10-Q 1 form10q2ndqtr2005.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-Q X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended April 30, 2005 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _____to_____ Commission File Number 1-12803 URSTADT BIDDLE PROPERTIES INC. (Exact Name of Registrant in its Charter) MARYLAND 04-2458042 -------- ---------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 321 Railroad Avenue, Greenwich, CT 06830 (Address of principal executive offices) (ZipCode) Registrant's telephone number, including area code: (203) 863-8200 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No___ Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Securities Exchange Act of 1934). Yes X No ____ As of June 7, 2005, the number of shares of the Registrant's classes of Common Stock and Class A Common Stock was: 7,411,463 Common Shares, par value $.01 per share and 18,732,958 Class A Common Shares, par value $.01 per share THE SEC FORM 10-Q, FILED HEREWITH, CONTAINS 26 PAGES, NUMBERED CONSECUTIVELY FROM 1 TO 26 INCLUSIVE, OF WHICH THIS PAGE IS 1. 1 INDEX URSTADT BIDDLE PROPERTIES INC. PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) Consolidated Balance Sheets - April 30, 2005 and October 31, 2004. Consolidated Statements of Income -Three and Six months ended April 30, 2005 and 2004. Consolidated Statements of Cash Flows - Six months ended April 30, 2005 and 2004. Consolidated Statements of Stockholders' Equity - Six months ended April 30, 2005. Notes to Consolidated Financial Statements. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. Item 3. Quantitative and Qualitative Disclosures about Market Risk. Item 4. Controls and Procedures PART II. OTHER INFORMATION Item 1. Legal Proceedings Item 4. Submission of Matters to a Vote of Security Holders Item 6. Exhibits SIGNATURES 2 URSTADT BIDDLE PROPERTIES INC. CONSOLIDATED BALANCE SHEETS (In thousands, except share data)
April 30, October 31, ASSETS 2005 2004 ---- ---- (Unaudited) Real Estate Investments: Core properties - at cost $ 433,775 $ 381,937 Non-core properties - at cost 20,621 20,621 Less: accumulated depreciation (66,564) (61,389) -------- -------- 387,832 341,169 Mortgage notes receivable 2,068 2,109 ------ ----- 389,900 343,278 Property held for sale - 4,002 Cash and cash equivalents 8,683 25,940 Restricted cash 1,189 1,184 Marketable securities 2,499 2,681 Tenant receivables, net of allowances of $1,750 and $2,047, respectively 13,960 11,249 Prepaid expenses and other assets 4,843 3,303 Deferred charges, net of accumulated amortization 3,247 3,280 ------ ----- Total Assets $ 424,321 $ 394,917 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: Mortgage notes payable $ 106,340 $107,443 Accounts payable and accrued expenses 1,781 1,515 Deferred compensation - officers 782 501 Other liabilities 4,263 3,617 ----- ----- Total Liabilities 113,166 113,076 ------- ------- Minority Interests 7,320 7,320 --------- ----- Preferred Stock, par value $.01 per share; 20,000,000 shares authorized; 8.99% Series B Senior Cumulative Preferred stock, (liquidation preference of $100 per share); 150,000 shares issued and outstanding 14,341 14,341 8.50% Series C Senior Cumulative Preferred stock, (liquidation preference of $100 per share); 400,000 shares issued and outstanding 38,406 38,406 ------ ------ Total Preferred Stock 52,747 52,747 ------ ------ Commitments and Contingencies Stockholders' Equity: 7.5% Series D Senior Cumulative Preferred stock (liquidation preference of $25 per share); 1,000,000 and 0 shares issued and outstanding 23,995 - 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; 7,411,463 and 7,189,991 shares issued and outstanding 74 72 Class A Common stock, par value $.01 per share; 40,000,000 shares authorized; 18,732,958 and 18,649,008 shares issued and outstanding 187 186 Additional paid in capital 269,377 264,680 Cumulative distributions in excess of net income (32,659) (36,581) Accumulated other comprehensive income 470 472 Unamortized restricted stock compensation and officers notes receivable (10,356) (7,055) -------- ------- Total Stockholders' Equity 251,088 221,774 ------- ------- Total Liabilities and Stockholders' Equity $424,321 $ 394,917 ======== =========
The accompanying notes to consolidated financial statements are an integral part of these statements. 3 URSTADT BIDDLE PROPERTIES INC. CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) (In thousands, except per share data)
Six Months Ended Three Months Ended April 30, April 30, 2005 2004 2005 2004 ---- ---- ---- ---- Revenues: Base rents $26,666 $24,742 $13,746 $12,305 Recoveries from tenants 8,764 7,300 4,636 3,656 Lease termination income - 542 - - Interest and other 382 417 178 196 --- --- --- --- --- 35,812 33,001 18,560 16,157 ------ ------ ------ ------ Operating Expenses: Property operating 6,277 5,308 3,493 2,585 Property taxes 4,709 4,235 2,465 2,174 Interest 4,322 3,999 2,269 1,994 Depreciation and amortization 6,109 5,418 3,078 2,664 General and administrative 2,109 1,879 992 860 Directors' fees and expenses 127 105 59 48 --- --- --- --- 23,653 20,944 12,356 10,325 ------ ------ ------ ------ Operating Income 12,159 12,057 6,204 5,832 Minority Interests (184) (183) (92) (91) ----- ----- ----- ----- Income from Continuing Operations 11,975 11,874 6,112 5,741 Discontinued Operations: Income (Loss) from discontinued operations (24) 263 - 125 Gain on sale of property 5,634 - - - ----- ----- ----- ----- Income from Discontinued Operations 5,610 263 - 125 ----- ------ ----- ----- Net Income 17,585 12,137 6,112 5,866 Preferred Stock Dividends (2,473) (2,374) (1,286) (1,187) ------- ------- ------- ------- Net Income Applicable to Common and Class A Common Stockholders $15,112 $9,763 $4,826 $4,679 ======= ====== ====== ====== Basic Earnings per Share: Per Common Share: Income from continuing operations $.36 $.36 $.18 $.18 Income from discontinued operations $.21 $.01 - - ---- ---- ---- ---- Net Income Applicable to Common Stockholders $.57 $.37 $.18 $.18 ==== ==== ==== ==== Per Class A Common Share: Income from continuing operations $.39 $.40 $.20 $.19 Income from discontinued operations $.23 $.01 - - ---- ---- ---- ---- Net Income Applicable Class A Common Stockholders $.62 $.41 $.20 $.19 ==== ==== ==== ==== Diluted Earnings Per Share: Per Common Share: Income from continuing operations $.35 $.35 $.18 $.17 Income from discontinued operations $.20 $.01 - - ---- ---- ---- ---- Net Income Applicable-Common Stockholders $.55 $.36 $.18 $.17 ==== ==== ==== ==== Per Class A Common Share: Income from continuing operations $.39 $.39 $.19 $.19 Income from discontinued operations $.22 $.01 - - ---- ---- ---- ---- Net Income Applicable to Class A Common Stockholders $.61 $.40 $.19 $.19 ==== ==== ==== ==== Dividends per share: Common $.40 $.39 $.20 $.195 ==== ==== ==== ===== Class A Common $.44 $.43 $.22 $.215 ==== ==== ==== =====
The accompanying notes to consolidated financial statements are an integral part of these statements. 4 URSTADT BIDDLE PROPERTIES INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands) Six Months Ended April 30, 2005 2004 ---- ---- Operating Activities: Net income $17,585 $12,137 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 6,109 5,418 Depreciation and amortization on discontinued operations - 76 Gain on sale of real estate investment (5,634) - Amortization of restricted stock 782 642 Minority interests 184 183 Increase in tenant receivables (2,437) (1,832) Increase (decrease) in accounts payable and accrued expenses 261 (1,526) Increase in other assets and other liabilities, net (399) (1,131) (Increase) decrease in restricted cash (5) 2 ---- ---- Net Cash Provided by Operating Activities 16,446 13,969 ------ ------ Investing Activities: Acquisition of real estate investment (51,432) - Net proceeds received from sale of property 9,406 - Sale of marketable securities 182 7,866 Deposits on acquisitions (500) (875) Improvements to properties and deferred charges (1,275) (1,130) Payments received on mortgage notes receivables 41 37 Distributions to limited partners of consolidated joint ventures (184) (183) ----- ----- Net Cash (Used in) Provided by Investing Activities (43,762) 5,715 -------- ----- Financing Activities: Proceeds from revolving credit line borrowings 19,500 - Repayments on revolving credit line borrowings (19,500) - Proceeds from sale of Series D Preferred Stock 23,995 - Dividends paid on Common and Class A Common shares (11,190) (10,744) Dividends paid on Preferred shares (2,473) (2,374) Sales of additional Common and Class A Common shares 830 1,544 Payments on mortgage notes payable (1,103) (974) Repayment of note receivable from officer - 133 ------ ------ Net Cash Provided by (Used in) Financing Activities 10,059 (12,415) ------ -------- Net (Decrease) Increase In Cash and Cash Equivalents (17,257) 7,269 Cash and Cash Equivalents at Beginning of Period 25,940 22,449 ------ ------ Cash and Cash Equivalents at End of Period $8,683 $29,718 ====== ======= Supplemental Cash Flow Disclosures: Interest Paid $4,322 $3,999 ====== ======
The accompanying notes to consolidated financial statements are an integral part of these statements. 5 URSTADT BIDDLE PROPERTIES INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (UNAUDITED) (In thousands, except shares and per share data)
Preferred Stock Common Stock Class A Common Stock --------------- ------------ -------------------- Additional Distributions Number 7.50% Number Par Number of Par Paid In In Excess of of Shares Series D of Shares Value Shares Value Capital Net Income) --------- -------- --------- ----- --------- ----- --------- ------------- Balances - October 31, 2004 $- 7,189,991 $72 18,649,008 $186 $264,680 $(36,581) Comprehensive Income: Net income applicable to Common and Class A common stockholders - - - - - - 15,112 Unrealized gains on marketable securities - - - - - - - Total Comprehensive Income - Cash dividends paid: Common stock ($.40 per share) - - - - - - (2,950) Class A common stock ($.44 per share) - - - - - - (8,240) Sales of additional shares under dividend reinvestment plan - 45,672 - 8,275 - 830 - Shares granted under restricted stock plan - 175,800 2 75,675 1 4,080 - Amortization of restricted stock compensation and other adjustments - - - - - (213) - Net proceeds from preferred stock offering 1,000,000 23,995 - - - - - - --------- ------ ------- ---- --------- ---- -------- ------ Balances - April 30, 2005 1,000,000 $23,995 7,411,463 $74 18,732,958 $187 $269,377 $(32,659) ========= ======= ========= ==== ========== ==== ======== ========= Unamortized Restricted Stock Accumulated Compensation Other and Officers Comprehensive Notes Income Receivable Total ------- ---------- ------ Balances - October 31, 2004 $472 $(7,055) $221,774 Comprehensive Income: Net income applicable to Common and Class A common stockholders - - 15,112 Unrealized gains on marketable securities (2) (2) --- Total Comprehensive Income 15,110 Cash Dividends Paid: Common stock ($.40 per share) - - (2,950) Class A common stock ($.44 per share) - - (8,240) Sales of additional shares under dividend reinvestment plan - - 830 Shares granted under restricted stock plan - (4,083) - Amortization of restricted stock compensation and other adjustments - 782 569 Net proceeds from preferred stock offering - - 23,995 ----- ----- ------ Balances - April 30, 2005 $470 $(10,356) $251,088 ======= ========= =========
The accompanying notes to consolidated financial statements are an integral part of these statements. 6 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) SIGNIFICANT ACCOUNTING POLICIES Business Urstadt Biddle Properties Inc. (Company), a real estate investment trust (REIT), is engaged in the acquisition, ownership and management of commercial real estate, primarily neighborhood and community shopping centers in the northeastern part of the United States. Other assets include office and retail buildings and industrial properties. The Company's major tenants include supermarket chains and other retailers who sell basic necessities. At April 30, 2005, the Company owned or had interests in 34 properties containing a total of 3.7 million square feet of leasable area. Principles of Consolidation and Use of Estimates The accompanying unaudited consolidated financial statements include the accounts of the Company, its wholly owned subsidiaries, and joint ventures in which the Company has the ability to control the affairs of the venture. The Company believes it has the ability to control the affairs of its consolidated joint ventures because as the sole general partner, the Company has the exclusive right to exercise all management powers over the business and affairs of the respective joint ventures. In addition, the limited partners have no important rights as defined in the AICPA's Statement of Position ("SOP") 78-9 "Accounting for Investments in Real Estate Ventures". The joint ventures are consolidated into the consolidated financial statements of the Company. All significant intercompany transactions and balances have been eliminated in consolidation. The financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been omitted. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Results of operations for the six month period ended April 30, 2005, are not necessarily indicative of the results that may be expected for the year ending October 31, 2005. It is suggested that these financial statements be read in conjunction with the financial statements and notes thereto included in the Company's annual report on Form 10-K for the fiscal year ended October 31, 2004. The preparation of financial statements requires management to make use of estimates and assumptions that affect amounts reported in the financial statements as well as certain disclosures. Actual results could differ from those estimates. The balance sheet at October 31, 2004 has been derived from audited financial statements at that date. Reclassifications Certain prior period amounts have been reclassified (including the presentation of the consolidated statements of income required by SFAS #144) to conform to the current year presentation. Federal Income Taxes The Company has elected to be treated as a real estate investment trust under Sections 856-860 of the Internal Revenue Code (Code). Under those sections, a REIT, that among other things, distributes at least 90% of real estate trust taxable income and meets certain other qualifications prescribed by the Code will not be taxed on that portion of its taxable income that is distributed. The Company believes it qualifies and intends to continue to qualify as a REIT. Concentration of Credit Risk Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents, mortgage notes receivable and tenant receivables. The Company places its cash and cash equivalents in excess of insured amounts with high quality financial institutions. The Company performs ongoing credit evaluations of its tenants and may require certain tenants to provide security deposits or letters of credit. Though these security deposits and letters of credit are insufficient to meet the terminal value of a tenant's lease obligation, they are a measure of good faith and a source of funds to offset the economic costs associated with lost rent and the costs associated with retenanting the space. There is no dependence upon any single tenant. Marketable Securities Marketable securities consist of short-term investments and marketable equity securities. Short-term investments (consisting of investments with original maturities of greater than three months when purchased) and marketable equity securities are carried at fair value. The Company has classified marketable securities as available for sale. Unrealized gains and losses on available for sale securities are recorded as other comprehensive income in Stockholders Equity. At April 30, 2005, other comprehensive income consists of net unrealized gains of $470,000. Unrealized gains included in other comprehensive income will be reclassified into earnings as gains are realized. For the six month and three month periods ended April 30, 2005, gains on sales of marketable securities amounted to $35,000 (none in the comparable periods in fiscal 2004). 7 Earnings Per Share The Company calculates basic and diluted earnings per share in accordance with SFAS No. 128, "Earnings Per Share." Basic earnings per share ("EPS") excludes the impact of dilutive shares and is computed by dividing net income applicable to Common and Class A Common stockholders by the weighted number of Common shares and Class A Common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue Common shares or Class A Common shares were exercised or converted into Common shares or Class A Common shares and then shared in the earnings of the Company. Since the cash dividends declared on the Company's Class A Common stock are higher than the dividends declared on the Common Stock, basic and diluted EPS have been calculated using the "two-class" method. The two-class method is an earnings allocation formula that determines earnings per share for each class of common stock according to the weighted average of the dividends declared, outstanding shares per class and participation rights in undistributed earnings. The following table sets forth the reconciliation between basic and diluted EPS (in thousands):
Six Months Ended Three Months Ended April 30, April 30, --------- --------- 2005 2004 2005 2004 ---- ---- ---- ---- Numerator Net income applicable to common stockholders - basic $3,714 $2,346 $1,188 $1,128 Effect of dilutive securities: Operating partnership units 148 74 56 37 ----- ------ ----- ----- Net income applicable to common stockholders - diluted $3,862 $2,420 $1,244 $1,165 ====== ====== ====== ====== Denominator Denominator for basic EPS-weighted average common shares 6,556 6,362 6,568 6,386 Effect of dilutive securities: Stock options and awards 409 220 416 223 Operating partnership units 55 55 55 55 ----- ----- ----- ----- Denominator for diluted EPS - weighted average common equivalent shares 7,020 6,637 7,039 6,664 ===== ===== ===== ===== Numerator Net income applicable to Class A common Stockholders-basic $11,398 $7,417 $3,638 $3,551 Effect of dilutive securities: Operating partnership units 35 110 36 54 ----- ----- ----- ----- Net income applicable to Class A common Stockholders - diluted $11,433 $7,527 $3,674 $3,605 ======= ====== ====== ====== Denominator Denominator for basic EPS - weighted average Class A common shares 18,289 18,236 18,293 18,241 Effect of dilutive securities: Stock options and awards 289 173 287 158 Operating partnership units 310 310 310 310 ---- ---- ---- ---- Denominator for diluted EPS - weighted average Class A Common equivalent shares 18,888 18,719 18,890 18,709 ====== ====== ====== ======
Segment Reporting The Company operates in one industry segment, ownership of commercial real estate properties which are located principally in the northeastern United States. Management reviews operating and financial data for each property separately and independently from all other properties when making resource allocation decisions and measuring performance. 8 Recently Issued Accounting Pronouncements In December 2004, the FASB issued SFAS No. 123R "Accounting for Stock-Based Compensation." The Statement supersedes APB Opinion No. 25 "Accounting for Stock Issued to Employees." The Statement establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods or services. It also addresses transactions in which an entity incurs liabilities in exchange for goods or services that are based on the fair value of the entity's equity instruments or that may be settled by the issuance of those equity instruments. The Statement is effective as of the beginning of the third fiscal quarter of 2005. Management does not believe that the adoption of this pronouncement will have a material effect on its operations or financial position. (2) CORE PROPERTIES On January 7, 2005, the Company acquired The Dock Shopping Center, a 269,000 square foot shopping center located in Stratford, Connecticut for $51.0 million (including closing costs of approximately $750,000). The acquisition was funded with available cash and borrowings of $17.5 million under the Company's secured line of credit. Upon the acquisition of real estate properties, the fair value of the real estate purchased is allocated to the acquired tangible assets, (consisting of land, buildings and building improvements) and identified intangible assets and liabilities, (consisting of above-market and below-market leases and in-place leases) in accordance with SFAS No. 141 "Business Combinations". The Company utilizes methods similar to those used by independent appraisers in estimating the fair value of acquired assets and liabilities. The fair value of the tangible assets of an acquired property considers the value of the property "as-if-vacant". The fair value reflects the depreciated replacement cost of the asset. In allocating purchase price to identified intangible assets and liabilities of an acquired property, the value of above-market and below-market leases are estimated based on the differences between (i) contractual rentals and the estimated market rents over the applicable lease term discounted back to the date of acquisition utilizing a discount rate adjusted for the credit risk associated with the respective tenants and (ii) the estimated cost of acquiring such leases giving effect to the Company's history of providing tenant improvements and paying leasing commissions, offset by a vacancy period during which such space would be leased. The aggregate value of in-place leases, is measured by the excess of (i) the purchase price paid for a property after adjusting existing in-place leases to market rental rates over (ii) the estimated fair value of the property "as-if-vacant," determined as set forth above. During the second quarter of fiscal 2005, the Company completed its evaluation of the Rye Properties which were acquired in May 2004. As a result of its evaluations, the Company has allocated $435,000 to a liability and $22,000 to an asset associated with the net fair value assigned to the acquired leases at the property. The Company is currently in the process of analyzing the fair value of in-place leases for The Dock Shopping Center and consequently, no value has yet been assigned to the leases. Accordingly, the purchase price allocation is preliminary and may be subject to change. The Company is the general partner in a consolidated limited partnership which owns a shopping center. The limited partnership has a defined termination date of December 31, 2097. Upon liquidation of the partnership, proceeds from the sale of partnership assets are to be distributed in accordance with the respective partner interests. If termination of the partnership occurred on April 30, 2005, the amount payable to the limited partnership is estimated to be $3,300,000. (3) PROPERTY HELD FOR SALE AND DISCONTINUED OPERATIONS The Company has adopted the provisions of Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" (SFAS #144). SFAS #144 requires, among other things, that the assets and liabilities and the results of operations of the Company's properties which have been sold or otherwise qualify as held for sale be classified as discontinued operations and presented separately in the Company's consolidated financial statements. The Company classifies properties held for sale that are under contract for sale and are expected to be sold within the next twelve months as properties held for sale. At October 31, 2004, one retail property was under contract for sale. In November 2004, the Company sold the retail property and recorded a gain on the sale of $5.6 million in the accompanying consolidated statements of income for the six month period ended April 30, 2005. The operating results for this property has been reclassified as discontinued operation in the accompanying consolidated financial statements. Revenues from discontinued operations were $6,000 and $612,000 in the six-month periods ended April 30, 2005 and 2004, respectively. 9 (4) BANK LINES OF CREDIT At April 30, 2005, the Company had two revolving lines of credit arrangements with a bank. In April 2005, the Company entered into a new senior secured revolving credit facility (the "Secured Credit Facility") which provides for borrowings of up to $30 million. The new secured credit facility replaced an existing credit facility that was scheduled to expire in October 2005. The Secured Credit Facility expires in April 2008 and is secured by first mortgage liens on two of the Company's properties. Interest on outstanding borrowings is at prime + 1/2% or LIBOR + 1.5%. The Secured Credit Facility requires the Company to maintain certain debt service coverage ratios during its term. The Company pays an annual fee of .25% on the unused portion of the Secured Credit Facility. The Company also has a $20 million unsecured line of credit arrangement with the same bank which expires in January 2006. The line of credit is available to acquire real estate, refinance indebtedness and for working capital needs. Extensions of credit are at the bank's discretion and subject to the bank's satisfaction of certain conditions. Outstanding borrowings bear interest at the Prime + 1/2% or LIBOR + 2.5%. The Company pays an annual fee of .25% on unused amounts. (5) STOCKHOLDERS' EQUITY 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 has 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. In April 2005, the Company sold 1,000,000 shares of a new 7.5% Series D Senior Cumulative Preferred Stock ("Series D Preferred Stock") issue in a public offering at a price of $25.00 per share. The net proceeds to the Company (after deducting underwriting fees and expenses) were $24 million. In May 2005, the Company sold an additional 650,000 shares of Series D Preferred Stock in a public offering at a price of $25.2475 per share. The net proceeds to the Company (after deducting underwriting fees and expenses) were $15.8 million. The Series D Preferred Stock has no maturity and is not convertible into any other security of the Company. The Series D Preferred Stock is redeemable at the Company's option on or after April 12, 2010 at a price of $25.00 per share plus accrued and unpaid dividends. A portion of the net proceeds of the offerings were used to repay $19.5 million of revolving credit bank debt in April 2005. The balance of the net proceeds are expected to be used to fund the acquisitions of income producing properties and/or capital improvements to properties owned and working capital. The Company has a restricted stock plan for key employees and directors of the Company. The restricted stock plan ("Plan"), as amended, provides for the grant of up to 1,650,000 of the Company's common equity consisting of 350,000 Common shares, 350,000 Class A Common shares and 950,000 shares, which at the discretion of the Company's compensation committee, may be awarded in any combination of Class A common shares or Common shares. In January, 2005, the compensation committee awarded 175,800 shares of Common Stock and 75,675 shares of Class A Common Stock to participants in the plan. As of April 30, 2005, the Company has awarded 860,800 shares of Common Stock and 473,550 shares of Class A Common Stock to participants as an incentive for future services. The shares vest between five and ten years after the date of grant. At April 30, 2005, 36,750 shares each of Common Stock and Class A Common Stock were vested. Dividends on vested and non-vested shares are paid as declared. The market value of shares granted is recorded as unamortized restricted stock compensation on the date of grant. As a result of the 2005 grants, the Company recorded $4,082,600 as unamortized restricted stock compensation in the first quarter of 2005. Unamortized restricted stock compensation is expensed over the respective vesting periods. For the six months ended April 30, 2005, and 2004 amounts charged to compensation expense totaled $782,000 and $642,000 respectively. The Company has a Dividend Reinvestment and Share Purchase Plan, as amended, which permits shareholders to acquire additional shares of Common Stock and Class A Common Stock by automatically reinvesting dividends. During the six months ended April 30, 2005, the Company issued 45,672 shares of Common Stock and 8,275 shares of Class A Common Stock through the Plan. As of April 30, 2005, there remained 254,235 shares of Common Stock and 516,953 shares of Class A Common Stock available for issuance under the Plan. 10 (6) PRO FORMA FINANCIAL INFORMATION (UNAUDITED) The unaudited pro forma financial information set forth below is based upon the Company's historical consolidated statements of income for the six months ended April 30, 2005 and 2004 adjusted to give effect to the acquisition of The Dock Shopping Center completed in January, 2005 (see Note 2) as though the acquisition was completed on November 1, 2003. The pro forma financial information is presented for informational purposes only and may not be indicative of what the actual results of operations would have been had the transactions occurred as of November 1, 2003, nor does it purport to represent the results of future operations. (Amounts in thousands, except per share figures).
Six Months Ended April 30, 2005 2004 ---- ---- Pro forma revenues: $36,883 $35,895 ======= ======= Pro forma income from continuing operations applicable to Common and Class A Common: $ 9,905 $10,587 ======= ======= Pro forma basic shares outstanding: Common and Common Equivalent 6,556 6,362 ===== ===== Class A Common and Class A Common Equivalent 18,289 18,236 ====== ====== Pro forma diluted shares outstanding: Common and Common Equivalent 7,020 6,637 ===== ===== Class A Common and Class A Common Equivalent 18,888 18,719 ====== ====== Pro forma earnings per share from continuing operations: Basic: Common $.37 $.40 ==== ==== Class A Common $.41 $.44 ==== ==== Diluted: Common $.36 $.39 ==== ==== Class A Common $.40 $.43 ==== ====
11 (7) SUBSEQUENT EVENTS, COMMITMENTS AND CONTINGENCIES In February 2005, the Company contracted to purchase a shopping center containing approximately 200,000 square feet of GLA located in Westchester, New York for a purchase price of approximately $28.4 million. The contract to purchase is subject to various conditions, including customary conditions to close and therefore there can be no assurance as to when or if the transaction will be completed. On May 3, 2005, the Company sold 650,000 shares of Series D Preferred Stock in a public offering at a price of $25.2475 per share. The net proceeds to the Company (after deducting underwriting fees and expenses) were $15.8 million. In June 2005, the Company agreed to sell 800,000 shares of Series D Preferred Stock in a public offering at a price of $25.2775. The net proceeds to the Company (after deducting underwriting fees and expenses will be $19.5 million). In May 2005, the Company contracted to sell two of its non-core properties in unrelated transactions. One contract is for the sale of the Company's office building in Southfield, Michigan for a sale price of $9,175,000. The second contract is for the sale of the Company's industrial property in Dallas, Texas for a sale price of $10.3 million. The two properties had an aggregate net carrying value of $7.5 million at April 30, 2005. The sales are expected to be completed during the Company's third quarter of fiscal 2005. Revenues from these properties totaled $1.7 million and $1.9 million in the six month periods ended April 30, 2005 and 2004. On June 1, 2005, the Company fully repaid a mortgage note payable in the principal amount of $1.8 million. The mortgage note was scheduled to mature in November 2005. In the normal course of business, from time to time, the Company is involved in legal actions relating to the ownership and operations of its properties. In management's opinion, the liabilities, if any, that may ultimately result from such legal actions are not expected to have a material adverse effect on the consolidated financial position, results of operations or liquidity of the Company. In June 2005, the Company entered into a contract for the purchase of a shopping center containing 20,000 square feet of GLA located in Fairfield County, Connecticut for a purchase price of $6,740,000. The contract to purchase is subject to various conditions, including customary conditions to close and therefore there can be no assurance as to when or if the transaction will be completed. 12 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations The following discussion should be read in conjunction with the consolidated financial statements of the Company and the notes thereto included elsewhere in this report. Forward Looking Statements This report includes certain statements that may be deemed to be "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements, other than statements of historical facts, included in this report that address activities, events or developments that the Company expects, believes or anticipates will or may occur in the future, including such matters as future capital expenditures, dividends and acquisitions (including the amount and nature thereof), expansion and other development trends of the real estate industry, business strategies, expansion and growth of the Company's operations and other such matters are forward-looking statements. These statements are based on certain assumptions and analyses made by the Company in light of its experience and its perception of historical trends, current conditions, expected future developments and other factors it believes are appropriate. Such statements are subject to a number of assumptions, risks and uncertainties, general economic and business conditions, the business opportunities that may be presented to and pursued by the Company, changes in laws or regulations and other factors, many of which are beyond the control of the Company. Any such statements are not guarantees of future performance and actual results or developments may differ materially from those anticipated in the forward-looking statements. Overview The Company, a REIT, is engaged in the acquisition, ownership and management of commercial real estate, primarily neighborhood and community shopping centers in the northeastern part of the United States. Other real estate assets include office and retail buildings and industrial properties. The Company's major tenants include supermarket chains and other retailers who sell basic necessities. At April 30, 2005, the Company owned or had controlling interests in 34 properties containing a total of 3.7 million square feet of GLA of which approximately 96% was leased at April 30, 2005 The Company focuses on increasing cash flow and, consequently, the value of its properties and seeks continued growth through strategic re-leasing, renovations and expansion of its existing properties and selective acquisition of income producing properties, primarily neighborhood and community shopping centers in the northeastern part of the United States. Key elements of the company's growth strategies and operating policies are to: |X| Acquire neighborhood and community shopping centers in the northeastern part of the United States with a concentration in Fairfield County, Connecticut, and Westchester and Putnam Counties, New York |X| Hold core properties for long-term investment and enhance their value through regular maintenance, periodic renovation and capital improvement |X| Selectively dispose of non-core assets and re-deploy the proceeds into properties located in the Company's preferred region |X| Increase property values by aggressively marketing available GLA and renewing existing leases |X| Renovate, reconfigure or expand existing properties to meet the needs of existing or new tenants |X| Negotiate and sign leases which provide for regular or fixed contractual increases to minimum rents |X| Control property operating and administrative costs Critical Accounting Policies Critical accounting policies are those that are both important to the presentation of the Company's financial condition and results of operations and require management's most difficult, complex or subjective judgments. Set forth below is a summary of the accounting policies that management believes are critical to the preparation of the consolidated financial statements. This summary should be read in conjunction with the more complete discussion of the Company's accounting policies included in Note 1 to the consolidated financial statements of the Company for the year ended October 31, 2004. 13 Revenue Recognition The Company records base rents on a straight-line basis over the term of each lease. The excess of rents recognized over amounts contractually due pursuant to the underlying leases is included in tenant receivables on the accompanying balance sheets. Most leases contain provisions that require tenants to reimburse a pro-rata share of real estate taxes and certain common area expenses. These amounts are recognized in the period the related expenses are incurred. Expense reimbursement payments generally are made monthly based on an estimated amount determined at the beginning of the year. The difference between the actual amount due and the estimated amounts paid by the tenant throughout the year is billed or credited to the tenant. Allowance for Doubtful Accounts The allowance for doubtful accounts and mortgage notes receivable is established based on a quarterly analysis of the risk of loss on specific accounts. The analysis places particular emphasis on past-due accounts and considers information such as the nature and age of the receivables, the payment history of the tenants or other debtors, the financial condition of the tenants and management's assessment of their ability to meet their lease obligations, the basis for any disputes and the status of related negotiations, among other things. Management's estimates of the required allowance is subject to revision as these factors change and is sensitive to the effects of economic and market conditions on tenants, particularly those at retail centers. Estimates are used to establish reimbursements from tenants for common area maintenance, real estate tax and insurance costs. Adjustments are also made throughout the year to tenant receivables and the related cost recovery income based upon the Company's best estimate of the final amounts to be billed and collected. The Company analyzes the balance of its estimated accounts receivable for real estate taxes, common area maintenance and insurance for each of its properties by comparing actual recoveries versus actual expenses and any actual write-offs. Based on its analysis, the Company may record an additional amount in its allowance for doubtful accounts related to these items. It is also the Company's policy to maintain an allowance of approximately 10% of the deferred straight-line rents receivable balance for future tenant credit losses. Real Estate Land, buildings, property improvements, furniture/fixtures and tenant improvements are recorded at cost. Expenditures for maintenance and repairs are charged to operations as incurred. Renovations and/or replacements, which improve or extend the life of the asset, are capitalized and depreciated over their estimated useful lives. The amounts to be capitalized as a result of an acquisition and the periods over which the assets are depreciated or amortized are determined based on estimates as to fair value and the allocation of various costs to the individual assets. The Company allocates the cost of an acquisition based upon the estimated fair value of the net assets acquired. The Company also estimates the fair value of intangibles related to its acquisitions. The valuation of the fair value of intangibles involves estimates related to market conditions, probability of lease renewals and the current market value of in-place leases. This market value is determined by considering factors such as the tenant's industry, location within the property and competition in the specific region in which the property operates. Differences in the amount attributed to the intangible assets can be significant based upon the assumptions made in calculating these estimates. The Company is required to make subjective assessments as to the useful life of its properties for purposes of determining the amount of depreciation. These assessments have a direct impact on the Company's net income. Properties are depreciated using the straight-line method over the estimated useful lives of the assets. The estimated useful lives are as follows: Buildings 30-40 years Property Improvements 10-20 years Furniture/Fixtures 3-10 years Tenant Improvements Shorter of lease term or useful life 14 Assessments by the Company of certain other lease related costs are made when the Company has a reason to believe that the tenant may not be able to perform under the terms of the lease as originally expected. This requires management to make estimates as to the recoverability of such assets. Asset Impairment On a periodic basis, management assesses whether there are any indicators that the value of the real estate properties and mortgage notes receivable may be impaired. A property value is considered impaired when management's estimate of current and projected operating cash flows (undiscounted and without interest) of the property over its remaining useful life is less than the net carrying value of the property. Such cash flow projections consider factors such as expected future operating income, trend and prospects, as well as the effects of demand, competition and other factors. To the extent impairment has occurred, the loss is measured as the excess of the net carrying amount of the property over the fair value of the asset. Changes in estimated future cash flows due to changes in the Company's plans or market and economic conditions could result in recognition of impairment losses which could be substantial. Management does not believe that the value of any of its rental properties or mortgage notes receivable is impaired at April 30, 2005. Liquidity and Capital Resources At April 30, 2005, the Company had unrestricted cash and cash equivalents of $8.7 million compared to $25.9 million at October 31, 2004. The Company's sources of liquidity and capital resources include its cash and cash equivalents, proceeds from bank borrowings and long-term mortgage debt, capital financings and sales of real estate investments. Payments of expenses related to real estate operations, debt service, management and professional fees, and dividend requirements place demands on the Company's short-term liquidity. Cash Flows The Company expects to meet its short-term liquidity requirements primarily by generating net cash from the operations of its properties. The Company believes that its net cash provided by operations will be sufficient to fund its short-term liquidity requirements for fiscal 2005 and to meet its dividend requirements necessary to maintain its REIT status. Net cash provided by operations for the six months ended April 30, 2005, amounted to $16.5 million, compared to $14.0 million in the comparable period of fiscal 2004. Dividends paid to stockholders of the Company in the six month periods ended April 30, 2005 and 2004 were $13.7 million and $13.1 million, respectively. The Company expects to continue paying regular dividends to its stockholders. These dividends will be paid from operating cash flows which are expected to increase due to property acquisitions, growth in operating income in the existing portfolio and from other sources. The Company derives substantially all of its revenues from tenants under existing leases at its properties. The Company's operating cash flow therefore depends on the rents that it is able to charge to its tenants, and the ability of its tenants to make rental payments. The Company believes that the nature of the properties in which it typically invests - primarily grocery-anchored neighborhood and community shopping centers - provides a more stable revenue flow in uncertain economic times, in that consumers still need to purchase basic staples and convenience items. However, even in the geographic areas in which the Company owns properties, general economic downturns may adversely impact the ability of the Company's tenants to make lease payments and the Company's ability to re-lease space as leases expire. In either of these cases, the Company's cash flow could be adversely affected. Capital Resources The Company expects to fund its long-term liquidity requirements such as property acquisitions, repayment of indebtedness and capital expenditures through other long-term indebtedness (including indebtedness assumed in acquisitions), proceeds from sales of properties and/or the issuance of equity securities. The Company believes that these sources of capital will continue to be available to it in the future to fund its long-term capital needs; however, there are certain factors that may have a material adverse effect on its access to capital sources. The Company's ability to incur additional debt is dependent upon its existing leverage, the value of its unencumbered assets and borrowing limitations imposed by existing lenders. The Company's ability to raise funds through sales of equity securities is dependent on, among other things, general market conditions for REITs, market perceptions about the Company and its stock price in the market. The Company's ability to sell properties in the future to raise cash will be dependent upon market conditions at the time of sale. 15 Financings and Debt In April 2005, the Company sold 1,000,000 shares of 7.5% Series D Senior Cumulative Preferred Stock, ("Series D Preferred Stock") in a public offering for net proceeds of approximately $24 million. The Series D Preferred Stock has no stated maturity and is not convertible into other securities of the Company. On or after April 12, 2010, the Series D Preferred Stock may be redeemed by the Company, at its option, at a redemption price of $25 per share. In May 2005, the Company sold an additional 650,000 shares of Series D Preferred Stock for net proceeds of $15.8 million and in June 2005, the Company agreed to sell an additional 800,000 shares of Series D Preferred Stock in a public offering for net proceeds of $19.5 million. The Company utilized a portion of the net proceeds from the preferred stock sales to repay all of its outstanding revolving credit line indebtedness of $19.5 million during the second quarter. The Company intends to use approximately $20 million of the net proceeds to fund the cash portion of the purchase price of a property under contract. The balance of the net proceeds are expected to be used to acquire other income producing properties and to fund renovations on, or capital improvements to its existing properties, including tenant improvements and for working capital. The Company is exposed to interest rate risk primarily through its borrowing activities. There is inherent rollover risk for borrowings as they mature and are renewed at current market rates. The extent of this risk is not quantifiable or predictable because of the variability of future interest rates and the Company's future financing requirements. Mortgage notes payable consist of fixed rate mortgage loan indebtedness with a weighted average interest rate of 7.48% at April 30, 2005. The mortgage loans are secured by fourteen properties and have fixed rates of interest ranging from 6.29% to 8.375%. In June 2005, the Company fully repaid a mortgage note in the principal amount of $1.8 million. The mortgage note was scheduled to mature in November 2005. The Company anticipates that it will make all remaining scheduled principal mortgage payments due in fiscal 2005 from available cash. The Company expects to refinance a majority of its mortgage loans, at or prior to scheduled maturity, through replacement mortgage loans. The ability to do so, however, is dependent upon various factors, including the income level of the properties, interest rates and credit conditions within the commercial real estate market. Accordingly, there can be no assurance that such refinancings can be achieved. In April 2005, the Company entered into a new senior secured revolving credit facility with a commercial bank which provides for borrowings of up to $30 million. This credit line replaced a secured revolving credit line of $17.5 million which was scheduled to expire in October 2005. The senior secured revolving credit line is collateralized by two properties having a net book value of $28.1 million at April 30, 2005. There were no borrowings outstanding under this line of credit at April 30, 2005. The Company also has a $20 million unsecured revolving line of credit with the same bank which expires in 2006. At April 30, 2005, there were no borrowings outstanding under this line of credit. Extensions of credit under the unsecured credit line are at the bank's discretion and subject to the bank's satisfaction of certain conditions. Both credit lines are available to finance the acquisition, management and/or development of commercial real estate, refinance indebtedness and for working capital purposes. Contractual Obligations The Company's contractual payment obligations as of April 30, 2005, were as follows (amounts in thousands): Payments Due by Period --------------------------------------------------------------------------------
Total 2005 2006 2007 2008 2009 Thereafter ----- ---- ---- ---- ---- ---- ---------- Mortgage notes payable $106,340 $1,144 $9,040 $11,348 $53,392 $17,755 $13,661 Tenant obligations* 1,700 900 800 - - - - --------- ----- ----- ------- ------- ------- --------- Total Contractual Obligations $108,040 $2,044 $9,840 $11,348 $53,392 $17,755 $13,661 ======== ====== ====== ======= ======= ======= =======
*Committed tenant-related obligations based on executed leases as of April 30, 2005. 16 The Company has various standing or renewable service contracts with vendors related to its property management. In addition, the Company also has certain other utility contracts entered into in the ordinary course of business which may extend beyond one year, which very based on usage. These contracts include terms that provide for cancellation with insignificant or no cancellation penalties. Contract terms are generally one year or less. Off-Balance Sheet Arrangements . During the six month period ended April 30, 2005 and the year ended October 31, 2004, the Company did not have any off-balance sheet arrangements. Capital Expenditures The Company invests in its existing properties and regularly incurs capital expenditures in the ordinary course of business to maintain its properties. The Company believes that such expenditures enhance the competitiveness of its properties. During the first six months of fiscal 2005, the Company spent approximately $1.3 million for property improvements, tenant related improvements and commissions in connection with the Company's leasing activities. The amounts of these expenditures can vary significantly depending on tenant negotiations, market conditions and rental rates. The Company expects to incur approximately $5 million for capital improvements and leasing costs during the second half of fiscal 2005. These expenditures are expected to be funded from operating cash flows, proceeds from equity offerings or borrowings. Acquisitions and Sales The Company seeks to acquire neighborhood and community shopping centers in the northeastern part of the United States with a concentration in Fairfield County, Connecticut, and Westchester and Putnam Counties, New York. At April 30, 2005, the Company was in contract for the purchase of a 200,000 square foot shopping center in Westchester County, New York. The purchase price is $28.4 million including the assumption of an $8.2 million mortgage loan. The Company intends to use a portion of the proceeds of its recent preferred stock sales to fund the cash portion of the purchase price. On January 7, 2005, the Company acquired The Dock Shopping Center, a 269,000 square foot shopping center located in Stratford, Connecticut for $51 million, including closing costs of approximately $750,000. The acquisition was funded with cash of approximately $23 million, net proceeds of $9.75 million from the sale of property and borrowings of $17.5 million under the Company's secured line of credit. On November 15, 2004, the Company sold its Farmingdale, New York property for $9.75 million. The proceeds were used to complete the acquisition of The Dock Shopping Center in January, 2005. In connection with the transaction, the Company recorded a gain on the sale of approximately $5.6 million in the first quarter of 2005. Non-Core Assets In a prior year, the Company's Board of Directors expanded and refined the strategic objectives of the Company to refocus its real estate portfolio into one of self-managed retail properties located in the northeast and authorized the sale of the Company's non-core properties in the normal course of business over a period of several years. The non-core properties consist of two distribution service facilities, one office building and one retail property (all of which are located outside of the northeast region of the United States). The Company intends to sell its non-core properties as opportunities become available. The Company's ability to generate cash from asset sales is dependent upon market conditions and will necessarily be limited if market conditions make such sales unattractive. At April 30, 2005, the four non-core properties have a net book value of approximately $10.5 million. In May 2005, the Company entered into contracts to sell two of its non-core assets in unrelated sale transactions. One contract is for the sale of the Company's office building in Southfield, Michigan for a sale price of $9,175,000. At April 30, 2005 the net carrying amount of this property was approximately $7.0 million. The second contract is for the sale of the Company's industrial property in Dallas, Texas for $10.3 million. This property had a net carrying amount of $492,000 at April 30, 2005. The transactions which are expected to be completed in the Company's third quarter of fiscal 2005 are subject to various conditions including customary conditions to close and therefore there can be no assurance as to when or if the transactions will be completed. 17 Funds from Operations The Company considers Funds from Operations ("FFO") to be an additional measure of an equity REIT's operating performance. The Company reports FFO in addition to its net income applicable to common stockholders and net cash provided by operating activities. Management has adopted the definition suggested by The National Association of Real Estate Investment Trusts ("NAREIT") and defines FFO to mean net income (computed in accordance with GAAP), excluding gains (or losses) from sales of property plus real estate related depreciation and amortization, and after adjustments for unconsolidated joint ventures. Management considers FFO a meaningful, additional measure of operating performance because it primarily excludes the assumption that the value of its real estate assets diminishes predictably over time and industry analysts have accepted it as a performance measure. FFO is presented to assist investors in analyzing the performance of the Company. It is helpful as it excludes various items included in net income that are not indicative of the Company's operating performance, such as gains (or losses) from sales of property and depreciation and amortization. However, FFO: |X| does not represent cash flows from operating activities in accordance with GAAP (which, unlike FFO, generally reflects all cash effects of transactions and other events in the determination of net income); and |X| should not be considered an alternative to net income as an indication of the Company's performance. FFO, as defined by the Company, may not be comparable to similarly titled items reported by other real estate investment trusts due to possible differences in the application of the NAREIT definition used by such REITs. The table below provides a reconciliation of net income in accordance with GAAP to FFO for the six months and three months ended April 30, 2005 and 2004 (amounts in thousands).
Six Months Ended Three Months Ended April 30 April 30 2005 2004 2005 2004 ---- ---- ---- ---- Net Income applicable to common and class A common stockholders $15,112 $9,763 $4,826 $4,679 Plus: Real property depreciation 4,610 4,202 2,368 2,073 Amortization of tenant improvements and allowances 1,202 1,063 593 513 Amortization of deferred leasing costs 297 229 117 116 Less: Gain on sale of real estate investments (5,634) - - - ------- -------- ------- ------ Funds from Operations Applicable to Common and Class A Common Stock $15,587 $15,257 $7,904 $7,381 ======= ======= ====== ====== Net Cash Provided by (used in): Operating Activities $16,446 $13,969 $8,425 $8,791 ======= ======= ====== ====== Investing Activities $(43,762) $5,715 $(1,848) $(1,320) ========= ====== ======== ======== Financing Activities $10,059 (12,415) $(2,531) $(6,205) ======= ======== ======== ========
Results of Operations Comparison of the six months and three month period ended April 30, 2005 to the six months and three month period ended April 30, 2004. Revenues Base rents increased 7.8% to $26.7 million in the six months ended April 30, 2005, compared to $24.7 million in the corresponding period of fiscal 2004. For the three months ended April 30, 2005, base rents increased 11.7% to $13.7 million from $12.3 million in fiscal 2004. The increase reflects additional base rents attributable to new properties acquired in fiscal 2005 and 2004. Recent acquisitions increased base rent incrementally by $1.7 million and $1.2 million, respectively in the six months and three month periods ended April 30, 2005 over the corresponding periods. Base rents from "same core properties" increased 1.5% in the six month period ended April 30, 2005. Rents at the non-core properties decreased by $221,000 and $185,000 in the six month and three month periods ended April 30, 2005 from the loss of a 41,000 sf office tenant in the Company's Southfield Michigan office building earlier in the year. Recoveries from tenants (which represent reimbursements from tenants for property operating expenses and property taxes) increased 20.1% and 26.8% for the six month and three month periods ended April 30, 2005 compared to the corresponding periods in fiscal 2004. The increase in recoveries from tenants includes amounts attributable to recently acquired properties. New properties increased recoveries from tenants by $791,000 and $693,000 respectively in the six month and three month periods ended April 30, 2005 compared to the corresponding periods in fiscal 2004. Recoveries from tenants also increased by $673,000 18 and $286,000 in the six month and three month periods ended April 30, 2005 at the "same properties" due to higher levels of operating and property tax expenses and higher recovery rates at certain of the properties. For the first six months of fiscal 2005, the Company leased or renewed approximately 150,000 square feet of space at generally higher rent rates than the expiring rates. The Company anticipates that most leases expiring in the second half of the year will be renewed at rental rates comparable to the expiring lease rates. At April 30, 2005, the Company's total real estate portfolio was 96% leased. The core properties were 99% leased. In the first quarter of fiscal 2004, the Company received lease termination payments of $542,000 in satisfaction of two former tenant lease obligations. There were no lease termination payments in fiscal 2005. Expenses Property operating expenses increased 18.3% to $6.3 million in the six months ended April 30, 2005 compared to $5.3 million in fiscal 2004. For the three months ended April 30, 2005, operating expenses increased 35.1% to $3.5 million from $2.6 million in the corresponding period in fiscal 2004. The increase in operating expenses reflects the incremental expense from recent property acquisitions which added additional operating expenses of $427,000 and $351,000 respectively in the six month and three month periods ended April 30, 2005 over the corresponding periods in fiscal 2004. Operating expenses also increased by $534,000 and $557,000, respectively in the six month and three month period ended April 30, 2005 over the corresponding periods in fiscal 2004 on "same properties" principally due to increased snow removal costs and repairs and maintenance costs in fiscal 2005 which increased by $360,000. Property taxes increased to $4.7 million or 11.2% in the six month period ended April 30, 2005 compared to the same period in the previous year. Property taxes from recently acquired properties increased total property tax expenses incrementally by $355,000 in fiscal year 2005. Property taxes for properties owned in both fiscal 2005 and 2004 increased by $119,000 from higher real estate tax assessment rates at several of the Company's properties during fiscal 2004. Property taxes increased $291,000 during the three months ended April 30, 2005 compared to the corresponding period in fiscal 2004 mostly from recent acquisitions of properties. The Company anticipates that property tax assessments will continue to increase on its properties, however, the Company will continue to challenge these higher assessments. Interest expense increased $323,000 and $275,000 in the six months and three months periods ended April 30, 2005 principally from $4.7 million in new mortgage loans in fiscal 2004 assumed in connection with property acquisitions in fiscal 2004 and $19.5 million of revolving credit line debt borrowed during fiscal 2005. Depreciation and amortization expense increased by $691,000 and $414,000 in the six months and three month periods ended April 30, 2005 from the additional depreciation on recent property acquisitions. General and administrative expenses increased by $230,000 and $132,000 in the six month and three month periods ended April 30, 2005 due principally to higher compensation costs, including an increase in restricted stock compensation in fiscal 2005. Discontinued Operations In November 2004, the Company sold a shopping center for $9.75 million. Accordingly, its operating results have been reclassified as discontinued operations in accordance with SFAS #144. Revenues for this property totaled $6,000 and $612,000 in the six month periods ended April 30, 2005 and 2004 respectively. In connection with the sale of the shopping center, the Company recorded a gain on the sale of the property of approximately $5.6 million in the first quarter of fiscal 2005. 19 Inflation The Company's long-term leases contain provisions to mitigate the adverse impact of inflation on its operating results. Such provisions include clauses entitling the Company to receive (a) scheduled base rent increases and (b) percentage rents based upon tenants' gross sales, which generally increase as prices rise. In addition, many of the Company's non-anchor leases are for terms of less than ten years, which permits the Company to seek increases in rents upon renewal at then current market rates if rents provided in the expiring leases are below then existing market rates. Most of the Company's leases require tenants to pay a share of operating expenses, including common area maintenance, real estate taxes, insurance and utilities, thereby reducing the Company's exposure to increases in costs and operating expenses resulting from inflation. Environmental Matters Based upon management's ongoing review of its properties, management is not aware of any environmental condition with respect to any of the Company's properties which would be reasonably likely to have a material adverse effect on the Company. There can be no assurance, however, that (a) the discovery of environmental conditions, which were previously unknown, (b) changes in law, (c) the conduct of tenants or (d) activities relating to properties in the vicinity of the Company's properties, will not expose the Company to material liability in the future. Changes in laws increasing the potential liability for environmental conditions existing on properties or increasing the restrictions on discharges or other conditions may result in significant unanticipated expenditures or may otherwise adversely affect the operations of the Company's tenants, which would adversely affect the Company's financial condition and results of operations. Item 3. Quantitative and Qualitative Disclosures about Market Risk Market risk is the exposure to loss resulting from changes in interest rates, foreign currency exchange rates, commodity prices and equity prices. The primary market risk to which we are exposed is interest rate risk, which is sensitive to many factors, including governmental monetary and tax policies, domestic and international economic and political considerations and other factors that are beyond the Company's control. Interest Rate Risk The Company is exposed to interest rate risk primarily through its borrowing activities. There is inherent rollover risk for borrowings as they mature and are renewed at current market rates. The extent of this risk is not quantifiable or predictable because of the variability of future interest rates and the Company's future financing requirements. As of April 30, 2005, the Company had no outstanding variable rate debt. During the six months ended April 30, 2005, the weighted average interest rate on outstanding variable rate debt during the period was 4.4%. A hypothetical 1% increase in interest rates would have an immaterial effect on the Company's interest expense. There were no variable rate borrowings during fiscal 2004. The Company does not enter into any derivative financial instrument transactions for speculative or trading purposes. The Company believes that its weighted average interest rate of 7.4% on its fixed rate debt is not materially different from current fair market interest rates for debt instruments with similar risks and maturities. Item 4. Controls and Procedures Evaluation of Disclosure Controls and Procedures Based on their evaluation at the end of the period covered by this Quarterly Report on Form 10-Q. the Company's principal executive officer and principal financial officer have concluded that the Company's disclosure and controls procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) are effective to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms. Changes in Internal Controls During the quarter ended April 30, 2005, there were no changes in the Company's internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting. 20 Part II - Other Information Item 1. Legal Proceedings The Company is not involved in any litigation, nor to its knowledge is any litigation threatened against the Company or its subsidiaries, that in management's opinion, would result in a material adverse effect on the Company's ownership, management or operation of its properties, or which is not covered by the Company's liability insurance. Item 4. Submission of Matters to a Vote of Security Holders In connection with the Annual Meeting of Stockholders held on March 9, 2005, stockholders were asked to vote on the following matters: 1. Election of three Directors (Class II ) to serve for three years: Director For Withheld --------- --- -------- Peter Herrick 7,281,336 31,608 Charles D. Urstadt 7,276,214 36,730 George J. Vojta 7,286,159 26,785 2. Ratification of the appointment of Ernst & Young LLP as independent auditors for the fiscal year ending October 31,2005: For Against Abstain --- ------- ------- 7,291,072 12,595 9,277 Item 6. Exhibits 3.1 (a) Articles Supplementary of the Company (incorporated by reference to Exhibit 4.1 of the Registrant's Current Report on Form 8-K dated April 11, 2005 (SEC File No. 001-12803)). (b) Articles Supplementary of the Company (incorporated by reference to Exhibit 4.1 of the Registrant's Current Report on Form 8-K dated May 3, 2005 (SEC File No. 001-12803)). (c) Certificate of Correction to the Articles Supplementary of the Company (incorporated by reference to Exhibit 4.2 of the Registrant's Current Report on Form 8-K dated May 3, 2005 (SEC File No. 001-12803)). (d) Articles Supplementary of the Company (incorporated by reference to Exhibit 4.1 of the Registrant's Current Report on Form 8-K dated June 7. 2005 (SEC File No. 001-12803)) 4.1 Series D Senior Cumulative Preferred Shares: See Exhibits 3.1(a)-(d) 10.1 Purchase and Sale Agreement between UB Railside, LLC and the Dock, Incorporated (incorporated by reference to Exhibit 10.1 of the Registrant's Current Report of Form 8-K/A dated March 11, 2005 (SEC File No. 001-12803)). 10.2 Purchase and Sale Agreement between UB Dockside, LLC and The Dock, Incorporated (incorporated by reference to Exhibit 10.2 of the Registrant's Current Report of Form 8-K/A dated March 11, 2005 (SEC File No. 001-12803)). 31.1 Certification of the Chief Executive Officer of Urstadt Biddle Properties Inc. pursuant to Rule 13a-14(a)of the Securities Exchange Act of 1934, as amended. 31.2 Certification of the Chief Financial Officer of Urstadt Biddle Properties Inc. pursuant to Rule 13a-14(a)of the Securities Exchange Act of 1934, as amended. 32 Certification of the Chief Executive Officer and Chief Financial Officer of Urstadt Biddle Properties Inc.pursuant to Section 906 of Sarbanes-Oxley Act of 2002. 21 S I G N A T U R E S Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. URSTADT BIDDLE PROPERTIES INC. (Registrant) By /s/ Charles J. Urstadt -------------------------- Charles J. Urstadt Chairman and Chief Executive Officer By /s/ James R. Moore ------------------------- James R. Moore Executive Vice President/ Chief Financial Officer (Principal Financial Officer Dated: June 9, 2005 and Principal Accounting Officer) 22 EXHIBIT INDEX Exhibit No. 31.1 Certification of the Chief Executive Officer of Urstadt Biddle Properties Inc. pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended. 31.2 Certification of the Chief Financial Officer of Urstadt Biddle Properties Inc. pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended. 32 Certification of the Chief Executive Officer and Chief Financial Officer of Urstadt Biddle Properties Inc. pursuant to Section 906 of Sarbanes-Oxley Act of 2002 23 EXHIBIT 31.1 Certification I, Charles J. Urstadt, certify that: I have reviewed this quarterly report on Form 10-Q for the quarter ended April 30, 2005 of Urstadt Biddle Properties Inc; Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on our evaluation; and c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: June 9, 2005 /s/ Charles J. Urstadt ------------------------ Charles J. Urstadt Chairman and Chief Executive Officer 24 EXHIBIT 31.2 Certification I, James R. Moore, certify that: I have reviewed this quarterly report on Form 10-Q for the quarter ended April 30, 2005 of Urstadt Biddle Properties Inc; Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on our evaluation; and c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: June 9, 2005 James R. Moore ------------------------- James R. Moore Executive Vice President and Chief Financial Officer 25 EXHIBIT 32 Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 with Respect to the QuarterlyReport on Form 10-Q for the Quarter Ended April 30, 2005 of Urstadt Biddle Properties Inc. Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350, chapter 63 of title 18, United States Code), each of the undersigned officers of Urstadt Biddle Properties Inc., a Maryland corporation (the "Company"), does hereby certify, to the best of such officer's knowledge, that: 1. The Company's Quarterly Report on Form 10-Q for the quarter ended April 30, 2005 (the "Form 10-Q") fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934, as amended; and 2. Information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company. Dated: June 9, 2005 /s/ Charles J. Urstadt ------------------------ Charles J. Urstadt Chairman and Chief Executive Officer Dated: June 9, 2005 /s/ James R. Moore ------------------------ James R. Moore Executive Vice President and Chief Financial Officer The certification set forth above is being furnished as an Exhibit solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and is not being filed as part of the Form 10-Q or as a separate disclosure document of the Company or the certifying officers. 26