and Damascus Centre
for the performance of management services in connection with the Rotunda and Damascus Center redevelopment projects on December
10, 2009 and August 13, 2008, respectively. The Agency Agreement with respect to the Rotunda was subsequently amended as of July
24, 2012 based on revisions to the scope of the project approved by the Board. The Agency Agreement with respect to the Rotunda
project provides for Hekemian Resources to receive a fee equal to 6.375% of the total development costs as defined less the amount
of $3,000,000 that Grande Rotunda had previously paid to Hekemian & Co. for the Rotunda project. Such development fees may
be modified should the Board approve a change in the scope of the project. In addition, the Trust paid Hekemian Resources a fee
in the amount of $1,400,000 in connection with the revision to the scope of the Rotunda project. The Trust paid $500,000 of this
fee to Hekemian Resources in the fiscal year ended October 31, 2013. The balance of $900,000 became due upon the issuance of a
certificate of occupancy for the multi-family portion of the project. A final certificate of occupancy was issued in the fiscal
year ended October 31, 2016; however, Hekemian Resources agreed to defer the payment of the $900,000 balance of this fee, and accordingly
the $900,000 portion of the fee was included in accounts payable on the Trust’s consolidated balance sheet at October 31,
2017. The Trust paid the $900,000 portion of this fee to Hekemian Resources in February 2018 in connection with the refinancing
of the Wells Fargo construction loan for the Rotunda property with a new construction loan from Aareal Capital Corporation. The
Trust also paid Hekemian Resources the amount of $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.
The Damascus Center redevelopment
project has been completed, and all development fees due and payable pursuant to the Agency Agreement between Hekemian Resources
and Damascus Centre were paid in full prior to the fiscal year ended October 31, 2014.
From time to time, the Trust engages
Hekemian & Co. to provide certain additional services, such as consulting services related to development and financing activities
of the Trust. Separate fee arrangements are negotiated between the Trust and Hekemian & Co. with respect to such services.
The Trust also reimburses Hekemian & Co. for the salaries, payroll taxes,
insurance costs and certain other costs of personnel
employed at the Trust’s properties by Hekemian & Co. on behalf of the Trust.
The Trust’s real estate
investments may be in the form of wholly-owned fee interests or, if the circumstances warrant, joint venture interests. The Trust
will make certain real estate investments through joint ventures with other parties from time to time in order to diversify risk.
The Trust will also consider investing in real estate that requires development or that involves particular risk through joint
ventures in order to meet the Trust’s investment objectives. In furtherance of these objectives, the Trust has invested in
joint ventures with employees and affiliates of Hekemian & Co. and with trustees of the Trust, as described below.
The Trust owns a 60% equity interest
in, and is the managing member of, Grande Rotunda. Rotunda 100, LLC, a New Jersey limited liability company (“Rotunda 100”),
owns a 40% interest in Grande Rotunda. Robert S. Hekemian, Jr., Chief Executive Officer and a trustee of the Trust, and members
of his immediate family, including Robert S. Hekemian, the former Chairman and Chief Executive Officer of and consultant to the
Trust, David B. Hekemian, a trustee of the Trust, and other employees of Hekemian & Co., have majority managing control of
Rotunda 100. In July 2005, Grande Rotunda completed the acquisition of the Rotunda for a purchase price of approximately $31 million
(inclusive of transaction costs), which was financed in part from an acquisition loan in the amount of $22.5 million, and the balance
of which was contributed in cash by the members of Grande Rotunda in proportion to their membership interests. As an incentive
to the employees of Hekemian & Co. to identify and provide real estate investment opportunities for the Trust, the Trust advanced
to the employees of Hekemian & Co. who are members of Rotunda 100 (including Robert S. Hekemian, Jr., David B. Hekemian and
certain other members of the immediate family of the late Robert S. Hekemian), 50% of the amount of the equity capital required
to be contributed by them to Rotunda 100 in connection with the acquisition and operation of the Rotunda. The Trust initially loaned
an aggregate amount of approximately $1,900,000 to those Hekemian & Co. employees (including approximately $1,700,000 million
to Robert S. Hekemian, Jr., David B. Hekemian and certain other members of the immediate family of Robert S. Hekemian) with respect
to their equity capital contributions (the “Rotunda Notes”). On May 8, 2008, the Board of Trustees approved amendments
to the loan agreements to increase the aggregate amount of the loans to $4,000,000 (which increased the aggregate amount loaned
to Robert S. Hekemian, Jr., David B. Hekemian and certain other members of the immediate family of Robert S. Hekemian in connection
with the Rotunda Notes to $3,700,000 from the initial aggregate amount of $1,700,000). These loans bear interest that floats at
225 basis points over the 90 day London Interbank Offered Rate (“LIBOR”), as adjusted each November 1, February 1,
May 1 and August 1, and the loans are secured by such employees’ membership interests in Rotunda 100. The Rotunda Notes originally
provided for payments of accrued interest on a quarterly basis, with no principal payments required during the term of the Rotunda
Notes, except that the borrowers were required to pay to the Trust all refinancing proceeds and other cash flow they received from
their interests in Grande Rotunda. The Rotunda Notes were originally scheduled to mature at the earlier of (a) 10 years after issue,
on June 19, 2015 and (b) at the election of the Trust, 90 days after the borrower terminates employment with Hekemian & Co.,
at which time all outstanding unpaid amounts would be due. On June 4, 2015, the Board approved an extension of the terms of each
of the Rotunda Notes to the earlier to occur of (a) June 19, 2018 and (b) the day that is 5 days after Grande Rotunda closes on
a permanent mortgage loan secured by the Rotunda property. On December 7, 2017, the Board approved amendments to the Rotunda Notes
to further extend the term of each of the Rotunda Notes to the date or dates upon which Grande Rotunda makes distributions of cash
to its members as a result of either a refinancing of Grande Rotunda’s indebtedness or a sale of Grande Rotunda or all or
a portion of the real property owned by it; provided, that the Rotunda Notes will mature only to the extent of such distributions
to the maker of the Rotunda Notes. Pursuant to the December 7, 2017 amendments, distributions of cash as a result of events other
than a refinancing of the indebtedness of Grande Rotunda or sale of the Rotunda property will not result in the maturation of the
Rotunda Notes. At October 31, 2019, the outstanding principal balance on the Rotunda Notes was $4,000,000, and the accrued but
unpaid interest on the Rotunda Notes was $1,053,000. Grande Rotunda paid Hekemian & Co. approximately $640,000 in management
fees during the fiscal year ended October 31, 2019, which is included in the $2,549,000 of management fees paid by the Trust to
Hekemian & Co. during the fiscal year ended October 31, 2019 mentioned above. Pursuant to the terms of the Management Agreement,
Grande Rotunda paid Hekemian & Co. leasing commissions in the aggregate amount of approximately $150,000, which is included
in the $1,038,000 of mortgage, leasing and other fees paid to Hekemian & Co. mentioned above.
Prior to the refinancing of the
Wells Fargo construction loan for the Rotunda property with a new construction loan from Aareal Capital Corporation, the Trust
and Rotunda 100, as the 60% and 40% owners of Grande Rotunda, respectively, had been contributing their respective pro-rata share
of Grande Rotunda’s cash needs through loans to Grande Rotunda. As of October 31, 2019, Rotunda 100 had funded Grande Rotunda
with approximately $5.7 million (including interest), which is included in “Due to affiliate” on the Trust’s
consolidated balance sheet as of October 31, 2019 and is characterized as a demand loan that Rotunda 100 can require to be repaid
at any time.
The Trust owns a 70% membership
interest in Damascus Centre, which is the owner of the Damascus Shopping Center. During the fiscal year ended October 31, 2005,
in order to incentivize employees of Hekemian & Co., the Trust’s Board authorized an investor group comprised principally
of Hekemian employees (including the late Robert S. Hekemian, Robert S. Hekemian, Jr., David B. Hekemian and certain other members
of the immediate family of Robert S. Hekemian) (the “Hekemian Group”) to acquire a 30% equity interest in Damascus
Centre through Damascus 100, LLC (“Damascus 100”).
The sale of an equity interest in Damascus Centre to Damascus 100
was completed on October 31, 2006, at a sale price of $3,224,000, of which the Trust financed approximately $1,451,000. The Trust
agreed to advance to the Hekemian Group up to 50% of the amount of the equity purchase price required to be paid by them (including
approximately $1,300,000 to Robert S. Hekemian, Jr., David B. Hekemian and certain other members of the immediate family of Robert
S. Hekemian) (the “Damascus Notes”). These advances were in the form of secured loans that bore interest that floated
at 225 basis points over the 90 day LIBOR, as adjusted each November 1, February 1, May 1 and August 1. The Damascus Notes originally
provided for payments of accrued interest on a quarterly basis, with no principal payments required during the term of the Damascus
Notes, except that the borrowers were required to pay to the Trust all refinancing proceeds and other cash flow they received from
their interests in Damascus Centre. The Damascus Notes were originally scheduled to mature at the earlier of (a) 10 years after
issue, on September 30, 2016 and (b) at the election of the Trust, 90 days after the borrower terminates employment with Hekemian
& Co., at which time all outstanding unpaid amounts would be due. On June 4, 2015, the Board approved an extension of the term
of each of the Damascus Notes to the earlier to occur of (a) June 19, 2018 and (b) the day that is 5 days after the Grande Rotunda,
LLC closes on a permanent mortgage loan secured by the Rotunda property. The loans were secured by such employees’ membership
interests in Damascus 100. On December 7, 2017, the Board approved amendments to the Damascus Notes to further extend the term
of each of the Damascus Notes to the date or dates upon which Grande Rotunda makes distributions of cash to its members as a result
of either a refinancing of Grande Rotunda’s indebtedness or a sale of Grande Rotunda or all or a portion of the real property
owned by it; provided, that the Damascus Notes will mature only to the extent of such distributions to the maker of the Damascus
Notes. Pursuant to the December 7, 2017 amendments, distributions of cash as a result of events other than a refinancing of the
indebtedness of Grande Rotunda or sale of the Rotunda property would not have resulted in the maturation of the Damascus Notes.
In the fourth quarter of the fiscal year ended October 31, 2018, the Damascus 100 members repaid the Damascus Notes in full for
a total payment of $1,870,000, which was comprised of principal in the amount of $1,451,000 and accrued interest in the amount
of approximately $419,000. Damascus Centre paid Hekemian & Co. approximately $135,000 in management fees during the fiscal
year ended October 31, 2019, which is included in $2,549,000 of management fees paid by the Trust to Hekemian & Co. and Hekemian
Resources during the fiscal year ended October 31, 2019 mentioned above. Pursuant to the Management Agreement, Damascus Centre
paid leasing commissions to Hekemian & Co. in the aggregate amount of approximately $5,000, which is included in the $1,038,000
of mortgage, leasing and other fees paid to Hekemian & Co. mentioned above during the fiscal year ended October 31, 2019.
The Trust owns a 40% membership
interest in Westwood Hills, LLC, a New Jersey limited liability company (“Westwood Hills”), which is the owner of a
210-unit residential apartment complex in Westwood, New Jersey. In addition, an aggregate of 35% of the membership interests in
Westwood Hills is beneficially owned by Robert S. Hekemian, Jr., the Chief Executive Officer, President and a trustee of the Trust
and a shareholder and officer of Hekemian & Co.; Ronald J. Artinian, the Chairman and a trustee of the Trust; David B. Hekemian,
a trustee of the Trust and a shareholder and officer of Hekemian & Co.; the late Robert S. Hekemian, the former Chairman and
Chief Executive Officer of and consultant to the Trust and a shareholder and officer of Hekemian & Co.; members of the immediate
families of Robert S. Hekemian and Robert S. Hekemian, Jr.; Donald W. Barney, a trustee of the Trust until his retirement in February
2019; and another former trustee of the Trust. Pursuant to the terms of an operating agreement, the Trust is the Managing Member
of Westwood Hills. Hekemian & Co. currently serves as the Managing Agent for Westwood Hills. During the fiscal year ended October
31, 2019, Westwood Hills paid Hekemian & Co. approximately $224,000 in management fees, which is included in the $2,549,000
of management fees paid by the Trust to Hekemian & Co. and Hekemian Resources during the fiscal year ended October 31, 2019
mentioned above.
The Trust owns a 40% equity interest
in WaynePSC. H-TPKE, LLC, a New Jersey limited liability company (“H-TPKE”), owns a 60% equity interest in WaynePSC.
In addition, an aggregate of approximately 73% of the membership interests in H-TPKE is controlled by Robert S. Hekemian, Jr.,
the Chief Executive Officer, President and a trustee of the Trust and a shareholder and officer of Hekemian & Co.; David B.
Hekemian, a trustee of the Trust and a shareholder and officer of Hekemian & Co.; the late Robert S. Hekemian, the former Chairman
and Chief Executive Officer and consultant to the Trust and a shareholder and officer of Hekemian & Co.; members of the families
of Robert S. Hekemian, Jr., David B. Hekemian and Robert S. Hekemian; and other employees of Hekemian & Co. The Trust is the
Managing Member of WaynePSC. WaynePSC owns a 323,000 +/- sq. ft. community shopping center located in Wayne, New Jersey, known
as the Preakness Shopping Center. Hekemian & Co. is the Managing Agent for the Preakness Shopping Center. During the fiscal
year ended October 31, 2019, WaynePSC paid Hekemian & Co. an annual property management fee in the approximate amount of $200,000,
which is included in the $2,549,000 of management fees paid by the Trust to Hekemian & Co. and Hekemian Resources during the
fiscal year ended October 31, 2019 mentioned above. Pursuant to the terms of the Management Agreement, WaynePSC paid Hekemian &
Co. leasing commissions in the aggregate amount of approximately $20,000 with respect to leasing activity at the Preakness Shopping
Center, which is included in the $1,038,000 of mortgage, leasing and other fees paid to Hekemian & Co. mentioned above.
The Trust owns a 65% equity interest
in and is the managing and general partner of S&A. The remaining 35% of equity interests in S&A is owned by Robert S. Hekemian,
Jr., the Chief Executive Officer, President and a trustee of the Trust and a shareholder and officer of Hekemian & Co.; David
B. Hekemian, a trustee of the Trust and a shareholder and officer of
Hekemian & Co.; the late Robert S. Hekemian, the former
Chairman and Chief Executive Officer and consultant to the Trust and a former shareholder and officer of Hekemian & Co.; members
of the families of Robert S. Hekemian, Jr., David B. Hekemian and Robert S. Hekemian; and other employees of Hekemian & Co.
and/or affiliates of Hekemian & Co. In February 2005, and in accordance with its investment policy regarding risk diversification,
the Trust allowed the minority owners of S&A to make a cash contribution to S&A of approximately $1.3 million to increase
their ownership interest in S&A from approximately 25% to 35%, which approximated market value at the time of the investment.
On April 15, 2004, S&A purchased The Pierre Towers, a residential apartment complex located in Hackensack, New Jersey. During
the fiscal year ended October 31, 2019, Pierre Towers, LLC, on behalf of S&A, paid Hekemian & Co. management fees in the
amount of approximately $371,000, which is included in the $2,549,000 of management fees paid by the Trust to Hekemian & Co.
and Hekemian Resources during the fiscal year ended October 31, 2019 mentioned above.
Robert S. Hekemian, Jr., the Chief
Executive Officer, President and a trustee of the Trust and a shareholder and officer of Hekemian & Co., was a director of
Oritani Financial Corp. and its subsidiary, Oritani Bank, until Oritani Financial was merged into Valley National Bancorp in December
2019. The Trust is a party to a commercial mortgage loan with Valley National Bancorp. The mortgage loan is in the original principal
amount of $22,750,000 with an interest rate of 4.75% per annum, and is secured by the Trust’s Westwood Plaza property and
matures on January 13, 2023. This mortgage loan was negotiated at arm’s length and was on standard terms. Another mortgage
loan with Oritani Bank in the original principal amount of $6,000,000 was repaid by the Trust in February 2019.
The Trust retained the law firm
of Giordano, Halleran & Ciesla, P.C during the fiscal year ended October 31, 2019 to furnish legal services. John A. Aiello,
a trustee and executive officer of the Trust, is an officer and shareholder in the law firm. During the fiscal year ended October
31, 2019, Giordano, Halleran & Ciesla, P.C. received $164,788 in fees from the Trust for its services. In addition, Mr. Aiello
paid to the law firm the amount of $60,500, representing retainer and meeting fees, which Mr. Aiello received in connection with
his services as the Secretary and Executive Secretary of the Trust during the fiscal year ended October 31, 2019.
Effective upon the late Robert
S. Hekemian’s retirement as Chairman, Chief Executive Officer and as a trustee on April 5, 2018, the Trust entered into a
Consulting Agreement with Mr. Hekemian, pursuant to which Mr. Hekemian provided consulting services to the Trust through December
2019. Under the Consulting Agreement, Mr. Hekemian was obliged to provide advice and consultation with respect to matters pertaining
to the Trust and its subsidiaries, affiliates, assets and business, for no fewer than 30 hours per month during the term of the
agreement. The Trust paid Mr. Hekemian a consulting fee of $5,000 per month during the term of the Consulting Agreement, which
was 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 was 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 was payable. For the fiscal year ended October 31, 2019, consulting fee expense
for Robert S. Hekemian was approximately $60,000.
ITEM 14
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PRINCIPAL ACCOUNTANT FEES AND SERVICES
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Audit Fees
Audit fees billed by
EisnerAmper LLP to the Trust totaled $507,000 for the fiscal year ended October 31, 2019 and $384,000 for the fiscal year
ended October 31, 2018 for professional services rendered in connection with the audits of the Trust’s consolidated
financial statements, audits of internal controls over financial reporting in accordance with Section 404 of the
Sarbanes-Oxley Act of 2002, and reviews of the quarterly reports on Form 10-Q for the fiscal years ended October 31, 2019 and
2018, respectively.
Audit-Related Fees
Audit-related fees billed in the
fiscal year ended October 31, 2019 totaled $35,000 in connection with matters related to the Sale Agreement. There were no fees
billed for audit-related services in the fiscal year ended October 31, 2018.
Tax Fees
In the fiscal year ended October
31, 2019, EisnerAmper LLP billed the Trust $32,500 for the preparation of the Trust’s 2018 tax return and $6,000 in connection
with an analysis relating to the payment of dividends and return of capital. In addition, EisnerAmper LLP billed the Trust $106,000
in the fiscal year ended October 31, 2019 for tax-related matters and consultations in connection with the Sale Agreement. In the
fiscal year ended October 31, 2018, EisnerAmper LLP billed the Trust $32,500 for the preparation of the Trust’s 2017 tax
return, $6,000 in connection with an analysis relating to the payment of dividends and return of capital and $2,500 in connection
with the implementation of the Tax Cuts and Jobs Act in 2018.
All Other Fees
EisnerAmper LLP did not bill the
Trust for any other services during the fiscal years ended October 31, 2019 and 2018.
Policy on Pre-Approval of Audit
and Permissible Non-Audit Services
All audit and non-audit services
provided by the Trust’s independent registered public accounting firm and the fees associated therewith are pre-approved
by the Audit Committee in accordance with the written charter of the Audit Committee adopted by the Board of Trustees. The Audit
Committee gives due consideration to the potential impact of all non-audit services on auditor independence. The engagement of
EisnerAmper LLP, which was pre-approved by the Audit Committee, did not make use of the de minimis exception for pre-approval contained
in the rules of the SEC that permit limited engagements for non-audit services involving amounts under a specified threshold.
PART IV
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ITEM 15
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EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
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Reference is made to the Index
of Exhibits on page 30 herein.
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.
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First Real Estate Investment Trust of New Jersey
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Dated: February 21, 2020
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By: /s/ Robert S. Hekemian, Jr.
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Robert S. Hekemian, Jr.
President and Chief Executive Officer
(Principal Executive Officer)
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By: /s/ Allan Tubin
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Allan Tubin
Chief Financial Officer and Treasurer
(Principal Financial/Accounting Officer)
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FIRST REAL ESTATE INVESTMENT TRUST OF NEW
JERSEY (“FREIT”)
EXHIBIT INDEX
EXHIBIT 31.1
CERTIFICATION
I, Robert S. Hekemian, Jr., certify that:
1. I have reviewed this
Amendment No. 1 on Form 10-K/A 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: February 21, 2020
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/s/ Robert S. Hekemian, Jr.
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Robert S. Hekemian, Jr.
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President and Chief Executive Officer
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EXHIBIT 31.2
CERTIFICATION
I, Allan Tubin, certify that:
1. I have reviewed this
Amendment No. 1 on Form 10-K/A 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: February 21, 2020
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/s/ Allan Tubin
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Allan Tubin
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Chief Financial Officer and Treasurer
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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 Amendment No. 1 on Form
10-K/A to the Annual Report of First Real Estate Investment Trust of New Jersey (the “Company”) on Form 10-K for the
year ended October 31, 2019 (the “Report”), I, Robert S. Hekemian, Jr., President and 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)
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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,
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(2)
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the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
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Date: February 21, 2020
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/s/ Robert S. Hekemian, Jr.
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Robert S. Hekemian, Jr.
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President and Chief Executive Officer
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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 Amendment No. 1 on Form
10-K/A to the Annual Report of First Real Estate Investment Trust of New Jersey (the “Company”) on Form 10-K for the
year ended October 31, 2019 (the “Report”), I, Allan Tubin, Chief Financial Officer and Treasurer 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)
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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,
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(2)
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the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
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Date: February 21, 2020
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/s/ Allan Tubin
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Allan Tubin
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Chief Financial Officer and Treasurer
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First Real Estate Invest... (PK) (USOTC:FREVS)
過去 株価チャート
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First Real Estate Invest... (PK) (USOTC:FREVS)
過去 株価チャート
から 7 2023 まで 7 2024