Interest rate swap contract

12 Months Ended

Oct. 31, 2014

Interest rate swap contract [Abstract]

Interest rate swap contract

Note 6 - 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 October 31, 2014. The new loan will mature on January 3, 2023 (see Note 5(M) for additional information regarding the refinanced loan). 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 October 31, 2014, the derivative financial instrument has a notional amount of approximately $19,356,000 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. For the year ended October 31, 2013, FREIT recorded an unrealized gain of $980,000 in comprehensive income representing the fair value of the swap, which resulted in a $980,000 corresponding asset as of October 31, 2013.  During the year ended October 31, 2014, FREIT recorded an unrealized loss of $465,000 in comprehensive income representing the reduction in the fair value of the swap for fiscal 2014, which resulted in a $515,000 corresponding asset as of October 31, 2014. The fair value is based on observable inputs (level 2 in the fair value hierarchy).