Organization and Significant Accounting Policies

12 Months Ended

Oct. 31, 2023

Organization and Significant Accounting Policies [Abstract]

Organization and significant accounting policies

Note 1 - Organization and significant accounting policies:

Organization:

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

FREIT is engaged in owning residential and commercial income producing properties located in New Jersey and New York. FREIT 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 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 pays no federal income tax on capital gains distributed to stockholders. FREIT is subject to federal income tax on undistributed taxable income and capital gains. FREIT 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:

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 the recently deferred date of December 31, 2024. We currently do not anticipate the need to modify our existing debt agreements as a result of reference rate reform, 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, 2024.

Principles of consolidation:

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

Subsidiary	Owning Entity		% Ownership		Year Acquired/Organized
Westwood Hills, LLC		FREIT		40%		1994
Wayne PSC, LLC		FREIT		40%		2002
Damascus Centre, LLC		FREIT		70%		2003
Grande Rotunda, LLC		FREIT		60%		2005
WestFREIT, Corp		FREIT		100%		2007
FREIT Regency, LLC		FREIT		100%		2014
Station Place on Monmouth, LLC		FREIT		100%		2017
Berdan Court, LLC		FREIT		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 reflected as "noncontrolling interests in subsidiaries”. All significant intercompany accounts and transactions have been eliminated in consolidation.

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. 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 Accounting Standards Codification (“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. (See Note 3)

Use of estimates:

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Cash and cash equivalents:

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

Investments in U.S. Treasury securities:

FREIT invests in short-term Treasury bills and Treasury notes (collectively “Treasury securities”) issued by the U.S. Treasury Department and backed by the U.S. Government. Treasury bills yield no interest, are issued at a discount to the redemption price and pay interest at maturity based on the discount to the redemption price. Treasury notes are similar to Treasury bills except they generally have a longer maturity (between two and ten years) and pay interest semi-annually. We classified investments in the U.S. Treasury securities with maturities greater than 90 days as available-for-sale investments. We use quoted market prices to determine the fair value of these investments. (See Note 6)

Real estate development costs:

It is FREIT’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 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:

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 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 years ended October 31, 2023, 2022 and 2021.

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 are amortized on the straight-line method (which approximates the effective interest method) by annual charges to income over the terms of the mortgages. Amortization of such costs is included in interest expense and approximated $509,000, $971,000 and $1,109,000 in Fiscal 2023, 2022 and 2021, respectively. Unamortized debt issuance costs are a direct deduction from mortgages payable on the consolidated balance sheets.

Revenue recognition:

Income from leases is recognized on a straight-line basis regardless of when payment is due. Lease agreements between FREIT 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 when earned, or ratably over the appropriate period.

Interest rate cap and swap contracts:

FREIT utilizes derivative financial instruments to reduce interest rate risk. FREIT does not hold or issue derivative financial instruments for trading purposes. FREIT 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:

FREIT expenses the cost of advertising and promotions as incurred. Advertising costs charged to operations amounted to approximately $287,000, $234,000 and $421,000 in Fiscal 2023, 2022 and 2021, respectively.

Stock-based compensation:

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

Correction of previously issued “unaudited” quarterly financial statements:

FREIT is adjusting its previously issued “unaudited” quarterly financial statements for the correction of a material error with respect to the previous classification of investments in U.S. Treasury securities with maturities greater than 90 days as cash equivalents for the year ended October 31, 2023. FREIT identified that for each of the prior quarterly reporting periods the Company had incorrectly included investments in U.S. Treasury securities with maturities greater than 90 days in both the line item “Cash and cash equivalents” on the condensed consolidated balance sheet and within the condensed consolidated statement of cash flows. In accordance with U.S. GAAP, any investment with a maturity greater than 90 days is not classified as a cash equivalent. As such, in accordance with Accounting Standards Codification (“ASC”) Topic 320, “Investments – Debt Securities”, FREIT has classified these debt security investments with maturities greater than 90 days to available for sale securities and recorded them at fair value. Any changes in the value of these securities are recorded as an unrealized gain or loss in other comprehensive income. At maturity, the realized gain or loss related to these investments is recognized in investment income in the consolidated statement of income.

The Company evaluated the effects of this error on its previously issued consolidated financial statements as of and for the years ended October 31, 2022 and 2021 and the previously issued condensed consolidated financial statements for the quarterly reporting periods within the year ended October 31, 2023 in accordance with the guidance in ASC Topic 250, “Accounting Changes and Error Corrections,” ASC Topic 250-10-S99-1, “Assessing Materiality,” and ASC Topic 250-10-S99-2, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements,” and concluded there was no impact to the consolidated financial statements as of and for the years ended October 31, 2022 and 2021. The impact to the previously issued condensed consolidated financial statements for the quarterly reporting periods within the year ended October 31, 2023 was deemed material resulting in the need to restate these prior quarterly reporting periods as reflected below. Corrections made to each affected quarterly reporting period within the fiscal year ended October 31, 2023, are as follows:

Condensed Consolidated Balance Sheets:
(In thousands)	January 31, 2023				April 30, 2023				July 31, 2023
	As Reported		As Restated		As Reported		As Restated		As Reported		As Restated
Cash and cash equivalents	$	37,187	$	31,514	$	35,717	$	18,633	$	38,134	$	17,757
Investments in U.S. Treasury securities available-for-sale	$	—	$	5,712	$	—	$	17,246	$	—	$	20,526
Accounts receivable, net	$	621	$	582	$	638	$	476	$	610	$	461
Other Assets	$	126,721	$	126,721	$	126,345	$	126,345	$	122,104	$	122,104
Total Assets	$	164,529	$	164,529	$	162,700	$	162,700	$	160,848	$	160,848

Condensed Consolidated Statements of Cash Flows:
(In thousands)	January 31, 2023						April 30, 2023						July 31, 2023
	As Reported			As Restated			As Reported			As Restated			As Reported			As Restated
Operating activities:
Accreted interest on investment in U.S. Treasury securities	$	—		$	(39	)	$	—		$	(162	)	$	—		$	(154	)
Change in accounts receivable, prepaid expenses & other assets	$	97		$	136		$	(20	)	$	142		$	248		$	397
Net cash (used in) provided by operating activities	$	(862	)	$	(862	)	$	308		$	308		$	1,883		$	1,878
Investing activities:
Purchase of U.S. Treasury securities	$	—		$	(5,673	)	$	—		$	(17,084	)	$	—		$	(31,752	)
Proceeds from maturities of U.S. Treasury securities	$	—		$	—		$	—		$	—		$	—		$	11,380
Net cash used in investing activities	$	(354	)	$	(6,027	)	$	(1,432	)	$	(18,516	)	$	(1,748	)	$	(22,120	)
Cash, cash equivalents and restricted cash	$	45,519		$	39,846		$	44,351		$	27,267		$	43,389		$	23,012