Interest rate swap contracts

12 Months Ended

Oct. 31, 2015

Interest rate swap contracts [Abstract]

Interest rate swap contracts

Note 6 - 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 approximately $19 million was outstanding as of October 31, 2015. The new loan will mature on January 3, 2023 (see Note 5(K) 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, 2015, the derivative financial instrument had a notional amount of approximately $19 million and a current maturity date of January 2023. The contracteffectivelyconvertsthe LIBORbasedvariableratetoafixedrateof3.81%.

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 rateof 3.75% over the term of the loan. At October 31, 2015, the derivative financial instrument has a notional amount of approximately$16.2millionandacurrentmaturitydateofDecember2024.

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 year ended October 31, 2015, FREIT recorded an unrealized loss of $1,581,000 in comprehensive income representing the change in the fair value of the swaps between reporting periods and a corresponding liability of $945,000 for the Regency swap and $121,000 for the Damascus Center swap as of October 31, 2015. 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 Damascus Center swap between reporting periods and a $515,000 corresponding asset as of October 31, 2014. 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 at such date. The fair values are based on observable inputs (level 2 in the fair value hierarchy as provided by authoritative guidance).