Investment in tenancy-in-common

6 Months Ended

Apr. 30, 2023

Equity Method Investments and Joint Ventures [Abstract]

Investment in tenancy-in-common

Note 5 – Investment in tenancy-in-common:

On February 28, 2020, FREIT 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 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. 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 Accounting Standards Codification 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.

FREIT’s investment in the TIC was approximately $18.6 million and $18.8 million at April 30, 2023 and October 31, 2022, respectively. For the six and three months ended April 30, 2023, FREIT recognized a loss on investment in TIC of approximately $188,000 and $121,000, respectively, in the accompanying condensed consolidated statements of income. For the six and three months ended April 30, 2022, FREIT recognized a loss on investment in TIC of approximately $156,000 and $32,000, in the accompanying condensed consolidated statements of operations.

Hekemian & Co., Inc. (“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 renewed for a successive one (1) year term on February 28, 2023 and will expire on February 28, 2024.

The management agreement requires the payment of management fees equal to 5% of rents collected. Management fees, charged to operations, were approximately $208,000 and $106,000 for the six and three months ended April 30, 2023, respectively, and $197,000 and $99,000 for the six and three months ended April 30, 2022, 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. There were no such commissions, charged to operations, for the six and three months ended April 30, 2023 and 2022.

The following table summarizes the balance sheets of the Pierre Towers property as of April 30, 2023 and October 31, 2022, accounted for by the equity method:

	April 30,		October 31,
	2023		2022
	(In Thousands of Dollars)
Real estate, net	$	75,065	$	76,042
Cash and cash equivalents		2,360		2,051
Tenants' security accounts		485		454
Receivables and other assets		648		583
Total assets	$	78,558	$	79,130
Mortgages payable, net of unamortized debt issuance costs	$	49,080	$	49,425
Accounts payable and accrued expenses		211		178
Tenants' security deposits		489		462
Deferred revenue		147		145
Equity		28,631		28,920
Total liabilities & equity	$	78,558	$	79,130
FREIT's investment in TIC (65% interest)	$	18,610	$	18,798

The following table summarizes the statements of operations of the Pierre Towers property for the six and three months ended April 30, 2023 and 2022, accounted for by the equity method:

	Six Months Ended April 30,						Three Months Ended April 30,
	2023			2022			2023			2022
	(In Thousands of Dollars)						(In Thousands of Dollars)
Revenue	$	4,096		$	3,923		$	2,027		$	1,969
Operating expenses		2,485			2,275			1,263			1,074
Depreciation		1,101			1,087			551			545
Operating income		510			561			213			350
Interest expense including amortization of deferred financing costs		799			801			399			400
Net loss	$	(289	)	$	(240	)	$	(186	)	$	(50	)
FREIT's loss on investment in TIC (65% interest)	$	(188	)	$	(156	)	$	(121	)	$	(32	)