-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, KCRmNXZJ4Lzpzh7x9zar1Z76NDmJhwbkwz5jYX3ac8TG+dt11OD2j4CS6NMO69/Y oo0a1ocTLPdJMudSRkxGcg== 0000914317-04-001177.txt : 20040312 0000914317-04-001177.hdr.sgml : 20040312 20040312162637 ACCESSION NUMBER: 0000914317-04-001177 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20040131 FILED AS OF DATE: 20040312 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY CENTRAL INDEX KEY: 0000036840 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 221697095 STATE OF INCORPORATION: NJ FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-25043 FILM NUMBER: 04666441 BUSINESS ADDRESS: STREET 1: 505 MAIN ST STREET 2: P O BOX 667 CITY: HACKENSACK STATE: NJ ZIP: 07602 BUSINESS PHONE: 2014886400 MAIL ADDRESS: STREET 1: P O BOX 667 STREET 2: 505 MAIN STREET CITY: HACKENSACK STATE: NJ ZIP: 07602 10-Q 1 form10q-58507_freit.txt SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) |X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For Quarterly period ended January 31, 2004 or |_| 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 - -------------------------------------------------------------------------------- Former name, former address and former fiscal year, if changed since last report. Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. |X| Yes |_| No Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). |_| Yes |X| No As of March 12, 2004, there were 3,211,576 shares of beneficial interests issued and outstanding. Page 2 FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY INDEX
Part I: Financial Information Page ---- Item 1: Unaudited Condensed Consolidated Financial Statements a.) Condensed Consolidated Balance Sheets as at January 31, 2004 and October 31, 2003; 3 b.) Condensed Consolidated Statements of Income, Comprehensive Income and Undistributed Earnings for the Three Months Ended January 31, 2004 and 2003; 4 - 5 c.) Condensed Consolidated Statements of Cash Flows for the Three Months Ended January 31, 2004 and 2003; 6 d.) Notes to Condensed Consolidated Financial Statements 7 Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations 12 Item 3: Quantitative and Qualitative Disclosures about Market Risk 18 Item 4: Controls and Procedures 18 Part II: Other Information 18 Item 6: Exhibits and Reports on Form 8-K
Page 3 Item 1: Financial Statements FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
January 31, October 31, 2004 2003 --------- --------- (Unaudited) (See Note 1) ----------- ------------ (In Thousands of Dollars) ------------------------- ASSETS Real estate, at cost, net of accumulated depreciation $ 84,078 $ 84,414 Investment in affiliate 1,199 1,255 Cash and cash equivalents 11,575 12,871 Tenants' security accounts 855 881 Sundry receivables 4,370 3,876 Prepaid expenses and other assets 1,462 1,839 Deferred charges, net 1,961 2,014 --------- --------- Totals $ 105,500 $ 107,150 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities: Mortgages payable $ 76,502 $ 76,890 Accounts payable and accrued expenses 974 1,369 Cash distributions in excess of investment in affiliate 1,614 1,570 Dividends payable 1,285 2,367 Tenants' security deposits 1,236 1,256 Deferred revenue 221 241 Interest rate swap contract 231 201 --------- --------- Total liabilities 82,063 83,894 --------- --------- Minority interest 1,109 1,116 --------- --------- Commitments and contingencies Shareholders' equity: Shares of beneficial interest without par value: 4,000,000 shares authorized; 3,155,576 shares issued and outstanding: 19,854 19,854 Undistributed earnings 2,705 2,487 Accumulated other comprehensive loss (231) (201) --------- --------- Total shareholders' equity 22,328 22,140 --------- --------- Totals $ 105,500 $ 107,150 ========= =========
See Notes to Consolidated Financial Statements Page 4 FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME, COMPREHENSIVE INCOME AND UNDISTRIBUTED EARNINGS THREE MONTHS ENDED JANUARY 31, 2004 AND 2003 2004 2003 ------ ------ (In Thousands of Dollars, Except Per Share Amounts) INCOME Revenue: Rental income $4,687 $3,978 Reimbursements 640 664 Equity in income of affiliates 60 81 Net investment income 45 53 Sundry income 18 56 ------ ------ Totals 5,450 4,832 ------ ------ Expenses: Operating expenses 1,041 957 Management fees 206 201 Real estate taxes 703 621 Financing costs 1,324 1,194 Depreciation 609 532 Minority interest 55 49 ------ ------ Totals 3,938 3,554 ------ ------ Income from operations before state income taxes 1,512 1,278 Provision for state income taxes 9 8 ------ ------ Net income $1,503 $1,270 ====== ====== - -------------------------------------------------------------------------------- Earnings per share: Basic $ 0.48 $ 0.41 ====== ====== Diluted $ 0.46 $ 0.39 ====== ====== Basic weighted average shares outstanding 3,156 3,120 Diluted weighted average shares outstanding 3,259 3,275 - -------------------------------------------------------------------------------- Page 5 January 31, January 31, 2004 2003 ------- ------- (Unaudited) ----------- (In Thousands of Dollars) ------------------------- COMPREHENSIVE INCOME Net income $ 1,503 $ 1,270 Other comprehensive income (loss): Unrealized loss on interest rate swap contract (30) (236) ------- ------- Comprehensive income $ 1,473 $ 1,034 ======= ======= UNDISTRIBUTED EARNINGS Balance, beginning of period $ 2,487 $ 2,589 Net income 1,503 1,270 Less dividends (1,285) (1,092) ------- ------- Balance, end of period $ 2,705 $ 2,767 ======= ======= Dividends per share $ 0.40 $ 0.35 ======= ======= See Notes to Consolidated Financial Statements Page 6 FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS THREE MONTHS ENDED JANUARY 31, 2004 AND 2003
2004 2003 -------- -------- (In Thousands of Dollars) ------------------------- Operating activities: Net income $ 1,503 $ 1,270 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 609 532 Amortization 67 76 Equity in income of affiliates (60) (81) Deferred revenue (20) (50) Minority interest 55 49 Changes in operating assets and liabilities: Tenants' security accounts 26 (33) Sundry receivables, prepaid expenses and other assets (131) (67) Accounts payable and accrued expenses (395) 76 Tenants' security deposits (20) 33 -------- -------- Net cash provided by operating activities 1,634 1,805 -------- -------- Investing activities: Capital expenditures (273) (132) Distributions from affiliates 160 1,360 -------- -------- Net cash (used in) provided by investing activities (113) 1,228 -------- -------- Financing activities: Repayment of mortgages (388) (217) Dividends paid (2,367) (2,090) Distribution to minority interest (62) (50) -------- -------- Net cash used in financing activities (2,817) (2,357) -------- -------- Net increase (decrease) in cash and cash equivalents (1,296) 676 Cash and cash equivalents, beginning of period 12,871 11,930 -------- -------- Cash and cash equivalents, end of period $ 11,575 $ 12,606 ======== ======== Supplemental disclosure of cash flow data: Interest paid $ 1,287 $ 1,118 ======== ======== Income taxes paid $ 9 $ 8 ======== ======== Dividends declared but not paid $ 1,285 $ 1,092 ======== ========
See Notes to Consolidated Financial Statements. Page 7 FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Note 1 - Basis of presentation: The accompanying condensed consolidated financial statements have been prepared without audit, in accordance with accounting principles generally accepted in the United States of America for interim financial statements and pursuant to the rules of the Securities and Exchange Commission. Accordingly, certain information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements have been omitted. It is the opinion of management that all adjustments considered necessary for a fair presentation have been included, and that all such adjustments are of a normal recurring nature. The consolidated results of operations for the three months ended January 31, 2004 are not necessarily indicative of the results to be expected for the full year. The unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes included in FREIT's Annual Report on Form 10-K for the year ended October 31, 2003. Certain accounts in the 2003 financial statements have been reclassified to conform to the current presentation. Note 2 - Investment in Affiliates: Certain investments, where FREIT's ownership interest is 50% or less, but can exercise significant influence, are accounted for by the equity method. Under the equity method, the investment, originally recorded at cost, is adjusted to recognize FREIT's share of the net earnings or losses of the affiliates as they occur. These investments include: Ownership Interest -------- Westwood Hills, LLC 40% (owns a 210 unit apartment community in Westwood, NJ) Wayne PSC, LLC 40% (owns a 323,000 sq. ft. Shopping Center in Wayne, NJ) Summarized combined balance sheets as at January 31, 2004 and October 31, 2003, and income statement information for the three months ended January 31, 2004 and 2003 of the above affiliates that are accounted for using the equity method are as follows: Page 8
January October 31, 31, 2004 2003 -------- -------- Balance Sheet Data Assets: Real Estate $ 46,266 $ 46,301 Other Assets 3,175 3,568 -------- -------- Total assets $ 49,441 $ 49,869 ======== ======== Liabilities and members' equity (deficiency): Liabilities: Mortgages payable $ 49,810 49,881 Other liabilities 672 779 -------- -------- Totals 50,482 50,660 -------- -------- Members' Equity (Deficiency): Westwood Hills (4,038) (3,929) Wayne PSC 2,997 3,138 -------- -------- Totals (1,041) (791) -------- -------- Total Liabilities and Equity $ 49,441 $ 49,869 ======== ======== FREIT balance sheet classification: Assets Investment in affiliate $ 1,199 $ 1,255 ======== ======== Liabilities Cash distributions in excess of investment in affiliate $ (1,614) $ (1,570) ======== ======== Three Months Ended January 31, ------------------------- 2004 2003 -------- -------- Income Statement Data Revenues $ 2,097 1,873 Expenses 1,947 1,670 -------- -------- Net income $ 150 $ 203 ======== ======== FREIT - Equity in income $ 60 $ 81 ======== ========
Note 3 - 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"). 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. Page 9 In computing diluted earnings per share for each of the three month periods ended January 31, 2004 and 2003, 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: 2004 2003 --------- --------- Basic weighted average shares outstanding 3,155,576 3,119,576 Shares arising from assumed exercise of stock options 103,916 155,429 --------- --------- Dilutive weighted average shares outstanding 3,259,492 3,275,005 ========= ========= Basic and diluted earnings per share, based on the weighted average number of shares outstanding during each period, are comprised of ordinary income. Note 4- 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. sUpon 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. During May 2003, options to purchase 36,000 shares at $15 per share were exercised. As at January 31, 2004, options for 341,000 shares of beneficial interest are outstanding and are exercisable through September 2008. (See Note 6 - Subsequent Events) 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, 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 5- 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 Page 10 residential segment contains eight properties. The accounting policies of the segments are the same as those described in Note 1 in FREIT's Annual Report on Form 10-K. The chief operating decision-making group of FREIT's retail segment, residential segment and corporate/other is comprised 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. 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 the three months ended January 31, 2004 and 2003. Asset information is not reported since FREIT does not use this measure to assess performance.
Three Months ended January 31, 2004 2003 ------- ------- (in thousands of dollars) Real estate revenue: Retail (a) $ 3,631 $ 3,038 Residential 1,647 1,612 ------- ------- Total 5,278 4,650 ------- ------- Real estate operating expenses: Retail 1,064 978 Residential 713 717 ------- ------- Total 1,777 1,695 ------- ------- Net operating income: Retail 2,567 2,060 Residential 934 895 ------- ------- Total $ 3,501 $ 2,955 ======= ======= Recurring capital improvements: Residential $ 103 $ 104 ======= ======= Reconciliation to consolidated net income: Segment NOI - per above $ 3,501 $ 2,955 Deferred rents - straight lining 67 48 Net investment income 45 53 Equity in income of affiliates 60 81 General and administrative expenses (182) (92) Depreciation (609) (532) Financing costs (1,324) (1,194) Minority interest (55) (49) ------- ------- Net income $ 1,503 $ 1,270 ======= =======
Page 11 (a) A Tenant ("Tenant") in FREIT's Westridge Square shopping center and FREIT have entered into a lease termination agreement whereby Tenant will pay FREIT a lump sum payment of approximately $1.8 million ($750,000 as a rent termination payment for past and future rent payments and $1,035,000 for repairing and refurbishing space vacated by Tenant in February 2003 to terminate the lease. The mortgage lender has agreed to the termination agreement and has entered into an escrow agreement with FREIT whereby the entire lump sum payment made by the Tenant shall be deposited in an interest bearing escrow account held for the benefit of the mortgage lender (Tenant made payment in February 2004). Up to $750,000 will be disbursed to FREIT (a) in monthly installments of $31,595 over approximately twenty four (24) months, or (b) the balance of the un-disbursed $750,000 once the mortgage lender is provided with a Certificate of Occupancy ("C of O") covering all of the space vacated by the Tenant. The balance of the lease termination payment of approximately $1 million representing a Tenant Improvement ("TI") Reserve, will be disbursed to FREIT at the earlier of (a) in $250,000 increments as comparable amounts of TI's are incurred, or (b) when a C of O is obtained and the space vacated by the Tenant leased and re-occupied, or (c) when the mortgage loan has been re-paid. Approximately $300,000, representing the difference between the $750,000 rent termination payment and rents already accrued, is included in revenues for the first quarter of fiscal 2004. Note 6 - Subsequent Events: a) FREIT, through a subsidiary, has entered into a contract to purchase an apartment community in Northern New Jersey. FREIT is currently conducting inspections as part of its due diligence review. If the findings of the due diligence review are satisfactory to FREIT, the acquisition is expected to close on or about March 31, 2004. The acquisition price will be approximately $45 million that will be financed in part by a mortgage and in part by cash. b) On February 24, 2004, in accordance with FREIT's Equity Incentive Plan, options to purchase 56,000 of FREIT's shares of beneficial interests were exercised at the option price of $15 per share. c) On March 4, 2004, FREIT's Board of Trustees declared a share split in the form of a share dividend. Each shareholder will be issued one additional share for each share held. The additional shares will be issued on March 31, 2004 to shareholders of record on March 17, 2004. The pro forma impact on FREIT's basic and diluted earnings per share for the three months ended January 31, 2004 and 2003, had the share dividend been effective January 31, 2004 is as follows: Three Months Ended January 31 2004 2003 ---- ---- Earnings per share: Basic $.24 $.20 --- --- Diluted $.23 $.19 --- --- Weighted average shares outstanding: Basic 6,312,000 6,240,000 Diluted 6,518,000 6,550,000 * * Page 12 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 unaudited condensed consolidated financial statements of FREIT (including related notes thereto) appearing elsewhere in this Form 10-Q, and the consolidated financial statements included in FREIT's most recently filed 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 affiliates, Westwood Hills, LLC ("Westwood Hills") that owns a residential apartment property and Wayne PSC, L.L.C. ("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") 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 included in our annual report on Form 10-K, have been applied consistently as at January 31, 2004, and for the three Page 13 months ended January 31, 2004 and 2003. We believe that the following accounting policies or estimates require 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. All references to per share amounts are on a diluted basis unless otherwise indicated. Results of Operations: Quarters Ended January 31, 2004 and 2003 Revenue for the quarter ended January 31, 2004 ("Current Quarter") increased $618,000 (12.8%) to $5,450,000 from $4,832,000 for the quarter ended January 31, 2003 ("Prior Year's Quarter"). Net income increased $233,000 (18.3%) to $1,503,000 for the Current Quarter compared to $1,270,000 for the Prior Year's Quarter. The Current Quarter's revenue and net income increase is principally from real estate operations, which includes a one-time item of $308,000 representing the gain from a lease termination payment made by a former tenant of FREIT (see discussion below). The consolidated results of operations for the three months ended January 31, 2004 are not necessarily indicative of the results to be expected for the full year. SEGMENT INFORMATION The following table sets forth comparative operating data for FREIT's real estate segments: Page 14
Retail Residential Combined --------------------------------------- ------------------------------------------ ------------------- Three Months Ended Three Months Ended Three Months Ended January 31, Increase (Decrease) January 31, Increase (Decrease) January 31, --------------------------------------- ------------------------------------------ ------------------- 2004 2003 $ % 2004 2003 $ % 2004 2003 (in thousands) (in thousands) (in thousands) ------------------------------- ------------------------------- ------------------- Rental income $2,957 $2,308 $649 28.1% $1,638 $1,596 $ 42 2.6% $ 4,595 $ 3,904 Percentage rents 25 27 (2) -7.4% 25 27 Reimbursements 640 691 (51) -7.4% 640 691 Other 9 12 (3) -25.0% 9 16 (7) -43.8% 18 28 --------------------------------------- ------------------------------------------ ------------------- Total revenue 3,631 3,038 593 19.5% 1,647 1,612 35 2.2% 5,278 4,650 Operating expenses 1,064 978 86 8.8% 713 717 (4) -0.6% 1,777 1,695 --------------------------------------- ------------------------------------------ ------------------- Net operating income $2,567 $2,060 $507 24.6% $ 934 $ 895 $ 39 4.4% 3,501 2,955 ======================================= ========================================== Average Occupancy % 92.4% 93.0% 0.6% 94.5% 96.0% 1.6% ====== ====== ===== ====== ====== ===== Reconciliation to consolidated net income: Deferred rents - straight lining 67 48 Net investment income 45 53 Equity in income of affiliates 60 81 General and administrative expenses (182) (92) Depreciation (609) (532) Financing costs (1,324) (1,194) Minority interest (55) (49) ------------------- Net Income $ 1,503 $ 1,270 ===================
The above table details the comparative net operating income ("NOI") for FREIT's Retail and Residential Segments, and reconciles the combined NOI to consolidated Net Income. 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. FREIT assesses and measures segment operating results based on NOI. NOI is not a measure of operating results or cash flow as measured by generally accepted accounting principles, 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. RETAIL SEGMENT FREIT's retail properties consist of seven (7) properties totaling approximately 826,000 sq. ft (including the Damascus shopping center, Damascus. MD, acquired July 31, 2003). Six are multi-tenanted retail centers and one is a single tenanted store. As indicated in the above table, revenues from our retail segment are up by $593,000 (19.5%) and Net Operating Income ("NOI") is up $507,000 (24.6%) to $2,567,000. Revenue and NOI for the Current Quarter include the following items not included during the Prior Year's Quarter: Page 15 a) Revenues and NOI from the Damascus Shopping Center (acquired July 31, 2003) of $263,000 and $199,000, respectively, and b) Revenues and NOI includes a one-time item of $308,000 representing the gain on a lease termination payment made by a former tenant at FREIT's Westridge Square shopping center (see below) FREIT and a former tenant ("Tenant") entered into a lease termination agreement whereby Tenant will pay FREIT a lump sum payment of approximately $1.8 million ($750,000 as a rent termination payment for past and future rent payments and $1,035,000 for repairing and refurbishing space vacated by Tenant during February 2003) to terminate the lease. (Tenant made the payment in February 2004.) The mortgage lender has agreed to the termination agreement and has entered into an escrow agreement with FREIT whereby the entire lump sum payment made by the Tenant shall be deposited in an interest bearing escrow account held for the benefit of the mortgage lender. Up to $750,000 will be disbursed to FREIT (a) in monthly installments of $31,595 over approximately twenty four (24) months, or (b) the balance of the un-disbursed $750,000 once the mortgage lender is provided with a Certificate of Occupancy ("C of O") covering all of the space vacated by the Tenant. The balance of the lease termination payment of approximately $1 million representing a Tenant Improvement ("TI") Reserve, will be disbursed to FREIT at the earlier of (a) in $250,000 increments as comparable amounts of TI's are incurred, or (b) when a C of O is obtained and the space vacated by the Tenant leased and re-occupied, or (c) when the mortgage loan has been re-paid. The former tenant's total rent and expense reimbursements aggregated approximately $488,000 per year. Revenues and NOI from same properties (those properties included in the Current Quarter and the Prior Year's Quarter) are slightly ahead for the Current Quarter over the Prior Year's Quarter. Operating expenses for the same properties increased 2.2% during the Current Quarter compared to the Prior Year's Quarter. RESIDENTIAL SEGMENT FREIT operates seven (7) multi-family apartment communities totaling 507 apartment units. The NOI of our residential properties is summarized in the above table. Residential revenue for the Current Quarter increased 2.2% to $1,647,000 from $1,612,000 for the Prior Year's Quarter. NOI for the Current Quarter increased 4.4% to $934,000 form $895,000 for the Prior Year's Quarter. Higher monthly rents were the principal reason for the increase. Revenue is principally composed of monthly apartment rental income. Total apartment rental income is a factor of occupancy and monthly apartment rents. For instance, at rental rates and occupancy levels at January 31, 2004, a 1% increase or decrease in average occupancy will cause an annual $67,000 increase or reduction in revenues, while a 1% increase or decrease in rental rates will cause an annual $63,400 increase or decrease in annual revenues. Average occupancy for the Current Quarter was 94.5% compared to 96% for the Prior Year's Quarter. EQUITY IN INCOME OF AFFILIATES FREIT's share of net income of its affiliates fell to $60,000 for the Current Quarter from $81,000 for the Prior Year's Quarter. While the NOI of both affiliates increased for the Current Quarter over the Prior Year's Quarter, higher interest costs due to last fiscal year's financings and higher depreciation costs reduced net income. Page 16 FINANCING COSTS Financing costs are summarized as follows: ======================================================== Quarter Ended -------------------- January 31, 2004 2003 ------ ------ ($000) Fixed rate mortgages: 1st Mortgages Existing $1,061 $1,087 New (Damascus) 58 2nd Mortgages 96 Floating rate mortgage 90 96 Other 19 11 -------------------------------------------------------- Total $1,324 $1,194 ======================================================== Financing Costs for the Current Quarter increased by $130,000 over the Prior Year's Quarter. The increase is principally attributable to the Damascus mortgage and the 2nd mortgages placed on FREIT properties during the later part of the 2003 fiscal year. The increased costs from the above mortgages was partially offset by reduced interest costs resulting from lower mortgage balances from existing mortgage loans resulting from normal loan amortization. GENERAL AND ADMINISTRATIVE EXPENSES Our G & A expenses increased to $182,000 for the Current Quarter from $92,000 for the Prior Year's Quarter. Higher office expenses and higher executive officer retainers accounted for the bulk of the increases. LIQUIDITY AND CAPITAL RESOURCES Our financial condition remains strong. Net Cash Provided By Operating Activities was $1.6 million for the Current Quarter compared to $1.8 for the Prior Year's Quarter. 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 January 31, 2004, we had cash and cash equivalents totaling $11.6 million compared to $12.9 million at October 31, 2003. As previously reported, we are planning the construction of 129 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. FREIT, through an affiliate, has entered into a contract to purchase an apartment community in Northern New Jersey. FREIT is currently conducting inspections as part of its due diligence review. If the findings of the due diligence review are satisfactory to FREIT, the acquisition is expected to close on or about March 31, 2004. The acquisition price will be approximately $45 million that will be financed in part by a mortgage and in part by cash. Page 17 At January 31, 2004 FREIT's aggregate outstanding mortgage debt was $76.5 million. Approximately $57.3 million bears a fixed weighted average interest rate of 7.512%, and an average life of approximately 9 years. Approximately $10.9 million of mortgage debt bears an interest rate equal to 175 basis points over LIBOR and resets at our option every 30, 60 or 90 days. This mortgage note is due at the end of March 2006. The fixed rate mortgages are subject to amortization schedules that are longer than the term of the mortgages. As such, balloon payments for all mortgage debt will be required as follows: Fiscal Year $ Millions ----------- ---------- 2007 $15.7 2008 $16.8 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 January 31, 2004 and October 31, 2003: January 31, October 31, (In Millions) 2004 2003 ---- ---- Fair Value $81.4 $80.8 Carrying Value $76.5 $76.9 Fair values are estimated based on market interest rates at January 31, 2004 and October 31, 2003 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 $3.2 million, and a one percent decrease would increase the Fair Value by $3.5 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 approximately $109,000. 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. FREIT also has the ability to draw, if needed, against its $14 million, two-year revolving line of credit. To date, no draws have been made against this credit line. 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. Page 18 Item 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK See "Liquidity and Capital Resources" above. Item 4: Controls and Procedures As at the end of the period covered by this quarterly report on Form 10-Q, 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 has been no change in FREIT's internal control over financial reporting that occurred during FREIT's last fiscal quarter that has materially affected, or is reasonably likely to material effect, FREIT's internal control over financial reporting. 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 II Other Information Item 6. Exhibits and Reports on Form 8-K During the first quarter ended January 31, 2004, the following reports on Form 8-K were filed with the SEC: On December 9, 2003, FREIT filed a report on Form 8-K announcing its operating results for the year and three months quarter ended October 31, 2003. A copy of the press release was attached. Exhibit Index Exhibit 31.1 Section 302 Certification of Chief Executive Officer Exhibit 31.2 Section 302 Certification of Chief Financial Officer Exhibit 32.1 Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350 Exhibit 32.1 Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350 Page 19 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY ---------------------------- (Registrant) Date: March __, 2004 /s/ Robert S. Hekemian -------------------------- (Signature) Robert S. Hekemian. Chairman of the Board and Chief Executive Officer /s/ Donald W. Barney -------------------------- (Signature) Donald W. Barney President, Treasurer and Chief Financial Officer (Principal Financial/Accounting Officer) EX-31.1 3 ex31-1.txt Page 20 EXHIBIT 31.1 CERTIFICATION I, Robert S. Hekemian, certify that: 1. I have reviewed this report on Form 10-Q of First Real Estate Investment Trust of New Jersey; 2. Based on my knowledge, this 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 report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: March __, 2004 /s/ Robert S. Hekemian --------------------------- Robert S. Hekemian Chairman of the Board and Chief Executive Officer EX-31.2 4 ex31-2.txt Page 21 EXHIBIT 31.2 CERTIFICATION I, Donald W. Barney, certify that: 1. I have reviewed this report on Form 10-Q of First Real Estate Investment Trust of New Jersey; 2. Based on my knowledge, this 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 report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: March __, 2004 /s/ Donald W. Barney ----------------------------- Donald W. Barney President, Treasurer and Chief Financial Officer EX-32.1 5 ex32-1.txt Page 22 EXHIBIT 32.1 CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of First Real Estate Investment Trust of New Jersey (the "Company") on Form 10-Q for the quarter ended January 31, 2004 (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.ss. 1350, as adopted pursuant to ss. 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. ss. 78m(a) 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. Date: March __, 2004 /s/ Robert S. Hekemian ----------------------------- Robert S. Hekemian Chairman of the Board and Chief Executive Officer EX-32.2 6 ex32-2.txt Page 23 EXHIBIT 32.2 CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of First Real Estate Investment Trust of New Jersey (the "Company") on Form 10-Q for the quarter ended January 31, 2004 (the "Report"), I, Donald W. Barney, President, Treasurer and Chief Financial Officer of the Company, do hereby certify, pursuant to 18 U.S.C.ss. 1350, as adopted pursuant to ss. 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. ss. 78m(a) 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. Date: March __, 2004 /s/ Donald W. Barney ----------------------------- Donald W. Barney President, Treasurer and Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----