Investment in tenancy-in-common

6 Months Ended

Apr. 30, 2020

Equity Method Investments and Joint Ventures [Abstract]

Investment in tenancy-in-common

Note 16 – Investment in tenancy-in-common:

On February 28, 2020, FREIT reorganized its subsidiary S and A Commercial Associates Limited Partnership (“S&A”) from a joint venture partnership into a tenancy-in-common form of ownership (“TIC”). Prior to this reorganization, FREIT owned a 65% membership interest in S&A, which owned 100% of the Pierre Towers property located in Hackensack, NJ through its 100% interest in Pierre Towers, LLC. Accordingly, FREIT consolidated the financial statements of S&A and its subsidiary to include 100% of the subsidiary’s assets, liabilities, operations and cash flows with the interest not owned by FREIT reflected as “noncontrolling interests in subsidiary” and all significant intercompany accounts and transactions were eliminated in consolidation.

Pursuant to the TIC agreement, FREIT ultimately acquired a 65% undivided interest in the Pierre Towers property which was formerly owned by S&A. Based on the guidance of ASC 810, “Consolidation”, FREIT’s investment in the TIC was accounted for under the equity method of accounting. While FREIT’s effective ownership percentage interest in the Pierre Towers property remains unchanged after the reorganization to a TIC, FREIT no longer has a controlling interest as the TIC is now under joint control. Since FREIT retained a noncontrolling financial interest in the TIC and the deconsolidation of the subsidiary is not the result of a nonreciprocal transfer to owners, the subsidiary was deconsolidated from FREIT as of February 28, 2020. A gain in the amount of approximately $27.7 million was recognized in the accompanying condensed consolidated statements of income for the six and three months ended April 30, 2020. This gain was measured at the date of deconsolidation as the difference between the fair value of the investment in the TIC at the date the entity was deconsolidated and the carrying amount of the former subsidiary’s assets and liabilities.

As of April 30, 2020, FREIT’s investment in TIC was approximately $20.7 million with a loss on investment of approximately $18,000 recognized in the accompanying condensed consolidated statements of income for the six and three months ended April 30, 2020 and 2019.

Hekemian currently manages the Pierre Towers property based on a management agreement between the owners of the TIC and Hekemian dated as of February 28, 2020, which expires on February 28, 2021, and is automatically renewed for successive periods of one year unless either party gives not less than sixty (60) days prior notice of non-renewal. The management agreement requires the payment of management fees equal to 5% of rents collected. Management fees, charged to operations, were approximately $62,000 for the period from February 28, 2020 through April 30, 2020.

The following table summarizes the balance sheet of the Pierre Towers property as of April 30, 2020 accounted for by the equity method:

	April 30,
	2020
	(In Thousands of Dollars)
Real estate, net	$	80,950
Cash and cash equivalents		1,032
Tenants' security accounts		577
Receivables and other assets		501
Total assets	$	83,060
Mortgages payable, net of unamortized debt issuance costs	$	50,089
Accounts payable and accrued expenses		391
Tenants' security deposits		580
Deferred revenue		93
Equity		31,907
Total liabilities & equity	$	83,060
FREIT's investment in TIC (65% interest)	$	20,740

The following table summarizes the income statement of the Pierre Towers property for the period from February 28, 2020 through April 30, 2020 accounted for by the equity method:

	For the period from
	February 28, 2020
	through April 30, 2020
	(In Thousands of Dollars)
Revenues	$	1,242
Operating expenses		643
Net operating income		599
Depreciation		358
Interest expense including amortization
of deferred financing costs		268
Net loss	$	(27	)
FREIT's loss on investment in TIC (65% interest)	$	(18	)