-----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, ETOySyzTdqFWadI6pcRGq4uUd3L6lXaZPF2lY5LzNPZUpnPrYBtDZwfAeNAXsAkb XlbI1GvwfBHMFovRG0FiXQ== /in/edgar/work/20000914/0000914317-00-000626/0000914317-00-000626.txt : 20000922 0000914317-00-000626.hdr.sgml : 20000922 ACCESSION NUMBER: 0000914317-00-000626 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000731 FILED AS OF DATE: 20000914 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY CENTRAL INDEX KEY: 0000036840 STANDARD INDUSTRIAL CLASSIFICATION: [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: 722623 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 0001.txt FORM 10-Q 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 Quarterly Period Ended July 31, 2000 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 Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. There were 1,559,788 shares of beneficial interest outstanding at September 13, 2000. FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY ------------------------------------------------ INDEX ----- Part I: Financial Information Item 1: Consolidated Financial Statements a.) Balance Sheets as at July 31, 2000 (unaudited) and October 31, 1999; b.) Statements of Income, Comprehensive Income and Undistributed Earnings For the Nine and Three Months Ended July 31, 2000 and 1999 (unaudited); c.) Statements of Cash Flows for the Nine Months Ended July 31, 2000 and 1999 (unaudited); d.) Notes to Financial Statements (unaudited). e.) Report of Independent Public Accountants. 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 4. Submission of Matters to a Vote of Security Holders. Item 5. Other Events. Item 6. Exhibits and Reports on Form 8-K Item 1: Financial Statements FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS
July 31, October 31, 2000 1999 ---- ---- (Unaudited) (See Note 1) (In Thousands of Dollars) ASSETS ------ Real estate and equipment, at cost, net of accumulated depreciation $ 78,353 $ 63,441 Investments in marketable securities 9,380 14,453 Cash and cash equivalents 2,360 2,083 Note receivable - related party 1,044 Tenants' security accounts 755 771 Sundry receivables 2,019 1,326 Prepaid expenses and other assets 1,142 1,004 Deferred charges, net 1,424 1,350 ---------------- ----------------- Totals $ 96,477 $ 84,428 ================ ================= LIABILITIES AND SHAREHOLDERS' EQUITY ------------------------------------ Liabilities: Mortgages payable $ 70,418 $ 60,071 Accounts payable and accrued expenses 823 503 Cash distributions in excess of earnings and investment in affiliate 359 294 Dividends payable 780 1,638 Tenants' security deposits 1,078 1,000 Deferred revenue 459 402 ---------------- ----------------- Total liabilities 73,917 63,908 ---------------- ----------------- Minority interest 1,034 ---------------- 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 2,332 1,253 Accumulated other comprehensive income (loss) (120) (47) ---------------- ----------------- Total shareholders' equity 21,526 20,520 ---------------- ----------------- Totals $ 96,477 $ 84,428 ================ =================
See Notes to Consolidated Financial Statements FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME, COMPREHENSIVE INCOME AND UNDISTRIBUTED EARNINGS NINE AND THREE MONTHS ENDED JULY 31, 2000 AND 1999 (Unaudited) Nine Months Three Months Ended July 31, Ended July 31, ---------------------------------- -------------------------------- 2000 1999 2000 1999 ---- ---- ---- ---- (In Thousands of Dollars, Except Per Share Amounts) INCOME ------ Revenue: Rental income $ 10,703 $ 9,778 $ 3,873 $ 3,345 Reimbursements 1,555 1,277 561 400 Equity in income (loss) of affiliate 107 (93) 35 43 Net Investment Income 620 490 204 184 Sundry income 326 162 219 67 --------------- --------------- -------------- ------------- Totals 13,311 11,614 4,892 4,039 --------------- --------------- -------------- ------------- Expenses: Operating expenses 2,530 2,446 769 786 Management fees 512 460 193 154 Real estate taxes 1,603 1,367 565 468 Financing costs 3,779 3,466 1,400 1,157 Depreciation 1,442 1,277 542 432 Minority interest 17 11 --------------- --------------- -------------- ------------- Totals 9,883 9,016 3,480 2,997 --------------- --------------- -------------- ------------- Income before state income taxes 3,428 2,598 1,412 1,042 Provision for state income taxes 10 9 3 4 --------------- --------------- -------------- ------------- Net income $ 3,418 $ 2,589 $ 1,409 $ 1,038 =============== =============== ============== ============= Basic earnings per share $ 2.19 $ 1.66 $ 0.90 $ 0.67 =============== =============== ============== ============= Basic weighted average shares outstanding 1,559,788 1,559,788 1,559,788 1,559,788 =============== =============== ============== ============= COMPREHENSIVE INCOME -------------------- Net income $ 3,418 $ 2,589 $ 1,409 $ 1,038 Other comprehensive income (loss)- unrealized gain (loss) on marketable securities (73) 49 --------------- --------------- -------------- ------------- Comprehensive income $ 3,345 $ 2,589 $ 1,458 $ 1,038 =============== =============== ============== ============= UNDISTRIBUTED EARNINGS ---------------------- Balance, beginning of period $ 1,253 $ 1,048 $ 1,703 $ 1,351 Net income 3,418 2,589 1,409 1,038 Less dividends (2,339) (1,872) (780) (624) --------------- --------------- -------------- ------------- Balance, end of period $ 2,332 $ 1,765 $ 2,332 $ 1,765 =============== =============== ============== ============= Dividends per share $ 1.50 $ 1.20 $ 0.50 $ 0.40 =============== =============== ============== =============
See Notes to Consolidated Financial Statements FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS NINE MONTHS ENDED JULY 31, 2000 AND 1999 (Unaudited)
2000 1999 ---- ---- (In Thousands of Dollars) Operating activities: Net income $ 3,418 $ 2,589 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 1,581 1,391 Equity in (income) loss of affiliate (107) 93 Deferred revenue 57 (141) Minority interest 17 Changes in operating assets and liabilities: Tenants' security accounts 16 (3) Sundry receivables, prepaid expenses and other assets (858) (132) Deferred charges (151) (112) Accounts payable and accrued expenses 320 (90) Tenants' security deposits 78 (2) ---------------- ----------------- Net cash provided by operating activities 4,371 3,593 ---------------- ----------------- Investing activities: Capital expenditures (706) (356) Distributions from affiliate 172 2,121 Repayment from affiliate - 100 Sale of marketable securities 5,000 Acquisition of partnership interest (4,728) ---------------- ----------------- Net cash provided by (used in) investing activities (262) 1,865 ---------------- ----------------- Financing activities: Dividends paid (3,197) (2,683) Net proceeds from mortgage refinancing - 3,671 Proceeds from mortgage borrowings - 9,275 Repayment of mortgages (573) (537) Deferred mortgage costs (62) (185) ---------------- ----------------- Net cash provided by (used in) financing activities (3,832) 9,541 ---------------- ----------------- Net increase in cash and cash equivalents 277 14,999 Cash and cash equivalents, beginning of period 2,083 793 ---------------- ----------------- Cash and cash equivalents, end of period $ 2,360 $ 15,792 ================ ================= Supplemental disclosure of cash flow data: Interest paid $ 3,699 $ 3,399 ================ ================= Income taxes paid $ 10 $ 9 ================ =================
Supplemental disclosure of noncash investing and financing activities: During the nine months ended July 31, 2000, the Trust completed an acquisition of a 98,800 square foot retail property in Olney, MD for approximately $15,648,000, in part, with the proceeds of a $10,920,000 mortgage. During the nine months ended July 31, 2000 and 1999, the Trust had dividends declared but not paid of $780,000 and $624,000, respectively. See Notes to Consolidated Financial Statements FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 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, 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 July 31, 2000 and for the nine and three months ended July 31, 2000 and 1999 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, 1999 was derived from the Trust's audited annual report for 1999. The results of the Trust's operations for the nine and three months ended July 31, 2000 are not necessarily indicative of the results of operations for the full year ending October 31, 2000. Principles of consolidation: The consolidated financial statements include the accounts of the Trust and, subsequent to March 29, 2000, its 75% owned subsidiary S and A Commercial Associates Limited Partnership ("S and A"). The consolidated financial statements include 100% of S and A's assets, liabilities, operations and cash flows with the 25% interest not owned by the Trust reflected as "minority interest." All significant intercompany accounts and transactions have been eliminated in consolidation (See Note 2). Investment in affiliate: The Trust's 40% investment in Westwood Hills, LLC ("WHLLC") is accounted for using the equity method. 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. Investments in marketable securities: Investments in marketable debt securities classified as "available for sale" are recorded at fair value and unrealized gains and losses are reported as accumulated other comprehensive income (loss) within shareholders' equity. Cash and cash equivalents: Financial instruments, which potentially subject the Trust to concentrations of credit risk, consist primarily of cash and cash equivalents. The Trust considers all highly liquid investments purchased with maturity of three months or less to be cash equivalents. The Trust maintains its cash and cash equivalents in bank and other accounts, the balances of which, at times, may exceed Federally insured limits. At July 31, 2000, such cash and cash equivalent balances exceeded Federally insured limits by approximately $2,260,000. Exposure to credit risk is reduced by placing such deposits with high credit quality financial institutions. 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. 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 financing costs and approximated $80,000 and $67,000 for the nine months ended July 31, 2000 and 1999, respectively, and approximately $32,000 and $23,000 for the three months ended July 31, 2000 and 1999, respectively. Deferred leasing commissions are amortized on the straight-line method over the terms of the applicable leases. 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. Advertising: The Trust expenses the cost of advertising and promotions as incurred. Advertising costs charged to operations amounted to approximately $48,000 and $47,000 for the nine months ended July 31, 2000 and 1999, respectively, and approximately $16,000 and $15,000 for the three months ended July 31, 2000 and 1999, respectively. Earnings per share: The Trust presented "basic" earnings per share in the accompanying consolidated 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 nine and three months ended July 31, 2000, diluted earnings per share have not been presented because prices of all of the outstanding stock options approximated the average fair market value and there were no additional shares derived from the assumed exercise of stock options and the application of the treasury stock method. For the nine and three months ended July 31, 1999, the Trust had no potentially dilutive common shares. Note 2 - Investment in affiliates: The Trust is a 40% member of WHLLC, 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 WHLLC are either trustees of the Trust or their families or officers of Hekemian. WHLLC owns a residential apartment complex located in Westwood, New Jersey. Summarized financial information of WHLLC as of July 31, 2000 and October 31, 1999 and for the nine and three months ended July 31, 2000 and 1999 is as follows:
July 31, October 31, 2000 1999 ---- ---- (In thousands of dollars) Balance sheet data: Assets: Real estate and equipment, net $ 14,017 $ 14,190 Other 675 812 ------------- ------------ Total assets $ 14,692 $ 15,002 ============= ============ Liabilities and equity: Liabilities: Mortgage payable $ 15,230 $ 15,362 Other 361 378 ------------- ------------ Total liabilities 15,591 15,740 ------------- ------------ Members' deficiency: Trust (359) (294) Others (540) (444) ------------- ------------ Total members' deficiency (899) (738) ------------- ------------ Total liabilities and members' deficiency $ 14,692 $ 15,002 ============= ============
Nine Months Ended Three Months Ended July 31, July 31, ------------------------------------- ------------------------------------- 2000 1999 2000 1999 ---- ---- ---- ---- (In thousands of dollars) Income statement data: Rental revenue $ 2,129 $ 2,037 $ 721 $ 703 Expenses 1,861 1,828 633 595 ----------------- ---------------- ------------------ ---------------- Income from rental operations 268 209 88 108 Prepayment penalty on mortgage refinancing (442) ----------------- ---------------- ------------------ ---------------- Net income (loss) $ 268 $ (233) $ 88 $ 108 ================= ================ ================== ================
On March 29, 2000, the Trust acquired 100% of S and A, whose only asset is a neighborhood shopping center in Olney, MD. The shopping center contains approximately 98,800 square feet of gross leaseable area situated on approximately 13 acres of land. Approximately 11 acres of the land are subject to a ground lease expiring in 2078, and approximately 2 acres are owned in Fee simple. The purchase price of S and A was approximately $15,648,000 of which $4,728,000 was paid in cash and $10,920,000 was financed by the proceeds of a mortgage. The Trust agreed to sell a 25% interest in S and A, as of March 29, 2000, to a group consisting principally of employees of Hekemian on the same basis and cost to the Trust. The unpaid purchase price of the 25% interest accrues interest at what the Trust's borrowing rate would be under its expired line of credit. The receivable and accrued interest is expected to be paid within the next quarter. The accompanying financial statements reflect the operations of the shopping center since its acquisition. The following unaudited pro forma information (in thousands of dollars, except per share amounts) shows the results of operations for the nine and three months ended July 31, 2000 and 1999 as though S and A had been acquired at the beginning of fiscal 1999:
Nine Months Ended Three Months Ended July 31, July 31, ------------------------ ------------------------ 2000 1999 2000 1999 ---- ---- ---- ---- (In thousands of dollars) Revenue $ 14,069 $ 13,087 $ 4,893 $ 4,499 Expenses 10,704 10,484 3,484 3,482 ---------- ---------- ----------- ---------- Income before minority interest 3,365 2,603 1,409 1,017 Minority interest 23 28 11 4 ---------- ---------- ----------- ---------- Net income $ 3,342 $ 2,575 $ 1,398 $ 1,013 ========== ========== =========== ========== Earnings per share $ 2.14 $ 1.65 $ 0.90 $ 0.65 ========== ========== =========== ==========
The unaudited pro forma results include adjustments for depreciation based on the purchase price, increased interest expense, and reduced net investment income related to assets utilized to make the acquisition, and obligations incurred to complete the transaction. The unaudited pro forma results of operations set forth above are not necessarily indicative of the results that would have occurred had the acquisition been made at the beginning of the fiscal 1999 or of future results of operations of the Trust's combined properties. Note 3 - Investments in marketable securities: At July 31, 2000, the Trust's investment in marketable debt securities, all of which were classified as available for sale, consisted of government agency bonds. The maturities for all securities held at July 31, 2000 are as follows: Amortized Fair Cost Value ----------------- --------------- (in thousands of dollars) One to five years $ 9,000 $ 8,918 Five to ten years 500 462 ----------------- --------------- Totals $ 9,500 $ 9,380 ================= =============== Note 4 - Real estate and equipment: Real estate and equipment consists of the following:
Range of Estimated July 31, October 31, Useful Lives 2000 1999 ------------ ---- ---- (In thousands of dollars) Land $ 23,831 $ 22,773 Unimproved land 2,366 2,354 Apartment buildings 7-40 years 10,948 10,764 Commercial buildings and shopping centers 15-50 years 56,500 40,723 Construction in progress 703 1,426 Equipment 3-15 years 569 522 ----------- ----------- 94,917 78,562 Less accumulated depreciation 16,564 15,121 ----------- ----------- Totals $ 78,353 $ 63,441 =========== ===========
Note 5 - Mortgages payable: Mortgages payable consist of the following:
July 31, October 31, 2000 1999 ---- ---- (In thousands of dollars) Nothern Life Insurance Cos. - Frederick, MD (A) $ 18,394 $ 18,609 National Realty Funding L.C. - Westwood, NJ (B) 10,335 10,420 Larson Financial Resources, Inc. - Spring Lake, NJ (C) 3,632 3,664 Summit Bank - Patchogue, NY (D) 7,223 7,295 Larson Financial Resources, Inc. - Wayne, NJ (E) 10,808 10,898 Larson Financial Resources, Inc. - River Edge, NJ (F) 5,277 5,323 Larson Financial Resources, Inc. - Maywood, NJ (G) 3,829 3,862 Summit Bank - Olney, MD (H) 10,920 ------------ ------------ Totals $ 70,418 $ 60,071 ============ ============
(A) 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 $23,470,000. (B) 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 $11,203,000. (C) Payable in monthly installments of $23,875 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 $497,000. (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 $10,369,000. One of the directors of the bank is a Trustee of the Trust. (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 $1,654,000. (F) Payable in monthly installments of $34,862 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 $1,255,000. (G) Payable in monthly installments of $25,295 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 $912,000. (H) Interest only is payable monthly at 175 basis points over the 90 day LIBOR rate, and resets every 90 days. The current rate is 8.03%. The mortgage, which is due on March 28, 2002, is secured by a shopping center in Olney, MD having a net book value of approximately $15,608,000. Principal amounts (in thousands of dollars) due under the above obligations in each of the five years subsequent to July 31, 2000 are as follows: Year Ending July 31, Amount -------- -------- 2001 $ 794 2002 11,777 2003 925 2004 998 2005 7,533 Based on borrowing rates currently available to the Trust, the fair value of the mortgage debt approximates carrying value at July 31, 2000. Note 6 - Line of credit agreement: The Trust had an $8,000,000 revolving line of credit that expired during May 2000. The line of credit bore interest at the bank's floating base rate plus .25% or the LIBOR rate plus 175 basis points. The Trust is currently negotiating to replace the credit agreement. Note 7 - Commitments and contingencies: Leases: Retail tenants: The Trust leases retail space having a net book value of approximately $70,764,000 at July 31, 2000 to tenants for periods of up to twenty-five years. Most of the leases contain clauses for reimbursement of real estate taxes, maintenance, insurance and certain other operating expenses of the properties. Minimum rental income (in thousands of dollars) to be received from non-cancelable operating leases in years subsequent to July 31, 2000 are as follows: Year Ending July 31, Amount ----------- --------- 2001 $ 8,018 2002 7,744 2003 7,467 2004 6,692 2005 6,065 Thereafter 48,377 --------- Total $ 84,363 ========= 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 the nine and three months ended July 31, 2000, and 1999 were not material. Residential tenants: Lease terms for residential tenants are usually one year or less. Environmental Concerns: In accordance with applicable regulations, the Trust reported to the New Jersey Department of Environmental Protection ("NJDEP") that a historical discharge of hazardous material was discovered in 1997 at the renovated Franklin Lakes shopping center (the "Center"). In November 1999, the Trust received a no further action letter from the NJDEP concerning the historical discharge at the Center. However, the Trust is required to continue monitoring such discharge, the cost of which will not be material. Ground Lease: The Trust's shopping center in Olney, MD is on approximately thirteen acres of land. Two acres are owned by the Trust in Fee Simple, and the balance of the land, eleven acres, is subject to a ground lease expiring in 2078. Under the terms of the ground lease the Trust is obligated to pay a fixed annual rental of $79,956 plus two and one half percent (2 1/2%) of annual net rental collections. The Trust is also obligated for the payment of real estate taxes and insurance. Note 8 - Management agreement and related party transactions: Hekemian manages the properties owned by the Trust. The management agreement requires fees equal to a percentage of rents collected. Such fees were approximately $512,000 and $460,000 for the nine months ended July 31, 2000 and 1999; and approximately $193,000 and $154,000 for the three months ended July 31, 2000 and 1999, respectively. In addition, Hekemian charged the Trust fees and commissions in connection with the acquisition of the retail center in Olney, MD and various mortgage refinancing and lease acquisition fees. Such fees and commissions amounted to approximately $527,000 and $707,000 for the nine months ended July 31, 2000 and 1999; and $28,000 and $586,000 for the three months ended July 31, 2000 and 1999, respectively. Note 9 - 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. Note 10- Equity incentive plan: On September 10, 1998, the Board of Trustees approved the Trust's Equity Incentive Plan (the "Plan") which was ratified by the Trust's shareholders on April 7, 1999, whereby 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 Board of Trustees will determine the actual terms of each award. Upon ratification of the Plan on April 7, 1999, the Trust issued 188,500 stock options which it had previously granted to key personnel on September 10, 1998. The fair value of the options on the date of grant was $30 per share. The options, all of which are outstanding at October 31, 1999, are exercisable through September 2008. 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 pro forma 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. In the opinion of management, if compensation cost for the stock options granted in 1999 had been determined based on the fair value of the options at the grant date under the provisions of SFAS 123 using the Black-Scholes option pricing model and assuming a risk-free interest rate of 5.25%, expected option lives of ten years, expected volatility of 1% and expected dividends of 7.13%, the Trust's pro forma net income and pro forma basic net income per share arising from such computation would not have differed materially from the corresponding historical amounts. * * * REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ---------------------------------------- To the Trustees and Shareholders First Real Estate Investment Trust of New Jersey We have reviewed the accompanying consolidated balance sheet of FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY AND SUBSIDIARY as of July 31, 2000, and the related consolidated statements of income, comprehensive income and undistributed earnings for the nine and three months ended July 31, 2000 and the consolidated statement of cash flows for the nine months ended July 31, 2000. These consolidated financial statements are the responsibility of the Trust's management. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review of the consolidated financial statements referred to above, we are not aware of any material modifications that should be made to the accompanying consolidated financial statements for them to be in conformity with generally accepted accounting principles. We have previously audited, in accordance with generally accepted auditing standards, the balance sheet of the Trust as of October 31, 1999, and the related statements of income, comprehensive income and undistributed earnings and cash flows for the year then ended which are not presented herein, and in our report dated November 22, 1999, we expressed an unqualified opinion on those financial statements. In our opinion, the information set forth in the accompanying balance sheet as of October 31, 1999 is fairly stated, in all material respects, in relation to the balance sheet from which it has been derived. The accompanying statements of income, comprehensive income and undistributed earnings for the nine and three months ended July 31, 1999 and the statement of cash flows for the nine months ended July 31, 1999 were not audited or reviewed by us and, accordingly, we do not express an opinion or any other form of assurance on them. J.H. Cohn LLP Roseland, New Jersey August 23, 2000 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION ----------------------------------------------------------- AND RESULTS OF OPERATIONS ------------------------- Overview The Registrant is an equity REIT that owns a portfolio of residential apartment and retail properties, and undeveloped land. The Registrant's revenues consist primarily of fixed rental income and additional rent in the form of percentage rents and expense reimbursements derived from its income producing retail properties. The registrant also receives income from its 40% owned affiliate, Westwood Hills LLC, 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, which could cause actual results to differ materially from those projected. Results of Operations Nine months ended July 31, 2000 vs. 1999 Acquisition On March 29, 2000, the Registrant completed the acquisition of the Olney Town Center ("Olney"), in Olney, MD. Olney is a 98,800 sq. ft. neighborhood shopping center with expansion potential to 131,000 sq. ft. The center is 91.5% occupied. The shopping center is situated on approximately 13 acres of land. Approximately 11 acres are subject to a ground lease expiring in 2078, and approximately 2 acres are owned in Fee simple. The center was acquired by purchasing 100% ownership interest of S And A Commercial Associates Limited Partnership ("S and A"). S and A's only asset at the closing date was the shopping center. The purchase price of the center, approximately $15,648,000, was financed, in part, with the proceeds of a $10,920,000 mortgage, with the balance of the purchase price being supplied by the proceeds from liquidating a portion of the Trust's marketable securities. The Registrant has agreed to sell, as of March 29, 2000, a 25% interest is S and A to a group consisting principally of employees of Hekemian & Co., Inc. on the same basis and cost to the Registrant. The accompanying financial statements include the operations of Olney since the acquisition date which are summarized as follows:
% Of Consolidated ---------------------------------- Nine Months Three Months Nine Months Three Months Ended Ended Ended Ended July 31, 2000 July 31, 2000 July 31, 2000 July 31, 2000 Selected Income Statement Data: Revenues $ 737 $ 552 5.5% 11.3% -------------- -------------- Operating Expenses 223 174 4.8% 11.4% Financing Costs 321 237 8.5% 16.9% Depreciation 124 93 8.6% 17.2% Minority Interest 17 11 100.0% 100.0% -------------- -------------- Total Expenses 685 515 6.9% 14.8% -------------- -------------- Net Earnings $ 52 $ 37 1.5% 2.6% ============== ============== =============== =============== Earnings Per Share $ 0.03 $ 0.02 1.5% 2.6% ============== ============== =============== ===============
Revenues For the nine months ended July 31, 2000 ("Current Period"), total revenues increased 14.6% to $13,311,000 from $11,614,000 for the nine months ended July 31, 1999 ("Prior Period"). The revenue increase results, in part, from a $1,367,000 increase in revenues from the Trust's operating properties, a $130,000 increase in Net Investment Income from investing the Registrant's cash equivalents and Marketable Securities, and a positive swing of $200,000 in the Registrant's share of operations at the Registrant's 40% owned affiliate. Real Estate Operations: Revenues from real estate operations for the Current Period increased 12.2% to $12,584,000 from $11,217,000 for the Prior Period. The increase came, in part, from higher revenues at the Registrant's residential properties resulting from higher per unit net rental collections off-setting a 1.9% decline to 93.2% in average occupancy; and increased revenues at the Registrant's retail properties. The increase at the Registrant's retail properties resulted primarily from increased fixed rents and expense reimbursements, and a one time $150,000 tennant lease termination fee. These increases resulted, primarily, from increased occupancy at the Registrant's Franklin Crossing (Franklin Lakes, NJ) shopping center, which is now 87.6% occupied and 91.8% leased, and Olney. Net Investment Income: The increase in Net Investment Income results from earning higher interest rates from the redeployment (during the quarter ended October 31, 1999) of Funds from institutional money market pools to fixed income, short-to-intermediate term Government Agency bonds. The increase of $130,000 for the Current Period is net of a $68,000 loss resulting from the sale of bonds used for the cash portion of the Olney purchase. Earnings From 40% Owned Affiliate: During the Prior Period the Registrant's 40% owned affiliate, Westwood Hills L.L.C., refinanced its mortgage loan incurring one-time refinancing costs of $440,000. The Registrant's 40% share of these costs ($176,000) was charged against income during the Prior Period. No such comparable costs were incurred during the Current Period contributing to the positive earnings swing of $200,000. Expenses: For the Current Period overall operating expenses increased $867,000 (9.6%) to $9,883,000 from $9,016,00 for the Prior Period. The major increases and percentage increases came in the following areas: Real estate operations $239,000 (9.4%); real estate taxes $236,000 (17.3%) and depreciation $165,000 (12.9%). These increases were partially offset by a decline in Corporate Administrative expenses of $86,000 (24.0%). The majority of expense increases resulted from the acquisition of Olney during the Current Period, and the consolidation of its operations. Overall expenses excluding Olney increased 2.0%. Net Income For the Current Period Net Income increased $829,000 (32.0%) to $3,418,000 ($2.19 per share) from $2,589,000 ($1.66 per share) for the Prior Period. The earning component increases during the Current Period over the Prior Period are as follows: Current Period Changes ----------------- Real Estate Operations $ 891,000 Net Investment Income 130,000 Equity in Income of Affiliate 200,000 Financing Costs (313,000) Depreciation (165,000) Administrative Costs 86,000 ----------------- $ 829,000 ================= The Registrant believes that in fiscal 2000 the continued economic strength in the employment markets in which its properties are located should allow the Registrant to realize or increase its current occupancy rates for its apartment properties with a sound support base for its retail properties. Results of Operations Three months ended July 31, 2000 vs. 1999 Revenues For the three months ended July 31, 2000 ("Current Quarter") total revenues increased 21.1% to $4,892,000 from $4,039,000 for the three months ended July 31, 1999 ("Prior Quarter"). The revenue increase results, principally, from the addition of Olney and increased occupancy and lease-up at the Registrant's Franklin Crossing Shopping Center in Franklin Lakes, NJ, and a one time $150,000 tennant lease termination fee. Expenses Expenses for the Current Quarter increased $483,000 (16.1%) to $3,480,000 from $2,997,000 for the Prior Quarter. Almost the entire increase is attributable to the consolidation of Olney's operations. (See Acquisition). Excluding Olney, expenses would have been approximately the same, with reductions in real estate operating expenses offsetting slight increases in the other categories. Net Income Net Income for the Current Quarter increased 35.7% to 1,409,000 ($.90 per share) from $1,038,000 ($.67 per share) for the Prior Quarter. The increase was attributable to higher earnings at the operating properties and increased earnings from the Registrant's 40% owned affiliate. Funds From Operations ("FFO") FFO is considered by many as a standard measurement of a REIT's performance. The Registrant computes FFO as follows:
Nine Months Ended Three Months Ended ------------------------------- ------------------------------ 7/31/00 7/31/99 7/31/00 7/31/99 -------------- ------------ ------------ --------------- Net Income $ 3,418 $ 2,589 $ 1,409 $ 1,038 Depreciation - Real Estate 1,442 1,277 542 432 Amortization of Deferred Mortgage Costs 80 67 32 23 Deferred Rents (319) (305) (123) (98) Capital Improvements - Apartments (230) (170) (115) (86) Other 73 251 29 26 -------------- ------------ ------------- --------------- Funds From Operations $ 4,464 $ 3,709 $ 1,774 $ 1,335 ============== ============ ============= ===============
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. Additionally, the application and calculation of FFO by certain other REIT's may vary materially from that of the Registrant, and therefore the Registrant's FFO and the FFO of other REIT's may not be directly comparable. 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; and (ii) higher real estate operating costs, especially in those areas where such costs are not chargeable to commercial tenants. Liquidity and Capital Resources At July 31, 2000, the Registrant's cash, cash equivalents and marketable securities totaled $11,740,000 compared to $16,536,000 at October 31, 1999. The principal reason for the reduction was the liquidation of marketable securities to be used for the cash portion of the purchase price of Olney. A significant portion of these funds are available for property acquisitions. At July 31, 2000, the Registrant's aggregate outstanding mortgage debt was approximately $70.4 million. Approximately $59.5 million bear a fixed weighted average interest cost of 7.513%, and an average life of 10.47 years. Approximately $10.9 million of mortgage debt bears an interest rate equal to 175 basis points over LIBOR and resets every 90 days. This mortgage is due March 28, 2002 and can be extended for one additional year. The Registrant anticipates that the cash flow from operations will be more than sufficient to meet the Registrant's operational needs and the increased mortgage obligations. The Registrant believes that its exposure to market risk relating to interest rate risk is not material since most of its mortgage debt is long term with fixed rates. 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. To offset the Registrant's increased debt-carrying costs, the Registrant has invested approximately $9.4 million in short-to-intermediate fixed rate Government Agency Bonds. These bonds yield a weighted average interest of 6.483% and have a weighted maturity of 30.0 months. Since the market value of these bonds are interest rate sensitive, a sale of all or a portion of these bonds prior to maturity in a high interest rate environment, may result in a loss to the Registrant (See Net Investment Income above). The Registrant makes capital improvements to its properties when it deems such improvements to be necessary or appropriate. The short-term impact of such capital outlays will be to depress the Registrant's 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. Other than the capital improvement program described above, the Registrant has made no commitments and has no understandings for any material capital expenditure during fiscal 2000 other than in the ordinary course of business. 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 REIT taxable income in order to satisfy the applicable REIT requirement as set forth in the Internal Revenue Code. It has been the Registrant's policy to pay fixed quarterly dividends for the first three quarters of each fiscal year, and a final fourth quarter dividend based on the fiscal year's net income and taxable income. ===================================================================== FISCAL 2000 FISCAL 1999 ----------- ----------- ===================================================================== First Quarter $ .50 $ .40 --------------------------------------------------------------------- Second Quarter $ .50 $ .40 --------------------------------------------------------------------- Third Quarter $ .50 $ .40 --------------------------------------------------------------------- Fourth Quarter $ 1.05 --------------------------------------------------------------------- Year To Date $ 1.50 $ 2.25 ====== ====== ===================================================================== Item 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK See "Liquidity and Capital Resources" above. Part II: Other Information Item 1. Legal Proceedings None. Item 4. Submission of Matters to a Vote of Security Holders. None. Item 5. Other Events None. Item 6. Exhibits and Reports of Form 8-K On August 24, 2000, the Registrant filed a Report on Form 8-K, which is incorporated herein by reference. The Form 8-K reported the Registrant's third quarter dividend declaration and included a copy of its results of its operations for the nine months and three months ended July 31, 2000 that was sent to shareholders on August 23, 2000. 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 September 14, 2000 /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 0002.txt FINANCIAL DATA SCHEDULE
5 9-MOS OCT-31-2000 JUL-31-2000 2,360,000 9,380,000 0 0 0 0 94,917,000 (16,564,000) 96,477,000 0 70,418,000 0 0 19,314,000 2,212,000 96,477,000 0 13,311,000 0 0 6,104,000 0 3,779,000 3,428,000 10,000 3,418,000 0 0 0 3,418,000 2.19 0
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