-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, ATT9q8zvtOOlG9lAhDZ9GueCqAk8/oXRd4ZvqIri8X9VGixDw8wRETanGUQyeOI6 FZyRnBxdNrzoWY2bsuDBHQ== 0001005150-99-000069.txt : 19990201 0001005150-99-000069.hdr.sgml : 19990201 ACCESSION NUMBER: 0001005150-99-000069 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19981031 FILED AS OF DATE: 19990129 FILER: COMPANY DATA: COMPANY CONFORMED NAME: URSTADT BIDDLE PROPERTIES INC CENTRAL INDEX KEY: 0001029800 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 042458042 STATE OF INCORPORATION: MD FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-12803 FILM NUMBER: 99516905 BUSINESS ADDRESS: STREET 1: C/O HRE PROPERTIES INC STREET 2: 321 RAILROAD AVENUE CITY: GREENWICH STATE: CT ZIP: 06830 BUSINESS PHONE: 2038638200 FORMER COMPANY: FORMER CONFORMED NAME: HRE PROPERTIES INC DATE OF NAME CHANGE: 19961230 10-K 1 FORM 10-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED] For the fiscal year ended October 31, 1998 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the transition period from _____ to _____ Commission File No. 1-12803 URSTADT BIDDLE PROPERTIES INC. (Exact name of registrant as specified in its charter) MARYLAND 04-2458042 (State of Incorporation) (I.R.S. Employer Identification No.) 321 RAILROAD AVENUE GREENWICH, CONNECTICUT 06830 (Address of Principal Executive Offices) (Zip code) Registrant's telephone number, including area code: (203) 863-8200 Securities registered pursuant to Section 12(b) of the Act: Name of each exchange Title of each class on which registered ------------------- ------------------- Common Stock, par value $.01 per share New York Stock Exchange Class A Common Stock, par value $.01 per share New York Stock Exchange Preferred Share Purchase Rights New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [x] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [x] The aggregate market value of the voting stock held by non-affiliates of the Registrant as of January 15, 1999: Common Shares, par value $.01 per share - $28,582,000; Class A Common Shares, par value $.01 per share - $31,045,000. Indicate the number of shares outstanding of each of the Registrant's classes of Common Stock and Class A Common Stock, as of January 15, 1999 (latest date practicable): 5,221,602 Common Shares, par value $.01 per share, and 5,193,650 Class A Common Shares, par value $.01 per share. DOCUMENTS INCORPORATED BY REFERENCE Proxy Statement for Annual Meeting of Stockholders to be held on March 10, 1999 (certain parts as indicated herein) (Part III). TABLE OF CONTENTS Form 10-K Item No. Report Page - -------- ----------- PART I 1. Business 3 2. Properties 8 3. Legal Proceedings 10 4. Submission of Matters to a Vote of Security Holders 10 PART II 5. Market for the Registrant's Common Equity and Related Shareholder Matters 10 6. Selected Financial Data 12 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 13 8. Financial Statements and Supplementary Data 16 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 16 PART III 10. Directors and Executive Officers of the Registrant 16 11. Executive Compensation 17 12. Security Ownership of Certain Beneficial Owners and Management 17 13. Certain Relationships and Related Transactions 17 PART IV 14. Exhibits, Financial Statements, Schedules and Reports on Form 8-K 18 2 PART I ITEM I. BUSINESS. Organization Urstadt Biddle Properties Inc. (formerly HRE Properties, Inc.), a Maryland Corporation, as successor by merger to HRE Properties, an unincorporated business trust under the laws of the Commonwealth of Massachusetts was organized on July 7, 1969. On March 12, 1997, the shareholders of HRE Properties ("theTrust") approved a plan of reorganization of the Trust from a Massachusetts business trust to a corporation organized in Maryland. The plan of reorganization was effected by means of a merger of the Trust into Urstadt Biddle Properties Inc. (the "Company"). As a result of the plan of reorganization, the Trust was merged with and into the Company, the separate existence of the Trust ceased, the Company was the surviving entity in the merger and each issued and outstanding common share of beneficial interest of the Trust was converted into one share of Common Stock, par value $.01 per share, of the Company. Prior to the merger, the Company had no assets or liabilities and conducted no operations other than those incident to its organization and the merger. Pursuant to the merger, all properties, assets, liabilities and obligations of the Trust became the properties, assets, liabilities and obligations of the Company. In 1998, the shareholders of the Company approved an amendment to the Company's articles of incorporation to change the name of the Company to Urstadt Biddle Properties Inc. The Company has qualified and has elected to be taxed as a real estate investment trust ("REIT") under Sections 856-860 of the Internal Revenue Code of 1986, as amended (the "Code"). Pursuant to such provisions of the Code, a REIT which distributes at least 95% of its real estate investment trust taxable income to its shareholders each year and which meets certain other conditions will not be taxed on that portion of its taxable income which is distributed to its shareholders. The Company intends to continue to qualify as a real estate investment trust for federal income tax purposes. Description of Business The Company's sole business is the ownership of real estate investments which consist principally of equity investments in income-producing properties, with primary emphasis on properties in the northeastern part of the United States. The Company's core properties consist principally of neighborhood and community shopping centers in the northeastern part of the United States. The remaining properties include office and retail buildings and industrial properties. The Company seeks to identify desirable properties for acquisitions which it acquires in the normal course of business. In addition, the Company regularly reviews its portfolio and from time to time considers and effects the sale of certain properties. At October 31, 1998, the Company owned or had an equity interest in twenty four properties comprised of neighborhood and community shopping centers, single tenant retail stores, office buildings and service and distribution facilities and undeveloped land located in twelve states throughout the United States, containing a total of 3,162,200 square feet of gross leasable area. For a description of the Company's individual investments, see Item 2. The Company intends to continue to invest substantially all of its assets in income producing real estate, with a primary emphasis on neighborhood and community shopping centers, although the Company will retain the flexibility to invest in other types of real property. While the Company is not limited to any geographical location, the Company's current strategy is to invest primarily in properties located in the northeastern region of the United States. Investment and Operating Strategy The Company's investment objective is to increase cash flow, current income and consequently the value of its existing portfolio of properties, and to seek continued growth through (i) the strategic re-tenanting, renovation and expansion of its existing properties, and (ii) the selective acquisitions of income-producing real estate properties, primarily neighborhood and community shopping centers, in the geographic regions where the Company presently operates. 3 The Company seeks to increase operating results through the strategic renovation and expansion of certain of its properties. Retail properties are typically adaptable for varied tenant layouts and can be reconfigured to accommodate new tenants or the changing space needs of existing tenants. In determining whether to proceed with a renovation or expansion, the Company considers both the cost of such expansion or renovation and the increase in rent attributable to such expansion or renovation. The Company believes that its retail properties will provide opportunities for renovation and expansion. When evaluating potential acquisitions, the Company will consider such factors as (i) economic, demographic, and regulatory conditions in the property's local and regional market; (ii) the location, construction quality, and design of the property; (iii) the current and projected cash flow of the property and the potential to increase cash flow; (iv) the potential for capital appreciation of the property; (v) the terms of tenant leases, including the relationship between the property's current rents and market rents and the ability to increase rents upon lease rollover; (vi) the occupancy and demand by tenants for properties of a similar type in the market area; (vii) the potential to complete a strategic renovation, expansion or retentanting of the property; (viii) the property's current expense structure and the potential to increase operating margins; and (ix) competition from comparable retail properties in the market area. Core Properties The Company considers those properties which are directly managed by the Company, located close to the Company's headquarters and concentrated in the shopping center sector to be core properties. Of the twenty four properties in the Company's portfolio, fourteen properties are considered core properties consisting of nine community shopping centers, two mixed-use (retail/office) properties and three office buildings (including the Company's executive headquarters). At October 31, 1998, the properties contained in the aggregate 1,471,700 square feet of gross leasable area. The Company's core retail properties collectively had 237 tenants providing a wide range of retail products and services. Tenants include national and regional supermarkets, discount department stores, a regional electronic store and local retailers. At October 31, 1998, the core properties were more than 96% leased. A substantial portion of the Company's operating lease income from retail tenants consists of rent received under short- and intermediate-term leases. Most of the leases provide for the payment of fixed base rentals monthly in advance and for the payment by tenants of a pro-rata share of the real estate taxes, insurance, utilities and common area maintenance expenses incurred in operating the shopping centers. Non-Core Properties In fiscal 1995, the Board of Directors expanded and refined the strategic objectives of the Company to refocus the real estate portfolio into one of self-managed retail properties located in the Northeast and authorized a plan to sell the non-core properties of the Company in the normal course of business over a period of several years. At October 31, 1998, the non-core properties, including the Company's investment in unconsolidated joint venture and undeveloped land, totaled nine properties, having an aggregate net book value of $29,820,000 ($31,247,000 at October 31, 1997) and comprising certain of the Company's office and retail properties located outside of the northeast region of the United States and all of its distribution and service facilities. The Company expects that the ultimate sales of the non-core properties over the next several years will result in net gains to the Company. At October 31, 1998, the Company's non-core properties consisted of one office building, containing 212,000 square feet of gross leasable area (GLA), four retail properties totaling 557,500 square feet, four distribution and service facilities with a total of 928,000 square feet of GLA and 4.2 acres of undeveloped land. The non-core properties were 98% leased at October 31, 1998. The office property has four tenants which offer a range of services, including engineering, management and administrative. 4 The four retail properties consist of a 231,000 square foot shopping center located in Clearwater, Florida containing 46 tenants and single tenant properties leased to Mervyn's, a division of Dayton-Hudson Corp. and Value City Stores, Inc. under long term "triple net" leases whereby the tenants pay all taxes, insurance, maintenance and other operating costs of the property during the term of the lease. The four service and distribution facilities are 100% occupied and consist of two automobile and truck parts distribution warehouses, one truck sales and service center and one automobile tire distribution facility. The distribution and service facilities are net leased under long-term lease arrangements whereby the tenants pay all taxes, insurance, maintenance and other operating costs of the property during the term of the lease. The Clearwater, Florida property, known as the Countryside Square Shopping Center, is owned by a joint venture in which the Company is the general partner. In fiscal 1997, the Company formed the joint venture with certain former shareholders of the Company to own and manage the shopping center. The Company contributed the shopping center at its net carrying amount (which amount approximated its fair value at the date of contribution), and the limited partners contributed 600,000 Common Shares of the Company to the limited partnership. At October 31, 1998, the Company also owned a portfolio of mortgage notes receivable consisting of fixed rate mortgages aggregating $2,607,000. The fixed rate mortgages are secured by retail properties sold by the Company in prior years. During the five year period ended October 31, 1998, the Company acquired eleven properties totalling 1,019,400 square feet of GLA at an aggregate cost of approximately $93 million. In the same period, the Company spent nearly $16.5 million to expand, renovate and improve its existing properties. In addition, in fiscal 1998, the Company spent $2.2 million for leasing costs and capital improvements to properties it already owns. Substantially all such capital expenditures were incurred in connection with the Company's leasing activities. The Company leased or renewed 170,000 square feet of gross leasable area in fiscal 1998. The square footage leased or renewed comprised 10% of the total GLA of the Company's core properties. Recent Developments On December 11, 1998, the Company sold 162,500 Class A Common Shares in a private placement with certain individual investors for net proceeds of $1.3 million. On December 11, 1998, the Company acquired the general partnership interest in a limited partnership which owns the Arcadian Shopping Center in Briarcliff, New York. The limited partners contributed the property subject to a $6.3 million first mortgage and are entitled to preferential distributions of cash flow from the property. The limited partners have a right to exchange a portion of their interests for cash and have the option, after a specified period to put the remainder of their limited partner interests to the Company for either cash or units of Class A Common Shares of the Company. The Company has the option to purchase the limited partners' interests after a specified period for cash. The partnership agreement, among other things, places certain restrictions on the sale or refinancing of the property without the limited partners' consent. On December 21, 1998, the Company obtained a commitment from an insurance company for a $15 million non-recourse first mortgage loan secured by one of its retail properties having a net book value of $21.4 million at October 31, 1998. The mortgage loan will have a term of 10 years and earn interest at a fixed rate of 7.375%. Matters Relating to the Real Estate Business The Company is subject to certain business risks arising in connection with owning real estate which include, among others, (1) the bankruptcy or insolvency of, or a downturn in the business of, any 5 of its major tenants, (2) the possibility that such tenants will not renew their leases as they expire, (3) vacated anchor space affecting the entire shopping center because of the loss of the departed anchor tenant 's customer drawing power, (4) risks relating to leverage, including uncertainty that the Company will be able to refinance its indebtedness, and the risk of higher interest rates, (5) potential liability for unknown or future environmental matters, and (6) the risk of uninsured losses. Unfavorable economic conditions could also result in the inability of tenants in certain retail sectors to meet their lease obligations and otherwise could adversely affect the Company's ability to attract and retain desirable tenants. The Company believes that its shopping centers are relatively well positioned to withstand adverse economic conditions since they typically are anchored by grocery stores, drug stores and discount department stores that offer day-to-day necessities rather than luxury goods. Compliance with Governmental Regulations The Company, like others in the commercial real estate industry, is subject to numerous environmental laws and regulations. Although potential liability could exist for unknown or future environmental matters, the Company believes that its tenants are operating in accordance with current laws and regulations and has established procedures to monitor these operations. Competition The real estate investment business is highly competitive. The Company competes for real estate investments with investors of all types, including domestic and foreign corporations, financial institutions, other real estate investment trusts and individuals. In addition, the Company's properties are subject to local competitors from the surrounding areas. The Company does not consider its real estate business to be seasonal in nature. The Company's shopping centers compete for tenants with other regional, community or neighborhood shopping centers in the respective areas where Company retail properties are located. The Company's office buildings compete for tenants principally with office buildings throughout the respective areas in which they are located. In most areas where the Company's office buildings are located, competition for tenants is intense. Leasing space to prospective tenants is generally determined on the basis of, among other things, rental rates, location, physical quality of the property and availability of space. Since the Company's industrial properties are all net leased under long-term lease arrangements which are not due to expire in the near future, the Company does not currently face any competitive pressures with respect to such properties. Property Management The Company actively manages and supervises the operations and leasing at all of its core properties. Seven of the Company's non-core properties are net leased to single tenants under long-term lease arrangements, in which case, property management is provided by the tenants. The Company's two remaining non-core properties are managed by property management companies retained by the Company. The Company closely supervises the property management firms it engages to manage its properties. Employees The Company's executive offices are located at 321 Railroad Avenue, Greenwich, Connecticut. It occupies approximately 5,000 square feet in a two story office building owned by the Company. The Company has 15 employees, eight of whom oversee the management of the Company's real estate portfolio, or analyze potential acquisition properties and determine which properties, if any, to sell. The Company's remaining employees serve in various professional, executive and administrative capacities. 6 ITEM II PROPERTIES. Core Properties The following table sets forth information concerning each core property at October 31, 1998. Except as otherwise noted, all core properties are 100% owned by the Company. See "Business-Recent Developments" for properties acquired since October 31, 1998.
Gross Year Year Leasable Number of Location Completed Acquired Square Feet Acres Tenants Leased Principal Tenant -------- --------- -------- ----------- ----- ------- ------ ---------------- Springfield, MA 1970 1970 301,000 26.0 18 99% Great Atlantic & Pacific Tea Co. Meriden, Ct 1989 1993 300,000 29.2 17 96% ShopRite Supermarket Danbury, Ct 1989 1995 193,000 19.3 22 96% Barnes & Noble Carmel, NY 1983 1995 126,000 19.0 15 68% ShopRite Supermarket Newington, NH 1975 1979 102,000 14.3 9 93% JoAnn Fabrics Wayne, NJ 1959 1992 102,000 9.0 47 99% Great Atlantic & Pacific Tea Co. Darien, CT 1955 1998 95,000 9.5 21 95% Grand Union Farmingdale, NY 1981 1993 70,000 5.6 13 97% King Kullen Supermarket Eastchester, NY (1) 1978 1997 68,000 4.0 10 100% Food Emporium (Division of A&P) Ridgefield, CT 1896-1930 1998 56,000 2.1 47 72% Chico's Greenwich, CT 1977 1998 20,000 1.0 2 100% Greenwich Hospital Somers, NY 1989 1992 19,000 4.9 10 100% Putnam County Savings Bank Greenwich, CT 1983 1993 10,000 .2 3 100% Urstadt Biddle Properties Inc. Greenwich, CT 1983 1994 9,700 .2 3 88% Prescott Investors
(1) The Company has a general partnership interest in this property. 7 Non-Core Properties The following table sets forth information concerning each non-core property in which the Company owned an equity interest at October 31, 1998. Except as otherwise noted, non-core properties are 100% owned by the Company.
Year Year Rentable Number of Location Completed Acquired Square Feet Acres Tenants Leased Principal Tenant -------- --------- -------- ----------- ----- ------- ------ ---------------- Southfield, MI (1) 1973 1983 212,000 7.8 5 100% Giffels Associates Clearwater, FL (1) 1983 1985 231,000 21.5 46 95% Albertson's Supermarket Mesa, AZ 1971 1971 92,000 7.6 1 100% Mervyn's Tempe, AZ 1970 1970 117,000 8.6 2 100% Mervyn's Jonesboro, GA 1973 1997 117,500 9.0 1 100% Value City Stores, Inc. Albany, GA 1972 1972 476,000 51.3 1 100% Firestone Dallas, TX 1970 1970 253,000 14.5 1 100% Chrysler Corporation St. Louis, MO 1970 1970 170,000 16.0 1 100% Chrysler Corporation Syracuse, NY 1973 1973 29,000 10.0 1 100% Navistar International Denver, CO - 1972 - 4.2 - - Undeveloped Land
(1) The Company has a general partnerhip interest in this property. 8 ITEM III LEGAL PROCEEDINGS. No legal proceedings are required to be reported under this Item. ITEM IV SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. No matter was submitted to a vote of security holders during the fourth quarter of the fiscal year ended October 31, 1998. ITEM PURSUANT TO INSTRUCTION 3 OF ITEM 401 (B) OF REGULATION S-K: EXECUTIVE OFFICERS OF THE COMPANY. For information regarding Executive Officers of the Company--See Item X. PART II ITEM V MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS. (a) Price Range of Common Shares The Common Shares and Class A Common Shares of the Company are traded on the New York Stock Exchange under the symbols "UBP" and "UBP.A", respectively. The following table sets forth the high and low closing sales prices for the Company's Common Shares and Class A Common Shares during the fiscal years ended October 31, 1998 and October 31, 1997 as reported on the New York Stock Exchange:
Fiscal Year Ended Fiscal Year Ended Common Shares: October 31, 1998 October 31, 1997 - -------------- ---------------- ---------------- High Low High Low ---- --- ---- --- Fourth Quarter $18 $ 7-5/8 $20-7/16 $17-3/4 Third Quarter 18-1/2 17-1/2 18-1/4 16-1/4 Second Quarter 19-1/2 17-7/16 18 16-1/4 First Quarter 20-1/4 17-3/4 18-1/2 14-7/8
*On August 14, 1998, the Company paid a special stock dividend on the Company's Common Stock consisting of one share of a new class of Class A Common Shares for each Common Shares outstanding:
Fiscal Year Ended Fiscal Year Ended Class A Common Shares**: October 31, 1998 October 31, 1997 - ------------------------ ---------------- ---------------- High Low High Low ---- --- ---- --- Fourth Quarter 9-11/16 $7-7/8 - - Third Quarter - - - - Second Quarter - - - - First Quarter - - - -
** Commenced trading on 8/17/98 (b) Approximate Number of Equity Security Holders: At December 31, 1998 (latest date available), there were 2,028 shareholders of record of the Company's Common Shares and 1,994 shareholders of record of the Class A Common Shares. (c) Dividends Declared on Common Shares and Class A Common Shares and Tax Status The following table sets forth the dividends declared per Common Share and Class A Common Share and 9 tax status for Federal income tax purposes of the dividends paid during the fiscal years ended October 31, 1998 and 1997:
Dividends Paid Per: ------------------- Fiscal Year Ended Class A Total Ordinary Income October 31, 1998: Common Shares Common Shares Distribution ------------- ------------- ------------ Fourth Quarter $ .17 $.19 $ .36 Third Quarter $ .32 $ - $ .32 Second Quarter $ .32 $ - $ .32 First Quarter $ .32 $ - $ .32 ----- --- ----- $1.13 $.19 $1.32 ===== ==== ===== Fiscal Year Ended Dividends Paid Total Ordinary Income October 31, 1997: Per Common Share Distribution ---------------- ------------ Fourth Quarter $ .32 $ .32 Third Quarter $ .32 $ .32 Second Quarter $ .31 $ .31 First Quarter $ .31 $ .31 ----- ----- $1.26 $1.26 ===== =====
The Company has paid uninterrupted quarterly dividends since it commenced operations as a real estate investment trust in 1969. During the fiscal year ended October 31, 1998, the Company made distributions to stockholders aggregating $1.13 per Common Share and $.19 per Class A Common Share. On June 16, 1998, the Board of Directors declared a special stock dividend on the Company's Common Shares consisting of one share of a newly created class of Class A Common Shares, par value $.01 per share, for each share of the Company's Common Shares. The Class A Common Shares entitles the holder to 1/20 of one vote per share. Each Common Share and Class A Common Share have identical rights with respect to dividends except that each share of Class A Common Shares will receive not less than 110% of the regular quarterly dividends paid on each share of Common Shares. The stock dividend was paid on August 14, 1998. Although the Company intends to continue to declare quarterly dividends on its Common shares and Class A Common shares, no assurances can be made as to the amounts of any future dividends. The declaration of any future dividends by the Company is within the discretion of the Board of Directors, and will be dependent upon, among other things, the earnings, financial condition and capital requirements of the Company, as well as any other factors deemed relevant by the Board of Directors. Two principal factors in determining the amounts of dividends are (i) the requirement of the Internal Revenue Code that a real estate investment trust distribute to shareholders at least 95% of its real estate investment trust taxable income, and (ii) the amount of the Company's funds from operations. The Company has a Dividend Reinvestment and Share Purchase Plan which allows shareholders to acquire additional Common Shares and Class A Common Shares by automatically reinvesting dividends. Shares are acquired pursuant to the Plan at a price equal to the higher of 95% of the market price of such shares on the dividend payment date or 100% of the average of the daily high and low sales prices for the five trading days ending on the day of purchase without payment of any brokerage commission or service charge. Approximately 20% of the Company's eligible holders of Class A Common Shares and Common Shares currently participate in the Plan. 10 ITEM VI SELECTED FINANCIAL DATA. (In thousands, except per share data)
Year Ended October 31, 1998 1997 1996 1995 1994 ---- ---- ---- ---- ---- Total Assets $ 165,039 $ 137,430 $ 132,160 $ 149,099 $ 142,559 ========= ========= ========= ========= ========= Mortgage Notes Payable and Preferred Stock $ 66,362 $ 43,687 $ 39,798 $ 57,212 $ 46,386 ========= ========= ========= ========= ========= Revenues $ 25,595 $ 24,827 $ 24,432 $ 22,853 $ 18,969 ========= ========= ========= ========= ========= Operating Income (Loss) $ 8,176 $ 8,589 $ 3,930 $ (3,703) $ 1,262 Gains on Sales of Properties -- -- 6,341 7,567 82 Preferred Stock Dividends (2,561) -- -- -- -- --------- --------- --------- --------- --------- Net Income Applicable to Common and Class A Common Stockholders $ 5,615 $ 8,589 $ 10,271 $ 3,864 $ 1,344 ========= ========= ========= ========= ========= Funds from Operations (Note 1) $ 11,213 $ 10,189 $ 9,525 $ 8,510 $ 7,653 ========= ========= ========= ========= ========= Other Data : Net Cash Provided by Operating Activities $ 13,901 $ 14,755 $ 9,801 $ 9,035 $ 6,389 ========= ========= ========= ========= ========= Net Cash Provided by (Used in) Investing Activities $ (31,130) $ (7,460) $ 11,722 $ (13,239) $ (26,312) ========= ========= ========= ========= ========= Net Cash Provided by (Used in) Financing Activities $ 19,207 $ (7,192) $ (26,801) $ 2,563 $ 21,600 ========= ========= ========= ========= ========= PER SHARE DATA (NOTE 2): Common Shares: Net Income - Basic $ .52 $ .80 $ .91 $ .34 $ .12 Net Income - Diluted $ .52 $ .79 $ .90 $ .34 $ .12 Class A Common Shares: Net Income - Basic $ .57 $ .87 $ 1.00 $ .38 $ .14 Net Income - Diluted $ .57 $ .86 $ .99 $ .38 $ .14 Cash Dividends on: Common Shares $ 1.13 $ 1.26 $ 1.22 $ 1.14 $ 1.10 Class A Common Shares $ 0.19 -- -- -- -- --------- --------- --------- --------- --------- TOTAL CASH DIVIDENDS $ 1.32 $ 1.26 $ 1.22 $ 1.14 $ 1.10 ========= ========= ========= ========= =========
Note 1: The Company has adopted the definition of Funds from Operations (FFO) suggested by the National Association of Real Estate Investment Trusts (NAREIT) and defines FFO as net income (computed in accordance with generally accepted accounting principles), excluding gains (or losses) from debt restructuring and sales of properties, plus depreciation, amortization, the elimination of significant non-recurring charges and credits and after adjustments for unconsolidated joint ventures. FFO does not represent net cash from operating activities in accordance with generally accepted accounting principles (which, unlike FFO, generally reflects all cash effects of transactions and other events in the determination of net income) and should not be considered an alternative to net income as an indicator of the Company's operating performance, or for cash flows as a measure of liquidity or ability to make distributions. The Company considers FFO an appropriate supplemental measure of operating performance because it primarily excludes the assumption that the value of real estate assets diminishes predictably over time, and because industry analysts recognize it as a performance measure. Comparison of the Company's presentation of FFO, using the NAREIT definition, to similarly titled measures for other REITs may not necessarily be meaningful due to possible differences in the application of the NAREIT definition used by such REITs. For a further discussion of FFO, see Management's Discussion and Analysis on page 14. Note 2: Per share data for all periods have been restated to reflect the effect of the one-for-one stock split effected in the form of a new issue of Class A Common Stock distributed in August 1998, however, the cash dividends are presented based on actual amounts paid and have not been restated. 11 ITEM VII. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. LIQUIDITY AND CAPITAL RESOURCES The Company's liquidity and capital resources include its cash and cash equivalents, proceeds from bank borrowings and long-term mortgage debt, capital financings and sales of real estate investments. The Company expects to meet its short-term liquidity requirements primarily by generating net cash from the operations of its properties. Payments of expenses related to real estate operations, debt service, management and professional fees, and dividend requirements place demands on the Company's short-term liquidity. The Company believes that its net cash provided by operations will be sufficient to fund its short-term liquidity needs in the near term. The Company expects to meet its long-term liquidity requirements such as property acquisitions, debt maturities and capital improvements through long-term secured indebtedness and/or the issuance of additional equity securities. At October 31, 1998, the Company had cash and cash equivalents of $3.9 million compared to $1.9 million in 1997. The Company also has $25 million in unsecured short-term lines of credit with two major commercial banks and a $20 million secured revolving credit facility with one of the commercial banks. The credit lines and revolving credit facility are available to finance the acquisition, management or development of commercial real estate and for working capital purposes. The short-term credit lines expire at various periods in 1999 and outstanding borrowings, if any, may be repaid from proceeds of long-term debt financings or sales of properties. At October 31, 1998, the Company had outstanding borrowings of $6 million under the short-term lines of credit. It is the Company's intent to renew the short-term credit lines as they expire in 1999. The Company's $20 million secured revolving credit facility expires in 2005 and borrowings under the secured revolving credit facility can be repaid and borrowed again during the term of the facility. At October 31, 1998, long-term debt consists of mortgage notes payable totaling $13.5 million and outstanding borrowings of $19.4 million under the secured revolving credit facility. In fiscal 1998, the Company sold $35 million of senior cumulative preferred stock in a private placement with institutional investors. Net proceeds of $33.5 million (after deducting expenses of the sale) were used to repay approximately $24 million of mortgage debt and to complete the acquisitions of two properties. In June 1998, the Board of Directors declared a special stock dividend on the Company's Common Shares consisting of one share of a newly created class of Class A Common Shares. The establishment and issuance of the Class A Common Shares is intended to provide the Company with the flexibility to raise equity capital to finance acquisition of properties and further the growth of the Company. Such securities may be utilized as consideration in connection with the acquisition of properties by the Company and for employee compensation purposes, in each case without diluting the voting power of the Company's existing stockholders. The Company utilized securities in this manner to facilitate its most recent shopping center acquisition in Briarcliff, New York. See "Business - Recent Developments." The Company expects to make real estate investments periodically. During the five years ended October 31, 1998, the Company acquired $86.3 million of properties. In fiscal 1998, the Company purchased or acquired four properties at a total cost of $29 .6 million. The properties were funded from available cash, proceeds from the sale of the preferred stock and borrowings from short-term and secured revolving credit lines. The Company also invests in its existing properties and, during fiscal 1998, spent approximately $2.2 million on its properties for capital improvement and leasing costs. In fiscal 1995, the Board of Directors expanded and refined the strategic objectives of the Company to refocus its real estate portfolio into one of self-managed retail properties located in the Northeast and authorized a plan to sell the non-core properties of the Company in the normal course of business over a period of several years. The non-core properties comprise all of the Company's distribution and service facilities, and certain of its office and retail properties and undeveloped land located outside of 12 the Northeast region of the United States. There were no sales of properties in fiscal 1998. The Company expects future sales of the non-core properties over the next several years to result in net gains to the Company. At October 31, 1998, the non-core properties, (including the Company's investment in unconsolidated joint venture) total nine properties having an aggregate net book value of $29,820,000. The Company's Board of Directors has authorized the purchase of up to one million of the Company's Common and Class A Common shares over the next two to three years. The repurchase program is subject to termination at any time for, among other reasons, prevailing market prices, availability of cash resources and alternative investment opportunities. The Company has repurchased 14,500 Common shares and 42,700 Class A Common shares at an aggregate cost of $474,000 from available cash. The Company expects to fund the cost of future share purchases, if any, from available cash. FUNDS FROM OPERATIONS The Company considers Funds From Operations (FFO) to be an appropriate supplemental financial measure of an equity REIT's operating performance since such measure does not recognize depreciation and amortization of real estate assets as reductions of income from operations. The National Association of Real Estate Investment Trusts (NAREIT) defines FFO as net income computed in accordance with generally accepted accounting principles (GAAP) plus depreciation and amortization of assets uniquely significant to the real estate industry, excluding gains or losses on debt restructuring and sales of property, the elimination of significant non-recurring charges and credits and after adjustments for unconsolidated joint ventures. The Company considers recoveries of investments in properties subject to finance leases to be analogous to amortization for purposes of calculating FFO. FFO does not represent cash flows from operations as defined by GAAP and should not be considered a substitute for net income as an indicator of the Company's operating performance, or for cash flows as a measure of liquidity. Furthermore, FFO as disclosed by other REITs may not be comparable to the Company's calculation of FFO. The table below provides a reconciliation of net income in accordance with GAAP to FFO as calculated under the NAREIT guidelines for the years ended October 31, 1998, 1997 and 1996 (amounts in thousands):
1998 1997 1996 ---- ---- ---- Net Income Applicable to Common and Class A Common Stockholders $ 5,615 $ 8,589 $ 10,271 Plus: Real property depreciation, amortization of tenant improvement costs and recoveries of investments in properties subject to finance leases 4,951 4,314 5,160 Amortization of lease acquisition costs 491 484 435 Adjustments for unconsolidated joint venture 692 616 -- Less: Gains on sales of real estate investments -- -- (6,341) Non-recurring items - net (536) (3,814)* -- -------- -------- -------- Funds from Operations $ 11,213 $ 10,189 $ 9,525 ======== ======== ========
* Includes a one-time $3.25 million payment received in settlement of unpaid percentage rents from a tenant - see Results of Operations RESULTS OF OPERATIONS FISCAL 1998 VS. FISCAL 1997 13 REVENUES Operating lease revenue increased 18.4% from the comparable period in fiscal 1997 (before the one-time amount of $3,250,000 discussed below). The increase in lease revenues is the result of, among other things, rental income from four properties acquired in 1998 and new leasing of space at certain of the Company's properties last year, the annual effect of which is reflected this year. Operating lease revenue for properties owned during both fiscal 1998 and 1997 increased 7.8% compared to the same period last year. Fiscal 1997 lease revenues included a one-time settlement amount of $3,250,000 representing additional percentage rent received from a tenant. The Company's core properties were more than 96% leased at October 31, 1998. The Company leased or renewed more than 170,000 square feet of space during the year comprising more than 10% of the Company's gross leasable area of its core properties. Interest income increased in fiscal 1998 from the reinvestment into short-term cash investments of the net proceeds from a $35 million preferred stock issue sold in January, 1998 and additional interest of $278,000 received from the repayment of a mortgage note receivable in the face amount of $1,176,000 with a net carrying amount of $898,000. EXPENSES Total expenses amounted to $17,252,000 in fiscal 1998 compared to $16,238,000 last year. The largest expense category is property expenses of the real estate operating properties. The increase in property expenses in 1998 reflect the effect of the acquisition of four properties during fiscal 1998. Property expenses related to properties acquired in 1998 totaled $569,000. Property expenses in fiscal 1998 for properties owned during both fiscal 1998 and 1997 increased by less than 2% compared to the same period in fiscal 1997. Interest expense decreased by $828,000 principally from the repayment of $24.1 million of mortgage notes payable in fiscal 1998. Depreciation and amortization expense increased principally from the acquisition of four operating properties during fiscal 1998 and capital expenditures for tenant improvements. General and Administrative expenses increased to $2,077,000 from $1,550,000 in fiscal 1997 from higher legal and other professional costs and compensation expense related to the issuance of restricted stock to key employees. FISCAL 1997 VS. FISCAL 1996 REVENUES Operating lease revenues amounted to $23,336,000 in fiscal 1997 compared to $22,770,000 in fiscal 1996. Fiscal 1997 revenues included a one-time amount of $3,250,000 received from a tenant for, among other things, unpaid percentage rents due the Company. In accordance with the terms of its lease, the tenant was required to aggregate the sales of all its stores within a specified radius when computing percentage rent due the Company. In fiscal 1996, the Company sold three operating properties. These properties contributed $2,200,000 in combined operating lease income in that year. Rental income from properties owned in both 1997 and 1996 increased by 5.3% in fiscal 1997. The increase in 1997 operating lease income resulted from leasing of previously vacant space at several of the Company's properties during fiscal 1996, the effect of which was reflected in fiscal 1997. Earlier in the year, the Company contributed its Countryside Square shopping center in Clearwater, Florida to an unconsolidated joint venture. The property's operations were subsequently accounted for on the equity method of accounting. As a result, the Company's 1997 results of operations excluded the 14 revenues of the property. 1996 consolidated revenues included $2,067,000 of operating rents attributable to the property. EXPENSES Total expenses amounted to $16,238,000 in fiscal 1997 compared to $20,502,000 in 1996. The decrease in property expenses in 1997 reflected the effect of the sales of three properties during fiscal 1996, the absence of operating expenses of the Countryside Square property referred to above and, lower utility and maintenance costs in that year. Interest expense decreased by $1,517,000 from the repayment during fiscal 1996 of $16.6 million of mortgage notes payable. Depreciation and amortization expense decreased in fiscal 1997 principally from the sale of three operating properties during fiscal 1996. IMPACT OF YEAR 2000 The Company has assessed the Year 2000 issue to determine the impact, if any, on its operations. The Company has determined that it will not be required to significantly modify or replace its existing hardware or software programs so that its business systems are able to process information beyond 1999. The Company has also commenced a survey of all of its key tenants, vendors, banks and other parties to determine the extent to which the Company is vulnerable in the event those parties fail to remediate their own Year 2000 issue. The Company plans to complete the Year 2000 project during the second quarter of fiscal 1999. The estimated costs attributable to the purchase of new computer equipment and software, third party modification plans, consulting fees, etc. are not expected to have a material effect on the Company's results of operations in fiscal 1999. ITEM VIII. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. The consolidated financial statements required by this Item, together with the report of the Company's independent public accountants thereon and the supplementary financial information required by this Item are included under Item XIV of this Annual Report. ITEM IX. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. No information is required to be reported under this Item. PART III ITEM X. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. The Company has filed with the Securities and Exchange Commission its definitive Proxy Statement for its Annual Meeting of Stockholders to be held on March 10, 1999. The additional information required by this Item is included under the caption "ELECTION OF DIRECTORS" of such Proxy Statement and is incorporated herein by reference. Executive Officers of the Registrant. The following sets forth certain information regarding the executive officers of the Company: 15 Name Age Offices Held - ---- --- ------------ Charles J. Urstadt 70 Chairman and Chief Executive Officer (since September 1989) Willing L. Biddle 37 President and Chief Operating Officer (since December, 1996); Executive Vice President and Chief Operating Officer (March, 1996 to December 1996); Senior Vice President - Management (June, 1995 to March 1996); Vice President - Retail (June, 1994 to June, 1995); Vice President - Asset Management (April 1993 to June 1994); Vice President, Levites Realty Management Corp (1989 to 1993); prior to 1989, Second Vice President, Chase Manhattan Bank James R. Moore 50 Executive Vice President and Chief Financial Officer (since March, 1996); Senior Vice President and Chief Financial Officer (September 1989 to March 1996); Secretary (since April 1987) and Treasurer (since December 1987); Vice President-Finance and Administration (April 1987 to September 1989); prior to 1987, Senior Manager, Ernst & Young Raymond P. Argila 50 Senior Vice President and Chief Legal Officer (since June 1990); formerly Senior Counsel, Cushman & Wakefield, Inc. (September 1987 to May 1990); Vice President and Chief Legal Officer, Pearce, Urstadt, Mayer & Greer Realty Corp. from (January 1984 to March 1987). Officers of the Company are elected annually by the Directors. Mr. Urstadt has been the Chairman of the Board of Directors since 1986, and a Director since 1975. Mr. Urstadt also serves as the Chairman of Urstadt Property Company, Inc. (formerly Pearce, Urstadt, Mayer & Greer Inc.) and has served in such capacity for more than five years. ITEM XI. EXECUTIVE COMPENSATION. The Company has filed with the Securities and Exchange Commission its definitive Proxy Statement for its Annual Meeting of Stockholders to be held on March 10, 1999. The information required by this Item is included under the caption "ELECTION OF DIRECTORS - Compensation and Transactions with Management and Others of such Proxy Statement and is incorporated herein by reference. ITEM XII. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The Company has filed with the Securities and Exchange Commission its definitive Proxy Statement for its Annual Meeting of Stockholders to be held on March 10, 1999. The information required by this Item is included under the caption ELECTION OF DIRECTORS - Security Ownership of Certain Beneficial Owners and Management of such Proxy Statement and is incorporated herein by reference. ITEM XIII. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. The Company has filed with the Securities and Exchange Commission its definitive Proxy Statement for its Annual Meeting of Stockholders to be held on March 10, 1999. The information required by this Item is included under the caption ELECTION OF DIRECTORS - Compensation and Transactions with Management and Others of such Proxy Statement and is incorporated herein by reference. PART IV ITEM XIV. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K. A. Financial Statements and Financial Statement Schedules 16 1. Financial Statements -- The consolidated financial statements listed in the accompanying index to financial statements on Page 21 are filed as part of this Annual Report. 2. Financial Statement Schedules -- The financial statement schedules required by this Item are filed with this report and are listed in the accompanying index to financial statements on Page 21. All other financial statement schedules are inapplicable. B. Reports on Form 8-K During the last quarter of 1998, the Registrant filed with the Commission: (1) a Current Report on Form 8-K dated September 9, 1998; such report referred under Item 5 to the acquisition of a 95,000 square foot shopping center for a purchase price of $21,300,000. (2) a Current Report on Form 8-K dated August 3, 1998; such report referred under Item 5 to (i) the declaration of a special stock dividend on the Company's Common Shares, consisting of one share of a newly created class of Class A Common Shares for each of the Company's Common Shares and (ii) the amendment and restatement of the Company's Rights Agreement, dated as of July 31, 1998, between the Company and The Bank of New York, as Rights Agent. C. Exhibits. Listed below are all Exhibits filed as part of this report. Certain Exhibits are incorporated by reference from documents previously filed by the Company with the Securities and Exchange Commission pursuant to Rule 12b-32 under the Securities Exchange Act of 1934, as amended. Exhibit - ------- (3) Articles of Incorporation and By-laws. 3.1 (a) Amended Articles of Incorporation of the Company, (incorporated by reference to Exhibit C of Amendment No.1 to Registrant's Statement on Form S-4 (No. 333-19113) (b) Articles Supplementary of the Company (incorporated by reference to Annex A of Exhibit 4.1 of the Registrant's Current Report on Form 8-K dated August 3, 1998). (c) Articles Supplementary of the Company (incorporated by reference to Exhibit 4.1 of the Registrant's Current Report on Form 8-K dated January 8, 1998). (d) Articles Supplementary of the Company (incorporated by reference to Exhibit A of Exhibit 4.1 of the Registrant's Current Report on Form 8-K dated March 12, 1997). 3.2 By-laws of the Company, (incorporated by reference to Exhibit D of Amendment No. 1 to Registrant's Registration Statement on Form S-4 (No. 333-19113). (4) Instruments Defining the Rights of Security Holders, Including Indentures. 17 4.1 Common Stock: See Exhibits 3.1 (a)-(d) hereto. 4.2 Series B Preferred Shares: See Exhibits 3.1 (a)-(d), 10.12 and 10.13 hereto. 4.3 Series A Preferred Share Purchase Rights: See Exhibits 3.1 (a)-(d) and 10.3 hereto. (10) Material Contracts. 10.1 Form of Indemnification Agreement entered into between the Registrant and each of its Directors and for future use with Directors and officers of the Company (incorporated herein by reference to Exhibit 10.1 of the Registrant's Annual Report on Form 10-K for the year ended October 31, 1989).* 10.2 Amended and Restated Change of Control Agreement between the Registrant and James R. Moore dated November 15, 1990 (incorporated herein by reference to Exhibit 10.3 of the Registrant's Annual Report on Form 10-K for the year ended October 31, 1990).* 10.3 Amended and Restated Rights Agreement between the Company and The Bank of New York, as Rights Agent, dated as of July 31, 1998 (incorporated herein by reference to Exhibit 10-1 of the Registrant's Current Report on Form 8-K dated November 5, 1998). 10.4 Change of Control Agreement dated as of June 12, 1990 between the Registrant and Raymond P. Argila (incorporated herein by reference to Exhibit 10.7 of the Registrant's Annual Report on Form 10-K for the year ended October 31, 1990).* 10.4.1 Agreement dated December 19, 1991 between the Registrant and Raymond P. Argila amending the Change of Control Agreement dated as of June 12, 1990 between the Registrant and Raymond P. Argila (incorporated herein by reference to Exhibit 10.6.1 of the Registrant's Annual Report on Form 10-K for the year ended October 31, 1991).* 10.5 Change of Control Agreement dated as of December 20, 1990 between the Registrant and Charles J. Urstadt (incorporated herein by reference to Exhibit 10.8 of the Registrant's Annual Report on Form 10-K for the year ended October 31, 1990).* 10.6 Amended and Restated HRE Properties Stock Option Plan (incorporated herein by reference to Exhibit 10.8 of the Registrant's Annual Report on Form 10-K for the year ended October 31, 1991).* 10.6.1 Amendments to HRE Properties Stock Option Plan dated June 9, 1993 (incorporated by reference to Exhibit 10.6.1 of the Registrant's Annual Report on Form 10-K for the year ended October 31, 1995).* 10.6.2 Form of Supplemental Agreement with Stock Option Plan Participants (non-statutory options). 10.6.3 Form of Supplemental Agreement with Stock Option Plan Participants (statutory options). 10.7 Amended and Restated Dividend Reinvestment and Share Purchase Plan (incorporated herein by reference to the Registrant's Registration Statement on Form S-3 (No. 333-64381). 10.8 Amended and Restated Change of Control Agreement dated as of November 6, 1996 between the Registrant and Willing L. Biddle (incorporated by reference to Exhibit 10.7 of the Registrant's Annual Report on Form 10-K for the year ended October 31, 1996).* 18 10.9 Countryside Square Limited Partnership Agreement of Limited Partnership dated as of November 22, 1996 between HRE Properties, as General Partner and the persons whose names are set forth on Exhibit A of the Agreement, as Limited Partners (incorporated by reference to Exhibit I of the Registrant's Current Report on Form 8-K dated November 22, 1996). 10.10 Restricted Stock Plan (incorporated by reference to Exhibit B of Amendment No. 1 to Registrant's Registration Statement on Form S-4 (No. 333-19113)*). 10.10.1 Form of Supplemental Agreement with Restricted Stockholders. 10.11 Excess Benefit and Deferred Compensation Plan (incorporated by reference to Exhibit 10.10 of the Registrant's Annual Report on Form 10-K for the year ended October 31, 1997).* 10.12 Purchase and Sale Agreement, dated September 9, 1998 by and between Goodwives Center Limited Partnership, as seller, and UB Darien, Inc., a wholly owned subsidiary of the Registrant, as purchaser (incorporated by reference to Exhibit 10 of the Registrant's Current Report on Form 8-K dated September 23, 1998). 10.13 Subscription Agreement, dated January 8, 1998, by and among the Company and the Initial Purchasers (incorporated by reference to Exhibit 4.2 of the Registrant's Current Report on Form 8-K dated January 8, 1998). 10.14 Registration Rights Agreement, dated January 8, 1998, by and among the Company and the Initial Purchasers (incorporated by reference to Exhibit 4.3 of the Registrant's Current Report on Form 8-K dated January 8, 1998). (21) Subsidiaries. 21.1 List of Company's subsidiaries (23) Consents of Experts and Counsel. 23.1 The consent of Arthur Andersen LLP to the incorporation by reference of their reports herein or in the Registrant's Registration Statements on Form S-3 (No.33-57119), Form S-3 (No. 333-64381), Form S-4 (No. 333-19113), Form S-8 (No.2-93146), Form S-8 (No. 333-61765) and Form S-8 (No. 33-41408) is filed herewith as part of this report. (27) Financial Data Schedule. 27.1 Financial Data Schedule * Management contract, compensatory plan or arrangement required to be filed as an exhibit to this Annual Report on Form 10-K pursuant to Item 14(c). 19 URSTADT BIDDLE PROPERTIES INC. Item XIVa. INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES Page Consolidated Balance Sheets at October 31, 1998 and 1997 22 Consolidated Statements of Income for each of the three years ended October 31, 1998 23 Consolidated Statements of Cash Flows for each of the three years ended October 31, 1998 24 Consolidated Statements of Stockholders' Equity for each of the three years ended October 31, 1998 25 Notes to Consolidated Financial Statements 26-35 Report of Independent Public Accountants 36 Schedule. The following consolidated financial statement schedules of Urstadt Biddle Properties Inc. are included in Item XIV(d): III Real Estate and Accumulated Depreciation - October 31, 1998 37 IV Mortgage Loans on Real Estate - October 31, 1998 40 All other schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions or are inapplicable and therefore have been omitted. 20 URSTADT BIDDLE PROPERTIES INC. CONSOLIDATED BALANCE SHEETS (In thousands, except share data)
OCTOBER 31 ------------------------------ ASSETS 1998 1997 ---- ---- Real Estate Investments: Properties owned-- at cost, net of accumulated depreciation $ 122,975 $ 94,489 Properties available for sale - at cost, net of accumulated depreciation and recoveries 20,350 22,327 Investment in unconsolidated joint venture 9,470 8,920 Mortgage notes receivable 2,607 3,605 --------- --------- 155,402 129,341 Cash and cash equivalents 3,900 1,922 Interest and rent receivable 2,445 2,649 Deferred charges, net of accumulated amortization 2,320 2,468 Other assets 972 1,050 --------- --------- $ 165,039 $ 137,430 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: Bank loan $ 6,000 $ -- Mortgage notes payable 32,900 43,687 Accounts payable and accrued expenses 1,127 1,603 Deferred directors' fees and officers' compensation 646 550 Other liabilities 1,450 1,175 --------- --------- 42,123 47,015 --------- --------- Minority Interest 2,125 2,125 --------- --------- Preferred Stock, par value $.01 per share; 20,000,000 shares authorized: 8.99% Series B Senior Cumulative Preferred stock, (liquidation preference of $100 per share); 350,000 shares issued and outstanding (none in 1997) 33,462 -- --------- --------- Stockholders' Equity: Excess stock, par value $.01 per share; 10,000,000 shares authorized; none issued and outstanding -- -- Common stock, par value $.01 per share; 30,000,000 shares authorized; 5,221,602 and 5,167,495 outstanding shares in 1998 and 1997, respectively 52 51 Class A Common stock, par value $.01 per share; 40,000,000 shares authorized; 5,193,650 issued and outstanding shares in 1998 (none in 1997) 52 -- Additional paid in capital 118,558 117,763 Cumulative distributions in excess of net income (29,699) (28,530) Unamortized restricted stock compensation and notes receivable from officers/stockholders (1,634) (994) --------- --------- 87,329 88,290 --------- --------- $ 165,039 $ 137,430 ========= =========
The accompanying notes to consolidated financial statements are an integral part of these balance sheets. 21 URSTADT BIDDLE PROPERTIES INC. CONSOLIDATED STATEMENTS OF INCOME (In thousands, except per share data)
Year Ended October 31, --------------------------------------------- 1998 1997 1996 ---- ---- ---- REVENUES: Operating leases $ 23,772 $ 23,336 $ 22,770 Financing leases 353 451 612 Interest and other 1,260 932 1,050 Equity in income of unconsolidated joint venture 210 108 -- -------- -------- -------- 25,595 24,827 24,432 -------- -------- -------- OPERATING EXPENSES: Property expenses 7,696 7,024 8,780 Interest 2,522 3,350 4,867 Depreciation and amortization 4,747 4,132 5,132 General and administrative expenses 2,077 1,550 1,545 Directors' fees and expenses 210 182 178 -------- -------- -------- 17,252 16,238 20,502 -------- -------- -------- OPERATING INCOME BEFORE MINORITY INTERESTS 8,343 8,589 3,930 MINORITY INTEREST IN RESULTS OF CONSOLIDATED JOINT VENTURE (167) -- -- -------- -------- -------- OPERATING INCOME 8,176 8,589 3,930 GAINS ON SALES OF PROPERTIES -- -- 6,341 -------- -------- -------- NET INCOME 8,176 8,589 10,271 Preferred Stock Dividends 2,561 -- -- -------- -------- -------- NET INCOME APPLICABLE TO COMMON AND CLASS A COMMON STOCKHOLDERS $ 5,615 $ 8,589 $ 10,271 ======== ======== ======== BASIC EARNINGS PER SHARE: Common $ .52 $ .80 $ .91 ======== ======== ======== Class A Common $ .57 $ .87 $ 1.00 ======== ======== ======== WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING: Common 5,125 5,115 5,365 ======== ======== ======== Class A Common 5,121 5,115 5,365 ======== ======== ======== DILUTED EARNINGS PER SHARE: Common $ .52 $ .79 $ .90 ======== ======== ======== Class A Common $ .57 $ .86 $ .99 ======== ======== ======== WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING: Common and Common Equivalent 5,283 5,194 5,441 ======== ======== ======== Class A Common and Class A Common Equivalent 5,279 5,194 5,441 ======== ======== ========
The accompanying notes to consolidated financial statements are an integral part of these statements. 22 URSTADT BIDDLE PROPERTIES INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands)
Year Ended October 31, --------------------------------------------- 1998 1997 1996 ---- ---- ---- OPERATING ACTIVITIES: Net income $ 8,176 $ 8,589 $ 10,271 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 4,747 4,132 5,132 Compensation recognized relating to restricted stock 331 111 -- Recovery of investment in properties owned subject to financing leases 1,115 1,021 954 Equity in income of unconsolidated joint venture (210) (108) -- Gains on sales of properties -- -- (6,341) Decrease (increase) in interest and rent receivable 204 146 (104) Increase (decrease) in accounts payable and accrued expenses (380) 909 (206) (Increase) decrease in other assets and other liabilities, net (82) (45) 95 -------- -------- -------- NET CASH PROVIDED BY OPERATING ACTIVITIES 13,901 14,755 9,801 -------- -------- -------- INVESTING ACTIVITIES: Acquisitions of properties (29,592) (3,226) (880) Improvements to properties and deferred charges (2,196) (3,951) (5,617) Net proceeds from sales of properties -- -- 17,988 Investment in unconsolidated joint venture (340) (384) -- Payments received on mortgage notes receivable 998 101 231 -------- -------- -------- NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (31,130) (7,460) 11,722 -------- -------- -------- FINANCING ACTIVITIES: Proceeds from sale of preferred stock 33,462 -- -- Proceeds from bank loans 19,500 -- 5,250 Proceeds from mortgage notes 13,528 5,000 6,000 Payments on mortgage notes payable and bank loan (37,815) (6,111) (31,164) Dividends paid - Common and Class A Common shares (6,784) (6,451) (6,538) Dividends paid - Preferred Stock (2,561) -- -- Sales of additional Common and Class A Common shares 351 385 282 Purchases of Common and Class A Common shares (474) (15) (631) -------- -------- -------- NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 19,207 (7,192) (26,801) -------- -------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,978 103 (5,278) CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 1,922 1,819 7,097 -------- -------- -------- CASH AND CASH EQUIVALENTS AT END OF YEAR $ 3,900 $ 1,922 $ 1,819 ======== ======== ========
The accompanying notes to consolidated financial statements are an integral part of these statements. 23 URSTADT BIDDLE PROPERTIES INC.. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (In thousands, except shares and per share data)
Unamortized Common Stock Class A Common Stock Restricted ------------ -------------------- (Cumulative Stock Outstanding Outstanding Additional Treasury Distributions Compensation Number of Par Number of Par Paid In Shares at In Excess of and Notes Shares Value Shares Value Capital Cost Net Income) Receivable Total BALANCES - OCTOBER 31, 1995 5,367,226 $ 53 $ -- $ -- $123,791 $ (2,861) $ (34,401) $ -- $ 86,582 Net Income -- -- -- -- -- -- 10,271 -- 10,271 Cash dividends paid ($1.22 per share) -- -- -- -- -- -- (6,538) -- (6,538) Sale of additional common shares under dividend reinvestment plan 19,555 -- -- -- 282 -- -- -- 282 Purchases of shares (40,700) -- -- -- -- (631) -- -- (631) --------- ---- --------- ------ -------- -------- ---------- -------- --------- BALANCES - OCTOBER 31, 1996 5,346,081 53 -- -- 124,073 (3,492) (30,668) -- 89,966 Net Income -- -- -- -- -- -- 8,589 -- 8,589 Cash dividends paid ($1.26 per share) -- -- -- -- -- -- (6,451) -- (6,451) Sale of additional common shares under dividend reinvestment plan 16,621 -- -- -- 299 -- -- -- 299 Exercise of stock options 29,520 -- -- -- 353 -- -- -- 353 Common shares issued under restricted stock plan 49,000 -- -- -- 838 -- -- -- 838 Deemed purchase of common stock in connection with organization of unconsolidated joint venture (272,727) (2) -- -- (4,293) -- -- -- (4,295) Purchases of shares (1,000) -- -- -- -- (15) -- -- (15) Reduction in treasury shares -- -- -- -- (3,507) 3,507 -- -- -- Amortization of restricted stock compensation and notes from officers for purchases of common stock -- -- -- -- -- -- -- (994) (994) --------- ---- --------- ------ -------- -------- ---------- -------- --------- BALANCES - OCTOBER 31, 1997 5,167,495 51 -- -- 117,763 -- (28,530) (994) 88,290 Net Income -- -- -- -- -- -- 8,176 -- 8,176 One-for-one stock split effected in the form of a dividend of a new issue of Class A Common Stock -- -- 5,226,991 52 (52) -- -- -- -- Cash dividends paid : Common Stock ($1.13 per share) -- -- -- -- -- -- (5,848) -- (5,848) Class A Common Stock ($.19 per share) -- -- -- -- -- -- (936) -- (936) Preferred Stock ($7.32 per -- -- -- -- -- -- (2,561) -- (2,561) share) Sale of additional Common shares and Class A Common shares under dividend reinvestment plan 14,983 -- 4,359 -- 270 -- -- -- 270 Exercise of stock options 5,874 -- 5,000 -- 81 -- -- -- 81 Common shares issued under restricted stock plan - net 47,750 1 -- -- 970 -- -- (971) -- Amortization of restricted stock compensation -- -- -- -- -- -- -- 331 331 Purchases of shares (14,500) -- (42,700) -- (474) -- -- -- (474) --------- ---- --------- ------ -------- -------- ---------- -------- --------- BALANCES - OCTOBER 31, 1998 5,221,602 $ 52 5,193,650 $ 52 $118,558 -- $ (29,699) $ (1,634) $ 87,329 ========= ==== ========== ====== ======== ======== ========== ======== =========
The accompanying notes to consolidated financial statements are an integral part of these statements. 24 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION The accompanying financial statements include the accounts of Urstadt Biddle Properties Inc., (formerly HRE Properties, Inc.) a Maryland corporation, (the "Company") as successor by merger to HRE Properties, a Massachusetts business trust (the "Trust"). In 1998, the stockholders approved an amendment to the Company's articles of incorporation to change the name of the Company to Urstadt Biddle Properties Inc. In a prior year, the stockholders approved a plan of reorganization of the Trust from a Massachusetts business trust to a corporation organized in Maryland. The plan of reorganization was effected by means of a merger of the Trust into Urstadt Biddle Properties Inc. The Trust was merged with and into the Company, the separate existence of the Trust ceased, the Company was the surviving entity in the merger and each issued and outstanding common share of beneficial interest of the Trust was converted into one share of Common Stock, par value $.01 per share, of the Company. Prior to the merger, the Company had no assets or liabilities and conducted no operations other than those incident to its organization and the merger. Pursuant to the merger, all properties, assets, liabilities and obligations of the Trust became the properties, assets, liabilities and obligations of the Company. BUSINESS Urstadt Biddle Properties Inc., a real estate investment trust, is engaged in the acquisition, ownership and management of commercial real estate, primarily neighborhood and community shopping centers in the northeastern part of the United States. Other assets include office and retail buildings and industrial properties. The Company's major tenants include supermarket chains, other retailers who sell basic necessities and multi-national industrial corporations. PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of the Company, its wholly-owned subsidiaries, and joint ventures in which the Company has the ability to control the affairs of the venture. The unconsolidated joint venture is accounted for by the equity method of accounting. Under the equity method, only the Company's net investment and proportionate share of income or loss of the unconsolidated joint venture is reflected in the financial statements. All significant intercompany transactions and balances have been eliminated in consolidation. ACCOUNTING FOR LEASES The Company accounts for its leases of real property in accordance with the provisions of Financial Accounting Standards Statement No. 13, "Accounting for Leases," as amended. This Statement sets forth specific criteria for determining whether a lease should be accounted for as an operating lease or a direct financing lease. In general, the financing lease method applies where property is under long-term lease to a creditworthy tenant and the present value of the minimum required lease payments at the inception of a lease is at least 90% of the market value of the property leased. Other leases are accounted for as operating leases. FEDERAL INCOME TAXES The Company believes it qualifies and intends to continue to qualify as a real estate investment trust (REIT) under Sections 856-860 of the Internal Revenue Code (IRC). Under those sections, a REIT, among other things, that distributes at least 95% of its real estate trust taxable income will not be taxed on that portion of its taxable income which is distributed. The Company intends to distribute all of its taxable income for the fiscal years through 1998 in accordance with the provisions of Section 858 of the IRC. Accordingly, no provision has been made for Federal income taxes in the accompanying consolidated financial statements. Taxable income of the Company prior to the dividends paid deduction for the years ended October 31, 1998, 1997 and 1996 was approximately $9,900,000, $9,500,000, and $5,200,000, respectively. Taxable income in fiscal 1996 was reduced through the utilization of available capital loss carry-overs of $2,600,000. The difference between net income for financial reporting purposes and taxable income results from, among other things, differences in adjusted bases for capital gains and losses and different methods of accounting for leases, depreciable lives related to the properties owned and investments in joint ventures. DEPRECIATION AND AMORTIZATION The Company uses the straight-line method for depreciation and amortization. Properties owned and properties available for sale are depreciated over the estimated useful lives of the properties, which range from 30 to 45 years. Tenant improvements and deferred leasing costs are amortized over the life of the related leases. All other deferred charges are amortized over the terms of the agreements to which they relate. 25 PROPERTIES AVAILABLE FOR SALE A property is classified as available for sale upon determination by the Board of Directors that the property is to be marketed for sale in the normal course of business over the next several years. REAL ESTATE INVESTMENT IMPAIRMENT The Company has adopted Financial Accounting Standards Statement No. 121 "Accounting for the Impairment of Long-lived Assets to be Disposed of" (the "Statement"). The Statement establishes accounting standards for long-lived assets and certain identifiable intangibles to be disposed of. The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of the asset to future net cash flows, undiscounted and without interest, expected to be generated by the asset. If such assets are considered impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceed the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. It is the Company's policy to reclassify properties available for sale as assets to be disposed of pursuant to the statement upon determination that such properties will be sold within one year. CAPITALIZATION The Company capitalizes all external direct costs relating to the acquisition of real estate investments and costs relating to improvements to properties. The Company also capitalizes all external direct costs relating to its successful leasing activities. INCOME RECOGNITION Revenues from operating and finance leases include revenues from properties owned and properties available for sale. Rental income is generally recognized based on the terms of leases entered into with tenants. Rental income from leases with scheduled rent increases is recognized on a straight-line basis over the lease term. Additional rents which are provided for in leases, are recognized as income when earned and their amounts can be reasonably estimated. Interest income is recognized as it is earned. Gains and losses on sales of properties are recorded when the criteria for recognizing such gains or losses under generally accepted accounting principles have been met. STATEMENTS OF CASH FLOWS The Company considers short-term investments with original maturities of 90 days or less to be cash equivalents. USE OF ESTIMATES The preparation of financial statements requires management to make use of estimates and assumptions that affect amounts reported in the financial statements as well as certain disclosures. Actual results could differ from those estimates. EARNINGS PER SHARE In 1997 the Financial Accounting Standards Board issued Financial Accounting Standards No. 128 - "Earnings Per Share". Statement No. 128 replaces the presentation of primary and fully diluted earnings per share ("EPS") pursuant to Accounting Principles Board Opinion No. 25 with the presentation of basic and diluted EPS. Basic EPS excludes the impact of dilutive shares and is computed by dividing net income applicable to Common and Class A Common stockholders by the weighted number of Common shares and Class A Common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue Common shares or Class A Common shares were exercised or converted into Common shares or Class A Common shares and then shared in the earnings of the Company. Since the cash dividends declared on the Company's Class A Common stock are higher than the dividends declared on the Common Stock, basic and diluted EPS have been calculated using the "two-class" method. The two-class method is an earnings allocation formula that determines earnings per share for each class of common stock according to dividends declared and participation rights in undistributed earnings. 26 The following table sets forth the reconciliation between basic and diluted EPS (in thousands):
1998 1997 1996 ---- ---- ---- NUMERATOR Net income applicable to Common and Class A Common stockholders - basic $5,615 $8,589 $10,271 Effect of dilutive securities: Operating partnership units 167 --- --- ------ ------ ------- Net income applicable to Common and Class A Common Stockholders - diluted $5,782 $8,589 $10,271 ====== ====== ======= DENOMINATOR Denominator for basic EPS-weighted average Common shares 5,125 5,115 5,365 Effect of dilutive securities: Stock options and awards 103 79 76 Operating partnership units 55 --- --- ------ ------ ------- Denominator for diluted EPS - weighted average Common shares 5,283 5,194 5,441 ===== ===== ===== Denominator for basic EPS - weighted average Class A Common shares 5,121 5,115 5,365 Effect of dilutive securities: Stock options and awards 103 79 76 Operating partnership units 55 --- --- ------ ------ ------- Denominator for diluted EPS - weighted average Class A Common shares 5,279 5,194 5,441 ===== ===== =====
(2) REAL ESTATE INVESTMENTS The Company's investments in real estate were composed of the following at October 31, 1998 and 1997 (in thousands):
Properties Investment in Mortage Properties Available for Unconsolidated Notes 1998 1997 Owned Sale Joint Venture Receivable TOTALS Totals - ------------------------ ------------ --------------- ---------------- ------------ ------------ ----------- Retail $118,167 $6,009 $9,470 $2,607 $136,253 $111,451 Office 4,504 7,947 --- --- 12,451 10,052 Distribution --- 5,594 --- --- 5,594 6,734 Undeveloped Land 304 800 --- --- 1,104 1,104 -------- ------- ------ ------ -------- -------- $122,975 $20,350 $9,470 $2,607 $155,402 $129,341 ======== ======= ====== ====== ======== ========
The Company's investments at October 31, 1998, consisted of equity interests in 24 properties, which are located in various regions throughout the United States and mortgage notes. The following is a summary of the geographic locations of the Company's investments at October 31, 1998 and 1997 (in thousands):
1998 1997 - ------------------------------------------------------------------------------- --------------------- Northeast $124,371 $96,816 Southeast 12,771 12,593 Midwest 10,782 11,679 Southwest 7,478 8,253 -------- -------- $155,402 $129,341 ======== ========
(3) PROPERTIES OWNED The components of properties owned were as follows (in thousands):
1998 1997 - ------------------------------------------------------------------------------- --------------------- Land $24,590 $18,862 Buildings and improvements 117,325 91,329 -------- ------- 141,915 110,191 Accumulated depreciation (18,940) (15,702) -------- ------- $122,975 $94,489 ======== =======
Space at properties owned by the Company is generally leased to various individual tenants under short and intermediate term leases which are accounted for as operating leases. 27 Minimum rental payments on noncancellable operating leases become due as follows: ; 1999 - $19,364,000; 2000 - $18,197,000; 2001 - $15,607,000; 2002 - $13,488,000; 2003 - $11,431,000 and thereafter - $67,656,000. In addition to minimum rental payments, certain tenants are required to pay additional rental amounts based on increases in property operating expenses and/or their share of the costs of maintaining common areas. Certain of the Company's leases provide for the payment of additional rent based on a percentage of the tenant's revenues. Such additional percentage rents are included in rental income and aggregated approximately $422,000, $3,778,000, and $281,000, in 1998, 1997 and 1996, respectively. In fiscal 1997, the Company negotiated a settlement with one of its tenants to recover, among other things, unpaid additional percentage rents including interest totaling $3.25 million. In accordance with the terms of its lease, the tenant was required to aggregate the sales of all its stores in a specified radius when computing percentage rent due the Company. The settlement was received during fiscal 1997 and has been recorded as additional operating lease income in the 1997 consolidated statement of income. The Company is the general partner in a limited partnership which owns the Eastchester Mall, in Eastchester, New York. The limited partner is entitled to preferential distributions of cash flow from the property and after a certain period of time may put its interest to the Company for an equivalent value of Common stock and Class A Common stock of the Company, or at its option, the Company may redeem the interest for cash. The Company has the option to purchase the limited partner's interest after a certain period. The partnership agreement, among other things, restricts the sale or refinancing of the property without the limited partner's consent. The limited partner's interest in the partnership is reflected in the accompanying consolidated financial statements as minority interest. The acquisition of the interest in the property and the assumption of the first mortgage by the partnership represent noncash investing and financing activities and therefore are not included in the accompanying 1997 consolidated statement of cash flows. In fiscal 1998, the Company acquired four properties for a total cost of $29.6 million. (4) PROPERTIES AVAILABLE FOR SALE The Board of Directors has authorized a plan to sell all of the non-core properties of the Company over a period of several years. The non-core properties, which have been classified as Properties Available for Sale, consist of all of the Company's distribution and service properties and certain of its office and retail properties located outside of the Northeast region of the United States. At October 31, 1998 and 1997, properties available for sale consisted of the following (in thousands):
1998 1997 - ---------------------------------------------------------------------------- ------------------------- Properties available for sale subject to: Operating leases $15,345 $16,194 Direct financing leases 5,005 6,133 ------- ------- $20,350 $22,327 ======= =======
OPERATING LEASES The components of properties available for sale subject to operating leases were as follows (in thousands):
1998 1997 - ---------------------------------------------------------------------------- --------------------- Land $ 2,985 $ 2,985 Buildings and improvements 21,183 21,160 ------- ------- 24,168 24,145 Accumulated depreciation (8,823) (7,951) ------- ------- $15,345 $16,194 ======= =======
28 DIRECT FINANCING LEASES The components of properties available for sale subject to direct financing leases were as follows (in thousands):
1998 1997 - ------------------------------------------------------------------------------------ -------------------- Total minimum lease payments to be received $3,233 $4,714 Assumed residual values of leased property 2,107 2,107 Unearned income (335) (688) ------- ------- Investment in property subject to direct financing leases $5,005 $6,133 ======= ======= Original cost of property subject to direct financing leases $16,276 $16,276 ======= =======
Assumed residual values are based upon a depreciated cost concept using estimated useful lives and thus do not contain an element of appreciation which may result by reason of inflation or other factors. Minimum lease payments receivable on direct financing leases become due as follows: $1,468,000 in 1999, $1,299,000 in 2000 and $466,000 in 2001. SALES OF PROPERTIES In fiscal 1996, the Company sold three properties for a net gain on sales of properties of $6,341,000. (5) INVESTMENT IN UNCONSOLIDATED JOINT VENTURE The Company is the sole general partner in Countryside Square Limited Partnership, (the "Partnership")which owns the Countryside Square Shopping Center in Clearwater, Florida. The Company contributed the shopping center at its net carrying amount, and the limited partners contributed 600,000 Common shares of the Company. The partnership agreement provides for the limited partners to receive an annual cash preference from available cash of the Partnership, as defined. Upon liquidation, proceeds from the sale of the partnership assets are to be distributed to the partners in accordance with the terms of the partnership agreement. The property may be sold at any time after the third year of operation and the Company has a right of first refusal on the sale of the property. The partners are not obligated to make any additional capital contributions. The Company has accounted for its proportionate interest in the Common shares of the Company owned by the Partnership as a deemed purchase of Common shares and, accordingly, has reduced its investment in unconsolidated joint venture and stockholders' equity by $4,295,000. The Company's equity in earnings of the Partnership is reflected after eliminating its proportionate share of dividend income in the Common shares of the Company recorded by the Partnership. The contribution of the property into the Partnership and the deemed purchase of Common shares represent noncash investing and financing activities and therefore are not included in the 1997 consolidated statement of cash flows. (6) MORTGAGE NOTES RECEIVABLE Mortgage notes receivable consist of fixed rate mortgages. The components of the mortgage notes receivable at October 31, 1998 and 1997 were as follows (in thousands):
1998 1997 - ------------------------------------------------------------------------------------------ ----------- Remaining principal balance $3,206 $4,532 Unamortized discounts to reflect market interest rates at time of acceptance of notes (599) (927) ------ ------ $2,607 $3,605 ====== ======
At October 31, 1998, principal payments on mortgage notes receivable become due as follows: 1999 - $148,000; 2000 - $162,000; 2001 - $111,000; 2002 - $100,000; 2003 - $109,000; thereafter - $ 2,576,000. At October 31, 1998, the remaining principal balance consists of mortgage notes from two borrowers. The amount due from the largest individual borrower was $2,150,000. The contractual interest rate on mortgage notes receivable is 9%. 29 (7) MORTGAGE NOTES PAYABLE AND LINES OF CREDIT At October 31, 1998, the Company has four nonrecourse mortgage notes payable totaling $13,503,000 ($43,687,000 at October 31, 1997) due in installments over various terms extending to the year 2007 and which bear interest at rates ranging from 7.56% to 9.75%. The mortgage notes payable are collateralized by real estate investments having a net carrying value of $19.2 million as of October 31, 1998. Scheduled principal payments during the next five years are as follows: 1999 - $301,000; 2000 - $315,000; 2001 - $6,336,000; 2002 - $1,950,000; 2003 - $100,000 and thereafter-- $4,501,000. The Company also has a $20 million secured revolving credit loan agreement (the "Agreement") with a bank. The Agreement which expires in October 2005 is secured by first mortgage liens on two properties. Interest on outstanding borrowings are at the prime + 1/2% or LIBOR + 1.5%. However, the Company can elect a fixed rate option at any time prior to the last year of the Agreement. The Agreement requires the Company to maintain certain debt service coverage ratios during the term of the agreement and provides for a permanent reduction in the revolving credit loan amount of $625,000 annually, commencing in 2001. At October 31, 1998, the Company had drawn $19,397,000 under the Agreement. Outstanding borrowings are included in mortgage notes payable in the accompanying consolidated balance sheet. The Company also has available $25 million in unsecured lines of credit. Extensions of credit under one of the lines of credit in the amount of $10 million is subject to the bank's satisfaction of certain conditions, including the intended use of proceeds. The lines of credit expire in fiscal 1999 and bear interest at a maximum prime rate + 1% or LIBOR + 2.5%. One of the credit lines contains restrictive covenants, the most restrictive of which requires the Company to maintain certain uncollateralized assets, limits the payment of dividends and amount of recourse debt. At October 31, 1998, the Company had $6,000,000 in outstanding borrowings under its unsecured lines of credit (none in 1997). Interest paid for the years ended October 31, 1998, 1997, and 1996 was $2,397,000, $3,350,000, and $4,945,000 respectively. (8) PREFERRED STOCK In January 1998, the Company completed a private placement of 350,000 shares of 8.99% Series B Senior Cumulative Preferred Stock, par value $.01 per share, with a liquidation preference of $100 per share ("Series B Preferred Stock"). Holders of the Series B Preferred Stock are entitled to receive cumulative preferential cash dividends equal to 8.99% per annum, payable quarterly in arrears and subject to adjustment under certain circumstances. The Series B Preferred Stock has no stated maturity, will not be subject to any sinking fund or mandatory redemption and will not be convertible into other securities or property of the Company. On or after January 8, 2008, the Series B Preferred Stock may be redeemed by the Company at its option, in whole or in part, at a redemption price of $100 per share, plus all accrued dividends. Upon a Change in Control of the Company (as defined), (i) each holder of Series B Preferred Stock shall have the right, at such holder's option, to require the Company to repurchase all or any part of such holder's Series B Preferred Stock for cash at a repurchase price of $100 per share, plus all accrued and unpaid dividends, and (ii) the Company shall have the right, at the Company's option, to redeem all or any part of the Series B Preferred Stock at (a) prior to January 8, 2008, the Make-Whole Price (as defined) and (b) on or subsequent to January 8, 2008, the redemption price of $100 per share, plus all accrued and unpaid dividends. The Series B Preferred Stock also contains covenants which require the Company to maintain certain financial coverages relating to fixed charge and capitalization ratios. Shares of the Series B Preferred Stock are non-voting; however, under certain circumstances (relating to non-payment of dividends or failure to comply with the financial covenants) the preferred stockholders will be entitled to elect two directors. 30 (9) STOCKHOLDERS' EQUITY The Company's articles of incorporation provide that if, any person acquires more than 7.5% of the outstanding shares of any class of stock, except, among other reasons, as approved by the Board of Directors, such shares in excess of this limit shall automatically be exchanged for an equal number of shares of Excess Stock. Excess Stock have limited rights, may not be voted and are not entitled to any dividends. On June 16, 1998, the Board of Directors declared a special stock dividend on the Company's Common Stock consisting of one share of a newly created class of Class A Common Stock, par value $.01 per share for each share of the Company's Common Stock. The Class A Common Stock entitles the holder to 1/20 of one vote per share. Each share of Common Stock and Class A Common Stock have identical rights with respect to dividends except that each share of Class A Common Stock will receive not less than 110% of the regular quarterly dividends paid on each share of Common Stock. The stock dividend was paid on August 14, 1998. An amount equal to the par value of the Class A Common shares issued was transferred from additional paid in capital to Class A Common Stock. All references to the number of common shares, except authorized shares, and per share amounts elsewhere in the consolidated financial statements have been adjusted to reflect the effect of the stock dividend for all periods presented. The Board of Directors adopted a new Shareholders Rights Plan in 1998 and declared a dividend distribution of one purchase right for each outstanding original share of Common stock and Class A Common stock (collectively the "Common Shares"). The rights, which expire on November 12, 2008, are not currently exercisable. When they are exercisable, the holder will be entitled to purchase from the Company one one-hundredth of a share of a newly-established Series A Participating Preferred Stock at a price of $65 per one one-hundredth of a preferred share, subject to certain adjustments. The distribution date for the rights will occur 10 days after a person or group either acquires or obtains the right to acquire 10% ("Acquiring Person") or more of the combined voting power of the Company's Common Shares, or announces an offer the consummation of which would result in such person or group owning 30% or more of the then outstanding Common Shares. Thereafter, shareholders other than the Acquiring Person will be entitled to purchase original common shares of the Company having a value equal to two times the exercise price of the right. If the Company is involved in a merger or other business combination at any time after the rights become exercisable ( and the Company is not the surviving corporation or 50% or more of the Company assets are sold or transferred), the rights agreement provides that the holder other than the Acquiring Person will be entitled to purchase a number of shares of common stock of the acquiring company having a value equal to two times the exercise price of each right. The Company adopted a Restricted Stock Plan (Plan) in 1997 which provides for the grant of restricted stock awards to key employees of the Company. The Plan allows for restricted stock awards of up to an aggregate of 250,000 Class A Common shares or Common shares. During 1998, the Company awarded 51,250 Common shares (49,000 Common Shares in 1997) to participants in the Plan as an incentive for future services. The shares vest after five years. Dividends on vested and non-vested shares are paid as declared. The market value of shares awarded has been recorded as unamortized restricted stock compensation and is shown as a separate component of stockholder's equity. Unamortized restricted stock compensation is being amortized to expense over the five year vesting period. For the years ended October 31, 1998 and 1997 $331,000 and $157,000, respectively was charged to expense. In fiscal 1996, the Company's Board of Directors authorized a program to purchase up to one million of the Company's Class 4 Common shares and Common shares periodically. As of October 31, 1998, the Company has purchased and retired 56,200 Common shares and 42,700 Class A Common shares under this program. (10) STOCK OPTION PLAN The Company has a stock option plan under which 418,271 each of Common shares and Class A Common shares are reserved for issuance to key employees and non-employee Directors of the Company. Options are granted at fair market value on the date of the grant, have a duration of ten years from the date of grant and are generally exercisable in installments over a maximum period of four years from the date of grant. 31 A summary of stock option transactions during the periods covered by these financial statements is as follows:
YEAR ENDED OCTOBER, 31 1998 1997 1996 - ---------------------- ------------------------- ----------------------------- ---------------------- COMMON WEIGHTED COMMON WEIGHTED COMMON WEIGHTED AND AVERAGE AND AVERAGE AND AVERAGE CLASS A EXERCISE CLASS A EXERCISE CLASS A EXERCISE SHARES PRICES SHARES PRICES SHARES PRICES (Each) (Each) (Each) (Each) (Each) (Each) ------ ------ ------ ------ ------ ------ Balance at beginning of period 416,562 $6.98 440,082 $7.18 376,248 $7.25 Granted 7,000 $9.09 6,000 $8.40 90,500 $7.35 Exercised (5,874) $6.95 (29,520) $5.98 --- --- Canceled/Forfeited (6,938) $8.92 --- --- (26,666) $8.76 ------- ----- ------- ----- ------- ----- Balance at end of period 410,750 $7.09 416,562 $6.98 440,082 $7.18 Exercisable 347,375 298,000 285,330 Weighted average combined fair value of options granted during the year $2.32 $2.39 $2.01
In connection with the Class A Common stock dividend each outstanding incentive stock option to purchase Common Stock was modified to permit the optionee to purchase an equal number of Class A Common Stock. Each outstanding non-qualified stock option was modified to permit the optionee to purchase a number of shares of either Common Stock, Class A Common Stock or a combination of both based on the fair market values of the respective shares determined at the stock dividend distribution date. At October 31, 1998, the exercise price of shares under option ranged from $5.67 to $12.79, with a weighted average price of $7.09. Expiration dates range from November 1998, through April 2008 and the weighted average remaining contractual life of these options is 4.8 years. The fair value for these options was estimated as of the date of grant using a Black-Scholes option pricing model with the following weighted average assumptions for the years ended October 31, 1998, 1997 and 1996:
Year ended October 31, ---------------------- 1998 1997 1996 ---- ---- ---- Risk-free interest rate 5.88% 7.09% 7.15% Expected Dividend yield 7.1% 7.6% 7.5% Expected Volatility 24.3% 26.5% 25.7% Weighted average option life 10 YEARS 10 Years 10 Years
The Black-Scholes option pricing model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions, including the expected stock volatility. Because the Company's stock option plan has characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of the above stock option plan. Stock appreciation rights may be issued in tandem with the stock options, in which case, either the option or the right can be exercised. Such rights entitle the grantee to payment in cash or a combination of common shares and cash equal to the increase in the value of the shares covered by the option to which the stock appreciation right is related. The plan limits the value of the stock appreciation rights to 150% of the option price for the related shares. The excess of the market price of the shares over the exercise price of vested options is charged to expense. For the years ended October 31, 1998, 1997 and 1996, there were no amounts charged to expense. The Company has adopted the disclosure-only provisions of Statement of Financial Accounting Standards No. 123, "Accounting for Stock Based Compensation" ("SFAS 123"). Accordingly, no compensation expense has been recognized for the options described above. Had compensation cost for these options been determined based on the fair value on the grant date consistent with the provisions of SFAS 123, the effect on the Company's net income and earnings per share for the years ended October 31, 1998, 1997 and 1996 would have been immaterial. Certain officers have exercised stock options and provided notes to the Company. The notes, in the amount of $267,000 are full recourse promissory notes bearing interest at the prime rate +1/2% and are collateralized by the stock issued upon exercise of the stock options. Interest is payable semi-annually and the principal is due in 2002. 32 Such notes are shown in Stockholders Equity in the accompanying balance sheet as notes receivable from officers/stockholders. (11) DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS The following disclosures of estimated fair value were determined by management using available market information and appropriate valuation methodologies. Considerable judgement is necessary to interpret market data and develop estimated fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts the Company could realize on disposition of the financial instruments. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts. Cash and cash equivalents, rents and interest receivable, accounts payable, accrued expenses, other liabilities and certain borrowings except as noted below are carried at amounts which reasonably approximate their fair values. The estimated fair value of mortgage notes receivable collateralized by real property is based on discounting the future cash flows at a year-end risk adjusted lending rate that the Company would utilize for loans of similar risk and duration. At October 31, 1998 and 1997, the estimated aggregate fair value of the mortgage notes receivable was $2,312,000 and $3,400,000 respectively. Mortgage notes payable with aggregate carrying values of $13,503,000 and $43,687,000 have estimated aggregate fair values of $13,055,000 and $42,300,000 at October 31, 1998 and 1997 respectively. Estimated fair value is based on discounting the future cash flows at a year-end risk adjusted lending rate currently available to the Company for issuance of debt with similar terms and remaining maturities. Although management is not aware of any factors that would significantly affect the estimated fair value amounts, such amounts have not been comprehensively revalued for purposes of these financial statements and current estimates of fair value may differ significantly from the amounts presented herein. (12) QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) The unaudited quarterly results of operations for the years ended October 31, 1998 and 1997 are as follows (in thousands, except per share data):
YEAR ENDED OCTOBER 31, 1998 YEAR ENDED OCTOBER 31, 1997 --------------------------- --------------------------- QUARTER ENDED QUARTER ENDED ------------- ------------- JAN 31 APR 30 JULY 31 OCT 31 JAN 31 APR 30 JULY 31 OCT 31 ------ ------ ------- ------ ------ ------ ------- ------ Revenues (1) $5,869 $6,450 $6,189 $7,087 $8,556 $5,165 $5,805 $5,301 ====== ====== ====== ====== ====== ====== ====== ====== Net Income $1,249 $2,509 $2,099 $2,319 $4,364 $1,180 $1,821 $1,224 Preferred Stock Dividends 210 778 787 786 - - - - ------ ------ ------ ------ ------ ------ ------ ------ Net Income Applicable to Common Stockholders (1) $1,039 $1,731 $1,312 $1,533 $4,364 $1,180 $1,821 $1,224 ====== ====== ====== ====== ====== ====== ====== ====== BASIC EARNINGS PER SHARE: Common $.10 $.16 $.12 $.14 $.41 $.11 $.17 $.11 Class A Common $.10 $.18 $.13 $.16 $.45 $.12 $.18 $.12 DILUTED EARNINGS PER SHARE: Common $.10 $.16 $.12 $.14 $.40 $.11 $.17 $.11 Class A Common $.10 $.18 $.13 $.16 $.44 $.12 $.18 $.12
(1) Quarter ended January 31, 1997 results include a one-time amount of $3.25 million received in settlement of unpaid percentage rents from a tenant (see Note 3). (13) SUBSEQUENT EVENTS On December 11, 1998 the Company sold 162,500 Class A Common shares in a private placement with certain individual investors for net proceeds of $1.3 million. 33 On December 11, 1998 the Company acquired the general partner interest in a limited partnership which owns the Arcadian Shopping Center in Briarcliff, New York. The limited partners contributed the property subject to a $6.3 million first mortgage and are entitled to preferential distributions of cash flow from the property. The limited partners have a right to exchange a portion of their interests for cash and may after a specified period of time put the remainder of their limited partnership interests to the Company for either cash or units of Class A Common stock of the Company. The Company has the option to purchase the limited partners interests after a specified period for cash. The partnership agreement, among other things, places certain restrictions on the sale or refinancing of the property without the limited partners' consent. On December 21, 1998, the Company obtained a commitment from an insurance company for a $15 million non recourse first mortgage loan secured by one of its retail properties having a net book value of $21.4 million at October 31, 1998. The mortgage loan will have a term of 10 years and bear interest at a fixed rate of 7.375%. 34 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Stockholders of Urstadt Biddle Properties Inc.: We have audited the accompanying consolidated balance sheets of Urstadt Biddle Properties Inc. (formerly HRE Properties, Inc.) and subsidiaries (the "Company") as of October 31, 1998 and 1997, and the related consolidated statements of income, cash flows and stockholders' equity for each of the three years in the period ended October 31, 1998. These financial statements and schedules referred to below are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and schedules based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Urstadt Biddle Properties Inc. and subsidiary as of October 31, 1998 and 1997, and the results of their operations and their cash flows for each of the three years in the period ended October 31, 1998 in conformity with generally accepted accounting principles. Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedules listed in the accompanying index to financial statements are presented for purposes of complying with the Securities and Exchange Commission's rules and are not a required part of the basic financial statements. These schedules have been subjected to the auditing procedures applied in our audits of the basic financial statements and in our opinion, are fairly stated in all material respects in relation to the basic financial statements taken as a whole. ARTHUR ANDERSEN LLP New York, New York December 21, 1998 35
HRE PROPERTIES, INC. OCTOBER 31 1998 SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION (In thousands) - ------------------------------------------------------------------------------------------------------------------------------------ COL. A COL. B COL. C COL. D COL. E COL. F - ------------------------------------------------------------------------------------------------------------------------------------ Initial Cost to Company Cost Capitalized Subsequent Amount at which Carried at Close of Period ----------------------- to Aquisition ------------------------------------------ ------------- Accumulated Depreciation and Building & Carrying Building & Building & Depreciation Location Encumbrances Land Improvements Costs Improvements Land Improvements TOTAL (Note (b)) ---- - ------------------------------------------------------------------------------------------------------------------------------------ REAL ESTATE SUBJECT TO OPERATING LEASES (NOTE (A)): OFFICE BUILDINGS: Greenwich, CT $0 $199 $795 $0 $64 $199 $859 $1,058 $136 Greenwich, CT 0 111 444 0 21 111 465 $576 67 Greenwich, CT 0 570 2,359 0 180 570 2,539 $3,109 37 Southfield, MI 0 1,000 10,280 0 2,068 1,000 12,348 $13,348 5,400 - ----- ------ - ----- ----- ------ ------- ----- 0 1,880 13,878 0 2,333 1,880 16,211 18,091 5,640 - ----- ------ - ----- ----- ------ ------ ----- SHOPPING CENTERS: Springfield, MA 0 1,372 3,656 0 14,351 1,372 18,007 $19,379 6,725 Farmingdale, NY 2,275 1,027 4,174 0 228 1,027 4,402 $5,429 769 Somers, NY 1,955 821 2,600 0 2 821 2,602 $3,423 435 Wayne, NJ * 2,492 9,966 0 402 2,492 10,368 $12,860 1,636 Eastchester, NY 4,932 1,500 6,128 0 0 1,500 6,128 $7,628 153 Jonesboro, GA 0 0 2,430 0 0 0 2,430 $2,430 56 Meriden, CT 0 5,000 20,309 0 553 5,000 20,862 $25,862 3,321 Danbury, CT * 3,850 15,811 0 1,031 3,850 16,842 $20,692 1,792 Tempe, AZ 0 114 766 0 0 114 766 $880 53 Carmel, NY 0 1,763 5,973 0 289 1,763 6,262 $8,025 505 Ridgefield, CT 0 900 3,793 0 121 900 3,914 $4,814 32 Darien, CT 0 4,260 17,192 0 13 4,260 17,205 $21,465 72 - ----- ------ - -- ----- ------ ------- -- 9,162 23,099 92,798 0 16,990 23,099 109,788 132,887 15,549 ----- ------ ------ - ------ ------ ------- ------- ------ DEPARTMENT STORES: Tempe, AZ 0 378 1,518 0 970 378 2,488 $2,866 1,521 Mesa, AZ 0 440 1,631 0 989 440 2,620 $3,060 1,599 - --- ----- - --- --- ----- ------ ----- 0 818 3,149 0 1,959 818 5,108 5,926 3,120 - --- ----- - ----- --- ----- ----- ----- INDUSTRIAL SERVICE CENTER: Syracuse, NY 0 253 530 0 0 253 530 $783 194 - --- --- - - --- --- ---- --- 0 253 530 0 0 253 530 783 194 - --- --- - - --- --- --- --- MIXED USE FACILITY: RETAIL/OFFICE: Newington, NH 4,341 421 1,997 0 4,876 421 6,873 $7,294 3,260 ----- --- ----- - ----- --- ----- ------ ----- 4,341 421 1,997 0 4,876 421 6,873 7,292 3,260 ----- --- ----- - ----- --- ----- ----- ----- LAND: Newington, NH 0 305 0 0 0 305 0 $305 0 Denver, CO 0 799 0 0 0 799 0 $799 0 - --- - - - --- - 0 1,104 0 0 0 1,104 0 1,104 0 - ----- - - - ----- - ----- - $13,503 $27,575 $112,352 $0 $26,158 $27,575 $138,510 $166,083 $27,763 ======= ======= ======== == ======= ======= ======== ======== ======= HRE PROPERTIES, INC. OCTOBER 31 1998 SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION (In thousands) ----------------------------------- COL. G/H COL. I ----------------------------------- Life on which depreciation for building and Date improvements in latest Constructed income statement is Acquired computed (Note (d)) ----------------------------------- REAL ESTATE SUBJECT TO OPERATING LEASES (NOTE (A)): OFFICE BUILDINGS: Greenwich, CT 1993 31.5 Greenwich, CT 1994 31.5 Greenwich, CT 1998 31.5 Southfield, MI 1983 35 SHOPPING CENTERS: Springfield, MA 1970 40 Farmingdale, NY 1993 31.5 Somers, NY 1992 31 Wayne, NJ 1992 31 Eastchester, NY 1997 31 Jonesboro, GA 1997 31 Meriden, CT 1993 31.5 Danbury, CT 1994 31.5 Tempe, AZ 1996 40 Carmel, NY 1995 31.5 Ridgefield, CT 1998 40 Darien, CT 1998 40 DEPARTMENT STORES: Tempe, AZ 1970 40 Mesa, AZ 1971 40 INDUSTRIAL SERVICE CENTER: Syracuse, NY 1973 40 MIXED USE FACILITY: RETAIL/OF Newington, NH 1979 40 LAND: Newington, NH 1981 Denver, CO 1988
36
- -------------------------------------------------------------------------------------------------------- COL. A COL. B COL. C COL. D - -------------------------------------------------------------------------------------------------------- ........................................ ......................... Description and Building & Carrying Building & Location Encumbrances Land Improvements Costs Improvements - -------------------------------------------------------------------------------------------------------- REAL ESTATE SUBJECT TO FINANCING LEASES (NOTE (C)): INDUSTRIAL DISTRIBUTION CENTERS: (Leased to Chrysler Corporation) St. Louis, MO $0 $523 $2,253 $0 $2,363 Dallas, TX 0 193 2,266 0 4,195 Deferred Lease Renewal Rights 0 0 0 0 0 - - - - - 0 716 4,519 0 6,558 - --- ----- - ----- INDUSTRIAL DISTRIBUTION CENTER: (Leased to Firestone Tire and Rubber Company) Albany, GA 0 835 3,343 0 0 - --- ----- - - 0 835 3,343 0 0 - --- ----- - - TOTAL REAL ESTATE SUBJECT TO FINANCING LEASES (Note (c)): 0 $1,551 $7,862 0 $7,862 = ====== ====== = ====== ----------------------------------------------------------------------------- COL. E COL. F COL. G/H ----------------------------------------------------------------------------- ......................................... Net Investment Remaining in Properties Date Minimum Lease Residual Unearned Subject to Constructed Payments Value Income Financing Leases or Acquired ------------------------------------------------------------------------ REAL ESTATE SUBJECT TO FINANCING LEASES (NOTE (C)): INDUSTRIAL DISTRIBUTION CENTERS: (Leased to Chrysler Corporation) St. Louis, MO $839 $1,166 $ (104) $1,901 1970 Dallas, TX 1,189 841 (121) 1,909 1970 Deferred Lease Renewal Rights 269 0 0 269 1981 --- - - --- 2,297 2,007 (225) 4,079 ----- ----- ----- INDUSTRIAL DISTRIBUTION CENTER: (Leased to Firestone Tire and Rubber Company) Albany, GA 936 100 (110) 926 1972 --- --- --- 936 100 (110) 926 --- --- --- TOTAL REAL ESTATE SUBJECT TO FINANCING LEASES (Note (c)): $3,233 $2,107 ($335) $5,005 ====== ====== ====== ======
37 URSTADT BIDDLE PROPERTIES INC. OCTOBER 31, 1998 SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION - CONTINUED (In thousands) - --------------------------------------------------------------------------------
NOTES: 1998 1997 1996 ---- ---- ---- (A) RECONCILIATION OF REAL ESTATE OWNED SUBJECT TO OPERATING LEASES Balance at beginning of year $134,336 140,648 $154,005 Property improvements during the year 2,155 2,673 5,263 Property acquired during the year 29,592 10,057 880 Property contributed to unconsolidated joint venture --- (19,042) --- Property sold during the year --- --- (19,500) -------- -------- -------- Balance at end of year $166,083 $134,336 $140,648 ======== ======== ======== (B) RECONCILIATION OF ACCUMULATED DEPRECIATION Balance at beginning of year $23,653 $26,536 $29,935 Provision during the year charged to income 4,110 3,555 4,454 Property contributed to unconsolidated joint venture --- (6,438) --- Property sold during the year --- --- (7,853) -------- -------- -------- Balance at end of year $27,763 $23,653 $26,536 ======== ======== ======== (C) RECONCILIATION OF REAL ESTATE OWNED SUBJECT TO FINANCING LEASES Balance at beginning of year $6,133 $7,154 $8,108 Recovery of investment in properties owned subject to financing leases and amortization of deferred renewal rights (1,128) (1,021) (954) -------- -------- -------- Balance at end of year $5,005 $6,133 $7,154 ======== ======== ========
(d) Tenant improvement costs are depreciated over the life of the related leases, which range from 3 to 25 years. (e) The difference between the initial costs to the Company and costs capitalized subsequent to acquisition and the amount at which carried at close of period represents accumulated depreciation for the period prior to classification of these assets as financing leases and accumulated recoveries for the period thereafter. (f) The aggregate cost basis for Federal income tax purposes at October 31, 1998 is $178,582,000. 38 URSTADT BIDDLE PROPERTIES INC OCTOBER 31 1998 SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE (In thousands)
- ---------------------------------------------------------------------------------------------------------------- COL. A COL. B COL. C COL. D - ---------------------------------------------------------------------------------------------------------------- Interest Rate Final Maturity ------------- Description Coupon Effective Date Periodic Payment Terms - ---------------------------------------------------------------------------------------------------------------- I. FIRST MORTGAGE LOANS ON BUSINESS PROPERTIES (NOTES (C) AND (D)): - -------------------------------------------------------------------- Retail Store: Erie, PA 9% 14% 1-Jul-13 Payable in monthly installments of $10,787. Retail Store: Riverside, CA 9% 12% 15-Jan-13 Payable in quarterly installments of $54,313. Total First Mortgage Loans II. SECOND MORTGAGE LOAN ON BUSINESS PROPERTY (NOTES (C) AND (D)): - ------------------------------------------------------------------ Retail Store: Riverside, CA 9% 12% 15-Jan-01 Payable in quarterly installments of $21,135 TOTAL MORTGAGE LOANS ON REAL ESTATE - ------------------------------------------------------------------------------- COL. E COL. F - ------------------------------------------------------------------------------- Remaining Face Amount of Carrying Amount Mortgages (Note (b)of Mortgage (Note (a)) (In Thousands) (In Thousands) - ------------------------------------------------------------------------------- I. FIRST MORTGAGE LOANS ON BUSINESS PROPERTIES (NOTES (C) AND (D)): - -------------------------------------------------------------------- Retail Store: Erie, PA $1,057 $ 807 Retail Store: Riverside, CA $1,980 $1,636 ------ ------ Total First Mortgage Loans $3,037 $2,443 II. SECOND MORTGAGE LOAN ON BUSINESS PROPERTY (NOTES (C) AND (D)): - ------------------------------------------------------------------ Retail Store: Riverside, CA $ 170 $ 164 TOTAL MORTGAGE LOANS ON REAL ESTATE $3,207 $2,607 ====== ======
39 URSTADT BIDDLE PROPERTIES INC OCTOBER 31 1998 SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE (Continued) (In thousands)
NOTES TO SCHEDULE IV Year Ended October 31 --------------------- Reconciliation of Mortgage Loans on Real Estate 1998 1997 1996 ---- ---- ---- (A) BALANCE AT BEGINNING OF PERIOD: $3,605 $3,706 $3,937 Deductions during current period: Prepayment of Mortgage Loan (893) ___ (143) Collections of principal and amortization of discounts (105) (101) (88) ------ ------ ------ Balance at close of period: $2,607 $3,605 $3,706 ====== ====== ====== (b) The aggregate cost basis for Federal income tax purposes is equal to the face amount of the mortgages (c) At October 31, 1998 no mortgage loans were delinquent in payment of currently due principal or interest. (d) There are no prior liens for any of the Mortgage Loans on Real Estate. (e) The first mortgage loan on this property is held by the Company.
40 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. URSTADT BIDDLE PROPERTIES INC. By:/s/ Charles J. Urstadt --------------------------------- Charles J. Urstadt Chairman and Chief Executive Officer Dated: January 28, 1999 41 Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated. /s/Charles J. Urstadt January 28, 1999 - --------------------------------- Charles J. Urstadt Chairman and Director (Principal Executive Officer) /s/ Willing L. Biddle January 28, 1999 - --------------------------------- Willing L. Biddle President and Director /s/ James R. Moore January 28, 1999 - --------------------------------- James R. Moore Executive Vice President - Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) /s/ E. Virgil Conway January 28, 1999 - --------------------------------- E. Virgil Conway Director /s/ Robert R. Douglass January 28, 1999 - --------------------------------- Robert R. Douglass Director /s/ Peter Herrick January 28, 1999 - --------------------------------- Peter Herrick Director /s/ George H. C. Lawrence January 28, 1999 - --------------------------------- George H. C. Lawrence Director /s/ Paul D. Paganucci January 28, 1999 - --------------------------------- Paul D. Paganucci Director /s/ Charles D. Urstadt January 28, 1999 - --------------------------------- Charles D. Urstadt Director /s/ James O. York January 28, 1999 - --------------------------------- James O. York Director 42 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our report dated Decmber 21, 1998 included in this Annual Report on Form 10-K for the year ended October 31, 1998 of Urstadt Biddle Properties Inc. (formerly HRE Properties) into its previously filed Registration Statements on Form S-3 (No.33-57119), Form S-4 (No. 333-19113) and Form S-8 (No.2-93146 and No. 33-41408), and to the reference to our Firm under the caption "Experts" in said Registration Statements. ARTHUR ANDERSEN LLP New York, New York January 25, 1999 43 EX-10.6.2 2 EXHIBIT 10.6.2 [Form of Supplemental Agreement with Stock Option Plan Participants (non-ISO)] [Letterhead of Urstadt Biddle Properties Inc.] THIS DOCUMENT CONSTITUTES PART OF A PROSPECTUS COVERING SECURITIES THAT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. [ ], 1998 [Name and Address of Plan Participant] Dear : Reference is hereby made to (i) the Stock Option Plan (the "Plan") of Hubbard Real Estate Investments (the "Trust"), as predecessor in interest to Urstadt Biddle Properties Inc. (the "Company"), adopted by the trustees of the Trust on November 30, 1981 and approved by the shareholders of the Trust on March 9, 1982 and (ii) those certain Non-Statutory Option Certificates (the "Certificates"), issued in your favor by the Trust, evidencing all Existing Options (as defined below) awarded to you under the Plan. On June 16, 1998, the Board of Directors of the Company, as successor in interest to the Trust, declared a special stock dividend (the "Stock Dividend") on the Company's common stock, par value $.01 per share (the "Common Stock"), consisting of one share of a newly created class of Class A Common Stock, par value $.01 per share (the "Class A Common Stock"), for each share of the Company's Common Stock outstanding at the close of business on July 31, 1998 (the "Record Date"). The Stock Dividend was paid on August 14, 1998 to holders of record of the Common Stock as of the close of business on the Record Date. In connection with the Stock Dividend, your Certificates are hereby modified, effective as of August 14, 1998, such that each option to purchase shares of Common Stock (each, an "Existing Option") awarded to you prior to the Stock Dividend shall be deemed to be, upon your election: (i) an option (each, a "Common Stock Option") to purchase such number of shares of Common Stock as shall be equal in aggregate Fair Market Value (as defined below) to the aggregate Fair Market Value of the shares of Common Stock issuable pursuant to the related Existing Option, (ii) an option (each, a "Class A Stock Option") to purchase such number of shares of Class A Common Stock as shall be equal in aggregate Fair Market Value to the aggregate Fair Market Value of the shares of Common Stock issuable pursuant to the related Existing Option or (iii) an option (each, a "Combination Option") to purchase such number of shares of Common Stock and such number of shares of Class A Common Stock as shall be equal to the number of shares of Common Stock issuable pursuant to the related Existing Option. "Fair Market Value" shall mean (i) with respect to shares of Common Stock issuable pursuant to an Existing Option, the average of the high and low trading prices of the Common Stock on the New York Stock Exchange, Inc. ("NYSE") on August 14, 1998, and (ii) with respect to shares of Common Stock and Class A Common Stock issuable pursuant to a Common Stock Option, a Class A Stock Option or a Combination Option, the average of the high and low trading prices of the Common Stock and the Class A Common Stock, as the case may be, on the NYSE during the period beginning on August 17, 1998 and ending on August 28, 1998. Accordingly, the Fair Market Value of one share of Common Stock issuable pursuant to an Existing Option is $17.218; and the Fair Market Values of one share of Common Stock and one share of Class A Common Stock, each as may be issuable pursuant to a Common Stock Option, a Class A Stock Option or a Combination Option, are $8.756 and $8.816, respectively. The exercise price for the purchase of one share of Common Stock and/or one share of Class A Common Stock pursuant to any Common Stock Option, Class A Stock Option or Combination Option will be set according to the proportional allocation of the exercise price for the purchase of one share of Common Stock pursuant to the related Existing Option, such proportional allocation to be determined according to the Fair Market Values of the underlying shares of Common Stock (ex-Stock Dividend) and Class A Common Stock. In all other respects, the terms of the Plan and your Certificates will remain the same. Please execute the enclosed copy of this letter and return it to the Company to acknowledge your receipt and understanding of the terms contained herein. Very truly yours, URSTADT BIDDLE PROPERTIES INC. By: ---------------------------- Name: Title: ACCEPTED AND AGREED: - ------------------------- EX-10.6.3 3 EXHIBIT 10.6.3 [Form of Supplemental Agreement with Stock Option Plan Participants (ISO)] [Letterhead of Urstadt Biddle Properties Inc.] THIS DOCUMENT CONSTITUTES PART OF A PROSPECTUS COVERING SECURITIES THAT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. [ ], 1998 [Name and Address of Plan Participant] Dear : Reference is hereby made to (i) the Stock Option Plan (the "Plan") of Hubbard Real Estate Investments (the "Trust"), as predecessor in interest to Urstadt Biddle Properties Inc. (the "Company"), adopted by the trustees of the Trust on November 30, 1981 and approved by the shareholders of the Trust on March 9, 1982 and (ii) those certain Statutory Option Certificates (the "Certificates"), issued in your favor by the Trust, evidencing all Existing Options (as defined below) awarded to you under the Plan. On June 16, 1998, the Board of Directors of the Company, as successor in interest to the Trust, declared a special stock dividend (the "Stock Dividend") on the Company's common stock, par value $.01 per share (the "Common Stock"), consisting of one share of a newly created class of Class A Common Stock, par value $.01 per share (the "Class A Common Stock"), for each share of the Company's Common Stock outstanding at the close of business on July 31, 1998 (the "Record Date"). The Stock Dividend was paid on August 14, 1998 to holders of record of the Common Stock as of the close of business on the Record Date. In connection with the Stock Dividend, your Certificates are hereby modified, effective as of August 14, 1998, such that each option to purchase shares of Common Stock (each, an "Existing Option") awarded to you prior to the Stock Dividend shall be deemed to be an option (each, a "Combination Option") to purchase such number of shares of Common Stock and such number of shares of Class A Common Stock as shall be equal to the number of shares of Common Stock issuable pursuant to the related Existing Option. The exercise price for the purchase of one share of Common Stock and/or one share of Class A Common Stock pursuant to the Combination Option will be set according to the proportional allocation of the exercise price for the purchase of one share of Common Stock pursuant to the related Existing Option, such proportional allocation to be determined according to the Fair Market Values (as defined below) of the underlying shares of Common Stock (ex-Stock Dividend) and Class A Common Stock. "Fair Market Value" shall mean the average of the high and low trading prices of the Common Stock and the Class A Common Stock, as the case may be, on the New York Stock Exchange, Inc. during the period beginning on August 17, 1998 and ending on August 28, 1998 Accordingly, the Fair Market Value of one share of Common Stock is $8.756; and of one share of Class A Common Stock, $8.816. [Additionally, your Certificates are hereby modified, effective as of August 14, 1998, such that each Existing Option in connection with which you have been awarded stock appreciation rights ("SARs") under the Plan prior to the Stock Dividend ("Existing SARs") shall be deemed to include new SARs ("New SARs"), in lieu of the Existing SARs, covering the shares issuable pursuant to the related Combination Option. The baseline price for the Existing SARs will be allocated proportionately between the New SARs covering shares of Common Stock and the New SARs covering shares of Class A Common Stock according to the Fair Market Values of the underlying shares of Common Stock (ex-Stock Dividend) and Class A Common Stock.] In all other respects, the terms of the Plan and your Certificates will remain the same. Please execute the enclosed copy of this letter and return it to the Company to acknowledge your receipt and understanding of the terms contained herein. Very truly yours, URSTADT BIDDLE PROPERTIES INC. By: ---------------------------- Name: Title: ACCEPTED AND AGREED: - ------------------------- EX-10.10.1 4 EXHIBIT 10.10.1 [Form of Supplemental Agreement with Restricted Stockholders] [Letterhead of Urstadt Biddle Properties Inc.] [ ], 1998 [Name and Address of Restricted Stockholder] Dear : Reference is hereby made to (i) the Restricted Stock Award Plan of Urstadt Biddle Properties Inc. (the "Company"), formerly known as HRE Properties, Inc., adopted by the Board of Directors of the Company and approved by the shareholders of the Company on March 12, 1997 (the "Plan") and (ii) that certain Restricted Stock Award Agreement, dated [ ], between you and the Company (the "Agreement"). On June 16, 1998, the Board of Directors of the Company declared a special stock dividend (the "Stock Dividend") on the Company's common stock, par value $.01 per share (the "Common Stock"), consisting of one share of a newly created class of Class A Common Stock, par value $.01 per share (the "Class A Common Stock"), for each share of the Company's Common Stock outstanding at the close of business on July 31, 1998 (the "Record Date"). The Stock Dividend was paid on August 14, 1998 to holders of record of the Common Stock as of the close of business on the Record Date. In connection with the Stock Dividend, you shall receive one restricted share of Class A Common Stock (a "Restricted Class A Share") for each restricted share of Common Stock (a "Restricted Common Share") awarded to you under the Plan and pursuant to your Agreement prior to the Stock Dividend. Each Restricted Class A Share shall be subject to the same terms and conditions, to the extent applicable, which apply to the related Restricted Common Share under the Plan and pursuant to your Agreement. In all other respects, the terms and conditions of the Plan and your Agreement will remain the same. Please execute the enclosed copy of this letter and return it to the Company to acknowledge your receipt and understanding of the terms contained herein. Very truly yours, URSTADT BIDDLE PROPERTIES INC. By: ---------------------------- Name: Title: ACCEPTED AND AGREED: - ------------------------- EX-21.1 5 EXHIBIT 21.1 EXHIBIT 21.1 SUBSIDIARIES OF THE COMPANY 323 Railroad Corporation, a Connecticut Corporation UB Darien, Inc., a Connecticut Corporation 44 EX-27 6 FDS -- WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
5 1 US dollars 12-MOS Oct-31-1998 Nov-01-1997 Oct-31-1998 1 3,900,000 0 2,445,000 0 0 0 183,165,000 27,763,000 165,039,000 7,127,000 32,900,000 0 33,462,000 118,662,000 (31,333,000) 165,039,000 0 25,595,000 0 0 14,730,000 0 2,522,000 8,343,000 167,000 8,176,000 0 0 2,561,000 5,615,000 .52 .52 .57 [EPS-DILUTED] .57 This item consists of Real Estate Investments This item includes Bank Loans of $6,000,000 This item consists of Minority Interest in Consolidated Joint Venture This item consists of Preferred Stock Dividends Applicable to Common Shareholders Applicable to Class A Common Shareholders
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