EX-99.1 2 ex99-1.htm PRESS RELEASE ex99-1.htm
Exhibit 1

HACKENSACK, NJ, September 11, 2007 – First Real Estate Investment Trust (“FREIT”) announced its operating results for the nine and three months ended July 31, 2007. The results of operations for the nine and three months are not necessarily indicative of future operating results.

Results of Operations:
 
Real Estate revenue for the nine months ended July 31, 2007 (“Current Nine Months”) increased 8.4% to $30,496,000 compared to $28,139,000 for the nine months ended July 31, 2006 (“Prior Nine Months”).  Real Estate revenue for the three months ended July 31, 2007 (“Current Quarter”) increased 9.0% to $10,441,000 compared to $9,576,000 for the three months ended July 31, 2006 (“Prior Year’s Quarter”).  The increase in real estate revenues was principally attributable to FREIT’s residential operations, primarily at The Boulders in Rockaway Township, NJ (“The Boulders”), which accounted for 5.9% and 6.1% of the increase for the nine and three month periods, respectively. (See discussion below.)
 
During the Current Quarter, FREIT sold its Lakewood Apartments in Lakewood, New Jersey. The gain on the sale, as well as the current and prior year’s earnings of the Lakewood operation are classified as “Income from discontinued operations”, which is included within “Net Income” after “Income from continuing operations”. Net income for the Current Nine Months was $7,220,000 ($1.04 diluted) compared to $3,952,000 ($0.58 diluted) for the Prior Nine Months. Net income for the Current Quarter was $5,243,000 ($0.76 diluted) compared to $1,629,000 ($0.24 diluted) for the Prior Year’s Quarter. Income from continuing operations for the Current Nine Months was $3,449,000 ($0.50 diluted) compared to $3,831,000 ($0.56 diluted) for the Prior Nine Months. Income from continuing operations for the Current Quarter was $1,548,000 ($0.22 diluted) compared to $1,576,000 ($0.23 diluted) for the Prior Year’s Quarter.
 
 
Nine Months Ended
      
Three Months Ended
    
 
July 31,  
  
Increase
  
July 31,  
  
Increase
 
2007
  
2006
  
(decrease)
  
2007
  
2006
  
(decrease)
 
 (in thousands, except per share)        
Commercial revenues:
                      
Same properties (1)
 $ 16,610
  
 $ 16,462
  
 $     148
  
 $  5,610
  
 $ 5,588
  
 $      22
New properties
             -
  
              -
  
            -
  
            -
  
            -
  
            -
 
     16,610
  
     16,462
  
         148
  
      5,610
  
     5,588
  
          22
Residential revenues:
                      
Same properties (1)
     12,183
  
       11,631
  
        552
  
      4,196
  
     3,942
  
        254
New properties
       1,703
  
            46
  
      1,657
  
        635
  
           46
  
        589
 
    13,886
  
      11,677
  
     2,209
  
      4,831
  
     3,988
  
        843
      Total Real Estate Revenues
   30,496
  
     28,139
  
     2,357
  
    10,441
  
     9,576
  
        865
                       
Operating expenses:
                      
  Real estate operations
    12,545
  
      11,476
  
      1,069
  
       4,114
  
     3,596
  
         518
  General and administrative
       1,277
  
          779
  
        498
  
        474
  
        253
  
         221
  Depreciation
      3,972
  
      3,456
  
         516
  
      1,323
  
       1,195
  
         128
      Total operating expenses
    17,794
  
       15,711
  
     2,083
  
       5,911
  
     5,044
  
        867
                       
      Operating Income
    12,702
  
     12,428
  
        274
  
     4,530
  
     4,532
  
           (2)
                       
Investment income
         382
  
           150
  
        232
  
         157
  
           37
  
         120
                       
  Financing costs
    (9,099)
  
     (8,291)
  
      (808)
  
    (3,010)
  
   (2,784)
  
      (226)
  Minority interest in earnings of subsidiaries
       (386)
  
        (366)
  
         (20)
  
       (129)
  
      (209)
  
          80
  Distribution to certain minority interests
        (150)
  
          (90)
  
         (60)
  
            -
  
            -
  
            -
Income from continuing operations
      3,449
  
       3,831
  
      (382)
  
      1,548
  
      1,576
  
        (28)
                       
Income from discontinued operations
       3,771
  
            121
  
     3,650
  
     3,695
  
           53
  
    3,642
                       
Net Income
 $  7,220
  
 $  3,952
  
 $ 3,268
  
 $ 5,243
  
 $  1,629
  
 $ 3,614
                       
Basic earnings per share:
                      
  Continuing operations
$0.51
  
$0.59
  
($0.08)
  
$0.23
  
$0.24
  
($0.01)
  Discontinued operations
$0.56
  
$0.02
  
$0.54
  
$0.55
  
$0.01
  
$0.54
Net income
$1.07
  
$0.61
  
$0.46
  
$0.78
  
$0.25
  
$0.53
                       
Diluted earnings per share:
                      
  Continuing operations
$0.50
  
$0.56
  
($0.06)
  
$0.22
  
$0.23
  
($0.01)
  Discontinued operations
$0.54
  
$0.02
  
$0.52
  
$0.54
  
$0.01
  
$0.53
Net income
$1.04
  
$0.58
  
$0.46
  
$0.76
  
$0.24
  
$0.52
                       
Weighted average shares outstanding:
                      
  Basic
6,752
  
6,530
      
6,756
  
6,548
    
  Diluted
6,919
  
6,787
      
6,925
  
6,888
    
                       
(1) Properties operated since the beginning of fiscal 2006.
                      
 
 
 

 
1
 
The consolidated results of operations for the Current Nine Months and Current Quarter are not necessarily indicative of the results to be expected for the full year.

SEGMENT INFORMATION
 
The following tables set forth comparative Net Operating Income (“NOI”) data for FREIT’s real estate segments and reconciles the NOI to consolidated net income for the Current Nine Months and Current Quarter, as compared to the Prior Nine Months and Prior Year’s Quarter:
 
Nine Months Ended July 31:             
 
Commercial   
  
Residential   
  
Combined  
 
Nine Months Ended 
      
Nine Months Ended 
      
Nine Months Ended  
 
July 31, 
Increase (Decrease)
  
July 31,
  
Increase (Decrease) 
  
July 31,  
 
2007
2006
$
%
  
2007
2006
$
%
  
2007
  
2006
 
(in thousands)  
    
(in thousands)  
    
 (in thousands)  
Rental income
 $            12,454
 $                 12,141
 $             313
2.6%
  
 $             13,614
 $             11,532
 $                 2,082
18.1%
  
 $                      26,068
  
 $           23,673
Reimbursements
                     3,601
                       3,767
             (166)
-4.4%
      
                                   -
    
                                3,601
  
                    3,767
Other
                           143
                                 33
                   110
333.3%
  
                          272
                           145
                             127
87.6%
  
                                      415
  
                           178
   Total Revenue
                  16,198
                     15,941
                 257
1.6%
  
                 13,886
                  11,677
                      2,209
18.9%
  
                           30,084
  
                 27,618
                           
Operating expenses
                    6,425
                         6,116
                 309
5.1%
  
                     6,120
                    5,360
                            760
14.2%
  
                            12,545
  
                  11,476
Net operating income
 $           9,773
 $                 9,825
 $            (52)
-0.5%
  
 $              7,766
 $             6,317
 $                 1,449
22.9%
  
         17,539
  
    16,142
Average
                          
Occupancy %
90.1%
90.5%
  
-0.4%
  
94.8%
95.4%
  
-0.6%
        
                           
       
Reconciliation to consolidated net income:   
        
       
   Deferred rents - straight lining   
  
                                      186
  
                          250
       
   Amortization of acquired leases   
  
                                     226
  
                           271
       
   Net investment income   
  
                                     382
  
                           150
       
   General and administrative expenses   
  
                           (1,277)
  
                     (779)
       
   Depreciation     
  
                          (3,972)
  
               (3,456)
       
   Financing costs     
  
                          (9,099)
  
                (8,291)
       
   Distributions to certain minority interests   
  
                                 (150)
  
                         (90)
       
   Minority interest     
  
                                (386)
  
                     (366)
       
         Income from continuing operations   
  
                               3,449
  
                     3,831
       
   Income from discontinued operations   
  
                                3,771
  
                            121
                             Net income     
 $                          7,220
  
 $               3,952
                           
                           
Three Months Ended July 31:             
 
Commercial   
  
Residential   
  
Combined  
 
Three Months Ended
      
Three Months Ended
      
Three Months Ended  
 
July 31, 
Increase (Decrease)
  
July 31, 
Increase (Decrease) 
  
July 31,  
 
2007
2006
$
%
  
2007
2006
$
%
  
2007
  
2006
 
(in thousands)  
    
(in thousands)  
    
 (in thousands)  
Rental income
 $                4,192
 $                  4,084
 $             108
2.6%
  
 $               4,642
 $               3,923
 $                        719
18.3%
  
 $                          8,834
  
 $               8,007
Reimbursements
                     1,227
                        1,345
              (118)
-8.8%
      
                                   -
    
                                1,227
  
                     1,345
Other
                              45
                                   11
                     34
309.1%
  
                           189
                              65
                             124
190.8%
  
                                     234
  
                              76
   Total Revenue
                    5,464
                       5,440
                     24
0.4%
  
                     4,831
                    3,988
                            843
21.1%
  
                            10,295
  
                    9,428
                           
Operating expenses
                     2,123
                       2,020
                  103
5.1%
  
                     1,992
                     1,576
                             416
26.4%
  
                                 4,115
  
                    3,596
Net operating income
 $               3,341
 $                 3,420
 $            (79)
-2.3%
  
 $              2,839
 $              2,412
 $                      427
17.7%
  
           6,180
  
     5,832
Average
                          
Occupancy %
91.0%
90.2%
  
0.8%
  
95.9%
96.4%
  
-0.5%
        
                           
       
Reconciliation to consolidated net income:   
        
       
   Deferred rents - straight lining   
  
                                         72
  
                              79
       
   Amortization of acquired leases   
  
                                         75
  
                              69
       
   Net investment income   
  
                                      157
  
                              37
       
   General and administrative expenses   
  
                                (474)
  
                     (253)
       
   Depreciation     
  
                           (1,323)
  
                 (1,195)
       
   Financing costs     
  
                           (3,010)
  
               (2,784)
       
   Distributions to certain minority interests   
  
                                            -
  
                                 -
       
   Minority interest     
  
                                 (129)
  
                     (209)
       
         Income from continuing operations   
  
                                1,548
  
                     1,576
       
   Income from discontinued operations   
  
                               3,695
  
                              53
                              Net income     
 $                          5,243
  
 $                1,629
 
NOI is based on operating revenue and expenses directly associated with the operations of the real estate properties, but excludes deferred rents (straight lining), lease amortization, 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.
 
 
2
 
COMMERCIAL SEGMENT
 
FREIT’s commercial properties consist of nine (9) properties totaling approximately 1,100,000 sq. ft. of retail space and 138,000 sq. ft. of office space.  Seven (7) are multi-tenanted retail or office centers, and one is a single tenanted store. In addition, FREIT has leased land and receives rental income from a tenant who has built and operates a bank branch on land FREIT owns in Rockaway, NJ.
 
As indicated in the above Segment Information table, revenue from FREIT’s commercial segment for the Current Nine Months and Current Quarter increased slightly by 1.6% and 0.4%, respectively, over the comparable prior year’s periods. However, NOI for the Current Nine Months and Current Quarter decreased by 0.5% and 2.3%, over the comparable prior year’s periods. The primary reason was the adverse effect of the anticipated planned renovation at our Damascus Shopping Center property located in Damascus, MD (the “Damascus Center”), which caused a temporary decline in occupancy levels. (See discussion below). Average occupancy rates for FREIT’s commercial segment for the Current Nine Months was at 94.3%, exclusive of the Damascus Center, compared to 92.9% for the prior year’s period. The impact of this renovation on the year-to-date results of the commercial segment is reflected in the following chart:
 
   
Nine Months Ended July 31,        
   
2007    
  
2006    
   
Commercial
      
Same
  
Commercial
      
Same
($000)
  
Properties
  
Damascus
  
Properties
  
Properties
  
Damascus
  
Properties
Revenues
  
 $    16,198
  
 $         610
  
 $    15,588
  
 $    15,941
  
 $         891
  
 $    15,050
                         
Expenses
  
        6,425
  
            316
  
        6,109
  
         6,116
  
            331
  
         5,785
                         
NOI
  
 $     9,773
  
 $        294
  
 $     9,479
  
 $     9,825
  
 $        560
  
 $     9,265
                         
 
Development Activities:
 
The Rotunda, Baltimore, MD: Acquired in July 2005, the property is on 11.5 acres of land and is currently configured into about 138,000 sq. ft. of office space and 78,000 sq. ft. of retail space on the lower level of the main building. We are planning a modernization and expansion of the retail space, as well as the development of residential apartment units as allowed by the current zoning. Final development plans, however, are subject to approval by local governmental authorities.
 
Damascus Center, Damascus, MD: FREIT has entered into construction agreements for the redevelopment of the Damascus Center. Building plans for Phase I have been completed and have been approved by governmental agencies. Phase I construction began on June 7, 2007. Because of this redevelopment, current leases for certain tenants are being allowed to expire and are not being renewed. This has caused occupancy to decline, on a temporary basis, during the construction phase.

RESIDENTIAL SEGMENT
 
On June 26, 2007, FREIT sold the Lakewood Apartments in Lakewood, New Jersey for $4 million. FREIT recognized a gain of approximately $3.7 million from the sale. The gain on the sale and the earnings of the Lakewood operation are classified as discontinued operations. With the completion of the 129-unit apartment community at The Boulders, FREIT now operates nine (9) multi-family apartment communities totaling 1,075 apartment units. As indicated in the table above, revenue from our residential segment for the Current Nine Months increased 18.9% to $13,886,000 and NOI for the same period is also up 22.9% to $7,766,000. For the Current Quarter, revenue increased 21.1% to $4,831,000 and NOI is also up 17.7% to $2,839,000. Fiscal 2007 will be the first full year of operation for The Boulders. (See discussion below.) The contribution made by The Boulders to the Current Nine Months and Current Quarter’s revenue and NOI, as compared to the Prior Year’s revenue and NOI is reflected in the following chart:
 
   
Nine Months Ended July 31,        
   
2007    
  
2006    
   
Residential
  
The
  
Same
  
Residential
  
The
  
Same
($000)
  
Properties
  
Boulders
  
Properties
  
Properties
  
Boulders
  
Properties
Revenues
  
 $          13,886
  
 $              1,703
  
 $                 12,183
  
 $            11,677
  
 $                 46
  
 $      11,631
                         
Expenses
  
                   6,120
  
                        733
  
                        5,387
  
                   5,360
  
                      30
  
            5,330
                         
NOI
  
 $             7,766
  
 $                   970
  
 $                   6,796
  
 $               6,317
  
 $                  16
  
 $        6,301
                         
   
Three Months Ended July 31,
                
   
2007
          
2006
        
   
Residential
  
The
  
Same
  
Residential
  
The
  
Same
($000)
  
Properties
  
Boulders
  
Properties
  
Properties
  
Boulders
  
Properties
Revenues
  
 $              4,831
  
 $                   635
  
 $                    4,196
  
 $              3,988
  
 $                 46
  
 $       3,942
                         
Expenses
  
                   1,992
  
                        265
  
                         1,727
  
                    1,576
  
                      23
  
             1,553
                         
NOI
  
 $             2,839
  
 $                   370
  
 $                   2,469
  
 $               2,412
  
 $                 23
  
 $       2,389
                         
 
 
 
3
Revenues from FREIT’s residential properties continue to increase. Average occupancy rates for the Current Nine Months and Current Quarter, exclusive of The Boulders property, which was not completed until late fiscal 2006, was at 96.0% and 96.2%, respectively, compared to 95.4% and 96.4% for the prior year’s periods. The occupancy level at The Boulders was in excess of 96% at the end of July 2007, and averaged 86% during the Current Nine Month period.
 
Capital expenditures: Since all of our apartment communities, with the exception of The Boulders, 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. A major renovation program has been started at The Pierre Towers apartment complex (“The Pierre”). We intend to modernize, where required, all apartments and modernize some of the buildings’ mechanical services. This renovation is expected to cost approximately $2 - 4 million and take, at least, several years to complete. These costs will be financed from operating cash flow and cash reserves. Through July 31, 2007, we expended $2.6 million in capital improvements at The Pierre, including approximately $743,000 during the first nine months of the fiscal year.
 
The Boulders, Rockaway Township, NJ
Construction started on this 129-unit garden apartment community in July 2005 and was completed during August 2006. Tenants started taking occupancy during June 2006. As of July 31, 2007 occupancy was in excess of 96%. The Boulders is expected to add to future earnings, cash flow and shareholder value.

FINANCING COSTS
 
Financing costs before capitalized amounts for the Current Nine Months were $9,099,000, an increase of 4.7% over the Prior Nine Months, however for the Current Quarter financing costs were $3,010,000, a decrease of 0.7% over the prior year’s comparable period.
Increased financing levels at The Boulders (construction and permanent loans) resulted in increased financing costs of $808,000 for the Current Nine Months. Our acquisition loan for The Rotunda property of $22.5 million bears a floating interest rate. Higher interest rates over the course of the last year raised the level of interest expense for the Rotunda by $129,000, to $1,184,000 for the Current Nine Month period.

DEPRECIATION
 
Depreciation expense from continuing operations for the Current Nine Months and Current Quarter was $3,972,000 and $1,323,000, respectively, an increase of $516,000 and $128,000 over the prior year’s comparable periods. The increase was primarily attributable to depreciation related to The Boulders property, completed in August 2006.

FUNDS FROM OPERATIONS (“FFO”):
 
Many consider FFO as the standard measurement of a REIT’s performance. We compute FFO as follows:
 
Funds From Operations ("FFO")        
     
Nine Months Ended 
  
Three Months Ended 
     
July 31,  
  
July 31,  
     
2007
  
2006
  
2007
  
2006
     
($ in thousands)      
                   
Net income  
 $   7,220
  
 $   3,952
  
 $   5,243
  
 $   1,629
Depreciation  
      3,972
  
      3,456
  
      1,323
  
        1,195
Amortization of deferred mortgage costs 
          199
  
          192
  
            67
  
           63
Deferred rents (Straight lining) 
        (186)
  
       (250)
  
          (72)
  
          (79)
Amortization of acquired leases 
       (226)
  
        (271)
  
          (75)
  
         (69)
Capital Improvements - Apartments 
        (314)
  
       (234)
  
          (77)
  
         (90)
Discontinued operations 
     (3,771)
  
         (121)
  
    (3,695)
  
          (53)
Minority interests:  
              
Equity in earnings of affiliates 
         536
  
         456
  
          129
  
         209
Distributions to minority interests 
        (541)
  
       (420)
  
         (155)
  
         (60)
                 
 
FFO
  
 $  6,889
  
 $   6,760
  
 $  2,688
  
 $   2,745
                   
 
 Per Share - Basic
  
 $    1.02
  
 $    1.04
  
 $   0.40
  
 $   0.42
 
 Per Share - Diluted
  
 $    1.00
  
 $    1.00
  
 $   0.39
  
 $   0.40
                   
 
 Weighted Average Shares Outstanding:
              
 
      Basic
  
      6,752
  
      6,530
  
      6,756
  
      6,548
 
     Diluted
  
      6,919
  
      6,787
  
      6,925
  
     6,888

 
4
 
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.

DIVIDENDS
 
The third quarter dividend of $0.30 per share is payable on September 19, 2007 to shareholders of record on September 5, 2007.

The statements in this report that relate to future earnings or performance are forward-looking. Actual results might differ materially and be adversely affected by such factors as longer than anticipated lease-up periods or the inability of tenants to pay increased rents. Additional information about these factors is contained in the Trust’s filings with the SEC including the Trust’s most recent filed report on Form 10-K and Form 10-Q.

First Real Estate Investment Trust is a publicly traded (over-the-counter – symbol FREVS) REIT organized in 1961. It has approximately $242 million (historical cost basis) of assets. Its portfolio of residential and commercial properties extends from Eastern L.I. to Maryland, with the largest concentration in Northern New Jersey.

For additional information contact Shareholder Relations at (201) 488-6400
 
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