10-K 1 form10k-48946_freit.txt SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended October 31, 2002 [ ] 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] Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act.) Yes [ ] No [X] The registrant is an equity real estate investment trust and shares without par value represent beneficial interests in the registrant. The aggregate market value of the registrant's shares of beneficial interest held by non-affiliates of the registrant as of the last business day of the registrant's most recently completed second fiscal quarter was approximately $58.4 million. 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. 3,119,576 shares of beneficial interest were issued and outstanding as of January 27, 2003. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Proxy Statement for the Registrant's 2003 Annual Meeting of Shareholders to be held on April 15, 2003 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 ("FREIT") is a real estate investment trust ("REIT") organized in New Jersey in 1961. FREIT 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 ("Westwood Hills"), a New Jersey Limited Liability Company, which owns a 210 unit apartment complex, and a 40% equity interest in Wayne PSC, LLC ("WaynePSC"), a New Jersey Limited Liability Company, which owns, effective as of November 1, 2002, a 323,000 +/- sq. ft. Community Shopping Center. All but three of FREIT's properties are located in New Jersey. See the tables in "Item 2 Properties - Portfolio of Investments". FREIT'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 FREIT's portfolio. FREIT's investments may take the form of wholly owned fee interests or, if the circumstances warrant, on a joint venture basis with other parties provided FREIT would be able to maintain management control over the property. While FREIT'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 2002 Developments (i) Financing ------------- (a) On June 20, 2002, First Real Estate Investment Trust of New Jersey ("FREIT") obtained a two-year $14 million revolving credit line with The Provident Bank. Draws against the credit line can be used for general corporate purposes, or for property acquisitions, construction activities, and Letters-of-Credit. Draws are secured by mortgages on FREIT's Franklin Crossing Shopping Center, Franklin Lakes NJ, single tenanted retail space in Glen Rock, NJ, Lakewood Apartments, Lakewood, NJ, and Grandview Apartments, Hasbrouck Heights, NJ. Interest rates on draws will be set at the time of each draw for 30, 60, or 90 day periods, based on our choice of the prime rate or at 175 basis points over the 30, 60, or 90 day LIBOR rates at the time of the draws. We plan to use the credit line opportunistically, for future acquisitions and/or development opportunities. See "Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources." (b) During November 2002, FREIT renegotiated the terms of the first mortgage note on FREIT's retail property in Patchogue, NY. The mortgage note, which had an outstanding principal balance of $6.9 million, was due on January 1, 2005, and carried a fixed interest rate of 7.375%. The principal balance was not increased, but the due date has been extended three years (3) and the interest rate was reduced to 5.95% fixed. (ii) ACQUISITION On November 1, 2002 WaynePSC, in which FREIT is the managing member, and has a 40% equity interest, acquired the Preakness Shopping Center ("Preakness"), in Wayne, NJ. Preakness, situated on 40 acres, is a 323,000 +/- sq. ft. community center that is anchored by Macy's and Stop & Shop, (under construction). Its 40+ other tenants include well-known regional and national retail merchants such as Dress Barn, Starbucks, 9 West, Annie Sez, Radio Shack, Bath & Body Works, Mandee's, and Good Year Tire. The center also includes branches of the First Union and Commerce Bank, and a multiplex Clearview Movie Theater. The total acquisition costs of $35.5 million were financed in part by a $26.5 million, 6% fixed interest rate, ten year first mortgage loan, and by $9 million of equity contributions provided pro rata by the members of WaynePSC, with FREIT's capital contribution being $3.6 million. No additional capital contributions from the members are contemplated. (iii) ASSET DISPOSITION On August 9, 2002 FREIT sold its Sheridan Apartment property in Camden, NJ. FREIT had owned and operated the property since 1964. The sale of the property will not have a material financial affect on FREIT's future operating results. The selling price of the property was $1,050,000 and resulted in a capital gain of approximately $475,000. The Board of Trustees declared a special capital gain dividend of $.15 per share, which distributed approximately all of the gain to the shareholders. This dividend was paid on September 6, 2002 to shareholders of record on August 23, 2002. . See "Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources." (iv) DEVELOPMENT We own approximately 20 +/- acres of undeveloped land in Rockaway, NJ. Building plan approval has been received from the Township for the construction of 129 garden apartment units. Development costs are estimated at $13.8 million that we will finance, in part, from construction and, in part, from funds available from our institutional money market investments. Subject to the receipt of our water allocation and other ministerial approvals from the Township, construction is expected to commence during the summer of 2003 and is expected to last twelve to eighteen months. Olney is a 98,900 sq. ft. neighborhood shopping center in Olney, MD. We planned an approximately 50,000 sq. ft. expansion and modernization subject to the plans being approved by the required governmental agencies, satisfactory pre-leasing of the new expanded space, and the acceptance of current tenants to be relocated in the expanded center. FREIT's Board of Trustees, based on the status of negotiations with certain current tenants, has determined that it is not likely the expansion will take place in the short-term, and that it will be more economical to defer the expansion / modernization to coincide with the expiration of particular current tenant leases in approximately seven years. (b) Financial Information about Segments FREIT has two reportable segments: Retail Properties and Residential Properties. These reportable segments have different customers and are managed separately because each requires different operating strategies and management expertise. Segment information for the three years ended October 31, 2002 is incorporated by reference to Note 13, "Segment Information" on pages F-18 and F-19 of the Consolidated Financial Statements (c) Narrative Description of Business FREIT was founded and organized for the principal purpose of acquiring, developing, and owning a portfolio of diverse income producing real estate properties. FREIT's developed properties include residential apartment communities and retail properties that consist of multi and single tenanted properties. Our properties are located principally in New Jersey, with the exception of the Westridge Square Shopping Center located in Frederick, Maryland, the Olney Town Center ("Olney") Shopping Center located in Olney Maryland, and the Pathmark supermarket super store located on Long Island. We also currently own approximately 56.5 acres of unimproved land in New Jersey. See "Item 2 Properties - Portfolio of Investments". FREIT elected to be taxed as a REIT under the Internal Revenue Code. FREIT 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, we generally acquire interests in income producing properties to be held as long-term investments. FREIT's return on such investments is based on the income generated by such properties mainly in the form of rents. From time to time, FREIT 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 we believe will provide a higher rate of return and increase the value of our investment portfolio, and (ii) divest properties which FREIT has determined or determines are no longer compatible with our growth strategies and investment objectives for our real estate portfolio. We do not hold any patents, trademarks or licenses. Portfolio of Real Estate Investments At October 31, 2002, FREIT's real estate holdings included (i) seven (7) apartment buildings or complexes containing 507 rentable units, (ii) six (6) retail properties containing approximately 685,000 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 Commercial Limited Partnership ("S&A"), in which FREIT has a 75% ownership interest, FREIT wholly owns all such properties in fee simple. See "Item 2 Properties - Portfolio of Investments" of this Annual Report for a description of FREIT's separate investment properties and certain other pertinent information with respect to such properties that is relevant to FREIT's business. In addition, FREIT holds a 40% membership interest in Westwood Hills, that owns an apartment complex containing 210 rentable units, and a 40% membership interest in WaynePSC that owns, effective November 1, 2002, a 323,000 +/- sq. ft. Community Shopping Center. See "Investment in Affiliates." Investment in Affiliates In May 1994, we acquired a forty percent (40%) membership interest in Westwood Hills that owns and operates a 210-unit residential apartment complex located in Westwood, New Jersey. FREIT is the Managing Member of Westwood Hills, and Hekemian & Co., Inc. ("Hekemian") is the managing agent of the property. See "Management Agreement." In December 1998, Westwood Hills refinanced its mortgage loan. In connection with the refinancing, Robert S. Hekemian, Chairman of the Board of FREIT and a member of Westwood Hills, provided a personal guarantee in certain limited circumstances. FREIT, and all other members, have indemnified Mr. Hekemian, to the extent of their ownership % in Westwood Hills, with respect to this guaranty. The holder of this first mortgage has agreed to increase the loan, via a second mortgage, which will run co-terminus with the first mortgage loan - approximately 11 years. The second mortgage loan amount will be approximately $3.4 million and will bear interest at a fixed rate of 6.18%. This additional financing is expected to close in January 2003. FREIT will receive 40% of the net financing proceeds, further adding to its liquidity. Employees FREIT did not have any full-time employees until December 26, 2001. On that date all employees of Hekemian (approximately eighteen) who work solely at FREIT properties became employees of FREIT. The transfer simplified bookkeeping and has not resulted in any additional costs to FREIT. Prior to the transfer date, FREIT reimbursed Hekemian for the payroll and related costs for these employees. FREIT currently has eleven (11) employees. Mr. Robert S. Hekemian, Chairman of the Board. Chief Executive Officer, Mr. Donald W. Barney, President, Treasurer and Chief Financial Officer, and Mr. John A. Aiello, Secretary and Executive Secretary are the Executive Officers of FREIT. Mr. Hekemian devotes approximately forty to fifty percent (40% - 50%) of his business activities to FREIT, Mr. Barney devotes approximately fifteen percent (15%) of his business activities to FREIT, and Mr. Aiello devotes approximately five percent (5%) of his business activities to FREIT. See "Item 4A - Executive Officers of FREIT." Hekemian has been retained by FREIT to manage FREIT's properties and is responsible for recruiting, on behalf of FREIT, the personnel required to perform all services related to the operation of FREIT's properties. See "Management Agreement." Management Agreement On April 10, 2002 FREIT and Hekemian executed a new Management Agreement whereby Hekemian would continue as Managing Agent for FREIT. The term of the Management Agreement runs from November 1, 2001 to October 31, 2003. The April 10, 2002 Management Agreement replaces the Management Agreement dated December 20, 1961 as extended. The salient provisions of the new Management Agreement are as follow: FREIT continues to retain the Managing Agent as the exclusive management and leasing agent for properties which FREIT presently owns and for the Preakness Shopping Center acquired on November 1, 2002 by WaynePSC. However, FREIT may retain other managing agents to manage certain other properties hereafter acquired and to perform various other duties such as sales, acquisitions, and development with respect to any or all properties. The Managing Agent is no longer the exclusive advisor for FREIT to locate and recommend to FREIT investments, which the Managing Agent deems suitable for FREIT, and is no longer required to offer potential acquisition properties exclusively to FREIT before acquiring those properties for its own account. The new Management Agreement includes a detailed schedule of fees for those services, which the Managing Agent may be called upon to perform. The new Management Agreement provides for a termination fee in the event of a termination or non-renewal of the agreement under certain circumstances. Pursuant to the terms of the new Management Agreement, FREIT pays Hekemian certain fees and commissions as compensation for its services. From time to time, FREIT engages Hekemian to provide certain additional services, such as consulting services related to development and financing activities of FREIT. Separate fee arrangements are negotiated between Hekemian and FREIT with respect to such services. See "First Real Estate Investment Trust of New Jersey Notes to Consolidated Financial Statements - Note 8". Mr. Hekemian, Chairman of the Board and a Trustee of FREIT, is the Chairman of the Board and Chief Executive Officer of Hekemian. Mr. Hekemian owns approximately 3.5% of all of the issued and outstanding shares of Hekemian. Real Estate Financing FREIT funds acquisition opportunities and the development of its real estate properties largely through debt financing, including mortgage loans against certain of its properties. At October 31, 2002, FREIT's aggregate outstanding mortgage debt was $68.4 million with an average interest cost on a weighted average basis of 6.882%. FREIT 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 balances at October 31, 2002 with respect to each of these properties. FREIT is currently, and will continue to be for the foreseeable future, more highly leveraged than it has been in the past. This increased level of indebtedness also presents an increased risk of default on the obligations of FREIT and an increase in debt service requirements that could adversely affect the financial condition and results of operations of FREIT. A number of FREIT's mortgage 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. FREIT 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. See "Liquidity and Capital Resources" section of Item 7. FREIT is subject to the normal risks associated with debt financing, including the risk that FREIT'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 FREIT were unable to refinance its indebtedness on acceptable terms, or at all, FREIT might be forced to dispose of one or more of its properties on disadvantageous terms which might result in losses to FREIT. These losses could have a material adverse effect on FREIT 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 FREIT 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 FREIT. Further, payment obligations on FREIT's mortgage loans will not be reduced if there is a decline in the economic performance of any of FREIT's properties. If any such decline in economic performance occurs, FREIT'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 FREIT's Board of Trustees limits either the total amount of indebtedness or the specified percentage of indebtedness (based on the total capitalization of FREIT), which may be incurred by FREIT. Accordingly, FREIT 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 FREIT could bear interest at rates, which are higher than the rates on FREIT's existing debt. Future debt incurred by FREIT could also bear interest at a variable rate. Increases in interest rates would increase FREIT'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 FREIT and its ability to make distributions to shareholders and to pay amounts due on its debt or cause FREIT to be in default under its debt. Further, in the future, FREIT 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 FREIT. In such event, FREIT might elect to defer certain projects unless alternative sources of capital were available, such as through an equity or debt offering by FREIT. Competitive Conditions FREIT 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 FREIT in seeking properties for acquisition and for tenants. Many of these competitors have significantly greater financial resources than FREIT. In addition, retailers at FREIT'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 FREIT'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 FREIT'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 FREIT'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 FREIT'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 FREIT'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 FREIT 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 FREIT'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 FREIT'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 FREIT's investments in its shopping center properties. If the sales of stores operating in FREIT'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 FREIT. 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, FREIT 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 FREIT. As at October 31, 2002 the following table lists the ten largest retail tenants, which account for approximately 61% of FREIT's retail rental space and 53.8% of fixed retail rents. -------------------------------------------------------------------- Tenant Center Sq. Ft. -------------------------------------------------------------------- Burlington Coat Factory Westridge Square 85,992 Kmart Corporation (1) Westwood Plaza 84,254 Pathmark Stores Patchoque 63,932 Giant Of Maryland Westridge Square 55,330 Stop & Shop (2) Franklin Crossing 42,173 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 American Woman Figure Salons Westwood Plaza 8,000 -------------------------------------------------------------------- (1) On January 21, 2002 Kmart Corporation filed for protection under Chapter 11 of the U.S. Bankruptcy Code. Due to the below market rent they are paying for their space, it is highly unlikely that FREIT will suffer any rent loss. We anticipate that Kmart will keep this space or assign their lease to another tenant. Since its Chapter 11 filing Kmart has continued operating its store and has been in full compliance with the terms of its lease. (2) Successor tenant to Grand Union. Westwood Plaza S/C - Stop and Shop: As previously reported, Stop & Shop closed its 28,000 sq. ft. supermarket in Westwood Plaza Shopping Center and continued fulfilling its rental obligations with no plans to reopen the store. Effective July 31, 2002 FREIT and Stop & Shop reached a Lease Termination Agreement whereby, in return for the termination of this below-market-rent lease at no cost to FREIT, FREIT has agreed to not lease or allow this space or any other space in the Shopping Center to be used for a supermarket or for a store using more than 15,000 sq.ft. for the sale of food or food products for off-premises consumption. This use restriction shall expire on May 31, 2032, which corresponds with the expiration of the final option period contained in the Stop & Shop lease. While this 28,000 sq.ft. space is now vacant and not leased, FREIT is negotiating with a non-food retailer for the space. The proposed terms of the lease are for a ten (10) year initial term at market rental rates and pro rata reimbursement of real estate taxes and CAM. The lease will have three (3) five (5) year renewal options. FREIT will invest approximately $1 million (including tenant allowances) in the space. FREIT will fund these amounts from its money market funds. The rental income to be generated from this proposed lease will be far in excess of the rent pursuant to the terminated Stop & Shop lease. The income from this proposed lease will increase income, cash flow, and value. However, we will receive no rental income or expense reimbursements from this space from termination date of the Stop & Shop lease until sometime during the second calendar quarter of 2003 when the proposed new tenant opens for business, a revenue loss estimated at approximately $180,000. (C) Renewal of Leases and Reletting of Space There is no assurance that we will be able to retain tenants at our retail properties upon expiration of their leases. Upon expiration or termination of leases for space located in FREIT'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 FREIT 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, FREIT's revenues and earnings; FREIT's ability to service its debt; and FREIT's ability to make expected distributions to its shareholders, could be adversely affected. There are no leases, which FREIT considers material or significant in terms of any single property which expired during the fiscal year 2002 (with the exception of the Stop & Shop lease at Westwood Plaza discussed above) or which is scheduled to expire in the fiscal year 2003. (D) Illiquidity of Real Estate Investments; Possibility that Value of FREIT's Interests may be less than its Investment Equity real estate investments are relatively illiquid. Accordingly, the ability of FREIT to vary its portfolio in response to changing economic, market or other conditions is limited. Also, FREIT's interest in its affiliates, Westwood Hills and Wayne PSC, are subject to transfer constraints imposed by the operating agreements, which govern FREIT's investment in these affiliates. Even without such restrictions on the transfer of its interest, FREIT believes that there would be a limited market for its interest in these affiliates. If FREIT 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 FREIT from any such sale of the assets in FREIT'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 FREIT'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 FREIT incurred any such liability, it could reduce FREIT'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, FREIT 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, FREIT 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. FREIT has received approval from the Township for the construction of 129 garden apartment units. (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. FREIT 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. FREIT completed the remediation required by the NJDEP. In November 1999, FREIT 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 FREIT's responsibilities with respect to underground storage tanks maintained on its properties. FREIT does have underground storage tanks located on two (2) of its properties used in connection with the heating of apartment units. FREIT periodically visually inspects the location of each underground storage tank for evidence of any spills or discharges. Based upon these inspections, FREIT knows of no underground storage tanks, which are discharging material into the soil at the present time. Current state law does not require FREIT to submit its underground storage tanks to tightness testing. FREIT has conducted no such tests. FREIT 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, Palisades Park and Hasbrouck Heights, New Jersey. Except as noted in subparagraph (iii) above, the environmental reports secured by FREIT have not revealed any environmental conditions on its properties, which require remediation pursuant to any applicable Federal or state law or regulation. b) FREIT has determined that several of its properties contain lead based paint ("LBP"). FREIT is in compliance with all Federal, state and local requirements as they pertain to LBP. FREIT 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 FREIT. (B) Rent Control Ordinances Each of the apartment buildings or complexes owned by FREIT is subject to some form of rent control ordinance which limits the amount by which FREIT can increase the rent for renewed leases, and in some cases, limits the amount of rent which FREIT 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 FREIT from developing its unimproved properties, or renovating, expanding or converting its existing properties, for their highest and best use as determined by FREIT's Board of Trustees, which could diminish the values of such properties. (D) Financial Information about Foreign and Domestic Operations and Export Sales FREIT 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 FREIT's real estate investments in addition to the specific mortgages encumbering the properties.
Apartment Properties as of October 31, 2002: ------------------------------------------- Mortgage Depreciated Cost Balance of Buildings and Property and Location Year Acquired No.of Units Occupancy Rate (000's) Equipment (000's) -------------------------- --------------- ------------- ---------------- -------- ----------------- Lakewood Apts Lakewood, NJ 1962 40 97.5% None (1) $ 104 Palisades Manor 1962 12 100.0% None $ 48 Palisades Park, NJ Grandview Apts Hasbrouck 1964 20 90.0% None (1) $ 116 Heights, NJ Heights Manor Spring Lake Heights, NJ 1971 79 96.2% $ 3,528 $ 526 Hammel Gardens Maywood, NJ 1972 80 95.0% $ 3,720 $ 869 Steuben Arms River Edge, NJ 1975 100 95.0% $ 5,127 $ 1,284 Berdan Court Wayne, NJ 1965 176 94.9% $10,505 $ 1,642 Westwood Hills Westwood, NJ (2) 1994 210 94.3% $14,794 $13,519
(1) Security for draws against FREIT's Credit Line. As at October 31, 2002 there were no draws outstanding (2) FREIT owns a 40% equity interest in Westwood Hills. See "Item 1(c) - Investment in Affiliate."
Retail Properties as of October 31, 2002: ---------------------------------------- Mortgage Leasable Space Occupancy Balance or Depreciated Cost Year - approximate (% of Rate Bank Loan of Buildings and Property and Location Acquired Square Feet Square Feet) (000's) Equipment (000's) ------------------------------- -------------- ---------------- ----------------- --------------- ------------------ Franklin Crossing 1966(2) 87,041 99.5% None (1) $ 9,881 Franklin Lakes, NJ Westwood Plaza Westwood, NJ (4) 1988 173,854 83.1% $10,052 $10,692 Westridge Square Frederick, Maryland 1992 256,620 97.8% $17,661 $22,055 Pathmark Super Store Patchogue, New York 1997 63,932 100% $ 6,914 $ 9,868 Glen Rock, NJ 1962 4,800 0% None (1) $ 34 Olney Town Center (3) Olney, Maryland 2000 98,848 92.3% $10,886 $14,795
(1) Security for draws against FREIT's Credit Line. As at October 31, 2002 there were no draws outstanding. (2) The original 33,000 square foot shopping center was replaced by a new 87,041 square foot center,which opened in October 1997. (3) FREIT owns a 75% equity interest in S And A. (4) See Footnote (3) to Table of Largest Tenants. Vacant Land as of October 31, 2002:
Permitted Use Mortgage Balance per Local Acreage per or Bank Loan Location Acquired Current Use Zoning Laws Parcel (000's) ------------------------------- -------------- ---------------- ----------------- --------------- ------------------ Franklin Lakes, NJ 1966 None Residential 4.27 None Rockaway, NJ (1) 1964/1963 None Multi Family / 19.26 None Retail South Brunswick, NJ 1964 Principally Industrial 33 None leased as farmland qualifying for state farmland assessment tax treatment
(1) FREIT has received approval for the construction of 129 garden apartment units on this land. FREIT believes that it has a diversified portfolio of residential and retail properties. FREIT's business is not materially dependent upon any single tenant or any one of its properties. The following Table lists FREIT's properties that have contributed 15% or more of FREIT's total revenue in one or more of the last three (3) fiscal years. Percent Contribution to Revenues Fiscal Years -------------------------------- 2002 2001 2000 ---- ---- ---- Westridge Square 20.5% 19.1% 21.2% Although FREIT's general investment policy is to hold properties as long-term investments, FREIT could selectively sell certain properties if it determines that any such sale is in FREIT's and its shareholders best interests. With respect to FREIT's future acquisition and development activities, FREIT will evaluate various real estate opportunities which FREIT believes would increase FREIT's revenues and earnings as well as compliment and increase the overall value of FREIT'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, which is currently vacant, all of FREIT's retail properties have multiple tenants. FREIT's retail shopping center properties have seven (7) anchor / major tenants, that account for approximately 55% of the space leased. The balance of the space is leased to eighty-three (83) satellite tenants. The following table lists the anchor / major tenants at each center and the number of satellite tenants:
No. of Net Leasable Satellite Shopping Center Space Anchor/Major Tenants Tenants ------------------------------------------------------------------------------------------ Westridge Sq. 254,970 Giant Supermarket 25 Frederick, MD Burlington Coat Factory Hoyts Cinema Corporation Franklin Crossing 87,868 Stop & Shop 17 Franklin Lakes, NJ Westwood Plaza 173,875 Kmart Corporation 20 Westwood, NJ Olney Town Center 98,848 Holiday Productions (Cinema) 21 Olney, MD Craft Country ------------------------------------------------------------------------------------------
With respect to most of FREIT'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, FREIT's retail properties averaged a 95.6% occupancy rate with respect to FREIT's available leasable space Leases for FREIT's apartment buildings and complexes are usually one (1) year in duration. Even though the residential units are leased on a short-term basis, FREIT has averaged, during the last three (3) completed fiscal years, a 97.2% occupancy rate with respect to FREIT's available apartment units. FREIT does not believe that any seasonal factors materially affect FREIT's business operations and the leasing of its retail and apartment properties. FREIT does not lease space to any Federal, state or local government entity. FREIT 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 FREIT is a party or of which any of its properties is the subject. There is, however, ordinary and routine litigation involving FREIT'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 FREIT. 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 FREIT's 2002 fiscal year. ITEM 4A EXECUTIVE OFFICERS OF FREIT The executive officers of FREIT as of January 27, 2003 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 being responsible for managing the day-to-day operations of FREIT's properties, the executive officers are not required to devote a significant part of their business activities to their duties as executive officers of FREIT. See "Item 1(c) Narrative Description of Business - Management Agreement". Except for Mr. Aiello, Secretary and Executive Secretary of FREIT, each of the executive officers is also a Trustee of FREIT. The executive officers of FREIT are as follows: Name Age Position ---- --- -------- Robert S. Hekemian 71 Chairman of the Board and Chief Executive Officer Donald W. Barney 62 President, Treasurer and Chief Financial Officer John A. Aiello 53 Secretary and Executive Secretary Robert S. Hekemian has been active in the real estate industry for more than forty-nine (49) years. Mr. Hekemian has served as Chairman of the Board and Chief Executive Officer of FREIT since 1991, and as a Trustee since 1980. From 1981 to 1991, Mr. Hekemian was President of FREIT. Mr. Hekemian directly devotes approximately forty to fifty percent (40% - 50%) of his time to execute his duties as an executive officer of FREIT. Mr. Hekemian is also the Chairman of the Board and Chief Executive Officer of Hekemian. See "Item 1(c) Narrative Description of Business - Management Agreement." Mr. Hekemian is a Director of the Pascack National Bank. Mr. Hekemian is also a director, partner and officer in numerous private real estate corporations and partnerships Donald W. Barney has served as President of FREIT since 1993, as a Trustee since 1981, and was elected Treasurer and Chief Financial Officer in January 2003. Mr. Barney devotes approximately fifteen percent (15%) of his time to execute his duties as an executive officer of FREIT. 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 is a partner and director in several other private real estate investment companies. John A. Aiello, Esq. an attorney, was elected to serve as the Executive Secretary of FREIT in August 2002, and as Secretary in January 2003. Mr. Aiello devotes approximately five percent (5%) of his time to execute his duties as an executive officer of FREIT. Beginning in 1974, Mr. Aiello has spent his entire career with the law firm of Giordano Halleran & Ciesla, P.C. ("GH&C"), with offices in Middletown and Trenton, NJ. Mr. Aiello is an officer and shareholder of GH&C. Mr. Aiello is Chairman of GH&C's Corporate and Securities Department, and his practice focuses on corporate law, corporate finance, securities, mergers, and acquisitions. Mr. Aiello succeeded Christopher W. McGarry who resigned his positions as Executive Secretary and Treasurer of FREIT in June of 2002. PART II ITEM 5 MARKET FOR FREIT'S COMMON EQUITY AND RELATED SECURITY HOLDER MATTERS Shares of Beneficial Interest Beneficial interests in FREIT are represented by shares without par value (the "Shares"). The Shares represent FREIT's only authorized, issued and outstanding class of equity. As of January 27, 2003 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. FREIT 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. Quotations prior to October 18, 2001, the date the one-for-one share distribution was made, have been adjusted to reflect the share distribution. High Low ---- --- Fiscal Year Ended October 31, 2002 ---------------------------------- First Quarter $ 23 $ 21-1/2 Second Quarter $ 24 $ 21-1/2 Third Quarter $ 21-3/4 $ 21 Fourth Quarter $ 28 $ 24 High Low ---- --- Fiscal Year Ended October 31, 2001 ---------------------------------- First Quarter $ 19 $ 14-3/4 Second Quarter $ 17-1/4 $ 15-1/2 Third Quarter $ 19 $ 15-1/2 Fourth Quarter $ 18-1/2 $ 15-1/2 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 FREIT'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 percent (90%) of FREIT'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 2002 and fiscal 2001, FREIT paid or declared aggregate total dividends of $1.72 and $1.38 per share, respectively, to the holders of Shares. See "Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations - Distributions to Shareholders". Securities Authorized for Issuance Under Equity Compensation Plans See table included in "Item 12 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters". ITEM 6 SELECTED FINANCIAL DATA The selected consolidated financial data for FREIT for each of the five (5) fiscal years in the period ended October 31, 2002 are derived from financial statements that have been audited and reported upon by J.H. Cohn LLP, independent public accountants for FREIT. 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 FREIT's consolidated financial statements and related notes included in this Annual Report.
BALANCE SHEET DATA: As At October 31, 2002 2001 2000 1999 1998 ---- ---- ---- ---- ---- (in thousands) Total Assets $96,032 $ 96,495 $ 96,781 $ 84,428 $71,275 ======== ========= ========= ========= ======= Long-Term Obligations $68,393 $ 69,354 $ 70,214 $ 60,071 $47,853 ======== ========= ========= ========= ======= Shareholders' Equity $21,903 $ 21,588 $ 21,144 $ 20,520 $20,362 ======== ========= ========= ========= ======= Weighted average shares outstanding: Basic 3,120 3,120 3,120 3,120 3,120 ======== ========= ========= ========= ======= Diluted 3,233 3,133 3,120 3,120 3,120 ======== ========= ========= ========= ======= INCOME STATEMENT DATA: Year Ended October 31, 2002 2001 2000 1999 1998 ---- ---- ---- ---- ---- (in thousands, except per share data) REVENUES: Revenues from real estate operations $18,626 $ 18,062 $ 16,610 $ 14,435 $13,687 Net investment income 250 683 834 742 6 Equity in earnings (loss) of affiliate 269 190 173 (52) 212 --------- --------- ---------- ---------- --------- 19,145 18,935 17,617 15,125 13,905 --------- --------- ---------- ---------- --------- EXPENSES: Real estate operations 6,056 6,107 5,306 4,800 4,583 Financing costs 4,873 5,356 5,165 4,620 3,763 General and administrative expenses 643 539 365 401 309 Depreciation 2,153 2,138 1,914 1,642 1,576 Minority interest 137 85 31 --------- --------- ---------- ---------- --------- 13,862 14,225 12,781 11,463 10,231 --------- --------- ---------- ---------- --------- Income from continuing operations 5,283 4,710 4,836 3,662 3,674 Income (loss) from discontinued operations 398* (10) (77) 53 11 --------- --------- ---------- ---------- --------- Net income $5,681 $ 4,700 $ 4,759 $ 3,715 $3,685 ========= ========= ========== ========== ========= * Includes gain on disposal of $475,000. Basic earnings (loss) per share: Continuing operations $ 1.69 $ 1.51 $ 1.55 $ 1.17 $ 1.18 Discontinued operations 0.13 - (0.02) 0.02 - --------- --------- ---------- ---------- --------- Total $ 1.82 $ 1.51 $ 1.53 $ 1.19 $ 1.18 ========= ========= ========== ========== ========= Diluted earnings (loss) per share: Continuing operations $ 1.63 $ 1.50 $ 1.55 $ 1.17 $ 1.18 Discontinued operations 0.12 - (0.02) 0.02 - --------- --------- ---------- ---------- --------- Total $ 1.75 $ 1.50 $ 1.53 $ 1.19 $ 1.18 ========= ========= ========== ========== ========= Cash Dividends Declared Per Common Share $ 1.72 $ 1.38 $ 1.33 $ 1.13 $ 1.06 ========= ========= ========== =========== =========
ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Cautionary Statement Identifying Important Factors That Could Cause FREIT's Actual Results to Differ From Those Projected in Forward Looking Statements. Readers of this discussion are advised that the discussion should be read in conjunction with the consolidated financial statements of FREIT (including related notes thereto) appearing elsewhere in this Form 10-K. Certain statements in this discussion may constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements reflect FREIT's current expectations regarding future results of operations, economic performance, financial condition and achievements of FREIT, and do not relate strictly to historical or current facts. FREIT has tried, wherever possible, to identify these forward-looking statements by using words such as "believe," "expect," "anticipate," "intend, " "plan," " estimate," or words of similar meaning. Although FREIT believes that the expectations reflected in such forward-looking statements are based on reasonable assumptions, such statements are subject to risks and uncertainties, which may cause the actual results to differ materially from those projected. Such factors include, but are not limited to, the following: general economic and business conditions, which will, among other things, affect demand for rental space, the availability of prospective tenants, lease rents and the availability of financing; adverse changes in FREIT's real estate markets, including, among other things, competition with other real estate owners, risks of real estate development and acquisitions; governmental actions and initiatives; and environmental/safety requirements. Overview FREIT is an equity real estate investment trust ("REIT") that owns a portfolio of residential apartment and retail properties. Our revenues consist primarily of fixed rental income and additional rent in the form of expense reimbursements derived from our income producing retail properties. We also receive income from our 40% owned affiliate, Westwood Hills, which owns a residential apartment property. Beginning in fiscal 2003, we will also receive income from our 40% owned affiliate WaynePCS that owns the Preakness shopping center. Our policy has been to acquire real property for long-term investment. SIGNIFICANT ACCOUNTING POLICIES AND ESTIMATES The Securities and Exchange Commission ("SEC") recently issued disclosure guidance for "Critical Accounting Policies." The SEC defines Critical Accounting Policies as those that require the application of Management's most difficult, subjective, or complex judgments, often because of the need to make estimates about the effect of matters that are inherently uncertain and may change in subsequent periods. Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, the preparation of which takes into account estimates based on judgments and assumptions that affect certain amounts and disclosures. Accordingly, actual results could differ from these estimates. The accounting policies and estimates used and outlined in Note 1 to our Consolidated Financial Statements which are presented elsewhere in this Annual Report, have been applied consistently as at October 31, 2002 and 2001, and for the years ended October 31, 2002, 2001 and 2000. We believe that the following accounting policies or estimates requires the application of Management's most difficult, subjective, or complex judgments: Revenue Recognition: Base rents, additional rents based on tenants' sales volume and reimbursement of the tenants' share of certain operating expenses are generally recognized when due from tenants. The straight-line basis is used to recognize base rents under leases if they provide for varying rents over the lease terms. Straight-line rents represent unbilled rents receivable to the extent straight-line rents exceed current rents billed in accordance with lease agreements. Before FREIT can recognize revenue, it is required to assess, among other things, its collectibility. If we incorrectly determine the collectibility of revenue, our net income and assets could be overstated. Valuation of Long-Lived Assets: We periodically assess the carrying value of long-lived assets whenever we determine that events or changes in circumstances indicate that their carrying amount may not be recoverable. When FREIT determines that the carrying value of long-lived assets may be impaired, the measurement of any impairment is based on a projected discounted cash flows method determined by FREIT's management. While we believe that our discounted cash flow methods are reasonable, different assumptions regarding such cash flows may significantly affect the measurement of impairment. In October 2001, the Financial Accounting Standards Board (the "FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS No. 144 requires the reporting of discontinued operations to include components of an entity that have either been disposed of or are classified as held for sale. FREIT has adopted SFAS No. 144. On August 9, 2002 FREIT sold its Camden, NJ property. FREIT has reclassified the net income (loss) from the operation of the property as Discontinued Operations for all periods presented. The adoption of SFAS No. 144 did not have an impact on net income, but only impacted the presentation of this property within the consolidated statements of income. The results of this reclassification can be seen in "ITEM 6 SELECTED FINANCIAL DATA" above and in the Consolidated Financial Statements of FREIT (including related notes thereto) appearing elsewhere in this Form 10-K. Since we feel that net income from continuing operations (which excludes the operations of the Camden property) is the most significant element of net income, all references and comparisons refer to this item unless otherwise stated. All references to per share amounts are on a diluted basis (unless otherwise indicated), refer to earnings per share from continuing operations, and have been adjusted to reflect the one-for-one share dividend paid in October 2001. Results of Operations: Fiscal Years Ended October 31, 2002 and 2001 Revenues for the year ended October 31, 2002 increased $210,000 or 1.1% over last year's revenues. The components of the increase are summarized in this chart:
Year Ended October 31, Increase (Decrease) ----------------------------- --------- (in thousands) ----------------------------- Revenue Item 2002 2001 $ % ------------ ---- ---- - - Real estate operations $ 18,626 $ 18,062 $ 564 3.1% Equity in income of affiliate 269 190 79 41.6% Investment income 250 683 (433) -63.4% -------- -------- ------ ----- $ 19,145 $ 18,935 $ 210 1.1% ======== ======== ====== =====
The increases in income from real estate operations, and from our equity in the earnings of our affiliate, were significantly offset by the reduction in net investment income. Income from continuing operations increased $573,000 (12.2%) to $5,283,000 for the year ended October 31, 2002 ("this year") compared to $4,710,000 for the year ended October 31, 2001 ("last year"). RETAIL SEGMENT The following table sets forth comparative operating data for FREIT's Retail properties:
Retail Segment Year Ended October 31, Increase (Decrease) ------------------------------------- ---------- 2002 2001 $ % ---- ---- - - Revenues (in thousands) Minimum & percentage rents $ 9,219 $ 8,751 $ 468 5.3% Reimbursements 2,664 2,621 43 1.6% Other 78 150 (72) -48.0% ------- ------- ------- --------- Total revenue 11,961 11,522 439 3.8% Operating expenses 3,610 3,617 (7) -0.2% ------- ------- ------- ---- Net operating income $ 8,351 $ 7,905 $ 446 5.6% ======= ======= ======= === Average occupancy % 96.2% 95.8% 0.40%
Retail rental revenue increased by 3.8% for the year ended October 31, 2002 to $11.9 million from $11.5 million last year. Minimum and percentage rents, however, increased 5.3%. This increase results principally from higher average occupancy. This year's higher occupancy also added to the increase in expenses reimbursed by tenants. The higher revenues and lower operating expenses (principally because of last year's mild winter) resulted in net operating income increasing 5.6% to $8,351,000 this year compared to $7,905,000 last year. Westwood Plaza Shopping Center, Westwood, NJ: On January 21, 2002 Kmart Corporation, a major tenant in our Westwood Shopping Center, filed for protection under Chapter 11 of the U.S. Bankruptcy Code. Due to the below market rent they are paying for their space, it is highly unlikely that FREIT will suffer any rent loss. Since its Chapter 11 filing, Kmart has continued operating its store and has been in full compliance with the terms of their lease. We anticipate that Kmart will keep this space or assign their lease to another tenant. Westwood Plaza S/C - Stop and Shop: As previously reported, Stop & Shop closed its 28,000 sq. ft. supermarket in Westwood Plaza Shopping Center and continued fulfilling its rental obligations with no plans to reopen the store. Effective July 31, 2002 FREIT and Stop & Shop reached a Lease Termination Agreement whereby, in return for the termination of this below-market-rent lease at no cost to FREIT, FREIT has agreed to not lease or allow this space or any other space in the Shopping Center to be used for a supermarket or for a store using more than 15,000 sq.ft. for the sale of food or food products for off-premises consumption. This use restriction shall expire on May 31, 2032, which corresponds with the expiration of the final option period contained in the Stop & Shop lease. While this 28,000 sq.ft. space is now vacant and not leased, FREIT is negotiating with a non-food retailer for the space. The proposed terms of the lease are for a ten (10) year initial term at market rental rates and pro rata reimbursement of real estate taxes and CAM. The lease will have three (3) five (5) year renewal options. FREIT will invest approximately $1 million (including tenant allowances) in the space. FREIT will fund these amounts from its money market funds. The rental income to be generated from this proposed lease will be far in excess of the rent pursuant to the terminated Stop & Shop lease. The income from this proposed lease will increase income, cash flow, and value. However, we will receive no rental income or expense reimbursements from this space from termination date of the Stop & Shop lease until sometime during the second calendar quarter of 2003 when the proposed new tenant opens for business, a revenue loss estimated at approximately $180,000. Olney Expansion Olney is a 98,900 sq. ft. neighborhood shopping center. We planned an approximately 50,000 sq. ft. expansion and modernization subject to the plans being approved by the required governmental agencies, satisfactory pre-leasing of the new expanded space, and the acceptance of current tenants to be relocated in the expanded center. FREIT's Board of Trustees, based on the status of negotiations with certain current tenants, has determined that is not likely the expansion will take place in the short-term, and that it will be more economical to defer the expansion / modernization to coincide with the expiration of particular current tenant leases in approximately seven years. Through July 31, 2002 approximately $270,000 had been expended and deferred for pre-construction development costs, building plans and building permits. The Board of Trustees has decided to write-off all costs that cannot currently be recaptured although some of these costs may be usable when the expansion is undertaken. These costs, which aggregate $190,000, were written off in July 2002. The charge is not included in the operations of the Retail Segment, but was charged to General Expense, as it not considered part of on-going operations. Occupancy at Olney remains unchanged at 92%, as the vacant space was being kept vacant pending the expansion. This vacant space, approximately 7,600 sq. ft., is now available for leasing. RESIDENTIAL SEGMENT
Residential Segment Year Ended October 31, Increase (Decrease) ----------------------- ------------------- 2002 2001 $ % ---- ---- - - (in thousands) -------------------------------- ------ Revenues Rents $6,261 $6,058 $ 203 3.4% Other 77 72 5 6.9% ------ ------ ------ ------ Total revenue 6,338 6,130 208 3.4% Operating expenses 2,445 2,495 (50) -2.0% Net operating income $3,893 $3,635 $ 258 7.1% ====== ====== ====== ====== Capital Improvements $ 378 $ 429 ($ 51) -11.9% Average occupancy % 96.8% 97.7% -0.9%
Residential revenue increased 3.4% to $6.3 million from $6.1 million last year The combination of increased revenues and reduced operating expenses helped raise net operating income 7.1% over last year. Revenue is principally composed of monthly apartment rental income. Total apartment rental income is a factor of occupancy and monthly apartment rents. For the year ended October 31, 2002, annual average occupancy was 96.8% and annual average monthly apartment rents were $1,056. This compares to last year's annual average occupancy of 97.7% and annual average monthly rents of $1,008. This 4.7% increase in average monthly rents more than offset the slight decline in average occupancy. However, we are now feeling the effect of the slow economy. During the fourth quarter we have been experiencing resistance to rent increases and increased vacancies. While average monthly rents at October 31, 2002 have increased to $1,077 average occupancy has fallen to 95.3%. If these current average monthly rents and current occupancy hold, we will experience only modest revenue growth over the next fiscal year in the residential segment. Furthermore, a 1% decline in annual average occupancy, or a 1% decline in average rents, results in an annual $65,400 decline in revenues. During the year ended October 31, 2002 Residential operating expenses declined 2% compared to last year. The principal causes were lower utility and snow removal costs. As a percentage of revenue, operating costs were 38.6% this year compared to 40.7% last year. Going forward, we expect the 2002/2003 winter to be more severe than last year, resulting in higher utility and snow removal costs. An increase in these costs, coupled with increased advertising costs to maintain occupancy and rent levels, and flat revenues, could result in a reduction in the net operating income of the residential segment next year. Capital improvements this year decreased by $51,000 over last year. The decrease resulted from the completion of major apartment renovation programs at two of our apartment communities to maintain their competitiveness in their markets. Since our apartment communities were constructed more than 25 years ago, we tend to spend more in any given year on maintenance and capital improvements than may be spent on newer properties. Capital improvement programs are expected to accelerate over the next fiscal year. We own 20 +/- acres of undeveloped land in Rockaway, NJ, and have received building plan approval from the Township for the construction of 129 garden apartment units. Development costs are estimated at $13.8 million that we will finance, in part, from construction financing and, in part, from funds available from our institutional money market investment. Pending receipt of our water allocation we expect construction to commence by the Summer of 2003. Through October 31, 2002 approximately $260,000 of pre-construction development costs have been expended and deferred. NET INVESTMENT INCOME Net investment income fell 63.4% to $250,000 this year compared to $683,000 last year. Net investment income this year was principally interest earned from our investments in money market funds. This compares to investments we made during the prior year in government agency bonds. Earnings received from various sources over the past two fiscal are as follows: -------------------------------------------------------------------------------- Year Ended October 31, ---------------------- 2002 2001 ---- ---- ($000) Government Agency Bonds and Institutional Money Market $236 $632 Savings Money Market Account 8 Related Party 4 48 Other 2 3 --------------------------------------------------------- Total $250 $683 ========================================================= Because of the declining lower interest rate environment over the past two years our government agency Bond portfolio was redeemed during the prior fiscal year. As a result the yield on our investments fell to just under 2% this year. The decline in yield resulted in the reduction in net investment income. (See "FINANCING COSTS" below for offsetting benefits.) EQUITY IN INCOME OF AFFILIATES Westwood Hills, LLC FREIT's share of earnings of its 40% owned affiliate, Westwood Hills, that owns a 210 unit apartment community in Westwood, NJ, increased 41.6% to $269,000 from $190,000 last year. The increase is principally attributable to increased revenues and lower expenses resulting in net income at the affiliate increasing to $672,000 this year compared to $476,000 last year. During the year average monthly rents increased 4.9% to $1,284 from $1,224 last year. These increases more than offset a slight reduction in average occupancy to 96.8% this year compared to 97.4% last year. The holder of the first mortgage on the affiliate's property has agreed to increase the loan, via a second mortgage, which will run co-terminus with the first mortgage loan - approximately 11 years. The second mortgage loan amount will be approximately $3.4 million and will bear interest at a fixed rate of 6.18%. This additional financing is expected to close in January 2003. FREIT will receive 40% of the net financing proceeds, further adding to its liquidity. Because of this additional financing, increased interest costs are expected to negatively impact the net earnings of the affiliate next year, thereby reducing our share of the affiliate's earnings. Preakness Shopping Center On November 1, 2002 WaynePSC, in which FREIT is the Managing Member, and has a 40% equity interest, acquired the Preakness Shopping Center ("Preakness"), in Wayne, NJ. Preakness, situated on 40 acres, is a 323,000 +/- sq. ft. Community Center that is anchored by Macy's and Stop & Shop, (under construction). Its 40+ other tenants include well-known regional and national retail merchants such as Dress Barn, Starbucks, 9 West, Annie Sez, Radio Shack, Bath & Body Works, Mandee's, and Goodyear Tire. The center also includes branches of the First Union and Commerce Bank, and a multiplex Clearview Movie Theater. The total acquisition costs of $35.5 million were financed in part by a $26.5 million, 6% fixed interest rate, ten year first mortgage loan, and by $9 million of equity contributions provided pro rata by the Members of WaynePSC including $3.6 million contributed by FREIT. During the next fiscal year this investment is expected to add to FREIT's net income and cash flow. FINANCING COSTS Financing costs are summarized as follows: Year Ended October 31, ---------------------- 2002 2001 ---- ---- ($000) Fixed rate mortgages $4,447 $4,514 Floating rate mortgage 403 811 Other 23 31 ---------------------------------------------------- Total $4,873 $5,356 ==================================================== Financing costs for the year decreased $483,000 (9%) to $4,873,000 this year from $5,356,000 last year. The decrease is principally attributable to reduced interest costs resulting from lower mortgage balances from normal loan amortization and because of FREIT's $10.9 million floating rate mortgage (Olney) benefiting from the lower interest rate environment this year compared to last year. During November 2002, we renegotiated the terms of the first mortgage note on our retail property in Patchogue, NY. The mortgage note, which had an outstanding principal balance of $6.9 million, was due on January 1, 2005, and carried a fixed interest rate of 7.375%. The due date has been extended three years (3) and the interest rate was reduced to 5.95% fixed. This interest rate reduction will reduce FREIT's interest costs and debt service requirements going forward. GENERAL AND ADMINISTRATIVE EXPENSES Our G & A expenses increased to $643,000 from $539,000 last year. Included in this year's expense were increased project abandonment costs, higher legal and professional fees and higher FREIT overhead charges, that accounted for much of the G & A increase. DEPRECIATION Depreciation expense this year increased slightly to $2.2 million compared to $2.1 million last year. Most of this increase is primarily attributable to capital improvements made to our properties during the year. Results of Operations: Fiscal Years Ended October 31, 2001 and 2000 (Where applicable, this discussion has been adjusted to reflect discontinued operations - the sale of the Camden property.) Revenues for the year ended October 31, 2001 increased 7.5% to $18,935,000 from $17,617,000 for the year ended October 31, 2000. The increase was primarily attributable to increased revenues from real estate operations (see discussions below). Income from continuing operations for the year ended October 31, 2001 decreased 2.6% to $4,710,000 from $4,836,000 for the year ended October 31, 2000. This decrease is primarily attributable to a $114,000 charge to expenses in connection with the abandonment of a property acquisition. RETAIL SEGMENT Changes in the Retail Segment Revenue and Net Operating Income ("NOI") have been effected principally by the acquisition of the Olney Town Center, Olney, MD ("Olney") on March 29, 2000. NOI as used in this discussion reflects operating revenue and expenses directly associated with the operations of the real estate properties, but excludes straight-lining of rents, depreciation and financing costs (See Note 13 to the consolidated financial statements). The following table sets forth comparative operating data separately for the Retail properties owned before the Olney acquisition ("Same Properties") and Olney: Year Ended October 31, ---------------------- 2001 2000 ---- ---- Rental Revenue (in thousands) -------------- Same Properties $ 9,328 $ 9,126 Olney (purchased 3/29/00) 2,194 1,212 ------- ------- Total Retail 11,522 10,338 Operating Expenses ------------------ Same Properties 2,903 2,611 Olney (purchased 3/29/00) 714 404 ------- ------- Total Retail 3,617 3,015 ------- ------- Net Operating Income -------------------- Same Properties 6,425 6,515 Olney (purchased 3/29/00) 1,480 808 ------- ------- Total Retail $ 7,905 $ 7,323 ======= ======= Rental revenue at FREIT's "Same Properties" increased modestly by 2.2% for the year ended October 31, 2001 to $9.3 million from $9.1 million for the year ended October 31, 2000. Average occupancy for the year ended October 31, 2001 was 95.8% compared to 81.7% for the year ended October 31, 2000. Occupancy at October 31, 2001 was 97.3% compared to 82% at October 31, 2000. The increase in revenues at the Same Properties was more than offset by expenses not chargeable back to tenants via CAM charges such as: $106,000 of tenant account receivable write-offs, $50,000 of expensed roof repairs, and CAM and real estate charges not reimbursed because of vacancies. Occupancy at Olney remains unchanged at 92%. RESIDENTIAL SEGMENT Year Ended October 31, 2001 2000 (in thousands) Rental Revenue $6,130 $5,812 Operating Expenses 2,495 2,292 ------ ------ Net Operating Income $3,635 $3,520 ====== ====== Recurring Capital Improvements $ 429 $ 318 ====== ====== Residential revenue increased 5.5% to $6.1 million for the year ended October 31, 2001 from $5.8 million for the year ended October 31, 2000. Revenue is principally composed of monthly apartment rental income. Total apartment rental income is a factor of occupancy and monthly apartment rents. For the year ended October 31, 2001, average occupancy was 94.4% and average monthly apartment rents were $1,008. This compares to the average occupancy of 93.4% and average monthly rents of $953 for the year ended October 31, 2000. During the year ended October 31, 2001 Residential operating expenses increased 8.9% to $2.5 million from $2.3 million for the year ended October 31, 2000. The principal causes were higher utility costs. The higher utility costs resulted from a combination of higher utility rates and a colder winter than in 2000. As a percentage of revenue, operating costs were about flat at 40.7% for the year ended October 31, 2001 compared to 39.4% for the year ended October 31, 2000. Capital improvements for the year ended October 31, 2001 increased by $111,000 over the year ended October 31, 2000. The increase resulted from major apartment renovation programs at two of our apartment communities to maintain their competitiveness in their markets. Since our apartment communities were constructed more than 25 years ago, we tend to spend more in any given year on maintenance and capital improvements than may be spent on newer properties. We own 20 +/- acres of undeveloped land in Rockaway, NJ, and have received building plan approval from the Township for the construction of 129 garden apartment units. Through October 31, 2001 approximately $251,000 of pre-construction development costs have been expended and deferred. NET INVESTMENT INCOME Net investment income is principally interest earned from our investments in Government Agency Bonds, and Institutional money market funds, and from advances (now repaid) to related parties for the sale to them of a 25% interest in S&A Commercial Associates LP (which owns Olney). Earnings received from these sources for the last two fiscal years ended October 31, 2001 and 2000 are as follows: Year Ended October 31, ---------------------- 2001 2000 ---- ---- ($000) Government Agency Bonds And Institutional Money Market: Interest Income $ 632 $ 849 Realized Losses (68) Related Party Loans 48 49 Other 3 4 ----- ----- $ 683 $ 834 ===== ===== Because of the lower interest rate environment over the course of the fiscal year ended October 31, 2001 than existed at the beginning of the same fiscal year, $9 million of Government Agency Bonds were called during the fiscal year ended October 31, 2001. The one remaining $500,000 bond as at October 31, 2001, was called on November 17, 2001. All proceeds from the redemptions have been invested in an institutional money market fund. As a result of the redemptions, our annualized yield has been reduced as of October 31, 2001 to approximately 2.9% from 6.5% at October 31, 2000. (See "FINANCING COSTS" below for partial offsetting benefits.) EQUITY IN INCOME OF AFFILIATE FREIT's share of earnings of its 40% owned affiliate, Westwood Hills LLC, that owns a 210 unit apartment community in Westwood, NJ, increased 9.8% for the fiscal year ended October 31, 2001 to $190,000 from $173,000 for the fiscal year ended October 31, 2000. The increase was principally attributable to average monthly rents increasing 6.4% to $1,227 for the fiscal year ended October 31, 2001 from $1,153 for the fiscal year ended October 31, 2000. Average monthly rents as at October 31, 2001 were $1,267. Average occupancy over the year was 97.4% compared to 97.8% for the year ended October 31, 2000. Cash distributions we received from our affiliate during the years ended October 31, 2001 and 2000 were $224,000 and $231,000 respectively. FINANCING COSTS Financing costs increased 3.7% to $5.4 million for the fiscal year ended October 31, 2001 from $5.2 million for the prior year. The increase is wholly attributable to the Olney financing costs. Olney was acquired on March 29, 2000, and was included in operations for only seven months during the fiscal year ended October 31, 2000. The increase attributable to Olney of $256,000 was partially offset by reduced interest costs at the Same Properties as a result of lower mortgage balances from normal loan amortization. In addition FREIT's $10.9 million floating rate mortgage benefited from the lower interest rate environment for the fiscal year ended October 31, 2001 compared to the year ended October 31, 2000 (interest charged on this loan was 5.25% at October 31, 2001 compared to 8.03% at October 31, 2000). GENERAL AND ADMINISTRATIVE EXPENSES Our G & A expenses increased to $539,000 for the year ended October 31, 2001 from $365,000 for the year ended October 31, 2000. Included in the fiscal year ended October 31, 2001 was a charge for $114,000, which represents expenses in connection with the abandonment of a property acquisition we felt, should no longer be pursued. Legal fees increased approximately $35,000, principally in connection with SEC reporting matters; and we made a $5,000 contribution to NJ victims of the September 11th events. DEPRECIATION Depreciation expense for the year ended October 31, 2001 increased slightly by 11.7% to $2.1 million compared to $1.9 million for the year ended October 31, 2000. Most all of this increase is primarily attributable to Olney being included in operations for all of fiscal 2001 and only seven months for the year ended October 31, 2000. ------------- FUNDS FROM OPERATIONS ("FFO") FFO is considered by many as a standard measurement of a REIT's performance. We compute FFO as follows (in thousands of dollars): Year Ended --------------------- 10/31/02 10/31/01 -------- -------- Net Income $ 5,681 $ 4,700 Depreciation - Real Estate 2,153 2,138 Amortization of Deferred Mtg. Costs 114 125 Deferred Rents (326) (414) Capital Improvements - Apartments (378) (429) Project abandoned, net 161 114 Minority Interest 137 85 Discontinued Operations (398) 10 Other 59 61 ------- ------- Total FFO $ 7,203 $ 6,390 ======= ======= FFO does not represent cash generated from operating activities in accordance with accounting principles generally accepted in the United States of America, 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 FREIT's, and therefore FREIT's FFO and the FFO of other REITs may not be directly comparable. LIQUIDITY AND CAPITAL RESOURCES Our financial condition remains strong. Net cash provided by operating activities increased 15.7% this year to $7.4 million compared to $6.4 million last year. We expect that cash provided by operating activities will be adequate to cover mandatory debt service payments, recurring capital improvements and dividends necessary to retain qualification as a REIT (90% of taxable income). As at October 31, 2002 we had cash and marketable securities totaling $11.9 million compared to $13.2 million at October 31, 2001. The reduction is principally attributable to utilizing $3.6 million to invest in WaynePSC (Preakness S/C), offset by increased cash flow from operations. These funds are available for construction, property acquisitions, and general needs. As described in the segment analysis above, we are planning the construction of apartment rental units in Rockaway, NJ. The total capital required for this project is estimated at $13.8 million. We expect to finance these costs, in part, from construction and mortgage financing and, in part, from funds available in our institutional money market investment. At October 31, 2002 FREIT's aggregate outstanding mortgage debt was $68.4 million. Approximately $57.4 million bears a fixed weighted average interest rate of 7.511%, and an average life of approximately 9.2 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 note is due in March 2003, and is expected to be extended or re-financed. The fixed rate mortgages are subject to repayment (amortization) schedules that are longer than the term of the mortgages. As such, balloon payments for all mortgage debt will be required as follows: ----------------- Year $ Millions ----------------- 2003 $ 10.9 ----------------- 2005 $ 6.6 ----------------- 2007 $ 15.7 ----------------- 2010 $ 9.2 ----------------- 2013 $ 8.0 ----------------- 2014 $ 9.4 ----------------- The following table shows the estimated fair value and carrying value of our long-term debt at October 31, 2002 and 2001: October 31, October 31, (In Millions) 2002 2001 ------------- ---- ---- Fair Value $73.5 $71.7 Carrying Value $68.4 $69.3 Fair values are estimated based on market interest rates at the end of each fiscal year and on discounted cash flow analysis. Changes in assumptions or estimation methods may significantly affect these fair value estimates. FREIT expects to re-finance the individual mortgages with new mortgages when their terms expire. To this extent we have exposure to interest rate risk on our fixed rate debt obligations. If interest rates, at the time any individual mortgage note is due, are higher than the current fixed interest rate, higher debt service may be required, and/or re-financing proceeds may be less than the amount of mortgage debt being retired. For example, a one percent interest rate increase would reduce the Fair Value of our debt by $3.1 million, and a one percent decrease would increase the Fair Value by $3.3 million. Additionally, we have exposure on our floating rate debt. A one percent change in rates, up or down, will decrease or increase income and cash flow by $109,000 annually. We believe that the values of our properties will be adequate to command re-financing proceeds equal to, or higher than the mortgage debt to be re-financed. We continually review our debt levels to determine if additional debt can prudentially be utilized for property acquisition additions to our real estate portfolio that will increase income and cash flow to shareholders. $14 Million Line of Credit - On June 20, 2002, we finalized the terms of and obtained a two-year $14 million revolving credit line with the Provident Bank. Draws against the credit line can be used for general corporate purposes, or for property acquisitions, construction activities, and Letters-of-Credit. Draws are secured by mortgages on FREIT's Franklin Crossing Shopping Center, Franklin Lakes NY, single tenanted retail space in Glen Rock, NJ, Lakewood Apartments, Lakewood, NJ, and Grandview Apartments, Hasbrouck Heights, NJ. Interest rates on draws will be at set at the time of each draw for 30, 60, or 90 day periods, based on our choice of the prime rate or at 175 basis points over the 30, 60, or 90 day LIBOR rates at the time of the draws. No draws have been made against this credit line. We plan to use the credit line opportunistically, for future acquisitions and/or development opportunities. FREIT's total capital commitments, including long term debt, are summarized as follows:
------------------------------------------------------------------------------------------------- CAPITAL COMMITMENTS (IN THOUSANDS OF DOLLARS) ------------------------------------------------------------------------------------------------- Within 2 - 3 4 - 5 After 5 ------------------------------------------------------------------------------------------------- Contractual Obligations Total One Year Years Years Years ------------------------------------------------------------------------------------------------- Long-Term Debt Annual Amortization $ 8,634 $ 980 $ 2,066 $ 2,019 $ 3,569 Balloon Payments 59,759 10,887 6,623 15,671 26,578 ------------------------------------------------------------------------------------------------- Total Long-Term Debt 68,393 11,867 8,689 17,690 30,147 ------------------------------------------------------------------------------------------------- Operating Leases ------------------------------------------------------------------------------------------------- Land Rent 5,786 76 152 152 5,406 ------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------- Total Capital Commitments $ 74,179 $ 11,943 $ 8,841 $ 17,842 $ 35,553 -------------------------------------------------------------------------------------------------
Distributions to Shareholders Since its inception in 1961, FREIT has elected to be treated as a REIT for Federal income tax purposes. In order to qualify as a REIT, we must satisfy a number of highly technical and complex operational requirements including that we must distribute to our shareholders at least 90% of our REIT taxable income. We anticipate 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, we generally intend 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 our 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 Board has decided, to fix the dividend for the first three quarters of fiscal 2003 at $.35 per share. 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. Per share amounts have been adjusted to reflect the one-for-one share dividend paid on October 18, 2001. ---------------------------------------------------------------- Fiscal ---------------------------------------------------------------- 2002 2001 2000 ---------------------------------------------------------------- First Quarter $ 0.30 $ 0.30 $ 0.25 ---------------------------------------------------------------- Second Quarter $ 0.30 $ 0.30 $ 0.25 ---------------------------------------------------------------- Third Quarter $ 0.30 $ 0.30 $ 0.25 ---------------------------------------------------------------- Fourth Quarter * $ 0.82 $ 0.48 $ 0.575 ---------------------------------------------------------------- Total For Year $ 1.72 $ 1.38 $ 1.325 ---------------------------------------------------------------- * Includes special $.15 dividend representing the gain on sale of Camden property. ---------------------------------------------------------------- ---------------------------------------------------------- ($000) Dividends ----------------------- as a % of Per Total Taxable Taxable Year Share Dividends Income Income ---------------------------------------------------------- 2002 $1.72 $ 5,366 $ 5,258 102.1% 2001 1.38 $ 4,305 $ 4,120 104.5% 2000 1.33 $ 4,133 $ 4,122 100.3% ---------------------------------------------------------- INFLATION Inflation can impact the financial performance of FREIT in various ways. Our retail tenant leases normally provide that the tenants bear all or a portion of most operating expenses, which can reduce the impact of inflationary increases on FREIT. Apartment leases are normally for a one-year term, which may allow us to seek increased rents as leases renew or when new tenants are obtained. Item 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK See "Liquidity and Capital Resources" and "Retail and Residential Segment" above. ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The consolidated financial statements and supplementary data of FREIT and of its affiliate, Westwood Hills, are submitted as a separate section of this Annual Report. See "Index to Consolidated 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 FREIT'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 FREIT'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 FREIT'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 FREIT's Proxy Statement for its Annual Meeting to be held in April 2003. The information concerning FREIT'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 FREIT." 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 FREIT's Proxy Statement for its Annual Meeting to be held in April 2003. ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by Item 403 of Regulation S-K to be included as part of this item is incorporated herein by reference to the section titled "Security Ownership of Certain Beneficial Owners and Management" in FREIT's Proxy Statement for its Annual Meeting to be held in April 2003. Securities Authorized for Issuance under Equity Compensation Plans The number of stock options outstanding under our equity compensation plans, the weighted average exercise price of outstanding options, and the number of securities remaining available for issuance, as of October 31, 2002, were as follows:
Number of securities remaining available for Number of securities future issuance under to be issued upon Weighted-average equity compensation exercise of exercise price of plans (excluding outstanding options, outstanding options, securities reflected in warrants and rights warrants and rights column (a)) Plan category (a) (b) (c) ------------------------------------------------------------------------------------------------------------ Equity Compensation Plans 377,000 $15.00 83,000 approved by security holders (1) ------------------------------------------------------------------------------------------------------------ Equity Compensation Plans 0 0 0 not approved by security holders ------------------------------------------------------------------------------------------------------------ Total 377,000 $15.00 83,000 ============================================================================================================
(1) FREIT's equity incentive plan provides for the issuance of awards to officers, trustees, employees and consultants in the form of nonqualified options to acquire shares of beneficial interest, restricted shares and other share based awards. 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 FREIT's Proxy Statement for its Annual Meeting to be held in April 2003. ITEM 14: CONTROLS AND PROCEDURES As required by Rule 13a-15 under the Exchange Act, within the ninety (90) days prior to the filing date of this report, we carried out an evaluation of the effectiveness of the design and operation of FREIT's disclosure controls and procedures. This evaluation was carried out under the supervision and with participation of FREIT's management, including FREIT's Chairman and Chief Executive Officer and Chief Financial Officer, who concluded that FREIT's disclosure controls and procedures are effective. There have been no significant changes in FREIT's internal controls or in other factors, which could significantly affect internal controls subsequent to the date we carried out our evaluation. Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in FREIT's reports filed or submitted under the Exchange Act is recorded, processed, summarized, and reported, within the time periods specified in the SEC's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in FREIT's reports filed under the Exchange Act is accumulated and communicated to management, including FREIT's Chief Executive Officer and Chief Financial Officer as appropriate, to allow timely decisions regarding required disclosure. PART IV ITEM 15: 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 and Registrant's Affiliate, J.H. Cohn LLP (ii) Consolidated Balance Sheets as of October 31, 2002 and 2001 (iii) Consolidated Statements of Income, Comprehensive Income, and Undistributed Earnings for the years ended October 31, 2002, 2001 and 2000 for Registrant and Statements of Income and Members' Deficiency for the years ended October 31, 2002, 2001 and 2000 for Westwood Hills, LLC. (iv) Consolidated Statements of Cash Flows for the years ended October 31, 2002, 2001 and 2000. (v) Notes to Consolidated Financial Statements Financial Statement Schedules: (i) Supplementary Income Statement Information. (ii) Real Estate and Accumulated Depreciation. Exhibits: See Index to Exhibits immediately following the Financial Statements. (b) Reports on Form 8-K: During the fourth quarter ended October 31, 2002, the following reports on Form 8-K were filed with the SEC: Form 8-K (Item 5. Other Events), date of earliest event reported August 9, 2002 with respect to the sale of our Sheridan Apartment property, located in Camden, NJ Form 8-K (Item 5. Other Events) date of earliest event reported August 14, 2002 regarding the execution of a lease Termination Agreement by and between Stop & Shop and FREIT with respect to the Westwood Plaza Shopping Center Location. . (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, FREIT 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: January 27, 2003 By: /s/Robert S. Hekemian ---------------- --------------------------- Robert S. Hekemian, Chairman of the Board Executive Officer and Chief 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, the following persons on behalf of the Registrant, in the capacities, and on the dates indicated have signed this report below:
Signature Title Date --------- ----- ---- /s/ Robert S. Hekemian Chairman of the Board and Chief January 27, 2003 ------------------------------------------ Executive Officer and Trustee Robert S. Hekemian (Principal Executive Officer) /s/Donald W. Barney President, Treasurer, Chief Financial January 27, 2003 ------------------------------------------ Officer and Trustee Donald W. Barney (Principal financial / accounting January 27, 2003 officer) /s/ Herbert C. Klein Trustee January 27, 2003 ------------------------------------------ Herbert C. Klein /s/ Ronald J. Artinian Trustee January 27, 2003 ------------------------------------------ Ronald J. Artinian /s/ Alan L. Aufzien Trustee January 27, 2003 ------------------------------------------ Alan L. Aufzien
CERTIFICATION I, Robert S. Hekemian, certify that: 1. I have reviewed this annual report on Form 10-K of First Real Estate Investment Trust of New Jersey; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in a11 material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules l3a-14 and 15d-14) for the registrant and have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud whether or not material, that involves management or other; employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: January 27, 2003 /s/ Robert S. Hekemian ---------------- ---------------------- Robert S. Hekemian Chairman of the Board and Chief Executive Officer CERTIFICATION I, Donald W. Barney, certify that: 1. I have reviewed this annual report on Form 10-K of First Real Estate Investment Trust of New Jersey; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in a11 material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules l3a-14 and 15d-14) for the registrant and have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: January 27, 2003 /s/ Donald W. Barney ---------------- -------------------- Donald W. Barney President, Treasurer and Chief Financial Officer FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY ("FREIT")
EXHIBIT INDEX Exhibit No. 3 Amended and Restated Declaration of Trust of FREIT, dated November 7, 1993, as amended on May 31, 1994 and on September 10, 1998. (a) 4 Form of Specimen Share Certificate, Beneficial Interest in FREIT. (b) 10.1 Management Agreement dated April 10, 2002, by and between FREIT and Hekemian & Co., Inc. (c) 10.2 Wayne PSC, L.L.C. Operating Agreement dated March 25, 2002 between FREIT and H-TPKE, LLC ( c) 10.3 Line of Credit Note in the principal amount of $14 million executed by FREIT as Borrower, and delivered to The Provident Bank, as Lender, in connection with the Credit Facility provided by The Provident Bank to FREIT. (d) 21 Subsidiaries of FREIT 23 Consent of J.H. Cohn LLP 24 Power of Attorney (filed with signature pages). 99.1 Certification of principal executive officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 99.2 Certification of principal financial officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. The following filings with the Security and Exchange ---------------------------------------------------- Commission are incorporated by reference: ----------------------------------------- Footnote (a) Exhibit No. 1 to FREIT's Registration Statement on Form 8-A filed on November 6, 1998 (b) FREIT's Annual Report on Form 10-K for the fiscal year ended October 31, 1998. (c) FREIT's Form 8-K filed on April 29, 2002. (d) Exhibit 10 to FREIT's Form 10-Q filed on September 13, 2002.
Exhibit 21 Subsidiaries of Registrant Name State of Formation and Organization Trade ---- ----------------------------------- ----- S And A Commercial Associates Limited Partnership Maryland Olney Town Center EXHIBIT 23 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS ----------------------------------------- We consent to the incorporation by reference in the registration statement of First Real Estate Investment Trust of New Jersey on Form S-8 (File No. 333-79555) of our report dated November 22, 2002, on our audits of the consolidated financial statements of First Real Estate Investment Trust of New Jersey and Subsidiary as of October 31, 2002 and 2001 and for each of the three years in the period ended October 31, 2002 which report is included in the 2002 Annual Report of First Real Estate Investment Trust of New Jersey on Form 10-K. J.H. COHN LLP Roseland, New Jersey January 27, 2003 EXHIBIT 99.1 CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO 18 U.S.C. 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report of First Real Estate Investment Trust of New Jersey (the "Company") on Form 10-K for the period ended October 31, 2002 (the "Report"), I, Robert S. Hekemian, Chairman of the Board and Chief Executive Officer of the Company, do hereby certify, pursuant to 18 U.S.C. 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge: 1. the Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, 15 U.S.C. 78m or 78o(d), and 2. the information contained in the Report fairly presents, in all material respects, the financial condition, and results of operations of the Company. Dated: January 27, 2003 ---------------- /s/ Robert S. Hekemian ---------------------- Robert S. Hekemian Chairman of the Board and, Chief Executive Officer CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO 18 U.S.C. 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report of First Real Estate Investment Trust of New Jersey (the "Company") on Form 10-K for the period ended October 31, 2002 (the "Report"), I, Donald W. Barney President, Treasurer, and Chief Financial Officer of the Company, do hereby certify, pursuant to 18 U.S.C. 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge: 1. the Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, 15 U.S.C. 78m or 78o(d), and 2. the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Dated: January 27, 2003 ---------------- /s/ Donald W. Barney -------------------- Donald W. Barney President, Treasurer and Chief Financial 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, 2002 AND 2001 F-3 CONSOLIDATED STATEMENTS OF INCOME, COMPREHENSIVE INCOME AND UNDISTRIBUTED EARNINGS YEARS ENDED OCTOBER 31, 2002, 2001 AND 2000 F-4/5 CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED OCTOBER 31, 2002, 2001 AND 2000 F-6/7 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-8/21 (B) FINANCIAL STATEMENTS OF AFFILIATE: REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS F-22 BALANCE SHEETS OCTOBER 31, 2002 AND 2001 F-23 STATEMENTS OF INCOME AND MEMBERS' DEFICIENCY YEARS ENDED OCTOBER 31, 2002, 2001 AND 2000 F-24 STATEMENTS OF CASH FLOWS YEARS ENDED OCTOBER 31, 2002, 2001 AND 2000 F-25 NOTES TO FINANCIAL STATEMENTS F-26/27 (C) FINANCIAL STATEMENT SCHEDULES: 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. * * * F-1 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, 2002 and 2001, 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, 2002. These financial statements are the responsibility of FREIT'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 auditing standards generally accepted in the United States of America. 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, 2002 and 2001, and their results of operations and cash flows for each of the three years in the period ended October 31, 2002, in conformity with accounting principles generally accepted in the United States of America. Our audits referred to above included the information in Schedules X and XI which present fairly, when read in conjunction with the consolidated financial statements, the information required to be set forth therein. J.H. Cohn LLP Roseland, New Jersey November 22, 2002 F-2 FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS OCTOBER 31, 2002 AND 2001
ASSETS 2002 2001 ------ --------- --------- (In Thousands of Dollars) Real estate and equipment, at cost, net of accumulated depreciation $74,687 $76,955 Investments in marketable securities 500 Investment in affiliate 3,600 Cash and cash equivalents 11,930 13,187 Tenants' security accounts 788 873 Sundry receivables 2,555 2,512 Prepaid expenses and other assets 1,306 1,262 Deferred charges, net 1,166 1,206 ------- ------- Totals $96,032 $96,495 ======= ======= LIABILITIES AND SHAREHOLDERS' EQUITY ------------------------------------ Liabilities: Mortgages payable $68,393 $69,354 Accounts payable and accrued expenses 778 819 Cash distributions in excess of investment in affiliate 317 386 Dividends payable 2,090 1,497 Tenants' security deposits 1,122 1,219 Deferred revenue 332 322 ------- ------- Total liabilities 73,032 73,597 ------- ------- Minority interest 1,097 1,310 ------- ------- Commitments and contingencies Shareholders' equity: Shares of beneficial interest without par value; 4,000,000 shares authorized; 3,119,576 shares issued and outstanding 19,314 19,314 Undistributed earnings 2,589 2,274 ------- ------- Total shareholders' equity 21,903 21,588 ------- ------- Totals $96,032 $96,495 ======= =======
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, 2002, 2001 AND 2000
INCOME 2002 2001 2000 ------ ---- ---- ---- (In Thousands of Dollars, Except per Share Amounts) Revenue: Rental income $ 15,807 $ 15,224 $ 14,044 Reimbursements 2,536 2,508 2,179 Equity in income of affiliate 269 190 173 Net investment income 250 683 834 Sundry income 283 330 387 -------- -------- -------- Totals 19,145 18,935 17,617 -------- -------- -------- Expenses: Operating expenses 3,490 3,592 2,851 Management fees 790 745 671 Real estate taxes 2,400 2,293 2,133 Interest 4,873 5,356 5,165 Depreciation 2,153 2,138 1,914 Minority interest 137 85 31 -------- -------- -------- Totals 13,843 14,209 12,765 -------- -------- -------- Income from continuing operations before state income taxes 5,302 4,726 4,852 Provision for state income taxes 19 16 16 -------- -------- -------- Income from continuing operations 5,283 4,710 4,836 -------- -------- -------- Discontinued operations: Loss from discontinued operations (77) (10) (77) Gain on disposal 475 -------- -------- -------- Income (loss) from discontinued operations 398 (10) (77) -------- -------- -------- Net income $ 5,681 $ 4,700 $ 4,759 ======== ======== ======== Basic earnings (loss) per share: Continuing operations $ 1.69 $ 1.51 $ 1.55 Discontinued operations .13 .(02) -------- -------- -------- Net income $ 1.82 $ 1.51 $ 1.53 ======== ======== ======== Diluted earnings (loss) per share: Continuing operations $ 1.63 $ 1.50 $ 1.55 Discontinued operations .12 (.02) -------- -------- -------- Net income $ 1.75 $ 1.50 $ 1.53 ======== ======== ======== Basic weighted average shares outstanding 3,120 3,120 3,120 ======== ======== ======== Diluted weighted average shares outstanding 3,233 3,133 3,120 ======== ======== ========
F-4 FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY AND SUBSIDIARY CONSOLIDATED STATEMENTS OF INCOME, COMPREHENSIVE INCOME UNDISTRIBUTED EARNINGS YEARS ENDED OCTOBER 31, 2002, 2001 AND 2000
COMPREHENSIVE INCOME 2002 2001 2000 -------------------- ---- ---- ---- (In Thousands of Dollars, Except per Share Amounts) Net income $ 5,681 $ 4,700 $ 4,759 ------- ------- ------- Other comprehensive income (loss): Unrealized holding gains (losses) on marketable securities 49 (70) Reclassification adjustment for losses included in net income 68 ------- ------- Other comprehensive income (loss) 49 (2) ------- ------- ------- Comprehensive income $ 5,681 $ 4,749 $ 4,757 ======= ======= ======= UNDISTRIBUTED EARNINGS Balance, beginning of year $ 2,274 $ 1,879 $ 1,253 Net income 5,681 4,700 4,759 Less dividends (5,366) (4,305) (4,133) ------- ------- ------- Balance, end of year $ 2,589 $ 2,274 $ 1,879 ======= ======= ======= Dividends per share $ 1.72 $ 1.38 $ 1.33 ======= ======= =======
See Notes to Consolidated Financial Statements. F-5 FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED OCTOBER 31, 2002, 2001 AND 2000
2002 2001 2000 ---- ---- ---- (In Thousands of Dollars) Operating activities: Net income $ 5,681 $ 4,700 $ 4,759 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 2,463 2,445 2,182 Equity in income of affiliate (269) (190) (173) Deferred revenue 10 19 (99) Minority interest 137 85 31 Realized loss on marketable securities 68 Write-off of development costs and abandoned property 190 114 Gain on disposal of discontinued operations (475) Changes in operating assets and liabilities: Tenants' security accounts 85 (107) 5 Sundry receivables, prepaid expenses and other assets (87) (774) (1,030) Deferred leasing and other charges (167) Accounts payable and accrued expenses (41) (35) 351 Tenants' security deposits (97) 146 73 -------- -------- -------- Net cash provided by operating activities 7,430 6,403 6,167 -------- -------- -------- Investing activities: Capital expenditures (635) (1,132) (937) Distributions from affiliate 200 224 231 Proceeds from disposal of discontinued operations 983 Proceeds from sale of marketable securities 500 9,000 4,932 Investment in affiliates (3,600) (4,728) Good faith deposits (15) -------- -------- -------- Net cash provided by (used in) investing activities (2,552) 8,077 (502) -------- -------- -------- Financing activities: Dividends paid (4,773) (4,602) (3,977) Received from sale of 25% minority interest in Olney 1,066 Capital contributions by minority interest 178 Distribution to minority interest (350) Repayment of mortgages (961) (860) (777) Deferred mortgage costs (51) (69) -------- -------- -------- Net cash used in financing activities (6,135) (4,218) (4,823) -------- -------- -------- Net increase (decrease) in cash and cash equivalents (1,257) 10,262 842 Cash and cash equivalents, beginning of year 13,187 2,925 2,083 -------- -------- -------- Cash and cash equivalents, end of year $ 11,930 $ 13,187 $ 2,925 ======== ======== ======== Supplemental disclosure of cash flow data: Interest paid $ 4,759 $ 5,230 $ 5,053 ======== ======== ======== Income taxes paid $ 19 $ 16 $ 16 ======== ======== ========
F-6 FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED OCTOBER 31, 2002, 2001 AND 2000 Supplemental schedule of noncash investing and financing activities: Dividends declared but not paid amounted to $2,090,000, $1,497,000 and $1,794,000 in 2002, 2001 and 2000, respectively. During 2000, FREIT 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, FREIT advanced the holders of the 25% interest which is not owned by FREIT approximately $1,016,000 in order for them to fund their pro rata portion of the purchase price. The advance was repaid in 2001. See Notes to Consolidated Financial Statements. F-7 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 ("FREIT") was organized November 1, 1961 as a New Jersey Business Trust. FREIT is engaged in owning residential and commercial income producing properties located primarily in New Jersey, Maryland and New York. FREIT 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, FREIT does not pay Federal income tax on income whenever income distributed to shareholders is equal to at least 90% of real estate investment trust taxable income. Further, FREIT pays no Federal income tax on capital gains distributed to shareholders. FREIT is subject to Federal income tax on undistributed taxable income and capital gains. FREIT 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 2002, 2001 and 2000, FREIT made such an election. Principles of consolidation: The consolidated financial statements include the accounts of FREIT 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 FREIT reflected as "minority interest", a group consisting principally of employees of Hekemian & Co., Inc. ("Hekemian"). All significant intercompany accounts and transactions have been eliminated in consolidation. Use of estimates: The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. Investment in affiliates: FREIT's 40% investments in Westwood Hills, LLC ("WHLLC") and Wayne PSC, LLC ("WPSCLLC") are 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-8 FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1 - Organization and significant accounting policies (concluded): Cash and cash equivalents: Financial instruments which potentially subject FREIT to concentrations of credit risk consist primarily of cash and cash equivalents. FREIT considers all highly liquid investments purchased with a maturity of three months or less to be cash equivalents. FREIT 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, 2002, such cash and cash equivalent balances exceeded Federally insured limits by approximately $10,449,000. 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 $114,000, $126,000 and $112,000 in 2002, 2001 and 2000, 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 FREIT 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 FREIT, when billed to tenants or ratably over the appropriate period. Advertising: FREIT expenses the cost of advertising and promotions as incurred. Advertising costs charged to operations amounted to approximately $115,000, $47,000 and $58,000 in 2002, 2001 and 2000, respectively. Earnings per share: FREIT has presented "basic" and "diluted" 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"). Recent accounting pronouncements: The Financial Accounting Standards Board has issued certain pronouncements as of October 31, 2002 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 FREIT will be required to make. Reclassifications: Certain accounts in the 2001 and 2000 consolidated financial statements have been reclassified to conform with the current presentation. F-9 FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 2 - Investment in affiliates: FREIT is a 40% member of WHLLC, a limited liability company that is managed by Hekemian, a company which manages all of FREIT's properties and in which one of the trustees of FREIT is the chairman of the board. Certain other members of WHLLC are either trustees of FREIT or their families or officers of Hekemian. WHLLC owns a residential apartment complex located in Westwood, New Jersey. Summarized financial information of WHLLC as of October 31, 2002 and 2001 and for each of the three years in the period ended October 31, 2002 is as follows:
2002 2001 ---- ---- (In Thousands of Dollars) Balance sheet data: Assets: Real estate and equipment, net $ 13,673 $ 13,806 Other 779 676 -------- -------- Total assets $ 14,452 $ 14,482 ======== ======== Liabilities and members' deficiency: Liabilities: Mortgage payable (A) $ 14,794 $ 14,996 Other 455 455 -------- -------- Totals 15,249 15,451 -------- -------- Members' deficiency: FREIT (318) (386) Others (479) (583) -------- -------- Totals (797) (969) -------- -------- Total liabilities and members' deficiency $ 14,452 $ 14,482 ======== ========
(A) The chairman of FREIT, who is also a member of WHLLC, has personally guaranteed the mortgage in certain limited circumstances. FREIT and the other members of WHLLC have indemnified the chairman to the extent of their ownership percentage in WHLLC with respect to this guarantee.
2002 2001 2000 ---- ---- ---- (In Thousands of Dollars) Income statement data: Rental revenue $ 3,169 $ 3,035 $ 2,863 Rental expenses 2,497 2,559 2,430 ------- ------- ------- Net income $ 672 $ 476 $ 433 ======= ======= =======
During 2002, FREIT invested $3,600,000 for a 40% membership interest in WPSCLLC which was formed to acquire a shopping center in Wayne, New Jersey. Prior to November 1, 2002, WPSCLLC had no significant operations (see Note 16). F-10 FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 3 - Investments in marketable securities: At October 31, 2001, FREIT's investment in marketable debt securities consisted of government agency bonds, all of which were scheduled to mature in five to ten years. The bonds were redeemed in 2002 with no realized gain or loss. Note 4 - Real estate and equipment: Real estate and equipment consists of the following:
Range of Estimated Useful Lives 2002 2001 ------------ ---- ---- (In Thousands of Dollars) Land $23,713 $23,831 Unimproved land 2,809 2,636 Apartment buildings 7-40 years 10,415 11,464 Commercial buildings/shopping centers 15-50 years 57,563 57,443 Construction in progress 263 Equipment 3-15 years 651 642 ------- ------- 95,151 96,279 Less accumulated depreciation 20,464 19,324 ------- ------- Totals $74,687 $76,955 ======= =======
Note 5 - Mortgages payable: Mortgages payable consist of the following:
2002 2001 ---- ---- (In Thousands of Dollars) Northern Life Insurance Cos. - Frederick, MD (A) $17,661 $18,004 National Realty Funding L.C. - Westwood, NJ (B) 10,052 10,184 Larson Financial Resources, Inc. - Spring Lake, NJ (C) 3,528 3,576 Fleet Bank - Patchogue, NY (D) 6,914 7,057 Larson Financial Resources, Inc. - Wayne, NJ (E) 10,505 10,645 Larson Financial Resources, Inc. - River Edge, NJ (F) 5,127 5,197 Larson Financial Resources, Inc. - Maywood, NJ (G) 3,720 3,771 Fleet Bank - Olney, MD (H) 10,886 10,920 ------- ------- Totals $68,393 $69,354 ======= =======
F-11 FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 5 - Mortgages payable (continued): (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 $22,056,000. (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 $10,694,000. (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 $496,000. (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 $9,831,000. In November 2002, the mortgage was extended to January 2008 and the interest rate was reduced to 5.95%. (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 $1,551,000. (F) Payable in monthly installments of $34,862 including interest at 6.75% through December 2013 at which time the outstanding balance is due. The mortgage is secured by an apartment building in River Edge, New Jersey having a net book value of approximately $1,245,000. (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 $845,000. (H) Interest only is payable monthly at 175 basis points over the 90 day LIBOR rate (an effective rate of 3.56% at October 31, 2002) and resets every 90 days. The mortgage, which is due in March 2003, is secured by a shopping center in Olney, Maryland having a net book value of $14,793,000. F-12 FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 5 - Mortgages payable (concluded): Principal amounts (in thousands of dollars) due under the above obligations in each of the five years subsequent to October 31, 2002 are as follows: Year Ending October 31, Amount ------------- ------ 2003 $11,867 2004 1,060 2005 7,629 2006 1,056 2007 16,634 The fair value of FREIT's long-term debt, which approximates $73,500,000 and $71,700,000 at October 31, 2002 and 2001, respectively, is estimated based on the quoted market prices for the same or similar issues or on the current rates offered to FREIT for debt of the similar remaining maturities. Note 6 - Line of credit: On June 20, 2002, FREIT obtained a two-year $14,000,000 revolving line of credit from The Provident Bank. Draws against the line of credit can be used for general corporate purposes, or for property acquisitions, construction activities, letters-of-credit and other related business purposes. Draws are secured by mortgages on FREIT's Franklin Crossing Shopping Center, Franklin Lakes, NJ, single-tenanted retail space in Glen Rock, NJ, Lakewood Apartments, Lakewood, NJ and Grandview Apartments, Hasbrouck Heights, NJ. Interest rates on draws will be set at the time of each draw, based on FREIT's choice of the prime rate or at 175 basis points over the 30, 60 or 90 day LIBOR rates. There were no draws under the line of credit during the year ended October 31, 2002. Note 7 - Commitments and contingencies: Leases: Retail tenants: FREIT leases retail space having a net book value of approximately $66,657,000 at October 31, 2002 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, 2002 are as follows: Year Ending October 31, Amount ------------ ------ 2003 $ 8,574 2004 7,995 2005 7,343 2006 6,807 2007 6,219 Thereafter 42,016 ------ Total $78,954 ====== F-13 FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 7 - Commitments and contingencies (continued): Leases (concluded): Retail tenants (concluded): 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. Rental income that is contingent on future events is not included in income until the contingency is resolved. Contingent rentals included in income for each of the three years in the period ended October 31, 2002 were not material. Residential tenants: Lease terms for residential tenants are usually one year or less. Ground lease: FREIT's shopping center in Olney, Maryland contains approximately 98,800 square feet of gross leaseable area situated on approximately 13 acres of land. Approximately 11 acres of the land are subject to a ground lease expiring in 2078, and approximately 2 acres are owned in Fee simple. The lease requires the payment of a minimum annual rental plus real estate taxes, assessments and other operating expenses. Rent expense charged to operations totaled approximately $121,000, $118,000 and $70,000 in 2002, 2001 and 2000, respectively. Future minimum annual lease payments (in thousands of dollars) in each of the five years subsequent to October 31, 2002 and thereafter are as follows: Year Ending October 31, Amount ----------- ------ 2003 $ 76 2004 76 2005 76 2006 76 2007 76 Thereafter 5,406 ------ Total $5,786 ====== Minimum future rentals do not include contingent rentals which may be due under the lease on the basis of percentage of S and A's adjusted gross income, as defined. Contingent rentals included in rent expense for each of the three years in the period ended October 31, 2002 were not material. Environmental concerns: In accordance with applicable regulations, FREIT 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"). F-14 FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 7 - Commitments and contingencies (concluded): Environmental concerns (concluded): In November 1999, FREIT received a no further action letter from the NJDEP concerning the historical discharge at the Center. However, FREIT is required to continue monitoring such discharge, the cost of which will not be material. Note 8 - Management agreement and related party transactions: The properties owned by FREIT are currently managed by Hekemian. A new management agreement, effective November 1, 2001, requires fees equal to a percentage of rents collected. Such fees were approximately $817,000, $771,000 and $697,000 in 2002, 2001 and 2000, respectively, inclusive of $27,000, $26,000 and $26,000, respectively, included in discontinued operations in the accompanying consolidated statements of income. In addition, Hekemian charged FREIT fees and commissions in connection with the acquisitions of the commercial buildings in Olney, Maryland in 2000 and various mortgage refinancing and lease acquisition fees. Such fees and commissions amounted to approximately $280,000, $472,000 and $527,000 in 2002, 2001 and 2000, respectively. The agreement expires on October 31, 2003 and shall be automatically renewed for two years unless otherwise noted. FREIT earned approximately $48,000 and $49,000 in 2001 and 2000, respectively, on the advance it made in 2000 on behalf of the minority interest in Olney which was repaid in 2001. Note 9 - Dividends and earnings per share: FREIT declared dividends (in thousands of dollars) of $5,366, $4,305 and $4,133 to shareholders of record during 2002, 2001 and 2000, respectively. FREIT has determined the shareholders' treatment for Federal income tax purposes to be as follows: 2002 2001 2000 ---- ---- ---- Ordinary income $4,891 $4,305 $4,133 Capital income 475 ------ ------ ------ Totals $5,366 $4,305 $4,133 ====== ====== ====== Basic and diluted earnings per share, based on the weighted average number of shares outstanding during each period, are comprised of ordinary and capital gain income. F-15 FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 9 - Dividends and earnings per share (concluded): FREIT has adopted the provisions of SFAS 128, which require the presentation of "basic" earnings per share and, if appropriate, "diluted" earnings per share. Basic earnings per share is calculated by dividing net income by the weighted average number of 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 shares that would have been outstanding if all potentially dilutive shares, such as those issuable upon the exercise of stock options and warrants, were issued during the period. In computing diluted earnings per share for each of the three years in the period ended October 31, 2002, the assumed exercise of all of FREIT's outstanding stock options, adjusted for application of the treasury stock method, would have increased the weighted average number of shares outstanding as shown in the table below:
2002 2001 2000 ---- ---- ---- Basic weighted average shares outstanding 3,119,576 3,119,576 3,119,576 Shares arising from assumed exercise of stock options 113,201 13,759 --------- --------- --------- Dilutive weighted average shares outstanding 3,232,777 3,133,335 3,119,576 ========= ========= =========
Note 10- Equity incentive plan: On September 10, 1998, the Board of Trustees approved FREIT's Equity Incentive Plan (the "Plan") which was ratified by FREIT's shareholders on April 7, 1999, whereby up to 460,000 of FREIT'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 460,000 shares in FREIT'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 FREIT. 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, FREIT issued 377,000 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 $15 per share. The options, all of which are outstanding at October 31, 2002, are exercisable through September 2008. F-16 FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY AND SUBSIDIARY 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"), FREIT 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, FREIT 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. FREIT 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 4.27%, expected option lives of ten years, expected volatility of 1.65% and expected dividends of 8.59%, FREIT'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. Note 11- Share split: On September 26, 2001, the Board of Trustees approved a two-for-one share split in the form of a share dividend. In connection with the share dividend, the Board of Trustees also approved an increase in the authorized number of shares of beneficial interest from 1,790,000 to 4,000,000. Financial information contained herein, including the number of options, has been adjusted to retroactively reflect the impact of the split. The number of shares of beneficial interest issued at October 31, 2002 was 3,119,576. Note 12- Deferred fee plan: During fiscal 2001, the Board of Trustees adopted a deferred fee plan (the "Plan") for its officers and trustees. Pursuant to the Plan, any officer or trustee may elect to defer receipt of any fees that would be due them. FREIT has agreed to pay any participant (the "Participant") in the Plan interest on any deferred fee at 9% per annum, compounded quarterly. Any such deferred fee is to be paid to the Participants at the later of: (i) the retirement age specified in the deferral election; (ii) actual retirement; or (iii) upon cessation of a Participant's duties as an officer or trustee. The Plan provides that any such deferral fee will be paid in a lump sum or in annual installments over a period not to exceed 10 years, at the election of the Participant. As of October 31, 2002 and 2001, approximately $210,000 and $96,000, respectively, of fees have been deferred along with accrued interest of approximately $18,000 and $4,000, respectively. F-17 FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 13- Segment information: SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information," established standards for reporting financial information about operating segments in interim and annual financial reports and provides for a "management approach" in identifying the reportable segments. FREIT has determined that it has two reportable segments: retail properties and residential properties. These reportable segments offer different products, have different types of customers and are managed separately because each requires different operating strategies and management expertise. The retail segment contains six separate properties and the continuing residential segment contains seven properties (see Note 15). The accounting policies of the segments are the same as those described in Note 1. The chief operating decision-making group of FREIT's retail segment, residential segment and corporate/other is comprised of FREIT's Executive Committee of the Board of Trustees. FREIT assesses and measures segment operating results based on net operating income ("NOI"). NOI is based on operating revenue and expenses directly associated with the operations of the real estate properties, but excludes deferred rents (straight lining), depreciation and financing costs. NOI is not a measure of operating results or cash flows from operating activities as measured by accounting principles generally accepted in the United States of America, and is not necessarily indicative of cash available to fund cash needs and should not be considered an alternative to cash flows as a measure of liquidity. Continuing real estate rental revenue, operating expenses, NOI and recurring capital improvements for the reportable segments are summarized below and reconciled to consolidated net income for each of the three years in the period ended October 31, 2002. Asset information is not reported since FREIT does not use this measure to assess performance.
2002 2001 2000 ---- ---- ---- (in Thousands of Dollars) Real estate rental revenue: Retail $11,961 $11,522 $10,338 Residential 6,338 6,130 5,812 ------- ------- ------- Totals 18,299 17,652 16,150 ------- ------- ------- Real estate operating expenses: Retail 3,610 3,617 3,015 Residential 2,445 2,495 2,292 ------- ------- ------- Totals 6,055 6,112 5,307 ------- ------- ------- Net operating income: Retail 8,351 7,905 7,323 Residential 3,893 3,635 3,520 ------- ------- ------- Totals $12,244 $11,540 $10,843 ======= ======= ======= Recurring capital improvements - residential $ 378 $ 429 $ 318 ======= ======= =======
F-18 FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 13- Segment information (concluded):
2002 2001 2000 ---- ---- ---- (in Thousands of Dollars) Reconciliation to consolidated net income: Segment NOI $ 12,244 $ 11,540 $ 10,843 Deferred rents - straight lining 326 415 436 Net investment income 250 683 834 Other income 23 Equity in income of affiliate 269 190 173 General and administrative expenses (643) (539) (363) Depreciation (2,153) (2,138) (1,914) Financing costs (4,873) (5,356) (5,165) Minority interest (137) (85) (31) Discontinued operations (Note 15) 398 (10) (77) -------- -------- -------- Net income $ 5,681 $ 4,700 $ 4,759 ======== ======== ========
Note 14- Quarterly data (unaudited): The following summary represents the results of operations for each quarter for the years ended October 31, 2002 and 2001 (in thousands, except per share data):
Quarter Ended --------------------------------------------------- January 31, April 30, July 31, October 31, ----------- --------- -------- ----------- 2002: Revenue $ 4,789 $ 4,771 $ 4,830 $ 4,755 Expenses 3,409 3,454 3,516 3,483 ------- ------- ------- ------- Income from continuing operations 1,380 1,317 1,314 1,272 Discontinued operations (42) 19 (10) 431 ------- ------- ------- ------- Net income $ 1,338 $ 1,336 $ 1,304 $ 1,703 ======= ======= ======= ======= Earnings per share: Basic $ .43 $ .43 $ .42 $ .54 ======= ======= ======= ======= Diluted $ .42 $ .42 $ .41 $ .50 ======= ======= ======= ======= Dividends per share $ .30 $ .30 $ .30 $ .82 ======= ======= ======= =======
F-19 FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 14- Quarterly data (unaudited) (concluded):
Quarter Ended --------------------------------------------------- January 31, April 30, July 31, October 31, ----------- --------- -------- ----------- 2001: Revenue $ 4,689 $ 4,660 $ 4,876 $ 4,710 Expenses 3,548 3,701 3,441 3,535 ------- ------- ------- ------- Income from continuing operations 1,141 959 1,435 1,175 Discontinued operations (24) 2 11 1 ------- ------- ------- ------- Net income $ 1,117 $ 961 $ 1,446 $ 1,176 ======= ======= ======= ======= Earnings per share (A): Basic $ .36 $ .31 $ .47 $ .38 ======= ======= ======= ======= Diluted $ .36 $ .31 $ .46 $ .37 ======= ======= ======= ======= Dividends per share (A) $ .30 $ .30 $ .30 $ .82 ======= ======= ======= =======
(A) Per share amounts prior to October 18, 2001, the date that the two-for-one share distribution was made, have been adjusted to reflect the share distribution. (B) The sum of quarterly earnings per share may differ from annual earnings per share due to rounding. Note 15- Discontinued operations: On August 9, 2002, FREIT sold the Sheridan Apartments in Camden, NJ for cash of $1,050,000 and recognized a gain of approximately $475,000. FREIT has owned and operated the property since 1964. The Board of Trustees declared a special capital gain dividend of $.15 per share, which was distributed on September 6, 2002 to shareholders of record on August 23, 2002. The remaining sales proceeds have been retained by FREIT to increase its liquidity. Summarized operating results included in discontinued operations in the accompanying consolidated statements of income for each of the three years in the period ended October 31, 2002 are as follows: 2002 2001 2000 ---- ---- ---- (in Thousands of Dollars) Revenue $ 536 $ 596 $ 540 Expenses 613 606 617 ----- ----- ----- Net loss $ (77) $ (10) $ (77) ===== ===== ===== F-20 FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 16- Subsequent event: On November 1, 2002, WPSCLCC acquired a 323,000 square foot shopping center in Wayne, New Jersey. The total acquisition cost of $35,500,000 was financed, in part, by a $26,500,000 ten-year first mortgage loan and by $9,000,000 of equity contributions provided by the members in accordance with their equity ownership percentages. * * * F-21 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, 2002 and 2001, and the related statements of operations and members' deficiency and cash flows for each of the three years in the period ended October 31, 2002. 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 auditing standards generally accepted in the United States of America. 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, 2002 and 2001, and its results of operations and cash flows for each of the three years in the period ended October 31, 2002, in conformity with accounting principles generally accepted in the United States of America. J.H. Cohn LLP Roseland, New Jersey November 22, 2002 F-22 WESTWOOD HILLS, LLC (A New Jersey Limited Liability Company) BALANCE SHEETS OCTOBER 31, 2002 AND 2001
ASSETS 2002 2001 ------ ---- ---- (In Thousands of Dollars) Real estate, at cost, net of accumulated depreciation of $2,683,000 and $2,339,000 $ 13,519 $ 13,669 Equipment, at cost, net of accumulated depreciation of $142,000 and $108,000 154 137 Cash 104 20 Tenants' security accounts 386 367 Prepaid expenses and other assets 59 128 Deferred charges, net 230 161 -------- -------- Totals $ 14,452 $ 14,482 ======== ======== LIABILITIES AND MEMBERS' DEFICIENCY ----------------------------------- Liabilities: Mortgage payable $ 14,794 $ 14,996 Accounts payable and accrued expenses 64 87 Tenants' security deposits 391 368 -------- -------- Total liabilities 15,249 15,451 Members' deficiency (797) (969) -------- -------- Totals $ 14,452 $ 14,482 ======== ========
See Notes to Financial Statements. F-23 WESTWOOD HILLS, LLC (A New Jersey Limited Liability Company) STATEMENTS OF INCOME AND MEMBERS' DEFICIENCY YEARS ENDED OCTOBER 31, 2002, 2001 AND 2000
INCOME 2002 2001 2000 ------ ---- ---- ---- (In Thousands of Dollars) Revenue: Rental income $3,145 $3,014 $2,847 Sundry income 24 21 16 ------ ------ ------ Totals 3,169 3,035 2,863 ------ ------ ------ Expenses: Operating expenses 586 676 566 Management fees 162 151 144 Real estate taxes 361 348 334 Interest 1,011 1,024 1,036 Depreciation 377 360 350 ------ ------ ------ Totals 2,497 2,559 2,430 ------ ------ ------ Net income 672 476 433 MEMBERS' DEFICIENCY ------------------- Balance, beginning of year (969) (885) (738) Less distributions (500) (560) (580) ------ ------ ------ Balance, end of year $ (797) $ (969) $ (885) ====== ====== ======
See Notes to Financial Statements. F-24 WESTWOOD HILLS, LLC (A New Jersey Limited Liability Company) STATEMENTS OF CASH FLOWS YEARS ENDED OCTOBER 31, 2002, 2001 AND 2000
2002 2001 2000 ---- ---- ---- (In Thousands of Dollars) Operating activities: Net income $ 672 $ 476 $ 433 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 391 373 364 Changes in operating assets and liabilities: Tenants' security accounts (19) (46) (19) Prepaid expenses and other assets 69 (9) 17 Accounts payable and accrued expenses (23) 20 (7) Tenants' security deposits 23 37 27 ------- ------ ------ Net cash provided by operating activities 1,113 851 815 ------- ------ ------ Investing activities - capital expenditures (244) (224) (102) ------- ------ ------ Financing activities: Distributions paid (500) (560) (580) Repayment of mortgage (202) (189) (177) Good faith deposits (83) ------- ------ ------ Net cash used in financing activities (785) (749) (757) ------- ------ ------ Net increase (decrease) in cash 84 (122) (44) Cash, beginning of year 20 142 186 ------- ------ ------ Cash, end of year $ 104 $ 20 $ 142 ======= ======== ======= Supplemental disclosure of cash flow data: Interest paid $ 997 $1,009 $1,022 ======= ====== ======
See Notes to Financial Statements. F-25 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 accounting principles generally accepted in the United States of America 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, 2002, such cash exceeded Federally insured limits by approximately $500. The Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents. At October 31, 2002 and 2001, 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 in 2002, 2001 and 2000. 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-26 WESTWOOD HILLS, LLC (A New Jersey Limited Liability Company) NOTES TO FINANCIAL STATEMENTS Note 2 - Real estate: Real estate consists of the following: 2002 2001 ---- ---- (In Thousands of Dollars) Land $ 3,849 $ 3,849 Apartment buildings 12,353 12,159 ------- ------- 16,202 16,008 Less accumulated depreciation 2,683 2,339 ------- ------- Totals $13,519 $13,669 ======= ======= 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, 2002 are as follows: Year Ending October 31, Amount ----------- ------ 2003 $216 2004 231 2005 247 2006 264 2007 282 Based on borrowing rates currently available to the Company, the fair value of the mortgage approximates $16,078,000 and $15,317,000 at October 31, 2002 and 2001, respectively. The holder of the first mortgage has agreed to increase the loan, via a second mortgage, which will run co-terminus with the first mortgage. The second mortgage loan is approximately $3,400,000 and will bear interest at a fixed rate of 6.18%. The additional financing is expected to close in January 2003. 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 $162,000, $151,000 and $144,000 in 2002, 2001 and 2000, respectively. * * * F-27 FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY AND SUBSIDIARY SCHEDULE X - SUPPLEMENTARY INCOME STATEMENT INFORMATION (In Thousands of Dollars) Column A Column B -------- -------- Charged to Costs Item (A) and Expenses ---- ------------------------------------- 2002 2001 2000 ---- ---- ---- Maintenance and repairs $ 692 $ 657 $ 357 ====== ====== ====== Real estate taxes $2,400 $2,293 $2,133 ====== ====== ====== (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, 2002 (In Thousands of Dollars)
Column A Column B Column C Column D Column E -------- -------- -------- -------- -------- Costs Capitalized Initial Cost Subsequent Gross Amount at Which to Company to Acquisition Carried at Close of Period --------------------- ---------------------------- -------------------------- Buildings Buildings Encum- and Improve- Carrying and Description brances Land Improvements Land ments Costs Land Improvements Total(1) ----------- ------- ---- ------------ ---- ----- ----- ---- ------------ -------- Garden apartments: Grandview Apts., Hasbrouck Heights, NJ $ 22 $ 180 $ 205 $ 22 $ 385 $ 407 Lakewood Apts., Lakewood, NJ 11 396 188 11 584 595 Hammel Gardens, Maywood, NJ $ 3,720 313 728 675 313 1,403 1,716 Palisades Manor, Palisades Park, NJ 12 81 76 12 157 169 Steuben Arms, River Edge, NJ 5,127 364 1,773 542 364 2,315 2,679 Heights Manor, Spring Lake Heights, NJ 3,528 109 974 370 109 1,344 1,453 Berdan Court, Wayne, NJ 10,505 250 2,206 2,012 250 4,218 4,468 Retail properties: Franklin Lakes Shopping Center, Franklin Lakes, NJ 29 $3,382 7,378 3,411 7,378 10,789 Glen Rock, NJ 12 36 35 12 71 83 Olney Shopping Center, Olney, MD 10,886 1,058 14,590 113 1,058 14,703 15,761 Patchogue Shopping Center, Patchogue, NY 6,914 2,128 8,818 (25) 2,128 8,793 10,921 Westridge Shopping Center, Frederick, MD 17,661 9,135 19,159 394 9,135 19,553 28,688 Westwood Shopping Center, Westwood, NJ 10,052 6,889 6,416 657 6,889 7,073 13,962 Vacant land: Franklin Lakes, NJ 224 (158) 66 66 Rockaway, NJ 1,683 245 $633 2,561 2,561 South Brunswick, NJ 80 1 101 182 182 ------- ------- ------- ------ ------- ---- ------- ------- ------ Totals $68,393 $22,319 $55,357 $3,470 $12,620 $734 $26,523 $67,977 94,500 ======= ======= ======= ====== ======= ==== ======= ======= ====== Column F Column G Column H Column I -------- -------- -------- -------- Life on Which De- Accumulated Date of Date preciation Description Depreciation Construction Acquired is Computed ----------- ------------ ------------ -------- ----------- Garden apartments: Grandview Apts., Hasbrouck Heights, NJ $ 295 1925 1964 7-40 years Lakewood Apts., Lakewood, NJ 508 1960 1962 7-40 years Hammel Gardens, Maywood, NJ $ 870 1949 1972 7-40 years Palisades Manor, Palisades Park, NJ 122 1935/70 1962 7-40 years Steuben Arms, River Edge, NJ 1,435 1966 1975 7-40 years Heights Manor, Spring Lake Heights, NJ 961 1967 1971 7-40 years Berdan Court, Wayne, NJ 2,922 1964 1965 7-40 years Retail properties: Franklin Lakes Shopping Center, Franklin Lakes, NJ 902 1963/75/97 1966 10-50 years Glen Rock, NJ 49 1940 1962 10-31.5 years Olney Shopping Center, Olney, MD 968 2000 15-39.5 years Patchogue Shopping Center, Patchogue, NY 1,088 1997 1997 39 years Westridge Shopping Center, Frederick, MD 6,637 1986 1992 15-31.5 years Westwood Shopping Center, Westwood, NJ 3,269 1981 1988 15-31.5 years Vacant land: Franklin Lakes, NJ 1966/93 Rockaway, NJ 1964/92/93 South Brunswick, NJ 1964 ------- Totals $20,026 =======
(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:
2002 2001 2000 ---- ---- ---- Real estate: Balance, beginning of year $ 95,637 $ 94,565 $ 78,040 Additions: Building and improvements 365 1,036 16,495 Carrying costs 36 30 Deletions - building and improvements (1,502) -------- -------- -------- Balance, end of year $ 94,500 $ 95,637 $ 94,565 ======== ======== ======== Accumulated depreciation: Balance, beginning of year $ 18,892 $ 16,726 $ 14,786 Additions - charged to operating expenses 2,148 2,166 1,940 Deletions (1,014) -------- -------- -------- Balance, end of year $ 20,026 $ 18,892 $ 16,726 ======== ======== ========
S-3