Organization and significant accounting policies (Policies)

12 Months Ended

Oct. 31, 2021

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Organization:

Organization:

First Real Estate Investment Trust of New Jersey (“FREIT”) was organized on November 1, 1961 as a New Jersey Business Trust. On July 1, 2021, FREIT completed the change of its form of organization from a New Jersey real estate investment trust to a Maryland corporation (the “Reincorporation”) which was approved by its stockholders at the annual meeting of stockholders held on May 6, 2021. The Reincorporation changes the law applicable to FREIT’s affairs from New Jersey law to Maryland law and was accomplished by the merger of FREIT with and into its wholly owned subsidiary, First Real Estate Investment Trust of New Jersey, Inc. (“FREIT Maryland”, “Trust”, “us”, “we”, “our” or the “Company”), a Maryland corporation. As a result of the Reincorporation, the separate existence of FREIT has ceased and FREIT Maryland has succeeded to all the business, properties, assets and liabilities of FREIT. Holders of shares of beneficial interest in FREIT have received one newly issued share of common stock of FREIT Maryland for each share of FREIT that they own, without any action of stockholders required and all treasury stock held by FREIT was retired.

FREIT Maryland is engaged in owning residential and commercial income producing properties located primarily in New Jersey, Maryland and New York. FREIT Maryland has elected to be taxed as a Real Estate Investment Trust under the provisions of Sections 856-860 of the Internal Revenue Code, as amended. Accordingly, FREIT Maryland does not pay federal income tax on income whenever income distributed to stockholders is equal to at least 90% of real estate investment trust taxable income. Further, FREIT Maryland pays no federal income tax on capital gains distributed to stockholders. FREIT Maryland is subject to federal income tax on undistributed taxable income and capital gains. FREIT Maryland may make an annual election under Section 858 of the Internal Revenue Code to apply part of the regular dividends paid in each respective subsequent year as a distribution for the immediately preceding year.

Recently issued accounting standards:

Recently issued accounting standards:

In March 2020 and January 2021, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) No. 2020-04 “Reference Rate Reform (ASC 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting”, and ASU 2021-01 “Reference Rate Reform (ASC 848): Scope” which provides temporary optional guidance to ease the potential burden in accounting for reference rate reform in contracts and other transactions that reference the London Interbank Offered Rate or another reference rate expected to be discontinued because of reference rate reform, if certain criteria are met. ASU 2020-04 and ASU 2021-01 are effective for all entities as of March 12, 2020 through December 31, 2022. We currently do not anticipate the need to modify our existing debt agreements as a result of reference rate reform in the current year, however if any modification is executed as a result of reference rate reform, the Company will elect the optional expedient available under ASU 2020-04 and ASU 2021-01, which allows entities to account for the modification as if the modification was not substantial. We will disclose the nature of and reason for electing the optional expedient in each interim and annual financial statement period if and when applicable through December 31, 2022.

Principles of consolidation:

Principles of consolidation:

The consolidated financial statements include the accounts of FREIT Maryland and the following subsidiaries in which FREIT Maryland has a controlling financial interest, including two LLCs in which FREIT Maryland is the managing member with a 40% ownership interest:

Subsidiary	Owning Entity		% Ownership		Year Acquired/Organized
Westwood Hills, LLC		FREIT Maryland		40%		1994
Wayne PSC, LLC		FREIT Maryland		40%		2002
Damascus Centre, LLC		FREIT Maryland		70%		2003
Grande Rotunda, LLC		FREIT Maryland		60%		2005
WestFREIT, Corp		FREIT Maryland		100%		2007
FREIT Regency, LLC		FREIT Maryland		100%		2014
Station Place on Monmouth, LLC		FREIT Maryland		100%		2017
Berdan Court, LLC		FREIT Maryland		100%		2019

The consolidated financial statements include 100% of each subsidiary’s assets, liabilities, operations and cash flows, with the interests not owned by FREIT Maryland reflected as "noncontrolling interests in subsidiaries”. All significant intercompany accounts and transactions have been eliminated in consolidation.

Investment in tenancy-in-common:

Investment in tenancy-in-common:

On February 28, 2020, FREIT Maryland reorganized its subsidiary S and A Commercial Associates Limited Partnership (“S&A”) from a partnership into a tenancy-in-common form of ownership (“TIC”). Prior to this reorganization, FREIT Maryland owned a 65% partnership interest in S&A, which owned 100% of the Pierre Towers property located in Hackensack, New Jersey through its 100% interest in Pierre Towers, LLC. Accordingly, FREIT Maryland consolidated the financial statements of S&A and its subsidiary to include 100% of the subsidiary’s assets,

76

liabilities, operations and cash flows with the interest not owned by FREIT Maryland reflected as “noncontrolling interests in subsidiary” and all significant intercompany accounts and transactions were eliminated in consolidation.

Pursuant to the TIC agreement, FREIT Maryland ultimately acquired a 65% undivided interest in the Pierre Towers property which was formerly owned by S&A. Based on the guidance of Accounting Standards Codification (“ASC”) 810, “Consolidation”, FREIT Maryland’s investment in the TIC is accounted for under the equity method of accounting. While FREIT Maryland’s effective ownership percentage interest in the Pierre Towers property remained unchanged after the reorganization to a TIC, FREIT Maryland no longer had a controlling interest as the TIC is now under joint control. (See Note 3)

Reclassification:

Reclassification:

Certain prior year cash flow line items have been reclassified to conform to the current year presentation.

Use of estimates:

Use of estimates:

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates.

Cash and cash equivalents:

Cash and cash equivalents:

Financial instruments that potentially subject FREIT Maryland to concentrations of credit risk consist primarily of cash and cash equivalents. FREIT Maryland considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. FREIT Maryland maintains its cash and cash equivalents in bank and other accounts, the balances of which, at times, may exceed federally insured limits.

Real estate development costs:

Real estate development costs:

It is FREIT Maryland’s policy to capitalize pre-development costs, which generally include legal and other professional fees and other directly related third-party costs. Real estate taxes and interest costs incurred during the development and construction phases are also capitalized. FREIT Maryland ceases capitalization of these costs when the project or portion thereof becomes operational, or when construction has been postponed. In the event of a postponement, capitalization of these costs will recommence once construction on the project resumes.

Depreciation:

Depreciation:

Real estate and equipment are depreciated on the straight-line method by annual charges to operations calculated to absorb costs of assets over their estimated useful lives.

Impairment of long-lived assets:

Impairment of long-lived assets:

Impairment losses on long-lived assets, such as real estate and equipment, are recognized when events or changes in circumstances indicate that the undiscounted cash flows estimated to be generated by such assets are less than their carrying value and, accordingly, all or a portion of such carrying value may not be recoverable. Impairment losses are then measured by comparing the fair value of assets to their carrying amounts. There were no impairments of long-lived assets for the fiscal year ended October 31, 2021. In Fiscal 2020, Cobb Theatre, an anchor tenant movie theatre at the Rotunda retail property filed for bankruptcy and rejected its lease at the Rotunda property as of June 30, 2020. In the fourth quarter of Fiscal 2020, management determined that it would be unable to re-let the space on similar terms and as such tenant improvements in the amount of approximately $7.3 million (with a consolidated impact to FREIT Maryland of approximately $4.4 million) related to Cobb Theatre were deemed impaired and written off. (See Note 16) For the fiscal year ended October 31, 2019 there were no impairments of long-lived assets.

Deferred charges:

Deferred charges:

Deferred charges consist primarily of leasing commissions which are amortized on the straight-line method over the terms of the applicable leases.

Debt issuance costs:

Debt issuance costs:

Debt issuance costs are amortized on the straight-line method by annual charges to income over the terms of the mortgages. Amortization of such costs is included in interest expense and approximated $1,109,000, $1,089,000 and $1,139,000 in Fiscal 2021, 2020 and 2019, respectively. Unamortized debt issuance costs are a direct deduction from mortgages payable on the consolidated balance sheets.

Revenue recognition:

Revenue recognition:

Income from leases is recognized on a straight-line basis regardless of when payment is due. Lease agreements between FREIT Maryland and commercial tenants generally provide for additional rentals and reimbursements for their proportionate share of real estate taxes, insurance, common area maintenance charges and may include percentage of tenants' sales in excess of specified volumes. Percentage rents are generally included in income when reported to FREIT Maryland when earned, or ratably over the appropriate period.

Interest rate cap and swap contracts:

Interest rate cap and swap contracts:

FREIT Maryland utilizes derivative financial instruments to reduce interest rate risk. FREIT Maryland does not hold or issue derivative financial instruments for trading purposes. FREIT Maryland recognizes all derivatives as either

assets or liabilities in the consolidated balance sheets and measures those instruments at fair value. Changes in fair value of those instruments, which qualify as cash flow hedges, are reported in other comprehensive income. (See Note 6)

Advertising:

Advertising:

FREIT Maryland expenses the cost of advertising and promotions as incurred. Advertising costs charged to operations amounted to approximately $421,000, $297,000 and $281,000 in Fiscal 2021, 2020 and 2019, respectively.

Stock-based compensation:

Stock-based compensation:

FREIT Maryland has a stock-based compensation plan that was approved by FREIT Maryland’s Board of Directors (the “Board”), and ratified by FREIT Maryland’s stockholders. Stock based awards are accounted for based on their grant-date fair value (see Note 10).