Investment in tenancy-in-common

9 Months Ended

Jul. 31, 2023

Investment in tenancy-in-common [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 $18.2 million and $18.8 million at July 31, 2023 and October 31, 2022, respectively. For the nine and three months ended July 31, 2023, FREIT recognized a loss on investment in TIC of approximately $231,000 and $43,000, respectively, in the accompanying condensed consolidated statements of operations. For the nine and three months ended July 31, 2022, FREIT recognized a loss on investment in TIC of approximately $99,000 and a gain on investment in TIC of approximately $57,000, in the accompanying condensed consolidated statements of income.

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 $313,000 and $105,000 for the nine and three months ended July 31, 2023, respectively, and $298,000 and $101,000 for the nine and three months ended July 31, 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. Such commissions were charged to operations and amounted to approximately $51,000 for both the nine and three months ended July 31, 2023 and $40,000 for both the nine and three months ended July 31, 2022.

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

	July 31,		October 31,
	2023		2022
	(In Thousands of Dollars)
Real estate, net	$	74,547	$	76,042
Cash and cash equivalents		2,034		2,051
Tenants' security accounts		463		454
Receivables and other assets		502		583
Total assets	$	77,546	$	79,130
Mortgages payable, net of unamortized debt issuance costs	$	48,799	$	49,425
Accounts payable and accrued expenses		126		178
Tenants' security deposits		472		462
Deferred revenue		184		145
Equity		27,965		28,920
Total liabilities & equity	$	77,546	$	79,130
FREIT's investment in TIC (65% interest)	$	18,177	$	18,798

The following table summarizes the statements of operations of the Pierre Towers property for the nine and three months ended July 31, 2023 and 2022, accounted for by the equity method:

	Nine Months Ended July 31,						Three Months Ended July 31,
	2023			2022			2023			2022
	(In Thousands of Dollars)						(In Thousands of Dollars)
Revenue	$	6,196		$	5,990		$	2,100		$	2,067
Operating expenses		3,700			3,307			1,215			1,032
Depreciation		1,655			1,634			554			547
Operating income		841			1,049			331			488
Interest expense including amortization of deferred financing costs		1,196			1,201			397			400
Net (loss) income	$	(355	)	$	(152	)	$	(66	)	$	88
FREIT's (loss) income on investment in TIC (65% interest)	$	(231	)	$	(99	)	$	(43	)	$	57