-----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, HuZHDN83N9jViUhgXkewAoM+3Zav5zH4zZ7qzPnXkA0cJ6sR8gyKq6eO1RjAPu5Z cT5RZPu8Iq4H2fOd+okmIg== 0000914317-01-000056.txt : 20010130 0000914317-01-000056.hdr.sgml : 20010130 ACCESSION NUMBER: 0000914317-01-000056 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20001031 FILED AS OF DATE: 20010129 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: SEC FILE NUMBER: 000-25043 FILM NUMBER: 1516985 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 0001.txt 10-K FIRST REAL ESTATE INVESTMENT TRUST OF NJ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended October 31, 2000 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 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 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 ------------- Securities registered pursuant to Section 12(b) of the Act: Name of each exchange Title of each Class on which registered - ------------------- ---------------------- None Not Applicable Securities registered pursuant to Section 12(g) of the Act: Shares of Beneficial Interest ---------------------------------------------- (Title of class) 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 shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of 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] The registrant is an equity real estate investment trust and shares without par value represent beneficial interests in the registrant. At January 17, 2001, the aggregate market value of the registrant's shares of beneficial interest held by nonaffiliates of the registrant was approximately $37,600,000. Excluded from this calculation are shares of the registrant owned or deemed to be beneficially owned by the trustees and executive officers of the registrant, including shares with respect to which the trustees and executive officers disclaim beneficial ownership. At that date, 1,559,788 shares of beneficial interest were issued and outstanding. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Proxy Statement for the Registrant's 2000 Annual Meeting of Shareholders to be held on April 10, 2001 are incorporated by reference in Part III of this Annual Report. FORWARD-LOOKING STATEMENTS Certain information included in this Annual Report contains or may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). The registrant cautions readers that forward-looking statements, including, without limitation, those relating to the registrant's investment policies and objectives; the financial performance of the registrant; the ability of the registrant to service its debt; the competitive conditions which affect the registrant's business; the ability of the Registrant to obtain the necessary governmental approvals for the development, expansion or renovation of its properties, the impact of environmental conditions affecting the registrant's properties, and the registrant's liquidity and capital resources, are subject to certain risks and uncertainties. Actual results or outcomes may differ materially from those described in the forward-looking statements and will be affected by a variety of risks and factors, including, without limitation, the registrant's future financial performance; the availability of capital; general market conditions; national and local economic conditions, particularly long-term interest rates; federal, state and local governmental regulations that affect the registrant; and the competitive environment in which the registrant operates, including, the availability of retail space and residential apartment units in the areas where the registrant's properties are located. In addition, the registrant's continued qualification as a real estate investment trust involves the application of highly technical and complex rules of the Internal Revenue Code. The forward-looking statements are made as of the date of this Annual Report and the registrant assumes no obligation to update the forward-looking statements or to update the reasons actual results could differ from those projected in such forward-looking statements. PART I - ------ ITEM 1 BUSINESS (a) GENERAL BUSINESS First Real Estate Investment Trust of New Jersey (the "Registrant") is a real estate investment trust ("REIT") organized in New Jersey in 1961. The Registrant acquires, develops and holds real estate properties for long-term investment and not for resale. Its investment portfolio contains multi family residential properties, retail properties, undeveloped land and a 40% equity interest in Westwood Hills, LLC, which owns a 210 unit apartment complex. All but three of the Registrant's properties are located in New Jersey. See the tables in "Item 2 Properties - Portfolio of Investments" The Registrant's long-range investment policy is to review and evaluate potential real estate investment opportunities for acquisition that it believes will (i) complement its existing investment portfolio, (ii) generate increased income and distributions to shareholders, and (iii) increase the overall value of the Registrant's portfolio. The Registrant's investments may take the form of wholly owned fee interests or, if the circumstances warrant, on joint venture basis with other parties provided the Registrant would be able to maintain control over the management and operation of the property. While the Registrant's general investment policy is to hold and maintain its properties long-term, it may, from time-to-time, sell or trade certain properties that it feels no longer meets its investment criteria, and reinvest in other properties which offer greater growth potential. Fiscal Year 2000 Developments (i) Acquisition of Olney Town Center On March 29, 2000, the Registrant acquired the Olney Town Center ("Olney"), in Olney, Maryland. Olney is a 98,800 sq. ft. neighborhood shopping center with expansion potential (subject to governmental approvals) to 131,000 sq. ft. The shopping 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. See the tables in "Item 2 Properties - Portfolio Of Investments." 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 Registrant's marketable securities. The Registrant has an agreement in principal to sell, as of March 29, 2000, a 25% interest in S and A to a group consisting principally of employees of Hekemian & Co., Inc. on the same basis and cost to the Registrant. Subject to the resolution of certain terms of the agreement in principal, the sale is expected to be completed during the second quarter of fiscal year 2001. The financial statements and schedules included herein reflect this sale. (ii) Credit Facility The Registrant's $8 million revolving line of credit with Summit Bank expired on May 1, 2000. Throughout fiscal 2000 and 1999 the Registrant did not have any outstanding borrowings under the Summit Bank credit facility. The Registrant is in the process of negotiating a replacement facility with several lenders. Over the short-term, the Registrant feels that its Cash and Cash Equivalents and Marketable Securities are adequate for its operational and business needs. See "Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources." (b) Financial Information about Segments All revenues, operating profits or losses, and assets of the Registrant are attributable to one line of business, the acquisition, development and ownership of real property for investment. The revenue and profits from, and the assets, which are part of, the Registrant's operations are as set forth in the Financial Statements of the Registrant and of Westwood Hills beginning on page F-1 of this Annual Report. (c) Narrative Description of Business The Registrant was founded and organized for the principal purpose of acquiring, developing and owning a portfolio of diverse income producing real estate properties. The Registrant's developed properties include residential apartment and retail properties. The Registrant's properties are located principally in New Jersey, with the exception of the Westridge Square Shopping Center located in Frederick, Maryland, the Olney Town Center Shopping Center located in Olney Maryland, and the Pathmark supermarket super store located on Long Island. The Registrant also currently owns approximately 56.5 acres of unimproved land in New Jersey. See "Item 2 Properties - Portfolio of Investments." The Registrant elected to be taxed as a REIT under the Internal Revenue Code. The Registrant operates in such a manner as to qualify for taxation as a REIT in order to take advantage of certain favorable tax aspects of the REIT structure. Generally, a REIT will not be subject to federal income taxes on that portion of its ordinary income or capital gain that is currently distributed to its equity holders. As an equity REIT, the Registrant generally acquires interests in income producing properties to be held by the Registrant as long-term investments. The Registrant's return on such investments is based on the income generated by such properties mainly in the form of rents. From time to time, the Registrant has sold, and may sell again in the future, certain of its properties in order to (i) obtain capital used or to be used to purchase, develop or renovate other properties which the Registrant believes will provide a higher rate of return and increase the value of the Registrant's investment portfolio, and (ii) divest properties which the Registrant has determined or determines are no longer compatible with the Registrant's growth strategies and investment objectives for its real estate portfolio. The Registrant does not hold any patents, trademarks or licenses. Portfolio of Real Estate Investments At October 31, 2000, the Registrant's real estate holdings included (i) eight (8) apartment buildings or complexes containing 639 rentable units, (ii) six (6) retail properties containing approximately 687,000 square feet of leasable space, including two (2) single tenant stores, and (iii) three (3) parcels of undeveloped land consisting of approximately 56.5 acres. With the exception of Olney, which is owned by S And A, in which the Registrant has a 75% ownership interest, the Registrant wholly owns all such property in fee. See "Item 2 Properties - Portfolio of Investments" of this Annual Report for a description of the Registrant's separate investment properties and certain other pertinent information with respect to such properties that is relevant to the Registrant's business. In addition, the Registrant holds a 40% membership interest in Westwood Hills, which owns an apartment complex containing 210 rentable units. See "Investment in Affiliate." Investment in Affiliate In May 1994, the Registrant acquired a forty percent (40%) membership interest in Westwood Hills, a New Jersey limited liability company that owns and operates a 210-unit residential apartment complex located in Westwood, New Jersey. The Registrant is the managing member of Westwood Hills, and Hekemian & Co. currently is the managing agent of the property. See "Management Agreement." In December 1998, the affiliate refinanced its mortgage loan. In connection with the refinancing, Robert S. Hekemian, Chairman of the Board of the Registrant and a member of Westwood Hills, provided a personal guarantee in certain limited circumstances. The Registrant has agreed to indemnify Mr. Hekemian with respect to this guaranty. Employees The Registrant does not have any full-time employees. With the exception of Mr. Hekemian, Chairman of the Board, and Mr. Barney, President, who devote approximately twenty-five percent (25%) and fifteen percent (15%) respectively of their business activities to the Registrant's business, none of the other executive officers of the Registrant (who are identified in "Item 4A Executive Officers of the Registrant" of this Annual Report), devotes more than ten percent (10%) of his business activities to the business of the Registrant. Hekemian & Co. has been retained by the Registrant to manage the Registrant's properties and is responsible for providing the personnel required to perform all services related to the management and operation of the Registrant's properties. See "Management Agreement." For the foreseeable future, the Registrant intends to maintain its present form of management arrangement and does not anticipate hiring employees. Management Agreement Pursuant to the terms of a Management Agreement by and between the Registrant and Hekemian & Co., as amended (the "Management Agreement"), Hekemian & Co., a real estate brokerage and management company, manages all of the Registrant's properties. In connection with its management services, Hekemian & Co. employs the superintendents and other personnel who perform the functions required to operate and maintain the Registrant's properties. Pursuant to the terms of the Management Agreement, the Registrant pays Hekemian & Co. certain fees and commissions as compensation for its services. The Registrant also reimburses Hekemian & Co. for the salaries, payroll taxes, insurance costs and certain other costs of persons employed at the Registrant's properties by Hekemian & Co. on behalf of the Registrant. From time to time, the Registrant engages Hekemian & Co. to provide certain additional services, such as consulting services related to development and financing activities of the Registrant. Separate fee arrangements are negotiated between Hekemian & Co. and the Registrant with respect to such services. See "First Real Estate Investment Trust of New Jersey Notes to Financial Statements - Note 8." Mr. Hekemian, Chairman of the Board and a Trustee of the Registrant, is the Chairman of the Board and Chief Executive Officer of Hekemian & Co. Mr. Hekemian, owns approximately 12.7% of all of the issued and outstanding shares of Hekemian & Co. Real Estate Financing The Registrant funds acquisition opportunities and the development of its real estate properties largely through debt financing, including mortgage loans against certain of the Registrant's properties. At October 31, 2000, the Registrant's aggregate outstanding mortgage debt was $70.2 million with an average interest cost on a weighted average basis of 7.593%. The Registrant has mortgage loans against certain properties, which serve as collateral for such loans. See the tables in "Item 2 Properties - Portfolio of Investments" for the outstanding mortgage balance at October 31, 2000 with respect to each of these properties. During fiscal 1999 and fiscal 1998, the Registrant consummated a series of mortgage financings in order to take advantage of the appreciated values of certain of the Registrant's real estate properties and a favorable interest rate environment. In addition, Westwood Hills, in which the Registrant has a 40% equity interest, also refinanced its existing mortgage during the first quarter of fiscal 1999. As a result of these mortgage financings and as a result of the Registrant's purchase of the Olney Town Center shopping center in Olney, Maryland, largely financed by a $10.9 million mortgage loan, the Registrant is currently, and will continue to be for the foreseeable future, more highly leveraged than it has been in the past. See "Fiscal Year 2000 Developments - Acquisition of Olney Town Center." This increased level of indebtedness also presents an increased risk of default on the obligations of the Registrant and an increase in debt service requirements that could adversely affect the financial condition and results of operations of the Registrant. A number of the Registrant's mortgage loans, including several of the recent loans, are being amortized over a period that is greater than the terms of such loans; thereby requiring balloon payments at the expiration of the terms of such loans. The Registrant has not established a cash reserve sinking fund with respect to such obligations and at this time does not expect to have sufficient funds from operations to make such balloon payments when due under the terms of such loans. The Registrant is subject to the normal risks associated with debt financing, including the risk that the Registrant's cash flow will be insufficient to meet required payments of principal and interest; the risk that indebtedness on its properties will not be able to be renewed, repaid or refinanced when due; or that the terms of any renewal or refinancing will not be as favorable as the terms of the indebtedness being replaced. If the Registrant were unable to refinance its indebtedness on acceptable terms, or at all, the Registrant might be forced to dispose of one or more of its properties on disadvantageous terms which might result in losses to the Registrant. These losses could have a material adverse effect on the Registrant and its ability to make distributions to shareholders and to pay amounts due on its debt. If a property is mortgaged to secure payment of indebtedness and the Registrant is unable to meet mortgage payments, the mortgagee could foreclose upon the property, appoint a receiver and receive an assignment of rents and leases or pursue other remedies, all with a consequent loss of revenues and asset value to the Registrant. Further, payment obligations on the Registrant's mortgage loans will not be reduced if there is a decline in the economic performance of any of the Registrant's properties. If any such decline in economic performance occurs, the Registrant's revenues, earnings and funds available for distribution to shareholders would be adversely affected. Neither the Declaration of Trust nor any policy statement formally adopted by the Registrant's 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 by the Registrant. Accordingly, the Registrant may incur in the future additional secured or unsecured indebtedness in furtherance of its business activities, including, if or when necessary, to refinance its existing debt. Future debt incurred by the Registrant could bear interest at rates, which are higher than the rates on the Registrant's existing debt. Future debt incurred by the Registrant could also bear interest at a variable rate. Increases in interest rates would increase the Registrant's variable interest costs (to the extent that the related indebtedness was not protected by interest rate protection arrangements), which could have a material adverse effect on the Registrant and its ability to make distributions to shareholders and to pay amounts due on its debt or cause the Registrant to be in default under its debt. Further, in the future, the Registrant may not be able to, or may determine that it is not able to, obtain financing for property acquisitions or for capital expenditures to develop or improve its properties on terms, which are acceptable to the Registrant. In such event, the Registrant might elect to defer certain projects unless alternative sources of capital were available, such as through an equity or debt offering by the Registrant. 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 and for tenants. During the 1990s, the Registrant has concentrated upon the acquisition and development of multi-family residential and retail shopping center properties which are substantially larger than those real estate assets the Registrant had historically sought to include in its investment portfolio. As a result, the Registrant has encountered increasing competition for investment grade real estate from other entities and persons that have investment objectives similar to those of the Registrant. Such competitors may have significantly greater financial resources than the Registrant, may derive funding from foreign and domestic sources, and may have larger staffs than the Registrant to find, evaluate and secure new properties. In addition, retailers at the Registrant's Retail properties face increasing competition from discount shopping centers, outlet malls, sales through catalogue offerings, discount shopping clubs, marketing and shopping through cable and computer sources, particularly over the Internet, and telemarketing. In many markets, the trade areas of the Registrant's retail properties overlap with the trade areas of other shopping centers. Renovations and expansions at those competing shopping centers and malls could negatively affect the Registrant's retail properties by encouraging shoppers to make their purchases at such new, expanded or renovated shopping centers and malls. Increased competition through these various sources could adversely affect the viability of the Registrant's tenants, and any new retail real estate competition developed in the future could potentially have an adverse effect on the revenues of and earnings from the Registrant's retail properties. (A) General Factors Affecting Investment in Retail and Apartment Complex Properties; Effect on Economic and Real Estate Conditions The revenues and value of the Registrant's retail and residential apartment properties may be adversely affected by a number of factors, including, without limitation, the national economic climate; the regional economic climate (which may be adversely affected by plant closings, industry slow downs and other local business 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 a 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 fair market value of a retail property or apartment building or complex without necessarily affecting the revenues, including changes in government regulations (such as limitations on development or on hours of operation) changes in tax laws or rates, and potential environmental or other legal liabilities. (B) Retail Shopping Center Properties' Dependence on Anchor Stores and Satellite Tenants The Registrant believes that its revenues and earnings; its ability to meet its debt obligations; and its funds available for distribution to shareholders would be adversely affected if space in the Registrant's multi-store 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 its shopping center properties is largely dependent upon the success of its tenants. Unfavorable economic, demographic or competitive conditions may adversely affect the financial condition of tenants and consequently the lease revenues from and the value of the Registrant's investments in its shopping center properties. If the sales of stores operating in the Registrant's shopping center properties were to decline due to deteriorating economic conditions, the tenants may be unable to pay their base rents or meet other lease charges and fees due to the Registrant. In addition, any lease provisions providing for additional rent based on a percentage of sales could be rendered moot. In the event of default by a tenant, the Registrant could suffer a loss of rent and experience extraordinary delays while incurring additional costs in enforcing its rights under the lease, which may or may not be recaptured by the Registrant. As at October 31, 2000 the following table lists the ten largest retail tenants, which account for approximately 67% of the Registrant's retail rental space and 53% of fixed retail rents. Tenant Center Sq. Ft. ------ ------ ------- Burlington Coat Factory Westridge Square 85,992 Kmart Corporation Westwood Plaza 84,254 Pathmark Stores Patchoque 63,932 Giant Of Maryland Westridge Square 55,330 Grand Union * Franklin Crossing 42,173 Grand Union * Westwood Plaza 28,000 Westridge Cinema (Hoyts) Westridge Square 27,336 Holiday Productions Olney Town Center 23,930 Craft Country Inc. Olney Town Center 15,701 Fitness World Golden Mile LLC Westridge Square 13,006 * In October 2000, Grand Union declared Chapter 11 bankruptcy and subsequently announced that it is going out of business. At a bankruptcy auction on November 16, 2000, a major grocery wholesaler emerged as the successful bidder for these leases. While it is expected that these leases will be assigned to an established supermarket operator in the Northeast, the final determination is not yet known. (C) Renewal of Leases and Reletting of Space There is no assurance that the Registrant will be able to retain tenants at its retail properties upon expiration of their leases. Upon expiration or termination of leases for space located in the Registrant's retail properties, the premises may not be relet or the terms of reletting (including the cost of concessions to tenants) may not be as favorable as lease terms for the terminated lease. 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 current or expected rates, the Registrant's revenues and earnings; the Registrant's ability to service its debt; and the Registrant's ability to make expected distributions to its shareholders, could be adversely affected. There are no leases, which the Registrant considers material or significant in terms of any single property in the Registrant's real estate portfolio which expired during the fiscal year 2000 or which are scheduled to expire in the fiscal year 2001. (D) Illiquidity of Real Estate Investments; Possibility that Value of the Registrant's Interests may be less than its Investment Equity real estate investments are relatively illiquid. Accordingly, the ability of the Registrant to vary its portfolio in response to changing economic, market or other conditions is limited. Also, the Registrant's interest in Westwood Hills is subject to transfer constraints imposed by the operating agreement, which governs the Registrant's investment in Westwood Hills. Even without such restrictions on the transfer of its interest, the Registrant believes that there would be a limited market for its interest in Westwood Hills. If the Registrant had to liquidate all or substantially all of its real estate holdings, the value of such assets would likely be diminished if a sale was required to be completed in a limited time frame. The proceeds to the Registrant from any such sale of the assets in the Registrant's real estate portfolio might be less than the fair market value of those assets. Impact of Governmental Laws and Regulations on Registrant's Business The Registrant's properties are subject to various Federal, state and local laws, ordinances and regulations, including those relating to the environment and local rent control and zoning ordinances. (A) Environmental Matters Both Federal and state governments are 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. If the Registrant incurred any such liability, it could reduce the Registrant's revenues and ability to make distributions to its shareholders. 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. At this time, the Registrant is aware of the following environmental matters affecting its properties: (i) Vacant Land Located in Rockaway Township, N.J. The property located in Rockaway Township contains wetlands. Pursuant to a Letter of Interpretation received from the NJDEP, the Registrant has determined that the wetlands and associated transition areas will have no material impact on the future development of the property pursuant to the applicable laws and regulations of New Jersey. Under the current zoning ordinance, the property is zoned for multifamily residential use, with a small portion zoned for commercial use. The Registrant is in the planning stages to develop the property. (ii) 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, New Jersey. The Registrant maintains flood insurance in the amount of $500,000 for the subject property which is the maximum available under the HUD Flood Program for the 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 could require extraordinary construction methods. (iii) Franklin Crossing, Franklin Lakes, N.J. The redeveloped Franklin Crossing shopping center was completed during the summer of 1997. Also in 1997, a historical discharge of hazardous materials was discovered at Franklin Crossing. The discharge was reported to the NJDEP in accordance with applicable regulations. The Registrant completed the remediation required by the NJDEP. In November 1999, the Registrant received a No Further Action Letter from the NJDEP concerning the contaminated soil at Franklin Crossing. Monitoring of the groundwater will continue pursuant to a memorandum of agreement filed with the NJDEP. (iv) Other a) 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 the 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 these inspections, 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 conducted environmental audits for all of its properties except for its undeveloped land; retail properties in Franklin Lakes (Franklin Crossing) and Glen Rock, New Jersey; and residential apartment properties located in Lakewood, Camden, Palisades Park and Hasbrouck Heights, New Jersey. Except as noted in subparagraph (iii) above, the environmental reports secured by the Registrant have not revealed any environmental conditions on its properties which require remediation pursuant to any applicable Federal or state law or regulation. The Registrant does not believe that the environmental conditions described in subparagraphs(i) - (iv) above will have a materially adverse effect upon the capital expenditures, revenues, earnings, financial condition or competitive position of the Registrant. b) The Registrant has determined that several of its properties contain lead based paint ("LBP"). The Registrant is in compliance with all Federal, State and Local requirements as they pertain to LBP. (B) Rent Control Ordinances Each of the apartment buildings or complexes owned by the Registrant is subject to some form of rent control ordinance which limits the amount by which the Registrant can increase the rent for renewed leases, and in some cases, limits the amount of rent which the Registrant can charge for vacated units. Westwood Hills is not subject to any rent control law or regulation. (C) Zoning Ordinances Local zoning ordinances may prevent the Registrant from developing its unimproved properties, or renovating, expanding or converting its existing properties, for their highest and best use as determined by the Registrant's Board of Trustees, which could diminish the values of such properties. (D) Financial Information about Foreign and Domestic Operations and Export Sales The Registrant does not engage in operations in foreign countries and it does not derive any portion of its revenues from customers in foreign countries. ITEM 2. PROPERTIES Portfolio of Investments The following charts set forth certain information relating to each of the Registrant's real estate investments in addition to the specific mortgages encumbering the properties. Apartment Properties as of October 31, 2000: - ---------------------------------------------
Depreciated Cost of Buildings and Property and Location Year Occupancy Rate Mortgage Balance Equipment Acquired No. of Units % of No. of Units) (000's) (000's) -------- ------------ ------------------ ------- ------- Lakewood Apts. Lakewood, NJ 1962 40 100.0% None $ 141 Palisades Manor 1962 12 100.0% None $ 57 Palisades Park, NJ Grandview Apts. Hasbrouck 1964 20 100.0% None $ 129 Heights, NJ Heights Manor Spring Lake Heights, NJ 1971 79 100.0% $3,664 $ 489 Hammel Gardens Maywood, NJ 1972 80 98.8% $3,818 $ 906 Sheridan Apts. Camden, NJ 1964 132 74.6% None $ 557 Steuben Arms River Edge, NJ 1975 100 99.0% $5,262 $ 1,236 Berdan Court Wayne, NJ 1965 176 98.0% $10,777 $ 1,693 Westwood Hills Westwood, NJ (1) 1994 210 96.5% $15,185 $13,942
(1) The Registrant owns a 40% equity interest in Westwood Hills. See "Item 1(c) Narrative Description of Business - Investment in Affiliate." Retail Properties as of October 31, 2000: - ------------------------------------------
Mortgage Depreciated Cost Leasable Space Occupancy Balance or of Building and Property and Location Year Approximate Rate (% of Bank Loan Equipment Acquired Square Feet) Square Feet) (000's) (000's) -------- ------------ ------------ ------- ------- Franklin Crossing Franklin Lakes, NJ 1966(1) 87,041 92.3% None $10,138 Westwood Plaza Westwood, NJ 1988 173,854 95.9% $10,306 $11,142 Westridge Square Frederick, Maryland 1992 256,620 96.3% $18,319 $23,612 Pathmark Super Store Patchogue, New York 1997 63,932 100% $ 7,191 $10,276 Glen Rock, NJ 1962 4,800 100% None $ 36 Olney Town Center (2) Olney, Maryland 2000 98,848 92.3% $10,920 $15,542
(1) The original 33,000 square foot shopping center was replaced by a new 87,041 square foot center, which opened in October 1997. (2) The Registrant owns a 75% equity interest in S And A. See "Fiscal Year 2000 Developments - Acquisition of Olney Town Center." Vacant Land as of October 31, 2000: - -----------------------------------
Permitted Use Mortgage per Local Acreage per Balance or Bank Location Acquired Current Use Zoning Laws Parcel Loan (000's) - ----------------------- ------------ ------------ --------------- ----------- --------------- Franklin Lakes, NJ 1966 None Residential 4.27 None Rockaway, NJ 1964/1963 None Residential / 19.26 None Retail South Brunswick, NJ 1964 Principally leased Industrial 33 None as farmland qualifying for state farmland assessment tax treatment
The Registrant believes that it has a diversified portfolio of residential and retail properties. The Registrant's business is not materially dependent upon any single tenant or any one of its properties. The following Table lists the Registrant's properties that have contributed 15% or more of the Registrant's total revenue in one or more of the last three (3) fiscal years. Percent Contribution to Revenues Fiscal Year ------------------------------- 2000 1999 1998 ---- ---- ---- Westridge Square 20.6% 23.9% 29.8% Westwood Plaza 12.1% 14.1% 15.3% Although the Registrant's general investment policy is to hold properties as long-term investments, the Registrant could selectively sell certain properties if it determines that any such sale is in the Registrant's and its shareholders best interests. With respect to the Registrant's future acquisition and development activities, the Registrant will evaluate various real estate opportunities which the Registrant believes would increase the Registrant's revenues and earnings as well as compliment and increase the overall value of the Registrant's existing investment portfolio. Except for the Pathmark supermarket super store located in Patchogue, Long Island, and the single tenant store located in Glen Rock, New Jersey, all of the Registrant's retail properties have multiple tenants. The sole tenant in the Glen Rock store location terminated its lease effective as of February 28, 1998. During fiscal 2000 the store has been re-let to a single tenant subject to the terms of a five (5) year lease The Registrant's retail shopping center properties have eight (8) anchor / major tenants, that account for approximately 59% of the space leased. The balance of the space is leased to seventy seven (77) satellite tenants. The following table lists the anchor / Major tenants at each center and the number of satellite tenants: No. Of Net Leasable Satellites Space Anchor/Major Tenants Tenants ----- -------------------- ------- Westridge Sq. 256,620 Giant Supermarket 24 Fredrick, MD Burlington Coat Factory Hoyts Cinema Corporation Franklin Crossing 87,041 Grand Union 13 Franklin Lakes, NJ Westwood Plaza 176,854 Grand Union 19 Westwood, NJ Kmart Corporation Olney Town Center 98,848 Holliday Productions (Cinema) 21 Olney, MD Craft Country With respect to most of the Registrant's retail properties, lease terms range from five (5) years to twenty-five (25) years with options which if exercised would extend the terms of such leases. The lease agreements generally contain clauses for reimbursement of real estate taxes, maintenance, insurance and certain other operating expenses of the properties. During the last three (3) completed fiscal years, the Registrant's retail properties averaged a 93.1% occupancy rate with respect to the Registrant's available leasable space. This includes Franklin Crossing that was closed and demolished in December 1996 and a new and expanded shopping center reopened for business in October 1997, and Patchoque, which was acquired during fiscal 1998. Leases for the Registrant's apartment buildings and complexes are usually one (1) year in duration. Even though the residential units are leased on a short-term basis, the Registrant has averaged, during the last three (3) completed fiscal years, a 94.6% occupancy rate with respect to the Registrant's available apartment units. The Registrant does not believe that any seasonal factors materially affect the Registrant's business operations and the leasing of its retail and apartment properties. The Registrant does not lease space to any Federal, state or local government entity. The Registrant believes that its properties are covered by adequate fire and property insurance provided by reputable companies and with commercially reasonable deductibles and limits. ITEM 3 LEGAL PROCEEDINGS There are no material pending legal proceedings to which the Registrant is a party or of which any of its properties is the subject. There is, however, ordinary and routine litigation involving the Registrant's business including various tenancy and related matters. Notwithstanding the environmental conditions disclosed in "Item 1(c) Description of Business - Impact of Governmental Laws and Regulations on Registrant's Business; Environmental 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 fourth quarter of the Registrant's 2000 fiscal year. ITEM 4A EXECUTIVE OFFICERS OF THE REGISTRANT The executive officers of the Registrant as of January 15, 2001 are listed below. Brief summaries of their business experience and certain other information with respect to each of them is set forth in the following table and in the information, which follows the table. As a result of Hekemian & Co. being responsible for managing the day to day operations of the Registrant's properties and providing personnel to manage the Registrant's properties, the executive officers are not required to devote a significant part of their business activities to their duties as executive officers of the Registrant. With the exception of Mr. Hekemian and Mr. Barney no executive officer of the Registrant directly devotes more than ten percent (10%) of his business activities to the Registrant's business. See "Item 1(c) Narrative Description of Business - Management Agreement." Except for Mr. DeLorenzo, Executive Secretary and Treasurer of the Registrant, each of the executive officers is also a Trustee of the Registrant. The executive officers of the Registrant are as follows: Name Age Position - ---- --- -------- Robert S. Hekemian 69 Chairman of the Board and Chief Executive Officer Donald W. Barney 60 President John B. Voskian, M.D. 76 Secretary William R. DeLorenzo, Jr., Esq. 56 Executive Secretary and Treasurer Robert S. Hekemian has been active in the real estate industry for more than forty-seven (47) years. Mr. Hekemian has served as Chairman of the Board and Chief Executive Officer of the Registrant since 1991, and as a Trustee since 1980. From 1981 to 1991, Mr. Hekemian was President of the Registrant. Mr. Hekemian directly devotes approximately twenty-five percent (25%) of his time to execute his duties as an executive officer of the Registrant. Mr. Hekemian is also the Chairman of the Board and Chief Executive Officer of Hekemian & Co. See "Item 1(c) Narrative Description of Business - Management Agreement." Mr. Hekemian is a director of Summit Bank. Mr. Hekemian is also a director, partner and officer in numerous private real estate corporations and partnerships. Mr. Hekemian is the brother-in-law of Dr. Voskian. Donald W. Barney has served as President of the Registrant since 1993, and as a Trustee since 1981. Mr. Barney devotes approximately fifteen percent (15%) of his time to execute his duties as an executive officer of the Registrant. Mr. Barney was associated with Union Camp Corporation, a diversified manufacturer of paper, packaging products, chemicals and wood products, from 1969, through December 31, 1998, as Vice President and Treasurer. Mr. Barney was a director of Ramapo Financial Corporation until it was acquired, in May 1999 by another financial institution, and a partner and director in several other private real estate investment companies. Mr. Barney was formerly the brother-in-law of Mr. DeLorenzo. Dr. John B. Voskian has served as Secretary and a Trustee of the Registrant since 1968. Dr. Voskian spends less than five percent (5%) of his time with respect to his duties as an executive officer of the Registrant. A physician, Dr. Voskian has retired from the practice of medicine. Dr. Voskian is also a director and an officer in a number of private real estate companies. Dr. Voskian is the brother-in-law of Mr. Hekemian. William R. DeLorenzo, Jr., an attorney, has served as the Treasurer and Executive Secretary of the Registrant since 1974. Mr. DeLorenzo devotes approximately five percent (5%) of his time to his activities as an executive officer of the Registrant. Since 1996, Mr. DeLorenzo has been in private practice with the law firm of Nowell Amoroso Klein Bierman, P.A., with offices in Hackensack, New Jersey and New York City. From 1990 to 1994, Mr. DeLorenzo was the Chairman of the New Jersey Commission on Capital Budget and Planning. Mr. DeLorenzo was formerly the brother-in-law of Mr. Barney. PART II ITEM 5 MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SECURITY HOLDER MATTERS Shares of Beneficial Interest Beneficial interests in the Registrant are represented by shares without par value (the "Shares"). The Shares represent the Registrant's only authorized, issued and outstanding class of equity. As of January 15, 2001 there were approximately 500 holders of record of the Shares. The Shares are traded in the over-the-counter market through use of the OTC Bulletin Board(R) Service (the "OTC Bulletin Board") provided by NASD, Inc. The Registrant does not believe that an active United States public trading market exists for the Shares since historically only small volumes of the Shares are traded on a sporadic basis. The following table sets forth, for the periods indicated, the high and low bid quotations for the Shares on the OTC Bulletin Board. High Low ---- --- Fiscal Year Ended October 31, 2000 ---------------------------------- First Quarter $28 $26 Second Quarter $25 1/2 $25 Third Quarter $26 $24 1/2 Fourth Quarter $30 $26 High Low ---- --- Fiscal Year Ended October 31, 1999 ---------------------------------- First Quarter $30 $29 Second Quarter $30 $29 Third Quarter $29 $27 Fourth Quarter $27 1/2 $27 The bid quotations set forth above for the Shares reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions. The source of the bid quotations is Janney Montgomery Scott, Inc., members of the New York Stock Exchange and other national securities exchanges. Dividends The holders of Shares are entitled to receive distributions as may be declared by the Registrant's Board of Trustees. Dividends may be declared from time to time by the Board of Trustees and may be paid in cash, property or Shares. The Board of Trustees' present policy is to distribute annually at least ninety-five percent (95%) -ninety percent (90%) for taxable years beginning after 2000- of the Registrant's REIT taxable income as dividends to the holders of Shares in order to qualify as a REIT for Federal income tax purposes. Distributions are made on a quarterly basis. In fiscal 2000 and fiscal 1999, the Registrant paid or declared aggregate total dividends of $2.65 and $2.25 per share, respectively, to the holders of Shares. See "Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations - REIT Distributions to Shareholders." ITEM 6 SELECTED FINANCIAL DATA The selected consolidated financial data for the Registrant for each of the five (5) fiscal years in the period ended October 31, 2000 are derived from financial statements that have been audited and reported upon by J.H. Cohn LLP, independent public accountants for the Registrant. This data should be read in conjunction with "Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations" of this Annual Report and with the Registrant's financial statements and related notes included in this Annual Report.
BALANCE SHEET DATA: 2000 1999 1998 1997 1996 As At October 31, ---- ---- ---- ---- ---- ($000) Total Assets: $ 96,781 $ 84,428 $ 71,275 $59,233 $51,674 ========= ======== ======== ======= ======= Long-Term Obligations $ 70,214 $ 60,071 $ 47,853 $24,429 $23,609 ========= ======== ======== ======= ======= Secured Note Payable $ -- $ -- $ -- $11,429 $ 5,662 ========= ======== ======== ======= ======= Shareholders' Equity $ 21,144 $ 20,520 $ 20,362 $19,984 $19,984 ========= ======== ======== ======= ======= Weighted Average Number of Shares Outstanding $ 1,559 1,559 1,559 1,559 1,559 ========= ======== ======== ======= =======
INCOME STATEMENT DATA: Year Ended October 31, 2000 1999 1998 1997 1996 ---- ---- ---- ---- ---- (in thousands, except per share data) REVENUES: Revenues from Real Estate Operations $ 17,151 $ 15,037 $ 14,213 $ 11,553 $ 11,377 Net Investment Income 834 742 6 6 10 Equity In Earnings (Loss) of Affiliate (1) 173 (52) 213 139 92 -------- -------- -------- -------- -------- 18,158 15,727 14,432 11,698 11,479 -------- -------- -------- -------- -------- EXPENSES: Real Estate Operations 5,881 5,244 5,026 4,499 4,571 Financing Costs 5,165 4,620 3,762 2,629 2,749 General Expenses 365 432 309 288 202 Depreciation 1,988 1,716 1,650 1,319 1,295 -------- -------- -------- -------- -------- 13,399 12,012 10,747 8,735 8,817 -------- -------- -------- -------- -------- Net Income $ 4,759 $ 3,715 $ 3,685 $ 2,963 $ 2,662 ======== ======== ======== ======== ======== Earnings Per Share: Basic $ 3.05 $ 2.38 $ 2.36 $ 1.90 $ 1.71 ======== ======== ======== ======== ======== Diluted $ 3.05 $ 2.38 $ 2.36 $ 1.90 $ 1.71 ======== ======== ======== ======== ======== Cash Dividends Declared Per Common Share $ 2.65 $ 2.25 $ 2.12 $ 1.90 $ 1.71 ======== ======== ======== ======== ========
(1) Westwood Hills L.L.C. is accounted for using the equity method of accounting. Fiscal year ended 1996 has been restated to reflect this accounting method. ITEM 7 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. 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 Annual Report. 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 Annual Report, that could cause actual results to differ materially from those projected. Results of Operations: Fiscal Years ended October 31, 2000 and 1999 Acquisition On March 29, 2000, the Registrant acquired 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 in principal to sell, as of March 29, 2000, a 25% interest in S and A to a group consisting principally of employees of Hekemian & Co., Inc. on the same basis and cost to the Registrant. See Fiscal Year 2000 Developments - Acquisition of Olney Town Center. The accompanying financial statements include the operations of Olney since the acquisition date which are summarized as follows: Period From % Of 3/29/00 Consolidated To Year Ended 10/31/00 10/31/00 ----------- ------------- Selected Income Statement Data: Revenues $ 1,291 7.1% Operating Expenses 385 6.2% Financing Costs 567 11.0% Depreciation 218 11.0% Minority Interest 30 100.0% ----------- ------------- Total Expenses 1,200 9.0% ----------- ------------- Net Earnings $ 91 1.9% =========== ============= Earnings Per Share $ 0.06 1.9% ----------- ------------- Revenues For the fiscal year ended October 31, 2000 ("Current Year"), total revenues increased $2,428,000 (15.4%) to $18,156,000 from $15,728,000 for fiscal ended October 31, 1999 ("Prior Year"). $2,110,000 or 86.9% of this increase is attributable to revenues from real estate operations. The balance of the revenue increase is from the Registrant's share of the earnings from its affiliate ($226,000) and from increased investment income ($92,000). Real Estate Operations: The $2,110,000 (14%) increase in revenues from real estate operations is primarily attributable to Olney ($1,291,000), which has been included in operations since March 29, 2000, and increased revenues from Franklin Crossing ($309,000) as a result of higher occupancy. Revenue at retail properties other than Olney and Franklin Crossing increased 4.4%, and included a $150,000 lease termination fee at the Westridge Square Shopping Center. Revenue at the residential properties increased 3% despite a modest decline in occupancy. The decline in occupancy having been offset by increased apartment rentals. Net Investment Income: Net investment income, which is principally derived from the Registrant's investment in marketable securities (U.S. Treasury Notes and Government Agency bonds), and money market funds, increased 12.4% to $834,000. Earnings From 40% Owned Affiliate: Equity in Earnings of the Registrant's 40% owned affiliate, Westwood Hills L.L.C. was $173,000 for the Current Year compared to a loss of $52,000 for the Prior Year. This positive swing of $225,000 resulted from an 8% increase in the affiliate's NOI (Net Income before depreciation and debt service), and the non-reoccurrence of mortgage refinancing costs of $440,000 incurred during the Prior Year. Expenses: For the Current Year overall expenses increased $1,385,000 (11.5%) to $13,397,000 from $12,012,000 for the Prior Year. The principal areas of increase and percentage increase were in the following areas: Real estate operations $271,000 (8.2%), real estate taxes $265,000 (13.8%), financing costs $544,000 (11.8%), and depreciation $272,000 (15.9%). The inclusion of Olney's operations during the Current Year accounted for $1,200,00 (87%) of the overall expense increase - see table above for the amount and % of the categories attributed to Olney. Administrative costs declined 15.3% in the Current Year. Net Income: Net Income for the Current Year increased 28.1% to $4,759,000 ($3.05 per share) compared to $3,716,000 ($2.38 per share) for the Prior Year. The earnings component increases during the Current Year over the Prior Year are as follows: Current Year Changes ------------ Real Estate Operations $ 1,203,000 Net Investment Income 93,000 Equity in Income of Affiliate 225,000 Financing Costs (545,000) Administrative Costs 67,000 ------------ $ 1,043,000 ------------ The increase in Net Income from Real Estate Operations is attributable to a 2.1% increase at the Registrant's residential properties and a 22.4% increase at the Retail properties. The increase in Net Income at the Retail properties is principally attributable to the inclusion of Olney and increased occupancy at Franklin Crossing. Going Forward: The Registrant feels its operating properties are well positioned in their markets and should continue making positive contributions to earnings and funds from operations ("FFO"). However, as we enter the new fiscal year, the following factors may negatively impact the Registrant's operating results: o Increased fuel and snow removal costs. The effect of increased utility rates and prospects for a severe winter may increase these expenses above the levels experienced the past several years. To the extent these expenses occur at the Registrant's Residential properties, as opposed to the Retail properties, they cannot be passed on to tenants. o Olney Town Center. The Registrant is planning an expansion of the Olney center during fiscal 2001-2002 that the Registrant expects will ultimately add to revenues, net income, and value to the Registrant's portfolio when completed. If the expansion plans are approved by the required governmental agencies, and the leasing completed, a number of existing tenants will be relocated. The relocation of these tenants' will cause a temporary, although significant, loss of rental income and expense reimbursements to the Registrant during the expansion period. Results of Operations: Fiscal Years ended October 31, 1999 and 1998 Revenues For the fiscal year ended October 31, 1999, total revenues increased $1,296,000 (8.9%) to $15,727,000 from $14,431,000 for fiscal 1998. $824,000 of the increase comes from the Registrant's real estate operations, and $736,000 from increased interest income. These increases were offset by a negative swing of $264,000 in the Registrant's share of earnings from its 40% owned affiliate from a profit of $212,000 for fiscal 1998 to a loss of $52,000 for fiscal 1999. Real Estate Operations: The increase in revenues from real estate operations (5.8%) results primarily from higher revenues from the Registrant's residential and retail properties. Higher per unit rental collections were experienced at the Registrant's residential properties. Increased revenues at the Registrant's retail properties came primarily from the Patchogue, NY, property (in for the full fiscal 1999 year compared to 10 1/2 months for fiscal 1998), and increased occupancy during fiscal 1999 at the Franklin Crossing shopping center. Net Investment Income: The mortgage financings that took place during fiscal 1999 and 1998 generated funds of approximately $14.8 million. These funds were invested in institutional money market pools that generated the bulk of the increased interest income. During the fourth quarter of 1999, in order to increase yields, the Registrant redeployed $14 million from the money market pools into short-to-intermediate term Government Agency bonds. Earnings From 40% Owned Affiliate: The Registrant's 40% owned affiliate, Westwood Hills L.L.C. refinanced a $10+ million, 7.8% mortgage for a $15.5 million, 6.693% mortgage. One-time refinancing costs of $440,000 were incurred. The Registrant's share of these refinancing costs was $176,000. This one-time financing cost coupled with reduced earnings due to higher debt service resulted in the negative swing of $264,000 in the Registrant's share of its affiliate's earnings. Expenses: For the fiscal year ended October 31, 1999 overall expenses increased $1,266,000 (11.8%) to $12,012,000 from $10,746,000 for fiscal 1998. The increase came in the following areas: Real estate operations: $219,000 (4.4%); financing costs: $858,000 (22.8%); General expenses: $123,000 (39.8%); and, Depreciation expense: $66,000 (4.0%). Real Estate Operations: Direct operating expenses increased $55,000 (1.7%), while real estate taxes increased $164,000 (9.4%). The majority of these increases came from the new properties at Patchogue and Franklin Crossing. Financing Costs: The increase in Financing Costs of $858,000 result from the increased debt levels from the refinancings during fiscal 1999 and 1998. These increased costs are offset by the increased interest income earned of $736,000 (see above). General Administrative Expense: The increase in these category results primarily from higher Trustee fees, a function of a greater number of meetings, and, legal fees incurred in connection with the Registrant becoming a 34 Act reporting company. Much of this cost increase is considered non-recurring. Depreciation Expense: Higher depreciation results primarily from depreciation at the newer properties at Patchogue and Franklin Crossing. Net Income For the fiscal year ended October 31, 1999 Net Income was $3,715,000 ($2.38 per share) compared to Net Earnings of $3,685,000 ($2.36 per share) for the fiscal year ended October 31, 1998. Earnings at operating real estate properties increased 7.2% to $8,077,000 from $7,538,000 last fiscal year. This earnings increase at the real estate operating properties is a combination of a 5.8% increase in revenues outpacing a 4.27% increase in operating expenses. The principle reasons for this increase were higher per unit rents at the Registrant's residential properties and increased earnings from Registrant's retail properties in Patchogue, NY, and at Franklin Crossing shopping center in Franklin Lakes, NJ. The real estate operating gains were offset by (1) the negative swing in the Registrant's share of the loss at it's 40% owned affiliate, (2) higher financing costs not completely offset by higher interest earnings, and, (3) higher General Administrative expenses. 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 its current occupancy rates for its apartment properties with a sound support base for its retail properties. Funds From Operations ("FFO") FFO is considered by many as a standard measurement of a REIT's performance. The Registrant computes FFO as follows: Year Ended ---------------------------- 10/31/2000 10/31/1999 ---------------------------- Net Income $ 4,759 $ 3,715 Depreciation - Real Estate 1,988 1,716 Amortization of Deferred Mortgage Costs 111 90 Deferred Rents (436) (399) Capital Improvements - Apartments (340) (262) Other 135 275 ------- ------- Funds From Operations $ 6,217 $ 5,135 ======= ======= 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 REITs may vary materially from that of the Registrant, and therefore the Registrant's FFO and the FFO of other REITs may not be directly comparable. Liquidity and Capital Resources At October 31, 2000, the Registrant's cash, cash equivalents and marketable securities totaled $12,376,000 compared to $16,536,000 at October 31, 1999. The principal reason for the reduction was the liquidation of $5 million of marketable securities used for the cash portion of the purchase price of Olney. Significant portions of these funds are available for property acquisitions. At October 31, 2000, the Registrant's aggregate outstanding mortgage debt was approximately $70.2 million. Approximately $59.5 million bear a fixed weighted average interest cost of 7.512%, and an average life of 10.22 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 6.52% and have a weighted maturity of 29 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 2001 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% (ninety percent (90%) for taxable years beginning after 2000) 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 the minimum of REIT taxable income necessary 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. The following tables list the quarterly dividends paid or declared for the three most recent fiscal years and the percent the dividends were of taxable income. ---------------------------------------------------------------------- FISCAL FISCAL FISCAL ------ ------ ------ 2000 1999 1998 ---- ---- ---- ---------------------------------------------------------------------- First Quarter $ .50 $ .40 $ .40 ---------------------------------------------------------------------- Second Quarter $ .50 $ .40 $ .40 ---------------------------------------------------------------------- Third Quarter $ .50 $ .40 $ .40 ---------------------------------------------------------------------- Fourth Quarter $1.15 $1.05 $ .92 ====== ===== ===== ---------------------------------------------------------------------- Year To Date $2.65 $2.25 $2.12 ===== ===== ===== ---------------------------------------------------------------------- ------------------------------------------------------------------- Dividends ($000) as a % of Total Taxable Taxable Per Share Dividends Income Income ------------------------------------------------------------------- 2000 $ 2.65 $ 4,133 $ 4,122 100.3% ------------------------------------------------------------------- 1999 $ 2.25 $ 3,509 $ 3,332 105.3% ------------------------------------------------------------------- 1998 $ 2.12 $ 3,307 $ 3,170 104.3% ------------------------------------------------------------------- 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. ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK See "Liquidity and Capital Resources" above. ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The financial statements and supplementary data of the Registrant and of its affiliate, Westwood Hills, are submitted as a separate section of this Annual Report. See "Index to Financial Statements" on page F-1 of this Annual Report. ITEM 9 CHANGES IN AND DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not Applicable. PART III Certain information required by Part III is incorporated by reference to the Registrant's definitive proxy statement (the "Proxy Statement") to be filed with the Securities and Exchange Commission no later than 120 days after the end of the Registrant's fiscal year covered by this Annual Report. Only those sections of the Proxy Statement that specifically address the items set forth in this Annual Report are incorporated by reference from the Proxy Statement into this Annual Report. ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT The information concerning the Registrant's trustees required by this item is incorporated herein by reference to the sections titled "Election of Trustees" and "Compliance with Section 16(a) of the Securities Exchange Act" in the Registrant's Proxy Statement for its Annual Meeting to be held in April 2001. The information concerning the Registrant's executive officers required by this item is set forth in Item 4A of Part I of this Annual Report under the caption "Executive Officers of the Registrant." ITEM 11: EXECUTIVE COMPENSATION The information pertaining to executive compensation required by this item is incorporated herein by reference to the section titled "Election of Trustees - Executive Compensation" in the Registrant's Proxy Statement for its Annual Meeting to be held in April 2001. ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this item is incorporated herein by reference to the section titled "Security Ownership of Certain Beneficial Owners and Management" in the Registrant's Proxy Statement for its Annual Meeting to be held in April 2001. ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by this item is incorporated herein by reference to the section titled "Certain Relationships and Related Transactions" in the Registrant's Proxy Statement for its Annual Meeting to be held in April 2001. PART IV ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) Financial Statements of Registrant and of Registrant's Affiliate, Westwood Hills: (i) Reports of Independent Public Accountants for Registrant, J.H. Cohn, LLP (ii) Balance Sheets as of October 31, 2000 and 1999 (iii) Statements of Income and Undistributed Earnings for the years ended October 31, 2000, 1999 and 1998 for Registrant and Statements of Income and Members' Equity for the years ended October 31, 2000, 1999 and 1998 for Westwood Hills (iv) Statements of Cash Flows for the years ended October 31, 2000, 1999 and 1998. (v) Notes to Financial Statements Financial Statement Schedules: (i) Short-Term Borrowings. (ii) Supplementary Income Statement Information. (iii) Real Estate and Accumulated Depreciation. Exhibits: See Index to Exhibits immediately following the Financial Statements. (b) Reports on Form 8-K: On October 27, 2000 the Registrant filed a Report on Form 8-K, which is incorporated herein by reference, reporting the Registrant's fourth quarter dividend declaration. (c) Exhibits: See Index to Exhibits. (d) Financial Statement Schedules: See Index to Financial Statements and Financial Statement Schedules. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. First Real Estate Investment Trust of New Jersey Dated: 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 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: Signature Title Date --------- ----- ---- /s/ Robert S. Hekemian Chairman of the Board, Chief - ----------------------------- Executive Officer and Trustee Robert S. Hekemian (Principal Executive Officer) /s/Donald W. Barney Trustee - ----------------------------- Donald W. Barney /s/John B. Voskian Trustee - ----------------------------- John B. Voskian /s/ Herbert C. Klein Trustee - ----------------------------- Herbert C. Klein /s/ Ronald J. Artinian Trustee - ----------------------------- Ronald J. Artinian /s/ Alan L. Aufzien Trustee - ----------------------------- Alan L. Aufzien /s/ William R. DeLorenzo, Jr. Executive Secretary and - ----------------------------- Treasurer (Principal Financial William R. DeLorenzo. Jr. Officer) FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY AND SUBSIDIARY INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES (ITEMS 8 AND 14(a)) PAGE ---- (A) FINANCIAL STATEMENTS OF REGISTRANT: REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS F-2 CONSOLIDATED BALANCE SHEETS OCTOBER 31, 2000 AND 1999 F-3 CONSOLIDATED STATEMENTS OF INCOME, COMPREHENSIVE INCOME AND UNDISTRIBUTED EARNINGS YEARS ENDED OCTOBER 31, 2000, 1999 AND 1998 F-4 CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED OCTOBER 31, 2000, 1999 AND 1998 F-5/6 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-7/17 (B) FINANCIAL STATEMENTS OF AFFILIATE: REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS F-18 BALANCE SHEETS OCTOBER 31, 2000 AND 1999 F-19 STATEMENTS OF OPERATIONS AND MEMBERS' EQUITY (DEFICIENCY) YEARS ENDED OCTOBER 31, 2000, 1999 AND 1998 F-20 STATEMENTS OF CASH FLOWS YEARS ENDED OCTOBER 31, 2000, 1999 AND 1998 F-21 NOTES TO FINANCIAL STATEMENTS F-22/23 (C) FINANCIAL STATEMENT SCHEDULES: IX - SHORT-TERM BORROWINGS S-1 X - SUPPLEMENTARY INCOME STATEMENT INFORMATION S-1 XI - REAL ESTATE AND ACCUMULATED DEPRECIATION S-2/3 Other schedules are omitted because of the absence of conditions under which they are required or because the required information is given in the consolidated financial statements or notes thereto. * * * REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Trustees and Shareholders First Real Estate Investment Trust of New Jersey and Subsidiary We have audited the accompanying consolidated balance sheets of FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY AND SUBSIDIARY as of October 31, 2000 and 1999, and the related consolidated statements of income, comprehensive income, undistributed earnings and cash flows for each of the three years in the period ended October 31, 2000. These financial statements are the responsibility of the Trust's management. Our responsibility is to express an opinion on these consolidated 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 consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated 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 consolidated financial statements referred to above present fairly, in all material respects, the financial position of First Real Estate Investment Trust of New Jersey and Subsidiary as of October 31, 2000 and 1999, and their results of operations and cash flows for each of the three years in the period ended October 31, 2000, 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 consolidated financial statements, the information required to be set forth therein. Roseland, New Jersey November 22, 2000 F-2 FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS OCTOBER 31, 2000 AND 1999
ASSETS 2000 1999 ------ --------- ---------- (In Thousands of Dollars) Real estate and equipment, at cost, net of accumulated depreciation $ 78,038 $ 63,441 Investments in marketable securities 9,451 14,453 Cash and cash equivalents 2,925 2,083 Due from related party 1,066 Tenants' security accounts 766 771 Sundry receivables 1,794 1,326 Prepaid expenses and other assets 1,361 1,004 Deferred charges, net 1,380 1,350 -------- -------- Totals $ 96,781 $ 84,428 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY ------------------------------------ Liabilities: Mortgages payable $ 70,214 $ 60,071 Accounts payable and accrued expenses 854 503 Cash distributions in excess of investment in affiliate 352 294 Dividends payable 1,794 1,638 Tenants' security deposits 1,073 1,000 Deferred revenue 303 402 -------- -------- Total liabilities 74,590 63,908 -------- -------- Minority interest 1,047 -------- 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 1,879 1,253 Accumulated other comprehensive income (loss) (49) (47) -------- -------- Total shareholders' equity 21,144 20,520 -------- -------- Totals $ 96,781 $ 84,428 ======== ========
See Notes to Consolidated Financial Statements. F-3 FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY AND SUBSIDIARY CONSOLIDATED STATEMENTS OF INCOME, COMPREHENSIVE INCOME AND UNDISTRIBUTED EARNINGS YEARS ENDED OCTOBER 31, 2000, 1999 AND 1998
INCOME 2000 1999 1998 ------ --------- -------- --------- (In Thousands of Dollars, Except per Share Amounts) Revenue: Rental income $ 14,575 $ 13,083 $ 12,450 Reimbursements 2,179 1,750 1,576 Equity in income (loss) of affiliate 173 (52) 213 Net investment income 834 742 6 Sundry income 397 204 187 ----------- ----------- ----------- Totals 18,158 15,727 14,432 ----------- ----------- ----------- Expenses: Operating expenses 3,315 3,118 2,989 Management fees 697 623 576 Real estate taxes 2,187 1,922 1,758 Interest 5,165 4,620 3,762 Depreciation 1,988 1,716 1,650 Minority interest 31 ----------- ----------- ----------- Totals 13,383 11,999 10,735 ----------- ----------- ----------- Income before state income taxes 4,775 3,728 3,697 Provision for state income taxes 16 13 12 ----------- ----------- ----------- Net income $ 4,759 $ 3,715 $ 3,685 =========== =========== =========== Basic earnings per share $ 3.05 $ 2.38 $ 2.36 =========== =========== =========== Basic weighted average shares outstanding 1,559,788 1,559,788 1,559,788 =========== =========== =========== COMPREHENSIVE INCOME Net income $ 4,759 $ 3,715 $ 3,685 ----------- ----------- ----------- Other comprehensive income (loss): Unrealized holding losses on marketable securities (70) (47) Reclassification adjustment for losses included in net income 68 ----------- ----------- ----------- Other comprehensive income (loss) (2) (47) ----------- ----------- ----------- Comprehensive income $ 4,757 $ 3,668 $ 3,685 =========== =========== =========== UNDISTRIBUTED EARNINGS Balance, beginning of year $ 1,253 $ 1,048 $ 670 Net income 4,759 3,715 3,685 Less dividends (4,133) (3,510) (3,307) ----------- ----------- ----------- Balance, end of year $ 1,879 $ 1,253 $ 1,048 =========== =========== =========== Dividends per share $ 2.65 $ 2.25 $ 2.12 =========== =========== ===========
See Notes to Consolidated Financial Statements. F-4 FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED OCTOBER 31, 2000, 1999 AND 1998
2000 1999 1998 --------- ------- -------- (In Thousands of Dollars) Operating activities: Net income $ 4,759 $ 3,715 $ 3,685 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 2,182 1,878 1,777 Equity in (income) loss of affiliate (173) 52 (213) Deferred revenue (99) 147 Minority interest 31 Realized loss on marketable securities 68 Changes in operating assets and liabilities: Tenants' security accounts 5 (19) (33) Sundry receivables, prepaid expenses and other assets (1,030) (429) (150) Accounts payable and accrued expenses 351 102 (8) Tenants' security deposits 73 31 64 -------- -------- -------- Net cash provided by operating activities 6,167 5,477 5,122 -------- -------- -------- Investing activities: Capital expenditures (937) (536) (5,347) Distributions from affiliate 231 2,160 200 Purchase of marketable securities (14,500) Proceeds from sale of marketable securities 4,932 Repayment from (loan to) affiliate 100 (100) Acquisition of partnership interest (4,728) -------- -------- -------- Net cash used in investing activities (502) (12,776) (5,247) -------- -------- -------- Financing activities: Dividends paid (3,977) (3,307) (3,198) 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 (777) (728) (619) Deferred mortgage costs (69) (322) (607) -------- -------- -------- Net cash provided by (used in) financing activities (4,823) 8,589 690 -------- -------- -------- Net increase in cash and cash equivalents 842 1,290 565 Cash and cash equivalents, beginning of year 2,083 793 228 -------- -------- -------- Cash and cash equivalents, end of year $ 2,925 $ 2,083 $ 793 ======== ======== ======== Supplemental disclosure of cash flow data: Interest paid, net of capitalized interest of $68,000 in 1998 $ 5,053 $ 4,530 $ 3,763 ======== ======== ======== Income taxes paid $ 16 $ 13 $ 12 ======== ======== ========
F-5 FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED OCTOBER 31, 2000, 1999 AND 1998 Supplemental schedule of noncash investing and financing activities: Dividends declared but not paid amounted to $1,794,000, $1,638,000 and $1,435,000 in 2000, 1999 and 1998, respectively. During 2000, the Trust completed its acquisition of a 98,800 square foot retail property in Olney, Maryland for approximately $15,648,000, in part, with the proceeds of a $10,920,000 mortgage. In connection with the acquisition, the Trust advanced the holders of the 25% interest which is not owned by the Trust approximately $1,016,000 in order for them to fund their pro rata portion of the purchase price. During 1998, the Trust completed its acquisition of a 64,000 square foot commercial property in Patchogue, New York for approximately $11,000,000, in part, with the proceeds of a $7,500,000 mortgage. See Notes to Consolidated Financial Statements. F-6 FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY AND SUBSIDIARY NOTES TO CONSOLIDATED 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, 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. For fiscal 2000, 1999 and 1998, the Trust made such an election. 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). 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 ("WHLLC") is accounted for using the equity method. 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 within shareholders' equity. The cost of securities sold is based on the specific identification method. F-7 FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note - Organization and significant accounting policies (continued): 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 a 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 October 31, 2000, such cash and cash equivalent balances exceeded Federally insured limits by approximately $2,730,000. 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 interest expense and approximated $112,000, $90,000 and $67,000 in 2000, 1999 and 1998, 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 $58,000 in 2000 and 1999 and $73,000 in 1998. F-8 FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1 - Organization and significant accounting policies (concluded): 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 years ended October 31, 2000 and 1999, 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 year ended October 31, 1998, the Trust had no potentially dilutive common shares. Recent accounting pronouncements: The Financial Accounting Standards Board has issued certain pronouncements as of October 31, 2000 that will become effective in subsequent periods; however, management does not believe that any of those pronouncements will effect any financial accounting measurements or disclosures the Trust will be required to make. 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. F-9 FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 2 - Investment in affiliates (continued): Summarized financial information of WHLLC as of October 31, 2000 and 1999 and for each of the three years in the period ended October 31, 2000 is as follows:
2000 1999 -------- -------- (In Thousands of Dollars) Balance sheet data: Assets: Real estate and equipment, net $ 13,942 $ 14,190 Other 756 812 -------- -------- Total assets $ 14,698 $ 15,002 ======== ======== Liabilities and members' deficiency: Liabilities: Mortgage payable $ 15,185 $ 15,362 Other 398 378 -------- -------- Totals 15,583 15,740 -------- -------- Members' deficiency: Trust (352) (294) Others (533) (444) -------- -------- Totals (885) (738) -------- -------- Total liabilities and members' deficiency $ 14,698 $ 15,002 ======== ========
2000 1999 1998 -------- -------- -------- (In Thousands of Dollars) Income statement data: Rental revenue $ 2,863 $ 2,728 $ 2,617 Rental expenses 2,430 2,415 2,086 -------- -------- -------- Income from rental operations 433 313 531 Prepayment penalty on mortgage refinancing (442) -------- -------- -------- Net income (loss) $ 433 $ (129) $ 531 ======== ======== ========
On March 29, 2000, the Trust acquired 100% of S and A, whose primary asset is a neighborhood shopping center in Olney, Maryland. 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. F-10 FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 2 - Investment in affiliates (concluded): 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 has agreed in principle 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 Trust advanced this group $1,016,000 towards the purchase price of S and A. The advance accrues interest at what the Trust's borrowing rate would be under its expired line of credit and amounted to approximately $50,000 during the year ended October 31, 2000. As of October 31, 2000, the group owes an aggregate amount of $1,066,000. The receivable and accrued interest are expected to be paid within the next quarter. The accompanying consolidated 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 years ended October 31, 2000, 1999 and 1998 as though S and A had been acquired at the beginning of fiscal 1998:
2000 1999 1998 -------- -------- -------- (In Thousands of Dollars) Revenue $ 18,915 $ 17,649 $ 16,508 Expenses 14,196 13,950 12,857 -------- -------- -------- Income before minority interest 4,719 3,699 3,651 Minority interest (36) (32) (49) -------- -------- -------- Net income $ 4,683 $ 3,667 $ 3,602 ======== ======== ======== Earnings per share $ 3.00 $ 2.35 $ 2.31 ======== ======== ========
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 fiscal 1998 or of future results of operations of the Trust's combined properties. F-11 FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 3 - Investments in marketable securities: At October 31, 2000 and 1999, 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 October 31, 2000 and 1999 are as follows:
2000 1999 ------------------------- ------------------------ (In Thousands of Dollars) Amortized Amortized Cost Fair Value Cost Fair Value --------- ---------- --------- ---------- One to five years $9,000 $ 8,978 $14,000 $13,986 Five to ten years 500 473 500 467 ------- ------- ------- ------- Totals $ 9,500 $ 9,451 $14,500 $14,453 ======= ======= ======= =======
Note 4 - Real estate and equipment: Real estate and equipment consists of the following:
Range of Estimated Useful Lives 2000 1999 ------------- --------- ---------- (In Thousands of Dollars) Land $23,831 $22,773 Unimproved land 2,384 2,354 Apartment buildings 7-40 years 11,045 10,764 Commercial buildings and shopping centers 15-50 years 56,510 40,723 Construction in progress 795 1,426 Equipment 3-15 years 582 522 ---------- --------- 95,147 78,562 Less accumulated depreciation 17,109 15,121 -------- -------- Totals $78,038 $63,441 ======= =======
F-12 FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 5 - Mortgages payable: Mortgages payable consist of the following:
2000 1999 -------- ------- (In Thousands of Dollars) Northern Life Insurance Cos. - Frederick, MD (A) $18,319 $18,609 National Realty Funding L.C. - Westwood, NJ (B) 10,306 10,420 Larson Financial Resources, Inc. - Spring Lake, NJ (C) 3,621 3,664 Summit Bank - Patchogue, NY (D) 7,191 7,295 Larson Financial Resources, Inc. - Wayne, NJ (E) 10,777 10,898 Larson Financial Resources, Inc. - River Edge, NJ (F) 5,262 5,323 Larson Financial Resources, Inc. - Maywood, NJ (G) 3,818 3,862 Summit Bank - Olney, MD (H) 10,920 ------- ------- Totals $70,214 $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 $23,312,000. (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 $11,142,000. (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 $489,000. (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 $10,276,000. (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 $1,693,000. F-13 FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 5 - Mortgages payable (concluded): (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 $1,236,000. (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 $906,000. (H) Interest only is payable monthly at 175 basis points over the 90 day LIBOR rate (an effective rate of 8.367% at October 31, 2000) and resets every 90 days. The mortgage, which is due in March 2002 (and may be extended for one year), is secured by a shopping center in Olney, Maryland having a net book value of $15,543,000. Principal amounts (in thousands of dollars) due under the above obligations in each of the five years subsequent to October 31, 2000 are as follows: Year Ending October 31, Amount 2001 $ 850 2002 11,836 2003 990 2004 1,068 2005 7,627 Based on borrowing rates currently available to the Trust, the fair value of the mortgage debt approximates carrying value at October 31, 2000. Note 6 - Line of credit agreement: The Trust had an $8,000,000 revolving line of credit agreement with Summit Bank which 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. Outstanding borrowings were 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 October 31, 1999. One of the directors of the bank is a trustee of the Trust. F-14 FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 7 - Commitments and contingencies: Leases: Retail tenants: The Trust leases retail space having a net book value of approximately $70,447,000 at October 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 noncancelable operating leases in years subsequent to October 31, 2000 are as follows: Year Ending October 31, Amount ------------ ------- 2001 $ 7,946 2002 7,723 2003 7,262 2004 6,509 2005 6,020 Thereafter 46,879 -------- Total $82,339 ======= 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 years in the period ended October 31, 2000 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. F-15 FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 8 - 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 $697,000, $623,000 and $576,000 in 2000, 1999 and 1998, respectively. In addition, Hekemian charged the Trust fees and commissions in connection with the acquisitions of the commercial buildings in Olney, Maryland in 2000 and Patchogue, New York in 1998 and various mortgage refinancing and lease acquisition fees. Such fees and commissions amounted to approximately $527,000, $208,000 and $718,000 in 2000, 1999 and 1998, 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 actual terms of each award will be determined by the Board of Trustees. 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, 2000, are exercisable through September 2008. F-16 FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 10- Equity incentive plan (concluded): 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. 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 Company'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. * * * F-17 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Members Westwood Hills, LLC We have audited the accompanying balance sheets of WESTWOOD HILLS, LLC as of October 31, 2000 and 1999, and the related statements of operations and members' equity (deficiency) and cash flows for each of the three years in the period ended October 31, 2000. These financial statements are the responsibility of the Company'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 financial statements referred to above present fairly, in all material respects, the financial position of Westwood Hills, LLC as of October 31, 2000 and 1999, and its results of operations and cash flows for each of the three years in the period ended October 31, 2000, in conformity with generally accepted accounting principles. Roseland, New Jersey November 22, 2000 F-18 WESTWOOD HILLS, LLC (A New Jersey Limited Liability Company) BALANCE SHEETS OCTOBER 31, 2000 AND 1999
ASSETS 2000 1999 ------ -------- -------- (In Thousands of Dollars) Real estate, at cost, net of accumulated depreciation of $2,008,000 and $1,683,000 $ 13,829 $ 14,084 Equipment, at cost, net of accumulated depreciation of $79,000 and $56,000 113 106 Cash 142 186 Tenants' security accounts 321 302 Prepaid expenses and other assets 119 136 Deferred charges, net 174 188 -------- -------- Totals $ 14,698 $ 15,002 ======== ======== LIABILITIES AND MEMBERS' DEFICIENCY Liabilities: Mortgage payable $ 15,185 $ 15,362 Accounts payable and accrued expenses 67 74 Tenants' security deposits 331 304 -------- -------- Total liabilities 15,583 15,740 Members' deficiency (885) (738) -------- -------- Totals $ 14,698 $ 15,002 ======== ========
See Notes to Financial Statements. F-19 WESTWOOD HILLS, LLC (A New Jersey Limited Liability Company) STATEMENTS OF OPERATIONS AND MEMBERS' EQUITY (DEFICIENCY) YEARS ENDED OCTOBER 31, 2000, 1999 AND 1998
OPERATIONS 2000 1999 1998 ---------- -------- ------ ------ (In Thousands of Dollars) Revenue: Rental income $ 2,847 $ 2,703 $ 2,592 Sundry income 16 25 25 ------- ------- ------- Totals 2,863 2,728 2,617 ------- ------- ------- Expenses: Operating expenses 566 583 508 Management fees 144 135 131 Real estate taxes 334 325 292 Interest 1,036 1,033 822 Depreciation 350 339 333 ------- ------- ------- Totals 2,430 2,415 2,086 ------- ------- ------- Income from rental operations 433 313 531 Prepayment penalty on mortgage refinancing (442) ------- ------- ------- Net income (loss) 433 (129) 531 MEMBERS' EQUITY (DEFICIENCY) Balance, beginning of year (738) 4,791 4,760 Less distributions (580) (5,400) (500) ------- ------- ------- Balance, end of year $ (885) $ (738) $ 4,791 ======= ======= =======
See Notes to Financial Statements. F-20 WESTWOOD HILLS, LLC (A New Jersey Limited Liability Company) STATEMENTS OF CASH FLOWS YEARS ENDED OCTOBER 31, 2000, 1999 AND 1998
2000 1999 1998 ------- ------- ------ (In Thousands of Dollars) Operating activities: Net income (loss) $ 433 $ (129) $ 531 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 364 398 363 Changes in operating assets and liabilities: Tenants' security accounts (19) (18) (28) Prepaid expenses and other assets 17 (30) 6 Accounts payable and accrued expenses (7) 33 14 Tenants' security deposits 27 19 17 ------- ------- ------- Net cash provided by operating activities 815 273 903 ------- ------- ------- Investing activities - capital expenditures (102) (113) (51) ------- ------- ------- Financing activities: Distributions paid (580) (5,400) (500) Proceeds (repayments) of notes payable - related parties (250) 250 Net proceeds from mortgage refinancing 5,475 Repayment of mortgage (177) (138) (167) Deferred mortgage costs (177) (26) Refundable deposit 465 (465) ------- ------- ------- Net cash used in financing activities (757) (25) (908) ------- ------- ------- Net increase (decrease) in cash (44) 135 (56) Cash, beginning of year 186 51 107 ------- ------- ------- Cash, end of year $ 142 $ 186 $ 51 ======= ======= ======= Supplemental disclosure of cash flow data: Interest paid $ 1,036 $ 1,033 $ 822 ======= ======= =======
Supplemental schedule of noncash financing activities: During 1999, the Company utilized $10,025,000 of a new mortgage to repay its existing mortgage. See Notes to Financial Statements. F-21 WESTWOOD HILLS, LLC (A New Jersey Limited Liability Company) NOTES TO FINANCIAL STATEMENTS Note 1 - Organization and significant accounting policies: Organization: Westwood Hills, LLC (the "Company") was formed in May 1994 as a New Jersey limited liability company for the purpose of acquiring a residential apartment complex in Westwood, New Jersey. The Company is 40%-owned by First Real Estate Investment Trust of New Jersey (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 Company are either trustees of the Trust or their families or officers of Hekemian. The Company will be dissolved on the earlier of April 2024 or upon the sale of substantially all of it assets. 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. Cash: The Company maintains its cash in bank deposit accounts which, at times, may exceed Federally insured limits. At October 31, 2000, such cash exceeded Federally insured limits by approximately $42,000. The Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents. At October 31, 2000 and 1999, the Company 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 ranging from 7 to 40 years. Deferred charges: Deferred charges consist of mortgage costs which are amortized on the straight-line method by annual charges to operations over the term of the mortgage. Amortization of such costs is included in interest expense and approximated $14,000, $59,000 and $32,000 in 2000, 1999 and 1998, respectively. Advertising: The Company expenses the cost of advertising and promotions as incurred. Advertising costs charged to operations were not material. Income taxes: The Company, 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 in the accompanying financial statements. F-22 WESTWOOD HILLS, LLC (A New Jersey Limited Liability Company) NOTES TO FINANCIAL STATEMENTS Note 2 - Real estate: Real estate consists of the following: 2000 1999 -------- ------- (In Thousands of Dollars) Land $ 3,849 $ 3,849 Apartment buildings 11,988 11,918 ------- ------- 15,837 15,767 Less accumulated depreciation 2,008 1,683 ------- ------- Totals $13,829 $14,084 ======= ======= Note 3 - Mortgage payable: The mortgage is payable in monthly installments of $99,946 including interest at 6.693% through January 2014 at which time the outstanding balance is due. Principal amounts (in thousands of dollars) due under the above obligation in each of the five years subsequent to October 31, 2000 are as follows: Year Ending October 31, Amount ----------- ------ 2001 $189 2002 202 2003 216 2004 231 2005 247 Based on borrowing rates currently available to the Company, the fair value of the mortgage approximates carrying value at October 31, 2000. Note 4 - Management agreement: The apartment complex is currently managed by Hekemian. The management agreement requires fees equal to a percentage of rents collected. Such fees were approximately $144,000, $135,000 and $131,000 in 2000, 1999 and 1998, respectively. * * * F-23 FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY AND SUBSIDIARY 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) -------------- --------- -------- --------- ---------- ---------- 2000: Note payable - bank $ -- --% $ -- $ -- --% ======= === ======= ======= === 1999: Note payable - bank $ -- --% $ -- $ -- --% === ======= ======= === 1998: Note payable - bank $ -- --% $12,755 $ 1,860 7.875% ======= === ======= ======= ======
(A) See Note 6 of notes to consolidated 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 ---- ------------------------------- 2000 1999 1998 ------- ------- ------- Maintenance and repairs $ 357 $ 299 $ 373 ======= ======= ======= Real estate taxes $2,187 $1,922 $1,758 ====== ====== ====== (A) Amounts for other items were less than 1% of revenue in all years. S-1 FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY AND SUBSIDIARY SCHEDULE XI - REAL ESTATE AND ACCUMULATED DEPRECIATION OCTOBER 31, 2000 (In Thousands of Dollars)
Column A Column B Column C Column D Column E -------- -------- -------- -------- -------- Costs Capitalized Gross Amount at Which Initial Cost Subsequent Carried at to Company to Acquisition Close of Period ----------------------- ------------------------------- ---------------------- Buildings Encum- and Improve- Carrying Description brances Land Improvements Land ments Costs Land ----------- -------- -------- ------------ --------- ---------- --------- --------- Garden apartments: Sheridan Apts., Camden, NJ $ 117 $ 360 $ 953 $ 117 Grandview Apts., Hasbrouck Heights, NJ 22 180 181 22 Lakewood Apts., Lakewood, NJ 11 396 187 11 Hammel Gardens, Maywood, NJ $ 3,818 313 728 621 313 Palisades Manor, Palisades Park, NJ 12 81 72 12 Steuben Arms, River Edge, NJ 5,262 364 1,773 351 364 Heights Manor, Spring Lake Heights, NJ 3,621 109 974 258 109 Berdan Court, Wayne, NJ 10,777 250 2,206 1,724 250 Retail properties: Franklin Lakes Shopping Center, Franklin Lakes, NJ 29 $ 3,382 7,173 3,411 Glen Rock, NJ 12 36 35 12 Olney Shopping Center, Olney, MD 10,920 1,058 14,590 113 1,058 Patchogue Shopping Center, Patchogue, NY 7,191 2,128 8,818 (32) 2,128 Westridge Shopping Center, Frederick, MD 18,319 9,135 19,159 394 9,135 Westwood Shopping Center, Westwood, NJ 10,306 6,889 6,416 603 6,889 Vacant land: Franklin Lakes, NJ 224 (158) 66 Rockaway, NJ 1,683 29 $ 429 2,141 South Brunswick, NJ 80 1 96 177 -------- -------- -------- ------- ------- ------- -------- Totals $ 70,214 $ 22,436 $ 55,717 $ 3,254 $12,633 $ 525 $ 26,215 ======== ======== ======== ======== ======= ======= ========
Column A Column E Column F Column G Column H Column I -------- -------- -------- -------- -------- -------- Gross Amount at Which Carried at Close of Period ---------------------------- Life on Buildings Which De- and Accumulated Date of Date preciation Description Improvements Total(1) Depreciation Construction Acquired is Computed ----------- ------------ -------- ------------- ------------ ----------- ----------- Garden apartments: Sheridan Apts., Camden, NJ $ 1,313 $ 1,430 $ 892 1950 1964 7-40 years Grandview Apts., Hasbrouck Heights, NJ 361 383 259 1925 1964 7-40 years Lakewood Apts., Lakewood, NJ 583 594 466 1960 1962 7-40 years Hammel Gardens, Maywood, NJ 1,349 1,662 769 1949 1972 7-40 years Palisades Manor, Palisades Park, NJ 153 165 110 1935/70 1962 7-40 years Steuben Arms, River Edge, NJ 2,124 2,488 1,287 1966 1975 7-40 years Heights Manor, Spring Lake Heights, NJ 1,232 1,341 883 1967 1971 7-40 years Berdan Court, Wayne, NJ 3,930 4,180 2,567 1964 1965 7-40 years Retail properties: Franklin Lakes Shopping Center Franklin Lakes, NJ 7,173 10,584 450 1963/75/97 1966 10-50 years Glen Rock, NJ 71 83 47 1940 1962 10-31.5 years Olney Shopping Center, Olney, MD 14,703 15,761 218 2000 15-39.5 years Patchogue Shopping Center, Patchogue, NY 8,786 10,914 639 1997 1997 39 years Westridge Shopping Center, Frederick, MD 19,553 28,688 5,376 1986 1992 15-31.5 years Westwood Shopping Center, Westwood, NJ 7,019 13,908 2,763 1981 1988 15-31.5 years Vacant land: Franklin Lakes, NJ 66 1966/93 Rockaway, NJ 2,141 1964/92/93 South Brunswick, NJ 177 1964 -------- -------- -------- Totals $ 68,350 $ 94,565 $ 16,726 ======== ======== ========
(1) Aggregate cost is the same for Federal income tax purposes. S-2 FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY AND SUBSIDIARY SCHEDULE XI - REAL ESTATE AND ACCUMULATED DEPRECIATION (In Thousands of Dollars)
Reconciliation of real estate and accumulated depreciation: 2000 1999 1998 --------- --------- --------- Real estate: Balance, beginning of year $ 78,040 $ 78,075 $ 65,719 Additions: Building and improvements 16,495 382 12,363 Carrying costs 30 49 (7) Deletions - building and improvements (466) -------- -------- -------- Balance, end of year $ 94,565 $ 78,040 $ 78,075 ======== ======== ======== Accumulated depreciation: Balance, beginning of year $ 14,786 $ 13,643 $ 11,982 Additions - charged to operating expenses 1,940 1,609 1,661 Deletions (466) -------- -------- -------- Balance, end of year $ 16,726 $ 14,786 $ 13,643 ======== ======== ========
S-3 EX-27 2 0002.txt FINANCIAL DATA SCHEDULE
5 YEAR OCT-31-2000 OCT-31-2000 2,925,000 9,451,000 0 0 0 0 95,147,000 (17,109,000) 96,781,000 0 70,214,000 0 0 19,314,000 1,830,000 96,781,000 0 18,158,000 0 0 8,218,000 0 5,165,000 4,775,000 16,000 4,759,000 0 0 0 4,759,000 3.05 0
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