Interest rate swap contract

6 Months Ended

Apr. 30, 2014

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Interest rate swap contract

Note 4 - Interest rate swap contract: 

On December 26, 2012, Damascus Centre, LLC refinanced its $15 million construction loan with a variable rate $25 million mortgage loan of which $20 million has been drawn as of April 30, 2014. The new loan will mature on January 3, 2023. In connection therewith, on December 26, 2012, FREIT entered into an interest rate swap contract to reduce the impact of interest rate fluctuations on the LIBOR based variable rate mortgage. At April 30, 2014, the derivative financial instrument has a notional amount of approximately $19,543,000 and a current maturity date of January 2023. The contract effectively converts the LIBOR based variable rate to a fixed rate of 3.81%. In accordance with ASC 815, “Accounting for Derivative Instruments and Hedging Activities”, FREIT is accounting for this interest rate swap as a cash flow hedge and marks to market its fixed pay interest rate swap, taking into account present interest rates compared to the contracted fixed rate over the life of the contract. As of April 30, 2014, FREIT has recorded an asset of $969,000 representing the fair value of the swap, along with a corresponding increase to accumulated other comprehensive income of $678,000 and an increase to non-controlling interest of $291,000. The fair value is based on observable inputs (level 2 in the fair value hierarchy).