Interest rate swap contracts

9 Months Ended

Jul. 31, 2015

Interest rate swap contracts [Abstract]

Interest rate swap contracts

Note 4 - Interest rate swap contracts:

On December 26, 2012, Damascus Centre, LLC refinanced its $15 million construction loan with a variable rate $25 million mortgage loan of which $19 million was outstanding as of July 31,2015. The new loan will mature on January 3, 2023. In connection therewith, onDecember 26, 2012, FREIT entered into an interest rate swap contract to reduce the impact of interest rate fluctuations on the LIBOR basedvariable rate mortgage. At July 31, 2015, the derivative financial instrument had a notional amount of approximately $19.1 million and a current maturity date of January 2023. The contract effectively converts the LIBOR based variable rate to a fixed rate of 3.81%.

On December 29, 2014, FREIT Regency, LLC closed on a $16.2 million mortgage loan with Provident Bank. The new loan bears a floating interest rate equal to 125 basis points over the BBA LIBOR and the loan will mature on December 15, 2024. In order to minimize interest rate volatility during the term of the loan, FREIT Regency, LLC entered into an interest rate swap agreement that in effect, converted the floating interest rate to a fixed interest rate of 3.75% over the term of the loan. At July 31, 2015, the derivative financial instrument has a notional amount of approximately $16.2 million and a current maturity date of December 2024.

In accordance with ASC 815, “Accounting for Derivative Instruments and Hedging Activities”, FREIT is accounting for the Damascus Centre, LLC and the FREIT Regency, LLC  interest rate swaps as cash flow hedges and marks to market its fixed pay interest rate swaps, taking into account present interest rates compared to the contracted fixed rate over the life of the contract. For the nine and three months ended July 31, 2015, FREIT recordedan unrealized loss of $926,000 and an unrealized gain of $415,000, respectively, in comprehensive income representing the change in the fair value of the swaps which resulted in a corresponding liability of$556,000 for the Regency swap and an asset of $145,000 for the Damascus Center swap as of July 31, 2015.As of July 31, 2014, FREIT recorded an asset of $837,000 representing the fair value of the swap, along with a corresponding decrease to accumulated other comprehensive income of $143,000 and $132,000 for the nine and three months ended July 31, 2014, respectively. During the year endedOctober 31, 2014, FREIT recorded an unrealized loss of $465,000 in comprehensive income representing the reduction in the fair value of the swap, which resulted in a $515,000 corresponding asset as of October31, 2014. The fair values are based on observable inputs (level 2 in the fair value hierarchy).