Investment in tenancy-in-common

12 Months Ended

Oct. 31, 2022

Equity Method Investments and Joint Ventures [Abstract]

Investment in tenancy-in-common

Note 3 – Investment in tenancy-in-common:

On February 28, 2020, FREIT reorganized S&A from a partnership into a TIC. Prior to this reorganization, FREIT 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 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 is accounted for under the equity method of accounting. While FREIT’s effective ownership percentage interest in the Pierre Towers property remained unchanged after the reorganization to a TIC, FREIT no longer had 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 (as of February 28, 2020) was not the result of a nonreciprocal transfer to owners, FREIT recognized a gain on deconsolidation in the amount of approximately $27.7 million in the accompanying consolidated statement of income for the fiscal year ended October 31, 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.

FREIT’s investment in the TIC was approximately $18.8 million, $19.4 million and $20.1 million at October 31, 2022, 2021 and 2020, respectively, with a loss on investment of approximately $228,000, 295,000 and $202,000, respectively, in the accompanying consolidated statements of income for the fiscal years ended October 31, 2022, 2021 and 2020, respectively.

Hekemian & Co. manages the Pierre Towers property pursuant to a management agreement between the owners of the TIC and Hekemian & Co. dated as of February 28, 2020, which was for an initial term of one (1) year and which renews for successive one (1) year terms unless either party gives written notice of termination to the other party at least sixty (60) days prior to the end of the then-current term. The management agreement will renew for a successive one (1) year term on February 28, 2023.

The management agreement requires the payment of management fees equal to 5% of rents collected. Management fees, charged to operations, were approximately $402,000 and $375,000 for the fiscal years ended October 31, 2022 and 2021, respectively, and $241,000 for the period from February 28, 2020 through October 31, 2020. Hekemian & Co. management fees outstanding at October 31, 2022 and 2021 were approximately $35,100 and $32,500, respectively. The Pierre Towers property also uses the resources of the Hekemian & Co. insurance department to secure various insurance coverages for its property. Hekemian & Co. is paid a commission for these services. Such commissions, charged to operations, were approximately $40,000 and $51,000 for the fiscal years ended October 31, 2022 and 2021, respectively, and $26,000 for the period from February 28, 2020 through October 31, 2020.

The following table summarizes the balance sheets of the Pierre Towers property as of October 31, 2022 and 2021, accounted for by the equity method:

	October 31,		October 31,
	2022		2021
	(In Thousands of Dollars)
Real estate, net	$	76,042	$	78,023
Cash and cash equivalents		2,051		1,338
Tenants' security accounts		454		484
Receivables and other assets		583		510
Total assets	$	79,130	$	80,355
Mortgages payable, net of unamortized debt issuance costs	$	49,425	$	49,691
Accounts payable and accrued expenses		178		261
Tenants' security deposits		462		484
Deferred revenue		145		99
Equity		28,920		29,820
Total liabilities & equity	$	79,130	$	80,355
FREIT's investment in TIC (65% interest)	$	18,798	$	19,383

The following table summarizes the statements of operations of the Pierre Towers property for the fiscal years ended October 31, 2022 and 2021 and for the period from February 28, 2020 through October 31, 2020, accounted for by the equity method:

							For the period from
	Year Ended			Year Ended			February 28, 2020
	October 31, 2022			October 31, 2021			through October 31, 2020
	(In Thousands of Dollars)
Revenues	$	8,028		$	7,627		$	4,981
Operating expenses		4,594			4,311			2,786
Depreciation		2,183			2,166			1,435
Operating income		1,251			1,150			760
Interest expense including amortization
of deferred financing costs		1,601			1,604			1,070
Net loss	$	(350	)	$	(454	)	$	(310	)
FREIT's loss on investment in TIC (65% interest)	$	(228	)	$	(295	)	$	(202	)