-----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, TCtA6e3WR4gQAqer6XsQ0u4brUeG1HSao11qA5Gp7UIutkupj3eRpakBvJ6t9u1j A74O6Ysun35ZYo2hdDDBlg== 0000914317-99-000146.txt : 19990318 0000914317-99-000146.hdr.sgml : 19990318 ACCESSION NUMBER: 0000914317-99-000146 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990131 FILED AS OF DATE: 19990317 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-Q SEC ACT: SEC FILE NUMBER: 000-25043 FILM NUMBER: 99567176 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-Q 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT OF 1934 For Quarter Ended January 31, 1999 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 or 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 number, including area code 201-488-6400 - -------------------------------------------------------------------------------- Former name,former address and former fiscal year, if changed since last report. Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days. Yes [ X ] No [ ] FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY INDEX Part I: Financial Information Item 1: Financial Statements a.) Balance Sheets as at January 31, 1999 and October 31, 1998; b.) Statements of Income and Undistributed Earnings For the Three Months Ended January 31, 1999 and 1998; c.) Statements of Cash Flows for Three Months Ended the January 31, 1999 and 1998; d.) Notes to Financial Statements. Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations. Item 3: Quantitative and Qualitative Disclosures of Market Risk. Part II: Other Information Item 1. Legal Proceedings Item 6. Exhibits and Reports on Form 8-K Item 1. Financial Statements
FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY BALANCE SHEETS JANUARY 31, 1999 AND OCTOBER 31, 1998 January October ASSETS 31, 1999 31, 1998 -------- -------- (Unaudited) (See Note 1) (In Thousands of Dollars) Real estate, at cost, net of accumulated depreciation ............... $64,246 $64,432 Equipment, at cost, net of accumulated depreciation of $713,000 and $657,000 ........................................... 182 190 Investment in affiliate ............................................. 1,918 Cash and cash equivalents ........................................... 15,142 793 Tenants' security accounts .......................................... 762 752 Note receivable - affiliate ......................................... 100 Sundry receivables .................................................. 983 728 Prepaid expenses and other assets ................................... 851 1,172 Deferred charges, net ............................................... 1,347 1,190 ------- ------- Totals ................................................... $83,513 $71,275 ======= ======= LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities: Mortgages payable ............................................... $60,631 $47,853 Accounts payable and accrued expenses ........................... 392 401 Cash distributions and equity in losses in excess of investment in affiliate ................................................ 304 Dividends payable ............................................... 624 1,435 Tenants' security deposits ...................................... 980 969 Deferred revenue ................................................ 154 255 ------- ------- Total liabilities ........................................ 63,085 50,913 ------- ------- Commitments and contingencies Shareholders' equity: Shares of beneficial interest without par value; 1,790,000 shares authorized; 1,559,788 shares issued and outstanding ......... 19,314 19,314 Undistributed earnings .......................................... 1,114 1,048 ------- ------- Total shareholders' equity ............................... 20,428 20,362 ------- ------- Totals ................................................... $83,513 $71,275 ======= =======
See Notes to Financial Statements.
FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY STATEMENTS OF INCOME AND UNDISTRIBUTED EARNINGS THREE MONTHS ENDED JANUARY 31, 1999 AND 1998 (Unaudited) INCOME 1999 1998 ----------- ----------- (In Thousands of Dollars, Except per Share Amounts) Revenue: Rental income ............................................ $ 3,214 $ 2,918 Reimbursements ........................................... 395 383 Equity in income (loss) of affiliate ..................... (142) 36 Interest income .......................................... 144 Sundry income ............................................ 44 37 ----------- ----------- Totals ............................................... 3,655 3,374 ----------- ----------- Expenses: Operating expenses ....................................... 794 713 Management fees .......................................... 153 128 Real estate taxes ........................................ 445 442 Interest ................................................. 1,149 917 Depreciation ............................................. 421 375 ----------- ----------- Totals ............................................... 2,962 2,575 ----------- ----------- Income before state income taxes ............................. 693 799 Provision for state income taxes ............................. 3 3 ----------- ----------- Net income ................................................... $ 690 $ 796 =========== =========== Basic earnings per share ..................................... $ .44 $ .51 =========== =========== Basic weighted average shares outstanding .................... 1,559,788 1,559,788 =========== =========== UNDISTRIBUTED EARNINGS Balance, beginning of period ................................. $ 1,048 $ 670 Net income .................................................. 690 796 Less dividends ............................................... (624) (624) ----------- ----------- Balance, end of period ....................................... $ 1,114 $ 842 =========== =========== Dividends per share .......................................... $ .40 $ .40 =========== ===========
See Notes to Financial Statements.
FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY STATEMENTS OF CASH FLOWS THREE MONTHS ENDED JANUARY 31, 1999 AND 1998 (Unaudited) 1999 1998 -------- -------- (In Thousands of Dollars) Operating activities: Net income ................................................... $ 690 $ 796 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization ............................ 456 400 Deferred revenue ......................................... (101) (132) Equity in (income) loss of affiliate ..................... 142 (36) Changes in operating assets and liabilities: Tenants' security accounts ............................ (10) (27) Sundry receivables, prepaid expenses and other assets . 66 681 Deferred charges ...................................... (7) Accounts payable and accrued expenses ................. (9) (46) Tenants' security deposits ............................ 11 33 -------- -------- Net cash provided by operating activities ......... 1,238 1,669 -------- -------- Investing activities: Capital expenditures ......................................... (227) (4,726) Distributions from affiliate ................................. 2,080 80 Repayment of loan by affiliate ............................... 100 -------- -------- Net cash provided by (used in) investing activities 1,953 (4,646) -------- -------- Financing activities: Dividends paid ............................................... (1,435) (1,326) Repayments of note payable - bank ............................ (11,429) Net proceeds from mortgage refinancing ....................... 3,671 5,443 Proceeds from mortgage borrowings ............................ 9,275 11,100 Repayment of mortgages ....................................... (168) (116) Deferred mortgage costs ...................................... (185) (490) -------- -------- Net cash provided by financing activities ......... 11,158 3,182 -------- -------- Net increase in cash and cash equivalents ........................ 14,349 205 Cash and cash equivalents, beginning of period ................... 793 228 -------- -------- Cash and cash equivalents, end of period ......................... $ 15,142 $ 433 ======== ======== Supplemental disclosure of cash flow data: Interest paid, net of capitalized interest of $52,000 in 1998 $ 1,149 $ 906 ======== ========
Supplemental schedule of noncash investing and financing activities: Dividends declared but not paid amounted to $624,000 at January 31, 1999 and 1998, respectively. During the three months ended January 31, 1998, the Trust completed its acquisition of a 64,000 square foot retail property in Patchogue, New York for approximately $11,000,000, in part, with the proceeds of a $7,500,000 mortgage. See Notes to Financial Statements. FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY NOTES TO FINANCIAL STATEMENTS Note 1 - Organization and significant accounting policies: Organization: First Real Estate Investment Trust of New Jersey (the "Trust") was organized on November 1, 1961 as a New Jersey Business Trust. The Trust is engaged in owning residential and retail income producing properties located in New Jersey, Maryland and New York. 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. Basis of presentation: The financial information included herein as at January 31, 1999 and for the three months ended January 31, 1999 and 1998 is unaudited and, in the opinion of the Trust, reflects all adjustments (which include only normal recurring accruals) necessary for a fair presentation of the financial position as of that date and the results of operations for those periods. The information in the balance sheet as of October 31, 1998 was derived from the Trust's audited annual report for 1998. 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. Investment in affiliate: The Trust's 40% investment in Westwood Hills, LLC (the "Affiliate") is accounted for using the equity method. Cash and cash equivalents: The Trust maintains its 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. 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. FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY NOTES TO FINANCIAL STATEMENTS Note 1 - Organization and significant accounting policies (concluded): Revenue recognition: Income from leases is recognized on a straight-line basis regardless of when payment is due. Lease agreements between the Trust and retail 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. Amortization of such costs is included in interest expense and approximated $21,000 and $11,000 for the three months ended January 31, 1999 and 1998, respectively. 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 $9,000 and $14,000 for the three months ended January 31, 1999 and 1998, respectively. Earnings per share: The Trust has presented "basic" earnings per share in the accompanying statements of income in accordance with the provisions of Statement of Financial Accounting Standards No. 128, Earnings per Share ("SFAS 128"). SFAS 128 also requires the presentation of "diluted" earnings per share if the amount differs from basic earnings per share. Basic earnings per share is calculated by dividing net income by the weighted average number of common shares outstanding during each period. The calculation of diluted earnings per share is similar to that of basic earnings per share, except that the denominator is increased to include the number of additional common shares that would have been outstanding if all potentially dilutive common shares, such as those issuable upon the exercise of stock options and warrants, were issued during the period. For the three months ended January 31, 1999 and 1998, the Trust had no potentially dilutive common shares. Note 2 - Investment in affiliate: The Trust is a 40% member of the Affiliate, a limited liability company that is 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 Affiliate owns a residential apartment complex located in Westwood, New Jersey. FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY NOTES TO FINANCIAL STATEMENTS Note 2 - Investment in affiliate (concluded): Summarized financial information of the Affiliate as of January 31, 1999 and October 31, 1998 and for the three months ended January 31, 1999 and 1998 is as follows:
January October 31, 1999 31, 1998 -------- -------- (In Thousands of Dollars) Balance sheet data: Assets: Real estate and equipment, net ............... $ 14,366 $ 14,416 Other ........................................ 705 976 -------- -------- Total assets .......................... $ 15,071 $ 15,392 ======== ======== Liabilities and equity: Liabilities: Mortgage payable .......................... $ 15,487 $ 10,025 Other ..................................... 347 576 -------- -------- Totals ................................ 15,834 10,601 -------- -------- Members' equity: Trust ..................................... (304) 1,918 Others .................................... (459) 2,873 -------- -------- Totals ................................ (763) 4,791 -------- -------- Total liabilities and members' equity . $ 15,071 $ 15,392 ======== ======== Three Months Ended January 31, 1999 1998 ----- ----- (In Thousands of Dollars) Income statement data: Rental revenue ..................................... $ 659 $ 645 Rental expenses .................................... 571 556 ----- ----- Income from rental operations ...................... 88 89 Prepayment penalty on mortgage refinancing ......... (442) ----- ----- Net income (loss) .................................. $(354) $ 89 ===== =====
At October 31, 1998, the Trust had a $100,000 note receivable from the Affiliate that was repaid during the three months ended January 31, 1999 with interest at 7%. Interest income was not material. FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY NOTES TO FINANCIAL STATEMENTS Note 3 - Real estate: Real estate consists of the following:
Range of Estimated January October Useful Lives 31, 1999 31, 1998 ------------ -------- -------- (In Thousands of Dollars) Land $22,773 $22,773 Unimproved land 2,307 2,305 Apartment buildings 7-40 years 11,058 11,013 Retail buildings 15-50 years 39,929 39,931 Construction in progress 2,238 2,053 --------- --------- 78,305 78,075 Less accumulated depreciation 14,059 13,643 -------- -------- Totals $64,246 $64,432 ======= =======
Note 4 - Mortgages payable: Mortgages payable consist of the following:
January October 31, 1999 31, 1998 -------- -------- (In Thousands of Dollars) Northern Life Insurance Cos. - Frederick, MD (A) $18,812 $18,876 National Realty Funding L.C. - Westwood, NJ (B) 10,500 10,526 Summit Bank - Springlake, NJ (C) 29 Larson Financial Resources, Inc. - Spring Lake, NJ (C) 3,694 Summit Bank - Patchogue, NY (D) 7,382 7,410 Larson Financial Resources, Inc. - Wayne, NJ (E) 10,984 11,012 Larson Financial Resources, Inc. - River Edge, NJ (F) 5,366 Larson Financial Resources, Inc. - Maywood, NJ (G) 3,893 ------- Totals $60,631 $47,853 ======= =======
FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY NOTES TO FINANCIAL STATEMENTS Note 4 - Mortgages payable (concluded): (A) The mortgage is payable in monthly installments of $152,153 including interest at 8.31% through June 2007 at which time the outstanding balance is due. The mortgage is secured by a retail building in Frederick, Maryland having a net book value of approximately $24,352,000. (B) The mortgage is payable in monthly installments of $73,248 including interest at 7.38% through February 2013 at which time the outstanding balance is due. The mortgage is secured by a retail building in Westwood, New Jersey having a net book value of approximately $11,452,000. (C) On November 19, 1998, the Trust repaid the outstanding mortgage on the Spring Lake, New Jersey apartment building utilizing proceeds from a new mortgage in the amount of $3,700,000. The new mortgage is payable in monthly installments of $29,863 including interest at 6.70% through December 2013 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 $549,000. (D) Payable in monthly installments of $54,816 including interest at 7.375% through January 2005 at which time the outstanding balance is due. The mortgage is secured by a retail building in Patchogue, New York having a net book value of approximately $10,645,000. (E) Payable in monthly installments of $76,023 including interest at 7.29% through July 2010 at which time the outstanding balance is due. The mortgage is secured by an apartment building in Wayne, New Jersey having a net book value of approximately $1,616,000. (F) Payable in monthly installments of $43,711 including interest at 6.75% through December 2013 at which time the outstanding balance is due. The mortgage is secured by an apartment building in River Edge, New Jersey having a net book value of approximately $1,351,000. (G) Payable in monthly installments of $33,676 including interest at 6.75% through December 2013 at which time the outstanding balance is due. The mortgage is secured by an apartment building in Maywood, New Jersey having a net book value of approximately $949,000. FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY NOTES TO 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 January 31, 1999 are as follows: Year Ending January 31, Amount ----------- ------ 2000 $ 753 2001 813 2002 876 2003 945 2004 1,020 Based on borrowing rates currently available to the Trust, the fair value of the mortgage debt is approximately $63,000,000 at January 31, 1999. Note 5 - Line of credit agreement: The Trust has a revolving line of credit agreement with Summit Bank which expires on May 31, 1999. Maximum allowable borrowings under the agreement were $8,000,000 and $12,310,000 at January 31, 1999 and October 31, 1998, respectively. The line of credit bears interest at the bank's floating base rate plus .25% or the LIBOR rate plus 175 basis points. Outstanding borrowings are secured by apartment buildings in Hasbrouck Heights, New Jersey, Lakewood, New Jersey, and Palisades Park, New Jersey as well as a retail building in Franklin Lakes, New Jersey. There were no outstanding borrowings under the agreement at January 31, 1999 and October 31, 1998. One of the directors of the bank is a trustee of the Trust. Note 6 - Commitments and contingencies: Leases: Retail tenants: The Trust leases retail space having a net book value of approximately $56,609,000 at January 31, 1999 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 January 31, 1999 are as follows: Year Ending January 31, Amount ----------- ------ 2000 $ 6,256 2001 6,033 2002 5,804 2003 5,521 2004 5,011 Thereafter 48,848 -------- Total $ 77,473 ======== FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY NOTES TO FINANCIAL STATEMENTS Note 6 - Commitments and contingencies: (continued) The above amounts assume that all leases which expire are not renewed and, accordingly, neither minimal rentals nor rentals from replacement tenants are included. Minimum future rentals do not include contingent rentals which may be received under certain leases on the basis of percentage of reported tenants' sales volume or increases in Consumer Price Indices. Contingent rentals included in income for each of the three months ended January 31, 1999 and 1998 were not material. Residential tenants: Lease terms for residential tenants are usually one year or less. Standby letters of credit: At January 31, 1999, the Trust was obligated under irrevocable standby letters of credit of approximately $60,000 in connection with certain required land improvements at the Franklin Lakes retail building. Environmental concerns: In accordance with applicable regulations, the Trust reported to the New Jersey Department of Environmental Protection that a discharge of hazardous material was recently discovered at the newly renovated Franklin Crossing Retail Building (the "Building"). At present, the discharge material appears to be isolated and management believes there will be no significant effect on the operations of the Building. In connection therewith, the Trust is required to investigate and monitor such discharge, the cost of which will not be material. Note 7 - Management agreement and related party transactions: The properties owned by the Trust are currently managed by Hekemian. The management agreement requires fees equal to a percentage of rents collected. Such fees were approximately $153,000 and $128,000 for the three months ended January 31, 1999 and 1998, respectively. In addition, Hekemian charged the Trust fees and commissions in connection with the acquisition of the retail building in Patchogue, New York and various mortgage refinancing and lease acquisition fees. Such fees and commissions amounted to approximately $66,000 and $684,000 for the three months ended January 31, 1999 and 1998, respectively. Note 8 - Basic earnings per share: Basic earnings per share, based on the weighted average number of shares outstanding during each period, are comprised of ordinary income. FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY NOTES TO FINANCIAL STATEMENTS Note 9 - Equity incentive plan: On September 10, 1998, the Board of Trustees approved the Trust's Equity Incentive Plan (the "Plan") whereby, subject to ratification of the Plan by the Trust's stockholders, up to 230,000 of the Trust's shares of beneficial interest may be granted to key personnel in the form of stock options, restricted share awards and other share-based awards. In connection therewith, the Board of Trustees approved an increase of 230,000 shares in the Trust's number of authorized shares of beneficial interest. Key personnel eligible for these awards include trustees, executive officers and other persons or entities including, without limitation, employees, consultants and employees of consultants, who are in a position to make significant contributions to the success of the Trust. Under the Plan, the exercise price of all options will be the fair market value of the shares on the date of grant. The consideration to be paid for restricted share and other share-based awards shall be determined by the Board of Trustees, with the amount not to exceed the fair market value of the shares on the date of grant. The maximum term of any award granted may not exceed ten years. The actual terms of each award will be determined by the Board of Trustees. In accordance with the provisions of Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees ("APB 25"), the Trust will recognize compensation costs as a result of the issuance of restricted share and other share-based awards based on the excess, if any, of the fair value of the underlying stock at the date of grant or award (or at an appropriate subsequent measurement date) over the amount the recipient must pay to acquire the stock. Therefore, the Trust will not be required to recognize compensation expense as a result of any grants of stock options, restricted share and other share-based awards at an exercise price that is equivalent to or greater than fair value. The Trust will also make proforma disclosures, as required by Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation ("SFAS 123"), of net income or loss as if a fair value based method of accounting for stock options had been applied instead if such amounts differ materially from the historical amounts. * * * Item 2.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Overview The Registrant is an equity REIT which owns a portfolio of residential apartment and retail properties. The Registrant's revenues consist primarily of fixed rental income and additional rent in the form of expense reimbursements derived from its income producing retail properties. The Registrant also receives income from its 40% owned affiliate, Westwood Hills, which owns a residential apartment property. The Registrant's policy has been to acquire real property for long-term investment. The following discussion should be read in conjunction with the Registrant's financial statements and related notes included elsewhere in this Form 10-Q. Certain statements in this "Management's Discussion and Analysis of Financial Condition and Results of Operations" may constitute forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. Although the Registrant believes that the expectations reflected in such forward-looking statements are based on reasonable assumptions, such statements are subject to risks and uncertainties, including those discussed elsewhere in this Form 10-Q, that could cause actual results to differ materially from those projected. Results of Operations Quarters ended January 31, 1999 and January 31, 1998 Revenues For the quarter ended January 31, 1999, total revenue increased 8.3% to $3,655,000 from $3,374,000 for the quarter ended January 31, 1998. The revenue increase results, in part, from increased revenues at the Registrant's operating properties: $315,000, and increased interest income: $144,000, from investing the Registrant's cash equivalents. These increases were offset by the change in the Registrant's share of losses at the Registrant's 40% owned affiliate: ($178,000). The revenue increase at operating properties is principally the result of the Patchogue, LI property being included in operations for the full 1999 quarter as opposed to only a portion of the prior years quarter (acquired in December 1997), and increased revenues at the Franklin Crossing property as a result of leasing activities. The increase in interest income is due to the investing of mortgage financing proceeds. (See Liquidity and Capital Resources below). The loss resulting from the Registrant's 40% equity interest in its affiliate is due to one-time financing costs incurred by the affiliate in connection with mortgage financing - see below. Expenses For the quarter ended January 31, 1999, total expenses increased 15% to $2,965,000 from $2,578,000 for the comparable prior year quarter. Expenses at operating properties increased 4.1%, with virtually all of the increase (70%) coming from higher depreciation charges at Patchogue and Franklin Crossing. Financing costs registered the highest increase going from $917,000 (including a one time $130,000 refinancing charge) during last year's quarter to $1,149,000 for the current fiscal year's quarter. This is attributable to higher debt levels (See Liquidity and Capital Resources below). Administrative costs during the current quarter increased 122%, principally resulting from one-time costs in connection with the Registrant becoming a 34 Act reporting company. Net Income and Funds from Operations For the quarter ended January 31, 1999,the Registrant's net income decreased $106,000 (13.3%) to $690,000, from $796,000 for last year's first quarter ended January 31, 1998. Earnings per share decreased to $.44 per share for the current year's quarter from $.51 per share last year. Earnings at operating properties increased 14.1% over last year. Higher rents and occupancy rates at the residential properties along with the higher earnings contribution from Franklin Crossing and Patchogue accounted for this increase in earnings. The decrease in net income is principally attributable, as discussed above, to the Registrant's 40% share of the losses at its affiliate totaling $142,000 during the quarter ended January 31, 1999, compared to a profit of $36,000 for the comparable prior year's quarter. The losses at the affiliate were due to one time mortgage refinancing costs, of which $177,000 was accounted for as the Registrant's share. Funds from Operations ("FFO") during the quarter ended January 31, 1999 increased 2.4% to $1,448,000 ($.93 per share) from $1,414,000 ($.91 per share) for the comparable prior year quarter. The Registrant believes that in fiscal 1999 the continued economic strength in the employment markets in which its properties are located should allow the Registrant to realize its current occupancy rates for its apartment properties with a sound support base for its retail properties. The Registrant expects that continued increasing occupancy at Franklin Crossing should generate increased earnings and FFO over the balance of fiscal 1999. FFO is a standard measurement of a REIT's performance. It is an indication of a REIT's financial results and its ability to pay dividends. FFO is defined by the Registrant as net income, excluding (i) deferred rents and gains and losses from property sales and (ii) real estate related depreciation and amortization. FFO does not represent cash generated from operating activities in accordance with generally accepted accounting principles ("GAAP"), and therefore should not be considered a substitute for net income as a measure of results of operations or for cash flow from operations as a measure of liquidity. Liquidity and Capital Resources At January 31, 1999, the Registrant's cash and cash equivalents totaled $15,142,000 as compared to $433,000 at January 31, 1998. In fiscal 1997, the Registrant recognized the declining cost trend of fixed rate, long-term financing, and developed a plan to replace its reliance on its short-term, variable rate financing with long-term, fixed rate financing. During fiscal 1998, the Registrant mortgaged a previously debt free property for $11,100,000, and refinanced an existing $5,157,000 mortgage for $10,600,000. The net proceeds from these financings of approximately $16,065,000 were used to repay the then outstanding balance under the Summit Bank line of credit, fund construction costs at Franklin Crossing, and pay the cash portion of the Patchogue acquisition. In the first quarter of fiscal 1999, the Registrant closed on a series of mortgage financings that yielded net cash proceeds of $12,706,000 to the Registrant. In addition, the Registrant's 40% owned affiliate, Westwood Hills, also completed a mortgage financing in the first quarter of fiscal 1999 which yielded approximately $4,900,000 in net cash proceeds. Approximately $2 million of these proceeds were distributed to the Registrant in accordance with its equity ownership. As a result of the various mortgage financings, and reflecting the reduced collateral available, the Registrant's line of credit from Summit Bank was reduced from $20 million at October 31, 1997, to $12.3 million at October 31, 1998, and to $8 million at November 30, 1998. The Registrant may use this line of credit to finance the acquisition or development of additional properties and for general business purposes. At January 31, 1999, there were no outstanding borrowings under the line of credit. At January 31, 1999, the Registrant's aggregate outstanding mortgage debt was approximately $60.6 million as compared to approximately $48.4 million at January 31, 1998. Cash flow from operations has been sufficient to meet all operational needs of the Registrant. The Registrant anticipates that the cash flow from operations will be more than sufficient to meet the Registrant's increased mortgage obligations. However, to the extent the proceeds from the various financings cannot be redeployed to earn more than the stated interest costs, there will be a negative impact on earnings and cash flow available to pay dividends. REIT Distributions to Shareholders Since its inception in 1961, the Registrant has elected to be treated as a REIT for Federal income tax purposes. In order to qualify as a REIT, the Registrant must satisfy a number of highly technical and complex operational requirements including that it must distribute to its shareholders at least 95% of its REIT taxable income. The Registrant anticipates making distributions to shareholders from operating cash flows, which are expected to increase from future growth in rental revenues. 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 in order to satisfy the applicable REIT requirement as set forth in the Internal Revenue Code. Cash dividends are paid to shareholders on a quarterly basis. For the first quarter ended January 31, 1999 the Registrant declared a $.40 per share dividend payable on March 15, 1999 to shareholders of record on March 1, 1999. A $.40 per share dividend was also paid for the first quarter ended January 31, 1998. Inflation The Registrant anticipates that the U.S. Mid-Atlantic States will continue to experience moderate growth with limited inflation. Any sustained inflation may, however, negatively impact the Registrant in at least two areas: (i) the interest costs of any new mortgage financing or the use of the Summit Bank line of credit may be higher than rates currently in effect; and (ii) higher real estate operating costs, especially in those areas where such costs are not chargeable to commercial tenants. Item 3. Quantitative and Qualitative Disclosures about Market Risk As a result of the Registrant having replaced short-term, variable rate financing with long-term fixed rate financing during fiscal 1998 and the first quarter of fiscal 1999, the Registrant believes that its exposure to market risk relating to interest rate risk is not material. The Registrant's only variable rate financing is the Summit Bank line of credit under which there is no outstanding balance. The Registrant believes that its business operations are not exposed to market risk relating to foreign currency exchange risk, commodity price risk or equity price risk. Part II: Other Information Item 1. Legal Proceedings None. Item 6. Exhibits and Reports of Form 8-K No reports on Form 8-K have been filed during the quarter ended January 31, 1999. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY ---------------------------- (Registrant) Date March 17, 1999 /s/ William R. DeLorenzo, Jr. ----------------------------- (Signature)* William R. DeLorenzo, Jr. Executive Secretary and Treasurer - -------------------- *Print name and title of the signing officer under his signature. EX-27 2
5 3-MOS OCT-31-1999 JAN-31-1999 15,142,000 0 0 0 0 0 79,200,000 (14,772,000) 83,513,000 0 60,631,000 0 0 19,314,000 1,114,000 83,513,000 0 3,655,000 0 1,813,000 0 0 1,149,000 693,000 3,000 690,000 0 0 0 690,000 .44 .44
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