Management agreement, fees and transactions with related party

9 Months Ended

Jul. 31, 2023

Management agreement, fees and transactions with related party [Abstract]

Management agreement, fees and transactions with related party

Note 8 - Management agreement, fees and transactions with related party:

Hekemian & Co. currently manages all of the properties owned by FREIT and its affiliates, except for the office building at the Rotunda Property, which was sold on December 30, 2021 and was formerly managed by an independent third party management company. The management agreement between FREIT and Hekemian & Co. dated as of November 1, 2001 (“Management Agreement”) has been renewed and will expire on October 31, 2025. The Management Agreement is automatically renewed for successive periods of two years unless either party gives not less than six (6) months prior notice of non-renewal.

The Management Agreement requires the payment of management fees equal to 4% to 5% of rents collected. Such fees charged to operations were approximately $1,002,000 and $1,108,000 for the nine months ended July 31, 2023 and 2022, respectively, and $343,000 and $318,000 for the three months ended July 31, 2023 and 2022, respectively. In addition, the Management Agreement provides for the payment to Hekemian & Co. of leasing commissions, as well as the reimbursement of certain operating expenses, such as payroll and insurance costs, incurred on behalf of FREIT. Such commissions and reimbursements amounted to approximately $477,000 and $515,000 for the nine months ended July 31, 2023 and 2022, respectively, and $155,000 and $167,000 for the three months ended July 31, 2023 and 2022, respectively. FREIT also uses the resources of the Hekemian & Co. insurance department to secure various insurance coverages for its properties and subsidiaries. Hekemian & Co. is paid a commission for these services. Such commissions, charged to operations, were approximately $166,000 and $164,000 for the nine months ended July 31, 2023 and 2022, respectively, and $101,000 and $105,000 for the three months ended July 31, 2023 and 2022, respectively.

From time to time, FREIT engages Hekemian & Co., or certain affiliates of Hekemian & Co., to provide additional services, such as consulting services related to development, property sales and financing activities of FREIT. Separate fee arrangements are negotiated between Hekemian & Co. and FREIT with respect to such additional services. Such fees incurred for the nine and three months ended July 31, 2023 were approximately $180,000 and $159,000, respectively, and for the nine and three months ended July 31, 2022 were approximately $6,388,000 and $94,000, respectively. Fees incurred during Fiscal 2023 related to commissions to Hekemian & Co. for the following: $129,000 for the additional proceeds received from the post-closing rent escrow for the sale of the Rotunda Property; $20,000 for the additional proceeds received from the post-closing rent escrow for the sale of the Westridge Square Property; $10,000 for the additional proceeds received from the post-closing rent escrow for the sale of the Damascus Property; and $21,000 for the modification and extension of the loan on the Westwood Plaza property. Fees incurred during Fiscal 2022 related to commissions to Hekemian & Co. for the following: $4,777,000 for the sale of the Rotunda Property; $917,000 for the sale of the Damascus Property; $525,000 for the sale of the Westridge Square Property; $94,000 for the refinancing of the loan on the Preakness Shopping Center; and $75,000 for the refinancing of the loan on the Boulders property. The commissions related to the sale of the Rotunda Property, the Damascus Property and the Westridge Square Property were charged against the gain on sale of the Maryland Properties (See Note 7) in the accompanying condensed consolidated statement of operations for the nine and three months ended July 31, 2023 and 2022. The commissions for the refinancing of the loan on the Boulders property and on the Preakness Shopping Center and the modification and extension of the loan on the Westwood Plaza property were accounted for as deferred mortgage costs and included in the unamortized debt issuance costs in the accompanying condensed consolidated balance sheets as of July 31, 2023 and October 31, 2022.

The Management Agreement provides for a termination fee (“Termination Fee”) in the event of a termination by FREIT without cause and a termination fee of 1.25 times the Termination Fee if the Management Agreement terminates following a merger or acquisition of FREIT (the “M&A Termination Fee”). On March 9, 2023, the Board approved an amendment to the Management Agreement (the “Second Amendment”) which provides, among other things, that the M&A Termination Fee shall be increased from 1.25 times the Termination Fee to 2.5 times the Termination Fee.

Robert S. Hekemian, Jr., Chief Executive Officer, President and a Director of FREIT, is the Chief Executive Officer of Hekemian & Co. David B. Hekemian, a Director of FREIT, is the President of Hekemian & Co. Allan Tubin, Chief Financial Officer and Treasurer of FREIT, is the Chief Financial Officer of Hekemian & Co.

Director fee expense and/or executive compensation (including interest, dividends and stock awards) incurred by FREIT for the nine months ended July 31, 2023 and 2022 was approximately $479,000 and $429,000, respectively, for Robert S. Hekemian, Jr., $32,000 and $30,000, respectively, for Allan Tubin and $61,000 and $43,000, respectively, for David Hekemian. Director fee expense and/or executive compensation (including interest, dividends and stock awards) incurred by FREIT for the three months ended July 31, 2023 and 2022 was approximately $165,000 and $150,000, respectively, for Robert S. Hekemian, Jr., $11,000 and $10,000, respectively, for Allan Tubin and $15,000 and $13,000, respectively, for David Hekemian (See Notes 13 and 14). Such costs are included within operating expenses on the accompanying condensed consolidated statements of operations.