Interest rate swap contracts

3 Months Ended

Jan. 31, 2016

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 approximately $18.9 million was outstanding as of January 31,2016. The 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 January 31, 2016, the derivative financial instrument had a notional amount of approximately $18.9 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 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 January 31, 2016, 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 three months ended January 31, 2016, FREIT recorded an unrealized loss of $698,000 in comprehensive income representing the change in the fair value of the swaps during such period and a corresponding liability of approximately $1,311,000 for the Regency swap and $453,000 for the Damascus Center swap as of January 31, 2016. For the three months ended January 31, 2015, FREIT recorded an unrealized loss of $2,149,000 in comprehensive loss representing the change in fair value of the swaps during such period. 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 during such period and a corresponding liability of $945,000 for the Regency swap and $121,000 for the Damascus Center swap as of October 31, 2015. The fair values are based on observable inputs (level 2 in the fair value hierarchy as provided by authoritative guidance).