-----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, UdEVDrem4RvJcCiOMEUcIDYEDqu03YuXbk5Ak4nnemHe5q2yxPoS2gexTjFbQuAJ 1s8jCa6IjhR5gKMjW54pvQ== 0000914317-97-000021.txt : 19970131 0000914317-97-000021.hdr.sgml : 19970131 ACCESSION NUMBER: 0000914317-97-000021 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19961031 FILED AS OF DATE: 19970130 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY CENTRAL INDEX KEY: 0000036840 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 221697095 STATE OF INCORPORATION: NJ FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 002-27018 FILM NUMBER: 97513937 BUSINESS ADDRESS: STREET 1: 505 MAIN ST STREET 2: P O BOX 667 CITY: HACKENSACK STATE: NJ ZIP: 07602 BUSINESS PHONE: 2014886400 MAIL ADDRESS: STREET 1: P O BOX 667 STREET 2: 505 MAIN STREET CITY: HACKENSACK STATE: NJ ZIP: 07602 10-K 1 1996 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 For the Fiscal Year Ended October 31, 1996 [ ] 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. 2-27018. FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY (exact name of registrant as specified in its charter) New Jersey 22-1697095 (State of other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 505 Main Street, P.O. BOX 667 Hackensack, New Jersey 07602 (Address of principal executive offices) (Zip Code) Registrant's telephone no., including area code: 201-488-6400 Securities Registered Pursuant to Section 12(b) of the Act: None Securities Registered Pursuant to Section 12(g) of the Act: None Indicate by check made 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 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 Regulations S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in this Form 10-K or any amendment to this Form 10-K. [ X ] Aggregate market value of the voting stock held by nonaffiliates of the Registrant as of December 31,1996 - $20,413,000 Number of Shares of Common Stock outstanding as of December 31, 1996 - 1,559,788 DOCUMENTS INCORPORATED BY REFERENCE (To the Extent Indicated Herein) TABLE OF CONTENTS PART I ITEM 1 GENERAL DEVELOPMENT OF BUSINESS (A) Organization and Background (B) Financial Information about Industry Segments (C) Narrative Description of Business (1) Principal Activity (2) Investment Portfolio (3) Sources of Capital Funds (4) Patents, Trademarks (5) Seasonability of Business (6) Inventory (7) Dependence on Single Tenant (Customer) (8) Backlog (9) Government Contracts (10) Competitive Conditions (11) Research and Development Activities (12) Impact of Governmental Laws and Regulations on Registrant's Business (13) Employees (D) Financial Information about Foreign and Domestic Operations and Export Sales ITEM 2 DESCRIPTION OF THE PROPERTY (A) Portfolios of Investments APARTMENT PROJECTS SHOPPING CENTERS VACANT LAND COMMERCIAL PROPERTY (B) Description of Mortgage Liens filed as against Registrant's Investment Properties (a) Properties owned by Registrant which secure real property mortgages (i) Spring Lake Heights, New Jersey (ii) Westwood, New Jersey (iii) Frederick, Maryland (b) Registrant's Line of Credit (c) Westwood Hills, LLC ITEM 3 LEGAL PROCEEDINGS ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - 2 - PART II ITEM 5 MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER MATTERS ITEM 6 SELECTED FINANCIAL DATA ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (A) Liquidity and Capital Resources (a) Overview (b) Results of Operations (c) Liquidity and Capital Resources (d) Capital Strategy (e) Economic Conditions ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA ITEM 9 CHANGES IN AND DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE PART III ITEM 10 DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT (A) Identification of Trustees (B) Identification of Executive Officers (C) Identification of Certain Significant Employees (D) Identification of Certain Significant Family Relationships (E) Business Experience (F) Involvement in Certain Legal Proceedings ITEM 11 EXECUTIVE COMPENSATION (A) OFFICERS (B) TRUSTEES ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT (D) Security Ownership of Certain Beneficial Owners and Management ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS (A) Transactions with Management and others (B) Certain Business Relationships (C) Indebtedness of Management - 3 - (D) Transactions with Promoters PART IV ITEM 14 EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K - 4 - PART I ITEM 1 GENERAL DEVELOPMENT OF BUSINESS (A) Organization and Background Registrant, First Real Estate Investment Trust of New Jersey, is an unincorporated business trust organized in New Jersey pursuant to a Trust Agreement dated November 1, 1961, as amended and restated as of November 7, 1983 (the "Declaration of Trust"). Registrant is an equity real estate investment trust engaged in the business of acquiring and holding real estate including shopping centers, apartment complexes and commercial properties. In addition, the Registrant has purchased vacant land for future development. It is the policy of Registrant to purchase real property for investment and not for resale or turnover. The Registrant has operated in accordance with the above stated general policy since its inception. In the future, the Registrant may purchase additional properties on a joint venture basis in those situations where it can maintain appropriate management control. In addition, Registrant may in the future seek to purchase properties and to develop properties utilizing more financing from third party institutional sources than it has in the past. The Registrant has elected and conducts its operations in a manner intended to comply with the requirements for qualification as a real estate investment trust ("REIT") pursuant to the Real Estate Investment Act of 1960. (Sections 856-860 of the Internal Revenue Code of 1986, hereinafter referred to as the "Code"). Under the Code, a REIT which meets certain requirements is not subject to federal income tax on that portion of its taxable income which is distributed to its shareholder provided at least 95% of its REIT taxable income, excluding any net capital gain, is so distributed. Under its Declaration of Trust, the Registrant is permitted to invest in a broad range of real estate investments and non-real estate investments, including full or participating interest in securities, whether or not secured by mortgages, rents and lease payments and the ownership of any other interests, including equity interest, related to real property. The investment power permits the Registrant to generate income of the types permitted to be received by REITs under Section 856 of the Code. Registrant's Declaration of Trust permits it to conduct its business operations without qualifying as a REIT. Nevertheless, it is the Registrant's intention to continue to qualify as a REIT. All of the Registrant's properties are managed by Hekemian & Co., Inc. under a management and brokerage agreement dated December 20, 1961, as amended by an Amendment dated May 8, 1963 (the "Management Contract"). (B) Financial Information about Industry Segments The Registrant is engaged in one industry segment, the investment and management of real property. The revenue and profits from the Registrant's operations are as set forth in the Financial Statements annexed hereto. (C) Narrative Description of Business - 5 - (1) Principal Activity. The principal activity of the Registrant is to purchase real property, improved and unimproved, primarily for investment and not for resale. The Registrant is formed as a REIT under the Code which provides investors in the Registrant's shares the opportunity to participate in diversified properties consisting, primarily, of income producing apartment complexes and shopping centers. The Registrant does own vacant property which yields no income. (2) Investment Portfolio. The Registrant's real estate assets as of October 31, 1996, consisted of 15 properties all of which are wholly owned by the Registrant. In addition, the Registrant holds a 40% percent interest in Westwood Hills, a New Jersey Limited Liability Company (sometimes hereinafter referred to as the "Westwood Hills, LLC" or the "LLC") which owns a 210 unit apartment complex in Westwood, New Jersey (the "Westwood Hills Apartments"). (a) Real Property Investments. The following table sets forth certain information concerning Registrant's real estate held as of October 31, 1996:
Depreciated Square Feet, Cost of Apartment Units Buildings & Real Estate No. of or Acreage Equipment Investments Properties of Vacant Land (000's) - ----------- ---------- -------------- ------- Apartment Properties ............ 8(1) 639 Units $ 5,594 Commercial Property .............. 1 4,800 sq. ft. $ 25 Shopping Centers ............... 3 461,448 sq. ft.(2) $38,931 Unimproved Land .................. 3 62.39 Acres(3) $ 2,472 - -------- 1 Exclusive of Westwood Hills, LLC described in Item 1 C (2) hereof. 2 Includes 33,320 square feet of leasable space at the present Franklin Lakes Shopping Center, Franklin Lakes, New Jersey (the "Franklin Lakes Shopping Center") which is presently being demolished; does not include the 88,000 square feet of leasable space at the new center to be constructed at Franklin Lakes, New Jersey as described in Item (C)(d)(ii) hereof at Page 8; does not include the approximately 63,932 square feet of leasable space which the Registrant anticipates it will complete the purchase of located in Patchogue, New York as described in Item 1 (C)(d)(i) hereof at Pages 7 - 8. 3 Includes unimproved land contiguous to Franklin Lakes Shopping Center.
The Registrant's mortgage indebtedness relating to the real property investments described above were approximately $23,609,000 as of October 31, 1996 consisting of three mortgages as described in Item 2 (B)(a) hereof at Pages 20 and 21. - 6 - (b) Investment in LLC. The following table sets forth certain information concerning the Registrant's interest in the Westwood Hills, LLC.
Depreciated Investments Number of Cost of Other Number of held by Apartment Buildings & Investments Properties Registrant Units Equipment ----------- ---------- ---------- ----- --------- (000's) Westwood Hills, New Jersey Limited Liability Company 1 40% 210 $14,928,000.00
Registrant purchased a forty (40%) percent interest in Westwood Hills, LLC in June, 1994. The LLC is subject to a mortgage in the amount of $10,500,000 having a current principal balance, as of October 31, 1996, of approximately $10,346,000 as described in Item 2 (B)(c) at Pages 21 and 22 hereof. The Registrant is the managing member of Westwood Hills, LLC. (c) Other Investments. The Registrant does not hold any mortgage note receivables. The Registrant is engaged in no business other than as herein described. (d) New Investment and Development of Present Property. (i) Contract to Purchase Shopping Center The Registrant has entered into a Contract to purchase 8.775 acres of land located in the Hamlet of Patchogue, Township of Brookhaven, Suffolk County, New York (the "Land") for the purchase price of $10.4 million (the "Patchogue Shopping Center"). Registrant estimates that closing costs will be $600,000. As a result, the total costs of the new center will be approximately $11 million. There is presently being constructed on the land a food supermarket consisting of approximately 63,932 square feet of space (the "Store") which has been leased to a major food supermarket operator. It is anticipated that the Store will be constructed and open for operations in the Spring of 1997. The Registrant will complete the purchase only after the Store is ready to open to the public. - 7 - At the time of the closing for the Patchogue Shopping Center, the Registrant expects to borrow approximately seventy-five (75%) percent of the purchase price or $8,250,000. Registrant anticipates that any such financing shall be secured by a first mortgage. The mortgage may, however, be secured by either the Patchogue Shopping Center or other properties owned by the Registrant subject to securing a release or other compliance with the terms of the Line of Credit (See Item 1(C)(3) hereof at page 8 and Item 1(C)(10)(f) at page 12. The balance of the funds required for closing will be secured through the Registrant's line of credit with Summit Bank (hereinafter described in Item 1(C)(3) at Page 8). (ii) Development of Present Property In addition to the acquisition of the Patchogue Shopping Center the Registrant has closed the Franklin Lakes Shopping Center as of November 1, 1996. The present shopping center, consisting of approximately 33,320 square feet was in the process of being demolished as of December 1, 1996. The Registrant has secured all governmental approvals required to construct a new center at its Franklin Lakes, New Jersey property. The new center will consist of approximately 88,000 square feet of leasable space. The Registrant has leased approximately 42,000 square feet of the proposed new center to a major food supermarket operator. No other space at the new center has been leased as of January 1, 1997. Construction of the new center will begin during January or February 1997, weather permitting. It is expected that the new center will be open to the public sometime during the Fall of 1997. Registrant anticipates that construction will take approximately six (6) months to complete once construction begins. The Registrant anticipates that the new center will cost approximately $10.0 million to construct including all site improvements. It is the intention of the Registrant to secure a mortgage representing approximately 75% of the fair market value of the new center with the balance of the required funds being secured by drawing down on its credit line with Summit Bank. Registrant anticipates that it will apply for a $10 million mortgage to fund the costs of the new center. Any such mortgage will be subject to the terms of the credit line (hereinafter described in Item 1(C)(3) at Page 8 hereof). (3) Sources of Capital Funds The Registrant relies upon its line of credit with Summit Bank, the successor to United Jersey Bank ("UJB"), in the amount of $20 million as a primary source of funds to meet operational and investment needs (the "Line of Credit"). The Line of Credit was originally negotiated with UJB in July of 1994. The Line of Credit will expire by its terms on February 10, 1997. The Registrant anticipates, however, that Summit Bank will extend the Line of Credit for an additional period of time on terms similar to those presently in place. - 8 - In accordance with the provisions of Section 2.03 of the Line of Credit and subject to a $20 million limitation on all advances, Summit Bank will make available to the Registrant up to a maximum of $7.5 million for general business purposes and up to a maximum of $15 million on an offering basis, for the Registrant's acquisition of real estate and capital improvements. The real estate acquisition advances are subject to certain limitations and requirements. In accordance with Section 2.02(b) and Section 6.09 of the Line of Credit, the Registrant must satisfy certain financial requirements. Such tests include the maintenance of (1) Shareholders' equity at a level of at least $18 million as of the end of each fiscal quarter; (2) A debt to worth ratio of less than 4.0; (3) Cash flow (net income plus depreciation) in excess of $2.5 million for the preceding twelve months, as determined at the end of each fiscal quarter; (4) A debt service coverage ratio of 1.4 or greater. Section 6.09(e) of the Line of Credit prohibits the Registrant from incurring any additional secured or unsecured indebtedness (other than trade payables), except for the refinancing of existing mortgages, the acquisition of new income-producing property (but only where such debt is on a non-recourse basis other than liability under environmental, fraud and representation and warranty clauses) and for the expansion and/or renovation of existing income-producing property. The Registrant currently meets all of the standards set forth in the Line of Credit and anticipates that it will continue to meet all such standards in the future. Advances under the Line of Credit up to and including $10 million in the aggregate bear interest, at the election of the Registrant at either (a) Summit Bank's variable Base Lending Rate, as announced from time to time; or (b) (i) the average if LIBOR (the annual rate of interest at which United States Dollars deposits are offered to prime banks in the London Interbank market) on contracts ending 1, 2, 3 or 6 months from the advance date, for the two (2) business days proceeding the advance date (round upward to the near whole multiple of 1/16 of 1% per annum) divided by (ii) a percentage equal to 100% less than the stated maximum rate of all reserves required to be maintained against "LIBOR Rate Liabilities" as specified in Regulation D, (the "LIBOR Base"), plus (iii) 200 basis points 2%. Advances in excess of $10,000,000.00 will bear interest at Summit Bank's Base Lending Rate plus one half of one percent (1/2%) or at the LIBOR Based plus 250 basis points (2.5%). At the closing, the registrant elected to use the LIBOR Base, plus 200 basis points, which then produced an interest rate of 5.88% per annum. The principal balance due on the Line of Credit, as of October 31, 1996, was $5,662,000 with an applicable interest rate of 7.875%. The interest rate, as of December 31, 1996, remained at 7.875%. (4) Patents, Trademarks The Registrant holds no patents, trademarks, licenses, franchises or concessions, none of which are material to the business of the Registrant. (5) Seasonability of Business Registrant's business is not seasonal. (6) Inventory Registrant's business does not require the maintenance of inventory. - 9 - (7) Dependence on Single Tenant (Customer) The Registrant's business is not materially dependent upon a single tenant or a few tenants. No single tenant occupies more than 10% percent of the Registrant's total holdings. Registrant does own a single Tenant building located in Glen Rock, New Jersey consisting of 4,800 square feet of leasable space which is presently leased through January 31, 2000. Registrant does not consider the Glen Rock holding to be significant in terms of its total investment portfolio. (8) Backlog Information concerning backlog is not material nor relevant to an understanding of the Registrant's business. (9) Government Contracts None of the registrant's holdings are leased to either the Federal or any State Governments or to any subdivision thereof. (10) Competitive Conditions The Registrant is subject to normal competition with other investors to acquire real property and to profitably manage such property. Numerous other REIT(s), banks, insurance companies and pension funds, as well as corporate and individual developers and owners of real estate, compete with the Registrant in seeking properties for acquisition, tenants and properties, together with land for development. During the past several years, the Registrant has concentrated its expansion efforts upon the acquisition of multi-family residential and shopping center properties which are substantially larger than those real estate assets the Registrant had historically sought to include in its portfolio. As a result, the Registrant has encountered increasing competition for investment grade real estate from other entities and persons which have investment objectives similar to those of the Registrant. Such competitors may have significantly greater financial resources, may derive funding from foreign and domestic sources and may have larger staffs to find, evaluate and secure new properties. In addition, retailers at the Registrant's shopping centers face increasing competition from discount shopping centers, outlet malls, catalogues, discount shopping clubs, marketing through cable and computer sources and telemarketing. In many markets, the trade areas of the Registrant's shopping center properties overlap with the trade areas of other centers. Renovations and expansions at those competing malls could negatively affect the Registrant's shopping center properties by encouraging shoppers to make their purchases at the expanded or renovated competing center. Increased competition could adversely affect the Registrant's revenues. New retail real estate competition could be developed in the future in trade areas that could adversely affect the revenues of the Registrant's shopping center properties. (a) General Factors Affecting Investment in Shopping Centers and Apartment Complex Properties; Effect on Economic and Real Estate Conditions - 10 - The revenues and value of shopping centers and apartment complex properties may be adversely affected by a number of factors, including: the national economic climate; the regional economic climate (which may be adversely affected by plant closing, industry slowdowns and other local factors); local real estate conditions (such as an oversupply of retail space or apartment units); perceptions by retailers or shoppers of the security, safety, convenience and attractiveness of the shopping center; perception by residential tenants of the safety, convenience and attractiveness of an apartment building or complex; the proximity and the number of competing shopping centers and apartment complexes; the availability of recreational and other amenities and the willingness and ability of the owner to provide capable management and adequate maintenance. In addition, other factors may adversely affect the value of a shopping center or apartment complex without necessarily affecting its current revenues, including changes in government regulations, such as limitations on hours of operation, changes in tax laws or rates and potential environmental or other legal liabilities. (b) Shopping Center Properties Dependence on Anchors Stores and Satellite Tenants The Registrant's income and funds available for distribution would be adversely affected if space in the Registrant's shopping center properties could not be leased or if anchor store tenants or satellite tenants failed to meet their lease obligations. The success of the Registrant's investment in the shopping center properties is dependent upon the success of the tenants leasing space therein, and, to the extent that a tenant's performance under its lease has been guaranteed, on the guarantor of such lease. Unfavorable economic, demographic or competitive conditions may adversely affect the financial condition of tenants and/or guarantors and consequently, the lease revenues and the value of the Registrant's investments in the shopping center properties . If the sales of stores operating in the Registrant's shopping center properties were to decline due to deteriorating economic conditions, tenants may be unable to pay their base rents or meet other lease charges and fees due Registrant. In the event of default by a tenant, the Registrant might suffer a loss of rent and experience extraordinary delays while incurring additional costs in enforcing its rights as landlord. (c) Renewal of Leases and Reletting of Space (i) There is no assurance that the Registrant will be able to retain tenants in its shopping centers upon expiration of their leases. The Registrant will be subject to the risks that, upon expiration of leases for space located in the Registrant's shopping center properties, the premises may not be relet or the terms of reletting (including the cost of concessions to tenants) may be less favorable than current lease terms. If the Registrant were unable to promptly relet all or a substantial portion of this space or if the rental rates upon such reletting were significantly lower than expected rates, the Registrant's net income and ability to make expected distribution to shareholders may be adversely affected. (ii) There are no leases which Registrant considers material or significant in terms of any single property or Registrant's portfolio which expire during fiscal year 1997. (d) Illiquidity of Real Estate Investments; Possibility that Value of the Registrant's Interests may be less than its Investment - 11 - Equity real estate investments are relatively illiquid. Therefore, the ability of the Registrant to vary its portfolio in response to changed economic, market or other conditions is limited. Beyond general illiquidity, the Registrant's interest in Westwood Hills, LLC is also subject to transfer constraints imposed by the Operating Agreement for the Limited Liability Company and by the fact there is a limited market for the Registrant's interest in the Limited Liability Company. Transfer of Registrant's interest in the Westwood Hills, LLC is further restricted by the fact that the interest in the Limited Liability Company was not registered pursuant to any applicable Federal or State Securities Laws. If the Registrant were compelled to liquidate its real estate and its holding in Westwood Hills, LLC, the value of such assets would also likely be diminished if a sale of all or substantially all of the assets of the Registrant was required in a limited time frame. The proceeds to the Registrant from the sale of such assets might be less than the Registrant's current investment in those assets. (e) Inability to Obtain Financing The Registrant may or may not be able to obtain financing for improvements, capital expenditures, acquisitions, development of its properties or expansion thereof on terms which are acceptable to the Registrant. In such event, Registrant might elect to defer such projects rather than to proceed on terms which are unfavorable. (f) Leverage; No Limitation on Debt; Possible Inability to Refinance Balloon Payments on Mortgage Debt The Registrant has incurred and may continue to incur, indebtedness (secured and unsecured) in furtherance of its activities. Except for Registrant's vacant lands together with and the shopping centers located in Westwood, New Jersey and Frederick, Maryland, there is a blanket mortgage lien covering all of the Registrant's apartment properties and retail/commercial properties as a result of the Line of Credit. (See Item 2(B)(b) at Page 21 hereof). Neither the Declaration of Trust or any policy statement formally adopted by the Board of Trustees limits either the total amount of indebtedness or the specified percentage of indebtedness (based on the total capitalization of the Registrant) which may be incurred. The Board of Trustees of the Registrant has decided to increase the level of debt which the Registrant will sustain over the level of indebtedness in the past. As described in Item 1(C)(d) (i) and (d) (ii) at Page 7 hereof, the Registrant intends to purchase the Patchogue Shopping Center and to construct a new shopping center at its Franklin Lakes, New Jersey property utilizing mortgage funding which will be equal to approximately seventy-five (75%) of the market value of the properties as determined by the lending institution or institutions subject to certain restrictions set forth in the Line of Credit (see Item 1(C) (3) at Page 8 hereof) which mortgage for the Patchogue Shopping Center may not necessarily be filed against the Patchogue New York property all as described in Item 1(C)(d)(i) at page 7 hereof. As a result, the Registrant will be more highly leveraged, than it has been in, at least, the past two (2) years, resulting in an increased risk of default on the obligations of the Registrant and in an increase in debt service requirements that could adversely affect the financial condition and results of the operations of the Registrant. - 12 - The Registrant may be required to borrow money and mortgage its properties to fund any short fall of cash necessary to meet the Code's distribution requirements for the maintenance of REIT status. The resulting interest expense and debt amortization with respect to any borrowings, including borrowings under the Line of Credit could negatively affect the Registrant's cash available for distribution. If the Registrant defaults on any loan secured by a mortgage or mortgages on its property or properties, the lenders may exercise their remedies, including foreclosure on such property or properties. In that event, the Registrant could lose its investment in such property or properties. Payment obligations on mortgages and other indebtedness generally are not reduced if the economic performance of any of the Registrant's properties declines. If any such decline occurs, the Registrant's income and funds available for distribution would be adversely affected. As discussed in Item 2 B at Pages 20 - 22, the Registrant has not established a cash reserve sinking fund and does not expect to have sufficient funds from operations to make the balloon payments when due under the terms of the mortgages for its shopping centers located in Frederick, Maryland and Westwood, New Jersey. Both of the mortgages for said shopping centers are significant and are described in Item 2 (B) Pages 20 and 21 hereof. In addition, Registrant holds a 40% percent interest in the Westwood Hills, LLC which owns the Westwood Hills Apartment Complex. The LLC has, similarly, made no provision to reserve funds to pay the USG Mortgage when its balloon payment is due in 2002. The Registrant and the LLC intend to refinance such debt at or before maturity. There can be no assurance, however, that the Registrant or the Westwood Hills, LLC will be able to refinance such indebtedness or to refinance the properties on terms which are as favorable as the current mortgages. An inability to make such balloon payments when due would permit the mortgage lender to foreclose on such properties, which could have a material adverse effect on the Registrant. Registrant is confident, however, based upon the Registrant's financial resources and assets and the present market conditions, that it will be able to refinance such indebtedness on terms which are satisfactory. In addition, interest rates on any debt issued to refinance such mortgage debt may be higher than the rates on the current mortgages, which could adversely affect funds from operations available for distribution. In addition, the Line of Credit which the Registrant depends upon to provide financing expires by its terms on February 10, 1997. Registrant is confident that the Line of Credit will be extended. In the event, however, the Line of Credit was not extended, the Registrant could not meet its present obligation to purchase the Patchogue Shopping Center and complete the construction of the new center at its Franklin Lakes, New Jersey property without: (a) securing an alternate Line of Credit; (b) securing a substantial amount of capital through private or institution sources whether secured or unsecured; or (c) secure additional capital through a stock offering. - 13 - Realization of any of the foregoing contingencies could have a material adverse effect on the Registrant's net income and/or financial condition. The Registrant believes that a risk of mortgage default to be minimal, however, since it could draw upon its Line of Credit, issue additional shares of stock and mortgage other properties which are currently mortgage free to cover any refinance difficulties for the specific properties provided, however, Summit Bank agreed to: (a) release of such property from its Line of Credit or (b) subordinate its Line of Credit to any such refinancing. (11) Research and Development Activities Registrant conducts no research activities relating to the development of new products. (12) Impact of Governmental Laws and Regulations on Registrant's Business In recent years, both federal and state governments have become increasingly concerned with the impact of real estate construction and development programs upon the environment. Environmental legislation affects the cost of selling real estate, the cost to develop real estate and the risks associated with purchasing real estate. Under various federal, state and local environmental laws, statutes, ordinances, rules and regulations, an owner of real property may be liable for the costs of removal or remediation of certain hazardous or toxic substances at, on, in or under such property, as well as certain other potential costs relating to hazardous or toxic substances (including government fines and penalties and damages for injuries to persons and adjacent property). Such laws often impose such liability without regard to whether the owners knew of, or were responsible for, the presence or disposal of such substances. Such liability may be imposed on the owner in connection with the activities of any operator of, or tenant at, the property. The cost of any required remediation removal, fines or personal or property damages and the owner's liability therefore could exceed the value of the property and/or the aggregate assets of the owner. In addition, the presence of such substances, or the failure to properly dispose of or remediate such substances, may adversely affect the owner's ability to sell or rent such property or to borrow using such property as collateral, which, in turn, would reduce the Registrant's revenues and ability to make distributions. A property can also be negatively impacted by either physical contamination or by virtue of an adverse effect upon value attributable to the migration of hazardous or toxic substances, or other contaminants that have or may have emanated from other properties. The full impact of these environmental laws on the Registrant's operations cannot be fully assessed at this time. Nevertheless, the Registrant is aware of the following environmental matters affecting its properties: (a) Vacant Land Located in Rockaway Township, N.J. - 14 - The property located in Rockaway Township contains wetlands and associated transition areas. Pursuant to New Jersey law, transition areas may not be developed. The registrant has not formally determined the full impact that the wetlands and associated transition areas will have on the development of the property, pursuant to applicable laws and regulations of New Jersey. However, it is believed that future development of the property will not be substantially restricted as a result of the presence of wetlands and the associated transition areas. Under the current zoning ordinances, the property can be developed for residential use only. Registrant has no present plan to develop the property. Any development would be subject to all then applicable governmental rules and regulations. (b) Vacant Land Located in South Brunswick, N.J. The Registrant owns thirty-three (33) acres of land located in South Brunswick, New Jersey which is presently leased to third parties for farm purposes (the "South Brunswick Property"). The South Brunswick Property is situated adjacent to the J.I.S. Landfill (the "Landfill") which is listed on the National Priority List for cleanup activities under the Comprehensive Environmental Response, Compensation and Liability Act of 1980. The Landfill has been the subject of both State and Federal environmental cleanup efforts. Registrant has verified that there is no present evidence that the South Brunswick Property has been negatively impacted by the migration of contaminants from the Landfill. The groundwater below the South Brunswick Property is, however, the subject of State supervised cleanup efforts. The Registrant does not believe that future development of the South Brunswick Property will be limited by the cleanup effort since the groundwater is not the source of drinking water at the site. Any development would, however, be subject to an environmental audit which would include an inquiry into the level of pesticides present because of its current farm use. No such environmental audit has been conducted. (c) Westwood Plaza Shopping Center, Westwood, N.J. This property is in a HUD Flood Hazard Zone and serves as a local flood retention basin for part of Westwood. The Registrant does not maintain flood insurance for the subject property. Any reconstruction of that portion of the property situated in the flood hazard zone is subject to regulations promulgated by the New Jersey Department of Environmental Protection ("NJDEP") which may require extraordinary construction methods. (d) Franklin Lakes Shopping Center, Franklin Lakes, N.J. This property contains wetlands and associated transition areas. However, the location of all such areas has been determined by the Registrant and NJDEP and will not impair the development of the property as described in Item 1 C (d)(ii) at Page 7 hereof. (e) Other - 15 - The State of New Jersey has adopted an underground fuel storage tank law and various regulations which impact upon the Registrant's responsibilities with respect to underground storage tanks maintained on its properties. The Registrant does have underground storage tanks located on two (2) of its properties used in connection with heating of apartment units. The Registrant periodically visually inspects the location of each underground storage tank for evidence of any spills or discharges. Based upon the foregoing, the Registrant knows of no underground storage tanks which are discharging material into the soil at the present time. Current state law does not require the Registrant to submit its underground storage tanks to tightness testing. The Registrant has conducted no such tests. The Registrant has not conducted environmental audits for any of its properties except for its shopping center located in Frederick, Maryland. Westwood Hills, LLC did conduct a full environmental audit prior to its purchase of the Westwood Hills Apartment Complex. A full environmental audit has been conducted in connection with the contemplated purchase of the Patchogue Shopping Center. (13) Employees Registrant, as of October 31, 1996, has no full-time employees. The Registrant has eight (8) Trustees and one (1) Executive Secretary/Treasurer who are not full-time employees. - 16 - Hekemian & Co., Inc. ("Hekemian & Co.") is employed by the Registrant as its managing agent, pursuant to the Management Contract. A number of Hekemian & Co. employees are actively engaged in the management of Registrant's properties pursuant to Hekemian & Co., Inc.'s duties as managing agent. In addition, Hekemian & Co. employs various superintendents and other personnel who perform various services at the Registrant's properties. Pursuant to the Management Contract the Registrant reimburses Hekemian & Co. for salaries, hospitalization, workmen's compensation insurance and payroll taxes for superintendents and other staff, including secretarial staff, for work associated with its properties. (D) Financial Information about Foreign and Domestic Operations and Export Sales Registrant does not engage in operations in foreign countries and it does not derive any portion of its sales or revenues from customers in foreign countries. ITEM 2 DESCRIPTION OF THE PROPERTY (A) Portfolios of Investments The following chart sets certain information relating to each of the Registrant's investments. In addition to the specific mortgages which may be indicated below, the Registrant's property, except all vacant land together with the shopping centers located in Westwood, New Jersey and Frederick, Maryland and the Registrant's 40% interest in Westwood Hills, LLC are subject to a lien from Summit Bank for the Line of Credit in the face amount of $20 million.
APARTMENT PROJECTS Mortgage Occupancy Balance or Property and Year No. of Rate as of Bank Loan Location Acquired Units 10/31/96 (000's) - -------- -------- ----- -------- ------- Lakewood Apts. Lakewood, N.J. 1962 40 96.1% None Palisades Manor Palisades Pk., N.J. 1962 12 94.7% None Grandview Apts. Hasbrouck Heights, N.J. 1964 20 94.1% None Heights Manor Spring Lake Heights, N.J. 1971 79 97.6% $222 Hammel Gardens 1972 80 95.5% None Maywood, N.J. Sheridan Apts. Camden, N.J. 1964 132 91% None - 17 - Mortgage Occupancy Balance or Property and Year No. of Rate as of Bank Loan Location Acquired Units 10/31/96 (000's) - -------- -------- ----- -------- ------- Steuben Arms River Edge, N.J. 1975 100 97.1% None Berdan Court Wayne, N.J. 1965 176 94.4% None Westwood Hills, LLC(4) 1994 210 97.2% $10,346 (4) Registrant holds a forty (40%) percent interest in the Westwood Hills, LLC.
The above listed apartment properties are subject to various rent control ordinances summarized as follows: Rent Control Ordinance Summary Wayne: (Berdan Court) Renewals based on CPI figures given monthly by Township. Full vacancy decontrol. Hasbrouck Heights: (Grandview Apartments) Renewals based on five (5%) percent annual increase. Full vacancy decontrol. Maywood: (Hammel Gardens) Renewals based on 4.25% annual increase. Partial decontrol based on highest rent for similar type apartment. Spring Lake Heights: (Heights Manor) Renewals based on a 3.5% annual increase until September 1, 1997, thereafter a 4.5% annual increase is permitted. Full vacancy decontrol. Lakewood: (Lakewood Apartments) Renewals based on a 6.5% annual increase. Palisades Park: (Palisades Manor) All leases which are renewed may be increased by four (4%) percent on an annual basis. In addition, Registrant may lease any unit which is vacated to a new tenant at the higher of (a) the then current rent received for a similar unit; or (b) an increased rent based upon four (4%) above the last rent charged for such unit. - 18 - Camden: (Sheridan Apartments) Renewals based on Consumer Price Index with a maximum six (6%) percent annual increase. In the event of a vacancy, the Landlord is permitted to increase the rent of the vacant unit to the highest rent then being charged in the apartment complex. River Edge: (Steuben Arms) Renewals based on a four (4%) percent annual increase. Full vacancy decontrol. Westwood: No rent control is in effect.
SHOPPING CENTERS Mortgage Occupancy Balance or Property and Year Square Rate as of Bank Loan Location Acquired Feet 10/31/96 (000's) - -------- -------- ---- -------- ------- Franklin Lakes, N.J. 1966 33,320 14.1%(5) None Westwood, N.J. 1988 173,854 99.2% $ 5,319 Frederick, Maryland 1992 254,274 98.7% $18,068 Patchogue, New York 1997(6) N/A N/A N/A - -------- 5 The Franklin Lakes Shopping Center was effectively closed for operations on or about November 1, 1996. The demolition of the present center commenced in December 1996. Construction of the new center is scheduled to commence during January or February, 1997 weather permitting with a projected completion date of during the Fall of 1997, all as more particularly described in Item 1(C)(d)(ii) at Page 8. 6 The Registrant intends to complete the purchase of 63,932 square feet food supermarket on a 8.775 acre parcel of land located in Patchogue, New York during the Spring of 1997 all as more particularly described in Item 1(C)(d)(i) at Page 7.
- 19 -
VACANT LAND Mortgage Acreage Balance or Property and Current for Bank Loan Location Acquired Use Parcel (000's) - -------- -------- --- ------ ------- Franklin Lakes 1966 Contiguous to Franklin Lakes Shop- ping Center (Planned for future develop- ment) 15.76 None Rockaway 1964/1963 None 22.00 None South Brunswick 1964 Leased as farmland qualifying for state farmland assessment tax treatment 33 None COMMERCIAL PROPERTY Mortgage Balance or Commercial Year Square Bank Loan Location Acquired Feet Tenant (000's) - -------- -------- ---- ------ ------- Glen Rock 1962 4800 1 Tenant, None 100% of Property
(B) Description of Mortgage Liens filed as against Registrant's Investment Properties The Registrant has borrowed funds from various third party institutional lenders which are secured by its investment properties, as follows: (a) Properties owned by Registrant which secure real property mortgages. The Registrant, as of October 31, 1996, owed a total of $23,609,000.00 which indebtedness was secured by the following described mortgages: - 20 - (i) Spring Lake Heights, New Jersey. Spring Lake Heights is a seventy-nine (79) unit apartment complex which secures a first mortgage having a principal due as of October 31, 1996 of $222,000. The mortgage is held by Summit Bank, the successor in interest to UJB. The mortgage is self-liquidating and shall be paid, in full, as of April 1999. The mortgage bears interest at the rate of 7 5/8% until April 1997 when the interest will be reduced to 7.0% pursuant to the terms of the Mortgage Note. (ii) Westwood, New Jersey. The Westwood, New Jersey property is a shopping center with approximately 173,854 square feet of leasable space. The shopping center secures a first mortgage having a principal balance due as of October 31, 1996 of $5,319,000. The mortgage is held by Travelers Ins. Co., as successor to Aetna Life Insurance Company, and bears interest at the rate of 10% per annum. The Mortgage Note secured by the Mortgage is due February 1, 2003. At that time, there will be a balloon payment due of $4,203,885. The Registrant has made no provision to reserve cash to pay this indebtedness when it matures. (See Item 1(C)(10)(f), Page 12). (iii) Frederick, Maryland. The Frederick, Maryland property is a shopping center with approximately 254,274 square feet of leasable space. The shopping center secure a first mortgage having a principal balance due as of October 31, 1996 of $18,068,000. The mortgage is held by State Mutual Life Insurance Company ("State Mutual") and bears interest at the rate of 9% per annum. The Mortgage Note secured by the mortgage is due August 1, 1997. The Registrant has made no provision to reserve cash to pay this indebtedness when it matures. The Registrant has been advised that State Mutual has withdrawn from the mortgage market and is not, therefore, willing to renew the mortgage. Registrant is in the process of securing alternate financing sources for the amount of the mortgage balance. Registrant is confident that a new mortgage source will be identified prior to August 1, 1997. (b) Registrant's Line of Credit The Registrant has a $20 million Line of Credit with Summit Bank (See Item 1 C (3) at Page 8 hereof). The Line of Credit is secured by a blanket mortgage lien filed as against all of the Registrant's developed properties except the Spring Lake Heights, Westwood, New Jersey and Frederick, Maryland properties which support individual mortgages described above. In addition, Summit Bank's mortgage lien has not been filed as against any of the vacant property held by the Registrant in Rockaway, New Jersey and South Brunswick, New Jersey. (c) Westwood Hills, LLC The Registrant holds a forty (40%) percent interest in Westwood Hills, a New Jersey Limited Liability Company (the "LLC") which owns a 210 unit apartment complex located in Westwood, New Jersey. The Westwood Hills, LLC purchased the Westwood Hills Apartment Complex in 1994 for a purchase price of $15,389,000.00 including closing costs. At the time of the purchase, the LLC secured a short term mortgage in the amount of $9,520,000.00 from United Jersey Bank. - 21 - In September 1995 Westwood Hills, LLC refinanced Westwood Hills Apartment Complex. A new mortgage in the amount of $10,500,000.00 was secured from USG Annuity (the "USG Mortgage"). The USG Mortgage is for a term of seven (7) years with a twenty- five (25) year payment, the interest rate is 7.80% per annum. The principal balance of the mortgage is $10,346,000, as of October 31, 1996. At the end of the seven (7) year term of the USG Mortgage, a substantial balloon payment will be due in the amount of $9,230,965.00. The LLC has made no provision to reserve cash to meet this balloon payment obligation. (See, Liquidity and Capital Reserves). Westwood Hills, LLC intends to refinance the apartment complex prior to the time the balloon payment is due on the then prevailing terms and conditions which could be less than favorable than the present mortgage terms and conditions. ITEM 3 LEGAL PROCEEDINGS There are no material pending legal proceedings to which the Registrant is a party of which any of its properties is the subject. There are, however, ordinary and routine litigation involving the Registrant's business including various tenancy and related matters. There are no legal proceedings concerning environmental issues with respect to any property owned by the Registrant. ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. There were no matters submitted to a vote of security holders during the Registrant's fourth quarter of fiscal year 1996. PART II ITEM 5 MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER MATTERS. (A) The following tables set forth, for the periods indicated, are the highest and lowest bid and asked quotations in the over-the-counter market NASDAQ Bulletin Board. It should be noted that over-the-counter quotations reflect inter-dealer prices, without retail markup, markdown or commission and may not necessarily represent actual transactions. There is no established public trading market, the trading is sporadic and in small volumes, all as set forth below.
Number of Calendar Bid Prices Asked Prices Shares Quarter High Low High Low Sold - ------- ---- --- ---- --- ---- 1995 1st Quarter 23 1/2 23 1/2 24 1/2 24 1/8 2,545 2nd Quarter 23 23 24 23 7/8 3,812 3rd Quarter 23 23 24 24 1/2 2,050 4th Quarter 23 22 24 23 5,169 - 22 - Number of Calendar Bid Prices Asked Prices Shares Quarter High Low High Low Sold - ------- ---- --- ---- --- ---- 1996 1st Quarter 22 22 23 22 3/4 4,400 2nd Quarter 22 21 1/2 23 22 1/2 600 3rd Quarter 21 1/2 19 22 1/2 22 2,400 4th Quarter 21 7/8 21 1/2 22 1/2 22 6,200
The source of the foregoing is Janney Montgomery Scott, Inc., members of New York and other principal exchanges, 505 Main Street, Hackensack, New Jersey. (B) There is one class of stock of beneficial interest with no par value. A total of 1,559,788. shares of beneficial interest outstanding at the close of Registrant's last fiscal year ended October 31, 1996. As of December 31, 1996, the Registrant's shares where held by 393 Shareholders. The computation of the number of holders of Registrant's shares of beneficial interest was based upon a report of shareholders which was prepared by the Registrant's transfer agent as of December 13, 1996 and has been updated through December 31, 1996. ITEM 6 SELECTED FINANCIAL DATA As of or for the Year Ended October 31, 1996.
1996 1995 1994 1993 1992 -------- -------- -------- -------- -------- Operating data: Rental revenue .... $ 13,678 $ 13,250 $ 11,162 $ 9,948 $ 8,465 Rental expenses ... 10,218 9,592 8,235 7,268 5,899 -------- -------- -------- -------- -------- Income from rental operations . 3,460 3,658 2,927 2,680 2,566 Other Income ...... 7 5 5 4 136 -------- -------- -------- -------- -------- 3,467 3,663 2,932 2,684 2,702 Other expenses .... (667) (754) (473) (389) (264) Minority interest . (138) (123) (76) Net income ........ $ 2,662 $ 2,786 $ 2,383 $ 2,295 $ 2,438 ======== ======== ======== ======== ======== Total assets ...... $ 65,222 $ 65,535 $ 65,613 $ 51,356 $ 50,064 ======== ======== ======== ======== ======== - 23 - 1996 1995 1994 1993 1992 -------- -------- -------- -------- -------- Long term obligations ....... $ 33,955 $ 34,598 $ 34,019 $ 24,963 $ 25,341 ======== ======== ======== ======== ======== Per share data Earnings per share $ 1.71 $ 1.79 $ 1.53 $ 1.47 $ 1.56 ======== ======== ======== ======== ======== Dividends per share $ 1.71* $ 2.53 $ 1.62 $ 1.56 $ 1.765 ======== ======== ======== ======== ========
* The dividend shown for 1996 includes the dividend paid in December 1996 of $0.66 per share. This dividend was related to the earnings for fiscal year 1996 but was not paid out to Registrant's shareholders until December 1996. ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. (A) Liquidity and Capital Resources. (a) Overview. The following discussion should be read in conjunction with the Registrant's Financial Statements and Notes thereto appearing elsewhere in this Form 10-K. Such financial statements and information have been prepared to reflect the historical operations and financial condition of the Registrant. (b) Results of Operations. Rental revenues for the fiscal year ended October 31, 1996, were $13,678,000.00 as compared to $13,250,000.00 for the same period in 1995. The rental expenses increased to $10,218,000.00 for 1996 as compared to $9,592,000.00 for 1995. The Registrant's net income for the fiscal year 1996 was $2,662,000.00 or $1.71 per share as compared to a net income of $2,786,000.00 for fiscal year 1995 or $1.79 per share. The Registrant has continued to raise rents whenever possible consistent with market conditions while maintaining its vacancy factors at acceptable levels. Operating expenses increased during fiscal year 1996 due, primarily, to the cost for heating and snow removal. The Northeast endured a severe winter during calendar year 1995-1996 with record snow falls. As a result, both heating and snow removal costs were substantially increased over the same costs for fiscal year 1995. Registrant also took various writeoffs in fiscal year 1996 for accrued rent together with other matters. - 24 - In addition to the foregoing, the Registrant has been in the process of closing the existing Franklin Lakes Shopping Center. As a result, during the past several quarters, leases were not renewed and leasable space was left vacant. The existing center has been closed as of November 1, 1996. The income for the center was $29,635 for fiscal year 1996 as compared to $91,300 for fiscal year 1995. During the demolition and construction of the new Franklin Lakes Shopping Center the costs of construction, including all interest on any construction loan and real property taxes, will be incurred by the Registrant. In accordance with generally accepted accounting principles, the costs will be capitalized. As a result, Registrant's expenses during fiscal year 1997 will, except for the period of time after October 31, 1996 (the last day of fiscal year 1996) to the first day of construction (sometime during January or February, 1997 weather permitting) will not be reflected in its expenses for fiscal year 1997. The affect of the forgoing is that while expenses are being incurred from a cash point of view, the items which would ordinarily be expenses will be capitalized for fiscal year 1997. (c) Liquidity and Capital Resources. Cash flows from operations, debt financing and the sale of Registrant's Shares have been the principal sources of capital used to fund the Registrant's property acquisitions and expansion. The Registrant has a $20 million line of credit from Summit Bank that may be used to finance the acquisition or development of additional properties and for general business purposes. Borrowings under the Line of Credit bear interest: (i) at a variable fluctuating rate equal to Summit Bank's Base Lending Rate or at the LIBOR Based, plus 200 basis points (2.0%) on all borrowings up to $10,000,000; and (ii) at Summit's Base Lending Rate, plus one half of one percent (1/2%) or at the LIBOR Base, plus 250 basis points (2.5%) on all borrowings in excess of $10,000,000. At October 31, 1996, the sum of $5,662,000.00 was outstanding under the Line of Credit. The Registrant may seek, under certain circumstances, to obtain funds through additional equity offerings and/or debt financing (other than the Line of Credit), such as purchase money financing from the sellers of real estate or mortgage loans from institutions. Such funds may be used in connection with the acquisition of additional properties, the renovation or expansion of existing properties or, as necessary, to meet the distribution requirements for REITs under the Code. The availability and terms of any such equity offering will depend upon market and other conditions. There can be no assurance that such additional equity capital will be available on terms acceptable to the Registrant. Economic conditions and prevailing banking standards have generally restricted the availability of debt financing, particularly in connection with mortgage loans for real estate acquisitions. The Registrant is unable to project in a definitive manner what impact such economic conditions and prevailing banking standards will have on the Registrant's ability to finance new acquisitions. The Registrant continues to make capital improvements to, primarily, its apartment properties as it determines to be appropriate, including new roofs, windows and kitchens. The short term impact of such capital outlays will be to depress the Registrant's then current cash flow. The Registrant is now experiencing the benefits of these expenditures by preserving the physical integrity of its properties and securing increased rentals. - 25 - Other than the apartment rehabilitation program described above, the Registrant has made no commitments, and has no understandings for additional capital expenditures except with respect to the re-development of the Franklin Lakes Shopping Center and the purchase of the Patchogue Shopping Center described in detail at Item 1(C)(d)(i) and (ii) at Pages 7 and 8 hereof. i. Short Term Liquidity. The cash flow from operations has been sufficient to meet all current operational needs of the Registrant. Nevertheless, the commitment made by the Registrant to demolish and erect the new Franklin Lakes Shopping Center and to purchase the Patchogue Shopping Center will require the Registrant to secure a permanent mortgage for each of the properties representing approximately seventy-five (75%) of the costs to purchase the Patchogue Shopping Center and to construct the new Franklin Lakes Shopping Center. The balance of the funds required will be secured from the Line of Credit. The cash flow from operations will not be sufficient to fund the purchase of the Patchogue Shopping Center or to meet the cash requirements for the construction of the new Franklin Lakes Shopping Center. ii. Long Term Liquidity. The Registrant anticipates that the cash flow from operations after the purchase of the Patchogue Shopping Center and construction of the new Franklin Lakes Shopping Center will be more than sufficient to meet the new mortgagee obligations for each project. Registrant also expects that the cash flow from operations will permit the Registrant to pay down the Line of Credit over a period of time. iii. Under the terms of the Leases relating to the shopping center/retail properties, the tenants are responsible for various operating expenses and real estate taxes. As a result of these arrangements, the Registrant does not believe it will be responsible for any major expenses in connection with such properties during the lease term of any tenant. The Registrant anticipates entering into similar leases with respect to the properties. After the lease term or in the event a tenant is unable to meet its obligations, the Registrant anticipates that any expenditures it might become responsible for in maintaining the properties will be funded by cash from operations and, in the case of major expenditures, possibly by borrowings. To the extent that expenditures or significant borrowings are required, the Registrant's cash available for distribution and liquidity may be adversely affected. iv. Registrant may also seek purchase money financing or institutional financing, other than the Line of Credit, to finance any new acquisitions in addition to the Patchogue Shopping Center and the renovation of the Franklin Lakes Shopping Center as described in Item 1(c)(d)(i)(ii) at pages 7 and 8 hereof. As of December 31, 1996, institutional money is available at relatively reasonable rates. The Registrant may, as a result, seek to raise additional monies for investment purposes, subject to the restrictions of the Line of Credit, by securing mortgage financing on one or more of its properties. In addition, Registrant may seek to refinance one or more of its properties where mortgage financing is currently in place. (d) Capital Strategy - 26 - Since its inception in 1961, the Registrant has elected to be treated as a REIT for Federal income tax purposes. The Registrant anticipates making distributions to its stockholders from operating cash flows, which are expected to increase from future growth in rental revenues and other sources. Although cash used to make distributions reduces amounts available for capital investment, the Registrant generally intends to distribute not less than 95% of net income. Although the Registrant receives most of its rental payments on a monthly basis, it intends to make regular quarterly dividend payment distributions. The funds accumulated for dividend distributions may be invested by the Registrant in short-term marketable instruments. (e) Economic Conditions The Registrant anticipates that the U.S. Mid-Atlantic states will continue to experience moderate growth with limited inflation. Continued economic strength in the employment market should allow the Registrant to realize its current occupancy rates for its apartments with a sound support base for its shopping center operations. Any sustained inflation may, however, negatively impact Registrant in at least two areas: (a) its Line of Credit is based upon a floating rate of interest which would, if increased over the 7.875% interest rate as of December 31, 1996, result in increased costs of operations; and (b) Registrant will be seeking two permanent mortgages to finance the purchase of the Patchogue Shopping Center and to replace the present mortgage for its Frederick, Maryland Shopping Center which is due as of August 1, 1997. In addition, Registrant will also seek a construction and then a permanent mortgage for the new Franklin Lakes Shopping Center. Any increase in mortgage interest rates would necessarily increase the costs of operations during fiscal 1997. ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. Financial statements in accordance with the provisions of Regulation S-K are annexed hereto. ITEM 9 CHANGES IN AND DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. There are no matters of disagreement on accounting and financial disclosures as between the Registrant and J.H. Cohn, LLP required to be reported pursuant to Regulation S-K. There has not been in either of the past two years an adverse opinion or disclaimer of opinion, nor was any opinion qualified or modified as to uncertainty, audit scope or accounting principles. J.H. Cohn, LLP has acted as the Registrant's principal accountants and auditors since December of 1991. - 27 - PART III ITEM 10 DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT. (A) Identification of Trustees
Expiration Name Served Since Date of Term Age - ---- ------------ ------------ --- Robert S. Hekemian 1980 May, 1999 65 Donald W. Barney 1981 May, 1998 55 John B. Voskian, MD 1968 May, 1999 72 Herbert C. Klein 1961 May, 1997 66 Nicholas A. Laganella 1969 May, 1997 78 Charles J. Dodge 1990 May, 1999 53 Alan L. Aufzien 1992 May, 1998 67 Ronald J. Artinian 1992 May, 1998 48
(B) Identification of Executive Officers
Name Served Since Position - ---- ------------ -------- Robert S. Hekemian 1991 Chairman of the Board John B. Voskian, MD 1968 Secretary Donald W. Barney 1993 President William R. DeLorenzo, Jr. 1974 Executive Secty./Treasurer
All of the Officers of the Registrant serve at the pleasure of the Board of Trustees. The Officers devote the following proximate portions of their business activities to the Trust:
Mr. Hekemian.........................10% Mr. Barney...........................5% Dr. Voskian..........................Less than 5% Mr. DeLorenzo........................5%
(C) Identification of Certain Significant Employees Registrant has no employees. Hekemian & Co. serves as the managing agent for the Registrant and manages all of its properties. Hekemian & Co. retains the services of a number of individuals who work on a full or part time basis in connection with Registrant's properties. The Registrant reimburses Hekemian & Co. for certain expenses related to such employees. (See Item 1, (C)(13) at pp. 16-17 hereof). - 28 - (D) Identification of Certain Significant Family Relationships Mr. Hekemian is the brother-in-law of Dr. Voskian. Mr. Barney was formerly the brother-in-law of Mr. DeLorenzo. There are no other family relationships between any other Trustees or Executive Officers. (E) Business Experience (1) Robert S. Hekemian - Mr. Hekemian is the Chief Executive Officer and Chairman of the Board of Hekemian & Co. a real estate brokerage firm. He is a director of Summit Bank. Summit Bank is a banking institution with principal offices in Princeton, New Jersey. He is also a director, partner and/or officer of numerous private real estate corporations and partnerships. He has been active in real estate for over forty-two (42) years. (2) Donald W. Barney - Mr. Barney is Vice President and Treasurer of Union Camp Corporation, a Virginia corporation with executive offices in Wayne, New Jersey; director of Ramapo Financial Corp. a New Jersey financial institution located in Wayne, New Jersey and successor to Ramapo Bank. Mr. Barney is also a partner and director of several real estate investment companies, partnerships and corporations. (3) Dr. John B. Voskian - Dr. Voskian is a physician. He is also a director and an officer of a number of private real estate companies. Dr. Voskian is not currently practicing medicine. (4) Herbert C. Klein - Mr. Klein is a director of the law firm of Hannoch Weisman located in Roseland, New Jersey and Washington, D.C. Mr. Klein's practice is devoted to real estate, corporate matters and government relations. Mr. Klein is a former member of the United States House of Representatives for the 8th Congressional District of New Jersey. Mr. Klein was formerly a member of the law firm of Klein Chapman. Mr. Klein is also a former member of the New Jersey legislature. He is a member of the Bars of New Jersey and the District of Columbia, an attorney since 1956, and a member of the Board of Trustees of Rutgers University. Mr. Klein is also a director and partner in a number of private real estate companies. (5) Nicholas A. Laganella - Mr. Laganella is the President of P.T. & L. Construction Company and a real estate investor on his own account. (6) Charles J. Dodge - Mr. Dodge is the Chief Executive Officer of Cronheim Mortgage Co. Mr. Dodge is also a partner in a real property development company and is a real estate investor on his own account. (7) Alan L. Aufzien - Mr. Aufzien is a principal partner, Meadowlands Basketball Association, t/a New Jersey Nets (Member of the National Basketball Association), Chairman of New York Harbour Associates which is a real estate developer, Treasurer and Partner of Capital Formation Associates, a group of venture capital investors and operators, Chairman of Ral International, Ltd. and is active in various civic and business organizations. (8) Ronald J. Artinian - Mr. Artinian is the Managing Director, National Sales Manager at Smith Barney, Inc. - 29 - (9) William R. DeLorenzo, Jr. - Mr. DeLorenzo is an attorney in private practice as of counsel to the firm of Nowell Amoroso, P.A. His law office is located in Hackensack, New Jersey. Mr. DeLorenzo is the former Chairman of the New Jersey Commission on Capital Budget and Planning. Directorships - Messrs. Klein, Hekemian, Laganella, Barney, Aufzien and Artinian are Directors of closely held corporations and partnerships that own real estate. (F) Involvement in Certain Legal Proceedings No Trustee or Officer of the Registrant has been the subject of a petition in bankruptcy, criminal proceeding or order of a Court or governmental agency barring him from participating in any commodities trading, security transactions, type of business practice or any other practice set forth in Section 229.401 subparagraph (f) of Regulation S-K. ITEM 11 EXECUTIVE COMPENSATION. Set forth below is a Summary Compensation Table for each of the Registrant's Officers and Trustees for the past three fiscal years:
Name and Executive (7) Office Held Year Fees Committee Fee - ----------- ---- ---- ------------- A) OFFICERS Robert S. Hekemian, 1996 5,000 None Chairman 1995 5,000 None President 1994 3,800 None 1993 3,800 None 1992 3,800 None Donald W. Barney, 1996 5,000 None President 1995 5,000 None 1994 3,800 None 1993 1,900 None Herbert C. Klein, 1996 5,000 None President 1995 None None 1994 None None 1993 None None 1992 3,800 None John B. Voskian, 1996 5,000 None Secretary 1995 None None 1994 None None 1993 None None 1992 None None - 30 - Name and Executive (7) Office Held Year Fees Committee Fee - ----------- ---- ---- ------------- William R. 1996 10,500 2,800 DeLorenzo, Jr., 1995 10,500 1,600 Executive Secretary 1994 9,300 None and Treasurer 1993 9,300 400 1992 9,300 None - ------------------ (7) Mr. DeLorenzo is not a Trustee. As the Executive Secretary and Treasurer, he is a non-voting member of the Executive Committee and received fees as set forth. The Trustee fees appear under the Trustee listing, subparagraph B hereof.
The Registrant has determined to compensate all Trustees for fiscal 1997 at the same base rate as in 1996. Each of the Trustees or the Executive Secretary who attends regular or special meetings of the Board of Trustees shall receive an additional sum of $400 for each meeting attended. Registrant will continue to pay to each Trustee or the Executive Secretary who attends a site visit to inspect a property being reviewed for purchase, a fee of $400 together with actual and reasonable out-of-pocket expenses.
Name and Executive Office Held Year Fees Committee Fee - ----------- ---- ---- ------------- B) TRUSTEES Robert S. Hekemian 1996 5,500 3,200 1995 5,500 1,600 1994 5,500 None 1993 5,500 400 1992 5,500 None Donald W. Barney 1996 5,500 2,800 1995 5,500 1,600 1994 5,500 None 1993 5,500 400 1992 5,500 None John B. Voskian 1996 5,500 2,400 1995 5,500 1,200 1994 5,500 None 1993 5,500 None 1992 5,500 None Herbert C. Klein 1996 5,500 3,200 1995 4,583.33 1,600 1994 None None 1993 None None 1992 5,500 None - 31 - Name and Executive Office Held Year Fees Committee Fee - ----------- ---- ---- ------------- Nicholas A. Laganella 1996 5,500 2,000 1995 5,500 1,200 1994 5,500 None 1993 5,500 None 1992 5,500 None Charles J. Dodge 1996 5,500 2,800 1995 5,500 1,200 1994 5,500 None 1993 5,500 None 1992 5,500 None Ronald J. Artinian 1996 5,500 2,800 1995 5,500 2,400 1994 5,500 None 1993 5,500 400 1992 2,750 None Alan L. Aufzien 1996 5,500 2,800 1995 5,500 1,200 1994 5,500 400 1993 5,500 None 1992 2,750 None
The fee to be paid to the Chairman, President and Treasurer will continue at the rate of $5,000.00 for fiscal year 1997. No Officer or Trustee of the Registrant: a) has any stock options to purchase stock of the Registrant; b) receives any perquisites or other personal benefits, security or property; and c) is entitled to any long-term compensation of any kind from the Registrant. Registrant maintains an executive committee which includes a majority of the Trustees and the Executive Secretary as a non-voting attendee. Members of the executive committee and the Executive Secretary receive $400 for each meeting attended. Robert S. Hekemian was elected Chairman of the Board in 1991. Prior to that time, he had served the Registrant as President. - 32 - Herbert C. Klein was elected President of the Registrant in 1991. Prior to that time, he had not served the Registrant as an Officer. Mr. Klein had, however, served as a Trustee prior to 1991. Mr. Klein had resigned as President of the Registrant effective December 31, 1992 upon election to the United States House of Representatives for the term ending January 4, 1995. Mr. Klein did not receive any compensation from the Registrant for his service as a Trustee during his two-year term as a U.S. Congressman. Messrs. Artinian and Aufzien were elected to the Board of Trustees in May, 1992. They were paid a partial fee for their services in that position by the Registrant based upon the standard annual fee paid to all Trustees of $5,500. Donald W. Barney was elected President of the Registrant on May 24, 1993. ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. (A) No single person owns of record or beneficially five (5) percent or more of the shares of beneficial interest of the Registrant. (B) Title of Class Amount Beneficially Owned % of Class ------------------ ------------------------- ---------- Shares of beneficial 631,919 40.5% interest no par. All Trustees and Officers and their families as a group(8) of record and beneficial - -------------- (8) No single person owns five percent of the shares. Includes spouses, parents, children, siblings, mothers and fathers-in-law, sons and daughters-in-law, and brothers and sisters-in-law. (C) Registrant knows of no pledge of securities of the Registrant, the operation of the terms of which may at a subsequent date result in a change in control of the Registrant. - 33 - (D) Security Ownership of Certain Beneficial Owners and Management
Name of Nature of Beneficial Beneficial % of Amount of Title of Class Owner Owner Class -------------- ----- ----- ----- Shares of beneficial interest no par Robert S. Hekemian 208,182 13.35 Shares of beneficial interest no par Donald W. Barney 122,235 7.84 Shares of beneficial interest no par John B. Voskian 109,536 7.02 Shares of beneficial interest no par Herbert C. Klein 62,332 4.0 Shares of beneficial interest no par Nicholas A. Laganella 3,625 0.23 Shares of beneficial interest no par Charles J. Dodge 500 0.03 Shares of beneficial interest no par Ronald J. Artinian 108,239 6.94 Shares of beneficial interest no par Alan L. Aufzien 1,500 0.09 Shares of beneficial interest no par Wm. R. DeLorenzo, Jr. 15,770 1.01
ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. (A) Transactions with Management and others (i) Hekemian & Co. serves as the managing agent for the Registrant's properties and as a consultant to the Registrant. Robert S. Hekemian serves as Chairman of the Board of Hekemian & Co., Inc. and is also a shareholder. The following family members of Mr. Hekemian are Officers of Hekemian in the position set forth opposite their names. Samuel P. Hekemian - President Robert S. Hekemian, Jr. - Executive Vice President Bryan S. Hekemian - Vice-President and Secretary David B. Hekemian - Vice-President and Treasurer Serge Krikorian - Vice-President Insurance Department - 34 - Samuel Hekemian is the brother of Robert S. Hekemian. Robert S. Hekemian, Jr., Bryan S. Hekemian and David B. Hekemian are the sons of Robert S. Hekemian. Serge Krikorian is the brother-in-law of Robert S. Hekemian and Samuel Hekemian. Mr. Hekemian also serves on the Board of Directors of Summit Bank, which holds a first mortgage on the Registrant's property located in Spring Lake Heights as more fully described in Item 2 (B) (i) at Page 20 hereof and has issued the Line of Credit described in Item 1 (C) (3) at Pages 8 - 9 hereof. (B) Certain Business Relationships (i) On June 2, 1994, the Registrant purchased a forty (40%) percent interest in Westwood Hills, LLC which is the owner of Westwood Hills Apartments. The Westwood Hills, LLC purchased the apartment complex on June 2, 1994, pursuant to a Contract of Sale dated February 9, 1994, as amended, immediately prior to the Registrant's purchase of its interest in the LLC. The LLC does not own any property other than Westwood Hills Apartments. Pursuant to the terms of an operating agreement, the Registrant is the managing member of the LLC. The Registrant has retained Hekemian & Co. who is currently serving as the managing agent for Westwood Hills, LLC. The interests sold by the LLC to third parties, including the Registrant, were not registered pursuant to either the Securities Exchange Act of 1933 or with the New Jersey Bureau of Securities. As a result, the Registrant's interest cannot be freely transferred. There is no current market for the Registrant's interest in the LLC; the Registrant does not anticipate that a market will exist for its interest in the future. The interest of each of the members of the LLC which includes certain Trustees, their families and employees of Hekemian & Co. are as follows:
Position Percentage Relationship Initial With of With A Capital Name Trust Interest Trustee Contribution - ---- ----- -------- ------- ------------ Ronald J. Artinian Trustee 2.0% N/A $ 122,000.00 Nicholas J. Aynilian & None 0.75% Son-in-law $ 45,750.00 Elizabeth Ann Aynilian and daughter Trustees for the Elizabeth of Serge Ann Aynilian Irrevocable Krikorian, Trust, Dated 1/1/91 Vice-President Hekemian & Co., and niece of Robert S. Hekemian, Trustee Donald W. Barney Trustee 4.0% N/A $ 244,000.00 - 35 - Position Percentage Relationship Initial With of With A Capital Name Trust Interest Trustee Contribution - ---- ----- -------- ------- ------------ Katherine A. Gambino None 1.0% Daughter of $ 61,000.00 John Voskian, Trustee, and niece of Robert S. Hekemian, Trustee Bryan S. Hekemian None 7.0% Son of Robert $ 427,000.00 S. Hekemian, Trustee and Vice- President of Hekemian & Co. Lisa Jann Hekemian None 5.0% Daughter of $ 305,000.00 Robert S. Hekemian, Trustee David B. Hekemian None 7.0% Son of Robert $ 427,000.00 S. Hekemian, Trustee and Vice- President of Hekemian & Co. Robert S. Hekemian Trustee 0.8% N/A $ 48,800.00 Robert S. Hekemian, Jr. None 7.0% Son of Robert $ 427,000.00 S. Hekemian, Trustee and Vice- President of Hekemian & Co. Robert Hekemian None 1.5% Beneficiary of $ 91,500.00 & Ann Krikorian, Trust is son of Trustees f/b/o Samuel Hekemian, Jeffrey John Hekemian President of U.A.D. 1/24/78 Hekemian & Co. and nephew of Robert S. Hekemian, Trustee Robert Hekemian None 1.5% Beneficiary of $ 91,500.00 & Ann Krikorian, Trust is son of Trustees f/b/o Samuel Hekemian, Mark Steven Hekemian President of U.A.D. 12/10/85 Hekemian & Co. and nephew of Robert S. Hekemian, Trustee - 36 - Position Percentage Relationship Initial With of With A Capital Name Trust Interest Trustee Contribution - ---- ----- -------- ------- ------------ Robert Hekemian None 1.5% Beneficiary of $ 91,500.00 & Ann Krikorian, Trust is son of Trustees f/b/o Samuel Hekemian, Peter Samuel Hekemian President of U.A.D. 11/24/76 Hekemian & Co. and nephew of Robert S. Hekemian, Trustee Robert Hekemian None 1.5% Beneficiary of $ 91,500.00 & Ann Krikorian, Trust is son of Trustees f/b/o Samuel Hekemian, Richard Edward Hekemian President of U.A.D. 9/1/83 Hekemian & Co. and nephew of Robert S. Hekemian, Trustee Samuel P. Hekemian None 0.7% President of $ 42,700.00 Hekemian & Co. and brother of Robert S. Hekemian, Trustee Albert A. Kapigian None 1.0% None $ 61,000.00 Shirlee Kerbeykian None 1.5% Wife of Edward $ 91,500.00 Kerbeykian, Senior Vice-President of Hekemian & Co. Ronald F. Kistner None 0.5% Employee of $ 30,500.00 Hekemian & Co. Herbert C. Klein Trustee 1.5% N/A $ 91,500.00 Krieger Family Trust None 1.5% Jacqueline Klein $ 91,500.00 Jacqueline Klein, Trustee is the wife of Herbert C. Klein, Trustee Aimee Nicole Krikorian & None 0.75% Daughter of Serge $ 45,750.00 Elizabeth Ann Krikorian Krikorian, Vice- Trustees for the Aimee Nicole President of Krikorian Irrevocable Trust Hekemian & Co. and Dated 1/1/92 niece of Robert S. Hekemian, Trustee - 37 - Position Percentage Relationship Initial With of With A Capital Name Trust Interest Trustee Contribution - ---- ----- -------- ------- ------------ Douglas Diran Krikorian None 0.75% Son of Serge $ 45,750.00 & Elizabeth Ann Aynilian Krikorian, Vice- Trustees for the Douglas President of Diran Krikorian Irrevocable Hekemian & Co. and Trust Dated 1/1/92 nephew of Robert S. Hekemian, Trustee Gregory Serge Krikorian None 0.75% Son of Serge $ 45,750.00 & Elizabeth Ann Aynilian Krikorian, Vice- Trustees for the Gregory President of Serge Krikorian Irrevoc- Hekemian & Co. and able Trust Dated 1/1/92 nephew of Robert S. Hekemian, Trustee Henri & Leonara Nazarian None 5.0% None $ 305,000.00 Ave. Mostinck 76 Thomas A. Newton None 0.5% Former Controller $ 30,500.00 of Hekemian & Co. Stephanie H. Reckler None 2.0% None $ 122,000.00 Michael J. Voskian None 1.0% Son of John $ 61,000.00 Voskian, Trustee and nephew of Robert S. Hekemian, Trustee Victoria A. Voskian None 1.0% Daughter of John $ 61,000.00 Voskian, Trustee and niece of Robert S. Hekemian, Trustee TOTAL 60.0% $3,660,000.00
- 38 - WESTWOOD HILLS, LLC MANAGING MEMBER
INITIAL CAPITAL NAME PERCENTAGE OF INTEREST CONTRIBUTION - ---- ---------------------- ------------ First Real Estate 40% $2,440,000.00 Investment Trust of New Jersey, c/o Hekemian & Co., Inc. 505 Main Street P.O. Box 667 Hackensack, NJ 07602
(ii) Hekemian & Co. has provided various services to the Registrant in connection with the purchase of the Patchogue Shopping Center. At the time of the closing of title for the Patchogue Shopping Center, the Registrant will pay to Hekemian & Co, a fee of approximately $390,000 for services rendered in connection with the purchase and monitoring of the construction of the food supermarket store. Hekemian & Co. has provided various services to the Registrant in connection with the demolishment of the present Franklin Lakes Shopping Center and the design and construction of the new center. A fee will be paid to Hekemian & Co. for its services. No fee amount has been established as of December 31, 1996. In addition, Hekemian & Co. will be paid a fee for securing the leases for the new center, which fee has not been determined as of December 31, 1996. (iii) The law firm of Hannoch Weisman was retained by the Registrant during the fiscal year to furnish legal services. Herbert C. Klein, a Trustee, is a director of the law firm. The total fees paid to Hannoch Weisman in fiscal year 1996 was $35,000.00. (iv) The law firm of Nowell Amoroso, P.A. was not retained by the Registrant during the fiscal year to furnish legal services, except to prepare the 10-K for fiscal year 1996. William R. DeLorenzo, Jr., the Executive Secretary and Treasurer, is Of Counsel to the law firm. A fee of $2,000 will be paid to Nowell Amoroso, P.A. in connection with the preparation of the 10-K for fiscal year 1996. (v) Robert S. Hekemian and his brother Samuel P. Hekemian hold 95% of the stock in Hekemian & Co., Marilyn Voskian and Ann Krikorian each hold 2-1/2% of the stock in Hekemian & Co., which is the remaining 5%. A dispute has arisen between Robert S. Hekemian and Samuel P. Hekemian concerning their succession in Hekemian & Co. Litigation has been undertaken concerning various issues between Robert S. Hekemian and Samuel P. Hekemian which has not been resolved as of December 31, 1996. Registrant believes that Hekemian & Co. or, its successor, in the event this dispute is not resolved amicably, will appropriately service all of its management needs without interruption. - 39 - (vi) Hannoch Weisman has been retained by the Registrant as counsel, in connection with the purchase of the Patchogue Shopping Center property and the renovation of the Franklin Lakes Shopping Center. Herbert C. Klein, Esq. is a director of Hannoch Weisman and a Trustee of the Registrant. No fee has been established for either property as of December 31, 1996. (C) Indebtedness of Management Registrant has not loaned any monies to any Trustee, Officer, nominee for Trustee or any members of the immediate family of any Trustee, nominee or officer. (D) Transactions with Promoters Not applicable. PART IV ITEM 14 EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K (A) List of all documents to be filed as a part of this 10-K Report: 1. Financial Statements. (i) Report of Independent Public Accountant for Registrant, J.H. Cohn, LLP (ii) Combined Balance Sheets as of October 31, 1996 and 1995 (iii) Combined Statements of Income and Undistributed Earnings Years ended October 31, 1996, 1995 and 1994 (iv) Combined Statements for Cash Flows Years ended October 31, 1996, 1995 and 1994 (v) Notes to Combined Financial Statements 2. Financial Statement Schedules. (i) Short-Term Borrowings. (ii) Supplementing Income Statement Information. (iii) Real Estate and Accumulated Depreciation. (B) Reports on Form 8-K: No report on Form 8-K was filed by the Registrant during the last quarter of the fiscal year ending October 31, 1996. - 40 - (C) Exhibits required pursuant to Item 601 of Regulation S-K: Exhibit 3 - Amended and Restated Declaration of Trust, dated November 7, 1983 which was submitted as part of the Registrant's 10-K for 1991, as amended which Exhibit is incorporated by reference; amendment dated May 31, 1994 to paragraphs 3.5 and 7.5, which was submitted as part of Registrant's 10-K for 1994 is incorporated by reference. Exhibit 10 - Material Contracts: (i) December 20, 1961 Management Agreement between the Registrant and Hekemian & Co. (formerly known as S. Hekemian & Co., Inc.), a copy of which was filed as Exhibit 10 with Registration Statement - 2- 19609, which Exhibit is incorporated by reference. Exhibit 24 - Report of J.H. Cohn, LLP as the Independent Public Accountants of the Registrant is included in the Financial Statements, attached hereto. - 41 - SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Annual Report to be signed on its behalf by the undersigned, thereunto duly authorized. Dated: January , 1997 First Real Estate Investment Trust of New Jersey By:/s/Robert S. Hekemian --------------------- Robert S. Hekemian, Chairman of the Board and Chief Executive Officer POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Robert S. Hekemian his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments to this Annual Report, and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully as he might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent or their or his substitutes or substitute, may lawfully do or cause to be done by virtue hereof. 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 dates indicated: /s/Robert S. Hekemian DATED: January 23, 1997 - --------------------- Robert S. Hekemian, Chairman of the Board, Chief Executive Officer and Trustee (Principal Executive Officer) /s/Donald W. Barney DATED: January 23, 1997 - ------------------- Donald W. Barney, Trustee and President - 42 - /s/John B. Voskian DATED: January 23, 1997 - ------------------ John B. Voskian, Trustee and Secretary /s/Herbert C. Klein DATED: January 23, 1997 - ------------------- Herbert C. Klein, Trustee /s/Charles J. Dodge DATED: January 23, 1997 - ------------------- Charles J. Dodge, Trustee /s/Nicholas A. Laganella DATED: January 23, 1997 - ------------------------ Nicholas A. Laganella, Trustee /s/William R. DeLorenzo, Jr. DATED: January 23, 1997 - ---------------------------- William R. DeLorenzo, Jr. Executive Secretary and Treasurer (Principal Financial and Accounting Officer) - 43 - FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY AND AFFILIATE INDEX TO COMBINED FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES (ITEMS 8 AND 14(a)) (A) COMBINED FINANCIAL STATEMENTS: REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS BALANCE SHEETS OCTOBER 31, 1996 AND 1995 STATEMENTS OF INCOME AND UNDISTRIBUTED EARNINGS YEARS ENDED OCTOBER 31, 1996, 1995 AND 1994 STATEMENTS OF CASH FLOWS YEARS ENDED OCTOBER 31, 1996, 1995 AND 1994 NOTES TO FINANCIAL STATEMENTS (B) FINANCIAL STATEMENT SCHEDULES: IX - SHORT-TERM BORROWINGS X - SUPPLEMENTARY INCOME STATEMENT INFORMATION XI - REAL ESTATE AND ACCUMULATED DEPRECIATION Other schedules are omitted because of the absence of conditions under which they are required or because the required information is given in the combined financial statements or notes thereto. * * * - 44 - REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Trustees and Shareholders First Real Estate Investment Trust of New Jersey We have audited the accompanying combined balance sheets of FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY AND AFFILIATE as of October 31, 1996 and 1995, and the related combined statements of income and undistributed earnings and cash flows for each of the three years in the period ended October 31, 1996. These financial statements are the responsibility of the Trust's management. Our responsibility is to express an opinion on these financial statements 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 combined financial statements referred to above present fairly, in all material respects, the financial position of First Real Estate Investment Trust of New Jersey and Affiliate as of October 31, 1996 and 1995, and their results of operations and cash flows for each of the three years in the period ended October 31, 1996, in conformity with generally accepted accounting principles. Our audits referred to above included the information in Schedules IX, X and XI which present fairly, when read in conjunction with the combined financial statements, the information required to be set forth therein. /s/J. H. Cohn LLP ----------------- J. H. COHN LLP Roseland, New Jersey December 3, 1996 - 45 -
FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY AND AFFILIATE COMBINED BALANCE SHEETS OCTOBER 31, 1996 AND 1995 ASSETS 1996 1995 ------- ------- (In Thousands of Dollars) Real estate, at cost, net of accumulated depreciation ................................... $61,693 $62,324 Equipment, at cost, net of accumulated depreciation of $618,000 and $553,000 .......... 257 224 Cash ............................................... 243 533 Tenants' security accounts ......................... 999 947 Sundry receivables ................................. 555 248 Prepaid expenses and other assets .................. 1,209 911 Deferred charges, net .............................. 266 348 ------- ------- Totals ................................... $65,222 $65,535 ======= ======= LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities: Mortgages payable .............................. $33,955 $34,598 Note payable - bank ............................ 5,662 5,169 Accounts payable and accrued expenses .......... 347 361 Dividends payable .............................. 1,029 1,154 Tenants' security deposits ..................... 1,098 1,048 Deferred revenue ............................... 259 257 ------- ------- Total liabilities ........................ 42,350 42,587 ------- ------- Minority interest .................................. 2,888 2,959 ------- ------- COMMITMENTS AND CONTINGENCIES Shareholders' equity: Shares of beneficial interest without par value; 1,560,000 shares authorized; 1,559,788 shares issued and outstanding ........ 19,314 19,314 Undistributed earnings ......................... 670 675 ------- ------- Total shareholders' equity ............... 19,984 19,989 ------- ------- Totals ................................... $65,222 $65,535 ======= ======= See Notes to Combined Financial Statements.
- 46 -
FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY AND AFFILIATE COMBINED STATEMENTS OF INCOME AND UNDISTRIBUTED EARNINGS YEARS ENDED OCTOBER 31, 1996, 1995 AND 1994 INCOME 1996 1995 1994 ------ ---- ---- ---- (In Thousands of Dollars, Except per Share Amounts) Rental revenue: Rental income .................... $ 11,932 $ 11,700 $ 9,890 Real estate taxes reimbursed ..... 1,126 914 642 Common area maintenance reimbursed 442 466 472 Sundry income .................... 178 170 158 -------- -------- -------- Totals ....................... 13,678 13,250 11,162 -------- -------- -------- Rental expenses: Operating expenses ............... 2,925 2,636 2,482 Management fees .................. 581 556 479 Real estate taxes ................ 2,089 1,790 1,375 Interest ......................... 3,013 3,074 2,582 Depreciation ..................... 1,610 1,536 1,317 -------- -------- -------- Totals ....................... 10,218 9,592 8,235 -------- -------- -------- Income from rental operations ........ 3,460 3,658 2,927 -------- -------- -------- Other income (expense): Interest income .................. 7 5 5 Interest expense ................. (465) (503) (279) General and administrative ....... (190) (245) (185) -------- -------- -------- Totals ....................... (648) (743) (459) -------- -------- -------- Income before minority interest ...... 2,812 2,915 2,468 Minority interest .................... 138 123 76 -------- -------- -------- Income before state income taxes ..... 2,674 2,792 2,392 Provision for state income taxes ..... 12 6 9 -------- -------- -------- Net income ........................... $ 2,662 $ 2,786 $ 2,383 ======== ======== ======== Earnings per share ................... $ 1.71 $ 1.79 $ 1.53 ======== ======== ========
- 47 -
FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY AND AFFILIATE COMBINED STATEMENTS OF INCOME AND UNDISTRIBUTED EARNINGS YEARS ENDED OCTOBER 31, 1996, 1995 AND 1994 (continued) INCOME 1996 1995 1994 ------ ---- ---- ---- (In Thousands of Dollars, Except per Share Amounts) UNDISTRIBUTED EARNINGS Balance, beginning of year ........... $ 675 $ 1,834 $ 1,978 Net income ........................... 2,662 2,786 2,383 Less dividends ....................... (2,667) (3,945) (2,527) -------- -------- -------- Balance, end of year ................. $ 670 $ 675 $ 1,834 ======== ======== ======== Dividends paid per share ............. $ 1.71 $ 2.53 $ 1.62 ======== ======== ======== See Notes to Combined Financial Statements.
- 48 -
FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY AND AFFILIATE COMBINED STATEMENTS OF CASH FLOWS YEARS ENDED OCTOBER 31, 1996, 1995 AND 1994 1996 1995 1994 (In Thousands of Dollars) Operating activities: Net income ..................................... $ 2,662 $ 2,786 $ 2,383 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization .............. 1,682 1,608 1,362 Deferred revenue ........................... 2 43 85 Minority interest .......................... 138 123 76 Changes in operating assets and liabilities: Tenants' security accounts .............. (52) (80) (193) Sundry receivables, prepaid expenses and other assets ...................... (596) (461) (229) Accounts payable and accrued expenses ... (14) 17 101 Tenants' security deposits .............. 50 84 197 Other liabilities ....................... (42) ------- -------- -------- Net cash provided by operating activities ........................ 3,872 4,120 3,740 ------- -------- -------- Investing activities - capital expenditures ........ (1,011) (694) (6,330) ------- -------- -------- Financing activities: Dividends paid ................................. (2,792) (2,791) (2,527) Minority interest contribution ................. 3,660 Minority interest distribution ................. (209) (660) (240) Deferred charges ............................... (37) Proceeds from note payable - bank .............. 3,339 2,791 7,884 Repayment of note payable - bank ............... (2,846) (3,050) (6,376) Mortgage proceeds .............................. 1,175 Repayment of mortgages ......................... (643) (596) (464) ------- -------- -------- Net cash provided by (used in) financing activities .............. (3,151) (3,131) 1,900 ------- -------- -------- Net increase (decrease) in cash .................... (290) 295 (690) Cash, beginning of year ............................ 533 238 928 ------- -------- -------- Cash, end of year .................................. $ 243 $ 533 $ 238 ======= ======= ======= Supplemental disclosure of cash flow data: Interest paid .................................. $ 3,696 $ 3,360 $ 2,872 ======= ======= ======= Income taxes paid .............................. $ 8 $ 7 $ 7 ======= ======= =======
- 49 - Supplemental schedule of noncash investing and financing activities: During fiscal 1994, the Affiliate financed the purchase of real estate with mortgage proceeds of $9,520,000 (see Note 2). During fiscal 1995, the outstanding mortgage balance of approximately $9,325,000 was repaid using proceeds of a new mortgage. Dividends declared but not paid amounted to $1,029,000 and $1,154,000 at October 31, 1996 and 1995, respectively. See Notes to Combined Financial Statements. - 50 - FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY AND AFFILIATE NOTES TO COMBINED FINANCIAL STATEMENTS Note 1 - Organization and significant accounting policies: Organization: First Real Estate Investment Trust of New Jersey (the "Trust") was organized November 1, 1961 as a New Jersey Business Trust. The Trust is engaged in owning residential and commercial income producing properties located primarily in New Jersey. The Trust has elected to be taxed as a Real Estate Investment Trust under the provisions of Sections 856-860 of the Internal Revenue Code, as amended. Accordingly, the Trust does not pay Federal income tax on income whenever income distributed to shareholders is equal to at least 95% of real estate investment trust taxable income. Further, the Trust pays no Federal income tax on capital gains distributed to shareholders. The Trust is subject to Federal income tax on undistributed taxable income and capital gains. The Trust may make an annual election under Section 858 of the Internal Revenue Code to apply part of the regular dividends paid in each respective subsequent year as a distribution for the immediately preceding year. For fiscal 1996, 1995 and 1994, the Trust made such an election. Principles of combination: The combined financial statements include the accounts of the Trust and Westwood Hills, LLC (the "Affiliate"), which have been combined on the basis of common control. The Affiliate is a limited liability company that is 40%-owned by the Trust and managed by Hekemian & Co., Inc. ("Hekemian"), a company which manages all of the Trust's properties and in which one of the trustees of the Trust is the chairman of the board. Certain other members of the Affiliate are either trustees of the Trust or their families or officers of Hekemian. The combined financial statements include 100% of the Affiliate's assets, liabilities, operations and cash flows with the 60% interest owned by the other members of the Affiliate reflected as "minority interest." All significant intercompany accounts and transactions have been eliminated in combination. Use of estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. - 51 - FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY AND AFFILIATE NOTES TO COMBINED FINANCIAL STATEMENTS Note 1 - Organization and significant accounting policies (continued): Cash: The Trust and its Affiliate maintain their cash in bank deposit accounts which, at times, may exceed Federally insured limits. The Trust considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents. At October 31, 1996 and 1995, the Trust had no cash equivalents. Depreciation: Real estate and equipment are depreciated on the straight-line method by annual charges to operations calculated to absorb costs of assets over their estimated useful lives. Revenue recognition: Income from leases is recognized on a straight-line basis regardless of when payment is due. Lease agreements between the Trust and commercial tenants generally provide for additional rentals based on such factors as percentage of tenants' sales in excess of specified volumes, increases in real estate taxes, Consumer Price Indices and common area maintenance charges. These additional rentals are generally included in income when reported to the Trust, when billed to tenants or ratably over the appropriate period. Deferred charges: Deferred charges consist of mortgage costs and leasing commissions. Deferred mortgage costs are amortized on the straight-line method by annual charges to operations over the terms of the mortgages. Deferred leasing commissions are amortized on the straight-line method over the terms of the applicable leases. Advertising: The Trust expenses the cost of advertising and promotions as incurred. Advertising costs charged to operations amounted to approximately $55,000, $31,000 and $21,000 in 1996, 1995 and 1994, respectively. Income taxes: The Affiliate, with the consent of its members, elected to be treated as a limited liability company under the applicable sections of the Internal Revenue Code. Under these sections, income or loss, in general, is allocated to the members for inclusion in their individual income tax returns. Accordingly, there is no provision for income taxes applicable to the operations of the Affiliate in the accompanying combined financial statements. - 52 - FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY AND AFFILIATE NOTES TO COMBINED FINANCIAL STATEMENTS Note 1 - Organization and significant accounting policies (concluded): Earnings per share: Earnings per share are computed based on the weighted average number of shares outstanding. The weighted average number of shares outstanding was 1,559,788 for each of the three years in the period ended October 31, 1996. Note 2 - Acquisition: During May 1994, the Trust became a 40% member of the Affiliate, a newly formed limited liability company. On June 2, 1994, the Affiliate consummated the purchase of Westwood Properties, a residential apartment complex located in Westwood, New Jersey (the "Apartment Complex"). The cost of the Apartment Complex was approximately $15,389,000 of which $5,869,000 was paid in cash and $9,520,000 was financed by the proceeds of a mortgage. The acquisition was accounted for as a purchase and, accordingly, the Apartment Complex's operations have been included in the accompanying combined statements of income since the date of acquisition. Of the total cost of the acquisition (including related acquisition expenses), $3,849,000 was allocated to land and $11,540,000 to buildings and improvements. In connection with the acquisition, the Affiliate paid Hekemian a $500,000 real estate commission, which amount is included in the cost of the Apartment Complex. The following unaudited proforma information (in thousands of dollars, except per share amounts) shows the results of operations for the year ended October 31, 1994 as though the Apartment Complex had been acquired at the beginning of fiscal 1994:
Rental revenue $12,398 Rental expenses (9,293) ------- Income from rental operations 3,105 Other expenses, net (542) Minority interest (180) Provision for income taxes (8) ------- Net income $ 2,375 ======= Earnings per share $1.52 =====
- 53 - FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY AND AFFILIATE NOTES TO COMBINED FINANCIAL STATEMENTS Note 2 - Acquisition (concluded): In addition to combining the historical results of operations of the Apartment Complex and the Trust, the unaudited proforma results include adjustments for depreciation based on the Affiliate's purchase price, reduced interest income and increased interest expense related to cash paid and obligations incurred to complete the transaction. The unaudited proforma results of operations set forth above are based on information furnished by the Trust's management. Such proforma information is not necessarily indicative of the results that would have occurred had the acquisition been made at the beginning of fiscal 1994 or of future results of operations of the combined properties. Note 3 - Real estate: Real estate consists of the following:
Range of Estimated Useful Lives 1996 1995 ------------ ---- ---- (In Thousands of Dollars) Land $21,112 $21,112 Unimproved land 2,472 2,452 Apartment buildings 7-40 years 21,909 21,333 Commercial buildings 25-31.5 years 58 58 Shopping centers 15-50 years 26,947 26,859 Construction in progress 969 714 ------- ------- 73,467 72,528 Less accumulated de- preciation 11,774 10,204 ------- ------- Totals $61,693 $62,324 ======= =======
- 54 - FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY AND AFFILIATE NOTES TO COMBINED FINANCIAL STATEMENTS Note 4 - Mortgages payable: Mortgages payable consist of the following:
1996 1995 ------- ------- (In Thousands of Dollars) State Mutual Life Insurance Co. (A) $18,068 $18,359 Travelers Insurance (B) 5,319 5,444 USG Annuity (C) 10,346 10,488 Summit Bank (D) 222 307 ------- ------- Totals $33,955 $34,598 ======= =======
(A) Payable in monthly installments of $160,925 including interest at 9% through August 1997 at which time the outstanding balance is due. The mortgage is secured by a shopping center in Frederick, Maryland having a net book value of approximately $25,755,000. (B) Payable in monthly installments of $55,287 including interest at 10% through September 2001 at which time the outstanding balance is due. The mortgage is secured by a shopping center in Westwood, New Jersey having a net book value of approximately $11,890,000. (C) Payable in monthly installments of $79,655 including interest at 7.8% through October 2002 at which time the outstanding balance is due. The mortgage is secured by an apartment complex in Westwood, New Jersey having a net book value of approximately $14,928,000. (D) Payable in monthly installments of $8,555 including interest at 7.625% through March 1999 at which time the outstanding balance is due. The mortgage is secured by an apartment building in Spring Lake, New Jersey having a net book value of approximately $627,000. One of the directors of the bank is a trustee of the Trust. - 55 - FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY AND AFFILIATE NOTES TO COMBINED FINANCIAL STATEMENTS Note 4 - Mortgages payable (concluded): Principal amounts (in thousands of dollars) due under the above obligations in each of the five years subsequent to October 31, 1996 are as follows:
Year Ending October 31, Amount ----------- ------ 1997 $18,448 1998 414 1999 387 2000 379 2001 4,885
The carrying amount of mortgages payable approximates fair value at October 31, 1996. Note 5 - Note payable - bank: Note payable - bank consists of borrowings under a $20,000,000 revolving line of credit agreement with Summit Bank which expires on February 10, 1997. The first $10,000,000 of borrowings under the line of credit bear interest at either the prime rate or the LIBOR rate plus 200 basis points. Any excess borrowings bear interest at either the prime rate plus 1/2% or the LIBOR rate plus 250 basis points. Outstanding borrowings are secured by all of the Trust's properties except the shopping centers located in Frederick, Maryland and Westwood, New Jersey, the Apartment Complex in Westwood, New Jersey, and any vacant land owned by the Trust. Note 6 - Commitments and contingencies: Leases: Commercial tenants: The Trust leases commercial space having a net book value of approximately $38,956,000 at October 31, 1996 to tenants for periods of up to twenty years. Most of the leases contain clauses for reimbursement of real estate taxes, maintenance, insurance and certain other operating expenses of the properties. Minimum rental income (in thousands of dollars) to be received from noncancelable operating leases in years subsequent to October 31, 1996 are as follows: - 56 - FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY AND AFFILIATE NOTES TO COMBINED FINANCIAL STATEMENTS Note 6 - Commitments and contingencies (concluded):
Year Ending October 31, Amount ----------- ------ 1997 $ 3,598 1998 3,274 1999 2,961 2000 2,448 2001 2,269 Thereafter 10,892 ------- Total $25,442 =======
The above amounts assume that all leases which expire are not renewed and, accordingly, neither minimal rentals nor rentals from replacement tenants are included. In addition, the above amounts do not include any future minimum rentals to be received for the shopping center in Franklin Lakes, New Jersey having a net book value of approximately $1,286,000 at October 31, 1996. Management closed the shopping center on September 1, 1995 except for one tenant who vacated the premises on November 1, 1996. Commencement of a complete refurbishing of the premises is scheduled to begin during January or February 1997 and it is expected to be open for operations in the Fall of 1997. The cost of the refurbishing, which has been put out for bid, is currently anticipated to approximate $10,000,000. Rental revenue derived from the shopping center was approximately $140,000, $207,000 and $310,000 in fiscal 1996, 1995 and 1994, respectively, and income from rental operations was approximately $30,000, $91,000 and $166,000, respectively. Minimum future rentals do not include contingent rentals which may be received under certain leases on the basis of percentage of reported tenants' sales volume or increases in Consumer Price Indices. Contingent rentals included in income for each of the three years in the period ended October 31, 1996 were not material. - 57 - FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY AND AFFILIATE NOTES TO COMBINED FINANCIAL STATEMENTS Note 6 - Commitments and contingencies (concluded): Leases (concluded): Residential tenants: Lease terms for residential tenants are usually one year or less. Acquisition: The Trust has entered into a contract to purchase a 64,000 square foot shopping center to be constructed in Patchogue, New York for approximately $11,000,000 including commissions and estimated professional fees. The contract to purchase the Patchogue center is contingent upon the construction being completed during January 1997. Note 7 - Management agreement: The properties owned by the Trust and the Affiliate are currently managed by Hekemian. The management agreement requires fees equal to a percentage of rents collected. Such fees were approximately $581,000, $556,000 and $479,000 in 1996, 1995 and 1994, respectively. Note 8 - Earnings per share: Earnings per share, based on the weighted average number of shares outstanding during each period, are comprised of ordinary income. * * * - 58 -
FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY AND AFFILIATE SCHEDULE IX - SHORT-TERM BORROWINGS (In Thousands of Dollars) Column A Column B Column C Column D Column E Column F -------- -------- -------- -------- -------- -------- Maximum Average Amount Amount Weighted Out- Out- Average Category of Balance Weighted standing standing Interest Aggregate at Average During During Rate Short-Term End of Interest the the During the Borrowings (A) Period Rate Period Period Period (B) - -------------- ------ ---- ------ ------ ---------- 1996: Note payable - bank .............. $5,662 7.98% $6,362 $5,683 8.2% ====== ==== ====== ====== === 1995: Note payable - bank .............. $5,169 8.09% $6,582 $5,585 7.9% ====== ==== ====== ====== === 1994: Note payable - bank .............. $5,428 5.97% $5,728 $4,505 6.2% ====== ==== ====== ====== ===
(A) See Note 5 of notes to combined financial statements. (B) Calculated using average monthly loan balances and actual interest expense. SCHEDULE X - SUPPLEMENTARY INCOME STATEMENT INFORMATION (In Thousands of Dollars) Column A Column B -------- -------- Charged to Costs Item (A) and Expenses -------- ------------ 1996 1995 1994 ---- ---- ---- Maintenance and repairs ........... $ 268 $ 243 $ 345 ====== ====== ====== Real estate taxes ................. $2,090 $1,790 $1,375 ====== ====== ======
(A) Amounts for other items were less than 1% of revenue in all years.
FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY AND AFFILIATE SCHEDULE XI - REAL ESTATE AND ACCUMULATED DEPRECIATION OCTOBER 31, 1996 (In Thousands of Dollars) Column A Column B Column C Column D Column E -------- -------- -------- -------- -------- Costs Capitalized Initial Cost Subsequent Gross Amount at Which to Company to Acquisition Carried at Close of Period Buildings Buildings Encum- and Carrying and Description brances Land Improvements Improvements Costs Land Improvements Total(1) ----------- ------- ---- ------------ ------------ ----- ---- ------------ -------- Garden apartments: Sheridan Apts., Camden, NJ ......................... $ 117 $ 360 $ 849 $ 117 $ 1,209 $ 1,326 Grandview Apts., Has- brouck Heights, NJ ................. 22 180 175 22 355 377 Lakewood Apts., Lake- wood, NJ ........................... 11 396 155 11 551 562 Hammel Gardens, May- wood, NJ ........................... 313 728 622 313 1,350 1,663 Palisades Manor, Palisades Park, NJ ................. 12 81 80 12 161 173 Steuben Arms, River Edge, NJ ........................... 364 1,773 329 364 2,102 2,466 Heights Manor, Spring Lake Heights, NJ ................... $ 222 109 974 301 109 1,275 1,384 Berdan Court, Wayne NJ ................................. 250 2,206 961 250 3,167 3,417 Westwood Hills, Westwood, NJ ....................... 10,346 3,849 11,540 199 3,849 11,739 15,588 Commercial property: Glen Rock, NJ .......................... 12 36 22 12 58 70 Shopping centers: Franklin Lakes Shopping Center, Franklin Lakes, NJ ................. 29 380 1,214 29 1,594 1,623 Westridge Shopping Center, Frederick, MD ................................... 18,068 9,135 19,159 336 9,135 19,495 28,630 Westwood Shopping Center, Westwood, NJ ................................. 5,319 6,889 6,416 411 6,889 6,827 13,716 Vacant land: Franklin Lakes, NJ ....................... 224 $ 8 232 232 Rockaway, NJ ........................... 1,683 384 2,067 2,067 South Brunswick, NJ .................... 80 93 173 173 ------- ------- ------- ------- ------- ------- ------- ------- Totals .......................... $33,955 $23,099 $44,229 $ 5,654 $ 485 $23,584 $49,883 $73,467 ======= ======= ======= ======= ======= ======= ======= ======= FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY AND AFFILIATE SCHEDULE XI - REAL ESTATE AND ACCUMULATED DEPRECIATION OCTOBER 31, 1996 (In Thousands of Dollars) (continued) Column F Column G Column H Column I -------- -------- -------- -------- Which Accumulated Date of Date Depreciation Description Depreciation Construction Acquired is Computed ----------- ------------ ------------ -------- ----------- Garden apartments: Sheridan Apts., Camden, NJ .............. $ 629 1950 1964 7-40 years Grandview Apts., Has- brouck Heights, NJ ...... 218 1925 1964 7-40 years Lakewood Apts., Lake- wood, NJ ................ 405 1960 1962 7-40 years Hammel Gardens, May- wood, NJ ................ 676 1949 1972 7-40 years Palisades Manor, Palisades Park, NJ ...... 104 1935/70 1962 7-40 years Steuben Arms, River Edge, NJ ................ 1,065 1966 1975 7-40 years Heights Manor, Spring Lake Heights, NJ ........ 791 1967 1971 7-40 years Berdan Court, Wayne NJ ...................... 2,072 1964 1965 7-40 years Westwood Hills, Westwood, NJ ............ 731 1966 1994 7-40 years Commercial property: Glen Rock, NJ ............... 45 1940 1962 10-31.5 years Shopping centers: Franklin Lakes Shopping Center, Franklin Lakes, NJ ...... 337 1963/75 1966 10-50 years Westridge Shopping Center, Frederick, MD ...................... 2,875 1986 1992 15-31.5 years Westwood Shopping Center, Westwood, NJ ...................... 1,826 1981 1988 15-31.5 years Vacant land: Franklin Lakes, NJ .......... 1966/93 Rockaway, NJ ................ 1964/92/93 South Brunswick, NJ ......... 1964 ------- Totals ............... $11,774 ======= (1) Aggregate cost is the same for Federal income tax purposes.
FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY AND AFFILIATE SCHEDULE XI - REAL ESTATE AND ACCUMULATED DEPRECIATION (In Thousands of Dollars) Reconciliation of real estate and accumulated depreciation: 1996 1995 1994 -------- -------- -------- Real estate: Balance, beginning of year .............. $ 72,528 $ 71,884 $ 56,080 Additions: Land ................................ 3,849 Building and improvements ........... 959 691 11,927 Carrying costs ...................... 20 (7) 28 Deductions - write-off of fully depre- ciated assets ....................... (40) (40) -------- -------- -------- Balance, end of year .................... $ 73,467 $ 72,528 $ 71,884 ======== ======== ======== Accumulated depreciation: Balance, beginning of year .............. $ 10,204 $ 8,708 $ 7,433 Additions - charged to operating expenses 1,610 1,536 1,275 Deductions - write-off of fully depre- ciated assets ....................... (40) (40) -------- -------- -------- Balance, end of year .................... $ 11,774 $ 10,204 $ 8,708 ======== ======== ========
EX-27 2
5 YEAR OCT-31-1996 OCT-31-1996 243,000 0 0 0 0 0 74,085,000 12,392,000 65,222,000 0 39,617,000 0 0 19,314,000 670,000 65,222,000 0 13,678,000 0 10,218,000 786,000 0 0 2,674,000 12,000 2,662,000 0 0 0 2,662,000 1.71 1.71
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